On July 2, 2018, the Ohio Second District Court of Appeals issued a decision that shows how important it is for companies and LLCs to have solid procedures and processes in place for handling service on their statutory agent. John W. Judge Co. v. USA Freight, LLC, 2d Dist. Montgomery No. 27708, 2018-Ohio-2658. The plaintiff in the case served its complaint on the defendant LLC by sending a copy by certified mail to the address listed for the LLC's registered statutory agent. The defendant failed to respond, so the court entered a default judgment and a writ of execution in favor of the plaintiff. The court's bailiff then contacted the defendant's general manager to begin the process of levying on the defendant's goods.
The bailiff's reference to a lawsuit and default judgment came as a complete surprise to the defendant's general manager. The general manager later testified that (1) he did not receive notice of the complaint until speaking with the bailiff, (2) he was unaware of anyone who had signed for service of the complaint, despite asking members and employees of the LLC, and (3) the LLC had meritorious defenses to the lawsuit.
It turned out that the certified mail had been signed for by the mother of the LLC's owner. However, she understood and spoke very little English, was not part of the company, was not involved in the company's operations, and lacked knowledge of the legal system. She just happened to be the person present when the complaint was served, and she apparently did not provide the summons or complaint to anyone. Therefore, the defendant asked that the default judgment be vacated on grounds of excusable neglect under Civ.R. 60(B)(1).
The trial court agreed to vacate the judgment, but the appellate court reversed (despite an abuse of discretion standard of review and the liberal nature of Civ.R. 60(B), with its preference for cases to be decided on their merits). The appellate court held that "when a company is required by law to maintain a statutory agent to receive service of process, and when there is successful service of process via certified mail at the statutory agent's address that is on record with the Ohio Secretary of State, the subsequent mishandling of served documents by the person who signed for and received the documents at the statutory agent's listed address does not amount to excusable neglect" under Civ.R. 60(B)(1). 2018-Ohio-2658 at ¶29.[1]
The fact that the defendant "did not receive notice of the complaint because the mother of [the defendant's] owner mishandled the complaint" did not matter. Id. at ¶26. The court explained that "[s]ervice is valid if 'any person' at the address [of the statutory agent] signs for the certified mail, whether or not the recipient is the defendant's agent." Id. at ¶25 (quoting Civ.R. 4.1(A)(1)(a)). "[I]nsufficient or negligent internal procedures in an organization may not compromise excusable neglect and, therefore, they may not support the vacation of a default judgment." Id. at ¶27. Companies and LLCs are "responsible for maintaining a valid statutory agent that is calculated to receive service of process at the agent's listed address. Here, [defendant LLC] chose a statutory agent address where it was possible for a non-English-speaking person who was unaffiliated with the company to receive important documentation that was served at the address." Id.
The case serves as a warning to companies and LLCs that they need to be careful in choosing their statutory agent, listing the address for their statutory agent, and implementing procedures to ensure that documents served at their statutory agent's address are directed to the appropriate person. Otherwise, they could be staring at an enforceable default judgment despite not actually knowing that a lawsuit had been filed.
[1] In support of its decision, the appellate court relied on Middleton v. Luna's Rest. & Deli, LLC, 5th Dist. Stark No. 2011 CA 00004, 2011-Ohio-4388, ¶31 (summons received in a corporate mailroom but lost before being brought to the attention of the proper office does not rise to excusable neglect); Andrew Bihl Sons, Inc. v. Trembly, 67 Ohio App.3d 664, 667, 588 N.E.2d 172 (4th Dist.1990) (ignoring mail for more than three months due to illness and failing to delegate a competent agent to handle business affairs does not constitute excusable neglect); Meyer v. GMAC Mortg., 10th Dist. Franklin No. 06AP-877, 2007-Ohio-5009 (employee's failure to forward the complaint to the appropriate department does not constitute excusable neglect).