DOCRX, INC. v. EMI SERVS. OF N.C., LLC
No. 75PA13
IN THE SUPREME COURT OF NORTH CAROLINA
Filed 12 June 2014
367 N.C. 371 (2014)
PARKER, Chief Justice.
Constitutional Law—Full Faith and Credit Clause—Uniform Enforcement of Foreign Judgment Act
The Court of Appeals did not err in a breach of contract case by holding that the Full Faith and Credit Clause precluded the use of intrinsic fraud to defeat a foreign monetary judgment pursuant to North Carolina‘s Uniform Enforcement of Foreign Judgment Act (UEFJA). The defenses to a foreign judgment under the UEFJA are limited by the Full Faith and Credit Clause to those defenses that are directed to the enforcement of the foreign judgment, and
On discretionary review pursuant to
Chapman Law Group, PLC, by Avery S. Chapman, pro hac vice; and Tin, Fulton, Walker & Owen, PLLC, by Sam McGee, for defendant-appellant.
PARKER, Chief Justice.
The issue in this case is whether the Court of Appeals erred by holding that the Full Faith and Credit Clause precludes the use of intrinsic fraud to defeat a foreign monetary judgment pursuant to North Carolina‘s Uniform Enforcement of Foreign Judgment Act and
DocRx, Inc. (plaintiff), an Alabama corporation, filed a breach of contract action against EMI Services of North Carolina, LLC (defendant) in Mobile County, Alabama on 6 August 2010. The complaint alleged that defendant failed to pay plaintiff the agreed upon commission from defendant‘s pharmaceutical sales under a contract the parties entered on 28 June 2010. Specifically, the complaint alleged that defendant failed to pay plaintiff “25% of all net profits of [defendant‘s] sales made of products supplied . . . by [an intermediate company]” located by plaintiff. The complaint sought, inter alia, “compensatory damages, plus interest and costs” but did not allege a specific monetary amount of damages. Defendant did not respond to the complaint, and an initial default judgment was entered on 24 September 2010.
During the default proceedings in Alabama, Brian Ward (Ward), the President and CEO of plaintiff corporation, filed an affidavit with the court in which he stated that defendant sold 3,504 units “for $500 per unit, for a total profit of $475 per unit.” Plaintiff‘s counsel filed a Motion To Enter Default Judgment Amount adopting Ward‘s statement. Plaintiff‘s counsel calculated that defendant‘s total net profits for the sale of the units was $1,664,400 and that plaintiff was entitled to a commission payment of $416,100, which represented 25% of defendant‘s total net profits. Plaintiff‘s counsel also alleged that plaintiff was entitled to recover reasonable attorneys’ fees in the amount of $12,587.14 and interest on the breach of contract claim in the amount of $24,996. On 1 April 2011, the Circuit Court of Mobile County, Alabama entered a second default judgment against defendant for $453,683.14 (the Alabama judgment).
On 2 August 2011, plaintiff filed a Request To File Foreign Judgment in the Superior Court in Stanly County, North Carolina. Plaintiff presented a certified copy of the Alabama judgment. On 25 August 2011, defendant filed a Motion For Relief From And Notice Of Defense To Foreign Judgment. Defendant argued, inter alia, that the Alabama judgment was obtained by extrinsic fraud. On 2 December 2011, plaintiff filed a Motion To Dismiss Defendant‘s Defense Of Extrinsic Fraud Pursuant To Rule 12(b)(6) Of The North Carolina Rules Of Civil Procedure and a Motion To Enforce Foreign Judgment As A North Carolina Judgment.
Defendant filed an Amended Motion For Relief From And Notice Of Defense To Foreign Judgment on 17 January 2012 in which it added defense based on fraud, pursuant to
On 30 January 2012, Ward and plaintiff‘s counsel both filed affidavits in opposition to defendant‘s Amended Motion For Relief From And Notice Of Defense To Foreign Judgment. In his affidavit Ward stated that the emails dated 18 June 2010 predated the contract between plaintiff and defendant and referred to pharmaceutical sales that took place prior to the execution of the Agreement. Ward further alleged that the email dated 12 July 2010 referred to a rate that was established for plaintiff‘s clients during the initial business relationship between the parties.
The trial court heard the matter on 30 January 2012 and entered an order denying plaintiff‘s motion to enforce the Alabama judgment as a judgment of the State of North Carolina on 6 February 2012. In its order the trial court first determined that the affidavits and exhibits submitted by defendant supported defendant‘s argument that plaintiff obtained the Alabama judgment as a result of fraud. The trial court then stated that under
On appeal plaintiff argued that the trial court erred in denying its motion to enforce the Alabama judgment as a judgment of the State of North Carolina, contending that under the Full Faith and Credit Clause of the United States Constitution a state may only deny enforcement of a sister state‘s judgment for extrinsic fraud, not intrinsic fraud.
The Court of Appeals vacated the trial court‘s order denying enforcement of the Alabama judgment and remanded for further proceedings. DocRx, Inc. v. EMI Servs. of N.C., LLC, ___ N.C. App. ___, 738 S.E.2d 199, 204 (2013). The court below recognized that the interplay among the Full Faith and Credit Clause,
However, relying on cases from Utah, Montana, and Colorado that have interpreted similar statutes, the court below held that in North Carolina ” ‘the remedies available under Rule . . . 60 are limited by the Full Faith and Credit Clause of the United States Constitution when a foreign judgment is at issue.’ ” Id. at ___, 738 S.E.2d at 202-03 (quoting Bankler v. Bankler, 963 P.2d 797, 799-800 (Utah Ct. App. 1998)). The court adopted the rule articulated by the Colorado Court of Appeals in Craven v. Southern Farm Bureau Casualty Insurance Co., 117 P.3d 11, 14 (Colo. App. 2004), and then concluded that “intrinsic fraud, misrepresentation and misconduct” were not sufficient
Before this Court defendant argues that the Full Faith and Credit Clause does not limit attack on fraudulent foreign judgments to those obtained by extrinsic fraud. Defendant contends that the decision of the Court of Appeals improperly gives foreign judgments more defer-ence than domestic judgments because a foreign judgment cannot be attacked for intrinsic fraud under Rule 60(b) and the UEFJA, but a domestic judgment can be attacked on such grounds. We disagree.
The central issue in this case is whether the Full Faith and Credit Clause requires North Carolina courts to enforce the Alabama monetary judgment. This issue involves a question of law, which we review de novo. State v. Cox, 367 N.C. 147, 151, 749 S.E.2d 271, 275 (2013).
To determine this issue, we look first to the language of the Full Faith and Credit Clause and the United States Supreme Court‘s jurisprudence interpreting this constitutional provision. The Full Faith and Credit Clause of the United States Constitution provides that “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof.”
Such Acts, records and judicial proceedings or copies thereof, so authenticated, shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken.
“was to alter the status of the several states as independent foreign sovereignties, each free to ignore obligations created under the laws or by the judicial proceedings of the others, and to make them integral parts of a single nation throughout which a remedy upon a just obligation might be demanded as of right, irrespective of the state of its origin.”
Baker v. Gen. Motors Corp., 522 U.S. 222, 232, 139 L. Ed. 2d 580, 591 (1998) (quoting Milwaukee Cnty. v. M.E. White Co., 296 U.S. 268, 277, 80 L. Ed. 220, 228 (1935)).
Under United States Supreme Court decisions, the test for determining when the Full Faith and Credit Clause requires enforcement of a foreign judgment focuses on the validity and finality of the judgment in the rendering state. See New York ex rel. Halvey v. Halvey, 330 U.S. 610, 91 L. Ed. 1133 (1947); Morris v. Jones, 329 U.S. 545, 91 L. Ed. 488 (1947). In Morris v. Jones, Morris brought suit in Missouri against Chicago Lloyds, an Illinois insurance company authorized to do business in Missouri, for malicious prosecution and false arrest. Id. at 546-47, 91 L. Ed. at 493. Before a judgment was obtained in Missouri, Chicago Lloyds was ordered into liquidation in Illinois, and a liquidator was appointed. Id. at 547, 91 L. Ed. at 493. The Illinois court set “a time for the filing of claims against Chicago Lloyds and issued an order staying suits against it.” Id. Morris had notice of the stay order but continued to prosecute his suit in Missouri. Id. Chicago Lloyds‘s counsel withdrew from the Missouri suit, “stating to the Missouri court that the Illinois liquidation proceedings had vested all the property of Chicago Lloyds in the liquidator.” Id. Thereafter, Morris obtained a judgment against Chicago Lloyds in Missouri and filed a proof of claim in the Illinois proceedings, attaching a copy of his Missouri judgment. Id. The Illinois Supreme Court upheld an order disallowing the claim, notwithstanding Morris‘s argument that allowance of the claim was mandated by the Full Faith and Credit Clause. Id. The United States Supreme Court allowed Morris‘s petition for certiorari.
The Supreme Court initially made clear that Morris was “not seeking . . . anything other than the right to prove his claim in judgment form.” Id. The Supreme Court then reasoned as follows:
“A judgment of a court having jurisdiction of the parties and of the subject matter operates as res judicata, in the absence of fraud or collusion, even if obtained upon a default.” Such a judgment obtained in a sister State is . . . entitled to full faith and credit in another State, though the underlying claim would not be enforced in the State of the forum. It is no more important that
the suit on this underlying claim could not have been maintained in Illinois after the liquidator had been appointed than the fact that a statute of limitations of the State of the forum might have barred it. . . . The full faith and credit to which a judgment is entitled is the credit which it has in the State from which it is taken, not the credit that under other circumstances and conditions it might have had.
Under Missouri law petitioner‘s judgment was a final determination of the nature and amount of his claim. That determination is final and conclusive in all courts.
. . . .
. . . The command [of the federal statute implementing the Full Faith and Credit Clause] is to give full faith and credit to every judgment of a sister State. And where there is no jurisdictional infirmity, exceptions have rarely, if ever, been read into the constitutional provision or the Act of Congress in cases involving money judgments rendered in civil suits.
Id. at 550-53, 91 L. Ed. at 495-97 (citations omitted). The Court in Morris concluded “that the nature and amount of petitioner‘s claim has been conclusively determined by the Missouri judgment and may not be relitigated in the Illinois proceedings, it not appearing that the Missouri court lacked jurisdiction over either the parties or the subject matter.” Id. at 554, 91 L. Ed. at 497-98.
New York ex rel. Halvey v. Halvey involved a New York court‘s modification of a child custody decree rendered in Florida. 330 U.S. at 611-12, 91 L. Ed. at 1134-35. The United States Supreme Court determined that since a Florida court could modify the custody decree, it was not res judicata and the modification by the New York Court did not violate the Full Faith and Credit Clause. Id. at 613-14, 91 L. Ed. at 1135-36. In reaching this decision, the Court stated:
The general rule is that [the Full Faith and Credit Clause] requires the judgment of a sister State to be given full, not partial, credit in the State of the forum. But a judgment has no constitutional claim to a more conclusive or final effect in the State of the forum than it has in the State where rendered. If the court of the State which rendered the judgment had no jurisdiction over the person or the subject matter, the jurisdictional infirmity is not saved by the Full Faith and Credit Clause. . . . Whatever may be the authority of a State to undermine a judgment of a sister State on
grounds not cognizable in the State where the judgment was rendered, it is clear that the State of the forum has at least as much leeway to disregard the judgment, to qualify it, or to depart from it as does the State where it was rendered.
Id. at 614-15, 91 L. Ed. at 1136 (citations omitted). The Court then concluded that “[i]t is not shown that the
Thus, if the foreign judgment is valid and final in the rendering state, it is conclusive in the forum state and is entitled to receive full faith and credit. See Morris, 329 U.S. at 554, 91 L. Ed. at 497-98. If the foreign judgment can be modified in the rendering state, it is not conclusive and can be modified by the forum state. Halvey, 330 U.S. at 614-15, 91 L. Ed. at 1136.
The UEFJA enacted in North Carolina sets out the procedure for filing a foreign judgment.
Defendant contends that the phrase “is subject to the same defenses as a judgment of this State,”
This Court has not previously addressed the interplay among the Full Faith and Credit Clause, North Carolina‘s UEFJA, and Rule 60(b) of the North Carolina Rules of Civil Procedure. However, other state supreme courts that have considered the interplay between the Full Faith and Credit Clause and the UEFJA have rejected the argument that the judgment of the rendering state can be reopened in the forum state under Rule 60 of the Rules of Civil Procedure. For example, in Matson v. Matson, the Minnesota UEFJA provided that ” ‘[a] judgment so filed has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a judgment of a district court or the supreme court of this state, and may be enforced or satisfied in like manner.’ ” 333 N.W.2d 862, 867 (Minn. 1983) (en banc) (quoting
Appellant is under the misconception that the above-emphasized language allows the courts of this state to apply
Minn.R.Civ.P. 60.02 to foreign judgments in the same manner it is applied to judgments of the courts of this state. It has been settled by the United States Supreme Court and courts of other states that the power of a state to reopen or vacate a foreign judgment is more limited than under the rules of civil procedure and that a foreign judgment cannot be collaterally attacked on the merits. After a foreign judgment has been duly filed, the grounds for reopening or vacating it are limited to lack of personal or subject matter jurisdiction of the rendering court, fraud in procurement (extrinsic), satisfaction, lack of due process, or other grounds that make a judgment invalid or unenforceable. The nature and amount or other aspects of the merits (i.e., defenses) of a foreign judgment cannot be relitigated in the state in which enforcement is sought. See Morris v. Jones, 329 U.S. 545, 67 S.Ct. 451, 91 L.Ed. 488 (1946).
Id. at 867-68 (citations omitted).
Similarly, the Supreme Court of Nevada stated that “the defenses preserved by Nevada‘s
This interpretation of the UEFJA also finds support in the Prefatory Note to the 1964 Revised Uniform Enforcement of Foreign Judgments Act, stating that the UEFJA as revised
adopts the practice which, in substance, is used in Federal courts. It provides the enacting state with a speedy and economical method of doing that which it is required to do by the Constitution of the United States. It also relieves creditors and debtors of the additional cost and harassment of further litigation which would otherwise be incident to the enforcement of the foreign judgment. This act offers the states a chance to achieve uniformity in a field where uniformity is highly desirable. Its enactment by the states should forestall Federal legislation in this field.
Rev. Unif. Enforcement of Foreign Judgments Act prefatory note (1964), 13 U.L.A. 156-57 (2002) [hereinafter Rev. UEFJA prefatory note]. The federal statute, after providing for the registration of a judgment in any other district, mentions only one defense, satisfaction, but does allow that “[t]he procedure prescribed under this section is in addition to other procedures provided by law for the enforcement of judgments.”
Defendant relies primarily on two intermediate court of appeals cases, one from Ohio and one from Minnesota. Both cases can be distinguished from the present case. In Schwartz v. Schwartz the defendant‘s second wife sought an annulment in Ohio on the ground that their marriage was null and void because the defendant‘s previous divorce in New York had been obtained by fraud. 113 Ohio App. 275, 276, 173 N.E.2d 393, 393-94 (1960). An Ohio Court of Appeals granted the annulment after determining that the New York divorce decree was not entitled to full faith and credit when there was evidence of a prearranged, staged act of adultery in order to obtain the divorce. Id. at 276, 279-80, 173 N.E.2d at 393, 395-96. The court reasoned that the New York court could set aside the divorce on its own motion for fraud on the court. Id. at 279, 173 N.E.2d at 395. Adultery was the only ground for divorce in New York, and without an act of adultery, the court had no authority to enter the divorce. Id. at 276, 279, 173 N.E.2d at 393, 395. Thus, since the rendering New York court could have set aside the divorce, the divorce was not entitled to full faith and credit in Ohio under Halvey v. Halvey. In the present case, the Alabama court had the authority to enter a judgment on plaintiff‘s breach of contract claim.
fraud that would justify disregarding the judgment.” Id. In the present case, defendant‘s evidence of the amount owed, consisting of emails from which inferences can be drawn, differs markedly from a signed promissory note and security agreement. The emails do not demonstrate on their face that plaintiff‘s representations were false, and the record contains no document disclosing to whom and for how much defendant sold the pills as required by the terms of the fee agreement at issue in this case. Moreover, the Minnesota Court of Appeals did not hold that the allegations constituted fraud; the court merely stated the allegations sounded in fraud and remanded the case to the trial court.
We hold that the defenses preserved under North Carolina‘s UEFJA are limited by the Full Faith and Credit Clause to those defenses which are directed to the validity and enforcement of a foreign judgment. The language of the UEFJA that a foreign judgment “has the same effect and is subject to the same defenses as a judgment of this State and shall be enforced or satisfied in like manner,”
Moreover, even if the UEFJA and Rule 60(b) permit a foreign judgment debtor to raise intrinsic fraud as a defense to the foreign judgment, on the record before this Court, defendant would be barred from asserting that defense. Alabama‘s Rule 60(b) requires a judgment debtor to raise fraud within four months of entry of the judgment.
By the time the Alabama judgment was filed in Stanly County, the four-month period for raising a challenge to the judgment under Alabama Rule of Civil Procedure 60(b)(3) had passed, and the judgment was a final judgment under Alabama law. Irrespective of whether the alleged fraud was intrinsic or extrinsic, the Alabama judgment was final and enforceable in Alabama when it was filed in North Carolina. Thus, plaintiff‘s claim had been conclusively determined in Alabama.
Therefore, we hold that the Alabama judgment is a final judgment, and under Morris v. Jones it is entitled to the same credit in North Carolina that it would be accorded in Alabama. The defenses to a foreign judgment under the UEFJA are limited by the Full Faith and Credit Clause to those defenses that are directed to the enforcement of the foreign judgment, and Rule 60(b) of the North Carolina Rules of Civil Procedure has no applicability.
Defendant‘s argument that the Court of Appeals decision should be reversed because a foreign judgment creditor would get better treatment than a North Carolina judgment creditor is misplaced and does not comport with the United States Supreme Court‘s language in Morris v. Jones and Halvey v. Halvey emphasizing that the validity and finality of the judgment in the rendering state control whether that judgment is entitled to full faith and credit in the forum state. The UEFJA is not on a parity with the Full Faith and Credit Clause.
For the reasons stated herein, the decision of the Court of Appeals is affirmed, as modified. This case is remanded to the Court of Appeals for further remand to the trial court for additional proceedings not inconsistent with this opinion.
MODIFIED AND AFFIRMED; REMANDED.