Can a defendant against which default judgment was entered remove that case to federal court nine months after the case was filed and more than four months after the entry of final judgment? Yes, if the defendant was never served.
In Thompson v. Deutsche Bank Nat’l Trust Co., the Thompsons sued Deutsche Bank is state court and obtained a default judgment. All sounds good for the Thompsons until one learns that they never actually served the defendant. The Thompsons tried twice: once through the Texas Secretary of State and once through CT Corporation, a company that is the registered agent for service of process for many out-of-state companies. The Texas Secretary of State informed the Thompsons that the petition was “not deliverable as addressed;” hardly surprising since the Thompsons’ attorney did not provide the Secretary of State with Deutsche’s correct address. CT Corporation informed the Thompsons that it was not Deutsche’s agent. Once these two efforts failed, the Thompsons proceeded to obtain their default judgment.
Nine months after the state-court case was filed and four months after the state court entered final default judgment, Deutsche learned of the judgment for the first time and removed the state-court action to federal court. In federal court, the Thompsons moved to remand. Deutsche moved for relief from the default judgment under Rule 60 and moved to dismiss the Thompsons’ claims under Rule 12(b)(6) on the ground that the claims were barred by the statute of limitations when originally filed. The district court denied the motion to remand, set aside the state-court judgment, and dismissed the action. The Thompsons appealed.
The Fifth Circuit held that Deutsche properly removed the state-court action nine months after it had been filed. Thought the federal removal statute provides a thirty-day period for removal, this period does not begin to run until the defendant is formally served. The record on appeal clearly demonstrated that Deutsche had never been served, and the Thompsons did not even argue otherwise. (Curiously, the Thompsons argued that a different state-court defendant, which they eventually non-suited, had been properly served.) Since the Thompsons never served Deutsche, § 1446(b)(1)’s thirty-day period never began to run and removal was timely. Moreover, there was no serious dispute that the district court properly set aside the state-court judgment (a judgment entered in the absence of sufficient service of process is void because the court never acquires jurisdiction over the parties) or that the statute of limitations had run out by the time the Thompsons brought their state-court action (the Thompsons’ claim was based on a transaction that occurred six years before filing).
One interesting issue the opinion addresses is the point in time when a state-court action becomes unremovable because that action has come to an end in state court. The Fifth Circuit had to distinguish Oviedo v. Hallbauer, an earlier case in which it stated that “removal is simply not possible after a final judgment and the time for direct appellate review has run” because by that time, “there [is] no pending case to remove.” The Fifth Circuit distinguished Oviedo on several grounds, including that under Texas state procedural law a party like Deutsche who never appears is entitled to file a restricted appeal within six months after the entry of judgment. The record was undisputed that when Deutsche removed to federal court, the six-month restricted appeal period had not run out.
The lesson? Plaintiffs should always serve defendants before obtaining a default judgment, especially when they are aware their efforts to serve have been unsuccessful and when the defendant is a large, national company that should be relatively easy to serve.