Capital Partners Network OT, Inc. v. TNG Contractors, LLC

• Decision Date: 16 November 2020
• Docket Number: No. M2020-00371-COA-R3-CV,M2020-00371-COA-R3-CV
• Citation: 622 S.W.3d 227
• Court: Tennessee Court of Appeals
• Parties: CAPITAL PARTNERS NETWORK OT, INC. v. TNG CONTRACTORS, LLC, et al.

622 S.W.3d 227

CAPITAL PARTNERS NETWORK OT, INC.

v.TNG CONTRACTORS, LLC, et al.

No. M2020-00371-COA-R3-CV

Court of Appeals of Tennessee, Middle Section, AT NASHVILLE.

October 20, 2020 Session

FILED November 16, 2020

Permission to Appeal Denied by Supreme Court: March 17, 2021

Benjamin E. Goldammer and Christopher B. Fowler, Nashville, Tennessee, for the appellants, Akbar Arab and TNG Contractors, LLC.

J. Michael Clemons, Nashville, Tennessee, for the appellee, Capital Partners Network OT, Inc.

John A. Bell, Jr., Nashville, Tennessee, for the appellee, M & A Development, LLC.

John W. McClarty, J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and Andy D. Bennett, J., joined.

John W. McClarty, J.

Defendants appeal the trial court's grant of summary judgment to the plaintiff corporation, the effect of which was to accord full faith and credit to a New York judgment based on a confession of judgment, or cognovit note. Defendants argue that the foreign judgment should not be enrolled in Tennessee because it is contrary to public policy, based on Tennessee Code Annotated section 25-2-101(a), which prohibits the use of prelitigation confessions of judgment and declares void any judgment based upon such a device. After reviewing the record and case law, we hold that the Constitution's full faith and credit mandate requires enrollment of the foreign judgment so long as Defendants validly waived their due process rights. Accordingly, we affirm.

I. FACTUAL AND PROCEDURAL HISTORY

On April 25, 2017, Defendant Akbar Arab, individually and on behalf of co-Defendants, TNG Contractors, LLC ("TNG"), and M&A Development, LLC ("M&A"), entered into an agreement for the Purchase and Sale of Future Receipts ("the purchase agreement") with Plaintiff Capital Partners Network, OT, Inc. Mr. Arab is the principal member and officer of TNG and M&A, both Tennessee LLCs, and Plaintiff is a Florida corporation. Mr. Arab also executed a personal guaranty and, personally and on behalf of TNG and M&A, he executed an Affidavit of Confession of Judgment ("the affidavit"). The affidavit, a separate document from the purchase agreement, stated, in relevant part:

The Defendants (referred to hereinafter jointly and severally as the "Judgment Debtors/Defendants") all jointly and severally hereby Confess Judgment herein, and authorize entry of judgment against them as the Judgment Debtors/Defendants in the sum of (a) $176,250.00, less any receivables delivered, plus (b) interest thereon at 16% per annum from the date of default to the date of the entry of the Judgment, and (c) all of the costs and disbursements, and an additional sum for (d) legal fees to Plaintiff calculated at 33% of the total of all of the aforesaid sums. Such amount shall be set forth in an affidavit under oath by Plaintiff which shall be attached hereto and filed contemporaneously with this Confession of Judgment.

... Judgment Debtors/Defendants authorize entry of Judgment against each and every one of them in any and all Counties in the State of New York, as well as in each and every State, County and foreign country where they reside and/or do business at any time hereafter, which addresses are not in New York State.

This confession of judgment is for an obligation due to Plaintiff arising from TNG CONTRACTORS, LLC / M & A DEVELOPMENT LLC's failure to deliver to Plaintiff, TNG CONTRACTORS, LLC / M & A DEVELOPMENT LLC's accounts receivable, which were purchased by Plaintiff pursuant to the Agreement for the Purchase and Sale of Future Receipts dated April 25, 2017 (hereinafter, the "Agreement") and Debtors/Defendants’ breach thereof. This Affidavit is made in connection with the Agreement and is solely for the purchase of commercial or business commodities. This Affidavit may be filed ex parte by Plaintiff, without further notice. Agreed-upon interest, reasonable attorneys’ fees, costs and disbursements, are to be included as agreed upon by Debtors/Defendants, under the secured Agreement, of which supporting documents include a Personal Guarantee of Performance and a UCC-1 financing statement(s).

The purchase agreement set out the events that constitute a default and included a choice of law and forum selection clause that stated that New York law and courts would govern the agreement and "[a]ny suit, action or proceeding arising hereunder, or the interpretation, performance or breach of this Agreement."

On September 6, after Defendants breached the terms of the agreement, Plaintiff filed the affidavit signed by Mr. Arab in the Supreme Court¹ of Orange County, New York, and obtained a judgment by confession for $96,124.23 against Defendants.² Judgments by confession are authorized by statute in New York. N.Y. CPLR. 3218 (McKinney). Defendants’ New York counsel argued before the New York court that the court lacked jurisdiction and that the judgment was void for failure to designate a New York county in which it could be filed. Counsel was unsuccessful in getting relief from the judgment.

On November 3, Plaintiff petitioned the Davidson County Circuit Court Clerk to enroll the foreign judgment in accordance with the Uniform Enforcement of Foreign Judgments Act ("UEFJA"), Tennessee Code Annotated section 26-6-101, et seq. Defendants answered the petition and moved to dismiss, asserting that the foreign judgment is void as a matter of law under Tennessee Code Annotated section 25-2-101(a), which provides, "Any power of attorney or authority to confess judgment which is given before an action is instituted and before the service of process in such action, is declared void; and any judgment based on such power of attorney or authority is likewise declared void." Following a hearing, the trial court denied the motion and held that it was "required to accord full faith and credit to the foreign judgment at issue." The trial court stayed execution on the judgment pending appeal. Following Defendants’ appeal, this Court reversed and remanded, reasoning:

In the case at bar, the [trial] court only heard the Defendants’ motion to dismiss before enrolling the New York judgment. Pursuant to the UEFJA and [Tenn. R. Civ. P.] 3A, however, Defendants were entitled to a trial on the merits of the defenses to enrollment and enforcement that were raised in their Answer.

Capital Partners Network OT, Inc. v. TNG Contractors, LLC , No. M2018-00411-COA-R3-CV, 2018 WL 4350065, at *3 (Tenn. Ct. App. Sept. 11, 2018).

On August 2, 2019, Plaintiff filed a motion for summary judgment to enroll the foreign judgment in Tennessee. There were no material facts in dispute, but, in response, Defendants again argued that the foreign judgment is void in Tennessee and should be denied full faith and credit because, as a judgment obtained by a pre-litigation confession of judgment, it violates Tennessee public policy. Following a hearing in which Defendants presented their defenses to enrollment and enforcement that were raised in their answer, the trial court granted Plaintiff's motion for summary judgment, reasoning that the foreign judgment at issue is valid because it was obtained in accordance with New York law which allows judgment by confession. All Defendants now appeal.³

The sole issue before us is whether the trial court erred in granting summary judgment to Plaintiff, according the foreign judgment full faith and credit in Tennessee.

II. STANDARD OF REVIEW

A trial court's decision of whether to grant or deny a motion for summary judgment is a question of law; thus, our review is de novo with no presumption of correctness afforded to the trial court's determination. Guseinov v. Synergy Ventures, Inc. , 467 S.W.3d 920, 924 (Tenn. Ct. App. 2014) (citation omitted). Summary judgment is appropriate if no genuine issues of material fact exist, and the movant meets its burden of proving that it is entitled to a judgment as a matter of law. Tenn. R. Civ. P. 56.04. Because the facts that are material to the issue raised in this appeal are not in dispute, we are tasked only with resolving issues of law, specifically, whether the New York judgment should be accorded full faith and credit in Tennessee. "[P]ersons seeking to domesticate a foreign judgment may do so using a summary judgment as long as they satisfy the trial court ... that there are no disputes as to any material fact and that they are entitled to a judgment as a matter of law." Biogen Distribs., Inc. v. Tanner , 842 S.W.2d 253, 255 (Tenn. Ct. App. 1992) ; Guseinov , 467 S.W.3d at 924. A trial court's decision to grant full faith and credit to a foreign judgment is a question of law; therefore, our review is de novo upon the record with no presumption of correctness for the trial court's conclusions. Guseinov, 467 S.W.3d at 924. (citations omitted).

III. ANALYSIS

Defendants assert that the foreign judgment obtained pursuant to New York law and valid in New York state should not be accorded full faith and credit because it violates the Tennessee public policy set forth in Tennessee Code Annotated section 25-2-101(a), which declares that an authority to confess judgment given before an action is instituted and before the service of process in such action is void. Defendants rely on the language of the statute itself to support their argument, claiming that it "articulates a clear, unequivocal Tennessee public policy that affidavits confessing judgment – and the judgments on which they are based – are void."

Plaintiff points out that Mr. Arab, on behalf of all Defendants, freely and voluntarily signed an affidavit of confession of judgment which granted Plaintiff the right to file it in the event of a breach, and that Tennessee law recognizes a strong public policy of individual autonomy and freedom of contract. Plaintiff states that in accordance with the United States Constitution, Tennessee courts presume that a foreign judgment is valid and that the party seeking to attack a valid foreign judgment bears a heavy burden. Plaintiff...