Third Circuit Addresses Email Service under the Hague Service Convention

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A new decision by the Third Circuit, SEC v. Lahr, correctly analyzes the tricky question of email service under the Hague Service Convention. The court’s clear explanation will be of great help to district courts across the country, which remain divided on this question. Unfortunately, the Third Circuit chose not to publish its decision, so it is non-precedential.

Efforts at Service

The Securities and Exchange Commission (SEC) filed a civil enforcement action against Thomas Megas and Todd Lahr, alleging they violated federal securities law. Believing that Megas resided in Switzerland, the SEC asked the Swiss Central Authority to serve Megas pursuant to the Hague Service Convention. The Swiss authorities confirmed that Megas was domiciled at the given address, but they were unable to serve him because he was out of the country for a prolonged period. Despite several additional attempts, and several extensions of time granted by the district court, the Swiss authorities never found Megas at that address.

The SEC tried other options. It reached out to its Swiss counterpart, which confirmed Megas’s address but was unable to help with his whereabouts. It attempted to contact Megas by sending an email to one of Megas’s email addresses, which a return receipt indicated was delivered but not opened. After more than six months of efforts, the SEC sought and received permission from the district court to serve Megas by email under Federal Rule of Civil Procedure 4(f)(3). It received back the following email: “AUTOMATED RESPONSE. It has not been possible to deliver your message to [Megas’s Hotmail address] as the email address does not appear to be in use.” The SEC argued that this email did not appear to be a genuine automated response and instead indicated that Megas was using the email account. A return receipt indicated that the email was delivered but not opened. Efforts to serve Megas at the UK addresses of companies for which he was listed as a director also failed.

The SEC then requested and received a default judgment against Megas for more than $500,000. Less than a week later, Megas moved pro se to vacate the judgment for lack of personal jurisdiction and proper service. The district court denied the motion and Megas appealed.

Getting It Right

The Third Circuit panel, in a decision authored by Judge Patty Schwartz, vacated the district court’s refusal to reopen the judgment, as well as the default judgment itself.

First, the court concluded that the Convention applied: both the United States and Switzerland are parties, and Megas’s physical address in Switzerland was known. The inability to serve Megas at that address, even if he were purposefully evading service, does not render his address unknown and the Convention thus inapplicable. As the court explained, “the Convention contemplates a difference between situations where the defendant’s address is not known and the defendant’s whereabouts are not known.” In this case, Swiss authorities were clear that the address given for Megas was his legal domicile. They just were not able to serve him at that address.

Second, the court explained that the Convention is “exclusive,” meaning that it “prescribes the means for service abroad.” “Thus, for email service to be permitted in Switzerland, it must be authorized by the Convention’s terms.” In other words, silence in the Convention should be interpreted as a prohibition, not permission. This is an important and helpful clarification that could help resolve a number of district court splits.

On the facts presented, the court reasoned that email is not mentioned by the Convention and that email service under Swiss law is only permitted if the defendant consents. It noted that Switzerland has objected to service through postal channels under Article 10(a), so even if “postal channels” includes service by email, that was not an option in this case. The court thus concluded that the SEC’s efforts to serve Megas by email did not constitute proper service, and it vacated the default judgment as void.

What Comes Next?

In sending the case back to the district court, the Third Circuit hinted at the difficulties that lie ahead, as well as a potential solution. Its final footnote stated that completed service is a requirement for personal jurisdiction, suggesting that the district court cannot avoid the question of how to accomplish service in compliance with the Hague Service Convention (as required by Rule 4(f)).

As the court explained, Article 5 of the Convention directs the Swiss Central Authority to arrange for service “by a method prescribed by its internal law for the service of documents in domestic actions upon persons who are within its territory,” or “by a particular method requested by the applicant, unless such a method is incompatible with the law of the State addressed.” The former includes a provision in the Swiss Civil Procedure Code that “permits authorities to proceed with service by public notice when ‘the whereabouts of the addressee are unknown and cannot be ascertained despite making reasonable enquiries’ or ‘service is impossible or would lead to exceptional inconvenience.’” And the latter would permit the U.S. Government to ask the Swiss authorities to serve Megas by email. Either route would satisfy the Convention and thus Rule 4.

What Else the Third Circuit Did Well

This analysis all seems correct. The Third Circuit made a few other smart moves along the way that are worth highlighting. First is what it didn’t do: it did not suggest that Article 15 of the Convention, which addresses default judgments, itself approves additional means of service. All Article 15 does is permit judges to take certain actions, like entering a default judgment, before a certificate of service has been returned if more than six months have lapsed (as it had in this case). It is a separate question of domestic U.S. law whether an action permitted by Article 15 can be taken before service is completed.

Second, the Third Circuit bolstered its textual analysis of the Convention by drawing on appropriate supporting sources: It looked to the Hague Conference’s Practical Handbook on the Operation of the Service Convention, the Conclusions and Recommendations of Special Commissions hosted by the Hague Conference, and guidance from the Department of Justice. These are all sources that the Supreme Court has also consulted when interpreting the Service Convention.

Third, it appointed an amicus (UVA Law’s Appellate Litigation Clinic and Catherine Stetson of Hogan Lovells) to help brief and argue the issues. The intersection of the Convention and Rule 4 has proven challenging for judges in part because they are often presented with briefing on these issues from only one party (the party seeking to effectuate service). Errors introduced into the caselaw from such ex parte briefing has unfortunately become ingrained over time. Seeking extra assistance from a friend of the court can help correct course.