EMINUTES places cookies on your device to give you the best user experience. By using our website, you agree to the placement of these cookies. Please read our updated Privacy and Cookie Policy.

Apr
27 • 2026
Share
Article

Business Managers: Beware of Entity Drift

Entity drift is the term we use to describe the slow erosion of data accuracy that happens when a business manager is juggling scores of entities, each with officers or members whose relationships with the business manager come and go. What happens when the business manager is listed as the entity’s resident agent and no longer has an ongoing relationship with the officers or members of the entity or cannot reach someone to see where things stand? Nothing pretty! In the worst-case scenario, an entity that is sued for allegedly failing to perform an obligation (or some other reason) can have a default judgment entered against it and may be unable to have the default set aside, merely because the entity never received actual notice that a lawsuit had been filed against it.

Here is how that happens. Federal and state courts can generally obtain jurisdiction over an entity when process (the summons and complaint) is served on the entity’s resident agent.[1] Most states, including California and Delaware, provide that an entity must appoint a resident agent for service of process in the state and keep the resident agent’s information updated with the secretary of state or similar regulatory authority.[2] Once process is served on the resident agent, the resident agent forwards the summons and complaint to the entity.[3] As long as the suit papers are served on the correct resident agent identified to the secretary of state, everything usually works fine and the entity gets notice of the action and can defend itself in court.[4] And even if the registered agent fails to carry out their duty and properly notify the entity that an action has been filed and a default judgment is entered, the court will ordinarily find excusable neglect and set aside the default judgment if it was entered through no fault of the entity and the entity otherwise acts promptly and diligently after learning of the default judgment.[5]

The problems really start when relationships change and the registered agent is not properly updated with the Secretary of State. In that event, if the plaintiff serves the old registered agent and the entity does not receive notice of the action and defend itself, then that will not be considered excusable neglect and a default judgment entered against the entity may not be set aside.

Here is a good example: In United States v. 4268 Los Angeles Avenue,[6] the United States Government filed a complaint for forfeiture of property against a California corporation. According to filings with the California Secretary of State, the corporation’s designated agent for service of process was a California attorney. However, the attorney had been disbarred and was then serving a prison sentence for fraud and various other crimes. Even so, the corporation failed to update its statement of information with the name and address of a new agent. As such, the Government served the summons and complaint on the disbarred attorney, who was still listed as the corporation’s designated agent, in prison. The federal district court held that was sufficient to satisfy the requirements of federal and California law. Accordingly, when the corporation did not receive notice of the action and failed to appear, the court entered a default judgment against the corporation. And when the corporation eventually heard about the case when the Government moved to seize its property based on the default judgment, the court denied the corporation’s motion to vacate the default judgment, because the corporation had failed to file its motion in a timely fashion. The trial court’s decision was upheld on appeal by a federal court of appeals.[7]

The circumstances in that case were extreme, but the result is the same even if the registered agent is not in jail when the suit papers are served. If process is properly served on the named registered agent, then that is good service even if the named agent no longer serves as the entity’s agent and does not send the papers to the entity, if the entity has not notified the Secretary of State that it has a new registered agent.

This can put a business manager who serves as registered agent for an entity that loses contact in a real bind. In that situation, the business manager can resign as the entity’s registered agent.[8] This should probably be a last resort, however, as in some states, including Delaware, if the registered agent’s resignation is not coupled with the appointment of a successor, the entity can forfeit its charter (if a domestic corporation) or authority to do business in the state (if a foreign corporation) if it fails to timely designate a new registered agent.[9]

[1]See, e.g., Fed. R. Civ. P. 4(h)(1)(B) (providing for service of process on a corporation or other entity by delivering a copy of the summons and complaint to an officer, managing or general agent, or other agent authorized by appointment or by law to receive service of process); Cal. Corp. Code § 1701 (delivery of copy of process against corporation to designated agent “shall constitute valid service on the corporation”); Del. Code Ann. tit. 8, § 321(a) (service of process on corporation is made by delivering a copy to a corporate officer or director or to corporation’s registered agent).

[2]See Cal. Corp. Code § 1502(b) (corporation’s annual statements, including statement filed within 90 days after filing of original articles of incorporation, shall designate the corporation’s agent for the purpose of service of process); Del. Code Ann. tit. 8, § 132(a), (b) (“[E]very corporation shall have and maintain in this State a registered agent,” which shall, among other things, “[a]ccept service of process and other communications directed to the corporation[] … and forward same to the corporation to which the service or communication is directed[.]”).

[3]See, e.g., Del. Code Ann. tit. 8, § 132(b).

[4]See, e.g., Craig v. Saddle Ranch Chop House, LLC, No. B251014, 2014 Cal. App. Unpub. LEXIS 5876 (Aug. 20, 2014) (setting aside default judgment where plaintiff had served papers on predecessor designated agent for service of process, rather than new agent identified in entity’s latest statement of information filed with Secretary of State).

[5]See, e.g., Barnes v. Del. Truck Flippers LLC, No. CPU4-23-002631, 2024 LX 29594, at *5 (Del. Com. Pl. Nov. 19, 2024) (collecting Delaware cases; granting motion to vacate default judgment where registered agent sent papers to wrong address for receiving agent, even though entity kept registered agent properly informed of its contact information); see also Wallace v. Interpublic Grp. of Cos., No. 09-11510, 2009 U.S. Dist. LEXIS 54853, at *4-5 (E.D. Mich. June 29, 2009) (granting motion to set aside default judgment where entity filed papers with state agency designating new agent for service of process, even though state agency failed to update its website to reflect new information, which caused plaintiff to serve process on old agent); cf. Jumpcrew v. Bizconnect, Inc., No. N21C-08-143 WCC, 2022 Del. Super. LEXIS 310, at *11 (Super. Ct. July 5, 2022) (defendant entity’s neglect was not excusable where it failed to fulfill its legal obligation to provide its registered agent with current business address and contact information for its receiving agent, which caused registered agent to send suit papers to wrong address).

[6]No. CV 12-09788-RGK (MRWx), 2014 U.S. Dist. LEXIS 200324 (C.D. Cal. June 2, 2014), aff’d, 672 F. App’x 770 (9th Cir. 2017).

[7]See United States v. 4268 L.A. Ave. Simi Valley Cal. 93063, 672 F. App’x 770 (9th Cir. 2017).

[8]See, e.g., Cal. Corp. Code § 1503; Del. Code Ann. tit. 8, § 136.

[9]See Del. Code Ann. tit. 8, § 136(b).