Hawes v. Reilly

• Decision Date: 24 May 2018
• Docket Number: No. 2015–250–Appeal. (NC 14–148),2015–250–Appeal. (NC 14–148)
• Citation: 184 A.3d 661
• Parties: George T. HAWES v. Daniel P. REILLY
• Court: Rhode Island Supreme Court

184 A.3d 661

George T. HAWES

v.Daniel P. REILLY

No. 2015–250–Appeal. (NC 14–148)

Supreme Court of Rhode Island.

May 24, 2018

For Plaintiff: Michael S. Pezzullo, Esq.

For Defendant: Brandon S. Bell, Esq.

Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.

Justice Robinson, for the Court.

The plaintiff, George T. Hawes, appeals from a May 4, 2015 final judgment entered in the Newport County Superior Court. That judgment was entered to reflect an April 27, 2015 written decision in which the hearing justice quashed an execution previously issued by the Rhode Island Superior Court on a State of Utah District Court judgment and dismissed the plaintiff's petition to enforce the Utah judgment, on the grounds that Utah did not have personal jurisdiction over the defendant, Daniel P. Reilly.¹ On appeal, the plaintiff contends that the hearing justice erred in refusing to grant full faith and credit to the order of the Utah District Court with respect to personal jurisdiction. He further avers that the hearing justice erred in determining that Utah did not have personal jurisdiction over Daniel. Lastly, he posits that Daniel "forfeited the defense of lack of personal jurisdiction."

For the reasons set forth in this opinion, we affirm the judgment of the Superior Court.

IFacts and Travel

The facts of the case before this Court are somewhat complicated but are not materially in dispute. In relating those facts in this opinion, we rely primarily on the March 16, 2010 complaint filed in state court in Utah, the April 27, 2015 decision of the Rhode Island Superior Court in the instant case, and other documents in the record.

A company named InnerLight Holdings, Inc. (InnerLight), with its principal place of business in Utah, hired William Reilly (Daniel's father) to act as their corporate counsel for the purpose of obtaining authorization from the United States Securities and Exchange Commission (SEC) to publicly trade InnerLight stock. Ultimately, however, InnerLight did not receive final authorization from the SEC to trade its shares publicly.

In its March 16, 2010 First Amended Complaint filed in the State of Utah District Court, InnerLight represented that it had agreed to pay William with 650,000 shares of InnerLight stock and had agreed to let him hold an additional 600,000 shares, to be transferred after InnerLight became a public company. InnerLight further alleged that William, in the process of acting as InnerLight's corporate counsel, transferred 700,000 shares without permission through several corporate entities—Ashworth Development, LLC (Ashworth); Doylestown Partners, Inc. (Doylestown); Shamrock Equities, Inc. (Shamrock); and Beachview Associates, Inc. (Beachview) (collectively, the corporate entities). Of significance is the fact that, according to his affidavit filed in Rhode Island Superior Court, Daniel was a minority shareholder in Doylestown, Shamrock, and Beachview, as well as being the secretary of Doylestown and Beachview and the Vice President of Shamrock.² Mr. Hawes ultimately purchased shares of InnerLight stock that had purportedly been transferred by William to the corporate entities. Mr. Hawes also purchased warrants.³ InnerLight then rescinded the stock offerings, but Mr. Hawes did not receive a refund for the shares he had purchased.

On March 16, 2010, InnerLight filed its previously mentioned First Amended Complaint in state court in Utah against William, Daniel, Shannon, the corporate entities, Mr. Hawes, and other investors who had purchased shares of InnerLight stock.⁴ Thereafter, Mr. Hawes answered the complaint. Included in his answer was a cross-claim against William, Daniel, Shannon, and the corporate entities, as well as other parties.⁵ On June 29, 2010, Daniel, Shannon, and the corporate entities filed a motion to dismiss InnerLight's First Amended Complaint in state court in Utah on the ground that Utah did not have personal jurisdiction over them;⁶ in addition, both sides filed memoranda of law with respect to that motion. Daniel's Utah counsel subsequently withdrew, and neither Daniel nor counsel representing him were present at the hearing on the motion to dismiss. The Utah District Court then denied the motion to dismiss in a brief order which stated that "Innerlight made a prima facie showing by pleading sufficient facts to establish that this Court may exercise personal jurisdiction over each of the non-resident Defendants." They then continued not to appear in the state court, and they did not engage new counsel. Accordingly, on May 11, 2012, an amended default judgment on Mr. Hawes's cross-claim was entered against Daniel, William, Shannon, and the corporate entities in the amount of $775,000, plus "reasonable expenses, including attorney's fees * * *."

On April 21, 2014, Mr. Hawes filed a "Petition to Enforce a Foreign Judgment" in the Rhode Island Superior Court, seeking enforcement in this jurisdiction of the default judgment from Utah against Daniel. On June 20, 2014, an execution was issued in the amount of $971,351.78. On October 30, 2014, Daniel filed a motion to quash the execution and dismiss the petition for lack of personal jurisdiction in the foreign action.

The hearing justice, after considering the briefings of the parties and after hearing argument, issued a written decision on April 27, 2015. In his written decision, the hearing justice first addressed whether or not he needed to give full faith and credit to the order of the state court in Utah that denied Daniel's motion to dismiss. After a thorough and commendable discussion of the facts and applicable precedent, the hearing justice determined that he would not be obligated to give full faith and credit to the denial of the motion to dismiss because that order was "vague" and did not include any "underlying reasoning." He added that "[i]n this case, it does not seem that a final determination of personal jurisdiction had [been] reached;" and he expressly noted that "[t]he order only states a prima facie showing of personal jurisdiction ha[d] been made." The hearing justice then reviewed Daniel's contacts with Utah and the applicable Utah law and came to the conclusion that Utah did not have personal jurisdiction over Daniel. For that reason, he quashed the execution and dismissed Mr. Hawes's petition. Final judgment subsequently entered on May 4, 2015. Mr. Hawes filed a timely appeal.

IIStandard of Review

In a case which similarly involved the doctrine of full faith and credit, we stated, with respect to the standard of review to be applied, that "this Court will apply a de novo standard of review to questions of law that may implicate a constitutional right." Goetz v. LUVRAJ, LLC , 986 A.2d 1012, 1016 (R.I. 2010).⁷

With respect to issues of personal jurisdiction, we have explained that usually "mixed questions of law and fact, as well as inferences and conclusions drawn from the testimony and evidence presented at trial, are entitled to the same deference as the trial justice's findings of fact, that is, they will not be disturbed on appeal unless it is clearly wrong or otherwise incorrect as a matter of law." Cassidy v. Lonquist Management Co., LLC , 920 A.2d 228, 232 (R.I. 2007) (internal quotation marks omitted). However, we went on in Cassidy to clarify that "when deciding mixed questions of law and fact that involve constitutional issues, our review is de novo ." Id. Therefore, we concluded that "[o]ur review of a challenge to in personam jurisdiction is de novo ." Id. ; see also Cerberus Partners, L.P. v. Gadsby & Hannah, LLP , 836 A.2d 1113, 1117 (R.I. 2003) (stating that "[o]ur review [of the dismissal of a case for failure to make a prima facie showing of personal jurisdiction] is de novo ").

IIIAnalysis

AFull Faith and Credit

Mr. Hawes contends on appeal that the hearing justice erred in granting the motion to quash the execution and dismiss the petition because he did not grant full faith and credit to the order of the Utah District Court denying Daniel's motion to dismiss.

It is clear from our law that, "[i]f a defendant fails to appear after having been served with a complaint filed against him in another state and a default judgment is entered, he may defeat subsequent enforcement in another forum by showing that the judgment was issued from a court lacking personal jurisdiction." Goetz , 986 A.2d at 1016 (internal quotation marks omitted); see also Video Products Distributors, Inc. v. Kilsey , 682 A.2d 1381, 1382 (R.I. 1996).⁸ It is equally clear that, in some situations, "[b]y submitting to the jurisdiction of the court for the limited purpose of challenging jurisdiction, the defendant agrees to abide by that court's determination on the issue of jurisdiction: That decision will be res judicata on that issue in any further proceedings." Insurance Corporation of Ireland, Ltd. v. Compagnie des Bauxites de Guinee , 456 U.S. 694, 706, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982) ; see also Durfee v. Duke , 375 U.S. 106, 109, 84 S.Ct. 242, 11 L.Ed.2d 186 (1963) ("Full faith and credit thus generally requires every State to give to a judgment at least the res judicata effect which the judgment would be accorded in the State which rendered it.").

In the instant case, we are not presented with the first just-mentioned scenario, but we are potentially presented with the second scenario. In this case, Daniel did not simply fail to appear in Utah with a default judgment subsequently being entered against him in that state. Rather, he initially elected to submit to the limited jurisdiction of Utah for the sole purpose of determining personal jurisdiction by filing the motion to dismiss for lack of personal jurisdiction. However, and importantly, his motion to dismiss was denied in a rather brief order issued after he did not appear at the hearing on the motion. He later had a default judgment entered against him on the cross-claim. We are left, therefore, to answer the question of whether, under...