PNC Equipment Finance, LLC v. Aero Toy Store, LLC et al

Filing 45

REPORT AND RECOMMENDATIONS re 26 MOTION to Dismiss for Insufficient Service of Process filed by MAYER SHIRAZIPOUR, GABRIELLE SHIRAZIPOUR, 44 Second MOTION to Dismiss for Failure of Service of Process filed by MAYER SHIRA ZIPOUR, GABRIELLE SHIRAZIPOUR, 27 MOTION to Strike 22 Answer to Complaint, Counterclaim,, Motion to Strike Entity Defendants' Jury Trial Demand filed by PNC Equipment Finance, LLC: that defendants' two motions to dismiss for insufficient service of process (Docs. 26, 44) be DENIED without prejudice; and motion to strike (Doc. 27) be GRANTED. Objections to R&R due by 9/4/2012. Signed by Magistrate Judge Stephanie K. Bowman on 8/16/12. (jl1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

PNC EQUIPMENT FINANCE, LLC,

Case No. 1:12-cv-236

Plaintiffs,

Weber, J.
Bowman, M.J.

v.

AERO TOY STORE, LLC, et al.,
Defendants.

REPORT AND RECOMMENDATION

I. Factual and Procedural Background
On March 21, 2012, Plaintiff, PNC Equipment Finance, LLC, filed this breach of
contract action against five business entities and two individual defendants: Mayer
Shirazipour and Gabrielle Shirazipour. The complaint generally alleges that Plaintiff
provided financing for the purchase of several aircraft and a yacht by Defendants Aero
Toy Store and/or Global 9017, and that the remaining Defendants are all guarantors of
the debt owed to PNC. (Doc. 1). Plaintiff alleges that all Defendants are in default,
based upon the failure of Aero Toy Store and Global 9017 to pay all principal and
interest owed, and the Defendant Guarantors’ failure to uphold their respective
obligations. Plaintiff seeks entry of a judgment in excess of $30.5 million in principal
and interest.

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On May 7, 2012, the five Entity Defendants filed an Answer and Counterclaim.1
The Counterclaim alleges that Plaintiff wrongfully repossessed and sold the yacht for
less money than the sum that Defendant Aero Toy Store, LLC would have obtained had
it been permitted to sell the same collateral. As a result of the allegedly premature
repossession and sale of the yacht by Plaintiff, Defendants allege that the damages
sought by Plaintiff for the alleged default were increased. (Doc. 22 at 17-18).
On May 22, 2012, summons forms were returned as “executed” as to Defendants
Gabrielle and Mayer Shirazipour. (Docs. 23, 24). The “proof of service” on the forms
reflects that each summons was “served” by leaving it with “Susan (Comptroller)” at
Aero Toy Store in Fort Lauderdale, Florida. Despite the alleged service, on June 7,
2012, the two individual Defendants filed a motion to dismiss based upon insufficient
service of process.
Plaintiff has filed a response in opposition to the Defendants’ motion. On July 17,
2012 and on July 25, 2012, the record reflects that new summons forms were returned
unexecuted as to the individual Defendants, upon whom service was attempted by
certified mail sent to a residential address in Fort Lauderdale, Florida. (Docs. 39, 43).
In addition to the pending motion to dismiss for lack of service filed by the
individual Defendants, Plaintiff has moved to strike the Entity Defendants’ demand for a
jury trial. (Doc. 27). Defendants have filed a response in opposition, to which Plaintiff
has filed a reply.

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The five Defendants hereinafter referred to as the “Entity Defendants” are: Aero Toy Store, LLC, Morris
Shirazi, Inc., Global 9017, Ltd, AGRND 09, LLC, and MXRS 09, LLC.

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Last, on August 15, 2012, the individual Defendants filed a second motion to
dismiss for lack of service.
On July 19, 2012, the presiding district judge referred all pretrial matters in this
case to the undersigned magistrate judge, with instructions to address the disposition of
all dispositive motions through a Report and Recommendation. (Doc. 40). Pursuant to
that order of reference, I now recommend that both of Defendants’ motions to dismiss
(Docs. 26, 44) be denied, and that Plaintiff’s motion to strike Defendants’ jury demand
(Doc. 27) be granted. In addition, by separate order filed herewith, the Court will sua
sponte extend Plaintiff’s time to perfect service on the individual Defendants.
II. Analysis
A. The Individual Defendants’ Motions to Dismiss
On June 7, 2012, the two individual defendants, Mr. and Mrs. Shirazipour,
through counsel, filed a motion to dismiss all claims against them based upon improper
and ineffective service of process. Defendants point out that the original summons
forms filed of record, that purport to reflect service on Defendants, in fact reflect only
service upon the Comptroller for Aero Toy Store, LLC at the business address for that
entity.

Pursuant to Rule 4(e)(2), Fed. R. Civ. P., an individual may be served by

“delivering a copy of the summons and of the complaint to the individual personally,” by
leaving a copy at the individual’s residence with a person of “suitable age and discretion
who resides there,” or by “delivering a copy ...to an agent authorized...to receive service
of process.” Id. In support of the motion to dismiss, Susan Grobbel, Comptroller for
Aero Toy Store, LLC, has filed an affidavit that confirms that she has no actual authority,

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nor did she represent to the process server hired by Plaintiff that she had authority, to
accept service of process on behalf of the individual Defendants.
In response to Defendants’ motion, Plaintiff concedes that the original summons
forms, reflecting service only on the Comptroller for Aero Toy Store, LLC, were
ineffective as a matter of law to establish effective service under Rule 4(e)(2).
Federal Rule of Civil Procedure 4(e)(1) also renders effective service of process
that is perfected under state law “in the state where the district court is located,” or in
the state “where service is made.” Thus, despite the failure of effective service under
Rule 4(e)(2), service can still be perfected under Rule 4(e)(1), to the extent that Plaintiff
perfects service under either Ohio or Florida law. Under Ohio law, a Complaint may be
served upon an individual personally, or to the individual’s residence by certified or
express mail. Ohio Rules of Civil Procedure Rule 4.3(B). If service is attempted by
certified or express mail and “the envelope is returned with an endorsement showing
failure of delivery, service is complete when the attorney or serving party, after
notification by the clerk, files with the clerk an affidavit setting forth facts indicating the
reasonable diligence utilized to ascertain the whereabouts of the party to be served.”
Rule 4.3(B)(1). Under Florida law, service may be made upon an individual “by leaving
the copies [of the summons and complaint] at his or her usual place of abode with any
person residing therein who is 15 years of age or older and informing the person of their
contents.” F.S.A. § 48.031(1)(a).
There is no dispute that the original summons left at the business address of
Aero Toy Store, rather than at the residence of the individual Defendants, was not

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effective to achieve service under either Ohio or Florida law. However, Plaintiff opposes
dismissal on grounds that at the time the motion was filed on June 7, 2012, Plaintiff had
ample time remaining in which to perfect service by one of the alternate methods
permitted under state or federal law.
Plaintiff is correct, insofar as Rule 4(m) permits service to be made within 120
days of the date a complaint is filed. That 120 day period did not expire until July 19,
2012.

Rule 12(b)(5) authorizes dismissal for failure of proper service of process, but

only if it is clear that no service of process has been made within the requisite 120 day
period. When a motion to dismiss for failure of service is filed prior to the expiration of
the 120 day period, as Defendants’ motion was in this case, courts will generally deny
that motion as premature. See generally Fed. R. Civ. P. 12(b)(5); Becker v. Wilkinson,
Case No. 2:05-cv-908, 2006 LEXIS 95826, at *3 (August 3, 2006); Sayyah v. Brown
County Bd. Of Comm’rs, Case No. 1:05-cv-16, 2005 LEXIS 15226, at *5 (S.D. Ohio,
April 29, 2005); see also Candido v. District of Columbia, 242 F.R.D. 151, 161 (D.C.
2007)(holding that defense is not available prior to expiration of 120 day period).
Consistent with its response, Plaintiff requested issuance of new summons forms
for the two individual defendants and retained a new process server “to effectuate
personal service on the Defendants at their home.”

(Doc. 36 at 3).

Plaintiff also

requested copies of the summons and Complaint to be served by the Clerk of this Court
“via certified or express mail.” The Complaint was in fact sent via certified mail to the
presumed residence of the individual Defendants on June 21, 2012. (Doc. 34). Plaintiff
urges this Court to deny Defendants’ motion both as premature at the time it was filed,

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and because Plaintiff “is diligently attempting to effectuate proper service upon the
Individual Defendants.” (Doc. 36 at 4). While not expressly seeking an extension of
time for service, Plaintiff requests that this Court “permit [Plaintiff] to continue its efforts
to effectuate proper service, and grant such other relief as this Court may deem just and
proper.” (Id.).
Unfortunately for Plaintiff, the record reflects that, following the filing of Plaintiff’s
response to Defendants’ motion to dismiss, the attempted service by certified mail was
returned as unexecuted. (Docs. 39, 43). Thus, it is unclear from the present record
whether the Plaintiff has yet perfected service on the individual Defendants. However,
consistent with Plaintiff’s request that this Court grant such relief as it deems proper, the
Court will extend time for service based upon the facts related in Plaintiff’s response.
Those facts include: (1) that defense counsel (who filed the motion to dismiss on the
individual Defendants’ behalf) originally informed Plaintiff’s counsel that she would not
be representing Mr. and Mrs. Shirazipour and for that reason alone, would not accept
service on their behalf,2 and (2) that the individuals live in a large home with a gate and
security system that precluded the attempt of the process server to effectuate personal
service at their residence. See generally Friedman v. Estate of Presser, 929 F.2d 1151,
1157 (6th Cir. 1991)(holding that a defendant’s deliberate attempts to evade service,
among other reasons, constitutes “good cause” for extending the time for service);
Osborne v. First Union Nat’l Bank of Delaware, 217 F.R.D. 405 (S.D. Ohio

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“Unless a nam ed defendant agrees to waive service, the sum m ons continues to function as the sine qua
non directing an individual or entity to participate in a civil action or forgo procedural or substantive rights.”
Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 351, 119 S. Ct. 1322 (1999).

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2003)(holding that a court may extend time for service even without a showing of “good
cause.”).
After this Court had completed its consideration of Defendants’ first motion to
dismiss but prior to the docketing of this Report and Recommendation, the Court was
alerted to the fact that the individual Defendants had filed a second motion to dismiss,
on August 15, 2012. That motion reiterates the grounds asserted in Defendants’ first
motion, but adds as an additional basis for dismissal the fact that Plaintiffs were recently
unsuccessful in achieving service by mail. For the reasons stated herein, and because
the Court had already deemed it appropriate to extend the time in which Plaintiffs can
serve the individual Defendants, Defendants’ second motion to dismiss also should be
denied.
B. Motion to Strike Jury Demand
Plaintiff also has filed a motion to strike the Entity Defendants’ Jury Trial demand,
included in the Answer and Counterclaim of those Defendants. Under Rule 39(a), Fed.
R. Civ. P., no federal right to a jury trial exists in cases where the parties have
knowingly and voluntarily waived that right. The two Master Mortgages and individual
Guaranty agreements at issue in this case each contain a jury waiver provision that
states that every Entity Defendant has waived its right to a trial by jury, so long as the
claims arose under the referenced documents. There is no dispute in this case that the
entities are sophisticated business entities with experience entering into commercial
contracts.

In fact, Defendants do not presently dispute that they knowingly and

voluntarily acceded to the “Waiver of Jury Trial” provisions contained in the referenced

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documents. The waiver provision in the two “Master Mortgage” documents states that
each party to those agreements “EXPRESSLY WAIVES THE RIGHT TO TRIAL BY
JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS AGREEMENT OR
ARISING IN ANY WAY FROM THE NOTE OR OTHER AGREEMENT OR
TRANSACTIONS INVOLVING THE BORROWER AND LENDER.” A similar provision
in each Guaranty agreement states that each Guarantor “EXPRESSLY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS
GUARANTY OR ARISING IN ANY WAY FROM THE NOTE OR MORTGAGE
AGREEMENT OR TRANSACTIONS INVOLVING THE BORROWER AND LENDER.”
Having conceded that the waiver provisions were entered into knowingly and
voluntarily, the Entity Defendants oppose enforcement solely on grounds that the scope
of the waiver does not encompass their counterclaim.

In other words, Defendants

describe the Counterclaim as beyond the scope of the financing agreements.

As

depicted in Defendants’ response to Plaintiff’s motion, the Counterclaim “concerns
Plaintiff’s tortious actions in wrongfully repossessing the Yacht in violation of an
agreement, whereby Plaintiff agreed to allow Aero Toy Store, LLC to list and sell the
Yacht for a definite time period.”

Plaintiff asserts that this allegedly unrelated

“agreement” regarding the sale of the Yacht was memorialized by emails between the
parties, which contain no express jury waiver provisions. (Doc. 37 at 3; see also Doc.
37-1, 37-2). As the Entity Defendants point out, the United States Supreme Court held
more than 75 years ago that, in construing waivers, “courts indulge every reasonable
presumption against waiver” when such fundamental constitutional rights as the right to

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trial by jury are at issue. Aetna Ins. Co. v. Kennedy to Use of Bogash, 301 U.S. 389,
393 (1937)(emphasis added).
The problem is that Defendants’ interpretation is not reasonable. Defendants’
Counterclaim is inexorably linked to the Loan Documents and Guaranties at issue in this
case.

The email “agreement” to permit Defendants to market and sell the yacht

appears to concern the sale of the yacht “for PNC,” as part of negotiations to resolve the
Defendants’ outstanding loan obligations. In the emails, PNC’s alleged agent expresses
reluctance to be “locked into” a lengthy listing agreement to sell the yacht, and refers to
PNC’s intention to pursue “all rights and remedies under the agreements” should a
particular issue not be resolved. (Doc. 37-1 at 2). The jury waivers signed by each
Defendant clearly and expressly waive “any lawsuit or proceeding relating to...or arising
in any way from...” the loan agreements.

On the facts presented, any satellite

agreement that concerned maximizing proceeds from the sale of the collateral yacht
arises out of, and closely relates to, the alleged default under the financing agreements.
The Counterclaim seeks to reduce the amount alleged by Plaintiff as recoverable for the
default.

Therefore, Plaintiff’s motion to strike Defendants’ jury demand should be

granted. Accord Painting Co. v. Walsh/Demaria Joint Venture III, Case No. 2:09-cv183, 2010 WL 1027424 (S.D. Ohio, March 12, 2010)(holding that a jury waiver provision
in a contract between the subcontractor and the contractor also extended to the
subcontractor’s action against the sureties, because the waiver provision contained
language extending the waiver to “any or all disputes or claims arising out of or in
relation to” the contracts); see also Baumgardner v. Bimbo Food Bakeries Distribution,

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Inc., 697 F. Supp.2d 801, 819 (N.D. Ohio 2010)(holding that the party objecting has the
burden of demonstrating that its consent to waiver was not knowing and voluntary, and
that courts in the Sixth Circuit have held that such waivers are applicable even to tort
claims if those claims “arise out of and relate to” the contract).
III. Recommendations
Accordingly, IT IS RECOMMENDED THAT: (1) Defendants’ two motions to
dismiss for insufficient service of process (Docs. 26, 44) be DENIED without prejudice;
and (2) the motion to strike Defendants’ demand for a jury trial on their Counterclaim
(Doc. 27) be GRANTED.
s/ Stephanie K. Bowman
Stephanie K. Bowman
United States Magistrate Judge

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

PNC EQUIPMENT FINANCE, LLC,

Case No. 1:12-cv-236

Plaintiffs,

Weber, J.
Bowman, M.J.

v.

AERO TOY STORE, LLC, et al.,
Defendants.

NOTICE
Pursuant to Fed. R. Civ. P. 72(b), any party may serve and file specific, written
objections to this Report & Recommendation (“R&R”) within FOURTEEN (14) DAYS of
the filing date of this R&R. That period may be extended further by the Court on timely
motion by either side for an extension of time. All objections shall specify the portion(s)
of the R&R objected to, and shall be accompanied by a memorandum of law in support
of the objections. A party shall respond to an opponent’s objections within FOURTEEN
(14) DAYS after being served with a copy of those objections.

Failure to make

objections in accordance with this procedure may forfeit rights on appeal. See Thomas
v. Arn, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).

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