A serious game of motion practice brinksmanship is being played out in a $3 million plus preference proceeding brought by reorganized Visteon Corporation (“Visteon”). Defendant SL Alabama, LLC (“SL Alabama”) makes the first move toward final resolution nearly two months after a default judgment against it was vacated. SL Alabama’s Brief in Support of Motion to Dismiss is noteworthy for two reasons: the brief raises a fundamental legal issue – i.e. proof of service of a summons and complaint; and the facts may cause both defenders and prosecutors of preference actions to update their own practice checklists. Registered users click here to see a copy of this brief.
The Prior Motion to Vacate Default
SL Alabama’s motion to dismiss can be seen as the same song, second (and final) verse, of matters first aired in its motion to vacate the default. SL Alabama went into default for failure to answer Visteon’s complaint. In requesting that the default be opened, SL Alabama attributed its failure to answer to the malfeasance of a single employee. The key argument in this briefing was, however, the question of proper service raised by Visteon’s own certificate of service of the summons and complaint.
The certificate of service filed by Visteon in the SL Alabama proceeding certifies the mailing of the summons and complaint “Via First Class Mail” upon the following:
SL Alabama Corporation
SL Alabama LLC
2481 Airport Blvd.
Alexander City, AL 35010-3331
Citing the Delaware Bankruptcy Court decision in In re Meridian Auto. Sys.-Composite Operations, Inc., 2007 WL 4292130, at 2-3 (Bankr. D. Del. Dec. 2007), SL Alabama points out that the failure to follow Fed. R. Bankr. P. 7004 (b) by mailing to the attention of any officer or agent, whether by name, title or otherwise, is a fatal flaw.
But was the Envelope Right?
In responding to SL Alabama’s motion to vacate, Visteon seems to have ignored its own certificate of service with the argument that the envelope containing the summons and complaint actually was addressed:
Corporate Officer
SL Alabama Corporation
SL Alabama LLC
2481 Airport Blvd.
Alexander City, AL 35010-3331
Visteon also attached as an exhibit to its objection what it maintains is a copy of the actual envelope so addressed.
SL Alabama’s reply asked the Court to disregard Visteon’s bald proffer a copy of the service envelope:
Visteon provided no affidavit, foundation, or explanation of how it came to possess the purported envelope attached as an exhibit to its response brief. Nor is there any indication that the envelope attached to Visteon’s response was ever intended to be mailed, or that it was not actually printed the same day Visteon filed its response brief. As it is so lacking in foundation, and because Visteon relies solely on its say-so that the envelope must be what Visteon claims it to be, it both begs and raises the questions: Why does Visteon have an original unstamped envelope? If Visteon intended to photocopy the envelope, why did Visteon choose not to photocopy a stamped copy? Who retained and later produced a preprinted and unstamped envelope addressed to SL Alabama? Instead of addressing any of the foregoing, Visteon simply claims that the envelope is the very same as the one used to send a summons and complaint to SL Alabama. This Court should not accept Visteon’s unsupported contention.
Registered users click here to see a copy of this reply brief.
The Order to Vacate
The operative paragraphs of Bankruptcy Judge Sontchi’s December 29, 2011 Order Vacating Default Judgments state:
UPON CONSIDERATION of Defendant SL Alabama, LLC’s motion (the “Motion”) for relief from entry of defaults and default judgments which were entered by the clerk of October 6, 2001 in the above-captioned adversary proceeding,
IT IS HEREBY ORDERED that the Motion is Granted.
IT IS FURTHER ORDERED that the defaults and default judgments entered by the clerk on October 6, 2011 are VACATED.
The order provides no direction to either party – no instruction for the Plaintiff to serve the defendant or for the Defendant to answer or otherwise respond to the complaint within a set period.
The Stare Down
SL Alabama’s newly filed motion to dismiss states that, following entry of the order to vacate on December 29, 2011, counsel for the parties have had several conversations. It appears that SL Alabama demanded to be served before responding to the complaint. Visteon refused to take any further action to serve the defendant, evidently contending that the original service was sufficient.
With entry of default and default judgment vacated, the stakes were high for either party to back down. If SL Alabama was right, the longer Visteon waited before seeking to cure deficient service, the greater the likelihood that the Court would not allow Visteon such cure. If Visteon was right, the failure of SL Alabama to file an answer or responsive motion invited yet another request to the clerk for entry of default and motion for default judgment. Additionally, for Visteon, seeking permission to serve SL Alabama could be viewed as an admission that the original service was insufficient.
Visteon also may have had other concerns. The problem with the SL Alabama certificate of service was not isolated. A wide sampling of the certificates of service in the 252 Visteon preference actions consistently shows the same malady of a dropped first line in the address. Although 152 of the preference actions had been closed by February 1st, the potential of replication of the SL Alabama challenge existed in any still open proceedings where answers either had not been filed or had been filed with an insufficiency of service defense pleaded.
SL Alabama Moves First
On February 22, 2012, SL Alabama made its move. In its motion to dismiss, SL Alabama made a series of tactical decisions. The most fundamental of these decisions was to combine its motion to dismiss for insufficiency of service of process under 12(b)(5) with a 12(b)(6) motion for failure to state a claim.
The 12(b)(5) motion to dismiss is a extension of the arguments made by SL Alabama in support of its motion to vacate. Adding to the prior arguments, SL Alabama states that Visteon made no further attempt at service in “knowing disregard for curing the defects despite ample opportunity to do so.” Again relying on Meridian, SL Alabama says that Visteon simply has waited too long to cure the defective service.
The Plaintiff has not only failed to properly serve the Defendants with the Complaint and summons within 120 days of its filing of the Complaint, but it has also refused to remedy the defects since learning of them. A plaintiff’s complaint is properly dismissed pursuant to Federal Rule 12(b)(5) where the plaintiff has not properly effectuated service within 120 days of filing the complaint and has had ample time to fix the defects but has not done so. FED. R. Crv. P. 4(m); Meridian, 2007 WL 4292130, at *3. In Meridian, a trustee for an automotive company in bankruptcy filed a complaint seeking to recover allegedly avoidable transfers. Id. at *1. The trustee failed to address the complaint to the attention of the company’s officer or agent. Id. The Meridian trustee not only failed to effectuate service within 120 days of filing the complaint, but he failed to cure the defective service within the “ample time” of nearly three months during which he knew of the defect. Id. at *3. The Meridian court thus refused to grant the trustee further time to properly effectuate service, instead dismissing it pursuant to Federal Rule 12(b)(5). Id.
The Haymaker Punch
SL Alabama’s combination punch 12(b)(6) motion is a haymaker – the transfers to SL Alabama were not made by any Debtor or in payment of any debt of any Debtor. SL Alabama argues that the claimed preferential transfers were made by Halla Climate Systems Alabama Corp. (“Halla”). Halla was initially among the Visteon affiliates who filed voluntary petitions concurrently with Visteon. However, on August 3, 2009, the Court dismissed the Halla bankruptcy proceedings in conjunction with an order confirming the sale of all of Visteon’s equity interests in Halla.
SL Alabama bases its claim that the transfers were made by Halla on the identification of transfers attached as Exhibit A to the complaint. But that exhibit does not identify which of the Debtors made the transfers. Normally, this would invite an argument by Visteon that the 12(b)(6) motion should be denied due to its reliance on facts not pleaded. But SL Alabama seems confident that Visteon does not dare object and make an issue of the fact that its own complaint did not identify the transferor debtor. See prior note on Judge Sontchi’s order imposing “sanctions against plaintiff’s counsel, jointly and severally, for the filing of a grossly deficient complaint” seeking recovery of preferential transfers under Section 547.
A Final Showing of Confidence?
A defendant seeking to dismiss on 12(b)(6) grounds normally would argue that dismissal should be without leave to amend based on such grounds as futility of amendment. But here, SL Alabama ends its motion with an invitation for Plaintiff to seek leave to amend its complaint: “In the alternative, … Plaintiff should amend the complaint to make it more definite.”
Inviting an amendment, even in the alternative and especially after such a blistering brief, seems disingenuous, if not taunting. However, the real reason for such an invitation is likely SL Alabama’s need for Visteon to identify Halla as the transferor in order for a subsequent motion to dismiss to succeed.
Practice Points
A client will customarily send only the complaint and summons to defense counsel. It is not unusual for the envelope to have been lost or discarded even before defense counsel is engaged. The certificate of service filed by the Plaintiff then becomes the best (if not only) evidence available to defense counsel of the sufficiency or insufficiency of service.
The practice lessons of the SL Alabama situation are fundamental:
- Clients always should be asked to provide a copy of the envelope along with a copy of the summons and complaint;
- The certificate of service filed by the Plaintiff always should be checked; and
- In drafting the answer or a responsive motion, sufficiency of service of process should not be assumed simply because the complaint and summons ultimately was received by the client. Such an assumption can result in an unintended waiver of the defense.