Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-03561/USCOURTS-cand-3_06-cv-03561-1/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 28:1332 Diversity-Negotiable Instrument

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SVC-NAPA, L.P., a California limited

partnership,

Plaintiff,

 v.

STRATEGY RESORT FINANCING, INC., et

al.,

Defendants. /

No. C 06-03561 SI

ORDER GRANTING DEFENDANT

VERITAS HIGH YIELD ARBITRAGE

FUND (BERMUDA) LTD.’S MOTION TO

QUASH SERVICE OF SUMMONS

Defendant Veritas High Yield Arbitrage Fund (Bermuda) Ltd., has filed a motion to dismiss for

insufficiency of service of process, or alternatively to quash service of summons. The motion is

currently scheduled for a hearing on August 18, 2006. Pursuant to Civil Local Rule 7-1(b), the Court

determines the matter is appropriate for resolution without oral argument, and accordingly VACATES

the August 18, 2006 hearing. For the reasons set forth below, the Court GRANTS defendant’s motion

to quash service of summons. 

BACKGROUND

Plaintiff SVC-Napa, L.P., is a California limited partnership and developer of a “timeshare

vacation ownership property” presently being developed in the City of Napa, California. Complaint ¶¶

2, 14. SVC-Napa has sued a number of defendants, including defendants Veritas High Yield Arbitrage

Fund I, LLC, a Delaware limited liability company (“Veritas I”); Veritas High Yield Arbitrage Fund

II, LLC, a Delaware limited liability company (“Veritas II”);. and Veritas High Yield Arbitrage Fund

Case 3:06-cv-03561-SI Document 43 Filed 08/16/06 Page 1 of 6
United States District Court

For the Northern District of California

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 The complaint states that Veritas (Bermuda) “is a Bermudan corporation with its principal

place of business in the city of Hamilton, in the country of Bermuda.” Complaint ¶ 6. Defendant has

submitted declarations stating that Veritas (Bermuda) “is a Cayman Islands exempted company that was

incorporated under the laws of Bermuda on November 25, 2002, and transferred by way of continuation

to the Cayman Islands on August 16, 2005.” Stone Decl. ¶ 6; Kastberg Decl. ¶ 6. 

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(Bermuda), Ltd. (“Veritas (Bermuda)”). Veritas (Bermuda) is a foreign corporation.1

Plaintiff has twice attempted to serve Veritas (Bermuda). First, on June 7, 2006, plaintiff served

the summons and complaint by certified mail to Andrew D. Stone at 500 West Putnam Avenue,

Greenwich, Connecticut 06830. Second, on June 9, 2006, plaintiff served the summons and complaint

by certified mail to James P. Kastberg at 500 West Putnam Avenue, Greenwich, Connecticut 06830.

See Stone Decl. ¶¶ 1, 5 & Ex. A; Kastberg Decl. ¶¶ 1, 5 & Ex. B. 

Defendant Veritas (Bermuda) has filed a motion to dismiss for insufficiency of service of

process, or alternatively to quash service of summons, on the ground that neither Mr. Stone nor Mr.

Kastberg is authorized to receive service of process on behalf of Veritas (Bermuda). 

LEGAL STANDARD

Rule 12(b)(5) of the Federal Rules of Civil Procedure authorizes a defendant to move for

dismissal resulting from insufficiency of service of process. Fed. R. Civ. P. 12(b)(5). When a defendant

challenges service, the plaintiff bears the burden of establishing the validity of service as governed by

Rule 4. See Brockmeyer v. May, 383 F.3d 798, 801 (9th. Cir. 2004). 

Rule 4 provides three alternatives for service of foreign corporations, partnerships, and other

unincorporated associations. Service is effective pursuant to (1) the law of the state where the district

court is located or of the state where service is effected, see Fed. R. Civ. P. 4(e)(1); (2) by delivering

a copy of the summons and complaint in a judicial district of the United States to “an officer, a

managing or general agent, or to any other agent authorized by appointment or by the law to receive

service of process[.]” Fed. R. Civ. P. 4(h)(1); or (3) an internationally agreed method for effective

service such as the Hague Convention. See id. at 4(f)(1).

If the plaintiff is unable to satisfy its burden of demonstrating effective service, the Court has

broad discretion to either dismiss or retain the action. When retaining the action, the Court quashes the

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United States District Court

For the Northern District of California

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2

 Plaintiff asserts that it was not required to comply with the Hague Convention or any other

internationally agreed means for accomplishing service under Rule 4(f) because Veritas (Bermuda)

maintains an office in the United States. This contention is addressed infra.

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service that has ineffectively been made on the defendant, while providing the plaintiff the opportunity

to serve the defendant again effectively. See Stevens v. Security Pacific Nat’l Bank, 538 F.2d 1387,

1389 (9th. Cir. 1976).

DISCUSSION

Plaintiff contends that service on Messrs. Stone and Kastberg was effective under Rule 4(h)(1)

and 4(e)(1) because they had “actual or ostensible authority” to receive service of process on behalf of

Veritas (Bermuda).2

 Generally, these provisions state that business entities may be served by delivering

a copy of the summons and complaint to an officer, a managing or general agent, or an individual

authorized by appointment or by law to receive service of process. See Fed. R. Civ. P. 4(h)(1); Fed. R.

Civ. 4(e)(1); Cal. Code Civ. Proc. § 416.40. 

Defendant has submitted declarations from Messrs. Stone and Kastberg establishing that neither

possessed actual authority to accept service of process: neither Stone nor Kastberg holds any position

or role with Veritas (Bermuda), and neither individual has been authorized or designated by Veritas

(Bermuda) to accept service of process on its behalf. See Stone Decl ¶¶ 2-4; Supp. Stone Decl. ¶¶ 2-3;

Kastberg Decl. ¶¶ 2-4; Supp. Kastberg Decl. ¶¶ 4-5. Plaintiff has not submitted any evidence to the

contrary. Accordingly, the Court concludes that neither Mr. Stone nor Mr. Kastberg had actual authority

to accept service of process of behalf of defendant.

With respect to ostensible authority, plaintiff relies on two documents to argue that Veritas

(Bermuda) “caused it to appear” that Messrs. Stone and Kastberg had authority to accept service of

process. The first document is an “Assignment of Deed of Trust” which was recorded in the official

records of the County of Napa on September 23, 2005. See Complaint Ex.. D. That document lists,

under “Name and Address of Assignee:”

Veritas High Yield Arbitrage Fund I LLC

Veritas High Yield Arbitrage Fund (Bermuda) Ltd.

Veritas High Yield Arbitrage Fund II LLC

500 West Putnam Avenue, Greenwich, CT 06830

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United States District Court

For the Northern District of California

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 The signature line for each Veritas Fund was signed “James P. Kastberg by Brad LoGatto.”

Id.

4

 Mr. Kastberg’s supplemental declaration states that he is employed by Argent European

Management Company LLC (“AEMC”), a Delaware limited liability company having a principal office

at 500 West Putnam Avenue, Greenwich, Connecticut 06830. AEMC is the portfolio manager for

Veritas (Bermuda). Kastberg Supp. Decl. ¶¶ 2-3. 

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Id. The document also states, under “Prepared by and after Recording Return to:”

Name: Andrew Stone, Esq.

Firm/Company: Veritas High Yield Arb.

Address: 500 West Putnam Avenue

Address 2:

City/State/Zip: Greenwich, CT 06830-6086

Phone: 203-618-3300

Id. Plaintiff argues that through the Assignment, Veritas (Bermuda) “caused it to appear that Mr. Stone

had ostensible authority to accept documents concerning the Assignment on behalf of Veritas

(Bermuda), including, SVC-Napa submits, service of process.” Opposition at 5-6. 

The second document plaintiff relies on is a “Confidentiality Agreement” executed by Veritas

(Bermuda), Veritas I and Veritas II in connection with discussions concerning potential financing and

business transactions with, among others, Shell Vacations LLC, which is the limited partner in plaintiff

SVC-Napa, L.P. See Glickstein Decl. ¶ 6 & Ex. 2. James P. Kastberg, “Portfolio Manager,” executed

the agreement on behalf of the three Veritas entities. Id. at Ex. 2.3

 Plaintiff contends that through the

Confidentiality Agreement, Veritas (Bermuda) “caused it to appear that Mr. Kastberg, as ‘Portfolio

Manager,’ was the equivalent of a ‘general manager,’ and, thus, a person authorized to receive service

of process on behalf of Veritas (Bermuda).” Opposition at 6.

The Court finds that plaintiff’s arguments lack merit. The fact that the Assignment identifies

Mr. Stone as the person authorized the receive the Assignment once it was recorded is of no

consequence whatsoever for purposes of service of process on Veritas (Bermuda). The Assignment did

not identify Mr. Stone as an officer or employee of Veritas (Bermuda). Similarly, the Confidentiality

Agreement simply identifies Mr. Kastberg as a “Portfolio Manager,” and does not state that he is an

employee or officer of Veritas (Bermuda). Contrary to plaintiff’s assertions, it is not reasonable to

assume that a “Portfolio Manager” is the equivalent of a “General Manager” for defendant.4

 

The cases relied on by plaintiff are unavailing. In Pasadena Medi-Center Associates v. Superior

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For the Northern District of California

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5

 Plaintiff acknowledges that both Bermuda and the Cayman Islands are signatories under the

Hague Convention. However, plaintiff asserts – without any evidence – that Veritas (Bermuda) operates

an office in the United States, and thus it need not effect service under the method prescribed by the

Hague Convention. Defendant has submitted uncontroverted declarations stating that Veritas (Bermuda)

is not located in the United States and does not maintain an office in this country. In light of the Stone

and Kastberg declarations, plaintiff would be well advised to effect service in compliance with the

Hague Convention or some other internationally agreed means for accomplishing service under Rule

4(f).

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Court of Los Angeles County, 9 Cal.3d 773 (1973), the court held that a corporation conferred ostensible

authority to accept service of process on an individual erroneously listed as secretary-treasurer in a stock

permit application on file with the Commissioner of Corporations. Here, in contrast, neither Mr. Stone

nor Mr. Kastberg was identified as holding an office that would authorize either of them to accept

service of process for Veritas (Bermuda). 

Plaintiff’s reliance on Warner Brothers Records, Inc. v. Golden West Music Sales, 36 Cal. App.

3d 1012 (1974), is even more puzzling. In Warner Brothers, the plaintiffs attempted to serve corporate

defendants by handing copies of the summons and complaint to an attorney who allegedly was the

corporation’s “agent.” The corporations successfully moved to quash service on the ground that the

attorney was not authorized to accept service under Code of Civil Procedure § 416, and the appellate

court affirmed. Id. at 1016. Here, just as in Warner Brothers, the individuals served by plaintiff –

Messrs. Stone and Kastberg – are not authorized to accept service under § 416. See generally Stone and

Kastberg Declarations. 

In sum, plaintiff has failed to meet its burden to establish that service on Veritas (Bermuda) was

effective. If plaintiff wishes to pursue this action against this defendant, plaintiff must effect service

in a manner consistent with Rule 4.5

CONCLUSION

For the foregoing reasons, the Court hereby GRANTS defendant Veritas High Yield Arbitrage

Fund (Bermuda) Ltd.’s motion to quash service of summons. (Docket No. 10). Plaintiff must file proof

of service of summons and complaint on Veritas (Bermuda) no later than September 8, 2006. 

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For the Northern District of California

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IT IS SO ORDERED.

Dated: August 15, 2006 

SUSAN ILLSTON

United States District Judge

Case 3:06-cv-03561-SI Document 43 Filed 08/16/06 Page 6 of 6