Opinion
No. A-5008-05T5
Submitted April 25, 2007
Decided May 22, 2007
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. DJ-311421-05.
Before Judges Parrillo and Sapp-Peterson.
Guston Guston, attorneys for appellant (Debra E. Guston, on the brief).
Herten, Burstein, Sheridan, Cevasco, Bottinelli, Litt Harz, attorneys for respondent (Scott D. Jacobson, on the brief).
Defendant Ralph Eibert appeals from the Law Division's order denying his motion to vacate default judgment originally entered in a California state court, which was subsequently docketed and recorded in New Jersey pursuant to the Uniform Enforcement of Foreign Judgments Act,N.J.S.A. 2A:49A-25 to -33.
We affirm.
The record discloses that in March 2000, plaintiff Peju Province Winery, a California corporation, entered into a sales contract with Pub Brewing Company, Inc. (PBC), a New Jersey corporation, for the purchase of ten stainless steel tanks for the storage and fermentation of wine. At the time, PBC was in active operation in California with a business address in that state. Defendant was Vice President and part owner of PBC.
Plaintiff became dissatisfied with PBC's performance under the contract. According to plaintiff, by September 2001, PBC had delivered, in an untimely manner, only four of the ten tanks, and these four tanks supposedly had manufacturing deficiencies. On September 20, 2001, after having conducted a personal inspection, PBC made a written offer to repair the four tanks and lower the original contract price by ten percent. After PBC failed to repair the original four tanks or deliver the remaining six tanks, plaintiff filed suit in a California state court on November 19, 2003. In response, on December 12, 2003, defendant, on behalf of PBC, faxed plaintiff a proposal to remedy any deficiencies in the four tanks that were delivered. In reliance on defendant's promises, the parties entered into a settlement agreement, which defendant signed on PBC's behalf, and plaintiff withdrew its complaint.
According to plaintiff, PBC again failed to perform as promised, neither repairing the four existing tanks nor delivering the remaining six. Evidently, PBC was experiencing financial difficulty and in April 2005 filed a Chapter 11 bankruptcy petition, which was later converted to a Chapter 7 liquidation. Supposedly unaware of the bankruptcy filing, plaintiff filed a second breach of contract lawsuit against PBC on June 13, 2005 in California state court, this time adding new claims against defendant individually, including breach of the implied covenant of good faith and fair dealing, and fraud. The latter claim alleged that defendant had fraudulently entered into the 2003 settlement agreement knowing that PBC could not perform financially and was actually filing for bankruptcy.
On June 24, 2005, plaintiff served both PBC and defendant by certified mail, return receipt requested, the latter addressed to "Ralph Eibert V.P." at PBC's New Jersey corporate offices. Defendant acknowledged receipt of the summons and complaint, both individually and on behalf of PBC. Because of PBC's bankruptcy filing, after service had been effected, plaintiff took no further action against the company.
Defendant did not respond to the complaint and on August 4, 2005, default was entered against him. Plaintiff provided defendant notice of that action and proceeded to seek default judgment. A proof hearing was conducted on October 5, 2005 and after hearing testimony and reviewing documents, the court entered judgment against defendant in the amount of $63,883. On October 18, 2005, plaintiff notified defendant of the entry of judgment. On October 27, 2005, the court assessed costs against defendant in the amount of $3,697 and on the same day, plaintiff mailed defendant the court's memorandum of costs.
On November 22, 2005, plaintiff docketed the California judgment in New Jersey pursuant to the Uniform Enforcement of Foreign Judgments Act. On November 28, 2005, the Office of the Clerk of the Superior Court of New Jersey notified defendant of the New Jersey action by regular mail. Four months later, on March 31, 2006, defendant filed a motion in the Law Division to vacate the California domesticated default judgment. At the May 5, 2006 motion hearing, defendant argued that the California default judgment was not enforceable in New Jersey because, lacking minimum contacts with the state, California lacked personal jurisdiction over him. The motion judge rejected that argument, finding sufficient minimum contacts to establish personal jurisdiction:
The full faith and credit clause guarantees that litigation pursuant to a judgment shall be conclusive of the rights of the parties in every other Court in the [State] as where the judgment was rendered.
Additionally, the full faith and credit clause is not operative unless the judgment be founded upon adequate jurisdiction of the parties and subject matter.
No one disputes that Mr. Eibert was a principal participant in the fulfillment of the contract and in the settlement negotiations which persuaded the plaintiff to withdraw the original action filed in 2003.
Through his attorney in California, Eibert petitioned withdrawal proceedings before the Court in California. He was also the promisor with respect to the settlement proposed with the settlement that went . . . that was under the bankruptcy filing in 2005.
Defendant's business activities with regard to this contact was targeted to the State of California, so did the . . . contacts necessary for jurisdiction. The purchase contract was negotiated and implemented in California. Both of the suits . . . were filed in California.
Accordingly, the court denied defendant's motion.
On appeal, defendant does not challenge the court's finding of sufficient minimum contacts to establish personal jurisdiction. Instead, he essentially argues jurisdiction was lacking because of improper service of process and the automatic stay requirements of11 U.S.C.A. § 362. We disagree.
The United States Constitution provides that "[F]ull 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. Accordingly, the Full Faith and Credit Clause as codified by 28 U.S.C.A. § 1738 requires that "judgments of the courts of one state be given the same faith and credit in sister states as they have by law or usage in the state rendering them."State v. Pitner, 42 N.J. 251, 255 (1964); see also Pierrakos v. Pierrakos, 148 N.J. Super. 574, 579 (App.Div. 1977). InPierrakos, we held:
A judgment of a sister state is res judicata as to all matters in issue and determined by the judgment. It is also binding as to all issues necessarily implied in or to be inferred from the judgment in the sense that the judgment could not have been rendered without the finding or determination of such matters, or which might have been litigated and decided as incident to or essentially connected with the subject matter of the foreign suit.
[Pierrakos, supra, 148 N.J. Super. at 579 (citing 50 C.J.S., Judgments, § 891b at 494).]
So long as there is no due process violation, a state is required to provide another state's judgment with the same effect as would be provided in the state that rendered the judgment. Durfee v. Duke,375 U.S. 106, 109-11, 84 S. Ct. 242, 244-45, 11 L. Ed. 2d 186, 190-91 (1963); see Pector v. Meltzer, 298 N.J. Super. 414, 419-20 (App. Div. 1997) ("[I]f the foreign judgment comports with the foreign state's local procedure, it is entitled to full faith and credit in this state, so long as the judgment is not entered in violation of due process of law."). Hence, the appropriate forum for a defendant to raise defenses to a claim is in the tribunal where the judgment was rendered. See Morris v. Jones, 329 U.S. 545, 552, 67 S. Ct. 451, 456,91 L. Ed. 2d 488, 496, reh'g denied, 330 U.S. 854, 67 S. Ct. 858,91 L.Ed. 1296 (1947).
Accordingly, New Jersey courts will enforce the judgments entered by the courts of sister states unless there has been a denial of due process. Sonntag Reporting Serv., Ltd. v. Ciccarelli,374 N.J. Super. 533, 537-38 (App.Div. 2005). In Sonntag Reporting Serv., we explained that a denial of due process occurs when:
[T]he rendering state 1) lacked personal jurisdiction over the judgment debtor, 2) lacked subject matter jurisdiction, [or] 3) failed to provide the judgment debtor adequate notice and an opportunity to be heard.
[Id. at 538 (quoting Choi v. Kim, 50 F.3d 244, 248 (3d Cir. 1995)).]
See also Security Benefit Life Ins. Co. v. TFS Ins. Agency,279 N.J. Super. 419, 423 (App.Div.), certif. denied, 141 N.J. 95 (1995).
Therefore, absent such due process defenses, "litigation pursued [as] to [a] judgment in a sister state is conclusive of the rights of the parties in the courts of every state as though adjudicated therein."Sonntag Reporting Serv., supra, 374 N.J. Super. at 538; DeGroot, Kalliel, Traint Conklin, P.C. v. Camarota, 169 N.J. Super. 338, 343 (App.Div. 1979). Pursuant to the doctrine of res judicata, a litigant is barred from raising any defenses that they could have raised in the forum state.DeGroot, Kalliel, Traint Conklin, P.C., supra, 169 N.J. Super. at 343.
Here, the only due process defense raised below was lack of sufficient contacts to establish personal jurisdiction over defendant. Yet, defendant does not challenge on appeal the motion court's finding to the contrary, which we find to be correct based on the record in this case.See, e.g., Calder v. Jones, 465 U.S. 783, 104 S. Ct. 1482,79 L. Ed. 2d 804 (1984). Instead, defendant now argues, for the first time, lack of personal jurisdiction based on plaintiff's failure to serve him strictly as an "individual." We conclude, however, that service of process in this case did not violate due process principles.
The United States Supreme Court established the rule for adequacy of notice in terms of satisfying the due process clause of the Fourteenth Amendment. Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 70 S. Ct. 652, 94 L.Ed. 865 (1950). "An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections."Mullane, supra, 339 U.S. at 314, 70 S. Ct. at 657, 94 L.Ed. at 873.
Consistent with Mullane, our Supreme Court held that while due process does not specifically require personal service of process or actual notice of the suit, "[s]ervice . . . must be reasonably calculated to inform the defendant of the pendency of the proceedings in order that the defendant may take advantage of the opportunity to be heard in preparing a defense." W.S. Frey Co. v. Heath, 158 N.J. 321, 325 (1999). Thus, service by mail is constitutional, so long as there is some reasonable showing that the notice was received by the party at that address. See First Resolution Inv. Corp. v. Seker, 171 N.J. 502, 514 (2002) ("Service by mail is an efficient and inexpensive way to serve litigants" and consistent with this State's comprehensive due process protections provided to debtors.); N.J. Dist. Court Assoc. v. N.J. Supreme Court, 205 N.J. Super. 582, 589-90 (Law Div. 1985).
Similarly, pursuant to California law, Section 415.40 of California'sCode of Civil Procedure expressly requires that the summons be mailed to a "person to be served". Dill v. Berquist Constr. Co.,29 Cal. Rptr. 2d 746, 752 (Ct.App. 1994). However, in determining whether service was valid, strict compliance is not required; rather, service of process, "should be liberally construed to effectuate service and uphold the jurisdiction of the court if actual notice has been received by the defendant." Dill, supra, 29 Cal. Rptr. at 752 (citing Pasadena Medi-Center Assocs. v. Superior Court, 108 Cal. Rptr. at 828, 832 (1973)). "The liberal construction rule, it is anticipated, will eliminate unnecessary, time-consuming, and costly disputes over legal technicalities, without prejudicing the right of defendants to proper notice of court proceedings." Pasadena Medi-Center Assocs., supra,108 Cal. Rptr. at 832. Therefore, substantial compliance with service rules is sufficient.
Here, defendant received two copies of the summons and complaint, one addressed to PBC, and the other addressed to "Ralph Eibert, V.P." While defendant argues that he was never provided service strictly as an "individual", we find that argument unpersuasive inasmuch as plaintiff substantially complied with the service rules. Indeed, defendant signed for both copies and was reasonably notified of the pending court proceeding against him in which he was individually named as a defendant. Furthermore, defendant does not contest that he received notice of the request to enter default, the entry of judgment, and the fixing of court costs. Under the circumstances, we are satisfied that plaintiff's method of service was reasonably calculated to inform defendant of the pending litigation against him personally and that defendant did in fact receive actual notice of plaintiff's lawsuit. There is, therefore, no due process bar to enforcement of the California judgment. Defendant also seeks relief from the domesticated judgment on the basis of PBC's bankruptcy petition which, he argues, should have operated to automatically stay the California proceedings against him. We disagree.
Pursuant to 11 U.S.C.A. § 362, once an individual or entity files for bankruptcy, the filing acts as an automatic stay of any judicial proceedings. Browning v. Navarro, 743 F.2d 1069, 1083 (5th Cir. 1984). However, the plain language of the statute does not extend the automatic stay to non-debtor co-defendants, such as general shareholders, partners, or officers of the debtor corporation. 11 U.S.C.A. § 362(a)(1); see also Teachers Ins. Annuity Ass'n of Am. v. Butler, 803 F.2d 61, 65-66 (2d Cir. 1986) (denying the stay in proceedings for non-debtor general partners); A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir. 1986) (recognizing the general proposition that11 U.S.C.A. § 362(a)(1) is available only to the debtor, not non-debtor defendants), cert. denied, 479 U.S. 876, 107 S. Ct. 251,93 L. Ed. 2d 1977 (1986); In re Spaulding Composites Co., Inc., 207 B.R. 899 (B.A.P. 9th Cir. 1997); CAE Indus. Ltd. v. Aerospace Holdings Co.,116 B.R. 31, 32 (S.D.N.Y. 1990) (collecting cases where automatic stay extensions were denied to non-debtor co-defendants). Thus, the automatic stay provision of the bankruptcy code provides a safe harbor for PBC and not defendant. Accordingly, there was no bar to plaintiff's proceeding against defendant individually on plaintiff's claim of fraud in connection with allegedly false personal assurances designed to adversely impact plaintiff.
We have considered defendant's additional claims and are satisfied neither of them is of sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.