                           IN THE SUPREME COURT OF MISSISSIPPI

                                        NO. 1999-CA-01848-SCT

JAMES H. HOLMES
v.
COAST TRANSIT AUTHORITY



DATE OF JUDGMENT:                                  10/22/1999
TRIAL JUDGE:                                       HON. ROBERT H. WALKER
COURT FROM WHICH APPEALED:                         HARRISON COUNTY CIRCUIT COURT
ATTORNEY FOR APPELLANT:                            WILLIAM W. DREHER, JR.
ATTORNEYS FOR APPELLEE:                            JAMES B. GALLOWAY

                                                   BRIAN WALKER SANDERSON
NATURE OF THE CASE:                                CIVIL - PERSONAL INJURY
DISPOSITION:                                       AFFIRMED AS MODIFIED - 05/02/2002
MOTION FOR REHEARING FILED:
MANDATE ISSUED:                                    5/23/2002



     EN BANC.

     WALLER, JUSTICE, FOR THE COURT:


¶1. The Circuit Court of the First Judicial District of Harrison County, Mississippi, dismissed a complaint
filed by James H. Holmes (1) against Coast Transit Authority (CTA)for failing to serve process on CTA
within 120 days of the filing of the complaint, as prescribed by Rule 4(h) of the Mississippi Rules of Civil
Procedure. Holmes moved the circuit court to allow "out of time" service "for good cause shown" and, in
the alternative, for "excusable neglect," but the circuit court denied Holmes's motion and dismissed the case
with prejudice. We affirm and modify.

                               FACTS AND PROCEDURAL HISTORY

¶2. On July 21, 1997, Holmes was a passenger on a bus when the bus struck an obstruction in the
roadway, injuring Holmes. He did not immediately file a complaint but instead began settlement negotiations
with CTA, the owner of the bus. As both parties concede, CTA is a governmental entity, and, therefore, the
one-year statute of limitations of the Mississippi Tort Claims Act ("MTCA") applied. On June 4, 1998, 53
days before the expiration of the statute of limitations, Holmes gave CTA a notice of claim under the
MTCA(2) tolling the statute of limitations for 95 days. Holmes then timely filed a complaint on September 3,
1998.
¶3. On September 4, 1998, Holmes attempted to serve process on CTA's chief executive officer, Thomas
Hearn, by mailing a summons and complaint along with two Notice and Acknowledgment forms pursuant to
Rule 4(c)(3) of the Mississippi Rules of Civil Procedure. CTA neither returned the Acknowledgment form
nor filed an answer.

¶4. CTA continued settlement negotiations with Holmes until approximately February 1, 1999. Throughout
this time, CTA and Holmes exchanged documents, including dispatch records of CTA and Holmes's
medical records. Any offers of settlement required approval by CTA's board of directors, which met once
a month. When Holmes rejected CTA's final settlement offer on approximately February 1, 1999, the
negotiations broke down.

¶5. CTA then notified Holmes that it had not and would not accept service of process by mail. Holmes then
personally served CTA on February 3, 1999. On March 4, 1999, CTA moved to dismiss the suit, claiming
that it had not been properly served process within 120 days of the filing of the suit and that the one-year
statute of limitations had expired. Holmes moved the trial court to allow "out of time" service on CTA "for
good cause shown" and, in the alternative, for "excusable neglect." The trial court dismissed the case with
prejudice, and Holmes appeals.

                                         STANDARD OF REVIEW

¶6. A trial court's finding of fact on the existence of good cause for the delay in service of process has been
deemed "a discretionary ruling . . . and entitled to deferential review" on appeal. Rains v. Gardner, 731
So. 2d 1192, 1197-98 (Miss. 1999). When reviewing fact-based findings, we will only examine "whether
the trial court abused its discretion and whether there was substantial evidence supporting the
determination." Id. at 1197. However, a decision to grant or deny an extension of time based upon a
question of law will be reviewed de novo. Id. at 1198.

                                                DISCUSSION

      WHETHER HOLMES DEMONSTRATED GOOD CAUSE TO PERMIT SERVICE OF
      CTA PAST THE 120-DAY PERIOD ALLOWED BY M.R.C.P. 4(h) BY OFFERING
      EVIDENCE OF DOCUMENT EXCHANGES AND SETTLEMENT NEGOTIATIONS
      BETWEEN THE PARTIES.

¶7. M.R.C.P. 4(h) provides that a failure to serve process within 120 days will only cause a complaint to be
dismissed if the plaintiff cannot show good cause for failing to meet the deadline.(3) Filing a complaint tolls
the applicable statute of limitations 120 days, but if the plaintiff fails to serve process on the defendant within
that 120-day period, the statute of limitations automatically begins to run again when that period expires.
Watters v. Stripling, 675 So. 2d 1242, 1244 (Miss. 1996). A plaintiff who does not serve the defendant
within the 120-day period must either re-file the complaint before the statute of limitations ends or show
good cause for failing to serve process on the defendant within that 120-day period; otherwise, dismissal is
proper. Id. at 1244; Brumfield v. Lowe, 744 So. 2d 383, 387 (Miss. Ct. App. 1999). The plaintiff bears
the burden of establishing good cause. M.R.C.P. 4(h).

¶8. In the instant case, Holmes filed the complaint on September 3, 1998, and had 120 days from that date
in which to serve process on CTA. As CTA points out, the 120-day period expired on January 4, 1999.
The only attempt by Holmes to serve CTA before that date occurred on September 4, 1998, when Holmes
mailed process to CTA. However, this attempted service was not proper under M.R.C.P. 4(d)(8), which
clearly provides that service of process on "any governmental entity" such as CTA shall be made "by
delivering a copy of the summons and complaint to the person, officer, group or body responsible for the
administration of that entity or by serving the appropriate legal officer, if any, representing the entity."

¶9. While Holmes does not debate the propriety of the September 4, 1998, service of CTA by mail,
Holmes does maintain that the personal service of CTA on February 3, 1999, cures any past problems and
prevents us from affirming the trial court's dismissal. The 120-day service period ended on January 4, 1999,
with approximately 53 days remaining on the applicable statute of limitations. Holmes did not re-file the
complaint against CTA before the remaining 53 days passed; and, therefore, his suit is barred by the statute
of limitations unless he can show good cause for failing to serve process within the 120-day period.

¶10. In an effort to show "good cause" for untimely service of process, Holmes contends that, by engaging
in discovery and settlement negotiations, CTA improperly lulled him into believing it had accepted service
by mail and argues that, therefore, the trial court should have permitted "out of time" service.

¶11. We have held that, at a minimum, a plaintiff attempting to establish "good cause" must show "at least as
much as would be required to show excusable neglect, as to which simple inadvertence or mistake of
counsel or ignorance of the rules usually does not suffice." Watters, 675 So. 2d at 1243 (quoting Systems
Signs Supplies v. United States Dep't of Justice, 903 F.2d 1011, 1013 (5th Cir. 1990)).

¶12. A leading treatise states that

      good cause is likely (but not always) to be found when the plaintiff's failure to complete service in
      timely fashion is a result of the conduct of a third person, typically the process server, the defendant
      has evaded service of the process or engaged in misleading conduct, the plaintiff has acted diligently in
      trying to effect service or there are understandable mitigating circumstances, or the plaintiff is
      proceeding pro se or in forma pauperis.

4B Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1137, at 342 (3d ed. 2000).

¶13. While several courts outside our jurisdiction have held that good faith negotiations constitutes good
cause for failure to effect service within 120 days of the filing of the complaint, we think the better reasoning
is found in the case of Healthcare Compare Corp. v. Super Solutions Corp., 151 F.R.D. 114 (D.
Minn. 1993) (discussing F.R.C.P. 4(j), the equivalent to M.R.C.P. 4(h)):

      Rule 4(j) clearly places the burden upon the plaintiff to demonstrate that it is entitled to the good cause
      relaxation of the 120 day limit. HCC argues that Rule 4(j) should not be applied harshly . . . . It is, of
      course true that the court has discretion in determining whether good cause exists. This court has held
      that the rule should not be used "to penalize plaintiffs who demonstrate reasonable diligence" in
      effecting timely service on defendants. HCC has not even argued that such diligence was involved in
      its deliberate decision not to serve within the 120 day time limit of Rule 4(j). Thus, a strict application
      of Rule 4(j) here is not harsh.

                                                     ***

      . . . Plaintiffs would have no incentive to comply with the 120 day limit if they could always find shelter
      from the rule by claiming that they had begun negotiations in good faith. Such a situation was clearly
      not intended by the Congress in adopting Rule 4(j).

Healthcare Compare, 151 F.R.D. at 115-16 (citations omitted).

¶14. We adopt the rationale of the Healthcare Compare court and find that good faith negotiations do not
constitute good cause for failure to effect timely service of process under M.R.C.P. 4(h). Here, as in
Healthcare Compare, Holmes makes no claim that he acted diligently in attempting to effect service of
process. Reliance on indefinite good faith negotiations clearly subverts the purpose of Rule 4(h), which is to
bring claims to a court for judicial review in a timely manner. There is no reason why, if parties are engaged
in good faith negotiations, service of process cannot be timely had. Service of process by a plaintiff on a
defendant does not undermine the plaintiff's good faith. Timely service of process merely protects the
plaintiff's right to litigate and would not call a halt to negotiations. Furthermore, parties should engage in
settlement negotiations up to the time a final judgment is entered.

¶15. We therefore find that Holmes has not demonstrated good cause for failing to effect service of process
on CTA within 120 days of the filing of the complaint and that the Circuit Court of the First Judicial District
of Harrison County, Mississippi, did not abuse its discretion in dismissing the complaint. However, in the
recent case of LeBlanc v. Allstate Ins. Co., 809 So.2d 674, 679 (Miss. 2002), we held that Rule 4(h)
dismissals should be made without prejudice, not with prejudice, as the circuit court did here. We
therefore modify the dismissal of complaint to be without prejudice.

                                              CONCLUSION

¶16. The judgment of the Circuit Court of the First Judicial District of Harrison County, Mississippi is
affirmed but modified to dismiss without prejudice.

¶17. AFFIRMED AS MODIFIED.

      PITTMAN, C.J., SMITH, P.J., COBB, DIAZ, CARLSON AND GRAVES, JJ., CONCUR.
      McRAE, P.J., DISSENTS WITH SEPARATE WRITTEN OPINION JOINED BY
      EASLEY, J.

      McRAE, PRESIDING JUSTICE, DISSENTING:

¶18. Coast Transit Authority (CTA) should be equitably estopped by its detrimental actions, just as the
Department of Transportation was in Trosclair v. Mississippi Dep't of Transp., 757 So.2d 178 (Miss.
2000). Like the Department in Trosclair, CTA continued negotiations and waited for the 120 day time
period to expire. This caused James H. Holmes to detrimentally rely on CTA's settlement negotiations and,
in turn, to allow the 120 days in which he could have properly served CTA to expire. Accordingly, I
respectfully dissent.

¶19. The majority is correct when it states that, at a minimum, a plaintiff attempting to establish "good
cause" must show "at least as much as would be required to show excusable neglect, as to which simple
inadvertence or mistake of counsel or ignorance of the rules usually does not suffice." Watters v. Stripling,
675 So. 2d 1242,1243 (Miss. 1996) (quoting Systems Signs Supplies v. United States Dep't of
Justice, 903 F.2d 1011, 1013 (5th Cir. 1990)). However, I disagree with its logic in finding that Holmes
did not show good cause for failure to effect service of process on CTA within 120 days. Inadvertence of
counsel in failing to properly serve the defendant within 120 days of filing the complaint will not necessarily
preclude the plaintiff from establishing good cause. Scrimer v. Eighth Judicial Dist. Ct., 998 P.2d
1190, 1195 (Nev. 2000). Holmes established good cause; and therefore, the judgment of the trial court
should be reversed and this case remanded for further proceedings.

¶20. We have not squarely addressed whether engaging in discovery and settlement negotiations with the
expectation of ending the litigation can constitute good cause under Rule 4(h) for failure to serve process
within the 120-day period. In Trosclair v. Mississippi Dep't of Transp., 757 So.2d 178 (Miss. 2000),
the plaintiffs were involved in an automobile accident on a section of highway that was under construction.
The plaintiffs' attorney contacted the Department of Transportation and spoke with an employee who
informed him that the road work was done by a private contractor, not MDOT. After investigation, the
attorney spoke to a different employee who informed him that the work had been performed by the
MDOT.

¶21. A complaint was filed that same day. At this time, fifteen months had passed since the injury, and the
one-year statute of limitations had expired. We applied the principles of equitable estoppel to hold that the
plaintiff relied on the representation of MDOT to its detriment, and we reversed the grant of summary
judgment and remanded for further proceedings. Id. at 181. We stated:

      Equitable estoppel requires a representation by a party, reliance by the other party, and a change in
      position by the relying party. (citations omitted). While there is no Mississippi precedent applying
      equitable estoppel to the statute of limitations under the Tort Claims Act, logic and case law suggests
      that where there is inequitable conduct, in order to avoid a serious injustice, equitable estoppel should
      be applied.

Id.

¶22. In the case at bar, the complaint was delivered with the explanation that it was merely to protect the
claim and was not intended to affect the settlement negotiations. Holmes's attorney testified by affidavit that
he notified CTA that it would not be required to file its answer within the 30 day time period, as he believed
that the parties were close to a settlement, and that a settlement would be reached without further litigation
in order to keep costs down. After filing and mailing the complaint, Holmes and CTA engaged in discovery.
Holmes sent medical records to CTA, and CTA willingly provided its dispatch records to Holmes,
something it would never be expected to do unless served with a complaint. Throughout this time, the
parties continued with settlement negotiations.

¶23. These facts are analogous to Carlton v. Wal-Mart Stores, Inc., 621 So. 2d 451, 455 (Fla. Dist. Ct.
App. 1993). The Florida court reversed a dismissal due to untimely service of process where the plaintiff's
attorney had been in settlement negotiations with the defendant for several months before the complaint was
filed. Shortly after the complaint had been filed, the attorney sent medical records and a copy of the
complaint to the defendant, stating that he would "take no further action in the lawsuit, including service of
process, until such time as all reasonable settlement opportunities ha[d] been explored." Id. The Florida
appellate court refused to affirm the dismissal of the case, holding that "appellant's counsel was justified in
believing that appellee had acquiesced in the proposal that appellee not be served until 'all reasonable
settlement opportunities ha[d] been explored.'" Id.

¶24. Other jurisdictions have held that settlement negotiations alone could constitute good cause for failure
to complete timely service of process. In Scrimer, the Supreme Court of Nevada held as follows:
      Rule 4(i) was not adopted, however, to become an automatic sanction when a plaintiff fails to serve
      the complaint within 120 days of filing. When making a determination under NRCP 4(i), the district
      court should recognize that 'good public policy dictates that cases be adjudicated on their merits.'
      (citation omitted)

                                                        ...

      Negotiations with an eye to settlement, undertaken in good faith in a serious effort to settle the
      litigation during the 120-day period, may constitute good cause for untimely service under NRCP 4(i).

998 P.2d at 1196.

¶25. Likewise, in Assad v. Liberty Chevrolet, Inc., 124 F.R.D. 31 (D.R.I. 1989), the plaintiff admittedly
did not serve the defendant until thirteen days after the 120 day deadline. As in the case at bar, the parties'
settlement negotiations were terminated within days of the expiration of the 120 day period. The district
court held that the plaintiffs showed good cause for failing to timely serve one defendant because they were
engaged in good faith settlement discussions with its co-defendant which, if successful, would have obviated
the need for service of process. Id.

¶26. Holmes has demonstrated the good cause necessary to permit out- of- time service of process, based
on the principles of equitable estoppel and detrimental reliance. The parties exchanged dispatch reports and
medical records, documents that one would normally consider confidential and not subject to discovery until
a complaint is filed. Holmes entered negotiations in good faith with the bona fide intention of settling the
litigation before the expiration of the 120 day time period. The judgment of the Harrison County Circuit
Court should be reversed, and this case should be remanded for further proceedings.

      EASLEY, J., JOINS THIS OPINION.

1. James T. Holmes died on November 21, 1998. The Chancery Court of the First Judicial District of
Harrison County permitted thirteen of Holmes's heirs at law, all of whom have the last name "Holmes," to
be substituted as the real parties in interest. To simplify matters, we will refer to the plaintiffs-appellants as
"Holmes."

2. CTA agrees that Holmes sent notice under the MTCA but does not concede that such notice was
proper.

3. The full text of Rule 4(h) is as follows:

      Summons: Time Limit for Service. If a service of the summons and complaint is not made upon a
      defendant within 120 days after the filing of the complaint and the party on whose behalf such service
      was required cannot show good cause why such service was not made within that period, the action
      shall be dismissed as to that defendant without prejudice upon the court's own initiative with notice to
      such party or upon motion.
