City of Philadelphia v. Austin

• Decision Date: 18 May 1981
• Citation: 429 A.2d 568,86 N.J. 55
• Parties: CITY OF PHILADELPHIA, Plaintiff-Respondent, v. Lucy I. AUSTIN, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 55

86 N.J. 55

429 A.2d 568

CITY OF PHILADELPHIA, Plaintiff-Respondent, v. Lucy I. AUSTIN, Defendant-Appellant.

Supreme Court of New Jersey.

Argued Oct. 6, 1980.

Decided May 18, 1981.

William S. Ruggierio, Marlton, for defendant-appellant (Ruggiero & Freeman, Marlton, attorneys).

Charles Crabbe Thomas, Woodbury, for plaintiff-respondent.

John L. McGoldrick, Newark, submitted a brief on behalf of amicus curiae New Jersey Car and Truck Rental and Leasing Association (McCarter & English, Newark, attorneys; John L. McGoldrick and Roslyn S. Harrison, Newark, on brief).

The opinion of the Court was delivered by

POLLOCK, J.

The primary issue in this case is whether the courts of New Jersey must extend full faith and credit to a Pennsylvania civil court judgment for a fine for failure to file tax returns required by the Philadelphia Wage Tax Ordinance. A related question is whether the courts of New Jersey will enforce the judgment as a matter of comity.

The Burlington County District Court found that the judgment was entitled to full faith and credit and granted a motion for summary judgment for Philadelphia. 171 N.J.Super. 118, 407 A.2d 1294 (1979). We granted direct certification on our own motion. 82 N.J. 518, 414 A.2d 960 (1980). We affirm for the reasons set forth in this opinion.

Defendant Austin is a New Jersey resident who worked from 1967-1974 at the Frankford Arsenal, a federal enclave in Philadelphia. She did not file any returns or pay any of the taxes required by the Philadelphia Wage Tax Ordinance for those years. Under the Ordinance, a person who fails to file a return is subject, in addition to interest of 1/2% and a penalty of 1% per month, to a fine of not more than $300 and imprisonment for not more than 90 days. Philadelphia Code § 19-508. The sole subject of this litigation is the enforceability in New Jersey of a civil judgment rendered in the Philadelphia Court of Common Pleas for one $300 fine for each of the eight years that Mrs. Austin failed to file a return, for a total of $2400.

Attempts by Philadelphia to collect its wage tax from New Jersey residents have a long litigation history. City of Philadelphia v. Smith, 82 N.J. 429, 431-432, 413 A.2d 952 (1980). In Smith, we determined that the civil penalty of 1% per month was not punishment, but compensation for the expense of collecting the delinquent taxes. Id. at 433, 413 A.2d 952. We held, therefore, that the Full Faith and Credit Clause required New Jersey to recognize a Pennsylvania judgment that imposed a civil penalty of 1% per month. Nonetheless, we left unresolved whether the $300 fine, if reduced to a judgment, must be enforced by the courts of New Jersey. City of Philadelphia v. Smith, supra, 82 N.J. at 434, 413 A.2d 952.

I

The initial hurdle to enforcement in New Jersey of the judgment in this case is the "penal exception" to the Full Faith and Credit Clause. Philadelphia acknowledges that the Ordinance underlying the judgment is a penal law, but contends that the penal exception to the Full Faith and Credit Clause does not preclude enforcement of the judgment.

Our analysis begins with the United States Constitution which provides 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. The language of the clause is so broad that a literal reading would demand enforcement of the judgment at issue in this case. The congressional act implementing that constitutional provision apparently buttresses that approach: "(J)udicial proceedings ... shall have the same full faith and credit in every court within the United States ... as they have by law and usage in the courts of such State ... from which they are taken." 28 U.S.C.A. § 1738 (1966).

The purpose of the Full Faith and Credit Clause was to alter the status of the states as independent sovereigns and to integrate them into a single nation in which a party could enforce a just claim regardless of its state of origin. Milwaukee County v. M. E. White Co., 296 U.S. 268, 276-277, 56 S.Ct. 229, 233-34, 80 L.Ed. 220 (1935). Consequently, the goal of the Full Faith and Credit Clause was that a judgment would be as conclusive in every state as in the state where the judgment was rendered. Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 438, 64 S.Ct. 208, 213, 88 L.Ed. 149 (1943). See Hampton v. M'Connel, 16 U.S. 234 (3 Wheat.), 4 L.Ed. 378 (1818).

An exception to the sweep of the language developed early in the interpretation of the clause. Known as the "penal exception," it grew from a laconic statement by Chief Justice Marshall: "The courts of no country execute the penal laws of another." The Antelope, 23 U.S. 66, 123 (10 Wheat.), 6 L.Ed. 268 (1825).

Neither The Antelope nor the subsequent cases interpreting the penal exception involved the enforcement of state tax laws. As the penal exception developed, however, it encompassed the enforcement of civil money claims in favor of a governmental entity. In Wisconsin v. Pelican Ins. Co., 127 U.S. 265, 8 S.Ct. 1370, 32 L.Ed. 239 (1888), the Court declined to exercise original jurisdiction over the enforcement of a judgment recovered against a Louisiana insurance company by the State of Wisconsin in a Wisconsin court. The judgment was entered in a civil suit to recover a penalty for the failure to file an annual statement of financial condition. Underlying the Pelican Insurance decision was the principle that the Court could exercise original jurisdiction only when the action would be entertained by the courts of the state of citizenship of the defendant. Because the penal exception precluded enforcement of the judgment in the courts of Louisiana, the Court ruled that it could not exercise original jurisdiction. Id. at 291, 8 S.Ct. at 1374; R. Leflar, American Conflicts Law, § 75 at 751 (3 ed. 1977). In defining the penal exception, the Court wrote that the exception "applie(d) not only to prosecutions and sentences for crimes and misdemeanors, but to all suits in favor of the State for the recovery of pecuniary penalties for any violations of its statutes for the protection of its revenue, or other municipal laws, and to all judgments for such penalties." Pelican Ins. Co., supra, 122 U.S. at 290, 8 S.Ct. at 1374. Although the reference to revenue laws was dictum, the decision resulted in the denial of full faith and credit to claims for taxes for almost fifty years. See, e. g., Moore v. Mitchell, 30 F.2d 600, 602 (2 Cir. 1929); Restatement of Conflict of Laws § 443 Comment a, Illustration 2 (1934).

The accepted definition of a penal law appears in another non-tax case:

The question whether a statute of one State, which in some aspects may be called penal, is a penal law, in the international sense, so that it cannot be enforced in the courts of another State, depends upon the question whether its purpose is to punish an offense against the public justice of the State, or to afford a private remedy to a person injured by the wrongful act. (Huntington v. Attrill, 146 U.S. 657, 673-674, 13 S.Ct. 224, 229-30, 36 L.Ed. 1123 (1892).)

Thus, punishment of a public offense is an essential characteristic of a penal law.

In an attempt to avoid liability on out-of-state judgments for unpaid taxes, some delinquent taxpayers sought to analogize the enforcement of a claim for taxes to punishment of a public offense. The United States Supreme Court has rejected the analogy. Milwaukee County, supra, 296 U.S. at 279, 56 S.Ct. at 235. In Milwaukee County, the Court determined that in a suit in Illinois, full faith and credit should be accorded to a Wisconsin judgment for over $3,000 of unpaid corporate income taxes together with interest and a 2% penalty. Describing the 2% penalty as "nominal," the Court concluded that the penalty was not "of such a nature to preclude suit to recover it outside the state of Wisconsin." Id. at 280, 56 S.Ct. at 235. Citing Huntington and Pelican Insurance, supra, the Court expressly reserved the question whether full faith and credit must be given to a judgment for an obligation created by a penal law in the international sense "even though a suit for the penalty before reduced to judgment could not be maintained outside of the state where imposed." Id. at 279, 56 S.Ct. at 235; Restatement (Second) of Conflict of Laws, § 120 Comment d, Reporter's Note to Comment d (1971). Nonetheless, the import of Milwaukee County was that the mere fact that a tax claim was asserted by a governmental entity did not invoke the penal exception.

In this case, the civil judgment arises out of a fixed dollar penalty unrelated to the amount of the tax claim. Consequently, our concern is whether the punitive nature of this penalty justifies the denial of full faith and credit to a judgment from a sister state. Neither the United States Supreme Court nor this Court has ever squarely decided whether to deny full faith and credit to a money judgment of another state on the ground that it was based on a penal claim. See Restatement (Second) of Conflict of Laws, § 120 Comment d (1971). Thus, the question becomes whether the penal exception to the Full Faith and Credit Clause applies to a civil money judgment based on a $300 penalty for failure to file an income tax return. In resolving that question, we shall consider the judgment and the underlying claim.

We recognize that the reduction of the penalty to a civil judgment is a significant change in its status. That metamorphosis diminishes the penal nature of the claim and enhances the enforceability of the judgment under the Full Faith and Credit Clause. As the Milwaukee County Court wrote, "(a) cause of action on a judgment is different from that upon which the judgment was entered." Milwaukee County, supra, 296 U.S. at 275, 56 S.Ct. at 233. The Court recognized that, although one state might refuse to enforce the revenue laws of another state, a different result should...