APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
Gibbons, Weis and Sloviter, Circuit Judges.
A default judgment was entered against an English insurance company for failure to answer interrogatories directed to it as garnishee and served on it in the United Kingdom. The carrier later submitted to the jurisdiction of the district court to ask that the judgment be opened, but the motion was denied. We conclude that the company's reasonable doubt about the personal jurisdiction of the American court demonstrates a lack of bad faith on its part. That factor, combined with a facially meritorious defense and a lack of prejudice to the judgment creditor, counsel that the default be opened. Accordingly, we vacate the judgment of the district court and remand for proceedings on the merits.
In 1978, plaintiff Feliciano a citizen of Costa Rica brought suit in the Eastern District of Pennsylvania against Union Special Corporation, incorporated in Delaware, and Reliant Tooling Company, Ltd., incorporated in the United Kingdom. Plaintiff sought damages for personal injury sustained in Pennsylvania allegedly caused by a defective machine that was manufactured by Reliant and sold by Union. Feliciano's direct claim against Reliant was dismissed for lack of diversity. However, Union pressed a third-party claim against Reliant, serving it, as had Feliciano, by registered mail through the Secretary of the Commonwealth of Pennsylvania. Reliant did not appear in the litigation or participate in any way.
After the trial began, plaintiff and Union settled her claim for $250,000. A few days later, the district court, on Union's motion, entered a default judgment for $250,000 on the cross-claim against Reliant. The same day, Union*fn1 filed a praecipe for a writ of execution directed against Reliant as defendant and against its liability insurer, Sun Alliance and London Insurance, Ltd., as garnishee. The writ and interrogatories were served upon Sun in England, pursuant to the terms of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, done at the Hague, November 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638.
Within a week of service, Sun's solicitor wrote to counsel for Union and sent a copy to the clerk of the district court. In the letter, the solicitor said:
"we are puzzled by the form of proceedings. It is unknown in this country for Garnishee proceedings to be taken against an Insurer where judgment has been obtained against an Insured.
In proceedings in the English Courts, no person can be required to answer interrogatories without an order of the Court. The documents do not recite any such order.
Our clients do not intend to submit to the jurisdiction of the United States District Court for the Eastern District of Pennsylvania. They do not, however, wish to be discourteous and we are therefore instructed to outline briefly the reasons why they are under no obligation to indemnify the Reliant Tooling Co. Ltd. and to indicate the answers they would have given, had they filed answers to your interrogatories."
The solicitor listed the answers, stated that claims similar to those of Feliciano were excluded from coverage by the policy terms and asserted that the judgment against Reliant was unenforceable because Reliant had never submitted to the court's jurisdiction.
Union did not respond to the solicitor's letter, but on April 16, 1981, almost two months later, moved for entry of a default judgment against Sun for failure to answer the interrogatories. The motion did not refer in any way to the solicitor's letter. A copy of the motion was mailed to Reliant, but none was served upon Sun. On May 4, 1981, the district court entered judgment in favor of Union against Sun in the amount of $250,000, "together with counsel fees, costs and interest."
Following entry of the judgment, Union obtained writs of execution and garnishment accompanied by interrogatories directed to three subsidiaries of Sun and a company owned wholly by one of the subsidiaries.*fn2 All of these companies have their principal offices in London, England, but have branch offices in New York and submit annual filings to the Pennsylvania Insurance Department. After additional ...