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Trytko v. US Bank Home Mortgage

United States District Court, N.D. Indiana, South Bend Division

August 10, 2018

PEGGY TRYTKO, Plaintiff,



         On September 20, 2017, Defendant[1] filed its Combined Motion to Vacate Default Under Rule 55(c) and Motion to Dismiss Under Rules 12(b)(4), (5), and (6). On October 3, 2017, Plaintiff filed her response in opposition to Defendant's Combined Motion. The instant Combined Motion became ripe on October 10, 2017, when Defendant filed its reply brief. On April 27, 2018, Defendant's Combined Motion was referred to the undersigned for a report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B), Fed.R.Civ.P. 72(b), and N.D. Ind. L.R. 72-1(b). [DE 39]. For the reasons stated below, the undersigned recommends that Defendant's Combined Motion be GRANTED. [DE 16].

         I. Relevant Background

         On February 28, 2017, Plaintiff filed her complaint against Defendant raising thirteen different claims and seeking over $750, 000 in damages. Defendant appears to have serviced Plaintiff's mortgage and collected monthly fees from Plaintiff for the care and maintenance of her property. Plaintiff's complaint includes claims against Defendant for Fraud (Count I), Fraudulent and/or Intentional Misrepresentation (Count II), Negligence (Count III), Negligent Misrepresentation (Count IV), Negligent Loan Servicing (Count V), Negligent Entrustment (Count VI), Breach of Contract (Count VII), Breach of Implied Covenant of Good Faith and Fair Dealing (Count VIII), Conversion (Count IX), Improper Calculation of Mortgage Payments, Interest and/or Late Fees (Count X), Violation of Fair Debt Collections Practices Act (15 U.S.C. § 1692 et seq.) (Count XI), Intentional and/or Negligent Infliction of Emotional Distress (Count XII), and Punitive Damages (Count XIII). [DE 1].

         On May 8, 2017, Plaintiff filed an Affidavit for Proof of Service signed on April 17, 2017. [DE 8]. The Affidavit was signed by Plaintiff's counsel's paralegal and stated that she had “prepared a standard overnight FedEx to the Defendant, U.S. Bank Home Mortgage, that included the Complaint and Summons” for this cause on March 16, 2017. [ Id.]. Attached to the Affidavit was a FedEx tracking document indicating that the package, including the Complaint and Summons, was addressed to U.S. Bank Home Mortgage at 4801 Federica Street, Owensboro KY 42301 and delivered on March 17, 2017. [DE 8-1]. The delivery was signed for by Tyler Moore, an employee of a temporary staffing agency that is a subcontractor to a vendor of Defendant, who worked in the mail room at Defendant's loan servicing and payment processing facility at 4801 Federica Street in Owensboro (“the 4801 Facility”). [DE 17-1 at 3]. Moore's duties at the 4801 Facility include opening mail and scanning documents. [Id.].

         As of May 9, 2017, no counsel had entered an appearance for Defendant and no answer had been filed. Plaintiff, however, had filed two motions for default judgment[2][DE 4 & 9] and a motion for clerk's entry of default against Defendant [DE 11]. Default pursuant to Fed.R.Civ.P. 55(a) was entered accordingly by the Clerk of Court on May 9, 2017. [DE 12]. Nothing else was filed in this case until September 20, 2017, when Defendant's counsel both entered their appearances and Defendant filed the instant Combined Motion.

         II. Analysis

         Defendant's instant motion to vacate default and dismiss Plaintiff's claims against it is premised procedurally on an alleged insufficiency of process under Fed.R.Civ.P. 4 and substantively on an alleged failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6), which Defendant argues justifies both vacating the clerk's entry of default and dismissing Plaintiff's complaint in its entirety.

         Under Fed.R.Civ.P. 55(c), “[t]he court may set aside an entry of default for good cause . . . .” Indeed, disposition on the merits is preferable to default. Cracco v. Vitran Express, Inc., 559 F.3d 625, 631 (7th Cir. 2009). As such, “Rule 55(c)'s ‘good cause' standard is a lenient one that does not depend on there being a good excuse for the defendant's failure to appear in a timely manner.” Strabala v. Zhang, 318 F.R.D. 81, 91 (N.D. Ill. 2016). “A party seeking to vacate an entry of default prior to the entry of final judgment must show: (1) good cause for the default; (2) quick action to correct it; and (3) a meritorious defense to the complaint.” Cracco, 559 F.3d at 630 (internal citations omitted).

         A. Good Cause for Default

         Defendant has demonstrated good cause for filing its responsive pleading, in the form of the instant Combined Motion, more than 21 days after Plaintiff claims Defendant was served the summons and complaint. See Fed. R. Civ. P. 12(a)(1)(A)(i). The summons was not addressed to any individual. Instead, it was addressed generally to “U.S. Bank Home Mortgage” at the address of the 4801 Facility, its loan servicing and payment processing facility where a contracted employee in the mailroom at the 4801 Facility, rather than an individual authorized under the Federal Rules of Civil Procedure to receive service for a corporation, signed for and accepted it through a FedEx delivery. See Fed. R. Civ. P. 4(h). As a result, Plaintiff's summons and service of process failed to give proper notice of the complaint to individuals at U.S. Bank who would have known how to handle the complaint.

         Moreover, Plaintiff's motions for default judgment [DE 4 & 9] and her motion for clerk's entry of default [DE 10] failed to alert Defendant to the lawsuit or its risk of default because they included no Certificate of Service despite the requirement set forth in Fed.R.Civ.P. 5(d)(1).[3] Notably, Plaintiff's briefing of the instant motion seems to suggest-in a run-on sentence that is difficult to decipher-that Defendant had actual notice of the complaint because her counsel spoke with employees of the Defendant by phone “during the months of inaction” and that during those “conversations, ” the employees advised Plaintiff's counsel that service was noted in Defendant's “system.” [DE 19 at 3]. Yet Plaintiff's allegations are not persuasive because she provides no evidence of these “conversations” such as an affidavit or other documentation showing specific dates, names or titles of the employees involved, or topics discussed during the calls. As a result, the record includes nothing to establish that Plaintiff made any effort to inform Defendant of its filings after the complaint.

         Plaintiff's actual notice argument is also unpersuasive without any evidence that Defendant willfully ignored Plaintiff's complaint or lied in its brief dated September 20, 2017, when it said that it “only learned of the clerk's default in the past few days and is still attempting to research the events giving rise to the complaint.” [DE 17 at 22]; see also Davis v. Hutchins, 321 F.3d 641, 646 (7th Cir. 2003) (affirming a district court's refusal to vacate a default under Fed.R.Civ.P. 55(c) because the record included evidence that the defaulting party “exhibited a willful refusal to litigate the case properly, ” or a “willful choice not to exercise a minimal level of diligence.”).

         B. Quick Action to Correct the Default

         Once aware of the default entered in this case, Defendant addressed both the default and the merits of Plaintiff's complaint within days by filing notices of appearance of counsel [DE 12 & 13], a corporate disclosure statement [DE 15], and the instant Combined Motion [DE 16] on September 20, 2017. Admittedly, a large corporation like Defendant should have procedures in place that train frontline employees, like the mailroom contractor who signed for the summons and complaint at the 4801 Facility, to recognize legal documents and to forward them to an appropriate employee. Yet, an experienced attorney like Plaintiff's counsel should also be able to conduct the simple research necessary to locate a better address for service of such legal documents than a lender's loan servicing and payment address on a borrower's payment coupon book. Accordingly, the Court is convinced both that Defendant did not willfully ignore Plaintiff's complaint and promptly addressed the default.

         C. Meritorious Rule 12(b) Defenses

         Defendant contends that Plaintiff's summons and service of process are both insufficient as a matter of a law leaving this Court without personal jurisdiction over it. In addition, Defendant argues that Plaintiff's complaint, in its entirety, fails to state a claim upon which relief can be granted. As shown below, Defendant's Rule 12(b)(4), 12(b)(5), and 12(b)(6) defenses are meritorious enough to justify vacating the entry of default, but are also meritorious enough to justify dismissing Plaintiff's complaint.

         1. Insufficient Summons under Rule 12(b)(4)

         A motion under Rule 12(b)(4) challenges the form of the summons. Miller v. Account Mgmt Servs., LLC, No. 1:07-CV-231, 2007 WL 4556733, at *2 (N.D. Ind. Dec. 20, 2007). The content and issuance of the summons is governed by Fed.R.Civ.P. 4(a)-(b). “Deficiencies cognizable under Rule 12(b)(4) include errors in naming the proper defendant, failing to specify the number of days allotted for defendant to answer, and failure to obtain a court seal or signature.” Bilal v. Rotec Indus., Inc., No. 03 C 9220, 2004 WL 1794918, at *4 (N.D. Ill. Aug. 5, 2004) (citing O'Brien v. O'Brien & Assoc., Inc., 998 F.2d 1394, 1400 (7th Cir. 1993)). “A motion challenging sufficiency of process under this rule must point out specific instances where the plaintiff has failed to comply with the requirements of Rule 4.” Id.

         Here, Defendant argues that Plaintiff's summons was facially insufficient and void because it was not addressed to an individual to whom service was allowed. Federal Rule of Civil Procedure 4(h) governs service of process on corporations, partnerships, or associations and requires service

(1)(A) in the manner prescribed by Rule 4(e)(1) for serving an individual; or
(B) by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process and-if the agent is one authorized by statute and the statute so requires-by also mailing a copy of each to the defendant[.]

         Under Fed.R.Civ.P. 4(e)(1), service may be accomplished by “following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made[.]” This Court is located in Indiana and service was intended to be made in Kentucky at the 4801 Facility. Thus, service on Defendant could be made pursuant to either Indiana or Kentucky law. See Zumbrun v. Nat'l Asset & Risk Mgmt., LLC, No. 1:12-CV-446, 2013 WL 1287331, at *1 (N.D. Ind. Mar. 28, 2013).

         Under Indiana Trial Rule 4.6(A)(1), service upon domestic organizations, like Defendant, must be made “upon an executive officer . . . or [upon] an agent appointed or deemed by law to have been appointed to receive service . . . .” Similarly, Ky. R. Civ. P. 4.04(5) provides that “[s]ervice shall be made upon a corporation by serving an officer or managing agent thereof, or the chief agent in the county wherein the action is brought, or any other agent authorized by appointment or by law to receive service on its behalf.”

         Whether attempting service under Fed.R.Civ.P. 4(h)(1), Ind. Tr. R. 4.6(A)(1), or Ky. R. Civ. P. 4.04(5), a plaintiff must secure service on an individual. In fact, this Court has previously found service addressed to a corporate entity, not an individual identified in the applicable rules of service, defective. Zumbrun, 2013 WL 1287331, at *2; see also NNDYM IN, Inc. v. UV Imports, Inc., No. 3:09-cv-129, 2011 WL 1225573, at *2 (S.D. Ind. Mar. 30, 2011); Volunteers of Am. v. Premier Auto Acceptance Corp., 755 N.E.2d 656, 660 (Ind.Ct.App. 2001). Plaintiff's summons was not directed to any individual, let alone an individual meeting the criteria set forth in the applicable service rules. Additionally, the contracted mailroom employee cannot be identified as one of Defendant's officers, a managing or general agent, or an agent authorized to receive service for Defendant. Therefore, Plaintiff's summons directed to “U.S. Bank Home Mortgage” is void under the Rules precluding personal jurisdiction. Notably, Plaintiff does not even address this defect in her response to the Combined Motion.

         Such a procedural defect would be enough to justify dismissal of Plaintiff's complaint. However, Plaintiff's complaint ...

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