Summary
characterizing the McKinney rule as "merely a variation of the first-served defendant rule"
Summary of this case from Piacente v. State Univeristy of Ny. at BuffaloOpinion
Civil No. 01-1324-JE
November 16, 2001
Dennis B. Liggett, Salem, OR, Attorney for Plaintiff.
John A. Anderson, Anderson and Yamada, P.C., Portland, OR, Attorney for Defendant Premium Logistics, Inc.
Michael M. Ratoza, Ratoza Long, P.C., Portland, OR 97204-3164, Attorney for Defendants L'Oreal.
FINDINGS AND RECOMMENDATION/ORDER
This action for breach of contract (or, in the alternative, promissory estoppel or unjust enrichment) was filed in Marion County Circuit Court and removed to the federal court in Portland. Jurisdiction is premised upon diversity. Plaintiffs United Traffic Consultants, Inc., and United Truck Services (collectively, "United"), move to remand this action to state court on the ground that the removal was procedurally defective. I recommend that the motion be denied.
In the alternative, United requests that this action be transferred to the Medford division. Defendants oppose the transfer. That motion is denied for now, with leave to renew at the time of setting a trial date.
Finally, Defendant Premium Logistics, Inc. ("Premium"), has moved to set aside the "Order of Default/Entry of Default Judgment" entered by the state court on August 22, 2001, after Premium failed to timely answer the Complaint, and also to vacate the default "Judgment/Entry of Money Judgment Against Less Than All Parties" entered by the state court on September 22, 2001. I recommend that the motion be granted.
BACKGROUND
The Complaint alleges that United transported approximately 200 freight loads on behalf of defendants, but has not been paid for 47 of those loads. The Complaint further alleges that Premium acted as a freight broker on behalf of defendants L'Oreal Inc., L'Oreal USA Products, Inc., L'Oreal Retail Division, L'Oreal Retail, and Cosmiair Inc. (collectively, "L'Oreal").
This action was filed in Marion County Circuit Court for the State of Oregon on June 14, 2001. On June 15, 2001, service was made in Oregon upon John Anderson, the Oregon process agent for the American Moving Storage Association ("AMSA"), of which Premium is a member. Pursuant to 49 C.F.R. § 366.4, a motor carrier must appoint a process agent "for each State in which it is authorized to operate and for each State traversed during such operations." Freight brokers must designate a process agent "for each State in which its offices are located or in which con-motor tracts will be written." Id. To ease the administrative burden, some trade organizations (such as AMSA) designate agents in each state. A motor carrier can agree to be bound by that list, as periodically amended. 49 C.F.R. § 366.5. AMSA's list of agents has been adopted by approximately 9,000 motor carriers and brokers, including Premium, which is how Anderson came to be Premium's registered agent in Oregon.
In reading the statute, it is not clear whether Premium, as a broker, was required to designate an agent in Oregon. However, Premium did designate Anderson, so I need not consider that question further.
Anderson had no dealings with Premium prior to receiving the summons and complaint. He therefore consulted AMSA's list of "Process Agent Service Participants," and forwarded the process, via certified mail (return receipt requested), to the address shown for Premium. That address was stale. As a result, Premium never received the summons and complaint, nor most of the other documents subsequently served upon Anderson and forwarded by him.
It is unclear whether Anderson received a true copy of the Complaint. His affidavit states that the copy he received did not include some or all of the exhibits to the Complaint.
Over a period of several months commencing in June 2001, Anderson mailed four items to Premium. The first and third items were never delivered but neither were they returned. The second item was returned, marked "unclaimed," on September 4, 2001. A receipt indicates that the fourth item was delivered on August 28, 2001.
On August 6, 2001, some of the L'Oreal defendants were served with the summons and complaint. Premium's President represents that his company first learned of this action on or about August 20, 2001, through L'Oreal. That same day, a Marion County judge signed a document entitled "Order of Default/Entry of Default Judgment" against Premium (hereafter, "default order"). Despite the caption, this document is probably not a valid money judgment because it is not in the form specified by ORCP 70A.
On or about August 24, 2001, Premium asked United to set aside the default order. United eventually declined that request. On September 5, 2001, the L'Oreal defendants — joined by Premium — filed a notice of removal with the clerk of the federal court in Portland. The same day, L'Oreal mailed copies of that document to the state court and to United's counsel. On September 6, 2001, Premium filed a motion in this court to set aside the default order.
On September 7, 2001, a Marion County Circuit Court judge signed a default "Judgment/Entry of Money Judgment Against Less Than All Parties" (hereafter, "default judgment") against Premium, apparently in the proper form this time. At oral argument, United represented that it did not know the action had been removed to federal court when it presented this default judgment for signature. The state court records indicate that a copy of the notice of removal was not received until September 10, 2001.
The certificate of service executed by Premium indicates that the Notice of Default was faxed to United's attorney, as well as mailed, but the attorney denies receiving the fax; he received the mailed copy on or about Monday, September 10, 2001.
On September 11, 2001, Premium learned that the default judgment had been signed. Premium immediately advised the clerk of the Marion County Circuit Court that the matter had been removed to federal court and specifically requested that the judgment not be entered. To date, that judgment has not been entered. On September 21, 2001, Premium asked this federal court to set aside that default judgment.
There is evidence that United's counsel and Premium's outside counsel, Joseph Grimes, had some discussions regarding this contractual dispute in April and May, 2001. On the day that United commenced this action, it sent a letter to Premium's bonding company, Kemper Insurance, advising Kemper that an action had been filed and the nature of the dispute. The letter also advised Kemper that the "case was filed June 14, 2001 and is Case #01C14929 in Marion County Circuit Court, State of Oregon." Copies of that letter were apparently sent the same day to Premium's President, Kevin Warner, and to Premium's outside counsel, Joseph Grimes. The latter has admitted receiving the letter shortly after June 14, but says that "[b]ecause I am not an attorney admitted to the bar of the State of Oregon, I did not make any affirmative effort to contact the court regarding Attorney Liggett's allegation that a suit had been filed. Instead, I simply awaited service of process in the normal course which was not forthcoming." Grimes Aff., ¶ 11.
DISCUSSION
United's Motion to Remand 28 U.S.C. § 1446(b) provides that:
The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding. . . .
United first argues that removal was untimely because defendant L'Oreal received the summons and Complaint on August 6, 2001, and the Notice of Removal was filed on September 5, 2001, "exactly thirty (30) days later." United contends that the thirty day deadline expired on September 4. At oral argument, United acknowledged that this argument lacks merit.
United's argument was premised upon an inarticulate statement of the law in defendants' brief (regarding when the thirty days begin to run), which United seeks to construe as a judicial admission. A party cannot "admit" an erroneous statement of the law, nor was it intended as an admission.
United's second argument is sounder mathematically, but not legally. United contends that because Premium's agent was served on or about June 15, the deadline for removing this action was July 15, three weeks before L'Oreal was ever served. Therefore, United contends, L'Oreal could not petition to remove the action. Alternatively, United argues, because Premium did not remove this action within the 30-day deadline, Premium was ineligible to join in L'Oreal's subsequent petition for removal. Since all defendants had to join in the removal petition, United argues, Premium's default precluded the later-served defendants from initiating a petition for removal.
Although United does not use the term, its argument rests upon the "first-served defendant rule." The removal statute is silent regarding the procedure for removing cases with multiple defendants. It is unclear whether the deadline for all defendants commences to run as soon as any defendant is served, or whether each defendant has its own thirty day period in which to petition for removal. The question is complicated by the requirement, in most instances, that all defendants must join in the removal petition in order for it to be valid.
Some courts have reasoned that a defendant who did not exercise its right to removal within thirty days of being served is not entitled to a second bite at the apple through joining in a removal petition filed by a later-served defendant. Since unanimity is required, the net effect is that the thirty-day period commences to run when the first defendant is served. The counter-argument is that a later-served defendant should not be deprived of its opportunity to remove the case (and to persuade all co-defendants to join the petition) simply because the plaintiff chose to serve that defendant last. Indeed, such a rule encourages plaintiffs to manipulate the order of service. There also are concerns regarding defendants served close to the thirty-day deadline (for the first-served defendant), who may have to decide whether to join in the removal petition before they have even had an opportunity to retain counsel.
Courts and commentators are divided over the "first-served defendant rule." Cf Getty Oil Corp. v. Insurance Co. of America, 841 F.2d 1254 (5th Cir 1988) (endorsing first-served defendant rule); Marano Enterprises of Kansas v. Z-Teca Restaurants, L.P., 254 F.3d 753, 755-57 (8th Cir 2001) (rejecting rule). The Ninth Circuit has never decided this question.
There is a split of authority within this District. In Thomas v. Avco, Civ. No. 00-1150-JE (D Or), I recommended that the first-served rule be rejected. Findings and Recommendation dated Dec. 18, 2000, adopted by Judge Marsh on January 10, 2001. Judge Panner likewise has rejected the first-served defendant rule. Hayden v. Asbestos Corp., Civ. No. 97-121-PA (D Or April 17, 1997). However, Judges Redden and Hubel have followed the first-served defendant rule. Parsons v. Hyundai Motor Co., Civ. No. 97-476-RE (D Or June 4, 1997); Ford v. GST Telecomm., Inc., Civ. No. 00-160-HU (D Or April 7, 2000).
Judges Redden and Hubel both left open the possibility that there might be an equitable exception to the first served defendant rule in a case where the order of service was purposely manipulated. Defendants have offered no evidence of manipulation in the present case.
At one time, the first-served defendant rule was followed by a majority of courts, but the recent trend is in the other direction. See 16 Moore's Federal Practice § 107.30[3][a][i], at 107-163(3d ed 2000) (predicting rejection of the first-served defendant rule). In Thomas, supra, I declined to follow the first-served defendant rule, and United has not persuaded me to alter that position.
United argues that it does not rely upon the first-served defendant rule at all but rather the "McKinney rule." The latter is merely a variation of the first-served defendant rule adopted in McKinney v. Board of Trustees of Maryland Community College, 955 F.2d 924, 926-28 (4th Cir 1992). In McKinney, the plaintiff served three defendants on the same day, then waited 24 days to serve eight other defendants, i.e., six days before the 30-day deadline for the first three defendants expired. The defendants were able to secure consents from only ten of the eleven defendants before the deadline; the eleventh defendant was out of town and could not be reached in time.
Although United now professes that its motion is premised upon the McKinney rule, United did not even mention McKinney until its reply brief.
The McKinney court decided that the later-served defendants were entitled to a full 30 days to decide whether to join the removal petition. Therefore, the first-served defendants could file their removal petition, and obtain consent from the later-served defendants after the action had been removed. Id., 955 F.2d at 928. If consent was withheld, the action would be remanded. 28 U.S.C. § 1448. This solves one problem — the defendant being served so late that he lacks time to give informed consent — but at the expense of creating other problems, such as judge shopping.
The first defendant can remove the action, while the second defendant can withhold his decision until he knows which federal judge has been assigned to the case. After the assignment, the second defendant can decline to consent requiring the case to be returned to state court. The McKinney rule also does not address other abuses, e.g., serving a pro se or defaulting defendant first, then waiting 30 days to serve other defendants who have attorneys and are more likely to remove the action.
Each approach has its problems but, under the approach adopted by the Eighth Circuit in Marano, a plaintiff can protect his interests by arranging for prompt service upon all defendants, which in turn minimizes the time period during which removal is possible. L'Oreal timely filed its removal petition within 30 days of being served, and all other defendants joined in that petition. Therefore, the action was properly removed, and United's motion to remand should be denied.
United's Motion for Transfer to Medford
In the alternative, United seeks to transfer this action to Medford. The principal justification for that request is that United is now based in Grants Pass. Defendants oppose the request. They argue that Portland is more convenient for their out-of-town witnesses, and this case lacks a strong nexus with southern Oregon. Only one of the nearly 200 freight deliveries was to Oregon (and it was to Hermiston). Transactions were handled electronically (by phone, fax, or internet). Plaintiffs originally filed this action in Marion County, not in Josephine County which Plaintiffs now contend is the true nexus. I deny the motion to transfer, with leave to renew at the time of setting a trial date.
Premium's Motion to Vacate the Default Order and Default Judgment
Three issues are presented here: (1) did the state court have jurisdiction to enter the default judgment, (2) does this court have jurisdiction to vacate that judgment, and (3) assuming the answer to both questions are yes, should this court exercise its discretion to vacate the judgment pursuant to FRCP 60?
The process to remove an action to federal court is commenced by the filing, in the federal court, of a notice of removal. 28 U.S.C. § 1446(a).
Promptly after the filing of such notice of removal of a civil action the defendant or defendants shall give written notice thereof to all adverse parties and shall file a copy of the notice with the clerk of such State court, which shall effect the removal and the State court shall proceed no further unless and until the case is remanded.28 U.S.C. § 1446(d).
The difficulty here is that the defendants did not immediately "file a copy of the notice with the clerk of such State court." Consequently, the state court was not divested of jurisdiction until five days later, when it received a copy of the removal notice by mail. During that brief interval, there appears to have been concurrent jurisdiction in both courts. See Wright Miller, 14C Federal Practice Procedure §§ 3736-3737. The default judgment was signed during that brief period of overlapping jurisdiction.
Two of those intervening days were a weekend.
Pursuant to ORCP 70B(2), "a judgment is effective only when entered in the register. . . ." United acknowledges that the default judgment was never entered, but asserts that the state court clerk has no discretion to refuse entry. See ORCP 70B(1) "All judgments . . . shall be entered in the register by the clerk." United also argues that the earlier default order was itself a valid judgment, notwithstanding the apparent failure of that document to comply fully with the format requirements of ORCP 70A.
As a matter of jurisdiction and comity, I considered requiring Premium to argue its motion to vacate in the state court. However, now that the state court has been served with the notice of removal, I question whether that court would even have jurisdiction to alter the judgment. Ordinarily, once the state court has been duly notified of the removal, its authority to act ceases. Cf Murray v. Ford Motor Co., 770 F.2d 461, 463 (5th Cir 1985) (state court lacked authority to vacate default judgment, because it received a copy of the notice of removal during the hearing on the motion and prior to signing the order vacating the judgment).
It is well established that "when a case is removed the federal court takes it as though everything done in the state court had in fact been done in the federal court." Murray, 770 F.2d at 464, quoting Savell v. Southern Ry., 93 F.2d 377, 379 (5th Cir 1937). Accordingly, this court has authority to set aside the default order and judgment, even though it was originally signed or entered by another court. See 14C Federal Practice Procedure § 3738, n 27; Murray, 770 F.2d at 464-65; Butner v. Neustadter, 324 F.2d 783, 785-86 (9th Cir 1963); Munsey v. Testworth Labs., 227 F.2d 902, 903 (6th Cir 1955); Diehl v. Morrison, 590 F. Supp. 1190, 1192 (M.D. Penn 1984).
Even if a default judgment was entered before the case was duly removed, that would not prevent removal of the case to federal court. Id. See also Shenandoah Chamber of Progress v. Frank Associates, 95 F. Supp. 719, 720 (E.D. Penn 1950).
Turning to the merits of that motion, the court must consider the reasons for the default, whether the defendant has timely sought relief and has tendered a potentially meritorious defense, and any unfair prejudice to the other parties that may result from setting aside the default. See TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir 2001). After considering the totality of the circumstances, Premium's explanation for the default, and the other relevant factors, I conclude that the default order and judgment should be set aside. Both the federal and the Oregon courts have granted relief in reasonably analogous circumstances. That is in keeping with the longstanding preference for deciding cases on the merits rather than by default. See id.
I also conclude that the motion was timely asserted, and that Premium has tendered a potentially meritorious defense. Plaintiffs have pointed to no prejudice, apart from losing the windfall of a default judgment. However, "merely being forced to litigate on the merits cannot be considered prejudicial for purposes of lifting a default judgment." TCI Group, 244 F.3d at 701.
The principal fact that gives me pause is the letter to Premium's bonding company (with copies to Premium and its outside counsel Grimes), advising that an action had been filed and providing the case number and court. However, upon learning that an action has reportedly been filed, a party is generally under no obligation to track down a copy of the complaint so it can file an answer. Rather, a party ordinarily waits until it is served with the summons and complaint, which triggers the deadline for filing an answer. Premium did precisely that. I do not preclude the possibility that there may be circumstances in which, after passage of a sufficient length of time, a party should begin to suspect a problem and make inquiry of opposing counsel regarding service, but those facts are not present here. Notably, the other defendants were not served until August 6, almost two months after the action was commenced; Premium thus had little reason to make inquiry before then. Once Premium learned from its co-defendants that they had been served, it made those inquiries, learned of the default, and took prompt action to tender a defense and set aside the default. There is no evidence that Premium was deliberately dodging service, or otherwise acted in bad faith. I have considered United's other arguments, but am not persuaded that they justify a different result.
RECOMMENDATION
Plaintiffs' Motion to Remand (#16-1) should be DENIED. Plaintiffs' alternative Motion to Transfer (#16-2) is DENIED with leave to renew. Defendant Premium's Motions to set aside the default order and the default judgment (## 5 and 13) should be GRANTED.
SCHEDULING ORDER
The above Findings and Recommendation are referred to a United States District Judge for review. Objections, if any, are due December 4, 2001. If no objections are filed, review of the Findings and Recommendation will go under advisement on that date. A party may respond to another party's objections within 10 days after service of a copy of the objection. If objections are filed, review of the Findings and Recommendation will go under advisement upon receipt of the response, or the latest date for filing a response.