Southwest Livestock and Trucking Co., Inc. v. Ramon

• Decision Date: 24 March 1999
• Docket Number: No. 98-50303,98-50303
• Parties: SOUTHWEST LIVESTOCK AND TRUCKING COMPANY, INC.; Darrel Hargrove; Mary Jane Hargrove, Plaintiffs-Appellees, v. Reginaldo RAMN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 317

169 F.3d 317

SOUTHWEST LIVESTOCK AND TRUCKING COMPANY, INC.; Darrel

Hargrove; Mary Jane Hargrove, Plaintiffs-Appellees, v. Reginaldo RAMN, Defendant-Appellant.

No. 98-50303.

United States Court of Appeals,

Fifth Circuit.

March 24, 1999.

Rehearing Denied May 13, 1999.

J. Ken Nunley, Joseph McKnight Davis, Nunley, Davis, Jolley, Brock, Hill & Brant, Boerne, TX, Thomas T. Black, San Antonio, TX, for Plaintiffs-Appellees.

Dennis K. Drake, Charles S. Estee, Fred Shannon, Shannon, Drake & Estee, San Antonio, TX, for Ramon.

Jay M. Vogelson, Van Jackson Hooker, Dallas, TX, for The Government of the United Mexican States, Amicus Curiae.

Appeal from the United States District Court for the Western District of Texas.

Before EMILIO M. GARZA, BENAVIDES and DENNIS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Defendant-Appellant, Reginaldo Ramn, appeals the district court's grant of summary judgment in favor of Plaintiffs-Appellees, Southwest Livestock & Trucking Co., Inc., Darrel Hargrove and Mary Jane Hargrove. Ramn contends that the district court erred by not recognizing a Mexican judgment, that if recognized would preclude summary judgment against him. We vacate the district court's summary judgment and remand.

I

Darrel and Mary Jane Hargrove (the "Hargroves") are citizens of the United States and officers of Southwest Livestock & Trucking Co., Inc. ("Southwest Livestock"), a Texas corporation involved in the buying and selling of livestock. In 1990, Southwest Livestock entered into a loan arrangement with Reginaldo Ramn ("Ramn"), a citizen of the Republic of Mexico. Southwest Livestock borrowed $400,000 from Ramn. To accomplish the loan, Southwest Livestock executed a "pagare"--a Mexican promissory note--payable to Ramn with interest within thirty days. Each month, Southwest Livestock executed a new pagare to cover the outstanding principal and paid the accrued interest. Over a period of four years, Southwest Livestock made payments towards the principal, but also borrowed additional money from Ramn. In October of 1994, Southwest Livestock defaulted on the loan. With the exception of the last pagare executed by Southwest Livestock, none of the pagares contained a stated interest rate. Ramn, however, charged Southwest Livestock interest at a rate of approximately fifty-two percent. The last pagare stated an interest rate of forty-eight percent, and under its terms, interest continues to accrue until Southwest Livestock pays the outstanding balance in full.

After Southwest Livestock defaulted, Ramn filed a lawsuit in Mexico to collect on the last pagare. The Mexican court granted judgment in favor of Ramn, and ordered Southwest Livestock to satisfy its debt and to pay interest at forty-eight percent. Southwest Livestock appealed, claiming that Ramn had failed to effect proper service of process, and therefore, the Mexican court lacked personal jurisdiction. The Mexican appellate court rejected this argument and affirmed the judgment in favor of Ramn.

After Ramn filed suit in Mexico, but prior to the entry of the Mexican judgment, Southwest Livestock brought suit in United States District Court, alleging that the loan arrangement violated Texas usury laws. ¹ Southwest Livestock then filed a motion for partial summary judgment, claiming that the undisputed facts established that Ramn charged, received and collected usurious interest in violation of Texas law. Ramn also filed a motion for summary judgment. By then the Mexican court had entered its judgment, and Ramn sought recognition of that judgment. He claimed that, under principles of collateral estoppel and res judicata, the Mexican judgment barred Southwest Livestock's suit. The district court judge referred both motions to a magistrate judge. See 28 U.S.C. § 636(b)(1).

The magistrate judge recommended that the district court grant Southwest Livestock's motion for summary judgment as to liability under Texas usury law, and recommended that it hold a trial to determine damages. In reaching her decision, the magistrate judge first addressed whether the Texas Uniform Foreign Country Money-Judgment Recognition Act (the "Texas Recognition Act") required the district court to recognize the Mexican judgment. See TEX. CIV. PRAC. & REM.CODE ANN. § 36.001 et seq. (West 1998). As the magistrate judge observed, a judgment "that is not refused recognition ... is conclusive between the parties to the extent that it grants or denies recovery of a sum of money." TEX. CIV. PRAC. & REM.CODE ANN. § 36.004 (West 1998). The magistrate judge concluded that, contrary to Southwest Livestock's position, the Mexican court properly acquired personal jurisdiction over Southwest Livestock, and therefore, lack of jurisdiction could not constitute a basis for nonrecognition. Nonetheless, according to the magistrate judge, "the district court would be well within its discretion in not recognizing the Mexican judgment on the grounds that it violates the public policy of the state of Texas." Thus, the magistrate judge decided that the Mexican judgment did not bar Southwest Livestock's suit. The magistrate judge then addressed whether the district court should apply Texas or Mexican law to its resolution of Southwest Livestock's usury claim. The magistrate judge concluded that, under Texas choice of law rules, the district court should apply Texas law. Under Texas law, Ramn undisputably charged usurious interest.

The district court adopted the magistrate judge's recommendation, granting Southwest Livestock's motion for summary judgment as to liability under Texas usury law, and denying Ramn's motion for summary judgment. The district court agreed that the Mexican judgment violated Texas public policy, and that Texas law applied. The district court then heard evidence on the question of damages and granted $5,766,356.93 to Southwest Livestock. The district court also ordered that amount to "increase by $1,677.00 for every day after November 17, 1997, until the date this Judgment is signed," and awarded Southwest Livestock post-judgment interest and attorneys' fees. Ramn appealed.

Ramn asks us to reverse the district court's grant of summary judgment in favor of Southwest Livestock. He contends that the district court erred by failing to recognize the Mexican judgment. He also argues that the district court erred by applying Texas law. According to Ramn, the district court should have applied Mexican law because the pagares executed by Southwest Livestock designated Mexico as the place of payment, and Mexico has the most significant relationship to the loan transaction. Ramn also objects to the district court's continuing charge for usury. Finally, Ramn contends that the district court erred by using a Texas, rather than federal, post-judgment interest rate.

Southwest Livestock asks us to affirm the district court. It concedes that the district court should have used a federal post-judgment interest rate, but refutes Ramn's other arguments. It contends that the district court properly withheld recognition of the Mexican judgment and properly applied Texas law. Additionally, as an alternative ground for upholding the district court's decision not to recognize the Mexican judgment, Southwest Livestock argues that Ramn failed to serve it with proper service of process, and therefore, the Mexican court lacked personal jurisdiction.

II

We must determine first whether the district court properly refused to recognize the Mexican judgment. Our jurisdiction is based on diversity of citizenship. Hence, we must apply Texas law regarding the recognition of foreign country money-judgments. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) (holding that in a diversity action, a federal court must apply the law of the forum state); Success Motivation Institute of Japan, Ltd. v. Success Motivation Institute Inc., 966 F.2d 1007, 1009-10 (5th Cir.1992) ("Erie applies even though some courts have found that these suits necessarily involve relations between the U.S. and foreign governments, and even though some commentators have argued that the enforceability of these judgments in the courts of the United States should be governed by reference to a general rule of federal law.").

Under the Texas Recognition Act, a court must recognize a foreign country judgment assessing money damages unless the judgment debtor establishes one of ten specific grounds for nonrecognition. See TEX. CIV. PRAC. & REM.CODE ANN. § 36.005 (West 1998); ² Dart v. Balaam, 953 S.W.2d 478, 480 (Tex.App.--Fort Worth 1997, no writ) (noting that "[t]he party seeking to avoid recognition has the burden of proving a ground for nonrecognition"). Southwest Livestock contends that it established a ground for nonrecognition. It notes that the Texas Constitution places a six percent interest rate limit on contracts that do not contain a stated interest rate. See TEX. CONST. art. XVI, § 11. It also points to a Texas statute that states that usury is against Texas public policy. See VERNON'S TEX. CIV. STAT., art. 5069-1C.001 ("All contracts for usury are contrary to public policy"). Thus, according to Southwest Livestock, the Mexican judgment violates Texas public policy, and the district court properly withheld recognition of the judgment. See TEX. CIV. PRAC. & REM.CODE ANN. § 36.005(b)(3) (West 1998).

We review the district court's grant of summary judgment de novo. See Ginsberg 1985 Real Estate Partnership v. Cadle Co., 39 F.3d 528, 531 (5th Cir.1994). ³ In reviewing the district court's decision, we note that the level of contravention of Texas law has "to be high before recognition [can] be denied on public policy grounds." Hunt v. BP Exploration Co. (Libya) Ltd., 492 F.Supp. 885, 900 (N.D.Tex.1980). The narrowness of the public policy exception reflects a compromise between two axioms--res judicata and fairness to litigants--that underlie our law of recognition of foreign country judgments....