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In PIRS Capital, LLC, v. Williams, 2022 WL 17492186 (8th Cir. 2022), the Eighth Circuit Court of Appeals applied Federal Rule of Bankruptcy Procedure 7004 to hold the bankruptcy trustee properly effected service of an adversary complaint.

The appellant filed a proof of claim in a bankruptcy case, and about two years later, the bankruptcy trustee filed an adversary complaint naming the appellant as defendant. The bankruptcy trustee served the complaint to the appellant to the attention of the individual who signed the appellant’s proof of claim as “managing partner” and at the address the proof of claim identified as the address where notices should be sent. To confirm the individual identified as managing partner on the proof of claim was the appropriate agent, the bankruptcy trustee reviewed New York Department of State records which revealed that, though appellant had no registered agent, the “Selected Entity Address Information” listed the address to which the Department of State would mail process as the “managing partner” at the address the bankruptcy trustee served. Unbeknownst to the bankruptcy trustee, the appellant was no longer at that office (having moved six months earlier), and the individual identified as the “managing partner” on the proof of claim no longer worked for the appellant. Despite the incorrect address, the complaint was still delivered to the appellant, and one of appellant’s employees signed the return receipt, despite not being authorized to receive service.

After no response by the appellant, the bankruptcy trustee moved for default judgment and a notice of hearing on that motion was again sent to the incorrect address upon which the bankruptcy trustee served the complaint. The bankruptcy court granted the trustee’s motion and entered default judgment against the appellant.

Almost three years later, the bankruptcy court entered an order granting the bankruptcy trustee’s objection to the appellant’s proof of claim. That order was sent to appellant at both the incorrect address upon which the trustee served the complaint and the correct address. The appellant then moved the court to vacate the default judgment granted in the adversary proceeding, arguing first that the judgment was void under Federal Rule of Civil Procedure 60(b)(4) because the complaint was served on the wrong person and address for Federal Rule of Bankruptcy Procedure 7004(b)(3), and second that the service error denied appellant the full and fair opportunity to litigate its defenses, justifying relief under Federal Rule of Civil Procedure 60(b)(6). The bankruptcy court denied the appellant’s motion, concluding that (1) the bankruptcy trustee properly effected service by relying on information appellant provided in its proof of claim and by researching the Department of State website, and (2) appellant’s failure to respond to the complaint and motion for default judgment was due to its own errors including designating the “managing partner,” failing to update bankruptcy court and Department of State records, and failing to ensure mail would be forwarded to the appellant’s new address. The district court affirmed for the same reasons.

In reviewing the district court’s affirmance, the Eighth Circuit held that appellant ignored controlling Supreme Court caselaw defining when a judgment is void for purposes of Fed. R. Civ. P. 60(b)(4). The case United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270-71 (2010), held that relief under Rule 60(b)(4) based on a jurisdictional defect is reserved for exceptional cases where the court rendering judgment lacked an arguable basis for jurisdiction. The Eighth Circuit reasoned the bankruptcy court did hold at least an arguable basis for jurisdiction because (1) the bankruptcy trustee served appellant in the manner consistent with appellant’s filed proof of claim, which was reinforced by the bankruptcy trustee’s independent research, (2) the trustee sent the summons and complaint by certified mail, return receipt requested, and received the receipt showing the summons and complaint was actually received by a PIRS employee at its new (and correct) location, and (3) an entity served by legal process should not benefit from its own inaccurate or dated records when others attempt in good faith to determine the appropriate agent for service.

The Eighth Circuit declined to entertain the appellant’s Rule 60(b)(6) argument because that rule is only available when Rules 60(b)(1) through (b)(5) are inapplicable, and the circumstances leading to the appellant’s failure to defend were of its own making and did not amount to “exceptional circumstances” justifying relief.

The Eighth Circuit affirmed the district court’s order.

PIRS reminds parties to keep information in proofs of claim accurate and up-to-date, and evidence of actual receipt for service of process can trump noncompliance with rules of procedure.

Editors-in-Chief
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.