Ray v. Choueka

Background

In 2015, Ronald Ray and Paul Gilchrist sued several defendants in a diversity case involving breach of contract and unjust enrichment. After the defendants did not appear, the Clerk issued a certificate of default, and the Court entered a default judgment on September 25, 2015, for $992,650, including costs. The judgment included Paul Lambert and Jonas Nielson.

Lambert and Nielson moved under Federal Rule of Civil Procedure 60(b)(4), which allows a court to relieve a party from a judgment that is void. They argued that they had never been properly served and that the Court therefore lacked personal jurisdiction—the court’s authority over them—to enter a default judgment. They said they did not learn about the lawsuit or judgment until 2023.

The service affidavits stated that the summons and complaint were delivered at 11 E. 44th Street, 19th Floor, New York, to the law firm Eilenberg & Krause LLP and accepted by Roberta Liebowitz. But the complaint identified 535 Fifth Avenue as Lambert’s and Nielson’s usual place of business, and plaintiffs’ counsel separately stated that service occurred at the Fifth Avenue address. Lambert and Nielson declared that they were not regularly present or conducting business at either address, had visited the 44th Street office only two or three times, and had never authorized the law firm or Liebowitz to accept service for them.

Adam Eilenberg, a member of Eilenberg & Krause, confirmed that the firm did not represent Lambert or Nielson personally and was not authorized to accept service for them. He also stated that Liebowitz was not employed by the firm but worked for another tenant in the building. After oral argument, the Court held an evidentiary hearing at which Lambert and Nielson testified that they had never authorized the firm or Liebowitz to accept service.

Legal standard

Federal Rule of Civil Procedure 4(e) governs service on an individual within the United States. It permits service under applicable state law or by delivering the summons and complaint to an agent authorized by appointment or law to receive service.

Under New York law, service may be made at a person’s actual place of business, but the person must be physically present there regularly and regularly conduct business there. The plaintiff bears the burden of showing that service was proper. A default judgment entered without proper service is void because the court lacks personal jurisdiction.

The Court rejected the plaintiffs’ argument that it should apply the usual factors for vacating a default, such as whether the default was willful, whether the defendant has a potentially valid defense, and whether the plaintiff would be prejudiced. Those factors do not apply when the motion is based on Rule 60(b)(4) and challenges the court’s jurisdiction. If the judgment is void, the court must grant relief.

Court’s analysis

The Court found no evidence that the 44th Street address was Lambert’s or Nielson’s actual place of business. Their declarations and testimony were uncontradicted and credible, and even the complaint appeared to identify the Fifth Avenue address as their usual place of business. The Court therefore concluded that service did not satisfy New York Civil Practice Law and Rules section 308(2).

The Court also found that service was not valid through an authorized agent. Lambert and Nielson testified that they had never known or authorized Liebowitz to accept service. Eilenberg’s declaration contradicted the plaintiffs’ unsupported assertion that Liebowitz represented his firm. In addition, Eilenberg & Krause did not represent Lambert or Nielson in a personal, professional, or other capacity. Even if the firm had represented them, the record contained no evidence that it was authorized to accept service for them.

Ruling and effect

Judge Jed S. Rakoff granted the motion to vacate the default judgment as to Lambert and Nielson, holding that service had not been properly made and that the judgment against those two defendants was void. The order did not vacate the judgment as to other defendants who did not join the motion. It directed that, if the plaintiffs wished to continue the action against Lambert and Nielson, they had to properly serve them within 30 days after entry of the order. The order states that failure to do so will result in dismissal of the complaint as to those two defendants under Federal Rule of Civil Procedure 4(m).