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PHOENIX CONTAINER EX REL. SAMARAH v. SOKOLOFF

February 8, 2000

PHOENIX CONTAINER, L.P., A LIMITED PARTNERSHIP, BY YASAR SAMARAH, GENERAL PARTNERS, AND YASAR SAMARAH, PERSONALLY, PLAINTIFFS,
V.
KEN SOKOLOFF, JOEL SCHONFELD, SCHONFELD & WEINSTEIN, L.L.P., HOLLOW-BROOK HOLDINGS, L.L.C., JAMES "GOVERNOR" FLORIO, MICHAEL PERRUCCI, CHRISTOPHER B. FERGUSON, MICHAEL SAKIMURA, ANDREA WEINSTEIN AND THOMAS BARTKOVICH, DEFENDANTS.



The opinion of the court was delivered by: Gettleman, District Judge.

MEMORANDUM OPINION AND ORDER

Plaintiffs Phoenix Container L.P. ("Phoenix") and Yasar Samarah ("Samarah"), as an individual and in his capacity as a general partner of Phoenix, brought two different suits in state court alleging breach of contract, breach of fiduciary duties, and other claims against defendants Joel Schonfeld and Schonfeld & Weinstein ("the Schonfeld defendants"); Andrea Weinstein ("Weinstein"); Ken Sokoloff ("Sokoloff"); Hollow-Brook Holdings, L.L.C.; Thomas Bartkovich ("Bartkovich"); James "Governor" Florio ("Florio"); Michael Perrucci; Christopher B. Ferguson; and Michael Sakimura.. On October 8, 1999, Florio filed a notice of removal pursuant to 28 U.S.C. § 1446. All named defendants joined in the notice of removal. The parties do not contest that the requirements for diversity jurisdiction under 29 U.S.C. § 1332 are met. Plaintiffs have filed a motion to remand the instant case to the Circuit Court of Cook County, however, for failure to timely remove. Florio has filed a response in opposition to that motion.

FACTS AND PROCEDURAL HISTORY

This case has a tortured procedural history. On Feb. 11, 1999, Samarah filed suit in state court against the Schonfeld defendants and Weinstein alleging that these defendants breached a contract by convincing Samarah to purchase stock in Phoenix ("case number 99 L 1730"). On February 19, 1999, Phoenix and Samarah filed a second action in state court ("case number 99 L 2065"), naming as defendants the Schonfeld defendants, Sokoloff, and Hollow-Brook Holdings, L.L.C., and alleging, inter alia, that defendants conspired to dilute Samarah's stock and deprive him of control of Phoenix, thereby breaching their fiduciary duties.

In the spring of 1999, all defendants named in both state court suits filed limited appearances for the purpose of filing motions to quash service of process. Each defendant filed a motion to quash either for improper service of summons or for lack of personal jurisdiction. (The Schonfeld defendants filed their motion to quash for lack of personal jurisdiction on May 4, 1999). With one exception, the state court postponed ruling on all defendants' motions to quash service.*fn1

On June 24, 1999, plaintiffs filed a motion for leave to file an amended complaint in case number 99 L 2065. The court notes that at this juncture, none of the defendants had yet accepted service of the original complaint. The amended complaint added as defendants Bartkovich, Florio, Weinstein, Michael Perrucci, Christopher B. Ferguson, and Michael Sakimura. Bartkovich filed a motion to quash service of process of the amended complaint and the court granted his motion. The record contains no evidence that any of the other new defendants was ever properly served with the amended complaint. There is also no evidence that the state court ever granted plaintiffs leave to file the amended complaint.

On August 16, 1999, however, the state court granted plaintiffs leave to file a second amended complaint in case number 99 L 2065. On this same date, the Schonfeld defendants withdrew their motion to quash service of process with respect to plaintiffs' original complaint in that case. The state court promptly ordered the Schonfeld defendants to answer the second amended complaint within the month.

On September 9, 1999, Florio was served with plaintiff's second amended complaint. On October 7, 1999, case number 99 L 1730 was consolidated with case number 99 C 2065. On this same date, the Schonfeld defendants filed their general appearance and answered the second amended complaint in case number 99 C 2065. On October 8, 1999, Florio filed a notice of removal pursuant to 28 U.S.C. § 1446, alleging diversity jurisdiction. All of the remaining defendants consented to the removal.

DISCUSSION

Plaintiffs argue that the instant lawsuit should be remanded to the state court because defendants failed to remove either state case within thirty days of being served with the complaint. Under 28 U.S.C. § 1446(b), a defendant must file a motion to remove an action from state to federal court within thirty days of service. The statute reads, "The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based." 28 U.S.C. § 1446(b).

The Supreme Court recently clarified § 1446(b) by holding that the thirty-day removal period does not begin to run until a defendant is formally served with the complaint. Murphy Bros. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 119 S.Ct. 1322, 143 L.Ed.2d 448 (1999). The Murphy Court held that the statute's "`service or otherwise' language was not . . . intended to bypass service as a starter for § 1446(b)'s clock." Id. at 1329. The Murphy Court reasoned: "In the absence of service of process (or waiver of service by the defendant), a court ordinarily may not exercise power over a party the complaint names as defendant." In so holding, the Court rejected the "receipt rule" adopted by a majority of courts, including the Seventh Circuit. See Roe v. O'Donohue, 38 F.3d 298 (7th Cir. 1994).

Examining the parameters of the now discredited "receipt rule" clarifies what, exactly, the Supreme Court means by "formal service." Under the "receipt rule," the thirty-day removal clock began running "on receipt of a copy of the complaint, however informally." Murphy, 526 U.S. 344, 119 S.Ct. 1322. In adhering to the receipt rule in Roe, the Seventh Circuit held that "knowledge of the nature of the claims, and not the state's technical rules of service, determines timeliness." Roe, 38 F.3d at 303. The Roe court described various situations that constituted "receipt" even though they did not amount to "service." One such situation was "a delivery of the complaint by a process server that is not effective as `service of process'" because it does not comply with state law service of process requirements. Id. at 302. In adopting the receipt rule, the Seventh Circuit disagreed with "other courts [that] have held that only `service' complying with all technical rules of state law starts the clock under § 1446(b)." Id. at 302.

The Supreme Court explicitly abrogated Roe in Murphy. The Murphy Court held that a defendant should be given the same procedural rights in the removal context that he receives in other contexts. Murphy, 119 S.Ct. at 1329. The Court analogized removal to the filing of a responsive pleading in a removed action under Fed. R.Civ.P. 81(c). Id. The Court concluded: "[I]t would take a clearer statement than Congress has made . . . to set removal apart from all other responsive acts, to render removal the sole instance in which one's procedural rights slip away before service of a summons, i.e., before one is subject to any court's authority." Id. Murphy's conclusion, and its abrogation of Roe, suggest that "formal service" is service that complies with a state's technical service of process rules (that is, the same sort of service that would trigger other responsive acts).

Plaintiffs contend that each defendant was formally served at the moment service of process was initially made. Each defendant, however, moved to quash service. It is well-settled that a challenge to service of process is a challenge to the court's jurisdiction. White v. Ratcliffe, 285 Ill. App.3d 758, 221 Ill.Dec. 113, 674 N.E.2d 906, 911 (2d Dist. 1996). The Seventh Circuit "has long held that valid service of process is necessary in order to assert personal jurisdiction over a defendant." Mid-Continent Wood Prods., Inc. v. Harris, 936 F.2d 297, 301 (7th Cir. 1991) (internal citations and quotation marks omitted). The defendants preserved their objections to the court's jurisdiction by filing special and limited appearances for the purpose of contesting service of process and/or jurisdiction. The court reads the Murphy Court's holding to mean that the thirty-day clock did not begin to run during the time ...


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