A Rule 4 Service Drama: all FedEx, DHL and UPS Delivery Modes are not Created Equal | Fox Rothschild LLP
A counterclaim plaintiff’s claims in a complex trade secret action involving the development of cell-cultured human milk suffered a rather pedestrian fate given the important technological stakes. The counterclaim defendants had actual notice of the claims, but defective service under Rule 4 ended them before they began.
In BIOMILQ, Inc. v. Guiliano, 2023 NCBC 91A, counterclaim plaintiffs Shayne Guiliano and 108Labs were defending trade secret misappropriation claims and also sought to launch counterclaims against parties that included defendants Leila Strickland and the law firm Goodwin Procter.
But the Strickland and Goodwin Procter claims were troubled from the start. No summons was obtained against either party before, or when, the counterclaims or amended counterclaims were filed. After court inquiry, summonses were ultimately issued. Id. ¶¶ 7-8. But their attempted service brought more drama. Strickland was purportedly served, without requiring a signature, via FedEx Express Server. Using that same delivery service, and addressed only to the law firm, Goodwin’s summons was signed for in its Boston mailroom. Id. ¶¶ 9-10.
As Judge Robinson noted, “It is well established that a court may obtain personal jurisdiction over a defendant only by the issuance of summons and service of process by one of the statutorily specified methods.” (quoting Glover v. Farmer, 127 N.C. App. 488, 490 (1997)). Further observing that a party “must strictly comply with Rule 4,” the Business Court reminded that (Id. ¶¶ 20, 24):
“Actual notice is not a valid substitute for service that does not comply with Rule 4.”
The Business Court found that service on Strickland and Goodwin Procter failed because use of FedEx Express Saver service did not satisfy the definition of a “designated delivery service” under Rule 4 for service on an individual or an entity. State Rule 4 incorporates the federal standard that such a service “means any delivery service provided by a trade or business if such service is designated by the Secretary [of the Treasury].” The Court held that the authorized list of services was found in IRS Notice 2016-30, and that “[t]his list does not include FedEx Express Saver.” Id. ¶¶ 25-26.
Excerpt from IRS Notice 2016-30
The approved “designated delivery services,” last revised in 2016, contains 8 iterations of FedEx (see chart), 8 from DHL and 7 from UPS. The list includes FedEx standard and 2nd-day service; Express Saver is a third-day delivery service. The IRS specifically notes that designation of one or more of these company’s delivery modes does not mean that other, non-listed modes from the same company are authorized. Counterclaim plaintiffs contended that the IRS Notice indicated services “illustrative” of those allowed, but the Court found no leeway to expand the statutory mandate. “Under the doctrine of expressio unius est exclusio alterius, when a statute lists the situations to which it applies, it implies the exclusion of situations not contained in the list.”) Id. ¶ 28 (quoting Evans v. Diaz, 333 N.C. 774, 779-80 (1993)).
The Court similarly rejected the argument that FedEx Express Saver should be considered a valid means of service because it met the criteria that would allow the Secretary to designate a delivery service: (i) available to general public; (ii) “at least as timely and reliable on a regular basis as the United States mail;” and (iii) electronic data recording. Id. ¶ 29 (citing 26 U.S.C. § 7502(f)(2)).
The Court noted, and endorsed, the General Assembly’s directive in N.C.G.S. § 1-75.1 that the statute “shall be liberally construed to the end that actions be speedily and finally determined on their merits.” But it concluded that the legislature’s intent to “greatly liberalize[] the grounds for jurisdiction” should not be conflated with weakening Rule 4’s service requirements. Id. ¶ 34.
Takeaways
- The Court declined to consider affidavits filed after the hearing that purported to demonstrate the counterclaim plaintiffs had secured proper Rule 4 service on both Strickland and Goodwin Procter before the Court’s order was issued. As Judge Robinson noted, “Mr. Guiliano did not promptly bring these matters to the undersigned’s attention or request that the Court consider these subsequent procedural developments in conjunction with the Court’s determination of the Motions.” Id. ¶¶ 17-19. The Court exercised its discretion under Rule 6(d) to not consider the late-filed affidavits.
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