Peters Broad. Eng'g v. 24 Capital, LLC

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PETERS BROADCAST ENGINEERING, also known as Peters Broadcast Engineering Inc., Plaintiff, v. 24 CAPITAL, LLC, et al., Defendants.

No. 1:22-cv-00236-HAB-SLC

United States District Court, N.D. Indiana, Fort Wayne Division

February 14, 2024

REPORT AND RECOMMENDATION

SUSAN COLLINS, UNITED STATES MAGISTRATE JUDGE

Before the Court is a motion for default judgment and supporting documents filed by Plaintiff Peters Broadcast Engineering also known as Peters Broadcast Engineering Inc. (“PBE”), pursuant to Federal Rule of Civil Procedure 55, asking that the Court issue a judgment in its favor and against Defendants 24 Capital, LLC (“24 Capital”) and Jason Sankov (together “Defendants”). (ECF 27, 27-1 to 27-4). The District Judge referred this matter to the undersigned Magistrate Judge for a report and recommendation pursuant to 28 U.S.C. § 636(b) and Local Rule 72-1. (ECF 28). Subsequently, the undersigned issued an Order (ECF 34) directing Plaintiff to establish whether service of process had been completed. For the following reasons, I FIND that service of process is satisfactory as to Defendant Sankov but not Defendant 24 Capital, and I recommend that Plaintiff's motion be DENIED.

I. SERVICE OF PROCESS

A. Procedural Background

Plaintiff initiated this lawsuit on July 15, 2022 (ECF 1), as a class action with a sevencount complaint, in which it asserted a federal claim under the Racketeer Influenced and Corrupt Organizations (“RICO”) Act and state-law claims of intentional misrepresentation, fraud, disgorgement, misappropriation of name and goodwill, breach of contract, and a violation of Ohio Revised Code § 1703.003, naming 24 Capital, Sankov, and “John Does” as Defendants. (ECF 1). With its complaint, Plaintiff submitted proposed summons for “24 Capital Funding, LLC,” “Mark Allayer,”^[1]and Defendant Sankov (ECF 1-2 to 1-4), and summons were issued accordingly on July 25, 2022 (ECF 5). However, on October 26, 2022, Plaintiff submitted additional proposed summons for “24 Capital, LLC,” “Mark Allayev,” and Sankov (ECF 6, 6-1 to 6-5), which were then issued (ECF 7, 8). On October 31, 2022, summons were returned executed as to 24 Capital Funding, LLC, Allayev, and Defendant Sankov. (ECF 9).

Thereafter, Plaintiff moved for an entry of default against Defendants on November 29, 2022 (ECF 10), which was granted the next day (ECF 11). Plaintiff then moved for a default judgment against Defendants on November 30, 2022 (ECF 12), which prompted the Court to direct Plaintiff to clarify whether it would withdraw the request for class certification initially filed with the complaint (ECF 13). Plaintiff subsequently withdrew the request for class certification. (ECF 14-15).

During a telephonic status conference on January 23, 2023, before the District Judge, however, Plaintiff informed the Court it would file an amended complaint. (ECF 18). The next day, Plaintiff filed the amended complaint (ECF 19), and as such, the Court rendered the motion for default judgment filed on November 30, 2022, moot (ECF 20). In the amended complaint, Plaintiff removed the class action claim and the violation of Ohio Revised Code § 1703.003, leaving the other claims intact. (ECF 19).

Plaintiff then filed a second motion for default judgment (ECF 21), which the Court denied because Plaintiff failed to file a motion for entry of default before its motion for default judgment (ECF 22). Plaintiff corrected this procedural error by filing a motion for entry of default on February 23, 2023 (ECF 23, 24), which was granted on February 27, 2023 (ECF 26). Plaintiff then filed a third motion for default judgment (ECF 27), the one that is now before the Court.

As noted in the September 18, 2023, Order issued by the undersigned (ECF 34), after filing its motion for default judgment, Plaintiff filed several notices regarding the status of service of process during the period of January 2023 to September 2023-unprompted. (ECF 31 to 33; see ECF 17). In those notices, Plaintiff states that Defendants have failed to move or otherwise plead following proper service and it attached several documents purporting to show the same. (ECF 17, 31 to 32). Because Plaintiff had not explained how those documents support proper service, the undersigned ordered Plaintiff to file a brief of fifteen pages or less, citing legal authority supporting that Plaintiff had met the service of process requirement and explaining how the documents it submitted to the Court support service of process. (ECF 34).

On September 28, 2023, Plaintiff filed a response to the undersigned's Order, explaining that Federal Rule of Civil Procedure 4(e)(1) permits service of process under New York law and that, pursuant to New York law, service may be made under article three of New York's limited liability company (“LLC”) law, which “authorizes service on an LLC via the secretary of state.” (ECF 35 at 3). Alternatively, Plaintiff may deliver a copy of process personally to (i) any member of the LLC located in New York, if the management of the LLC is vested in its members, (ii) any manager of the LLC located in New York, if the management of the LLC is vested in one or more managers, (iii) to any other agent authorized by appointment to receive process, or (iv) to any other person designated by the LLC to receive process, in the manner provided by law for service of a summons as if such person was a defendant. (ECF 35 at 2-3 (citing N.Y. C.P.L.R. §311-a (McKinney 2019))).

Plaintiff also argues that service is proper with respect to Defendant Sankov because he was served with the initial complaint and summons and that under Rule 5, he did not need to be served the amended complaint. (ECF 35 at 3-4). Plaintiff also cites case law for the proposition that a process server's affidavit of service creates a presumption of proper service and that a process server may reasonably rely on a corporation's employees to identify the individuals authorized to accept service. (Id. at 3 (citing Old Republic Ins. Co. v. Pac. Fin. Servs. of. Am., Inc., 301 F.3d 54, 57 (2d Cir. 2002))). Plaintiff then explains that it has comported with New York law in serving process and details its effort to do so. Thus, before addressing the merits of Plaintiff's motion for default judgment, the Court must be satisfied that service of process was accomplished. Swaim v. Moltan Co., 73 F.3d 711, 719 (7th Cir. 1996); Roor Int'lBVv. Mut. Traders, LLC, No. 19-CV-5064, 2023 WL 2789325, at *5 (N.D. Ill. Apr. 5, 2023).

B. Legal Standard

“Valid service of process is a prerequisite to a district court's assertion of personal jurisdiction.” Swaim, 73 F.3d at 719 (citing Omni Cap. Int'l, Ltd. v. Rudolf Wolff & Co., Ltd., 484 U.S. 97, 104 (1987)); United States v. Ligas, 549 F.3d 497, 500 (7th Cir. 2008) (“A district court may not exercise personal jurisdiction over a defendant unless the defendant has been properly served with process . . . .” (citation omitted)). As such, in assessing Plaintiff's motion for default judgment, the Court must be satisfied that service of process is proper or that it is substantially accomplished. Swaim, 73 F.3d at 719; see also Trade Well Int'l v. United Cent. Bank, 825 F.3d 854, 859 (7th Cir. 2016) (“[A] judgment is void if it was rendered in a manner inconsistent with due process of law.” (citation and internal quotation marks omitted)); United States v. Summit, Inc., No. 2:19-CV-250-HAB-JPK, 2022 WL 2195443, at *6 (N.D. Ind. Jan. 6, 2022). “Valid service of process comprises more than actual notice; it requires a legal basis for holding the defendant susceptible to service of the summons and complaint.” Swaim, 73 F.3d at 719 (citation omitted).

C. Analysis

The Court must be satisfied that Defendants Sankov and 24 Capital are properly served.

“Federal Rule of Civil Procedure 4 controls service of process in federal court.” Garner v. Bumble Inc., No. 3:21-CV-50457, 2023 WL 6065481, at *2 (N.D. Ill. Sept. 18, 2023). Rule 4(h) provides the framework for serving corporations, partnerships, or associations:

Unless federal law provides otherwise . . ., a domestic or foreign corporation, or a partnership or other unincorporated association that is subject to suit under a common name, must be served:

(1) in a judicial district of the United States:

(A) in the manner prescribed by Rule 4(e)(1) for serving an individual; or

(B) by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process and-if the agent is one authorized by statute and the statute so requires-by also mailing a copy of each to the defendant . . . .

Fed. R. Civ. P. 4(h).

Rule 4(e)(1) further permits service of process on an individual by “following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made.” Fed.R.Civ.P. 4(e)(1).

Once service of the complaint and summons has been accomplished, Rule 5(a)(2) exempts a party from serving an amended pleading “on a party who is in default for failing to appear” unless the amended pleading “asserts a new claim for relief against such a party,” in which case the pleading “must be served on that party under Rule 4.” Fed.R.Civ.P. 5(a)(2); RoorInt'lBV, 2023 WL 2789325, at *5.

Plaintiff first argues that Sankov was properly served with the initial complaint, and that because the amended complaint did not assert any new claims, Sankov can be deemed to be served with the amended complaint. (ECF 35 at 3-4). Here, as stated by Plaintiff, New York law prescribes the manner in which service may be effected under Rule 4(e), given that it is the state in which service was made. See ...