103 F.R.D. 388 | S.D.N.Y. | 1984
MEMORANDUM OPINION AND ORDER
The case at bar is part of a complex set of securities fraud cases pending before this Court. The substance of the dispute is irrelevant to the present motion and thus does not bear repeating herein. It is important to note, however, that all motion practice on these cases, other than this motion, has been stayed by the Court, pending certain negotiations.
Presently in issue is plaintiffs’ claim for costs under the new
(C) A summons and complaint may be served upon a defendant of any class*390 referred to in paragraph (1) or (3) of subdivision (d) of this rule.
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(ii) by mailing a copy of the summons and .of the complaint (by first-class mail, postage prepaid) to the person to be served, together with two copies of a notice and acknowledgment conforming substantially to form 18-A and a return envelope, postage prepaid, addressed to the sender. If no acknowledgment of service under this subdivision of this rule is received by the sender within 20 days after the date of mailing, service of such summons and complaint shall be made under subparagraph (A) or (B) of this paragraph in the manner prescribed by subdivision (d)(1) or (d)(3).
(D) Unless good cause is shown for not dc.ing so the court shall order the payment of the costs of personal service by the person served if such person does not complete and return within 20 days after mailing, the notice and acknowledgment of receipt of summons.
Fed.R.Civ.P. 4(c)(2)(C-D).
Plaintiffs are suing approximately 400 people, all of whom are present or former partners in Fox & Co., a nationwide accounting firm. Plaintiffs allege that they served all defendants by mail in accordance with the new section of Rule 4. Only two of the 399 persons allegedly served returned the acknowledgment of service. Subsequently plaintiffs served 118 of the defendants pursuant to traditional service procedures.
Plaintiffs now move pursuant to Rule 4(c)(2)(D) for the cost of the personal service. Apparently, plaintiffs hope that an award of costs for the service of the 118 defendants will induce the other defendants to return their acknowledgments.
For the reasons stated below the Court finds that the application for costs is premature. Accordingly, the motion is denied with leave to renew at the appropriate time.
Discussion
At the outset it should be noted that the clear purpose of the new amendment to Rule 4 was one of simplé economy. The new provision was intended to dispense with the need for service by the United States Marshals, thus freeing the Marshals for other duty. H.R. 7154, 97th Cong., 1st Sess., 128 Cong.Rec.H. 9848 (1982), reprinted in 96 F.R.D. 117 (1983).
Under the rule as finally adopted, plaintiffs may now simply mail the summons and complaint, along with a pre-stamped acknowledgment to the defendant. Defendants are then directed to return the acknowledgment form. If a defendant fails to return the form, the plaintiff is required to serve defendant in accordance with traditional personal service methods.
Jurisdiction
Defendants argue against an award of costs on several grounds.
Plaintiffs argue that substantive and jurisdictional defenses are logically inconsistent with the spirit of the rule. They contend that Congress meant improper mailing or the like when it placed the “good cause” language in the rule.
Defendants point out that “[t]he validity of an order of a federal court depends upon the court having jurisdiction over both the subject matter and the parties.” Insurance Corp. of Ireland, Ltd. v. Compagnie Des Bauxites de Guinee, 456 U.S. 694, 701, 102 S.Ct. 2099, 2103, 72 L.Ed.2d 492 (1982). Plaintiffs counter this argument by stating that courts always have jurisdiction to determine their own jurisdiction. Stoll v. Gottlieb, 305 U.S. 165, 171, 59 S.Ct. 134, 137, 83 L.Ed. 104 (1938).
While plaintiffs’ point is undoubtedly true, it misses the mark. The instant motion is not to determine the personal jurisdiction of this Court. That question is only properly raised by a Rule 12 motion or by Answer to the Complaint. Because determination of the jurisdictional questions must await the lifting of the stay, the question raised by this motion is whether the court can award costs in the absence of a prior determination that the court has in personam jurisdiction.
Counsel for plaintiffs suggest that this Court’s holding in the related case of Northwestern National Bank of Minneapolis v. Fox & Co., et al., 588 F.Supp. 76 No. 83 Civ. 1535 (S.D.N.Y. May 14, 1984) resolved all jurisdictional questions.
The Court made it clear to all parties that it would not address the jurisdictional issues until the stay was lifted. If this Court were to decide to apply the Northwestern National Bank holding here, it would in effect be a decision on a jurisdiction issue. Moreover, counsel for the defendants points out that there are other questions as to personal jurisdiction, beyond the question of whether the Northwestern National Bank ease is applicable (e.g. the constitutionality of 15 U.S.C. § 78aa and whether defendants were in fact personally served.) See letter of Alvin M. Stein, dated August 27, 1984; see also supra note 2, at 5. In other words, even if the Court were prepared to make a ruling on the collateral application of the Northwestern National Bank case, it would be only a first step in deciding the question of
A judgment
Timing
Plaintiffs infer that today’s holding would do injury to the intended operation of Rule 4. They contend that the clear language of the rule requires that costs be awarded immediately. Moreover, they argue that without immediate assessment of costs the rule would lose its punitive effect.
The Court agrees with plaintiffs that in most circumstances costs under Rule 4 should be awarded early in the proceedings;
The Court believes that the logical time to determine a Rule 4 motion for costs is at the time the defendants must contest in personam jurisdiction or waive all objections to it. In other words, a Rule 4 motion is properly heard at the same time that a Rule 12(b)(2) motion must be made under Rule 12(h). Fed.R.Civ.P. 12(b), (h). Since defendants cannot raise the defense of lack of personal jurisdiction until the stay is lifted, plaintiffs must also wait. Of course if costs are eventually awarded the Court will consider granting interest from the date of this Order.
Accordingly, plaintiffs’ motion under Rule 4 is denied with leave to renew at the appropriate time.
It Is So Ordered.
. Rule 4(c)(2)(C-D) became effective on February 26, 1983. Because the relevant section of the rule is relatively new, there are virtually no cases addressing the question of what constitutes "good cause.” Nor is there any legislative history on point.
. Defendants argue that state service procedure is not available if the mail service fails. Professor Siegel acknowledges that this is an outstanding question. Siegel, Practice Commentary on Amendment of Federal Rule 4, 96 F.R.D. 88 (1983). In light of the disposition of this motion we need not reach a holding on this issue.
. In light of the Court's holding on the issue of personal jurisdiction, we need not address defendants’ other grounds or defendants’ objection to attorney’s fees as an element of cost. The Court recognizes, however, that as Professor Siegel points out, certain types of attorney's costs may be recoverable under Rule 4. See, Siegel, Practice Commentaries on F.R.C.P. Rule 4, 28 U.S.C.A. Fed.R.Civ.P. foil. Rule 4 (West Suppl.1984). To the extent the Court may have forclosed these costs at oral argument, the issue is now to be held open. The Court’s statement as to attorney’s fees was directed to the cost of litigating the instant motion, not the costs of preparing new process.
. Since this Court finds that the question of personal jurisdiction is unresolved and that in personam jurisdiction is a prerequisite to an award of cost under Rule 4, this Court need not reach the question of whether subject matter jurisdiction is also a prerequisite to those costs. Clearly a different set of considerations apply to the question of subject matter jurisdiction and the result also may well be different. We will leave that for the future.
. Attorneys for defendants argued that their clients had "good cause" not to acknowledge the service because acknowledgment might constitute an implicit waiver of jurisdictional defenses. This argument is clearly wrong. It confuses service with jurisdiction. Acknowledging service under Rule 4(c) does nothing more than place the parties in the same position as if the defendants had been personally served, which is the exact state the parties are in now.
. Letter of Alvin K. Hellerstein dated August 21, 1984.
. In the context of this motion an order to pay costs is, in effect, a judgment.
. The Court takes note of what Professor Siegel wrote on the subject:
Whether they include attorneys’ fees or not, costs under subparagraph (D) should, if otherwise warranted, be awardable to the plaintiff without regard to how he fares on the merits. Nor should the plaintiff’s application for the award have to abide the case's disposition on the merits.
Siegel, Practice Commentaries on F.R.C.P. Rule 4, 28 U.S.C.A. foll. Fed.R.Civ.P. Rule 4, 18, 38 (West Suppl.1984).