QVC, INC. v. RAE et al

Filing 35

MEMORANDUM. SIGNED BY HONORABLE JEFFREY L. SCHMEHL ON 10/18/17. 10/19/17 ENTERED AND COPIES MAILED TO UNREPS, E-MAILED.(mas, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA
: CIVIL ACTION
:
v.
: NO. 15-cv-3643
:
DOUGLAS RAE, et al.
:

MEMORANDUM
SCHMEHL, J. /s/ JLS

October 18, 2017

QVC, Inc. (“QVC”) brought this action on June 30, 2015, alleging that the
defendants engaged in a fraudulent scheme against it by falsifying and overstating
invoices they directed to QVC in violation of the Racketeer Influenced and Corrupt
Organizations Act, (“RICO”) 18 U.S.C. § 1961, et seq. QVC also asserted state law
claims for fraud, conversion, negligence and unjust enrichment.
On October 5, 2015, the Court stayed discovery in this matter pending
disposition of federal criminal charges against the defendants. [Doc. 6.] On December
4, 2015, the Court, upon a stipulation between the government and QVC, entered an
Order allowing QVC to serve the defendants in this action with original process, but
otherwise retaining the stay that had previously been issued. [Doc. 7.]
On February 4, 2016, defendant James Hodde’s (“Hodde”) attorney of record in
the criminal case, Iris Bennett, Esq. (“Bennett”), signed a Waiver of the Service of
Summons (the “Waiver”) form on behalf of Hodde, accepting service on his behalf of the

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Complaint in this matter. (Bennett Decl. at ¶ 2.) However, at no time did Bennet either
enter her appearance on behalf of Hodde or file any type of pleading, motion or
stipulation. QVC filed the Waiver with the Court on March 1, 2016. [Doc. 8.] Bennett
avers that at the time she signed the Waiver, she had hoped to be able to represent
Hodde in this action, but she “had not been able to make a final determination in that
regard.” (Bennett Decl. at ¶ 3.) After the defendants pled guilty and were sentenced,
the Court lifted the stay on February 14, 2017. [Doc. 10.] Neither Hodde nor Bennett
filed a responsive pleading to the original Complaint.
On July 18, 2017, Bennett received a copy via U.S. mail of the First Amended
Complaint. (Bennett Decl. at ¶ 4.) The First Amended Complaint differed from the
original Complaint in that QVC’s insurer, Travelers Casualty and Surety Company of
America (“Travelers”), had been substituted as the plaintiff. [Doc. 13.] After paying
insurance proceeds to QVC, Travelers succeeded and became subrogated to all of
QVC’s claims against the defendants. (Id.) The First Amended Complaint added two
counts of common law civil conspiracy and eliminated the counts for conversion and
unjust enrichment. (Id.) In addition, the First Amended Complaint alleged two separate
RICO conspiracies, whereas the original Complaint only alleged one RICO conspiracy.
(Id.)
On July 20 2017, Bennett notified Travelers’ counsel by email that she was still
evaluating whether she would represent Hodde in this action, and that Hodde had not
waived personal service of the First Amended Complaint. (Bennett Decl at ¶ 5.) Bennett
also advised Travelers’ counsel that the previous Waiver of Service she had executed

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regarding QVC’s initial Complaint did not apply to Travelers’ First Amended Complaint.
(Id.)
On July 20, 2017, Travelers’ counsel responded by email that they had
effectuated service on Hodde by sending the First Amended Complaint to Bennett via
U.S. mail since Bennett had accepted service of QVC’s initial Complaint on February 4,
2016. (Bennett Decl. at ¶ 6; Metz Decl. ¶ 6.) Travelers’ counsel also stated that the
filing by QVC of the Waiver regarding the initial Complaint constituted an entry of
appearance by Bennett in this case under Local Rule 5.1. (Id.) Finally, Travelers’
counsel cautioned that, absent a timely response to the First Amended Complaint,
Travelers would move for the entry of default under Rule 55(a) of the Federal Rules of
Civil Procedure. (Metz Decl ¶ 7.)
On July 31, 2017, Bennett and her law partner spoke with Travelers’ counsel by
phone to see if this matter could be settled. (Bennett Decl at ¶ 10; Metz Decl ¶ 8.) At
this time, Bennett had still not entered an appearance nor filed a pleading, motion, or
stipulation. Bennett and Travelers’ counsel were unable to reach a settlement.
On August 1, 2017, Travelers’ counsel filed a request for entry of default. [Doc.
15.] Having determined that Hodde could not secure funding to pay her firm’s fees,
Bennett, on August 1, 2017, filed a Protective Motion for Leave to Withdraw as Counsel
for Hodde. (Bennett Decl at ¶ ¶12, 13; Doc 16.)
On August 4, 2017, the Court received a letter from Hodde, dated August 1,
2017, advising the Court that he intended to proceed in this matter pro se and
requested an additional 60 days to file an Answer to the First Amended Complaint.
[Doc. 18.] On August 7, 2017, the Court received another letter from Hodde, dated

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August 2, 2017, requesting that the Court deny Travelers’ request for a default
judgment. [Doc. 19.] On September 14, 2017, new counsel entered his appearance on
behalf of Hodde. [Doc. 32.] The Court held a hearing on September 15, 2015, at the
conclusion of which the Court, out of an abundance of caution, granted Bennett’s
protective motion to withdraw. [Doc. 34.]
The Court will deny Travelers’ request for the entry of default based on the fact
that Hodde was never personally served with the First Amended Complaint.
Travelers claims it properly served Hodde with the First Amended Complaint
when it mailed a copy of the First Amended Complaint to Hodde’s attorney in his
criminal case, Bennett. According to Travelers, Bennett entered her appearance on
behalf of Hodde when she signed the Waiver for the original Complaint and thus was
attorney of record in the civil case and legally responsible for receiving all future filings.
Local Rule 5.1(a), however, provides that “[t]he filing of a pleading, motion or
stipulation shall be deemed an entry of appearance. Other appearances of counsel shall
be by Praecipe filed with the Clerk.” The Waiver that Bennett signed for the original
Complaint is clearly not a pleading, motion or stipulation. See Fed. R. Civ. P. 7(a)(b)(defining pleadings and motions). Nor did Bennett ever file a Praecipe of appearance
in the instant case with the Clerk. Therefore, Bennett did not enter her appearance on
behalf of Hodde in this matter. Since Bennett never filed an entry of appearance, the
Court finds that Bennett did not represent Hodde as counsel of record in this civil case.
As a result, Travelers was required to effectuate personal service of the First Amended
Complaint on Hodde.

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An additional argument may be made that Rule 5(a)(2) of the Federal Rules of
Civil Procedure states, “No service is required on a party who is in default for failing to
appear. But a pleading that asserts a new claim for relief against such a party must be
served on that party under Rule 4.” At the time Travelers filed its First Amended
Complaint, Hodde was in default for having failed to appear in response to the original
Complaint (even though QVC failed to request an official entry of default). In addition,
the First Amended Complaint clearly set forth a new claim for relief (civil conspiracy)
against Hodde. The First Amended Complaint also contained a new plaintiff (Travelers)
and asserted an additional RICO conspiracy. Therefore, since Hodde was in default for
failing to appear in response to the original Complaint, and the First Amended
Complaint asserted a new claim for relief against Hodde, Travelers was required,
pursuant to Rule 5(a)(2), to have made personal service of the First Amended
Complaint upon Hodde. Since Travelers failed to do so, Hodde was never effectively
served and a response to the First Amended Complaint was not due on July 31, 2017.
In short, once Bennett signed the Waiver for the original Complaint, Travelers
unreasonably assumed that Bennet would sign another waiver for the First Amended
Complaint. When Bennett refused to do so, it was incumbent upon Travelers to have
personally served Hodde with the First Amended Complaint. Having failed to effectuate
proper service, Travelers cannot seek a default, claiming Hodde did not file a
responsive pleading
An appropriate Order follows.

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