Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Action No. 86-05763).
Present: Hutchinson, Alito and Seitz, Circuit Judges.
HUTCHINSON, Circuit Judge.
Appellants, Nostra, S.A., Ricardo Sanz, S.A. and Ricardo Sanz Perez (Sanz Perez) (collectively "the Spanish defendants"), appeal a final order of the United States District Court for the Eastern District of Pennsylvania denying their motion to set aside a default judgment entered against them. In their motion, the Spanish defendants contended, in part, that process had not been properly served and the district court's exercise of in personam jurisdiction over them violated due process. The district court decided the Spanish defendants had the minimum contacts with the forum that are necessary to satisfy due process and held service of process proper under Spanish law pursuant to Federal Rule of Civil Procedure 4(i), as well as under Pennsylvania Rule of Civil Procedure 402(a)(2)(iii) as incorporated by Federal Rule of Civil Procedure 4(e). The district court's holding that service was proper under Pennsylvania law was entered after it granted Appellees Grand Entertainment Group, Ltd. and Entertainment Industries, Inc.'s (collectively "Grand") motion for alternative service of process.
We hold that Grand's service of process was insufficient to satisfy either Pennsylvania Rule of Civil Procedure 402 or the relevant provisions of Spanish law concerning service that Federal Rule of Civil Procedure 4(i) incorporates. Accordingly, we will vacate the order of the district court denying the Spanish defendants' motion for reconsideration and remand the case with instructions to remove the default judgment entered against them.
The district court had subject matter jurisdiction over this action under 28 U.S.C.A. § 1332 (West Supp. 1992) and 18 U.S.C.A. § 1964 (c) (West 1984). We have appellate jurisdiction over the final order of the district court pursuant to 28 U.S.C.A. § 1291 (West Supp. 1992).
This dispute arises out of an alleged contract to sell the rights to 450 foreign films. Grand filed a complaint in the United States District Court for the Eastern District of Pennsylvania in 1986 asserting four grounds for relief. Grand contended that the defendants' failure to deliver the rights to the films in question constituted a breach of contract and, because the defendants did not actually have some of the rights they contracted to deliver, that they committed a fraud actionable under RICO.
Grand attempted to effect service on the Spanish defendants in Madrid, Spain in July 1987. The Spanish defendants failed to respond. Accordingly, the clerk of the district court entered a default judgment in favor of Grand on October 5, 1987. In November 1989, after a hearing on damages, the magistrate Judge to whom the case was assigned issued a report recommending entry of a default judgment exceeding $34,421,250.00. The Spanish defendants did not receive notice of the hearing and did not attend.
In December 1989, Grand filed a motion to approve the magistrate Judge's report and recommendation. The Spanish defendants then entered the action and filed a motion to open or set aside the default for lack of service, lack of personal jurisdiction and the existence of a meritorious defense. In an order dated March 12, 1991, the district court conditionally granted Grand's motion and denied the Spanish defendants' motion. The district court held that Grand had properly effected service under Spanish law in accord with Federal Rule of Civil Procedure 4(i) and that it had personal jurisdiction over the Spanish defendants. The district court also decided, however, that the default would be lifted if the Spanish defendants satisfied five conditions:
(1) Accept service of process and forgo any future challenges on this basis without waiving any future personal jurisdiction challenge.
(2) Pay the costs incurred in the litigation to date, including Grand's attorneys' fees attendant to the entry of the default, the damages hearing, and the lifting of the default.
(3) Have Sanz Perez appear for deposition at his own expense in the United States.
(4) Post a bond in the amount of $250,000.00 to secure any eventual judgment and attendant costs.
(5) Post a bond in the amount of $50,000.00 to secure any costs incurred in compliance with paragraph two.
See Brief for Appellees, Exhibit A at 3.
The Spanish defendants did not comply with these conditions and, in May 1991, Grand moved for confirmation of the defaults and a ruling upholding service on alternative grounds. The Spanish defendants requested reconsideration of the district court's March order. On June 7, 1991, the district court granted Grand's motion to confirm the defaults, denied its motion for a ruling upholding service on alternative grounds, and deferred ruling on the motion for entry of a default judgment setting damages in the amount recommended by the magistrate Judge pending an evidentiary hearing.
On July 1, 1991, Grand filed a motion for reconsideration of the district court's denial of its motion for alternative rulings on the service of process issue. On March 20, 1992, the district court granted reconsideration and issued a new order granting Grand's motion for a ruling on alternative grounds. In doing so, it held that service of process was proper under Pennsylvania Rule of Civil Procedure 402(a)(2)(iii) as incorporated by Federal Rule of Civil Procedure 4(e), as well as under Federal Rule of Civil Procedure 4(i), incorporating Spanish law. In its March 20, 1992 decision, the district court also denied the Spanish defendants' motion for reconsideration and granted Grand's motion for entry of a default judgment in the amount of $11,473,750.00 plus attorneys' fees and costs in the amount of $56,166.85. The Spanish defendants filed a timely notice of appeal on April 30, 1992.
The Spanish defendants are two corporations incorporated under the laws of Spain, with offices in Madrid, and one individual who is a Spanish national residing in Spain. For the purpose of deciding the issues of personal jurisdiction and service of process that are now before us, it is sufficient to state that the merits of the dispute between the parties to this appeal concern a contract that Grand allegedly negotiated with the Spanish defendants under which Grand was to acquire certain rights in 450 foreign films.
In February of 1986, Grand, through its agent Matthew Wax (Wax), entered into negotiations with the Spanish defendants through their representative Esther Freifeld Rivera (Freifeld)*fn1 and Sanz Perez. Wax, as agent for Grand, maintained an office in Bala Cynwyd, Pennsylvania. Grand believed that the Spanish defendants owned rights in certain films and the negotiations centered around terms for purchase of the right to distribute foreign films in the United States and Canada. Wax traveled to Los Angeles on February 28, 1986 for a face to face meeting with Sanz Perez. With Wax in Pennsylvania, Freifeld in California and Sanz Perez travelling between Spain and California, the parties exchanged some twenty-six telexes, at least twelve of which were sent to Wax in Pennsylvania. Wax also estimated that he spoke to Freifeld at least fifty times from Pennsylvania with Freifeld initiating forty to fifty percent of the calls. Whether these contacts resulted in a binding agreement is the subject of the underlying litigation.
After filing this action in the United States District Court for the Eastern District of Pennsylvania against the Spanish defendants and a number of California parties, Grand attempted to serve the defendants. Initially, Grand served Sanz Perez in Beverly Hills, California. After the district court decided that the damages clause in the complaint violated Local Rule 30, Grand revised its complaint and attempted to serve Sanz Perez again but could not locate him in the United States. Grand then attempted service by registered mail after verifying Sanz Perez's address through a phone call. The envelopes were returned unopened.
On January 16, 1987, Grand amended its complaint to substitute certain California defendants. On January 20, Grand tried unsuccessfully to serve the amended complaint on all the Spanish defendants by registered mail through the office of the clerk of the district court. In April 1987, Grand retained a Spanish attorney, Elizabeth Powers (Powers), to effectuate service on the Spanish defendants in Spain. Grand forwarded Powers the most recent addresses of the Spanish defendants.*fn2 Powers had the summons and complaint translated into Spanish and conveyed a copy to an office of the Spanish Notaries Public with directions for them to serve the defendants at the address provided.
The office building located at Gran Via 40, in which the Spanish defendants rent space, has a common entrance where a telephone operator/receptionist (the "building receptionist") receives visitors, messages and correspondence for the tenants of the building. The building receptionist regularly performs these duties for the tenants when their offices are closed as well as when they are open. The owner of the office building employs the building receptionist.
On July 24, 1987, a Spanish notary attempted to serve the Spanish defendants. The building receptionist informed the notary that the Spanish defendants maintained offices in the building but were on vacation at the time. The notary delivered the complaint and summons to the receptionist who agreed to deliver the documents to the Spanish defendants upon their return. Powers then obtained proofs of service from the notary and informed Grand that service had been properly effected under Spanish law.
Grand followed this attempt at service with a number of Federal Express letters and Telexes to both of the addresses it had obtained for the Spanish defendants informing them that service had been completed and that default would result if they did not take action.
While Grand attempted service on the Spanish defendants, the litigation went forward as to the California defendants. In 1988, an attorney, Carl Kaminsky (Kaminsky), attended a deposition of one of the California defendants. The record of this deposition listed Kaminsky as counsel not only for Sergio Lieman, another Spanish defendant, but also for Sanz Perez. Kaminsky's participation in the taking of this deposition was at best limited. There is no other indication that ...