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AICPA v. AFFINITY CARD

July 16, 1998

THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, Plaintiff,
v.
AFFINITY CARD, INC., Defendant.



The opinion of the court was delivered by: SCHEINDLIN

OPINION AND ORDER

 SHIRA A. SCHEINDLIN, U.S.D.J.:

 Plaintiff, The American Institute of Certified Public Accountants ("AICPA"), filed a complaint sounding in breach of contract against defendant, Affinity Card, Inc. ("Affinity"), on March 24, 1998. An affidavit of service was filed on April 7, 1998. The defendant did not move or answer in the time permitted, and the plaintiff applied for a default judgment pursuant to Fed. R. Civ. P. 55 and Local Civil Rule 55.1. On May 11, 1998, a default judgment was entered against the defendant. The defendant now moves pursuant to Fed. R. Civ. P. 55(c) and 60(b)(4) to vacate the judgment of default as void for lack of personal jurisdiction due to ineffective service of process. For the reasons stated below, the motion is granted.

 I. Background

 This action arises out of a tripartite contract entered into on November 5, 1992 by the plaintiff, defendant, and Marine Midland Bank. See Complaint at P 5. The contract established a Visa credit card marketed to AICPA members with Affinity's promotional assistance and issued by Marine Midland. AICPA and Affinity are entitled to a share in the fees collected from the program's participants. See id. at PP 5, 7. The plaintiff alleges that the defendant has improperly withheld information concerning these fees and has failed to make payments as obligated. See id. at P 9.

 The plaintiff attempted service upon the defendant on March 30, 1998. Peter Murphy, a professional process server, handed the summons and complaint to one Patrick McDonald at Affinity's principal place of business in Wellesley, Massachusetts. See Affidavit of Peter Murphy in Support of Motion to Vacate Default Judgment ("Murphy Aff.") at PP 1-8. The plaintiff subsequently filed an affidavit of service that identified McDonald as Assistant Vice-president of Affinity. McDonald, however, is not employed by Affinity. He is the Assistant Vice-President of Primecard Corporation ("Primecard").

 Affinity shares a suite of offices with three other companies, including Primecard. See Affidavit of Greg Miller (President and CEO, Affinity) in Support of Motion to Vacate Default Judgment ("Miller Aff.") at P 15. The four companies share a receptionist's area, but the most significant link joining them is Greg Miller, president, treasurer, and at least a partial owner of all. See id. at PP 2, 11.

 According to the plaintiff, Murphy entered the office and was greeted by McDonald at the receptionist's area. See Murphy Aff. at P 3. He asked McDonald "if Gregory Miller, Affinity Card's president, was there." Id. at P 3. After being informed that Miller was out, he told McDonald that he had some important legal papers for Affinity Card and Miller, and asked whether there was anyone there that could accept the papers for Affinity Card. See id. at P 4. McDonald said he could accept the papers and would make sure Miller received them that afternoon. See id. Murphy then showed the summons and complaint to McDonald and asked for his name and title. See id. at P 5. McDonald said he was Assistant Vice-President, and Murphy assumed that McDonald meant Assistant Vice President of Affinity. See id. After that exchange, Murphy handed the summons and complaint to McDonald. See id. He is not certain if the documents were contained in an envelope as he handed them over, but is certain that if they were, he would have first shown them to McDonald. See id.

 The defendant's version of the events is slightly different. The defendant contends that after McDonald identified himself as Assistant Vice-President, Murphy said "that will do," or words to that effect, and handed over a sealed white envelope addressed to Miller. See Affidavit of Patrick McDonald (Assistant Vice-President, Primecard) in Support of Motion to Vacate Default Judgment("McDonald Aff.") at P 3. According to the defendant, Murphy did ask for Miller, but never asked McDonald if he could accept service for Affinity Card or Miller, never indicated the nature or purpose of the delivery, and never showed the documents to McDonald. See id. at PP 3, 4. McDonald placed the sealed, unopened envelope in Miller's box later that day. See id.

 II. Discussion

 Defendant now moves for an order vacating the default judgment pursuant to Federal Rules of Civil Procedure 55(c) and 60(b)(4). After the entry of a default judgment, Rule 55(c) grants a litigant the right to petition a court to vacate the judgment upon a showing of good cause and in accordance with Rule 60(b). See 10 Charles A. Wright et al., Federal Practice and Procedure ยง 2692 at 464 (2d ed. 1983). Subsection four of Rule 60(b) provides that a court may relieve a party from a final judgment if the judgment is void. See Fed. R. Civ. P. 60(b)(4). Other grounds for relief provided by Rule 60(b) include mistake, surprise, excusable neglect, newly discovered evidence, fraud, satisfaction, or any other justifying reason. See Fed. R. Civ. P. 60(b). A motion predicated on subsection four is unique, however, in that relief is not discretionary and a meritorious defense is not necessary as on motions made pursuant to other 60(b) subsections. See Covington Indus., Inc. v. Resintex A.G., 629 F.2d 730, 732 n. 3 (2d Cir. 1980).

 Valid service of process is a prerequisite to a district court's assertion of personal jurisdiction over a defendant. See Omni Capital Int'l v. Rudolf Wolff & Co., Ltd., 484 U.S. 97, 103, 98 L. Ed. 2d 415, 108 S. Ct. 404 (1987). A judgment entered against a party not subject to the personal jurisdiction of the court is a nullity. See Convington, 629 F.2d at 732. Hence, a judgment obtained by way of defective service is void for lack of personal jurisdiction and must be set aside as a matter of law. See Howard Johnson Int'l, Inc. v. Wang, 7 F. Supp. 2d 336, 1998 U.S. Dist. LEXIS 7841, 1998 WL 273096 (S.D.N.Y. 1998).

 In a federal diversity action, service of process upon a corporation may be made pursuant to Fed. R. Civ. P. 4(h)(1), or pursuant to the law of either the state in which the district court sits, or in which service is effected. See Fed. R. Civ. P. 4(e)(1), 4(h)(1). The issue raised here is therefore straightforward: was service of process effective pursuant to Fed R. Civ. P. 4(h)(1), New York's long arm statute, or the laws of Massachusetts?

 Before analyzing the sufficiency of the attempted service, it should be noted that the Second Circuit has expressed on numerous occasions its "preference that litigation disputes be resolved on the merits, not by default." Cody v. Mello, 59 F.3d 13, 15 (2d Cir. 1995); accord Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993); Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981). Default judgments have been described as "the most severe sanction which the court may apply, and its use must be tempered by the careful exercise of judicial discretion to assure that its imposition is merited." Securities and Exch. Comm'n v. Management Dynamics, Inc., 515 F.2d 801, 814 (2d Cir. 1975) quoting Trans World Airlines, Inc. v. Hughes, 332 F.2d 602, 614 (2d Cir. 1964); accord Cody, 59 F.3d at 15. Although there is no judicial discretion when considering a jurisdictional question such as the sufficiency of process, when confronted with equally reliable but conflicting accounts, courts should resolve any doubts in favor of the party seeking relief under Rule 60(b). See Enron, 10 F.3d at 95; Sony Corp. v. Elm State Elec., Inc. 800 F.2d 317, 320 ...


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