City of Philadelphia v. Smith

• Citation: 169 N.J.Super. 156,404 A.2d 360
• Parties: CITY OF PHILADELPHIA, Plaintiff-Appellant, v. George A. SMITH, Jr., Charles W. Bonnes, James L. Alesi, William A. Berenato, Myrl P. Evans, Andrew Felix Bella, Sr., Defendants-Respondents.
• Decision Date: 26 June 1979
• Court: New Jersey Superior Court – Appellate Division

Page 156

169 N.J.Super. 156

404 A.2d 360

CITY OF PHILADELPHIA, Plaintiff-Appellant, v. George A. SMITH, Jr., Charles W. Bonnes, James L. Alesi, William A. Berenato, Myrl P. Evans, Andrew Felix

Bella, Sr., Defendants-Respondents.

Superior Court of New Jersey, Appellate Division.

Submitted May 14, 1979.

Decided June 26, 1979.

Charles Crabbe Thomas, Camden, for plaintiff-appellant.

Laskin & Botcheos, for defendants-respondents (George J. Botcheos, Haddonfield, on the brief).

Before Judges CONFORD, PRESSLER and KING.

The opinion of the court was delivered by

KING, J. A. D.

This case presents the question of whether the Full Faith and Credit Clause of the Federal Constitution compels a state to recognize that portion of a foreign judgment representing a civil penalty for unpaid taxes. This question has never been squarely answered by the United States Supreme Court or by any reported appellate decision known to us. ¹

The City of Philadelphia brought these consolidated actions in the Camden County District Court on judgments previously obtained in the courts of the Commonwealth of Pennsylvania against defendants, New Jersey residents, who are federal employees working in the city. Defendants' federal employer does not withhold the city's wage tax. See 5 U.S.C.A. § 5520. These Pennsylvania judgments include the unpaid city wage tax, costs and interest thereon, and the amount of the civil penalty. The respective amounts are as follows:

                Taxpayer-  Taxes, Costs
                defendant  and Interest  Penalty
                ---------  ------------  -------
                Smith       $2,401.21    $408.35
                Alesi        2,216.15     358.76
                Berenato     1,904.39     311.34
                Evans        1,494.10     235.79
                Bella        1,413.64     231.18
                

The trial judge entered judgments for the city in the amount of the unpaid taxes, costs and interest thereon, but refused to include the amount of the penalty in the judgments. He held that a tax penalty imposed by a sister state or its political subdivision, although included in an otherwise valid judgment of that state, was unenforceable in this State to the extent of the penalty.

On this appeal defendants do not attack the validity of the Pennsylvania judgments or their general enforceability in this State. They attack only the civil penalty component of the judgments. Section 9-508 of the Philadelphia Code states:

* * * if any tax * * * is not paid when due * * * a penalty at the rate of 1% Of the amount of the unpaid tax shall be added for each month * * * during which the tax shall remain unpaid and shall be collected, together with the amount of the tax.

Therefore the tax penalty is a direct function of the underlying tax liability.

Defendants urge that the holding of our Supreme Court in Buckley v. Huston, 60 N.J. 472, 291 A.2d 129 (1972), compels affirmance. That case confirmed the common-law right of the City of Philadelphia to proceed in the courts of New Jersey to recover wage taxes due the city. In Buckley Justice Jacobs carefully reviewed the historical underpinnings of the old English and early American cases denying a foreign sovereign's right to sue for collection of taxes. There is language in Buckley which strongly suggests that the courts of this State will not entertain an initial action to the extent that it seeks to recover a foreign tax penalty. Id. at 481-482, 291 A.2d 129. But we are not here confronted with an initial suit to recover a penalty; the city has already obtained its judgments in Pennsylvania. These suits on foreign judgments implicate the Full Faith and Credit Clause, a consideration not pertinent to the court's decision in Buckley. The city contends that the privilege of refusing enforcement to a judgment of a sister state is a narrow one and does not admit exception in this case.

The general principle has been stated by Professor Leflar thus:

It is safe to say that any valid civil judgment rendered in any state or territory of the United States is entitled to full faith and credit in the courts of every sister state and territory, subject only to the limitations of the second state's bona fide procedural rule. That is true even though the original cause of action upon which the first judgment was rendered was one upon which the second state would not in the first place have entertained an action. The local public policy of the second state, however strong it may be, is not a ground for denying full faith and credit to a valid sister state judgment. (Leflar, American Conflicts Law (3 ed. 1977), § 75 at 150)

Historically, claims for taxes and tax judgments were long denied extra-state enforcement, but "it is now clear that valid sister state judgments on tax claims, nonpenal in nature, must be given full faith and credit in other states." Id. at 151; Milwaukee Cty. v. M. E. White Co., 296 U.S. 268, 56 S.Ct. 229, 80 L.Ed. 220 (1935). On the other hand, the question remains unresolved whether and to what extent full faith and credit must be afforded the penalty provisions of a sister state's tax judgment. On this point the Restatement, Conflict of Laws 2d, § 120 at 345-346, comment (d) (1971), states * * * It is uncertain, however, whether full faith and credit requires a State of the United States to enforce a valid money judgment on a penal cause of action rendered in a sister State. Full faith and credit does not permit a State to look through a sister State judgment for the recovery of money and to refuse to enforce the judgment because the underlying cause of action was contrary to its public policy (see § 117), or was barred by its local statute of limitations (see § 118), or was on a governmental claim that is not penal (see Comment b), or because the State lacked a competent court for the enforcement of the original cause of action (see § 117, Comment d), or because the original suit was brought by one not a real party in interest (see § 119). The Supreme Court of the United States has never squarely decided whether a State may look through the valid money judgment of a sister State and refuse to enforce the judgment on the ground that it was based on a penal cause of action.

The Reporter's Note states that in Milwaukee Cty. v. M. E. White Co., supra, "the Supreme Court expressly reserved the question whether a sister State judgment for a penalty in the international sense is entitled to full faith and credit." Restatement, supra, at 347. While the opinion of then Associate Justice Stone in Milwaukee County does not squarely decide the question we think it strongly points toward declaring the proposition that these judgments are enforceable under the constitutional mandate that "Full Faith and Credit shall be given in each State to the public Acts, Records, and Judicial Proceedings of every other State." U.S.Const., Art. IV, § 1.

In Milwaukee County plaintiff, a county and citizen of Wisconsin, brought suit in a Federal District Court in Illinois to recover on a $52,165.84 judgment which had been entered against defendant in a Wisconsin court of general original jurisdiction. The judgment was based on taxes assessed against income and included a penalty of 2% For delinquent payment. Id. 296 U.S. at 279-280, 56 S.Ct. 229. The United States Supreme Court held that the judgment of the Wisconsin court was entitled to full faith and credit in its entirety. The Supreme Court's opinion allowed recovery for the 2% Penalty and commented cryptically that "the record does not disclose that the nominal penalty arose under a penal law or is of such a nature as to preclude suit to recover it outside the State of Wisconsin." Id. at 280, 56 S.Ct. at 235. This came after the statement in the preceding paragraph that the court "intimat(ed) no opinion" on the enforceability of a penal obligation. Id. at 279, 56 S.Ct. at 235.

In deciding that the Wisconsin judgment for taxes, including the 2% Penalty, was enforceable, the Supreme Court observed in Milwaukee County that "(a) cause of action on a judgment is different from that upon which the judgment was entered." Id. at 275, 56 S.Ct. at 233. The court noted that recovery on a foreign judgment can be resisted only if (1) the rendering court was without jurisdiction, (2) the obligation had been discharged as by payment, (3) was based on a cause of action for which the forum state had not provided a court or (4) because procured by fraud. Id. at 275-276, 56 S.Ct. 229. The court recited the historic justification for the Full Faith and Credit Clause in the Constitution which created a federal union from 13 previously sovereign states as follows:

* * * The very purpose of the full-faith and credit clause 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. That purpose ought not lightly to be set aside out of deference to a local policy which, if it exists, would seem to be too trivial to merit serious consideration when weighed against the policy of the constitutional provision and the interest of the state whose judgment is challenged. In the circumstances here disclosed no state can be said to have a legitimate policy against payment of its neighbor's taxes, the obligation of which has been judicially established by courts to whose judgments in practically every other instance it must give full faith and credit. (296 U.S. 276-277, 56 S.Ct. at 234)

The Supreme Court in Milwaukee County placed substantial reliance on a case decided a year before by our then highest State court, New York v. Coe, 112 N.J.L. 536, 172 A. 198 (E. & A. 1934), in deciding that the Wisconsin judgment for taxes was fully enforceable. Supra, 296 U.S. at 279-280, 56 S.Ct. 229. The Coe case does not squarely decide the civil tax penalty question but strongly...