Boustead Securities, LLC v. Leaping Group Co., Ltd

Background

Boustead Securities, LLC sued Leaping Group Co., Ltd. and ATIF Holdings Limited for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with business relations, and quantum meruit. The pending motion was filed by Leaping under Federal Rule of Civil Procedure 12(b)(5), which allows dismissal for insufficient service of process.

In October 2018, Boustead entered an exclusive financial-advisor agreement with Leaping concerning Leaping’s initial public offering and pre-IPO financings. In a Form F-1 registration statement submitted to the Securities and Exchange Commission, Leaping appointed Hunter Taubman Fischer & Li LLC as a limited agent for receiving service of process in cases brought under federal or state securities laws. Boustead’s complaint did not assert securities-law claims.

Boustead filed the complaint on May 14, 2020, and emailed the summons and complaint to Hunter Taubman on June 16, 2020. Leaping informed Boustead that Hunter Taubman was not authorized to accept service for the claims in the complaint and asked Boustead to serve Leaping by another method. Boustead maintained that its service was valid and did not re-serve Leaping. The court also noted that Leaping had withdrawn the registration-statement designation in March 2020.

Court’s analysis

The court explained that proper service of the summons is required before a federal court may exercise personal jurisdiction over a defendant. For a corporation, Federal Rule of Civil Procedure 4(h) permits service through methods authorized by federal or state law, including delivery to an officer, managing or general agent, or another agent authorized to receive service.

The court rejected Boustead’s argument that Hunter Taubman was authorized to receive service in this case. The registration statement limited Hunter Taubman’s authority to securities-law actions, while Boustead asserted common-law claims. The court also said that an attorney is not automatically a client’s service agent and that Boustead had not shown why email service, rather than personal delivery, was valid under New York law without prior court approval.

The court further rejected Boustead’s arguments that Hunter Taubman’s receipt of the email, Leaping’s actual notice, and the absence of claimed prejudice made service effective. Actual receipt of the complaint alone could not cure defective service under Rule 4(h). Because service was insufficient, the court had discretion either to dismiss the action or to allow Boustead additional time to serve Leaping.

Ruling

Judge Valerie Caproni held Leaping’s motion to dismiss in abeyance. The court ordered Boustead to properly serve Leaping within 60 days of the order and to post proof of service on the electronic docket. The court stated that, if Boustead failed to serve Leaping within that period, it would grant Leaping’s motion to dismiss for insufficient service of process. The opinion did not rule on the merits of Boustead’s underlying claims.