Court rules on improper service

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When a defendant seeks to vacate a default judgment, pursuant to sec. 806.07, claiming improper service of process, the burden of proof is on the defendant.

In so holding, the Wisconsin Supreme Court reversed a published decision of the court of appeals, Richards v. First Union Securities, Inc., 2005 WI App 164, 284 Wis.2d 530, 702 N.W.2d 45, and also reversed the appeals court’s holding that a foreign corporation’s branch manager was not a “managing agent” for purposes of accepting service.

In July 2002, Gary Richards filed an action in Waukesha County Circuit Court against First Union Securities, Inc., to recover investment losses as the result of alleged violations of the antifraud sections of the Wisconsin Uniform Securities Law.

The next day Richards’ process server attempted to serve a copy of the summons and complaint on the defendant by serving Kim Wisniewski (Wisniewski), the operations manager of First Union’s Brookfield branch. According to the process server’s affidavit, Wisniewski was the person identified as authorized to accept service.

In September, First Union informed Richards that he was required to arbitrate the dispute. Richards consented to stay the court case in favor of arbitration on the condition that First Union initiate the arbitration and pay the filing fee.

However, First Union neither paid the fee nor filed an answer to the complaint. In November, default judgment was granted to Richards.

When First Union failed to pay, Richards began garnishment proceedings. First Union then filed an answer to the garnishment, and a motion to reopen the default judgment.

First Union submitted affidavits from both Wisniewski and Ronald McGrath, the branch manager of its Brookfield office. Both stated they were not an officer, director, or managing agent of First Union.

McGrath acknowledged that he was the person in charge of the Brookfield branch office, but claimed that there were no officers, directors, or managing agents of First Union anywhere in Wisconsin, and thus, no one authorized to accept service in the state, except its registered agent.

He further stated that First Union was a foreign corporation, with CSC-lawyers Incorporating Service as its registered agent.

Circuit Court Judge Robert G. Mawdsley denied First Union’s motion, concluding that defects in personal service were waived.

First Union appealed, and a divided court of appeals reversed, holding that service was not waived, and that McGrath was not a managing agent.

The Supreme Court accepted review, and reversed the court of appeals, in a unanimous decision by Justice N. Patrick Crooks.

Relying on Emery v. Emery, 124 Wis.2d 613, 369 N.W.2d 728 (1985), and West v. West, 82 Wis.2d 158, 262 N.W.2d 87 (1987), the court held that the burden of proof is on the party seeking to reopen and vacate the judgment.

The court rejected First Union’s argument that, because a judgment is void when personal jurisdiction is lacking, there is a special reason to place the burden of defending the judgment on the nonmoving party.

Turning to the merits, the court concluded that, under Carroll v. Wisconsin Power & Light Co., 273 Wis. 490, 79 N.W.2d 1 (1956), further evidentiary proceedings are required to determine whether McGrath is an officer, director, or a managing agent for First Union.

Section 801.11(5)(a) provides that service of a summons on a corporation or Limited Liability Company is achieved: “By personally serving the summons upon an officer, director or managing agent of the corporation or limited liability company either within or without this state. In lieu of delivering the copy of the summons to the officer specified, the copy may be left in the office of such officer, director or managing agent with the person who is apparently in charge of the office.”

It was undisputed that Wisniewski was not a managing agent; at issue was whether McGrath was a managing agent, and therefore, service was effective under the alternate service option of sec. 801.11(5)(a), since a copy was left at McGrath’s office with Wisniewski.

In Carroll, the Supreme Court considered the predecessor statute, which also allowed service on a “managing agent.” The court held that the director of operations at one of thirty generating stations owned by Wisconsin Power & Light was not a managing agent.

Although the director issued requests for supplies, purchases were made by the Madison office.

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The court held that the term “managing agent” relates “to a person possessing and exercising the right of general control, authority, judgment, and discretion over the business or affairs of the corporation, either on an overall or part basis, i.e., everywhere or in a particular branch or district.” Carroll, 273 Wis. at 494.

Because the director of operation’s authority was not general, but was limited to the management of the physical operation of one plant and its maintenance, the court held he was not a managing agent.

Looking for guidance, the court turned to a Minnesota case, Derrick v. The Drolson Co., 69 N.W.2d 124, 129 (Minn.1955), in which the court wrote, “the significant factors in determining whether a particular agent is a ‘managing agent’ for the purpose of receiving service are the extent to which the agent has power to exercise independent judgment and discretion in executing the business of the corporation, and whether his position is of such a character and rank as to make it reasonably certain that the corporation will be apprised of the service.”

Calling the decision in Derrick “quite helpful in applying the Carroll test and assisting a circuit court in determining what constitutes a managing agent,” the court found that the record in the case at bar was insufficient to determine whether or not McGrath was a managing agent, and remanded the case to the circuit court.

Before concluding, however, the court also found the record insufficient to determine whether or not First Union waived its right to challenge the circuit court’s jurisdiction over it, and directed that this issue be determined in the circuit court, as well.

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David Ziemer can be reached by email.