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#2210 signed 4-10-96







IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS



In Re:

AMERICAN FREIGHT SYSTEM, INC.,

DEBTOR

CASE NO. 88-41050-11

AMERICAN FREIGHT SYSTEM, INC

PLAINTIFF,

v.

CONSOLIDATED ROYAL CORP.

DEFENDANT.

ADV. NO. 90-7052

ORDER DENYING PLAINTIFF'S MOTION FOR LEAVE

TO SERVE SUMMONS AND COMPLAINT OUT OF TIME

This proceeding is before the Court on the motion of plaintiff American Freight System, Inc. (AFS), for leave to serve its summons and complaint out of time. Defendant Consolidated Royal Corporation (Consolidated) has objected to this motion. AFS is represented by Kurt Stohlgren of Hillix, Brewer, Hoffhaus, Whittaker and Wright of Kansas City, Missouri. Consolidated is represented by Jan Hamilton and Leon Graves of Hamilton, Peterson, and Keeshan of Topeka, Kansas. The Court has examined the relevant facts, read the parties' briefs, and is ready to rule.

FACTS

This proceeding involves a series of three complaints AFS filed for turnover of property and for money judgment, seeking to recover charges allegedly owed for shipments AFS transported for Consolidated. The first complaint was filed in February 1990 and sought $1,000.94 for four shipments. Four days after the complaint was filed, the Bankruptcy Court Clerk served a summons and a copy of the complaint on Consolidated by first class U.S. mail. Before Consolidated filed any response, AFS filed an amended complaint, seeking $3,334.24 for 60 different shipments. In May 1990, the Clerk served this amended complaint by first class mail. Consolidated did not respond to either complaint.

In December, AFS filed an application for default judgment supported by an affidavit swearing its complaint had sought $19,029.24, plus prejudgment interest and costs. In March 1991, the Clerk entered the judgment requested in the affidavit. On March 11, both AFS and Consolidated moved to have the default judgment set aside. AFS conceded the judgment was was in error because it was based on a second amended complaint which AFS had failed to file. Consolidated alleged that it had not received either summons, it had experienced problems in 1990 with mail being misdirected by the Chicago Post Office, and it had meritorious defenses to AFS's claims. About three weeks later, the Court signed an order which AFS had submitted, setting aside the judgment.

Three months later, in July 1991, AFS filed a motion for leave to file a second amended complaint, attaching a copy of the new complaint it wished to file. An original of this complaint was also entered on the Court's docket, but no summons for it was ever issued or served by the Clerk. This complaint sought $4,335.18 for the 64 shipments included in the original and first amended complaints, and sought another $18,029 for 323 additional shipments. It appears to ask twice for the charges allegedly owed on the four shipments included in the original complaint, bringing the total sought to $23,365.12. According to its certificates of service, AFS served on Consolidated's counsel both the motion for leave with the copy of the amended complaint attached, and the amended complaint itself. Consolidated objected to the motion, again asserting that neither the original nor the first amended complaint had ever been properly served on it, and contending the second amended complaint could not properly be served on its counsel because counsel made only a limited appearance for purposes of contesting the default judgment. AFS made no attempt to serve Consolidated after learning of its attack on the service of process. No further pleadings were filed in this proceeding for several years.

In March 1994, AFS filed a response to an order the Court had entered affecting all the adversary proceedings related to the AFS bankruptcy case; the response has no bearing on the dispute now before the Court. In April 1995, AFS filed a motion for a trial setting. Consolidated objected, again asserting that it had not been served with either the original or first amended complaint, and that service of the second amended complaint on only its counsel was ineffective. Consolidated argued the statute of limitations had long since expired and the proceeding should be dismissed.

At a hearing in June, based on evidence presented, the Court found that Consolidated had not been properly served. The Court also denied AFS's request to file its second amended complaint. About six weeks later, AFS filed a motion to serve a summons and its first amended complaint out of time, contending it was entitled to rely on the presumption of receipt of mail service until the Court ruled service had not been obtained. Consolidated objected, and the Court took the motion under advisement.

ISSUE PRESENTED

AFS seeks leave to serve a summons and its first amended complaint out of time. The question presented is whether AFS has demonstrated the requisite "good cause" for its failure to effect service on Consolidated within the 120-day period fixed by Federal Rule of Civil Procedure 4(j) (1990), made applicable here by Federal Rule of Bankruptcy Procedure 7004(a) and (g). The Court finds that AFS has failed to show "good cause" for failing to serve Consolidated because AFS was not diligent in its efforts to effect proper service. The Court will therefore dismiss the claims asserted against Consolidated without prejudice, as required by Rule 4(j).

DISCUSSION AND CONCLUSIONS OF LAW

In the first sentence of its motion, AFS asserted the motion was made pursuant to Civil Rule 4(j) and Bankruptcy Rules 7004(a) and 9006(b). However, its arguments and the cases it relies on refer at most to Rules 4(j) and 7004(a), so the Court will not consider the possible impact of Rule 9006(b) on the relief requested. Cf. Broitman v. Kirkland (In re Kirkland), 181 B.R. 563, 566-67 (D.Utah 1995) (standard for relief under Civil Rule 4(j) is not the same as that for relief under Bankruptcy Rule 9006(b)).

Civil Rule 4(j) (1990) provided that "if a service of the summons and complaint is not made upon a defendant within 120 days after the filing of the complaint" and the plaintiff "cannot show good cause why such service was not made within that period, the action shall be dismissed as to that defendant without prejudice." Rule 4 was amended in 1993, but Bankruptcy Rule 7004(g) provides that the provisions of Civil Rule 4 made applicable by the Bankruptcy Rules are those in effect on January 1, 1990, despite any subsequent amendments to the Rule. Consequently, the cases guiding the Court's consideration of AFS's motion are those applying the 1990 version of the Rule rather than those applying the amended version.

As the Court determined at the June 1995 hearing, AFS has never effectively served either the original complaint or the amended complaint on Consolidated. The burden to show good cause for failing to do so is on AFS. Broitman v. Kirkland, 181 B.R. at 568. "Rule 4(j) requires a plaintiff whose initial efforts to complete service are unsuccessful to take whatever additional steps are necessary to ensure that service is completed within the required 120 days." In re City of Philadelphia Litig., 123 F.R.D. 512, 514 (E.D.Penn. 1988). "'The relevant standard under Rule 4(j) is not whether defendants do or do not have "actual knowledge" of a suit in which they are named. The standard is whether plaintiffs have shown "good cause" for their failure.'" Despain v. Salt Lake Area Metro Gang Unit, 13 F.3d 1436, 1439 (1994) (quoting Eggink v. City of New York Human Resources Admin., 126 F.R.D. 32, 33 (S.D.N.Y. 1989)). Neither the absence of prejudice to the defendant, counsel's misinterpretation of a rule of procedure, nor the fact the statute of limitations has run establishes good cause under Rule 4(j). Id.

AFS contends its reasonable belief that service had been effected constituted good cause for not trying again to serve its complaint after Consolidated attacked the mail service initially attempted. It relies on Davidson v. Bank of New England (In re Hollis and Co.), 86 B.R. 152 (Bankr.E.D.Ark. 1988). The facts of that case are not completely clear, but it appears the court found "good cause" under Rule 4(j) because the defendant filed motions for extensions of time to file preliminary motions before it finally filed its motion to dismiss on the ground it had not been served within 120 days, and those motions for extensions made it reasonable for the plaintiff to believe service had been accomplished. 86 B.R. at 154. In this case, of course, Consolidated has always maintained it has not been properly served, and has done nothing that could have made AFS believe service had been accomplished.

Reliance on the presumption that properly addressed mail is received by the addressee can be reasonable under Rule 4(j) only until the defendant asserts it has not received service. Consolidated put AFS on notice of the problem in 1991. While Consolidated's denial did not immediately negate the presumption of receipt, it did create a question of fact. Board of County Comm'rs v. Coleman American Properties (In re American Properties), 30 B.R. 247, 250 (Bankr.D.Kan. 1983). Despite learning in March 1991 that the validity of service was in doubt, AFS waited until the Court resolved that doubt four years later before deciding it should make a new attempt to obtain valid service. Nothing prevented AFS from eliminating the question as soon as Consolidated raised it by attempting service again, using the same inexpensive first class mail method it used initially, if it wished. Instead, and apparently with no other supporting evidence, it chose to rely completely on the presumption that two pieces of mail were delivered. There is simply no justification for AFS's failure during those four years to try to obtain uncontested service.

One statement in AFS's brief helps to expose the flaw in its argument. It suggests, "Because there [was] no indication in the record that notice ha[d] not been received, it could be assumed that delivery was made in due course," until the Court's ruling at the June 1995 hearing. AFS could reasonably believe the record contained "no indication" of the failure of mail service only if it was entitled to ignore or reject as untrue Consolidated's allegations it never received the mailed summonses and complaints. The most AFS could reasonably believe at that point, though, was that the Court might find that Consolidated had been effectively served. It could not reasonably ignore the possibility the decision might go the other way, and expect the Court would later protect it from the risk it ran by not renewing its efforts to obtain good service. "'[T]he "good cause" provision of Rule 4(j) should be read narrowly to protect only those plaintiffs who have been meticulous in their efforts to comply with the Rule.'" Despain, 13 F.3d at 1438 (quoting In re City of Philadelphia Litig., 123 F.R.D. 512, 514 n. 2 (E.D.Pa. 1988)). AFS has not shown good cause for its failure to obtain service on Consolidated within the 120-day time limit of Rule 4(j).

For these reasons, the Court concludes AFS's motion for leave to serve summons and complaint out of time must be denied. A judgment dismissing AFS's claims against Consolidated, as required by Rule 4(j), will be entered on a separate document, as required by Bankruptcy Rule 9021 and Civil Rule 58.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of April, 1996.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS



In Re: )

)

AMERICAN FREIGHT SYSTEM, INC., ) CASE NO. 88-41050-11

)

DEBTOR. )

)

AMERICAN FREIGHT SYSTEM, INC )

)

PLAINTIFF, )

v. ) ADV. NO. 90-7052

)

CONSOLIDATED ROYAL CORP. )

)

DEFENDANT. )

JUDGMENT OF DISMISSAL

This proceeding is before the Court for entry of judgment following issuance of the Court's "Order Denying Plaintiff's Motion for Leave to Serve Summons and Complaint Out of Time." For the reasons stated in that order, judgment is hereby entered dismissing, without prejudice, the claims which plaintiff American Freight System, Inc., asserted in this proceeding against defendant Consolidated Royal Corporation.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of April, 1996.











__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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