Quarles v. Miller, 95-1929

• Decision Date: 10 June 1996
• Docket Number: No. 95-1929,95-1929
• Citation: 86 F.3d 55
• Parties: Frederick H. QUARLES, Plaintiff-Appellant, v. Hugh O. MILLER; Lawrence W. Burks, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 55

86 F.3d 55

Frederick H. QUARLES, Plaintiff-Appellant, v. Hugh O. MILLER; Lawrence W. Burks, Defendants-Appellees.

No. 95-1929.

United States Court of Appeals, Fourth Circuit.

Argued April 5, 1996.

Decided June 10, 1996.

ARGUED: Roy David Bradley, Madison, Virginia, for Appellant. Francis McQuaid Lawrence, St. John, Bowling & Lawrence, Charlottesville, Virginia, for Appellees.

Before RUSSELL and MOTZ, Circuit Judges, and LAY, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, sitting by designation.

Affirmed by published opinion. Judge MOTZ wrote the opinion, in which Judge RUSSELL and Senior Judge LAY joined.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

The sole issue presented in this appeal is whether a final state court judgment obtained by a foreign corporation is void and thus subject to collateral attack because the corporation transacted business in Virginia without the certificate of authority required by state law. The bankruptcy court found, and the district court upheld the finding, that the final state court judgment was not for this reason subject to collateral attack as void. We affirm.

I.

In 1986, Hugh O. Miller, as vice president of Colonial Electric Company, executed a contract in Charlottesville, Virginia with Frederick H. Quarles, in his capacity as vice president of Commonwealth Capital Corporation. Commonwealth agreed to arrange financing for Colonial's real estate project in Hilton Head, South Carolina, and paid Quarles $65,000 in connection with the project. Colonial is a South Carolina corporation, which has never obtained a certificate of authority to transact business in Virginia.

When Commonwealth failed to fulfill Colonial's expectations, Miller and Lawrence H. Burks (hereafter appellees), individually and as assignees of Colonial, filed suit against Commonwealth and Quarles in Charlottesville Circuit Court. The appellees obtained a judgment against Commonwealth but not against Quarles personally. All parties appealed. The Virginia Supreme Court held that in addition to Commonwealth's liability, Quarles was personally liable to the appellees. See Miller v. Quarles, 242 Va. 343, 410 S.E.2d 639 (1991).

For this reason, appellees, as judgment creditors, then filed suit against Quarles in the Charlottesville Circuit Court, asserting that he had fraudulently conveyed four properties in an effort to frustrate collection of their judgment. On January 7, 1994, the state court held that Quarles had fraudulently conveyed the properties and entered an order directing the sale of those properties. During the next two months, Quarles filed three separate lawsuits against the appellees, all relating to the Hilton Head project, and the third requesting an injunction against the sale of these properties.

In October, 1994, when no relief was forthcoming from the state court, Quarles filed a Chapter 11 bankruptcy petition. The bankruptcy court lifted the automatic stay to allow the parties to complete their litigation in state court and to permit Quarles' properties to be sold pursuant to the January 7, 1994 Charlottesville Circuit Court order. On January 2, 1995, Quarles amended his state court pleadings to claim that the judgment against him was void because Colonial never obtained a certificate of authority to transact business in Virginia. This argument had never been previously asserted. On January 18, 1995, the state court denied Quarles' request to enjoin the scheduled sale of his properties.

Quarles filed an adversary proceeding in the bankruptcy court to contest the validity of the appellees' judgment. In a well reasoned opinion, the bankruptcy court (Anderson, J.) granted appellees summary judgment, holding that the state court judgment is not subject to collateral attack as void, and so refusing to invalidate the lien and block the confirmation of the foreclosure of Quarles' real property. In an equally careful opinion, Judge James H. Michael, Jr. affirmed that decision and dismissed the appeal. ^*

II.

Quarles seeks to lodge a collateral attack on a final state court judgment. It is well established that "[i]n the absence of fraud, accident or surprise, a judgment, when entered and no appeal taken, is conclusive, even though the judgment is manifestly wrong in law or fact." Carpenter v. Ingram, 152 Va. 27, 146 S.E. 193, 195 (1929). "A void judgment is one that has been procured by extrinsic or collateral fraud, or entered by a court that did not have jurisdiction over the subject matter or the parties." Rook v. Rook, 233 Va. 92, 353 S.E.2d 756, 758 (1987) (citations omitted).

Although Quarles does not allege fraud, or contest the state court's jurisdiction over the parties or the subject matter, he still maintains that the state court judgment is unenforceable. Quarles asserts that appellees obtained their judgment against him in violation of a Virginia statute, Virginia Code § 13.1-758, which provides that a foreign corporation doing business in Virginia may not maintain an action in a Virginia court until it has obtained a certificate of authority. See Va.Code Ann. § 13.1-758 (Michie 1993). This statute, he claims, makes the state court judgment "not simply voidable, but absolutely void, since it was obtained in violation of Virginia State law." Brief of Appellants at 3.

Section 13.1-758 provides in pertinent part:

§ 13.1-758. Consequences of transacting business without authority.

A. A foreign corporation transacting business in this Commonwealth without a certificate of authority may not maintain a proceeding in any court in this Commonwealth until it obtains a certificate of authority.

B. The successor to a foreign corporation that transacted business without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding based on that cause of action in any court in this Commonwealth until the foreign corporation or its successor obtains a certificate of authority.

C. A court may stay a proceeding commenced by a foreign corporation, its successor, or assignee until it determines whether the foreign corporation or its successor requires a certificate of authority. If it so determines, the court shall further stay the proceeding until the foreign corporation or its successor obtains the certificate.

...

* * *

E. Notwithstanding subsections A and B of this section, the failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this Commonwealth.

Thus, although § 13.1-758 provides that a court may stay ongoing proceedings to determine if a foreign corporation has obtained the required certificate, the statute does not suggest that a final judgment that is obtained by a foreign corporation transacting business without a certificate can be enjoined on this basis.

Nevertheless, Quarles maintains that Colonial's failure to comply with § 13.1-758 was an illegal act, which renders the judgment against him void. His sole authority for this position is Moore v. Northern Homes of Pa., 80 F.R.D. 278 (W.D.Va.1978). In Moore, the plaintiff moved to dismiss a counterclaim filed by the defendant foreign corporation, because the corporation had not obtained a certificate of authority. The plaintiff's motion relied on Virginia Code § 13.1-119 (repealed 1986), a predecessor to § 13.1-758. The corporation maintained the plaintiff had waived the right to make this motion because it had failed to do so in the time required by the Fed.R.Civ.P. 12(h). Because Moore was a diversity case, the district court looked to state law to determine if the motion to dismiss was timely. See Woods v. Interstate Realty Co., 337 U.S. 535, 69 S.Ct. 1235, 93 L.Ed. 1524 (1949); Rock-Ola Mfg. Corp. v. Wertz, 249 F.2d 813 (4th Cir.1957). After examining Virginia law, the district court concluded that the motion was timely; that the plaintiff's reliance upon § 13.1-119 was a defense that could be raised at any time during ongoing litigation without being waived. Id. at 282.

In reaching this conclusion, the Moore court relied on two Virginia cases. In the first, Video Eng'g Co. v. Foto-Video Elecs., Inc., 207 Va. 1027, 154 S.E.2d 7 (1967), the trial court had dismissed an action because the plaintiff did not obtain a certificate of authority until after the initiation of its lawsuit. The Virginia Supreme Court reversed, explaining "[w]hen plaintiff obtained a certificate of authority to engage in business in Virginia after instituting this action, the barrier set out in Code § 13.1-119 was removed and plaintiff was afforded access to the court below to continue its action against the defendant." Id., 154 S.E.2d at 9-10. The second case upon which the Moore court relied, Phlegar v. Virginia Foods, Inc., 188 Va. 747, 51 S.E.2d 227 (1949) held a plaintiff's failure to comply with a similar statute requiring a certificate of authority to do business under an assumed name:

... does not render the cause of action illegal. It is not the right to begin the action, but the right to maintain it, that is withheld for failure to comply with its terms. It takes no right away from the offending party after compliance. When its terms are met, the barriers theretofore existing are removed.

Id., 51 S.E.2d at 229-30.

After quoting these cases, the Moore court made the following statement, upon which Quarles heavily relies:

It is clear from the language of the decisions quoted above that the prohibition of non-complying corporations maintaining lawsuits in Virginia courts is not so much a defense available to a litigant's...