Arnold, White & Durkee, Professional Corp. v. Gotcha Covered, Inc.

• Decision Date: 10 August 1998
• Citation: 714 A.2d 360,314 N.J.Super. 190
• Parties: ARNOLD, WHITE & DURKEE, a PROFESSIONAL CORPORATION, Plaintiff-Appellant, v. GOTCHA COVERED, INC., and Stripbind, Inc., Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 190

314 N.J.Super. 190

714 A.2d 360

ARNOLD, WHITE & DURKEE, a PROFESSIONAL CORPORATION Plaintiff-Appellant, v. GOTCHA COVERED, INC., and Stripbind, Inc., Defendants-Respondents.

Superior Court of New Jersey Appellate Division.

Argued Feb. 11, 1998.

Decided Aug. 10, 1998.

John L. Laskey, Cherry Hill, for plaintiff-appellant (Dilworth, Paxson, Kalish & Kauffman, attorneys; Mr. Laskey, on the brief).

John J. Dell'Aquilo, for defendants-respondents.

Before Judges KING, KESTIN and CUFF.

The opinion of the court was delivered by

CUFF, J.A.D.

In this case we must decide whether the Full Faith and Credit Clause requires recognition of the judgment obtained by plaintiff in Texas, despite plaintiff's failure to advise defendants of their right to submit this fee dispute to arbitration pursuant to R. 1:20A-6. We hold that it does. We remand for further proceedings consistent with this opinion.

In September 1993, defendants Gotcha Covered, Inc. and Stripbind, Inc. were sued for patent infringement in the United States District Court for the District of New Jersey. Defendants retained plaintiff Arnold, White & Durkee, a law firm based in Texas, to represent them. In early 1994, two attorneys from the firm were admitted pro hac vice in the federal court in this district. In affidavits in support of this application, each attorney stated he would "abide by the New Jersey Court Rules."

The patent infringement suit was settled in September 1995. Soon thereafter, a fee dispute arose. Plaintiff claimed that defendants owed it $154,000. Plaintiff filed suit to collect the disputed fee in a Texas state court, but failed to notify defendants of their right to arbitrate this fee dispute. See R. 1:20A-6. Defendants filed no answer and plaintiff obtained a default judgment in the amount of $150,162.39 plus interest and attorneys' fees.

On August 13, 1996, plaintiff filed a complaint in the Superior Court of New Jersey, Law Division, to domesticate its judgment. Defendants responded with a motion to dismiss the complaint pursuant to R. 4:6-2(e) for failure to state a claim on which relief can be granted. Plaintiff's attorney argued that New Jersey was obligated to domesticate the Texas judgment pursuant to the Full Faith and Credit Clause of the United States Constitution, U.S. Const. art. IV, § 1. Defendants claimed that the Texas judgment was void and not entitled to full faith and credit.

The motion judge granted defendants' motion and dismissed plaintiff's complaint without prejudice. He recognized the federal rule that full faith and credit is usually given to foreign money judgments; however, he referred to a narrow exception which exists when an important public policy interest is at stake. Here, he noted that the Supreme Court of New Jersey has a substantial public policy interest in regulating the practice of law. Recognizing that fee disputes are a frequent cause of complaints against attorneys, the Supreme Court has promulgated rules for the resolution of fee disputes. See R. 1:20A. The motion judge concluded an attorney admitted pro hac vice agrees to be bound by all rules governing the practice of law in this State, including resolution of fee disputes. He also concluded that notice to the client of the right to submit a fee dispute was a jurisdictional prerequisite to filing a complaint for the collection of the fee. He reasoned that the Texas judgment was void because the plaintiff law firm failed to abide by the rules it had agreed to follow.

On appeal, plaintiff contends that the motion judge erred in dismissing its complaint. Plaintiff argues that a court of this state may not refuse to enforce a judgment of another state even if the cause of action could not have been maintained in New Jersey. We agree.

Article IV, Section 1 of the United States Constitution states:

Full Faith and Credit shall be given in each State to the public Acts, Records, and 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.

This mandate has been codified at 28 U.S.C.A. § 1738 which states in pertinent part:

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.

The Full Faith and Credit Clause requires that a judgment entered in one state be respected and enforced by the courts of another state provided that the first state had jurisdiction over the subject matter and the parties. Nevada v. Hall, 440 U.S. 410, 421, 99 S.Ct. 1182, 1188, 59 L. Ed.2d 416, 425 (1979). The New Jersey Supreme Court has held that the federal Constitution and 28 U.S.C.A. § 1738 both require that our State must give full faith and credit to a sister state's judgment. City of Philadelphia v. Bauer, 97 N.J. 372, 377, 478 A.2d 773 (1984). This is true even in situations where the original judgment's underlying cause of action "would not necessarily be a valid cause of action in the state providing the forum for enforcement." Ibid.

The original purpose of the Full Faith and Credit Clause was to integrate the states into a unified nation in which a litigant could enforce a valid claim regardless of that claim's state of origin. City of Philadelphia v. Austin, 86 N.J. 55, 58, 429 A.2d 568 (1981). The Clause's goal, therefore, "was that a judgment would be as conclusive in every state as in the state where the judgment was rendered." Ibid.; see also Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 438, 64 S.Ct. 208, 213, 88 L. Ed. 149, 155 (1943), rev'd on other grounds, 448 U.S. 261, 100 S.Ct. 2647, 65 L. Ed.2d 757 (1980). A foreign judgment entitled to full faith and credit is res judicata as to any claim that was or could have been raised in the state of the judgment's origin. Security Benefit Life Ins. Co. v. TFS Ins. Agency, Inc., 279 N.J.Super. 419, 425, 652 A.2d 1261 (App.Div.), certif. denied, 141 N.J. 95, 660 A.2d 1194 (1995). A judgment entered in violation of due process of law is not entitled to full faith and credit. Hupp v. Accessory Distribs., Inc., 193 N.J.Super. 701, 708, 475 A.2d 679 (App.Div.1984).

Under the doctrine of merger, a cause of action to enforce a judgment is distinct from the cause of action upon which that judgment was entered. Milwaukee County v. M.E. White Co., 296 U.S. 268, 275, 56 S.Ct. 229, 233, 80 L. Ed. 220, 227 (1935). In a suit to enforce a foreign money judgment, the validity of the original claim upon which the judgment was founded will not be analyzed. Ibid. The original judgment can be attacked only if the foreign state lacked jurisdiction or if the judgment was obtained through fraud or was entered contrary to due process. Id. at 275- 56 S.Ct. at 233, 80 L. Ed. at 227; see also Underwriters Nat'l Assurance Co. v. North Carolina Life, 455 U.S. 691, 705, 102 S.Ct. 1357, 1366, 71 L. Ed.2d 558, 570 (1982) (noting that "before a court is bound by the judgment rendered in another State, it may inquire into the jurisdictional basis of the foreign court's decree"); Klaiber v. Frank, 9 N.J. 1, 9, 86 A.2d 679 (1952) (refusing to extend full faith and credit to a Florida judgment obtained through fraudulent service of process). Therefore, a judgment acquired in the state of enforcement on a valid foreign judgment is simply a money judgment because its original identity is lost through the doctrine of merger. Bauer, supra, 97 N.J. at 378, 478 A.2d 773.

Recently, in Baker v. General Motors Corp., 522 U.S. ----, 118 S.Ct. 657, 139 L. Ed.2d 580 (1998), the United States Supreme Court differentiated between the full faith and credit owed to laws (legislative enactments and common law) and to judgments. Justice Ginsberg stated that the Full Faith and Credit Clause does not require a state court to substitute the statutes or common law of other states for the statutes or common law of its state, particularly when the law of the other state is antithetical to the public policy of the forum state. Id. at ----, 118 S.Ct. at 663, 139 L. Ed.2d at 591-92. However, she emphasized that "[r]egarding judgments ... the full faith and credit obligation is exacting." Id. at ----, 118 S.Ct. at 663, 139 L. Ed.2d at 592. Justice Ginsberg further observed that a court may be guided by the forum's public policy in its choice of law analysis; however, she emphasized that there is "no roving 'public policy exception' to the full faith and credit due judgments." Ibid.; see Estin v. Estin, 334 U.S. 541, 546, 68 S.Ct. 1213, 1217, 92 L. Ed. 1561, 1567 (1948); see also City of Philadelphia v. Smith, 169 N.J.Super. 156, 164, 404 A.2d 360 (App.Div.1979), aff'd, 82 N.J. 429, 413 A.2d 952 (1980); City of Philadelphia v. Stadler, 164 N.J.Super. 281, 290, 395 A.2d 1300 (Cty.Ct.1978), aff'd, 173 N.J.Super. 235, 413 A.2d 996 (App.Div.), certif. denied, 85 N.J. 465, 427 A.2d 563 (1980), cert. denied, 450 U.S. 997, 101 S.Ct. 1702, 68 L. Ed.2d 198 (1981); Zelek v. Brosseau 47 N.J.Super. 521, 136 A.2d 416 (App.Div.1957), aff'd, 26 N.J. 501, 141 A.2d 17 (1958).

Case law is replete with instances in which full faith and credit has been accorded to money judgments of other states, even though the original claim is founded on a debt or a transaction contrary to the public policy of the state in which the money judgment is sought to be enforced. Fauntleroy v. Lum, 210 U.S. 230, 28 S.Ct. 641, 52 L. Ed. 1039 (1908) (judgment rendered in Missouri founded on trading in commodity futures, barred by the gambling laws of Mississippi, entitled to recognition in Mississippi); Marina Assocs. v. Barton, 206 Ill.App.3d 122, 151 Ill.Dec. 4, 563 N.E.2d 1110 (1990) (Illinois must recognize judgment obtained in New Jersey for gambling debt); see also Valley Nat'l Bank of Arizona v. A.E. Rouse &...