N.C. Business Court Dismisses Third-Party Complaint Based on Bad Service.

In Sloan v. Inolife Techs., Inc., 2019 NCBC 3 (N.C. Super Jan. 9, 2019), the seller of a corporation’s controlling interest asserted third-party claims against an attorney who represented the buyer. Gary Berthold (the Third-Party Plaintiff) alleged various tort claims against attorney Randall Lanham for comments allegedly made during sale negotiations. Judge Robinson dismissed the claims pursuant to Rule 12(b)(5) for improper service of process. At issue was the meaning of the phrase “delivering to the addressee” from Rule 4(j)(1)(c) of the North Carolina Rules of Civil Procedure. Order and Opinion.

A Takeaway

  • When serving a natural person, and someone other than the intended recipient receives the service by certified mail, a claimant must prove the recipient is an agent authorized to receive service of process.

Mr. Lanham is a California attorney.  Mr. Berthold attempted to serve Mr. Lanham with a summons and third-party complaint by mailing it, certified mail, to an address which appeared on Mr. Lanham’s firm’s letterhead, and which Mr. Lanham listed as his official address with the State Bar of California.  The summons and third-party complaint reached the intended address, and the return receipt was returned.  The Process was acknowledged with an illegible scribble by an unidentified recipient who apparently checked the box for “Agent” on the return receipt.

Where’s the rub, you might ask?   — There was no proof that Mr. Lanham authorized the derelict penman (likely, a postal service center employee) to receive service of process on his behalf.  Further, Mr. Lanham never stated whether, in fact, he received the Process.

Rule 4(j)(1)(c) governs service of process on natural persons by certified mail.  It provides that “in any action commenced in a court of this State … service of process within or without the State shall be … [b]y mailing a copy of the summons and of the complaint …, return receipt requested, addressed to the party to be served, and delivering to the addressee.” Rule 4(j)(1)(c)).

When service is challenged, a claimant must prove service by affidavit showing, among other things, that the documents were received as evidenced by the return receipt, or “other evidence satisfactory to the court of delivery to the addressee.” N.C. Gen. Stat. § 1-75.10(a)(4)(emphasis added).  A person relying on service by mail must show strict compliance with the statute. Fulton v. Mickle, 143 N.C. App. 620, 623 (1999). When a party fails to obtain valid service of process (and a defendant does not voluntarily submit to the court’s jurisdiction), the action must be dismissed.  Glover v. Farmer, 127 N.C. App. 488, 490 (1997).

Mr. Lanham relied on Hamilton v. Johnson, 228 N.C. App. 372 (2013), to argue the service was improper.  In Hamilton, the claimant failed to prove whether a concierge who received the Process was the defendant’s agent who was authorized to accept it.  Op. ⁋ 29.  Absent such proof, there was no evidence of delivery to the addressee.

Mr. Berthold contended that the key question is whether Mr. Lanham actually received the Process, and, thus, had notice of the claims.  He argued that, because service was made at the address at which Mr. Lanham “holds himself out” as conducting business, and because Lanham does not deny that he received process, “it can be assumed” that Lanham, in fact, received it. Op. ⁋ 25.  He relied on Washington v. Cline, 233 N.C. App. 412, 422 (2014) and Granville Med. Ctr. v. Tipton, 160 NC. App. 484, 490–94 (2003).

The Court distinguished both cases.  In Washington, the claimant had proof of delivery by the defendants’ admissions. Op. ⁋ 24 (citing N.C. Gen. Stat. § 1-75.10(a)(4)).  In Granville Med. Ctr., the claimant sought a default judgment, a distinct procedure which allowed for a presumption of service.

The Court also distinguished this case from those where process was proper when delivered to the defendant’s place of business. Op. ⁋ 34 (citing Fender v. Deaton, 130 N.C. App. 657, 663 (1998). In Fender, process was delivered by certified mail to the defendant’s law office. It was received by an employee of the law firm “who regularly received, opened, and distributed the daily mail.” 130 N.C. App. at 658. While the defendant in Fender testified that his employees were not authorized to accept service for him, the facts showed that the receptionist routinely did so. Id. at 663. Also, the defendant in Fender admitted he received the documents. The appellate court held service was proper under those facts.

Here, however, Mr. Lanham never admitted that he received the Process, and Mr. Berthold failed to carry his burden to show otherwise.  The Court determined there was insufficient evidence that the Process was delivered to Mr. Lanham’s authorized agent.  It granted the Rule 12(b)(5) motion, which mooted a motion to dismiss for lack of personal jurisdiction.

This case seems tough break for Mr. Berthold who appeared to be serving Mr. Lanham at his place of business. If that had happened, the reception staff (agents of Mr. Lanham) likely would have received the Process and passed it along. Had Process gone to Mr. Lanham’s place of business, service likely would have been sufficient under Fender.