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Yash Technologies, Inc. v. Prospeed Trading

September 9, 2009


The opinion of the court was delivered by: Joe Billy McDADE United States District Judge


Before the Court is a Motion to Vacate Default Judgment (Doc. 14), filed by Defendant Prospeed Trading, Inc. on January 23, 2009. Also before the Court is a Motion to Intervene (Doc. 15) by IT Source LLC, filed on the same day. For the reasons that follow, both motions are DENIED.


On May 15, 2007, Plaintiff Yash Technologies, Inc. ("Yash") filed a complaint in the Circuit Court of the Fourteenth Judicial Circuit, Rock Island, Illinois, seeking a judicial declaration that it was not obligated to make payments to Defendant Prospeed Trading, Inc. ("Prospeed") under a purported agreement between the two parties for referral services ("Referral Agreement"). Yash's complaint identified Prospeed as a California corporation with an office in Corona, California. (5/15/07 Ill. Cir. Ct. Compl. ¶ 2).*fn1

Shortly after filing its complaint in Illinois state court, Yash hired a licensed process server to serve a summons and a copy of the complaint on Prospeed's registered agent for service of process in California. (7/6/2007 P. Becker Aff. ¶¶ 2-3). The state-court summons, which was issued the same day Yash filed its complaint, listed Asim Khawaja as Prospeed's registered agent and listed "2424 Safe Leaf Cir[.,] Corona, CA 92882" as Khawaja's address. (5/15/2007 Ill. Cir. Ct. Summons; 7/6/2007 P. Becker Aff. ¶ 3).*fn2 At some point before the process server attempted service on Khawaja, it was discovered that the address for Khawaja listed on the summons was not accurately recorded. The process server, who was familiar with Corona, California, knew of no street in Corona named "Safe Leaf" but did know of a street named "Sage Leaf." (7/6/2007 P. Becker Aff. ¶¶ 3-4). Accordingly, it was decided that the correct address for Khawaja was 2424 Sage Leaf Circle in Corona. In May and June 2007, the process server made several unsuccessful attempts to serve Khawaja at that address. On the last of these attempts, a woman who answered the door at the Sage Leaf address informed the process server that Khawaja had moved from the address in early 2007. (7/6/2007 P. Becker Aff. ¶¶ 5-6). Further, the process server observed that there was no sign or any other type of identification at 2424 Sage Leaf Circle connecting Prospeed with the address. (7/6/2007 P. Becker Aff. ¶ 7). Unbeknownst to Yash, Khawaja had moved Prospeed's office to New York, New York. (Ex. A to Prospeed's 10/23/2007 Resp. to Mot. to Remand, Khawaja Decl. ¶ 2).

Unable to personally serve Prospeed's designated agent for service of process in California, Yash moved the Illinois state court for authorization to perfect service of process on Prospeed by serving the California Secretary of State.*fn3 The court, on June 29, 2007, granted Yash's motion for substituted service, authorizing Yash to effectuate service of process on Prospeed by serving the California Secretary of State and mailing a copy of the complaint and summons to Prospeed's last known mailing address. (6/29/2007 Ill. Cir. Ct. Order on Mot. for Service Upon Secretary of State of California). An alias summons as to Prospeed was issued on July 20, 2007, directing service of process on the California Secretary of State at 1500 11th Street, Sacramento California 95814. (7/20/2007 Ill. Cir. Ct. Summons). On August 7, 2007, a process server hired by Yash personally served upon an agent of the California Secretary of State the summons, the complaint, and the court order authorizing substituted service. (8/15/2007 J. Adams Decl. re Proof of Service of Summons). On August 9, 2007, the California Secretary of State's office forwarded the summons and complaint to Prospeed at "2424 Safe Leaf Cir.[,] Corona, CA 92882." (8/9/2007 Record of Service of Process authored by J. Castro, agent of California Secretary of State).

Prospeed did not appear to defend itself in the Illinois state-court action within thirty days after service of process upon the California Secretary of State, and on September 7, 2007, the state court entered a default judgment in favor of Yash. The default judgment provided, "The Court hereby finds and declares that YASH is not legally obligated to make any payments to PROSPEED by virtue of the referral agreement as the referral agreement was not authorized by YASH and is not legally binding upon YASH." (9/7/2007 Declaratory Judgment by Default ¶ 13). On September 10, 2007, Yash sent to Prospeed's last known mailing address a notice of entry of default judgment -- Yash addressed the notice to "2424 Safe Leaf Circle" and to "2424 Sage Leaf Circle" in Corona, California. (9/10/2007 Notice of Entry of Declaratory Judgment by Default to Prospeed Trading, Inc.).

On September 12, 2007, Prospeed filed a notice of removal in this federal District Court, seeking to remove the Illinois state-court action in which default judgment had been entered against it days earlier. (Doc. 1). Prospeed did not contemporaneously move to vacate the default judgment. In the notice of removal, Prospeed represented that its registered agent Khawaja never received the complaint and summons that Yash served on the California Secretary of State. (9/12/2007 Notice of Removal ¶ 1). Prospeed has since submitted a written declaration by Khawaja in which he states that he learned of the state-court suit "sometime after August 6, 2007," when an attorney for Sush Trapathi, a business colleague, received a copy of the complaint. (Ex. A to Prospeed's 10/23/2007 Resp. to Mot. to Remand, Khawaja Decl. ¶ 4).*fn4 Khawaja has identified Trapathi as the owner of IT Source LLC -- a company that allegedly agreed to work together with Prospeed to complete Prospeed's obligations under the Referral Agreement. (Khawaja Decl. ¶ 3). IT Source seeks to intervene in this federal suit.

In response to the notice of removal, on September 19, 2007, Yash moved for a remand to state court, arguing that the removal was untimely and that the requirements for federal diversity jurisdiction were not met. (Doc. 3). On August 6, 2008, the Court denied Yash's motion to remand. (Doc. 9). On December 1, 2008, Magistrate Judge John Gorman entered an Order clarifying the Court's expectations as to how the federal case would proceed in light of the default judgment against Prospeed in state court prior to removal. (Doc. 13, 12/1/2008 Order granting Yash's Mot. for Clarification). In that Order, Judge Gorman directed Prospeed to file within fourteen days -- by December 15, 2008 -- a motion addressing the default judgment. (12/1/2008 Order granting Yash's Mot for Clarification, at p. 2).

December 15, 2008 passed without Prospeed filing a motion addressing the state court's entry of default judgment. In apparent response to the blown deadline, Judge Gorman entered an Order on January 12, 2009, scheduling a status conference for January 28, 2009. Finally, on January 23, 2009, Prospeed filed a motion to vacate the default judgment. (Doc. 14). Due to Prospeed's filing, Judge Gorman cancelled the status conference.

On the same day that Prospeed moved to vacate the default judgment, IT Source filed a motion to intervene as a matter of right pursuant to Rule 24(a) of the Federal Rules of Civil Procedure (the Rules are referenced below in short form by individual "Rule"). (Doc. 15). IT Source has attached to its motion to intervene a counterclaim against Yash for breach of the Referral Agreement. In the motion to intervene and the counterclaim, IT Source asserts a partial assignment interest in Prospeed's rights under the Referral Agreement by virtue of a separate arrangement with Prospeed.

In lieu of filing substantive responses to the motions to vacate and intervene (as is required by Local Rule 7.1(B)(2)) on January 29, 2009, Yash moved to strike the motions. (Docs. 16-17). Yash asked the Court to strike, pursuant to Rule 12(f), Prospeed's January 23, 2009 motion to vacate because it was filed well outside the December 15, 2008 deadline set by Judge Gorman in the Court's Order of December 1, 2008. Yash also seemed to conflate its motion to strike with a response to Prospeed's motion to vacate by making arguments against the merits of the motion to vacate. Further, Yash (quite oddly) asked the Court to "strike," via Rules 12(b)(6) and 12(f), IT Source's motion to intervene, offering a perfunctory argument that IT Source's rights under the Referral Agreement had already been decided pursuant to the default judgment entered against Prospeed. To make matters even more confusing, Yash requested an (additional) opportunity to respond to the merits of the motions to vacate and intervene in the event the Court denied its motions to strike.

Prospeed responded in opposition to Yash's motion to strike Prospeed's motion to vacate the default judgment. (Doc. 18). Prospeed attached to its response an affidavit prepared by its attorney in which the attorney attempted to explain why he failed to meet the December 15, 2008 deadline for filing a motion to vacate the default judgment. To summarize, Prospeed's counsel stated in the affidavit that he was too busy with other cases to meet the deadline imposed in this case. He also stated that an illness in his family and an audit of his personal income tax returns contributed to the missed deadline. (Ex. 1 to Mem. in Opp. to Mot. to Strike Mot. to Vacate, 2/19/2009 P. Koenig Aff. ¶¶ 2-10). IT Source also responded in opposition to Yash's motion to strike the motion to intervene.

On August 3, 2009, this Court entered an Order which was primarily designed to untie the procedural knot that Yash had created by improperly conflating its motions to strike with responses in opposition to the substantive merits of Prospeed's motion to vacate and IT Source's motion to intervene. (Doc. 22). The Court refused to strike either the motion to vacate or the motion to intervene. Instead, the Court took both motions under advisement so that they could be decided on the merits. Accordingly, the Court gave Yash the additional opportunity it requested to ...

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