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Federal Trade Commission v. Pecon Software Ltd.

United States District Court, Second Circuit

August 7, 2013

PECON SOFTWARE LTD., et. al., Defendants.


PAUL A. ENGELMAYER, District Judge.

Plaintiff the Federal Trade Commission (the "FTC") moves for leave to effect service of documents, including the Summons and Complaint, by alternative means on defendants in the following five related cases: FTC v. Pecon Software Ltd., et al., No. 12 Civ. 7186; FTC v. Zeal IT Solutions Pvt Ltd., et. al., No. 12 Civ. 7188; FTC v. Lakshmi Infosoul Services Pvt Ltd., et. al., No. 12 Civ. 7191; FTC v. Marczak, et. al., No. 12 Civ. 7192; and FTC v. Finmaestros, LLC, et. al., No. 12 Civ. 7195. For the reasons that follow, the FTC's motion is granted in part and denied in part.

The FTC also requests that the Court retroactively deem valid the FTC's prior service, by email, of the Summons and Complaint on the defendants. That motion is denied.

I. Background

On September 24, 2012, the FTC brought these five related actions ex parte, each seeking a temporary restraining order ("TRO") and an order to show cause why a preliminary injunction should not be granted.[1] The FTC alleges that the defendants in these five actions operated similar schemes that tricked American consumers into spending money to fix non-existent problems with their computers. As alleged, these schemes were operated in large part out of call centers located in India. The FTC alleges that the defendants violated Section 5 of the FTC Act by deceiving consumers into purchasing the defendants' computer security or technical support services, and the FTC's Telemarketing Sales Rule ("TSR") by, inter alia, making unauthorized calls to consumers who had registered on the National Do Not Call Registry.

On September 25, 2012, this Court entered TROs in each of the five cases, which, inter alia, enjoined defendants' business practices and froze various assets of the defendants.

On September 27, 2012, the FTC submitted the Summons, Complaint, and related documents to the Indian Central Authority ("Central Authority") for service on all defendants, in accordance with Federal Rule of Civil Procedure 4(f)(1) and The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the "Hague Service Convention" or "Convention"). The FTC also sent these documents to all defendants by three alternative means: (1) by email to defendants' known email addresses; (2) by Federal Express ("FedEx"); and (3) by process server.

By October 5, 2012, FedEx had confirmed delivery for all defendants relevant here except Wahid Ali. The FedEx packages sent to Ali's street address came back as undeliverable. By October 3, 2012, a process server in India had personally delivered the Summons and Complaint to all defendants except for Wahid Ali and Pecon Software UK. The process server in India was unable to locate Ali and, thus, was unable to serve him. On October 23, 2012, the process server was able to locate and serve Pecon Software UK in London.

On October 9, 2012, this Court held a show-cause hearing as to why a Preliminary Injunction should not issue. None of the defendants in the five cases relevant here appeared for the hearing. That same day, this Court issued a preliminary injunction against all these defendants. To date, defendants have failed to comply with the terms of the preliminary injunction-they have not provided a financial accounting to the FTC, produced customer and product information, or repatriated foreign assets.

The Central Authority has not formally served any defendant pursuant to the Convention. In fact, on November 19, 2012, the Central Authority returned a box containing all of the service documents to the FTC. Due to an administrative oversight, however, the FTC did not realize that the Central Authority had returned the documents until April 26, 2013, at which point the FTC promptly brought this matter to the Court's attention. See No. 12 Civ. 7186, Dkt. 27, Ex. A (Declaration of Michael D. Panzera ("Panzera Decl.")) ¶ 17. The box returned by the Central Authority included a form explaining that the documents could not be served because, the "[f]ull address of the party and translation of the documents in the official language of requesting country wherever necessary may be provided in the summon/notice [ sic ]." Id., Att. A. Only one of the 23 separate boxes containing service packages for the various defendants had been opened by the Central Authority. Id. ¶ 19.

On April 29, 2013, the FTC emailed the Central Authority and twice called the number listed on the Hague Conference website for the Central Authority, but there was no response. Id. ¶ 20. Subsequently, the FTC called the number listed for the Ministry of Law and Justice and, after four calls, discovered that the number for the Central Authority on the Hague Conference site was incorrect. Id. After receiving a correct number, the FTC called that number and reached the contact person for the Central Authority, Suresh Chandra. Id. ¶ 21. Chandra explained that the Central Authority had been unable to serve the documents "at the address indicated." Id. ¶ 22. When asked whether the Central Authority did not deliver the documents because all the addresses were invalid, or because a single address was found to be invalid, prompting the return of the other 22 unopened packages, Chandra did not explain, and directed the FTC to look at the report included in the box of returned documents. Id. When informed that the box did not contain such a report, Chandra asked the FTC to call back the following day. Id.

On May 1, 2013, the FTC reached Chandra, after three calls. Id. ¶ 23. Chandra, again, would not or could not provide any guidance as to why the documents had been returned. Id. ¶ 24. Chandra stated that he did not have access to the relevant files and directed the FTC to read the report that had been included with the returned documents. Id. The FTC informed Chandra that no report had been included and requested that another copy be sent. Id. In response, Chandra said that he was "in a meeting" and hung up. Id. The FTC's attempts to contact R.K. Shujra, the Deputy Legal Advisor for the Central Authority, were also unsuccessful. Id. ¶¶ 23-24. Chandra informed the FTC that the Central Authority does not send e-mails, faxes, or make telephone calls, and only communicates by post, and that he would respond to the FTC's inquiries in "due course." Id. ¶ 23.

Despite the Central Authority's lack of assistance, in four of these five cases, at least one defendant has confirmed having received actual notice of this action. On October 9, 2012, Joel Dichter, an attorney based in New York, emailed the FTC stating that he represented the defendants in Pecon Software, Lakshmi, and Finmaestros, for settlement purposes only. To date, however, Mr. Ditcher has never entered an appearance with this Court. Additionally, the FTC asserts that on October 8, 2012, Wahid Ali, a defendant in Marczak, emailed the FTC to confirm receipt of the documents. See No. 12 Civ. 7192, Dkt. 45, at 3. The FTC also asserts that on September 27, 2012, Mahesh Shah, a defendant in Pecon Software, called the FTC to request that the FTC send all relevant documents to his provided email address. See No. 12 Civ. 7186, Dkt. 24, at 3, 7. The only defendants who have not confirmed actual notice are those in Zeal IT: The corporation Zeal IT Solutions Pvt. Ltd., and its registered officer, Kishore Ghosh, are both located in India and have, to date, not had any contact with the FTC.

On April 9, 2013, the FTC brought these motions, seeking authorization to serve defendants by email, and in some cases, Facebook. On May 7, 2013, after the FTC realized that the Central Authority had returned the service packages, the FTC filed a supplemental brief seeking an order deeming the FTC's earlier email service valid nunc pro tunc. See No. 12 Civ. 7188, Dkt. 26 ("FTC Supp. Br.").

II. Applicable Legal Standard

Under Federal Rule of Civil Procedure 4(f)(3), "a Court may fashion means of service on an individual in a foreign country, so long as the ordered means of service (1) is not prohibited by international agreement; and (2) comports with constitutional notions of due process." SEC v. Anticevic, No. 05 Civ. 6991 (KMW), 2009 WL 361739, at *3 (S.D.N.Y. Feb. 13, 2009) (citations omitted). Under Rule 4(f), service of process on foreign corporations may be made in the same manner as on individual defendants. See Fed.R.Civ.P. 4(h)(2).

"Service of process under Rule 4(f)(3) is neither a last resort nor extraordinary relief. It is merely one means among several which enables service of process on an international defendant." Madu, Edozie & Madu, P.C. v. SocketWorks Ltd. Nigeria, 265 F.R.D. 106, 115 (S.D.N.Y. 2010) (citation omitted). "The decision of whether to order service of process under Rule 4(f)(3) is committed to the sound discretion of the district court.'" United States v. Lebanese Canadian Bank, 285 F.R.D. 262, 266 (S.D.N.Y. 2012) (quoting Madu, 265 F.R.D. at 115); see also In re S. African Apartheid Litig., 643 F.Supp.2d 423, 433 (S.D.N.Y. 2009) ("A court is afforded wide discretion in ordering service of process under Rule 4(f)(3)." (citation omitted)); Antisevic, 2009 WL 361739, at *3 ("[Rule 4(f)(3)] provides the Court with flexibility and discretion empowering courts to fit the manner of service utilized to the facts and circumstances of the particular case." (citation omitted)).

"A plaintiff is not required to attempt service through the other provisions of Rule 4(f) before the Court may order service pursuant to Rule 4(f)(3), [but] [a] district court may nonetheless require parties to show that they have reasonably attempted to effectuate service on the defendant(s) and that the circumstances are such that the district court's intervention is necessary." Antisevic, 2009 WL 361739, at *3 (citation omitted) (emphasis in original); see also Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1015 (9th Cir. 2002) ("[T]he advisory notes [to Rule 4] suggest that in cases of urgency, ' Rule 4(f)(3) may allow the district court to order a special method of service, ' even if other methods remain incomplete or unattempted."); Madu, 265 F.R.D. at 115 ("[D]istrict courts may impose a threshold requirement for parties to meet before seeking the court's assistance." (citation omitted)).

III. Discussion

The FTC requests authorization to serve the specified defendants in these five cases by email and, in some instances, by Facebook message. The FTC also requests that its prior delivery of the Summons and Complaint to all ...

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