Magma Holdings, Inc. v. Au-Yeung

District Court, D. Nevada·Decided October 2, 2020·No. 2:20-cv-00406·Unknown

Opinion

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Case No. 2:20-cv-00406-RFB-BNW Magma Holding, Inc., et al. Plaintiffs, ORDER v. Ka Tat “Karter” Au-Yeung, Defendant. In this contentious dispute between current and former business partners, defendant/third- party plaintiff Ka Tat “Karter” Au-Yeung moves to deem service effectuated upon third-party defendants Yuxiang Gao (“Michael”), Qian Xu (“Daniel”), and MOTI Technology, Co, Ltd. (“Moti”). ECF No. 88. Michael and Daniel reside in China, and Moti is a Cayman Islands entity. Karter purports to have effected service using four methods: (1) email directly to Michael and Daniel; (2) email to plaintiffs’ counsel; (3) email to Michael and Daniel’s counsel; and (4) international mail to Michael and Daniel at their addresses in the People’s Republic of China. Plaintiffs Magma Holding, Inc. and Meta Lab, Inc. oppose the motion on two relevant bases. First, they argue that service upon the third-party defendants is governed by the Hague Convention, and that Karter’s motion should therefore be denied because he failed to submit any evidence showing that he complied with the Convention’s terms. The Court rejects this first argument because although the first and fourth methods of purported service implicate the Hague Convention, the second and third do not. When the Hague Convention does not apply, Rule 4(f)(3) permits the Court to authorize service “by other means not prohibited by international agreement,” including email. Second, plaintiffs argue that Karter’s motion is procedurally improper because it is motion is procedurally improper, but not for the reason they offer. The Court finds that it can resolve this kind of motion consistent with the Federal Rules of Civil Procedure and with the third-party defendants’ due process rights. However, under mandatory Ninth Circuit authority Karter is required to seek Court approval prior to effecting service by email under Rule 4(f)(3). Therefore, the Court must deny his motion. Because the Court does not grant Karter’s motion, it expresses no opinion on whether the second and third methods of service are reasonably calculated to give the third-party defendants notice of this action and an opportunity to respond. However, this service issue has languished long enough. The Court will therefore require, within a week from today’s order, a new motion for an order directing service, responses will be due within 5 days, replies will be due 2 days thereafter, and the Court will resolve the motion on an expedited basis. I. Background This relatively nascent case already has an extensive procedural history. Magma and Meta are in the business of selling e-cigarette products. ECF No. 1 ¶ 7. They brought suit against Karter in February 2020 and alleged several claims, including conversion, embezzlement, and breach of contract. Id. at 14–26; ECF No. 109. Karter is a former corporate director and officer of Magma and Meta. ECF No. 109 ¶ 3. In March 2020 plaintiffs sought a temporary restraining order (“TRO”), which the district judge granted ex parte. ECF No. 13. Karter answered the complaint, filed a response to plaintiffs’ motion for a TRO, moved for the appointment of a receiver over Magma and Meta, and filed third-party claims against Michael, Daniel, and Moti. ECF Nos. 16, 36, 53, and 74. The district judge dissolved the TRO and granted Karter’s motion for a receivership. ECF No. 72. The underlying motion relates to Karter’s attempts to effect service upon Michael, Daniel, and Moti. The parties do not dispute that Michael and Daniel reside in China or that Moti is a Cayman Islands entity. ECF No. 88 at 2; ECF No. 93 at 3. Karter originally moved for an order directing service by email (the “Alternative Service Motion”), which plaintiffs opposed. ECF Nos. 61 & 68. Prior to resolving the Alternative Service Motion, the district judge ordered by international mail. ECF No. 75. The district judge also ordered Karter to file a reply in support of his Alternative Service Motion by May 13, 2020. Id. Instead of filing this reply, Karter withdrew the Alternative Service Motion and filed the underlying motion to deem service effectuated. ECF Nos. 87 & 88. II. Legal standard The Constitution does not require any particular means of service of process. Rio Props., Inc. v. Rio Intern. Interlink, 284 F.3d 1007, 1017 (9th Cir. 2002) (citing Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950)). Instead, it requires only that service “be reasonably calculated to provide notice and an opportunity to respond.” Id. To that end, service of process is governed by Rule 4 of the Federal Rules of Civil Procedure. A federal court lacks jurisdiction over a defendant unless the defendant has been properly served under Rule 4. Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th Cir. 1988) (citation omitted). Rule 4, however, “is a flexible rule that should be liberally construed so long as a party receives sufficient notice of the complaint.” Id. Still, “without substantial compliance with Rule 4,” “neither actual notice nor simply naming the defendant in the complaint will provide personal jurisdiction.” Id. Rule 4(h)(2) and Rule 4(f) govern service on a foreign business entity and on an individual in a foreign country. Rule 4(h)(2) authorizes service on a foreign business entity in any manner prescribed by Rule 4(f)1 for individuals. Rule 4(f)(3), in turn, allows for service on an 1 Federal Rule of Civil Procedure 4(f) provides, in relevant part: Unless federal law provides otherwise, an individual . . . may be served at a place not within any judicial district of the United States: (1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents; (2) if there is no internationally agreed means, or if an international agreement allows but does not specify other means, by a method that is reasonably calculated to give notice: (A) as prescribed by the foreign country’s law for service in that country in an action in its courts of general jurisdiction; (B) as the foreign authority directs in response to a letter rogatory or letter of request; or (C) unless prohibited by the foreign country’s law, by: individual in a foreign country “by other means not prohibited by international agreement, as the court orders.” III. Discussion As an initial matter, the Court notes that Daniel has submitted two declarations to this Court on behalf of plaintiffs, ECF Nos. 10 & 51-5, he is a current manager of both Magma and Meta, ECF No. 105 at 8:2–8:4, has been in contact with plaintiffs’ counsel, id., and is therefore clearly aware that this action is ongoing. The Court is troubled that Daniel would choose to engage in this litigation yet refuse to participate in the resolution of Karter’s third-party claims. A. Whether the underlying motion is procedurally improper Plaintiffs argue that a motion to deem service effectuated is procedurally improper because it is antithetical to the third-party defendants’ right to file a Rule 12(b)(5) objection for insufficient service of process. In essence, plaintiffs argue that a motion to deem service effectuated is inconsistent with the

Magma Holdings, Inc. v. Au-Yeung, (D. Nev. 2020).

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