ROBINSON ENGINEERING COMPANY, LTD. PENSION PLAN AND TRUST and R. W. ROBINSON & ASSOCIATES COMPANY PROFIT SHARING PLAN, Plaintiffs-Appellees, v. MARK G. GEORGE, Defendant-Appellant.
No. 98-3685
United States Court of Appeals For the Seventh Circuit
Argued December 2, 1999--Decided August 3, 2000
Before Ripple, Kanne, and Diane P. Wood, Circuit Judges.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 88 C 1071--Charles R. Norgle, Sr., Judge.
Diane P. Wood, Circuit Judge. Robinson Engineering Co. Ltd. Pension Plan and Trust (Robinson) filed suit against Mark George (George) alleging that George defrauded Robinson out of nearly $1,000,000. Robinson claims that it eventually served George at his residence in Canada. George never showed up in the district court, however, and the court in due course entered a default judgment in Robinson‘s favor. Ten years later, asserting that he had never been served, that he had only recently discovered the existence of the judgment, and that the district court had never properly acquired personal jurisdiction over him, George filed a motion under
I
This case began more than ten years ago. On February 5, 1988, Robinson filed a complaint alleging that George, Timothy McDonald, and Canam Financial Group, Ltd. had defrauded Robinson out of nearly $1,000,000 through violations of the Organized Crime Control Act of 1970 (RICO),
No one served George on Randolph Street, but Robinson got wind of the fact that he could be found in Canada, and so it took steps to locate him there. On June 29, 1988, Robinson filed a return of service indicating that Canadian process server Jim Bangs had served George. (We note that this was not a timely filing under
The details of that alleged service reveal why George has brought the present action. Bangs reported that he first determined that George and McDonald resided in apartment 806 of a condominium development in Calgary. On May 4, 1988, he observed that George‘s automobile was parked in the basement of the condominium building. By speaking with the condominium development management, Bangs confirmed that George lived in apartment 806. Bangs then arranged with the inspection service coordinator of the development‘s property management company to serve a notice to inspect McDonald and George‘s apartment. On the morning of May 12, 1988, Bangs and the inspector went to the apartment and the inspector knocked on the door. When there was no answer, the inspector opened the door to the apartment and entered to conduct his inspection. Bangs remained in the hallway.
Bangs then saw a man whom the inspector identified as one of the apartment‘s tenants. Although it is clear that Bangs remained in the
On July 25, 1988, the district court entered a minute order of default judgment in favor of Robinson and scheduled a prove-up hearing for August 4, 1988. After the prove-up hearing, the court entered a default judgment in favor of Robinson for $959,198 plus costs. The three defendants were held jointly and severally liable.
Ten years later, on March 18, 1998, George alone moved to vacate the default judgment pursuant to
II
The abuse of discretion standard of review
George raises two alternative arguments for why service of process was defective: first, service was not proper, because abode service was not allowed under the then-applicable version of Rule 4; second, even if abode service was proper, Robinson failed to meet the requirements of that rule. Rule 4 was amended effective December 1, 1993. Service of process, however, is governed by the version of Rule 4 in effect at the time service was attempted. See Manufacturers Hanover Trust Co. v. Ponsoldt, 51 F.3d 938, 938 n.1 (11th Cir. 1995). We must therefore apply the 1988 version of the rule to this case, to which we refer as Rule 4 (1988).
Under Rule 4 (1988), the ordinary territorial limits of effective service were defined to be “anywhere within the territorial limits of the state in which the district court is held, and, when authorized by a statute of the United States or by these rules, beyond the territorial limits of that state.”
Following these authorities, we conclude that service in Canada was authorized at least for the claims under the Securities Act and the Securities Exchange Act. What of the other claims? The RICO claim arises out of the same nucleus of operative fact as the securities claims; it was therefore proper for the federal court to assert personal jurisdiction over George for it as well, under the idea of pendent personal jurisdiction. IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1056-57 (2d Cir. 1993) (applying doctrine of pendent personal jurisdiction to assert personal jurisdiction over related state law claims); Robinson, 484 F.2d at 555-56 (holding it was proper for district court to entertain pendent state law claims where
We turn then to the method of service that was used. The first question is which law or laws provided the authorized methods available to the court; next, we must consider whether the method used for George complied with that law. There are three possibilities: Illinois state law, the Federal Rules of Civil Procedure, or Canadian law (which in this case would be the provincial law of Alberta, Alberta Rules of Court, Alberta Regulation 390/68). George thinks that Rule 4(e) (1988) requires the exclusive use of state (here, Illinois) methods of service when a federal court is effecting service beyond the territorial limits of the state in which it is sitting. This is not, however, what the rule says. The first sentence of
Whenever a statute of the United States or an order of court thereunder provides for service of a summons, or of a notice, or of an order in lieu of summons upon a party not an inhabitant of or found within the state in which the district court is held, service may be made under the circumstances and in the manner prescribed by the statute or order, or, if there is no provision therein prescribing the manner of service, in a manner stated in this rule. (Emphasis added.)
The net result for George‘s case is that
Bangs‘s affidavit provides little information regarding the precise circumstances under which he served the summons. Most importantly, there is almost nothing to suggest that Bangs was reasonable in believing that the man he served resided in Apartment 806 or was McDonald. (Bangs himself did not think it was George, nor is there any other evidence supporting that possibility.) Bangs‘s affidavit is silent as to whether the man was exiting the apartment when served, entering the apartment, or just passing by in the hallway. Other sections of the affidavit do more to undercut Bangs‘s identification of the man than to confirm it. When Bangs asked the man if he was McDonald or George, the man responded “No.” Nothing in the affidavit or the record indicates that the man had any reason to suspect that Bangs was a process server and therefore lied to avoid being served. Moreover, Bangs describes the man as “5 foot 8 inches tall, dark thin balding hair, slight beard growth.” For what it is worth, this description does not match McDonald‘s description of himself at that time (two inches taller, with red hair and a full red beard) in the document he furnished to the court. (Despite the deficiencies of that document, the district court did not say that it was refusing to rely upon it.) Finally, Bangs‘s affidavit gives only the inspector‘s statement that the man was a tenant of the apartment as a basis for Bangs‘s belief that the man resided there. The inspector‘s statement, however, is hearsay, and it is not corroborated by any other facts provided in the affidavit. Even if hearsay statements may appear in affidavits, but see Wilson v. Stinnett, 96 B.R. 301, 303 n.4 (E.D. Cal. 1989) (refusing to consider affidavit stating service was mailed because it was inadmissible hearsay), courts look at the presence of hearsay in determining how to weigh the evidence contained in contradictory affidavits. See United States v. Watkins, 168 F.2d 883, 885 (2d Cir. 1948) (holding proof of court‘s jurisdiction over defendant insufficient when based solely on hearsay statements regarding person‘s residence); Computerland Corp. v. Batac, Inc., 1989 WL 47294, *3 (S.D.N.Y.) (discounting affidavit based upon hearsay assertions). Robinson provides no evidence to suggest that Bangs reasonably relied on the inspector‘s statement. It might have been possible to secure an affidavit from the inspector swearing that he witnessed Bangs give the documents to a resident of the apartment, or better yet to McDonald. Robinson might have obtained a photograph of McDonald and obtained Bangs‘s affidavit that this was the person he served, assuming that was true. Bangs could have waited to see if the person
Unfortunately, the district court did not explain why it chose to overlook these problems. In the initial entry of judgment, the district court concluded that McDonald and George were served and that “the service of process . . . is proper and sufficient under Rule 4 of the Federal Rules of Civil Procedure.” No reasons for that conclusion appear in the order. This does not necessarily mean that the court‘s initial decision to enter the default judgment in 1988 was wrong, given the fact that personal jurisdiction is sometimes tested in an adversarial proceeding only after the entry of such a judgment. See Venable v. Haislip, 721 F.2d 297, 300 (10th Cir. 1983) (holding evidentiary hearing regarding whether service was proper where court failed to determine if person who received summons was authorized to accept service for defendant); Hicklin v. Edwards, 226 F.2d 410, 413 & n.1 (8th Cir. 1955) (holding requirements of abode service not met where person who received summons was not a resident of the defendant‘s house); Hasenfus v. Corporate Air Services, 700 F.Supp. 58, 65-66 (D. D.C. 1988) (holding no proper abode service where summons left with someone believed to be a resident but who in fact was not); Scheerger v. Wiencek, 34 F.Supp. 805 (W.D. N.Y. 1940) (holding service insufficient where marshal‘s affidavit did not state where service was made or that person served was “of suitable age and discretion“). By the time the motion to set aside the default had been filed, however, the court had even more information, through George‘s own affidavit and McDonald‘s statement (despite its technical deficiencies, which may have been curable). Taken together, the glaring holes in Bangs‘s original affidavit and the additional information furnished by George and McDonald cast serious doubt on the question whether George was ever properly served.
In denying the motion to vacate the default judgment, the court decided that the requirements of Rule 4 (1988) were met because: (1) it found Bangs‘s account of service to be credible, (2) its independent investigation led it to believe that McDonald and George had reason to evade service, and (3) it found George‘s affidavits to be self-serving. There are several problems with this analysis. First, the court misconstrued Bangs‘s affidavit: the court somehow came to the conclusion that Bangs said that the man was standing “in” Apartment 806, whereas the affidavit actually says “I remained in the hallway and saw a white male. . . .” Second, the court‘s assumption that George was evading
In this case, the evidence does not show who the person Bangs served was. It might have been McDonald, but it equally might have been a third (unidentified) resident of the apartment, a guest, or a passerby. This is not enough to support a finding of proper service in a default judgment situation. Cf. Precision Etchings & Findings, Inc. v. LGP Gem, Ltd., 953 F.2d 21 (1st Cir. 1992) (holding process insufficient where summons was received by another occupant of the defendant‘s apartment building). Were George not moving to vacate the default judgment as void (for lack of personal jurisdiction), the fact that George waited five months after allegedly learning about the default judgment before filing his motion to vacate might have provided Robinson with a means of blocking George‘s motion to vacate the default judgment. See Zuelzke Tool & Eng. Co., Inc. v. Anderson Die Castings, Inc., 925 F.2d 226, 229 (7th Cir. 1991) (“The entry of a default judgment can be vacated under Rule 60(b) if a party shows (1) good cause for its default; (2) quick action to correct it; and (3) a meritorious defense.“). However, “under F[ed].
We have two conceivable ways of proceeding from here. One would be simply to order the district court to grant George‘s motion to set aside the default judgment and allow further proceedings to take place; the other would be to remand for an evidentiary hearing on the adequacy of the 1988 efforts to serve him. This is a close call, but in the end we have resolved it in favor of the latter approach for several reasons. First, if the 1988 service was indeed properly made, then the judgment the court entered is a proper one and it may be enforced in the United States (and perhaps abroad, depending on the view of the courts where George is located). Second, even now George has not agreed to waive service or to submit to the district court‘s jurisdiction; we understand his motion to set aside the default judgment as nothing more than that: he still wants the opportunity to contest the court‘s personal jurisdiction over him. He is certainly entitled to do so, but if there is any way to avoid starting this old case over from ground zero, it seems desirable to try to do so. It may turn out, given the time that has passed since Robinson attempted to serve George and the potential difficulty of locating and bringing to the hearing key witnesses who are citizens of another country (such as Bangs and Mr. Nauglar, the inspector present at the time of service), that the court cannot resolve this issue. In that case, it may still grant George‘s pending motion (because the burden of showing proper service is on Robinson) and allow Robinson now to attempt to perfect service on him. (Although George obviously has actual notice of the case by now, that is of course insufficient for service. See Swaim, 73 F.3d at 719; Mid-Continent Wood Products, Inc. v. Harris, 936 F.2d 297, 301 (7th Cir. 1991); see also Grand Entertainment Group, Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 492 (3d Cir. 1993) (“Notice to a defendant that he has been sued does not cure defective service, and an appearance for the limited purpose of objecting to service does not waive the technicalities of the rule governing service. . . . [A] motion that seeks to vacate an order for lack of proper service does not waive the defect in service.“).)