Recently, in RC JRV Trust v. Barnes & Thornburg (In re JRV Group USA), No. 19-11095 (KBO), 2022 WL 3646288, at *1 (D. Del. Aug. 24, 2022), the U.S. District Court for the District of Delaware granted, in part, a motion for leave to appeal an interlocutory order of the U.S. Bankruptcy Court for the District of Delaware filed by the defendant, Barnes & Thornburg.

The Bankruptcy Court’s order that was at issue in RC JRV Trust (the order) denied, without prejudice, the defendant’s motion to dismiss the adversary complaint filed by the liquidation trustee for the liquidation trust established in the bankruptcy case. The order also granted the liquidation trustee an extension of time to effectuate service of process in accordance with Rule 4 of the Federal Rules of Civil Procedure, as made applicable to the adversary proceeding by Rule 7004 of the Federal Rules of Bankruptcy Procedure, even though the deadline to effectuate service had expired.

At its essence, the salient facts are as follows: On Sept. 14, 2021, the liquidating trustee filed the complaint to avoid and recover certain allegedly preferential and fraudulent transfers totaling $551,439.61 from the defendant. Following the filing of the complaint, counsel for the liquidating rrustee reached out to the defendant’s counsel, asking whether he would accept service of the complaint on behalf of the defendant. The defendant’s counsel said he would accept service.

Subsequent to this initial discussion, there were numerous emails between counsel for the parties. However, there was nothing filed of record in the adversary proceeding until Dec. 8, 2021. On Dec. 8, 2021, the liquidating trustee’s counsel filed an affidavit of service pursuant to which counsel for the liquidating trustee stated that he caused a true and correct copy of the Complaint to be served upon the defendant. However, the service affidavit did not reference any summons despite the fact that Rule 4(m) of the Federal Rules of Civil Procedure, made applicable to the adversary proceeding by Rule 7004 of the Federal Rules of Bankruptcy Procedure, required the liquidating trustee to serve the summons upon the defendant by Dec. 13, 2021. The reason why the liquidating trustee did not serve the summons upon the defendant was because the liquidating trustee’s counsel never prepared and filed any summons with the Bankruptcy Court.

On Dec. 14, 2021, the clerk’s office for the Bankruptcy Court reached out to the liquidating trustee’s counsel to inquire about the missing summons and whether the liquidating trustee intended to proceed with its case. As set forth in the opinion, the liquidating trustee’s counsel advised the clerk’s office that the defendant had accepted service of the complaint on Sept. 14, 2021. The liquidating trustee’s counsel was then asked by the clerk’s office to submit “an additional affidavit confirming that [the defendant] agreed to waive the necessity of a summons.”

Despite numerous emails to the defendant’s counsel seeking such a waiver, counsel for the liquidating trustee did not obtain one. As a consequence, on Dec. 17, 2021, the defendant filed the motion to dismiss on two grounds, including lack of personal jurisdiction due to the liquidating trustee’s failure to timely obtain and serve a summons upon the defendant. The liquidating trustee filed its opposition on Jan. 14, 2022, and on Jan. 28, 2022, the defendant filed its reply in further support of its motion to dismiss. On Feb. 24, 2022, the Bankruptcy Court entered the order denying the motion todismiss without prejudice and granting the liquidating trustee an additional “sixty (60) days from the date of this order to properly effectuate service of process in accordance with Fed. R. Civ. P. 4, as made applicable to this proceeding by Fed. R. Bankr. P. 7004.”

After entry of the order, the defendant was served with a summons and a copy of the complaint by regular first class mail to its Delaware registered agent and by personal service upon a partner in the defendant’s counsel’s Wilmington office. Following service of the complaint and sSummons, on March 10, the defendant sought leave to appeal the order with respect to two issues, including whether the Bankruptcy Court erred as a matter of law in not dismissing the complaint for lack of personal jurisdiction. In support of this argument, the defendant contended that the Bankruptcy Court lacked personal jurisdiction over it because the liquidating trustee failed to obtain a summons from the court and, as such, this was fatal to the liquidating trustee’s case.

Upon review, the district court noted that it has jurisdiction to hear appeals “with leave of court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under Section 157 of this title.” However, as noted by the district court, Section 158(a) does not identify the particular standard a court should use in deciding whether to grant an interlocutory appeal and, as such, the district court noted that traditionally, “district courts follow the standards set forth under 28 U.S.C. Section 1292(b), which govern interlocutory appeals from a district court to a court of appeals,” (quoting In re AE Liquidation, 451 B.R. 343, 346 (D. Del. 2011)).

As noted by the district court, pursuant to the standards enunciated under 28 U.S.C. Section 1292(b), an interlocutory appeal is “permitted only when the order at issue involves controlling question of law upon which there is substantial grounds for difference of opinion as to its correctness, and if appealed immediately, may materially advance the ultimate termination of the litigation,” citing 28 U.S.C. Section 1292(b); Katz v. Carte Blanche, 496 F.2d 747, 754 (3d Cir. 1974)). Furthermore, “entertaining review of an interlocutory order under Section 1292(b) is appropriate only when the party seeking leave to appeal ‘establishes exceptional circumstances.’” As the district court observed, “exceptional circumstances” are required for interlocutory appeal due to the fact that “piecemeal litigation is generally disfavored by the Third Circuit.” (quoting In re SemCrude, 2010 WL 4537921, *2 (D. Del. Oct. 26, 2010) (citing In re White Beauty View, 841. F. 2d 524, 526 (3d Cir. 1988))).

With these factors in mind, the district court found that the defendant’s personal jurisdiction issue was appropriate for an interlocutory appeal. In its decision, the district court noted that the first prong of Section 1292(b) was satisfied because, if it was determined that the Bankruptcy Court did not have personal jurisdiction over the defendant, then the complaint must be dismissed as a matter of law.

With respect to the second prong of Section 1292(b), the district court also noted that there was a substantial ground for a difference of opinion as to the Bankruptcy Court’s jurisdictional ruling. As noted by the district court, in order to satisfy this standard, “the difference of opinion must arise of a genuine doubt as to the correct legal standard.” (citing Hulmes v. Honda Motor, 936 F. Supp. 195, 208 (D.N.J. 1996), aff’d, 141 F.3d 1154 (3d Cir. 1998)).

In the instant case, the district court found that the Bankruptcy Court’s decision appeared contrary to well-established Third Circuit law, established in the case of Ayres v. Jacobs & Crumplar, 99 F.3d 565 (3d Cir. 1996). In particular, the district court found that the Ayres court found that a party cannot waive a void summons. Accordingly, in light of the Third Circuit’s holding in Ayres, the district court found that the second prong of Section 1292(b) was satisfied. Finally, the district court also found that the third factor for granting an interlocutory appeal under Section 1292(b) was satisfied because in this instance the immediate appeal of the jurisdictional ruling could eliminate the need for trial altogether. The district court also opined that exceptional circumstances were present, as the opinion provided “no explanation as to why it diverged from Ayres.” In addition, the district court also observed that exceptional circumstances were present because, if the parties were forced to continue to litigate this matter, significant fees, costs and expenses would be incurred. As noted by the district court “forcing the parties to proceed with litigation when there appears to be controlling law that definitively resolves the matter is an exceptional circumstance warranting leave to appeal.” Accordingly, the district court found that the jurisdictional ruling was appropriate for interlocutory review.

This case is an important reminder for practitioners about the Federal Rules of Civil Procedure and the means/methods by which a party can be subject to the jurisdiction of a federal court. Accepting “service” is not just accepting service of the complaint. Rather, accepting “service” is to accept service of process, which, as set forth in Rule 4 of the Federal Rules of Civil Procedure, requires not only the service of a complaint but also of a summons. In light of this decision, it is clear that the failure to obtain and properly serve a summons upon a defendant is a fatal, incurable flaw and will lead to a dismissal of the underlying complaint.

Reprinted with permission from Delaware Business Court Insider, © ALM Media Properties LLC. All rights reserved.