AMTO, LLC v. Bedford Asset Management, LLC, No. 14-cv-9913 (S.D.N.Y. May 29, 2015) [click for opinion]

Plaintiff AMTO, LLC sued Bedford Asset Management, LLC (“Bedford”) for breach of a promissory note.  Bedford filed a third-party complaint against Energokom, LLC and Ivan Kuznetsov (“Kuznetsov”), alleging that Energokom defaulted on a loan from Bedford, and that Energokom and Kuznetsov were liable to Bedford for fraudulent conveyance in violation of New York Debtor and Creditor Law § 276 and tortious interference with Bedford’s contractual rights.  Bedford alleged that Kuznetsov, a U.S. citizen residing in Russia, owns 100% of AMTO and, as the largest beneficial owner of Energokom, controls the activities of Energokom. 

Upon filing its third-party complaint against Energokom and Kuznetsov, Bedford filed a motion to serve Kuznetsov through alternative means pursuant to Fed. R. Civ. P. 4(f)(3), to effectuate service of the Third-Party Summons and Complaint on Kuznetsov without the necessity of translation into the Russian language.  Bedford sought authorization of substituted service by means of service through counsel, by mail, by email, or by courier. 

The court first determined that substituted service was appropriate under the circumstances because, even though Russia is a signatory to the Hague Service Convention, in July 2003 Russia unilaterally suspended all judicial cooperation with the United States in civil and commercial matters.  The court also noted that the decision to allow service by alternate means is committed to the sound discretion of the district court, is not a means of last resort, and need not be sought only after traditional attempts had service have failed.

Citing numerous authorities, the court concluded that service upon Kuznetsov through counsel representing him in litigation in the United Kingdom was not proper because the United Kingdom litigation was not related to the Bedford litigation, the British lawyers had not appeared on behalf of Kuznetsov in the Bedford litigation, Bedford failed to make any showing that a special relationship existed between Kuznetsov and his British attorneys, and Bedford failed to demonstrate that British counsel would apprise Kuznetsov of the Bedford litigation.

The court likewise concluded that service by mail or courier was not an adequate means of service under Rule 4(f)(3).  The court cited other decisions in which district courts found service through the mail unavailable to serve defendants who reside in foreign countries that have acceded to the Hague Service Convention with an objection to Article 10.  Before Russia’s unilateral suspension of judicial cooperation, Russia objected to Article 10 of the Hague Service Convention, and consistent with cited authorities, the district court concluded that Russia does not agree to service by mail.  Relying upon settled authority that service of documents by international courier constitutes service through “postal channels,” the court likewise concluded that service by courier was insufficient in light of Russia’s objection to Article 10.

With respect to service by email, the district court acknowledged the existence of authority for the proposition that email is indistinguishable from “postal channels” under Article 10 of the Hague Service Convention.  The district court noted that other courts, however, have held that a country’s objection to Article 10 does not preclude service by email so long as the country has not explicitly objected to service by electronic means.  Relying upon decisions in which courts approved of email service in Russia because Russia has not explicitly objected to service by electronic means and Russia apparently has not enacted any law prohibiting service via email, the district court determined that service via email for a defendant residing in Russia may qualify as an alternative means of service under Rule 4(f)(3).

The district court next turned to whether service by email was applicable under the circumstances presented by Bedford.  Bedford submitted affidavits stating that the email address was Kuznetsov’s business email that he used to communicate on business matters.  Affiants also averred that the email address was active and in use by Kuznetsov when notice of demand was sent to Kuznetsov at that address at various times, that the affiants never received notice that any emails had failed to be delivered, that the affiants had received replies from that account to emails sent to that email address, that the email address had been in use for several years, and that an affiant could see when Kuznetsov was online by using a Gmail interface that was described in the affidavit and represented by a screenshot of the affiant’s computer. 

The court found that, because Bedford presented evidence that Kuznetsov used the email address for business purposes and there was evidence that Kuznetsov recently had accessed his Gmail account, Kuznetsov was likely to receive service via the email address, satisfying due process standards.  The district court thus concluded that service on Kuznetsov via the email address was reasonably calculated to apprise him of the third-party complaint and afford him an opportunity to present his objections thereto.  The court granted Bedford’s motion to serve Kuznetsov through alternative means pursuant to Rule 4(f)(3).

Donna Williams of the Chicago office contributed to this summary.