All Terrain Props. v. Hoy

• Decision Date: 04 April 2000
• Citation: 705 N.Y.S.2d 350,265 A.D.2d 87
• Parties: ALL TERRAIN PROPERTIES, INC., Appellant-Respondent,<BR>v.<BR>ROBERT J. HOY, Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

265 A.D.2d 87

705 N.Y.S.2d 350

ALL TERRAIN PROPERTIES, INC., Appellant-Respondent,

v.ROBERT J. HOY, Respondent-Appellant.

RUBIN, J.

April 4, 2000.

David D. Pavek of counsel (David S. Tannenbaum on the brief; Duane, Morris & Hecksher, L. L. P., New York City, and David Pavek & Associates, attorneys, Denver, Colorado), for appellant-respondent.

Robert P. Stein of counsel, New York City (James W. Perkins and Glenn T. Burhans on the brief; and Camhy Karlinsky & Stein, L. L. P., attorneys), for respondent-appellant.

WILLIAMS, J. P., ELLERIN and SAXE, JJ., concur.

OPINION OF THE COURT

RUBIN, J.

In this action, plaintiff seeks to domesticate a judgment entered in New Jersey upon the default of defendant Robert J. Hoy. Before the reorganization in bankruptcy of Lord Jeff Knitting Co., Inc., Mr. Hoy, as its president, guaranteed certain notes given by the corporation to National Community Bank of New Jersey, which sued upon the guarantee and obtained the default judgment against him. Plaintiff All Terrain Properties, the remote assignee of the notes, sought an order of attachment in Supreme Court, New York County. The matter is before this Court on plaintiff's appeal from an order entered February 18, 1999, which denied its application and which dismissed the complaint, and on defendant's cross appeal from so much of the order as denied his motion for sanctions against plaintiff and its counsel.

In Boorman v Deutsch (152 AD2d 48, 54, lv dismissed 76 NY2d 889), this Court noted that "a defendant who has a defense predicated on a lack of in personam jurisdiction may pursue one of two options: either litigate the issue in the main action or decline to appear and accept a default judgment, deferring litigation of the issue until a proceeding is brought to enforce the judgment and mounting a collateral attack at that time." Defendant has contrived yet a third approach, obtaining relief in Bankruptcy Court from the enforcement of the default judgment and attacking in this action the personal jurisdiction of the New Jersey court to enter judgment against him. This Court concludes that defendant has conceded the validity of the judgment and is estopped from contesting the issue in the courts of this State.

The essential facts are not in dispute. In January 1987, on behalf of Lord Jeff Knitting Co., the company over which he presided, defendant Hoy personally guaranteed three promissory notes in favor of National Community Bank (NCB) in the combined value of $950,000. In January 1991, Lord Jeff Knitting Co. was forced into involuntary bankruptcy by its trade creditors. In April 1991, NCB, which was not a party to the bankruptcy proceeding, commenced an action on defendant's guarantee in the Superior Court of New Jersey, Bergen County, to recover the outstanding balance under the notes. The return of service, filed with the court by a Special Deputy, indicates that defendant was served on April 16, 1991 by delivery of the summons and complaint to Steve O'Connor, identified as Lord Jeff's treasurer, at an address indicated to be that of a business. In addition, the Special Deputy sent a copy of the summons and complaint by certified mail to defendant's last known address in Greenwich, Connecticut. The delivery receipt was signed by an unidentified person on April 19, 1991. In a letter dated May 6, 1991, Lord Jeff's bankruptcy counsel wrote to the bank's attorney to confirm his understanding of an earlier telephone conversation that the bank "would not take any further action against Robert Hoy, individually, in the pending State Court matter" while it continued negotiations with the corporate debtor.

In July 1991, NCB applied to the Superior Court for a default judgment against defendant Hoy. The certification of the bank's attorney made reference to the process served upon defendant. On July 25, 1991, the judgment at issue was entered in the amount of $808,376.56. By letter dated August 8, 1991, Lord Jeff's bankruptcy counsel wrote to express his distress over the bank's application for entry of judgment by default without further notice to Mr. Hoy that it was terminating negotiations. The letter concludes with a request that NCB indicate whether it would be willing to meet with the corporate debtor and to vacate the default judgment against Mr. Hoy.

On September 27, 1991, the Bankruptcy Court entered an order confirming the chapter 11 reorganization plan for Lord Jeff Knitting Co. Under the plan, which was signed by defendant in his corporate capacity, the three NCB notes were recast into a single note and a new payment schedule was set under which Lord Jeff's successor, The Aqua Buoy Corporation, would satisfy the obligation in full. In a provision that plaintiff refers to as the "Hoy Clause," the plan recites: "The Guaranty of Robert Hoy shall remain in place. NCB shall forebear from executing upon its default judgment against Mr. Hoy unless an event of default occurs on the recasted note."

Aqua Buoy failed to make the payment due in January 1992 and, in April 1992, NCB served defendant Hoy, pursuant to the default judgment, with a notice of deposition to inquire into his assets. In May, defendant appeared for the deposition with bankruptcy counsel for Lord Jeff as his legal representative. Following the deposition, NCB took no direct action against defendant, but continued its efforts to collect the amount due under the note from Aqua Buoy and Lord Jeff by liquidating certain real property securing the obligation. The recast note and defendant's guarantee were ultimately acquired by plaintiff All Terrain Properties on November 6, 1998 by assignment from Columbus Realty Investment Corporation, to which NCB had assigned the judgment (assignment dated August 1, 1997). The assignment to plaintiff does not specifically include the default judgment against defendant.

Plaintiff commenced this action to domesticate the New Jersey judgment by filing a summons and complaint on January 21, 1999. Simultaneously, by way of order to show cause, plaintiff sought a temporary restraining order to attach certain funds maintained by defendant in accounts with financial institutions in New York City.

Defendant moved to vacate the temporary restraining order, dismiss the complaint and impose sanctions on plaintiff and its counsel. Defendant maintained that the default judgment was not entitled to full faith and credit because the New Jersey court never obtained personal jurisdiction over him. Plaintiff opposed the motion, asserting that the judgment should be accorded full faith and credit. Plaintiff argued that because defendant had actual knowledge of the New Jersey action and default judgment, never moved to vacate it, appeared at a postjudgment deposition and received the benefit of numerous requests for forbearance, he should be estopped to raise any technical challenge to jurisdiction. Responding to defendant's assertion that the default judgment is invalid, plaintiff asserted that defendant had "acknowledged the validity of the Hoy judgment" having "procured an agreement by All Terrain's predecessor to `forbear from executing upon its default judgment against Mr. Hoy unless an event of default occurs on the recasted note.'"

Without hearing argument, Supreme Court vacated the temporary restraining order, denied plaintiff's motion for an order of attachment and granted defendant's motion to dismiss the complaint. The court found that the personal service on a co-worker at defendant's place of employment did not satisfy rule 4:4-4 (a) (1) of the New Jersey Rules of Court Governing Civil Practice. The court further rejected plaintiff's arguments that defendant waived all jurisdictional defects by signing the Lord Jeff reorganization plan, noting that Hoy signed the plan in his corporate and not his individual capacity. Furthermore, the court ruled that estoppel is irrelevant given plaintiff's failure to make valid service.

A judgment rendered by a court of a sister State is accorded "the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced" (Hampton v M'Connel, 3 Wheat [16 US] 234, 235; see, Sistare v Sistare, 218 US 1; Feinberg v Feinberg, 96 Misc 2d 443, affd 70 AD2d 612 on opn below). As observed in Boorman v Deutsch (152 AD2d, supra, at 52): "A party against whom a default judgment is entered without obtaining jurisdiction over his person may appear and contest its validity or ignore the judgment and assert its invalidity whenever enforcement is attempted (McMullen v Arnone, 79 AD2d 496, 499). The judgment, however, is presumptively valid until reversed or set aside (Hughes v Cuming, 165 NY 91; see also, Cook v Cook, 342 US 126, 128)." While inquiry into the underlying merits is precluded, the court will ascertain whether the foreign court had jurisdiction to enter judgment (see, Fiore v Oakwood Plaza Shopping Ctr., 78 NY2d 572, 577). Where jurisdiction over the person was not obtained, the ensuing judgment is ineffective and voidable unless the defendant waives the issue (Feinstein v Bergner, 48 NY2d 234, 241). Actual receipt of process does not cure a failure to effect service in accordance with mandated statutory requirements (supra).

As in Boorman v Deutsch (supra, at 51), the issue here "is whether defendant, by his actions, has waived the issue of in personam jurisdiction." New York courts do not accord full faith and credit to a default judgment because it is not regarded as a disposition on the merits (DFI Communications v Golden Penn Theatre Ticket Serv., 87 AD2d 778). Plaintiff, however, cites authority to support its contention that New Jersey courts will preclude a defendant from contesting the validity of service of process where he has received actual knowledge of a judgment but has failed to take timely action to vacate it (Wohlegmuth v 560 Ocean Club, 302 NJ Super 306, 695 A2d 345; Rosa v Araujo, 260 NJ Super 458, 616 A2d 1328).

It is beyond...