616 F.3d 413 (4th Cir. 2010)
Colleton Preparatory Academy, Inc., which operates a small private school in Walterboro, South Carolina, filed suit in the United States District Court for the District of South Carolina on March 24, 2003, against Beazer East, Inc. and Hoover Treated Wood Products, Inc., alleging claims for negligence and violation of the South Carolina Unfair Trade Practices Act arising from alleged damage to roof trusses and sheathing on several Colleton buildings caused by fire-retardant substances.1
On or about June 6, 2003, Colleton filed an amended complaint substituting Hoover Universal, Inc. for Hoover Treated Wood Products, Inc. Colleton served the summons and amended complaint on Hoover Universal by certified mail through its registered agent, The Corporation Company, which accepted service on June 23, 2003.2 The Corporation Company negligently failed to forward the suit papers or notify Hoover Universal of the lawsuit, so Hoover Universal did not file a timely answer.3
Colleton moved for entry of default, and the clerk entered default against Hoover Universal on August 5, 2003.4 Hoover Universal learned of the lawsuit by coincidence on October 8, 2003, during a conversation about a separate case with a paralegal in one of Colleton's lawyers' offices, and nine days later filed a motion to quash service of process and to set aside the entry of default.5
The district court denied both motions. With the consent of the parties, the district court bifurcated the claims, and Colleton filed a new complaint naming only Hoover Universal on February 20, 2004.6 The district court struck Hoover Universal's answer to the new complaint.7 The district court conducted a two-day non-jury damages trial beginning January 31, 2005, and after post-trial motions and certification of questions to the South Carolina Supreme Court, entered judgment for Colleton on March 25, 2009, awarding $871,690.15 in damages plus $290,563.38 in costs and attorney's fees.8 Hoover Universal appealed.9
Whether the district court abused its discretion in denying Hoover Universal's motion to set aside the entry of default?10
When deciding whether to set aside an entry of default, a district court should consider whether the moving party has a meritorious defense, whether it acts with reasonable promptness, the personal responsibility of the defaulting party, the prejudice to the party, whether there is a history of dilatory action, and the availability of sanctions less drastic.11 Courts have repeatedly expressed a strong preference that defaults be avoided and that claims and defenses be disposed of on their merits.12
Yes. Hoover Universal presented evidence of a meritorious defense as found by the district court.13 Hoover Universal acted with the requisite promptness and diligence by seeking to set aside the entry of default within nine days after its counsel learned of the case.14
The district court found no other instances of dilatory action by Hoover Universal.15 The district court acknowledged that a less drastic sanction than maintaining the entry of default must be considered.16 The finding of undue prejudice to Colleton is highly suspect because delay in and of itself does not constitute prejudice to the opposing party.17
The record does not sustain the view that undue prejudice would have been visited upon Colleton if the entry of default had been set aside in November 2003.18 The district court placed overarching emphasis on the personal responsibility of the defaulting party.19 The situation is distinguishable from Park Corp. because here the registered agent admitted its mishandling.20 This is a Rule 55(c) motion rather than a Rule 60(b) motion.21
The district court abused its discretion when it denied Hoover Universal's motion to set aside the entry of default.22
Whether the district court erred in denying Hoover Universal's motion to quash service of process?23
Under Federal Rules of Civil Procedure 4(h) and 4(e)(1), a plaintiff may serve process on a corporation under South Carolina law, which allows for service upon corporations by registered or certified mail, return receipt requested and delivery restricted to the addressee.24 The South Carolina Supreme Court does not require exacting compliance with the rules related to service of process.25 Instead, the court inquires into whether the plaintiff has sufficiently complied with the rules such that the court has personal jurisdiction of the defendant and the defendant has notice of the proceedings.26
No. Colleton served the summons and amended complaint on Hoover Universal by certified mail through its registered agent The Corporation Company, which accepted service on June 23, 2003.27 Although Colleton did not employ restricted delivery certified mail, The Corporation Company did in fact receive the suitpapers.28 If The Corporation Company had properly performed its duties as a registered agent, Hoover Universal would have had actual and timely notice of the lawsuit.29 The district court correctly concluded that service of process was proper.30
The district court did not err in denying Hoover Universal's motion to quash service of process.31