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Editorial 9 MIN READ

A service of process letter just landed: what to do in the next 21 days

The clock started the day the registered agent signed, and the default judgment is the worst case you can still avoid this afternoon

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 6 sections
  1. What service of process actually is, and what it isn't
  2. The clock, in exact days
  3. Who to call first, and what to say
  4. What happens if you ignore it
  5. The two weeks, day by day
  6. Sources

service of process letter is the paper trail of a lawsuit walking in your front door, and in federal court the response clock is 21 days from the date your registered agent signed for it. Everything else, the D&O call, the motion to dismiss, the litigation hold memo, follows from that date.

The rest of this piece is an order of operations for the first two weeks after a summons arrives in March 2018, written for the general counsel who has never been sued, the founder who has, and the operations lead who opens the envelope first.

What service of process actually is, and what it isn't

Service of process is the formal delivery of the two documents that open a civil lawsuit: a summons, which tells you the court has jurisdiction and you have a deadline, and a complaint, which lists the claims and the relief the plaintiff wants. The Federal Rules of Civil Procedure govern service in federal court under Rule 4, and most state codes track the federal scheme closely. In 47 states and the District of Columbia, the statutes permit service on a corporation or LLC by delivery to the entity's registered agent. Delaware, for example, codifies the rule at 8 Del. C. § 321 for corporations and 6 Del. C. § 18-105 for LLCs; the statute reaches any registered agent in the state, and service on that agent is service on the company.

What arrives in the envelope is usually four things stapled or clipped together. The first is a cover letter from the registered agent, dated the day they accepted service, time-stamped if they are a commercial provider. The second is the summons, which names the court, the parties, the case number, and the response deadline. The third is the complaint, typically paginated with numbered paragraphs and ending in a prayer for relief. The fourth is whatever exhibits the plaintiff attached: contracts, demand letters, invoices, emails they think help their case.

Not every paper that looks like this is actually a complaint. A subpoena under Rule 45 commands you to produce documents or give testimony, and it comes with its own compliance clock but no answer. An administrative notice from a state agency, a workers' compensation hearing notice, or an IRS summons is its own creature and the 21-day rule does not apply. If the caption reads "IN THE UNITED STATES DISTRICT COURT" or "IN THE [STATE] COURT OF [COUNTY]" and paragraphs end with "WHEREFORE, Plaintiff prays for judgment," it is a complaint. Read the first page before you react.

The clock, in exact days

Federal Rule of Civil Procedure 12(a)(1)(A)(i) gives a defendant 21 days after being served with the summons and complaint to serve an answer. If the defendant waived service under Rule 4(d), the window opens to 60 days, or 90 days if the defendant is outside any judicial district of the United States. State rules vary, and the variance matters: California Code of Civil Procedure § 412.20 requires an answer within 30 days of service; New York CPLR 3012(a) sets 20 days for in-person service and 30 days for service by mail or on an agent; Texas Rule of Civil Procedure 99 requires the defendant to appear "by 10:00 a.m. on the Monday next following the expiration of twenty days after the date of service," a formula that produces a response date anywhere from 20 to 26 days out depending on when service occurred.

The date that starts the clock is the date the registered agent signed, not the date the letter arrived on your desk. Commercial registered agents overnight service packages to the address on file, and the gap between agent acceptance and company receipt is often two or three business days. A commercial agent who accepts service on a Monday and overnights the packet is leaving you with 18 days, not 21, before you have to have an answer on file. This is why the cover letter's date-stamp is the first thing to read.

The 21-day answer deadline is not the only option. Rule 12(b) lets you file a motion raising one or more of seven defenses (lack of jurisdiction, improper venue, insufficient process, insufficient service of process, failure to state a claim, failure to join a required party) instead of an answer, and a properly filed Rule 12(b) motion extends the time to answer until the court rules on it under Rule 12(a)(4). Motions to dismiss are, in practice, how most federal commercial defendants engage the first round; the motion is due on the same 21-day clock as the answer.

Who to call first, and what to say

Not the registered agent. The registered agent's job is to accept service and forward it; they will not and cannot tell you what the complaint means, and they do not track your response deadline. Their liability ends when the packet leaves their office.

Call your litigation counsel. If the company does not have litigation counsel on retainer, call the corporate firm that handles the formation and financing work, explain that a summons has been served, and ask for an immediate referral. The word "immediate" matters here; a firm that would normally call back in 24 hours will move a service of process call to the front of the queue if the caller says a summons has been served and names the response deadline. If the company has no outside counsel at all, call the state bar's lawyer referral service, which every state operates, and say the same sentence. Have the cover letter, the summons, and the complaint in front of you when you dial.

The second call is to the D&O carrier. Most directors-and-officers policies are claims-made, which means coverage attaches if the claim is both made against the insured and reported to the carrier during the policy period, and almost every policy imposes a notice deadline of "as soon as practicable" or a specific window, often 30 or 60 days. Late notice is the single most common reason a claim is denied that would otherwise have been covered. The notice goes to the address on the policy declarations, usually by email plus certified mail, and includes the caption, the date of service, and a copy of the complaint. Call the broker the same afternoon and send the formal notice within the week. Do not wait for counsel to review it; late notice and an attorney-reviewed notice are worse than a same-day notice that is slightly imprecise.

The third call is internal. The company is now under a duty to preserve evidence relevant to the claim, and that duty attached the moment the claim became reasonably anticipated, which in practice was the day the summons arrived. A litigation hold memo goes out to everyone who might have relevant documents, instructing them to suspend any automatic email deletion, preserve the relevant files, and route questions to counsel. Zubulake v. UBS Warburg, 220 F.R.D. 212 (S.D.N.Y. 2003), and its progeny turned the failure to issue a timely hold into an independent sanctionable act; do not skip this step because the lawsuit looks small.

What happens if you ignore it

The plaintiff files for an entry of default, then a default judgment, and collects as if they had won at trial. Under Federal Rule of Civil Procedure 55(a), the clerk enters a default when the defendant fails to plead or otherwise defend and the failure is shown by affidavit. Under Rule 55(b), the plaintiff moves for default judgment, and the court enters it, often without a hearing if the amount is a sum certain. In most states the mechanics are similar. The judgment is then enforceable against company assets through bank-account garnishments, receivership, and, in the case of a judgment against a corporate officer or guarantor, personal wage garnishment where state law allows.

Default judgments can be set aside, but the standard is not friendly. Rule 60(b) requires a showing of mistake, excusable neglect, newly discovered evidence, fraud, or similar grounds, and the motion must be made "within a reasonable time" and, for mistake or excusable neglect, no more than a year after entry. Courts routinely find that an overlooked summons forwarded by a registered agent is not excusable neglect when the company had a system for receiving mail and failed to use it. The cost of setting aside a default is several thousand dollars in legal fees and no guarantee it will work. The cost of answering on time is roughly a day of counsel's attention.

If the company has moved and the registered agent's address is stale, the default can happen before you know a lawsuit exists. This is why the registered agent question, covered at length in our November 2016 piece on in-house versus commercial agents, is not a commodity decision. An agent that forwards the same day and has a working contact-update process is worth the extra hundred dollars a year in almost every case.

The two weeks, day by day

On day one, which is the day the packet arrives at the company's mail room, read the cover letter for the service date, confirm the response deadline by counting calendar days from that date under the applicable rule, and calendar it on every system the company uses. Email the packet to litigation counsel with a one-line summary and the deadline. Start the D&O notice call.

By day three, counsel has read the complaint and usually has a preliminary view on whether a Rule 12(b) motion is viable, whether the venue is right, and whether service was proper. The litigation hold goes out, often drafted by counsel and signed by an officer. The broker confirms the D&O carrier received the notice.

By day seven, the answer or motion is in draft, document preservation is underway, and the company has a privileged internal memo identifying the key custodians and the likely exposure. If the claim is covered by D&O and the carrier has accepted the tender, the carrier may assign panel counsel; if the company prefers its existing counsel, that gets negotiated this week.

By day fourteen, the responsive pleading is in final review. Rule 11(b) requires that the pleading be grounded in fact and law, which means counsel has verified the factual denials with the business people who would testify to them. The answer or motion is filed and served on the plaintiff's counsel under Rule 5, and the certificate of service is docketed.

On day twenty-one, the answer is on file. The case is now in discovery, or in a motion-to-dismiss holding pattern, and the company has preserved every defense. No default has been entered, the D&O carrier is on notice, and the litigation hold is documented.

The rule of thumb is this: the day a summons arrives, put two dates on the calendar, the answer deadline from the summons and the D&O notice deadline from the policy, and work backward from whichever comes first. Everything else is a variation on that one sentence.

Sources

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