Ryniker v. Sumec Textile Co.

24-2090 Ryniker v. Sumec Textile Co.

1 UNITED STATES COURT OF APPEALS

2 FOR THE SECOND CIRCUIT

3 - - - - - -

4 August Term, 2024 5 (Argued: May 21, 2025 Decided: May 27, 2026 )

6 Docket No. 24-2090 7 _________________________________________________________

8 BRYAN RYNIKER, in his capacity as Litigation Administrator of the

9 Post-Confirmation Estates of Décor Holdings, Inc.,

10 Plaintiff-Appellant, 11 - v. -

12 SUMEC TEXTILE COMPANY LIMITED,

13 Defendant-Appellee. 14 _________________________________________________________

15 Before: KEARSE, JACOBS, and LOHIER, Circuit Judges.

16 Appeal by plaintiff bankruptcy litigation administrator from a 2024 17 judgment of the United States Bankruptcy Court for the Eastern District of New York

1

1 (Robert E. Grossman, Judge), granting defendant creditor's motion to dismiss this 2 adversary proceeding brought by the administrator to recover preferential payments 3 made by the bankruptcy debtors to the creditor in the 90-day period before the 4 debtors filed for bankruptcy. Although in 2021 a default judgment had been entered 5 and the bankruptcy judge denied the creditor's motion to vacate for allegedly 6 insufficient service of process, finding that sufficient service had been made on the 7 creditor's subagent who had filed the creditor's proof of claim in the bankruptcy 8 proceeding, the default judgment was vacated on appeal by the United States District

9 Court for the Eastern District of New York, which found that the creditor had not 10 expressly or impliedly conferred on its agent or the subagent any authority to accept 11 service of process on behalf of the creditor. On remand from the district court, the 12 bankruptcy court in 2024 dismissed the adversary proceeding with prejudice. On this 13 direct appeal from the bankruptcy court's 2024 judgment, the administrator seeks 14 reinstatement of the default judgment, contending principally that the district court 15 erred in ruling that the subagent on which the adversary proceeding complaint was 16 served lacked authority to accept service of process on behalf of the creditor.

17 We conclude that documents in the record, including two that were part 18 of the creditor's proof of claim in the bankruptcy proceeding, establish that the

2

1 creditor conferred authority on an agent and a subagent to file its proof of claim and 2 to do all that was appropriate in order to collect from the debtors the "full amount"

3 of the $3,029,719.52 claim, and thereby implicitly authorized the agent and subagent 4 to do all that was appropriate to resist the administrator's reduction of that sum, as 5 could occur in a bankruptcy adversary proceeding. We accordingly vacate the order 6 of the district court that vacated the bankruptcy court's denial of Sumec's motion to 7 vacate the default judgment against it, and we vacate the judgment of the bankruptcy 8 court that, on remand from the district court, dismissed the adversary proceeding.

9 We remand to the bankruptcy court for further proceedings.

10 Vacated and remanded for further proceedings.

11 Noah Weingarten, New York, New York (Loeb & Loeb,

12 New York, New York; Schuyler G. Carroll, Manatt,

13 Phelps & Phillips, New York, New York, on the brief), 14 for Plaintiff-Appellant.

15 Frederick B. Rosner, Wilmington, Delaware (The Rosner

16 Law Group, Wilmington, Delaware, on the brief), for

17 Defendant-Appellee.

18

19 KEARSE, Circuit Judge:

20 Plaintiff Bryan Ryniker, as bankruptcy litigation administrator 21 ("Litigation Administrator" or "Administrator") of the Post-Confirmation Estates of

3

1 Décor Holdings, Inc., and its debtor affiliates (collectively "Décor" or "Debtors"), 2 appeals from a 2024 judgment of the United States Bankruptcy Court for the Eastern

3 District of New York (Robert E. Grossman, Judge), granting the motion of defendant

4 Sumec Textile Company Limited ("Sumec") to dismiss this adversary proceeding 5 brought by Ryniker to recover preferential payments made to Sumec by the Debtors 6 in the 90-day period before they filed for bankruptcy. In 2021, a default judgment had 7 been entered in favor of Ryniker, and the bankruptcy judge denied Sumec's motion 8 to vacate for allegedly insufficient service of process, finding that sufficient service 9 had been made on Sumec's subagent who had filed Sumec's proof of claim in the 10 bankruptcy proceeding. The default judgment was vacated on appeal by the United

11 States District Court for the Eastern District of New York (Gary R. Brown, Judge), 12 which concluded that Sumec had not expressly or impliedly conferred on its agent 13 or the subagent any authority to accept service of process on behalf of Sumec. On 14 remand from the district court, the bankruptcy court in 2024 dismissed the adversary 15 proceeding with prejudice. On this direct appeal from the bankruptcy court's 2024 16 judgment, Ryniker seeks reinstatement of the default judgment, contending 17 principally that the district court erred in ruling that the subagent on which the 18 adversary proceeding complaint was served lacked authority to accept service of

4

1 process on behalf of Sumec.

2 We conclude that documents in the record, including two that were part 3 of Sumec's proof of claim in the bankruptcy proceeding, establish that Sumec 4 conferred authority on an agent and a subagent to file Sumec's proof of claim and to 5 do all that was appropriate in order to collect from Décor the "full amount" of Sumec's 6 $3,029,719.52 claim, and thereby implicitly authorized the agent and subagent to do 7 all that was appropriate to resist the Administrator's reduction of Sumec's recovery, 8 as could occur in a bankruptcy adversary proceeding. Accordingly, we vacate the 9 order of the district court that vacated the bankruptcy court's denial of Sumec's 10 motion to vacate the default judgment against it; and we vacate the judgment of the 11 bankruptcy court which, on remand from the district court, dismissed the adversary 12 proceeding. We remand to the bankruptcy court for further proceedings.

13 I. BACKGROUND

14 The events leading to the present appeal have been addressed in several 15 judicial orders or opinions, familiarity with which is assumed. See Ryniker v. Sumec

16 Textile Co., Adv. Pro. No. 20-08130 (Bankr. E.D.N.Y. Nov. 23, 2021) (Bankruptcy Court

5

1 Supplemental Findings of Fact and Conclusions of Law with regard to the denial of

2 Sumec's motion to vacate the default judgment) ("Ryniker I"); Sumec Textile Co. v.

3 Ryniker, No. 21-CV-6725, 2023 WL 170595 (E.D.N.Y. Jan. 12, 2023) (District Court

4 Order vacating bankruptcy court order that denied Sumec's motion to vacate default 5 judgment, and remanding for further proceedings) ("Ryniker II"); Ryniker v. Sumec

6 Textile Co., 86 F.4th 1021 (2d Cir. 2023) (dismissing appeal from Ryniker II for lack of 7 appellate jurisdiction) ("Ryniker III"); Ryniker v. Sumec Textile Co., Adv. Pro.

8 No. 20-08130 (Bankr. E.D.N.Y. Mar. 5, 2024) (Bankruptcy Court Order Granting

9 Defendant's Motion To Dismiss) ("Ryniker IV").

10 A. The Early Bankruptcy Filings

11 On February 12, 2019, Décor and its debtor affiliates, which were sellers 12 of decorative fabric, filed a voluntary petition for bankruptcy under Chapter 11 of the

13 Bankruptcy Code. They listed Sumec, a Nanjing, China-based textile manufacturer, 14 as their second-largest unsecured creditor.

15 Sumec held an export credit insurance policy with the State-owned

16 China Export & Credit Insurance Corporation, also known as "Sinosure." (See

17 Declaration of Sumec senior manager Yan Gu dated October 1, 2021 ("Gu Declaration"

6

1 or "Sumec's Gu Decl."), ¶¶ 1, 7-8.) "On or about February 27, 2019," Sumec submitted 2 an insurance claim to Sinosure "for the unpaid balance owed to [Sumec] by the

3 Debtors." (Id. ¶ 9.)

4 Thereafter, Sumec executed a Collection Trust Deed that authorized

5 Sinosure to collect "the full amount" of the debt on Sumec's behalf. It stated as 6 follows:

7 Owing to and in connection with the protracted default by 8 [the Debtors] in payment under the Sales Contract or [certain 9 enumerated invoices] signed between [Sumec] and [the Debtors], 10 we, SUMEC . . . , hereby confirm our agreement and authorization to 11 [Sinosure], of the full rights for collection, on our behalf, against [the

12 Debtors] for the full amount of USD 3029719.52 . . . U.S. DOLLARS

13 THREE MILLION AND TWENTY-NINE THOUSAND SEVEN

14 HUNDRED AND NINETEEN CENTS FIFTY-TWO ONLY . . . .

15 We further confirm our grant to [Sinosure] the full power in 16 exercising such rights and remedies in our or its own name and give 17 any assistance as it may require of us from time to time. 18 (Sumec Collection Trust Deed (or "Collection Trust") (A.149) (emphases added).)

19 On March 4, 2019, Sinosure hired a collection agency in the United States,

20 Brown & Joseph, LLC ("B&J"), to collect on the Décor debt to Sumec. Sinosure 21 executed a document titled Trust Deed and Letter of Instruction ("Sinosure

22 Instructions to B&J" or "Instructions") stating, in pertinent part, as follows:

7

1 We, [Sinosure], hereby confirm our instruction to Brown &

2 Joseph, LLC for debt collection against [Décor] who has defaulted in 3 payment to our client SUMEC . . . .

4 The total amount hereby instructed is USD 3,039,806.24 (Say

5 US Dollar Three Million Thirty-Nine Thousand Eight Hundred 6 and Six and Twenty-Four Cents) plus the interest accrued.

7 We further confirm to grant Brown & Joseph, LLC the full power 8 in exercising such rights and remedies in our or its own name for the 9 amicable debt collection and commit ourselves to render any 10 assistance as it may reasonably require of us from time to time. 11 (A.151-52 (emphases added).)

12 On April 16, 2019, B&J filed a claim in the Décor bankruptcy for 13 $3,029,719.52 on behalf of "Sumec" as the creditor. (See A.144-340.) The official Proof 14 of Claim form was signed by "Don Leviton," identified as "Legal Counsel [at] Brown 15 & Joseph, LLC," and as "the creditor's attorney or authorized agent." (A.146.) In 16 addition to the copies of invoices attached to the official form, the Proof of Claim 17 included copies of the Sumec Collection Trust Deed and the Sinosure Instructions to

18 B&J. (See A.149-52.)

19 B. The Record in the Present Adversary Proceeding

20 On August 25, 2020, Ryniker commenced the present adversary

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1 proceeding against Sumec, filing a "COMPLAINT TO AVOID AND RECOVER

2 TRANSFERS PURSUANT TO 11 U.S.C. §§ 547, 548, AND 550 AND TO DISALLOW

3 CLAIMS PURSUANT TO 11 U.S.C. § 502." ("Adversary Complaint" or "Complaint"

4 (A.341) (emphasis added).) Ryniker sought to recover from Sumec a total of 5 $693,048.84 of preferential payments that Sumec had received from the Debtors 6 within 90 days of their filing for bankruptcy.

7 Sumec's Proof of Claim in the bankruptcy proceeding, in specifying 8 "[w]here should notices to the creditor be sent," identified "Brown & Joseph, C/O Don

9 Leviton, PO Box 59838, Schaumburg, Illinois, 60159." (A.144.) The Proof of Claim 10 also listed a "[c]ontact email" address for Leviton. (Id.)

11 On August 28, 2020, the Administrator's counsel or assistants (the 12 "Ryniker Staff" or "Staff") sent the Adversary Complaint and a summons by United

13 States Postal Service First Class Mail, postage prepaid, to "Sumec Textile Company

14 Ltd., c/o Brown Joseph, Attn: Don Leviton, P.O. Box 59838, Schaumburg, Illinois, 15 60159." (A.353-54.) On August 31, 2020, the Ryniker Staff sent courtesy copies of the

16 Adversary Complaint and summons by email to the Leviton email address that was 17 provided in Sumec's Proof of Claim. (See id.)

18 According to emails in the record, Leviton--B&J's corporate counsel--

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1 received these electronic documents from Ryniker, as well as a request to confirm 2 receipt of the hard copies. (See A.1042.) Leviton forwarded the documents to Peter

3 Geldes, the "Claims & Investigations Manager" for B&J, on September 2, 2020.

4 (A.1041.)

5 On September 3, 2020, Geldes sent Ryniker an email stating that, in 6 addition to "look[ing] into" whether hard copies of the Complaint and summons had 7 been received, "I am also reviewing with . . . our client and the creditor, as it is my 8 understanding that any payments made were paid in the ordinary course." (Id. 9 (emphases added).) To that end, Geldes asked whether Ryniker had a "spreadsheet 10 regarding payment history . . . for Sumec to complete." (Id.) On November 9, 2020,

11 Geldes sent an email to the Ryniker Staff noting that he had not received a response 12 to his September 3 email and stating that, "[a]s expressed, Sumec is under the 13 impression that the payments received from Decor Holdings, Inc., et al., were made 14 in the ordinary course of business and are not subject to preference action." (A.1040.)

15 The Ryniker Staff sent the requested spreadsheet, stating that Ryniker was "happy to 16 provide Sumec with an extension of time to respond to the Complaint until December 17 15." (Id.) On November 11, 2020, Geldes responded that he would "work on getting

18 Sumec to provide the analysis by the December 15th deadline." (A.1039-40.)

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1 Ryniker received no response before that deadline. In a December 16, 2 2020 email to the Ryniker Staff, Geldes stated: "Sumec has asked that I reach out and 3 clarify if there is a settlement offer to resolve the preference claim." (A.1039.) Ryniker 4 telephoned an offer in response, which Geldes then conveyed to his "client"; but as 5 of January 18, 2021, Geldes had received no "response or decision." (A.1038-39.)

6 Between December 2020 and May 2021, the bankruptcy court scheduled, 7 convened, and adjourned several conferences. No one attended on behalf of Sumec.

8 On February 11, 2021, the Ryniker Staff informed Geldes that the 9 bankruptcy court was eager for adversary proceeding "matters to move along" and 10 thus would "not permit any further extension of the time to answer." (A.1060.)

11 Geldes responded that he had "relayed" this information to his "client," but again 12 indicated that he had received no response. (A.1059.) Unhappy with the further 13 delay, Ryniker on February 18, 2021, threatened to--and on February 24, 2021, did-- 14 file a request for entry of default. A month later, on March 25, the bankruptcy court 15 formally noted Sumec's default on the docket. On March 30, Geldes emailed Ryniker, 16 stating that he "still ha[d] not heard anything from Sumec." (A.1064.) Geldes also 17 stated that he "believe[d]" it had been "discussed previously" but wanted to "reiterate"

18 and "re-clarify" that "Brown & Joseph is not authorized to accept service on

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1 Sumec's behalf." (Id.)

2 On May 21, 2021, Ryniker moved for entry of a default judgment. He 3 provided proof of service of the summons and Complaint on B&J, noting that copies 4 of the Complaint and summons had been sent to the mailing and electronic mailing 5 addresses stated in Sumec's Proof of Claim in the Décor bankruptcy case. On July 19, 6 2021, there still having been no appearance or a response by Sumec, the bankruptcy 7 court granted Ryniker's motion, entering a default judgment against Sumec for 8 $693,048.84 plus interest.

9 1. Sumec's Motion To Vacate the Default Judgment

10 On October 1, 2021, Sumec moved to reopen the adversary proceeding 11 and to vacate the default judgment, asserting a need "to avoid an injustice, and permit

12 SUMEC to present its meritorious defenses and litigate this adversary proceeding on 13 the merits." (Sumec Motion To Reopen Adversary Proceeding and Vacate Entry of

14 Default Judgment ("Sumec Motion To Vacate" or "Motion") at 2.) Sumec contended 15 that the judgment was void for lack of service of process sufficient to give the court 16 personal jurisdiction over Sumec. (See Motion at 18-19.) It also argued that, if the 17 judgment were vacated, it had meritorious defenses to present. In support of the

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1 Motion, Sumec submitted the Gu Declaration, which it quoted and paraphrased for 2 its assertions as to facts.

3 As will be discussed in Part II.B. below, after noting that Sumec had 4 submitted its insurance claim to Sinosure for the Décor unpaid debt in February 2019 5 (see Sumec's Gu Decl. ¶ 9), Gu's discussion of Sumec's connection with the Décor 6 bankruptcy included the following:

7 10. On October 15, 2019, SUMEC and SINOSURE settled on

8 the Insurance Claim. SINOSURE agreed to pay SUMEC a portion 9 of the amount claimed in full satisfaction of its Insurance Claim.

10 Following payment of its Insurance Claim, SUMEC elected not to 11 pursue the Debtors for the balance owed and did not file a proof of claim 12 in these cases.

13 Following Payment on the Insurance Claim, SINOSURE was

14 Subrogated to the Rights of SUMEC and Sought to Collect the

15 Debt Directly from the Debtors.

16 11. . . . . As required by the Insurance Policy, on October 17 18, 2019, SUMEC executed the Payment Receipt and Subrogation 18 (the "Subrogation Agreement"), which provides as follows:

19 In consideration of having received the payment, we 20 [SUMEC] hereby agree to assign, transfer and subrogate to 21 you [SINOSURE], to the extent of your interest, all our rights 22 and remedies in and in respect of the subject matter insured, 23 and to grant you full power and give you any assistance 24 you may reasonably require of us in the exercise of such 25 rights and remedies in our or your name.

13

1 . . . . Significantly, the Subrogation Agreement authorizes

2 SINOSURE to collect in SUMEC's name. 3 12. SUMEC also executed a certain Collection Trust Deed 4 for the purpose of authorizing SINOSURE to collect the Debt.

5 Significantly, the scope of the Collection Trust Deed is limited. It 6 provides as follows:

7 Owing to and in connection with the protracted default by 8 [the Debtors] in payment under the Sales Contract or 9 [certain enumerated invoices] signed between [SUMEC] 10 and [the Debtors], we, [SUMEC], hereby confirm our 11 agreement and authorization to [SINOSURE], of the full 12 rights for collection, on our behalf, against [the Debtors] for 13 the full amount of USD 3029719.52 . . . plus the interest 14 accrued.

15 We further confirm our grant to [SINOSURE] the full 16 power in exercising such rights and remedies in our or its 17 own name and give any assistance as it may require of us 18 from time to time.

19 The Collection Trust Deed, however, does not authorize

20 SINOSURE to accept service of a summons or complaint on

21 SUMEC's behalf or act in any way for SUMEC.

22 SINOSURE, not SUMEC, Sought to Collect the Debt it was

23 owed as Subrogee[.]

24 13. As noted, SUMEC took no steps to collect the balance 25 it was owed by the Debtors and considered the matter closed.

26 SINOSURE, however, sought to collect the debt it now was owed 27 having paid SUMEC on its Insurance Claim. At all relevant times,

28 SINOSURE, acting independently of SUMEC, and without notice 29 or reporting to, or consulting with, SUMEC, sought to collect the

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1 Debt it now was owed as subrogee. 2 (Sumec's Gu Decl. ¶¶ 10-13 (bolding in original; except in ¶ 11, and "limited" in ¶ 12, 3 all italics ours).)

4 The Gu Declaration acknowledged the agency relationship between

5 Sinosure and B&J:

6 14. To assist in debt collection, SINOSURE hired the

7 Detroit-based collection agency Brown & Joseph LLC ("B&J"). The 8 scope of B&J's authority and services is set forth and limited by 9 the Trust Deed and Letter of Instruction dated March 4, 2019, 10 which provides:

11 "We [SINOSURE] hereby confirm our instruction to

12 Brown & Joseph, LLC for debt collection against [the Debtors] 13 who has [sic] defaulted in payment to our client [SUMEC] . . . .

14 The total amount hereby instructed is USD 15 3,039,806.24 (Say US Dollar Three Million Thirty-Nine

16 Thousand Eight Hundred and Six and Twenty-Four Cents) 17 plus the interest accrued.

18 We further confirm to grant Brown & Joseph, LLC the full 19 power in exercising such rights and remedies in our 20 [SINOSURE's] or its own name for the amicable debt 21 collection and commit ourselves to render any assistance as 22 it may reasonably require of us from time to time.

23 There is no language in the Trust Deed and Letter of Instruction 24 that authorizes B&J to accept service of process on behalf of

25 SUMEC.

15

1 15. Between the time the Complaint was filed and entry of the

2 Default Judgment, SUMEC had no contact with B&J, and certainly 3 did not authorize B&J to take any action on its behalf or represent it in 4 any way, including preparing or filing a proof of claim for SUMEC in 5 the Debtors' cases. SUMEC did not sign or file any claim and B&J 6 did not sign in any representative capacity for SUMEC. As noted,

7 SUMEC elected not to pursue the Debtors following payment on 8 its Insurance Claim.

9 16. However, B&J was hired by SINOSURE to collect the Debt.

10 Toward that end, B&J prepared and filed a proof of claim on account of 11 the Debt (the "Proof of Claim") in SUMEC's name. It did so because it 12 was acting at the bequest [sic] of SINOSURE and SINOSURE was 13 authorized to use SUMEC's name to collect the Debt. 14 17. SUMEC did not sign, or have any involvement with 15 preparing, reviewing or filing the Proof of Claim. SUMEC never 16 saw the Proof of Claim before it was filed and never was asked to 17 sign the proof of claim. SUMEC never authorized B&J to file the

18 Proof of Claim and was not even aware that B&J had filed a Proof 19 of Claim in SUMEC's name. SUMEC for the first time received a 20 copy of the Proof of Claim from B&J on September 20, 2021 21 (Beijing Time).

22 (Sumec's Gu Decl. ¶¶ 14-17 (emphases ours; footnotes and original emphases 23 omitted).)

24 The Gu Declaration went on to, inter alia, reiterate that "SUMEC never 25 authorized B&J or SINOSURE to accept service of process on its behalf in this 26 adversary proceeding," and it attached Geldes's March 30, 2021 email to Ryniker, 27 which stated that B&J had not been authorized to accept service of process for Sumec

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1 (and which suggested that Ryniker had been so informed previously). (See id. ¶ 22.)

2 Gu also stated that "[t]o date"--i.e., October 1, 2021--"neither SINOSURE nor B&J has 3 provided a copy of the Summons and Complaint to SUMEC." (Id. ¶ 23.) He stated 4 that "[w]ithout knowledge or receipt of the Summons and Complaint, the Request for

5 Default or the Motion for Default Judgment, SUMEC could not and, therefore, did 6 not, respond to any pleading, appear or defend itself in this matter." (Id. ¶ 30.)

7 However, having "learn[ed] of the Default Judgment"--but without having seen the

8 Complaint--"on September 3, 2021, SUMEC requested SINOSURE to relay, through

9 B&J, a settlement offer to [Ryniker]." (Id. ¶ 36.) 10 2. Ryniker's Opposition to Sumec's Motion To Vacate

11 In opposition to Sumec's motion to vacate the default judgment, Ryniker 12 maintained that Sumec had been properly served through service on Don Leviton, 13 the agent named in the Proof of Claim for receipt of notices, at the address to which 14 the Proof of Claim said such notices were to be sent. (See Litigation Administrator's

15 Response and Opposition to Sumec's Motion To Vacate ("Administrator's

16 Response").) He also argued that there could be "no question that Sumec timely 17 received the Summons and Complaint" (A.791), as the record showed that Leviton

17

1 forwarded the summons and Complaint to B&J's Claims and Investigations Manager

2 Geldes two days after receiving them (see A.1041-42).

3 Further, referring to Geldes as Sumec's "agent" (Administrator's

4 Response at 4), Ryniker stated that, following service of the Complaint,

5 Sumec's agent engaged in repeated and lengthy discussions with 6 the Litigation Administrator's counsel beginning shortly after the

7 Summons and Complaint were served and continued for months. 8 (Id. at 1.) And "Sumec's agent repeatedly told the Litigation Administrator's counsel 9 that Sumec was aware of the Adversary Proceeding and he was in regular 10 communication with Sumec." (Id. (emphasis in original).)

11 Ryniker attached, as Exhibits 5-8, emails between Geldes and members 12 of his Staff from August 31, 2020, to September 17, 2021. He noted that despite

13 Geldes's suggestion by email on March 30, 2021, that B&J had previously told the

14 Ryniker Staff that B&J was not authorized to receive service of process for Sumec,

15 Geldes's prior communications had indicated quite the opposite. Ryniker referred, 16 for example, to Geldes's email of September 3, 2020:

17 Rather than disclaiming either (i) his agency to act on Sumec's 18 behalf or (ii) his, Don Leviton's, or Brown & Joseph's authorization 19 to accept service of process, Mr. Geldes acted as Sumec's agent in 20 the preference action, stating:

18

1 Attorney Leviton forwarded your email to my 2 attention, as well as the attachments. . . . I am also reviewing 3 with the [sic] our client and the creditor" . . . . "[i]n previous 4 instances where creditors we were representing faced 5 preference action suits the creditor was required to submit 6 a spreadsheet regarding payment history--do you have 7 something like that for Sumec to complete?"

8 (Administrator's Response at 4 (emphases in Administrator's Response).) And on

9 November 9, 2020, Geldes told the Ryniker Staff that "Sumec is under the impression 10 that the payments received from Décor Holdings, Inc., et al., were made in the 11 ordinary course of business . . . ." (Id. (emphasis in Administrator's Response).)

12 C. The Bankruptcy Court's Decision in Ryniker I

13 The bankruptcy court denied Sumec's motion to vacate the default 14 judgment, noting that "Sumec d[id] not deny receiving notice of the filing of the 15 [Chapter 11] petition," and that there were sufficient indicia of an agency relationship 16 between Sumec and Sinosure--and a subagency relationship between Sumec and

17 B&J--with respect to Sumec's desire to collect its debt from Décor. Ryniker I at 2, 9-10.

18 The court noted that "Sumec expressly permitted Sinosure to use Sumec's 19 name when collecting on the debt," and that Sumec's "Collection Trust Deed states 20 that Sinosure has 'the full rights for collection, on our behalf, against [the Debtors] for

19

1 the full amount [of the debt].'" Id. at 9-10 (quoting the Collection Trust (emphasis in

2 Ryniker I)). The court continued:

3 Sinosure then appointed Brown & Joseph as its subagent to 4 perform the functions that Sumec conferred upon Sinosure. This 5 subagency was reflected in the Trust Deed and Letter of

6 Instruction, which confirms that Brown & Joseph has the full 7 power to collect the debt. A subagent, acting within the scope of 8 his authority, may bind the principal as the agent may bind the 9 principal. . . . This would include the authority to file the proof of 10 claim in Sumec's name. Based on all of these factors, the Court 11 finds that service of process on Sumec at the name and address 12 listed on the proof of claim satisfied due process requirements and 13 [Bankruptcy] Rule 7004(b)(3).

14 Id. at 10. The bankruptcy court found that there was a clear agency relationship 15 between Sinosure and B&J in pursuit of Sumec's collection of that debt, id. at 9-10; that 16 because there were no reservations in Sumec's grant of authority to Sinosure, "Sumec 17 could have anticipated that Sinosure would be participating in the Debtors' 18 bankruptcy which would include the filing of a proof of claim," id. at 10; and that

19 Ryniker could "properly rel[y] on the address listed in the proof of claim for service 20 of the summons and complaint," id. at 2.

21 The court concluded that there were "sufficient indicia of agency between

22 Sumec and Sinosure to find that Sumec was properly served" in the bankruptcy 23 adversary proceeding. Id. at 9.

20

1 D. The District Court's Vacatur of the Ryniker I Decision

2 Sumec appealed the Ryniker I decision to the district court, 3 reiterating its challenges to the sufficiency of service of process. In its appellate 4 capacity, a district court is to review the bankruptcy court's factual findings for 5 clear error and its legal conclusions de novo. See, e.g., In re Bonnanzio, 91 F.3d 6 296, 300 (2d Cir. 1996). In a Memorandum and Order dated January 12, 2023 7 (Ryniker II), the district court vacated the default judgment, concluding 8 principally that Sumec had not expressly or impliedly authorized B&J to receive 9 service of process. It stated:

10 Under Bankruptcy Rule 7004(b)(3), service of process in an 11 adversary proceeding may be made, "[u]pon . . . a foreign 12 corporation . . . by mailing a copy of the summons and complaint 13 to the attention of . . . any other agent authorized by appointment 14 or by law to receive service of process." A default judgment is void 15 if service was improper, regardless of whether the defendants had actual 16 notice. Triad Energy Corp. v. McNell, 110 F.R.D. 382, 386 (S.D.N.Y. 17 1986). In the Second Circuit, there is a strong preference that 18 "litigation disputes be resolved on the merits, not by default."

19 Cody v. Mello, 59 F.3d 13, 15 (2d Cir. 1995). "[T]he extreme 20 sanction of a default judgment must remain a weapon of last, 21 rather than first, resort, which should only be imposed upon a 22 serious showing of willful default." Davis v. Musler, 713 F.2d 907, 23 916 (2d Cir. 1983) (citations and internal quotation marks omitted).

24 As such, "motions to vacate default judgments are to be granted 25 liberally" and "all doubts should be resolved in favor of the party 26 seeking relief." Int'l Cargo & Sur. Ins. Co. v. Mora Textiles Corp.,

21

1 No. 90 CIV. 3880 (KMW), 1991 WL 120359, at *2 (S.D.N.Y. June 21,

2 1991).

3 Ryniker II at *5 (emphasis added).

4 Noting that "[t]his appeal turns on whether B & J was an authorized 5 agent for service of process under Bankruptcy Rule 7004(b)(3)," id., the district court 6 disagreed with the bankruptcy court's ruling that there were "'sufficient indicia of 7 agency between Sumec and Sinosure to find that Sumec was properly served,'" id. 8 (quoting Ryniker I). The district court stated as follows:

9 An agent's authority can be actual or implied. "Actual authority is 10 created by direct manifestations from the principal to the agent, 11 and the extent of the agent's actual authority is interpreted in the 12 light of all circumstances . . . ." Highland Cap. Mgmt. LP v.

13 Schneider, 607 F.3d 322, 327 (2d Cir. 2010) (quoting Peltz v. SHB

14 Commodities, Inc., 115 F.3d 1082, 1088 (2d Cir. 1997)). Here, B & J 15 lacked actual authority to accept service for Sumec because Sumec 16 never specifically authorized B & J to accept service on its behalf; 17 indeed, it never even communicated with B & J prior to the entry of 18 default judgment. App. 79-80, 82. See In re Reisman, 139 B.R. 797, 19 800 (Bankr. S.D.N.Y. 1992) (creditor's attorney lacked explicit 20 authority to accept service where the Notice of Appearance 21 executed by creditor's attorney was neither signed nor 22 acknowledged by the creditor).

23 "Apparent authority consists of two elements: (1) a 24 manifestation by the principal that the agent has authority and (2) 25 reasonable reliance on that manifestation by the person dealing 26 with the agent." In re Kollel Mateh Efraim, LLC, 334 B.R. 554, 560 27 (Bankr. S.D.N.Y. 2005) (citing FDIC v. Providence College, 115 F.3d

22

1 136, 140 (2d Cir. 1997)). Neither element is satisfied here. First, 2 there was no manifestation by Sumec that the purported subagent

3 B & J had authority to accept service of process. Sumec made no 4 direct or indirect communication with the litigation administrator 5 before the entry of default judgment. App. 79, 82. From the 6 commencement of the debtors' bankruptcy in 2019 to the entry of 7 default judgment in 2021, Sumec's only conduct was signing a

8 Collection Trust Deed which granted Sinosure the authority to 9 collect on the debt in "our [Sumec's] name or its own [Sinosure's] 10 name." App. 501. The Collection Trust Document does not 11 specifically confer the authority to accept service of process. For 12 service upon an agent to be effective, "an actual appointment for 13 the specific purpose of receiving process normally is expected."

14 § 1097 Service on Individuals--Delivery of Process to Agent

15 Appointed by Defendant, 4A Fed. Prac. & Proc. Civ. (Wright &

16 Miller) (4th ed.) (emphasis added).

17 Ryniker II at *5 ("specific" emphasized in original, all other emphases ours).

18 The district court noted that "[a]though [t]he requisite intent . . . may be 19 implied . . . from the circumstances surrounding the service upon the agent," id. 20 (internal quotation marks omitted),

21 here there was no direct communication between Sumec and the 22 litigation administrator for over two years. Although Geldes initially 23 purported to act on Sumec's behalf, "[o]ne who deals with an 24 agent does so at his peril, and must make the necessary effort to 25 discover the actual scope of authority." General Overseas Films, Ltd. 26 v. Robin Int'l, Inc., 542 F.Supp. 684, 690 (S.D.N.Y. 1982) (citation 27 omitted).

28 Ryniker II at *5 (emphasis added).

23

1 The district court concluded, on the record before it, that Ryniker also 2 could not show that his reliance on the name and address stated in the Proof of Claim 3 was "reasonable."

4 Although initially Geldes appeared to accept service for Sumec, 5 later he unambiguously disclaimed any such authority. App. 736 6 ("I also wanted to reiterate that Brown & Joseph is not authorized 7 to accept service on Sumec's behalf. . . . We are not a law firm, we 8 are not Sumec's attorney of record, and are only an authorized 9 agent so far as the credit insurance claim that they filed is 10 concerned."). In the email chain where Geldes purportedly 11 accepted service, his email signature identified Geldes not as an 12 attorney but a "Claims & Investigations Manager" at a collection 13 agency. App. 713. Since B & J lacked actual or apparent 14 authority, B & J was not an "agent authorized by appointment or 15 by law to receive service of process" under Bankruptcy Rule 16 7004(b)(3).

17 Ryniker II at *6. The court concluded further that 18 under these circumstances notice was not "reasonably calculated"

19 to apprise interested parties of the action. Mullane[ v. Cent.

20 Hanover Bank & Tr. Co.], 339 U.S. [306,] 314 [(1950)]; see also

21 Robinson v. Hanrahan, 409 U.S. 38 (1972) (notice of forfeiture 22 proceeding was not reasonably calculated where the state knew an 23 incarcerated automobile owner was not present at the address to which 24 notice was mailed even though the manner of service was 25 permissible under statute).

26 Ryniker II at *6 (emphasis added).

27 The district court also stated that "[t]he factors for setting aside a default

24

1 judgment"--whether the default was willful, whether setting it aside would prejudice 2 the plaintiff, and whether the defendant has proffered a meritorious defense--"weigh 3 in Sumec's favor." Id. It stated, inter alia, that, "Sumec's default was not willful 4 because they had no notice of the Adversary Proceeding," and that "a showing that 5 a default was inadvertent is sufficient." Id. (internal quotation marks omitted).

6 The district court vacated the default judgment and remanded to the 7 bankruptcy court "for further proceedings consistent with" the Ryniker II opinion. See 8 id. at *7.

9 Ryniker sought to appeal Ryniker II to this Court; but in Ryniker III, we 10 dismissed the appeal for lack of appellate jurisdiction because the district court's 11 remand order was not a final judgment.

12 E. The Bankruptcy Court's Decision in Ryniker IV

13 On the remand from the district court, Sumec moved to dismiss the

14 Adversary Complaint. Following a hearing on the motion, the court entered the 15 following order dismissing the action "with prejudice":

16 Upon consideration of the motion (the "Motion") pursuant 17 to Fed. R. Civ. P. 12(b)(5), made applicable herein by Fed. R.

18 Bankr. P. 7012(b)(5), of Defendant SUMEC Textile Company

25