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Knit With v. Knitting Fever

July 13, 2010

THE KNIT WITH, PLAINTIFF,
v.
KNITTING FEVER, INC., DESIGNER YARNS, LTD., FILATURA PETTINATA V.V.G. DI STEFANO VACCARI & C., SION ELALOUF, DIANE ELALOUF, JEFFREY J. DENECKE, JR., JAY OPPERMAN, AND DEBBIE BLISS, DEFENDANTS.
THE KNIT WITH, PLAINTIFF,
v.
EISAKU NORO & CO., LTD., KNITTING FEVER, INC., SION ELALOUF, DIANE ELALOUF, AND JAY OPPERMAN, DEFENDANTS.



The opinion of the court was delivered by: Buckwalter, S.J.

MEMORANDUM

Currently pending before the Court are several Motions to Dismiss for Insufficient Service filed by Defendants Filatura Pettinata V.V.G. Di Stefano Vaccari & C. ("Filatura"), Designer Yarns, Inc. ("Designer Yarns"), and Debbie Bliss (collectively "Moving Defendants").

Also at issue are the Motions to Set Aside Defaults by Defendants Designer Yarns and Debbie Bliss. For the reasons which follow, the Motions to Dismiss are granted in part and denied in part, the service upon the three Moving Defendants is quashed, and Plaintiff is given sixty days from the date of this Memorandum and accompanying Order to effect proper service on the Moving Defendants. Further, the motions to Set Aside the Defaults are granted and the Defaults entered against Defendants Designer Yarns and Debbie Bliss are vacated.

I. FACTUAL AND PROCEDURAL HISTORY

The factual background of this case is one familiar to both the parties and the Court and has been reiterated in several of this Court's prior opinions.*fn1 This matter arises between Plaintiff, The Knit With ("The Knit"), a small, family-owned and operated business retailing specialty yarns and accessories to consumers, Defendant Knitting Fever, Inc. ("KFI"), a New York corporation that manufactures and distributes specialty yarns, and Defendants Filatura, Debbie Bliss, and Designer Yarns, all of whom design and manufacture specialty yarns. At the core of the dispute is Plaintiff's claim that KFI sold designer knitting yarns to The Knit, representing that the yarns contained a percentage of cashmere, which they allegedly did not.

Plaintiff initiated litigation against KFI, its officers/directors, Filatura, Designer Yarns, and Debbie Bliss, alleging that, as a consequence of the false labeling of three of the six Cashmerino yarns at issue, its business and commercial interests were harmed. (Compl., The Knit With v. Knitting Fever, Inc., No. CIV.A.08-4221 (E.D. Pa. Sep. 2, 2008) ("The Knit With I").) The Complaint set forth several causes of action, including: (1) breach of the express warranty of merchantability; (2) breach of the implied warranty of merchantability; (3) false advertising under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B); (4) injury to business and property pursuant to the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962; (5) conspiracy to cause injury to business and property pursuant to RICO; (6) perfidious trade practices (deceit) under the common law of unfair competition; and (7) piercing the corporate veil. (Id. ¶¶ 82-150.) Defendants Knitting Fever, Inc., Sion Elalouf, Diane Elalouf, Jeffrey Denecke, and Jay Opperman (collectively, the "KFI Defendants") moved, on September 24, 2008, to dismiss the third, fourth, and fifth counts.

On October 6, 2008, prior to the resolution of this motion to dismiss, Plaintiff initiated a second litigation against the KFI Defendants, also including as Defendants the Japanese manufacturers of the remaining three Cashmerino yarns at issue. (Compl., The Knit With v. Eisaku Noro & Co., Ltd., No. CIV.A.08-4775 (E.D. Pa. Oct. 6, 2008) ("The Knit With II").) The Complaint in that case set forth the following causes of action: (1) breach of express warranty of merchantability of goods for resale to consumers; (2) breach of implied warranty of merchantability of goods for resale to consumers; (3) explicitly false advertising pursuant to the Lanham Act, 15 U.S.C. § 1125(a)(1)(B); (4) perfidious trade practices and common law unfair competition; (5) civil conspiracy; and (6) piercing the corporate veil. The KFI Defendants filed another motion to dismiss with respect to The Knit With II. (Id. ¶¶ 35-82.)

On December 18, 2008, this Court, in The Knit With I, granted the motion to dismiss the Lanham Act claim on standing grounds, but declined to dismiss the RICO claims. The Knit With v. Knitting Fever, Inc., No. CIV.A.08-4221, 2008 WL 5381349, at *1-6 (E.D. Pa. Dec. 18, 2008).

The following day, the Court also dismissed the Lanham Act claim in The Knit With II. The Knit With v. Eisaku Noro and Co., Ltd., No. CIV.A.08-4775, 2008 WL 5273582 (E.D. Pa. Dec. 19, 2008). By way of Order dated December 23, 2008, the Court consolidated both actions under the first civil action number.

Following the KFI Defendants' submission of their Answer, Plaintiff moved, on January 22, 2009, to dismiss all counterclaims and strike all affirmative defenses. The Court struck the KFI Defendants' fifth affirmative defense, but denied the motion in all other respects. Thereafter, via a Motion for Judgment on the Pleadings, filed on July 15, 2009, the KFI Defendants sought to dismiss Plaintiff's RICO, deceit, and conspiracy claims. The Court declined to dismiss the RICO claims, but granted judgment on the pleadings on both the deceit and conspiracy claims. The sole remaining claims are the RICO and breach of warranty actions.

Throughout this entire course of events, Defendants Filatura, Debbie Bliss, and Designer Yarns never entered appearances. Therefore, on May 10, 2010, Plaintiff moved for defaults against all of these entities. Defendant Filatura countered, on May 12, 2010, with a Motion to Dismiss the case against it for insufficient service. That same day, the Clerk of this Court entered defaults against Defendants Debbie Bliss and Designer Yarns. On May 14, 2010, these two latter Defendants moved to reopen the defaults against them and also filed Motions to Dismiss for insufficient service identical in nature to the one filed by Filatura. The Court now turns to the merits of these Motions.

II. THE MOTIONS TO DISMISS

A. Standard of Review

The Federal Rules of Civil Procedure allow a Court to dismiss an action for "insufficiency of service of process." FED. R. CIV. P. 12(b)(5). In a Rule 12(b)(5) motion, "the party making the service has the burden of demonstrating validity when an objection to the service is made." Suegart v. U.S. Customs Serv., 180 F.R.D. 276, 278 (E.D. Pa. 1998). "In addressing such motions, '[t]he courts have broad discretion to dismiss the action or to retain the case but quash the service that has been made on defendant[s].'" Grand Entm't Group, Ltd. v. Star Media Sales, Inc., No. CIV.A.86-5763, 1993 WL 437699, at *2 (E.D. Pa. Oct. 21, 1993) (quoting 5A CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE PROCEDURE § 1354 at 288 (2d ed. 1990)).

Nevertheless, the United States Court of Appeals for the Third Circuit has held that "dismissal of a complaint is inappropriate when there exists a reasonable prospect that service may yet be obtained. In such instances, the district court should at most, quash service, leaving the plaintiff[] free to effect proper service." Umbenhauer v. Woog, 969 F.2d 25, 30 (3d Cir. 1992). "Where service is insufficient, the Court must extend the deadline where good cause is present, and may, at its discretion, extend the deadline regardless, even if good cause is not present." Salaam v. Merlin, No. CIV.A.08-1248, 2009 WL 2230925, at *3 (D.N.J. Jul. 22, 2009) (citingPetrucelli v. Bohringer & Ratzinger, 46 F.3d 1298, 1312 (3d Cir.1995)). Good cause exists where there is a "demonstration of good faith on the part of the party seeking an enlargement and some reasonable basis for noncompliance within the time specified in the rules." MCI Telecomm. Corp. v. Teleconcepts, Inc., 71 F.3d 1086, 1097 (3d Cir. 1995) (quotations omitted). Some of the factors courts examine in determining whether good cause exists include: (1) the reasonableness of the plaintiffs' efforts to serve, (2) the prejudice that may befall a defendant as a consequence of untimely service, and (3) whether plaintiffs moved for an enlargement of time to serve. Id. (citing the three factors but noting that the "absence of prejudice alone can never constitute good cause to excuse late service"). In addition, the burden of establishing good cause rests with the plaintiff. Parker v. John Doe # 1, No. CIV.A.02-7215, 2003 WL 21294962, at *2 (E.D. Pa. Jan. 21, 2003).

B. Merits of the Motions to Dismiss

The crux of the pending Motions turns on the propriety of the service of process on Defendants Filatura, Debbie Bliss, and Designer Yarns. Plaintiff, in this case, filed this action on September 2, 2008. The following day, Plaintiff's counsel, James Casale, retained the services of FedEx, an international courier, to serve the Complaint and Summons on Filatura. (Decl. of James Casale in Resp. to Def. Filatura's Mot. to Dismiss ("Casale Decl. for Filatura") ¶ 2, June 1, 2010.) A few days later, he received a document from FedEx confirming that it accomplished such service on September 5, 2008, by delivering the Summons and Complaint to Filatura's offices at 11 Via Gianasso in Benna, Italy. (Id. ¶ 3.) The document further indicated that S. Vaccari, Filatura's employee, signed for the delivery. (Id.)

As to Defendant Designer Yarns, Attorney Casale also retained the services of FedEx to serve the Summons and Complaint on Designer Yarns in Keighley, England. (Decl. of James Casale in Resp. to Def. Designer Yarns's Mot. to Dismiss ("Casale Decl. for Designer Yarns"), ¶ 2, June 1, 2010.) On September 5, 2008, he received confirmation of the delivery of these documents by accessing FedEx's website and inputting the tracking number. (Id. ¶ 3.)

Finally, as to Defendant Debbie Bliss, Attorney Casale similarly sent the Summons and Complaint to Ms. Bliss via FedEx Air Waybill and, on September 5, 2008, received a proof-of-delivery from FedEx. (Decl. of James Casale in Resp. to Def. Debbie Bliss's Mot. to Dismiss ("Casale Decl. for Debbie Bliss"), ¶¶ 2-3, June 1, 2010.)

The three Moving Defendants now contend that such service was improper and seek dismissal of the Complaint against them. In support of their claim, Defendants raise three points. First, they contend that, notwithstanding Plaintiff's claims to the contrary, they have not waived their right to object to service. Second, they assert that the Hague Convention does not permit for international service by registered mail. Finally, they argue that, even if the Hague Convention allows use of the mail for service, nothing within the Federal Rules of Civil Procedure permits a private attorney to accomplish international service of process by registered mail. The Court addresses each point individually.

1. Whether Defendants Have Waived Their Right to Object to Service

Plaintiff first seeks dismissal of all Defendants' Motions because they failed to timely challenge the sufficiency of the service, thereby waiving their right to object to service. Specifically, Plaintiff avers that all three Defendants received actual notice of the action nearly two years ago, yet chose not to respond to the Summons and Complaint. Thus, through their inaction, Plaintiff claims that Defendant's current objections must be denied as untimely.

Plaintiff's argument is misplaced. The Third Circuit has expressly noted that, "[a] district court's power to assert in personam authority over parties defendant is dependent not only on compliance with due process but also on compliance with the technicalities of Rule 4." Grand Entm't, 988 F.2d at 492. "Notice to a defendant that he has been sued does not cure defective service, and an appearance for the limited purpose of objecting to service does not waive the technicalities of the rule governing service." Id.; see also Henry v. Cooper Univ. Hosp., No. CIV.A.07-2402, 2008 WL 4371764, at *2 (D.N.J. Sep. 17, 2008). In other words, even if a defendant has notice of a lawsuit against it, such notice neither validates an otherwise defective service nor waives the defendant's right to object to that service. Id.; see also West v. Terry Bicycles, Inc., 230 F.3d 1382, at *2 (5th Cir. 2000). "Without proper service, the court does not obtain personal jurisdiction over a defendant, and the case may not proceed to judgment." Lin v. Pa. Machine Works, Inc., No. CIV.A.97-5407, 1998 WL 111788, at *3 (E.D. Pa. Mar. 3, 1998) (citing Ayres v. Jacobs & Crumplar, P.C., 99 F.3d 565, 568 (3d Cir. 1996)); see also Kloth v. S. Christian Univ., 494 F. Supp. 2d 273, 275 n.3 (D. Del. 2007) ("If service of process is insufficient to confer jurisdiction of the person, a defendant does not waive this defense by failing to raise it in a motion or pleading within the time required for answer, since the court has no power over the defendant."), aff'd, 320 Fed. Appx. 113 (3d Cir. 2008).

In this case, Defendants do not dispute that they actually received copies of the Summons and the Complaint. Rather, they argue that the method of service was defective. The mere fact that two years elapsed before they raised such objections -- their first legal filing in this action -- is irrelevant. As such, the Court rejects Plaintiff's argument that Defendants' challenges to the sufficiency of service are untimely and waived.

2. Whether Service of Process by Mail is Permitted Under the Hague Convention

Service of process is governed by Rule 4 of the Federal Rules of Civil Procedure. The Rule specifically notes, in part, that an individual or corporation may be served at a place not within any judicial district of the United States, "by an internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents." FED. R. CIV. P. 4(f)(1); see also FED. R. CIV. ...


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