Docrx, Inc. v. Emi Servs. of N.C., LLC.

• Decision Date: 12 June 2014
• Docket Number: No. 75PA13.,75PA13.
• Citation: 758 S.E.2d 390
• Court: North Carolina Supreme Court
• Parties: DOCRX, INC. v. EMI SERVICES OF NORTH CAROLINA, LLC.

758 S.E.2d 390

DOCRX, INC.

v.EMI SERVICES OF NORTH CAROLINA, LLC.

No. 75PA13.

Supreme Court of North Carolina.

June 12, 2014.

On discretionary review pursuant to N.C.G.S. § 7A–31 of a unanimous decision of the Court of Appeals, ––– N.C.App. ––––, 738 S.E.2d 199 (2013), vacating an order entered on 6 February 2012 by Judge W. David Lee in Superior Court, Stanly County, and remandingfor further proceedings. Heard in the Supreme Court on 7 January 2014.

Henson & Talley, LLP, Greensboro, by Karen Strom Talley and Perry C. Henson, Jr., for plaintiff-appellee.

Chapman Law Group, PLC, by Avery S. Chapman, pro hac vice; and Tin, Fulton, Walker & Owen, PLLC, by Sam McGee, Charlotte, for defendant-appellant.

PARKER, Chief Justice.

The issue in this case is whether the Court of Appeals erred by holding that the Full Faith and Credit Clause precludes the use of intrinsic fraud to defeat a foreign monetary judgment pursuant to North Carolina's Uniform Enforcement of Foreign Judgment Act and N.C.G.S. § 1A–1, Rule 60(b)(3). For the reasons stated herein, we modify and affirm the decision of the Court of Appeals.

DocRx, Inc. (plaintiff), an Alabama corporation, filed a breach of contract action against EMI Services of North Carolina, LLC (defendant) in Mobile County, Alabama on 6 August 2010. The complaint alleged that defendant failed to pay plaintiff the agreed upon commission from defendant's pharmaceutical sales under a contract the parties entered on 28 June 2010. Specifically, the complaint alleged that defendant failed to pay plaintiff “25% of all net profits of [defendant's] sales made of products supplied ... by [an intermediate company]” located by plaintiff. The complaint sought, inter alia, “compensatory damages, plus interest and costs” but did not allege a specific monetary amount of damages. Defendant did not respond to the complaint, and an initial default judgment was entered on 24 September 2010.

During the default proceedings in Alabama, Brian Ward (Ward), the President and CEO of plaintiff corporation, filed an affidavit with the court in which he stated that defendant sold 3,504 units “for $500 per unit, for a total profit of $475 per unit.” Plaintiff's counsel filed a Motion To Enter Default Judgment Amount adopting Ward's statement. Plaintiff's counsel calculated that defendant's total net profits for the sale of the units was $1,664,400 and that plaintiff was entitled to a commission payment of $416,100, which represented 25% of defendant's total net profits. Plaintiff's counsel also alleged that plaintiff was entitled to recover reasonable attorneys' fees in the amount of $12,587.14 and interest on the breach of contract claim in the amount of $24,996. On 1 April 2011, the Circuit Court of Mobile County, Alabama entered a second default judgment against defendant for $453,683.14 (the Alabama judgment).

On 2 August 2011, plaintiff filed a Request To File Foreign Judgment in the Superior Court in Stanly County, North Carolina. Plaintiff presented a certified copy of the Alabama judgment. On 25 August 2011, defendant filed a Motion For Relief From And Notice Of Defense To Foreign Judgment. Defendant argued, inter alia, that the Alabama judgment was obtained by extrinsic fraud. On 2 December 2011, plaintiff filed a Motion To Dismiss Defendant's Defense Of Extrinsic Fraud Pursuant To Rule 12(b)(6) Of The North Carolina Rules Of Civil Procedure and a Motion To Enforce Foreign Judgment As A North Carolina Judgment.

Defendant filed an Amended Motion For Relief From And Notice Of Defense To Foreign Judgment on 17 January 2012 in which it added defense based on fraud, pursuant to N.C.G.S. § 1A–1, Rule 60(b). Defendant argued that Ward and plaintiff's counsel falsely inflated the amount of damages owed plaintiff in their respective filings in Alabama. In support of its motion, defendant submitted an affidavit of Douglas R. Smith, Jr. (Smith), a representative of defendant. In his affidavit Smith stated that Ward and plaintiff's counsel knew their statements regarding the amount of damages were false because of emails Ward sent defendant. Smith alleged that on 18 June 2010, Ward sent two emails to defendant wherein he acknowledged that the selling price per unit was $67, not $500 as alleged by Ward and plaintiff's counsel. Smith further alleged that Ward and plaintiff's counsel knew that their statements were false because on 12 July 2010, Ward sent an email to defendant wherein he acknowledged the selling price per unit to pharmacies and wholesalers was $45. Ward's emails were attached as exhibits to Smith's affidavit.

On 30 January 2012, Ward and plaintiff's counsel both filed affidavits in opposition to defendant's Amended Motion For Relief From And Notice Of Defense To Foreign Judgment. In his affidavit Ward stated that the emails dated 18 June 2010 predated the contract between plaintiff and defendant and referred to pharmaceutical sales that took place prior to the execution of the Agreement. Ward further alleged that the email dated 12 July 2010 referred to a rate that was established for plaintiff's clients during the initial business relationship between the parties.

The trial court heard the matter on 30 January 2012 and entered an order denying plaintiff's motion to enforce the Alabama judgment as a judgment of the State of North Carolina on 6 February 2012. In its order the trial court first determined that the affidavits and exhibits submitted by defendant supported defendant's argument that plaintiff obtained the Alabama judgment as a result of fraud. The trial court then stated that under N.C.G.S. § 1C–1703(c), a provision of North Carolina's Uniform Enforcement of Foreign Judgments Act (UEFJA), the Alabama judgment was “ ‘subject to the same defenses as a judgment of this State.’ ” The trial court explained that under Rule 60(b)(3) of the North Carolina Rules of Civil Procedure, relief from enforcement of a judgment was available if the trial court determined “that there was ‘fraud (whether heretofore denominated intrinsic or extrinsic ), misrepresentation, or other misconduct of an adverse party.’ ” Finally, the trial court concluded that “in accordance with NCRCP 60(b)(3) the intrinsic fraud, misrepresentation and misconduct of the plaintiff in obtaining the underlying Alabama judgment precludes enforcement of the Alabama judgment as a judgment of this State.” Plaintiff gave timely notice of appeal to the Court of Appeals.

On appeal plaintiff argued that the trial court erred in denying its motion to enforce the Alabama judgment as a judgment of the State of North Carolina, contending that under the Full Faith and Credit Clause of the United States Constitution a state may only deny enforcement of a sister state's judgment for extrinsic fraud, not intrinsic fraud.

The Court of Appeals vacated the trial court's order denying enforcement of the Alabama judgment and remanded for further proceedings. DOCRX, Inc. v. EMI Servs. of N.C., LLC, ––– N.C.App. ––––, ––––, 738 S.E.2d 199, 204 (2013). The court below recognized that the interplay among the Full Faith and Credit Clause, N.C.G.S. § 1A–1, Rule 60(b), and our UEFJA is an issue of first impression in this State. Id. at ––––, 738 S.E.2d at 201–02. The Court of Appeals noted that “[t]raditionally, foreign judgments have been subject to attacks on limited grounds,” requiring a showing “that the court lacked jurisdiction, or that the judgment was procured through fraud.” Id. at ––––, 738 S.E.2d at 201 (emphasis and quotation marks omitted) (citing Thomas v. Frosty Morn Meats, Inc., 266 N.C. 523, 146 S.E.2d 397 (1966)). The court also recognized that the UEFJA, enacted in 1989, states, in pertinent part, that a foreign judgment “ ‘has the same effect and is subject to the same defenses as a judgment of this State and shall be enforced or satisfied in like manner[.]’ ” Id. at ––––, 738 S.E.2d at 202 (brackets in original) (quoting N.C.G.S. § 1C–1703(c) (2011)). The Court of Appeals acknowledged that the plain language of the UEFJA would seem to allow a foreign judgment debtor to utilize any defense applicable to a domestic judgment, such as Rule 60(b). Id. at ––––, 738 S.E.2d at 202.

However, relying on cases from Utah, Montana, and Colorado that have interpreted similar statutes, the court below held that in North Carolina “ ‘the remedies available under Rule ... 60 are limited by the Full Faith and Credit Clause of the United States Constitution when a foreign judgment is at issue.’ ” Id. at ––––, 738 S.E.2d at 202–03 (quoting Bankler v. Bankler, 963 P.2d 797, 799–800 (Utah Ct.App.1998)). The court adopted the rule articulated by the Colorado Court of Appeals in Craven v. Southern Farm Bureau Casualty Insurance Co., 117 P.3d 11, 14 (Colo.App.2004), and then concluded that “intrinsic fraud, misrepresentation and misconduct” were not sufficient grounds under the Full Faith and Credit Clause to deny plaintiff's motion to enforce the Alabama judgment. Id. at ––––, 738 S.E.2d at 203. This Court allowed defendant's petition for discretionary review.

Before this Court defendant argues that the Full Faith and Credit Clause does not limit attack on fraudulent foreign judgments to those obtained by extrinsic fraud. Defendant contends that the decision of the Court of Appeals improperly gives foreign judgments more deference than domestic judgments because a foreign judgment cannot be attacked for intrinsic fraud under Rule 60(b) and the UEFJA, but a domestic judgment can be attacked on such grounds. We disagree.

The central issue in this case is whether the Full Faith and Credit Clause requires North Carolina courts to enforce the Alabama monetary judgment. This issue involves a question of law, which we review de novo. State v. Cox, 367 N.C. 147, 151, 749 S.E.2d 271, 275 (2013).

To determine this issue, we look first to the language of the Full Faith and Credit Clause and the United States Supreme Court's jurisprudence interpreting this...