Ewing Oil, Inc. v. John T. Burnett, Inc. , 441 N.J. Super. 251 ( 2015 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2770-13T1
EWING OIL, INC.,
Plaintiff-Respondent, APPROVED FOR PUBLICATION
June 19, 2015
v.
APPELLATE DIVISION
JOHN T. BURNETT, INC., HENRY A.
JACKSON and C&H TIRE SERVICE
CENTER, INC.,
Defendants,
and
ESTATE OF JOHN T. BURNETT,1
Defendant-Appellant.
_______________________________
Submitted March 16, 2015 - Decided June 19, 2015
Before Judges Lihotz, St. John and
Rothstadt.
On appeal from Superior Court of New Jersey,
Law Division, Monmouth County, Docket No.
DJ-154160-12.
Blumberg & Rosenberg, P.A., attorneys for
appellant (Henry A. Loeb, on the briefs).
1
We have modified the caption to reflect the facts of
record. Specifically, John T. Burnett, an original defendant in
this action passed away on August 13, 2012. His widow, Kathy
Burnett, was appointed executrix of his estate on April 24,
2013. The Estate moved to vacate a foreign judgment entered by
confession against John T. Burnett on December 6, 2013.
Duane Morris, LLP, attorneys for respondent
(Christopher L. Soriano, of counsel and on
the brief).
The opinion of the court was delivered by
LIHOTZ, P.J.A.D.
This matter examines the enforceability of a sister-state
judgment entered pursuant to a cognovit provision contained in a
guaranty agreement against individual guarantors of a corporate
debt. Plaintiff, Ewing Oil Co., Inc., a Maryland Corporation,
sued John T. Burnett, Inc. (JTB, Inc.), a New Jersey
corporation, for payment under a supply agreement. The
corporate obligations were unconditionally guaranteed by
defendants John T. Burnett, Henry A. Jackson, and C&H Tire
Service Center, Inc. (C&H), which collectively operated a retail
gasoline service station with JTB, Inc. in Monmouth County.
Summary judgment was entered against JTB, Inc. and
plaintiff confessed judgment against the guarantors (Maryland
judgment). Thereafter, plaintiff initiated an action in New
Jersey to record the Maryland judgment for purposes of seeking
its enforcement. New Jersey recorded the judgment by default on
July 24, 2012.
Burnett's estate (the Estate), through its executrix, moved
to vacate the default judgment against Burnett, pursuant to Rule
4:50-1(d), asserting pre-judgment notice was not waived and the
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judgment's domestication in New Jersey violated due process.
The Estate also sought to collaterally attack the judgment,
maintaining New Jersey had plenary authority to exercise
jurisdiction over its enforcement, pursuant to the contract's
forum selection clause.
The Law Division denied the motion and the Estate filed
this appeal, reasserting its challenges against New Jersey's
recognition of the foreign judgment. Following review of the
record and applicable law, we reject these arguments and affirm.
These facts are found in the motion record and are not
disputed. On March 18, 2009, plaintiff and JTB, Inc. executed a
ten-year commercial supply agreement (CSA), in which plaintiff
agreed to supply gasoline and other petroleum products to JTB,
Inc. Burnett solely owned JTB, Inc., and Jackson solely owned
C&H. Together the two were partners in the gas station in
Monmouth County.
The CSA included several provisions granting plaintiff
security for JTB, Inc.'s payment. Aside from a $20,000 deposit
to be applied against any outstanding sums owed, plaintiff was
granted a security interest in any products or equipment it
provided to or installed on the gas station's premises. With
respect to the collateral, plaintiff obtained rights of entry
and repossession "in addition to all rights and remedies
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available to [plaintiff] as a secured party under the New Jersey
Uniform Commercial Code and as are otherwise available to [it]
at law or in equity."
The CSA also contained the following forum selection
clause:
This Agreement shall be governed and
construed in accordance with the laws of the
State of Maryland and the courts of the
State of Maryland shall have exclusive
jurisdiction over any claims or
controversies which arise under this
Agreement. However, the courts of the
[S]tate of New Jersey shall have
jurisdiction in connection with any
collection or enforcement action that
[plaintiff], at its option, may elect to
bring. . . .
Further assurances were included in an accompanying
suretyship contract, executed by the individual and corporate
guarantors (Guaranty). The scope of the Guaranty was broad and
encompassed all amounts due and owing by JTB, Inc. under the CSA
for "payments, charges, expenses[,] and costs of every kind and
nature" arising out of or from the CSA. The Guaranty was
executed on the same day as the CSA.
The Guaranty also contained a cognovit provision, which
stated:
3. Waiver of Notices, Confession of
Judgment, Jurisdiction. Without notice to
Guarantor, [plaintiff] may waive or modify
any of the terms of the Agreement relating
to [JTB, Inc.]'s performance without
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discharging or otherwise affecting
Guarantor's obligations hereunder.
Guarantor waives demand, diligence,
presentment, protest[,] and notice of every
kind. Guarantor acknowledges that the
Agreement is governed by Maryland law and
establishes Maryland as the appropriate
jurisdiction for any actions arising out of,
or relating to, the Agreement. Guarantor
also hereby acknowledges, consents[,] and
agrees that the provisions of this Guaranty
and the rights of all parties mentioned
herein shall be governed by the laws of the
State of Maryland and interpreted and
construed in accordance with such laws, and
any court of competent jurisdiction of the
State of Maryland shall have jurisdiction in
any proceeding instituted to enforce this
Guaranty and any objections to venue are
hereby waived. However, the courts of the
[S]tate of New Jersey may have jurisdiction
in connection with any enforcement and/or
collection action that [plaintiff], at its
sole option, may elect to bring in that
state. GUARANTOR FURTHER IRREVOCABLY
AUTHORIZES AND EMPOWERS ANY ATTORNEY-AT-LAW
OR CLERK OF ANY COURT OF COMPETENT
JURISDICTION OF THE STATE OF MARYLAND, OR
ELSEWHERE, TO APPEAR AT ANY TIME FOR
GUARANTOR IF ANY ACTION BROUGHT AGAINST
GUARANTOR ON THIS GUARANTY TO CONFESS OR
ENTER JUDGMENT AGAINST GUARANTOR FOR HIS
OBLIGATIONS UNDER THIS GUARANTY, INCLUDING
COURT COSTS AND REASONABLE ATTORNEYS' FEES.
JTB, Inc. breached its duties and obligations under the
CSA. On June 3, 2011, plaintiff issued a notice of default and
termination of the CSA to JTB, Inc. and the guarantors. The
notice stated $18,205.45 was to be remitted within ten days or
plaintiff would "commence pursuit of available legal remedies."
Neither JTB, Inc. nor the guarantors made payment. By November
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30, 2011, the amount due increased to $225,197.34. Plaintiff
commenced an action in the Circuit Court for Washington County,
Maryland against JTB, Inc. for the outstanding debt along with
attorney's fees.
On December 6, 2011, plaintiff obtained a default judgment
against JTB, Inc. for $258,976.94. The Maryland court also
entered a judgment by confession against Burnett and the other
guarantors on the same day. Personal post-judgment service of
the confessed judgment was effectuated on Burnett; its entry was
not opposed.
The Maryland judgment was recorded in New Jersey on July
24, 2012, under DJ-154160-12. On August 13, 2012, Burnett
passed away. His widow was named executrix. The Estate moved
to vacate entry of the foreign judgment pursuant to Rule 4:50-
1(d), challenging its validity and enforceability.
Following oral argument, Judge Thomas F. Scully denied the
motion, finding the Maryland judgment was entered in accordance
with Maryland procedure and law; Burnett had a fair opportunity
to challenge the validity of the judgment in Maryland, after its
entry, but failed to timely do so; and, in light of the Full
Faith and Credit clause, New Jersey's recognition of a foreign
judgment, entered pursuant to a valid and enforceable cognovit
6 A-2770-13T1
provision, did not violate due process. An order was entered on
January 29, 2014. This appeal followed.
On appeal, the Estate renews the arguments presented before
the Law Division, stating: (1) the absence of pre-judgment
notice violates basic due process and cannot be remedied by an
opportunity to a post-judgment hearing; (2) pre-judgment notice
rights under the cognovit provision of the surety agreement were
not voluntarily, intelligently, and knowingly waived; and (3)
New Jersey is the only forum with jurisdiction to determine
compliance with due process requirements and the enforceability
of the confession of judgment clause, thus allowing the Estate
to assert available meritorious defenses against its
enforcement.
The issues on appeal require legal determinations, subject
to our de novo review. In doing so, we do not defer to "'a
trial court's interpretation of the law and the legal
consequences that flow from established facts.'" Estate of
Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 382 (2010)
(brackets omitted) (quoting Manalapan Realty, L.P. v. Twp. Comm.
of Manalapan, 140 N.J. 366, 378 (1995)).
Whether the Maryland judgment may be registered in New
Jersey implicates the Full Faith and Credit clause of the United
States Constitution, which mandates "Full Faith and Credit shall
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be given in each State to the public Acts, Records, and judicial
Proceedings of every other State." U.S. Const. art. IV, § 1.
The clause requires a foreign judgment "properly entered in
accordance with local procedure is entitled to full faith and
credit in any other state provided . . . the judgment is not
entered in violation of due process of law." Sec. Ben. Life
Ins. Co. v. TFS Ins. Agency, Inc., 279 N.J. Super. 419, 424
(App. Div.) (citation and internal quotation marks omitted),
certif. denied, 141 N.J. 95 (1995). See N.J.S.A. 2A:49A-27.
Thus, any judgment properly executed in a foreign state, which
complies with the requirements of the due process clause is
entitled to full faith and credit in New Jersey. See In re
Triffin, 151 N.J. 510, 524 (1997). On the other hand, a foreign
judgment, entered without providing the necessary protections
safeguarded by the Fourteenth Amendment of the United States
Constitution and the fundamental rights clause of Article 1,
paragraph 1 of the New Jersey Constitution, may not be enforced.
See generally, Greenberg v. Kimmelman, 99 N.J. 552, 568 (1985)
("[A]rticle 1, paragraph 1, like the [F]ourteenth [A]mendment,
seeks to protect against injustice and against the unequal
treatment of those who should be treated alike. To this extent,
[A]rticle 1 safeguards values like those encompassed by the
principles of due process and equal protection.").
8 A-2770-13T1
When viewed through the prism of due process protections, a
foreign judgment will not be entitled to full faith and credit
in New Jersey if a defendant can demonstrate the forum state
lacked personal or subject matter jurisdiction, Tara Enters.,
Inc. v. Daribar Mgt. Corp., 369 N.J. Super. 45, 56 (App. Div.
2004), or if a defendant was denied adequate notice and a
reasonable opportunity to be heard. Sonntag Reporting Serv.,
Ltd. v. Ciccarelli, 374 N.J. Super. 533, 538 (App. Div. 2005).
"[A]bsent such due process defenses, . . . litigation pursued to
judgment in a sister state is conclusive of the rights of the
parties in the courts of every state as though adjudicated
therein." Ibid. (citing DeGroot, Kalliel, Traint & Conklin,
P.C. v. Camarota, 169 N.J. Super. 338, 343 (App. Div. 1979)).
See also Arnold, White & Durkee, P.C. v. Gotcha Covered, Inc.,
314 N.J. Super. 190, 201 (App. Div.) (stating New Jersey courts
are "obliged to recognize a foreign money judgment, unless the
defendant demonstrates that the foreign jurisdiction lacked
personal jurisdiction of defendant, the judgment was obtained by
fraud[,] or was entered contrary to due process"), certif.
denied, 157 N.J. 543 (1998).
Although confessed judgments are viewed with "judicial
distaste" in New Jersey, Ledden v. Ehnes, 22 N.J. 501, 510
(1956), constitutional and public policy challenges against
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their enforcement have been advanced and found legally
untenable. See United Pac. Ins. Co. v. Estate of Lamanna, 181
N.J. Super. 149, 155-56 (Law Div. 1981) ("New Jersey courts have
long recognized foreign judgments by confession and have held
that they are entitled to full faith and credit. . . . No
public policy [in New Jersey] denies recognition to a foreign
judgment by confession."). Rather, the law is clear: "Entry of
judgment based upon a warrant to confess judgment does not . . .
necessarily offend due process, as long as the due process
requirements of reasonable notice and opportunity to be heard
are knowingly and voluntarily waived." Tara Enters., supra, 369
N.J. Super. at 56 (citing Lamanna, supra, 181 N.J. Super. at
156). See also D.H. Overmyer Co. v. Frick Co., 405 U.S. 174,
187, 92 S. Ct. 775, 783, 31 L. Ed. 2d 124, 135 (1972) (holding
confessed judgments are "not, [per se], violative of the
Fourteenth Amendment due process" protections, as reasonable
notice and opportunity to be heard could be waived).
Maryland Court Rule 2-611 governs confessed judgments in
that state. The rule provides such judgments "may be entered by
the circuit court clerk upon the filing of a complaint
accompanied by the original or a copy of the instrument
authorizing the confessed judgment and an affidavit specifying
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the amount due and stating the address of the defendant."
Schlossberg v. Citizens Bank, 341 Md. 650, 655-56 (1996).
Upon entry of a judgment by confession, the
clerk is required to notify the defendant of
the entry of judgment and of the deadline
for filing a motion to "open, modify or
vacate" the judgment. Md. Rule 2-611(b).
If the defendant so moves, the circuit
court must determine whether there is a
"substantial and sufficient basis for an
actual controversy as to the merits of the
action." Md. Rule 2-611(d). In other
words, the court must determine whether the
defendant has a potentially meritorious
defense to the confessed judgment complaint.
The court does not, however, decide the
merits of the controversy at this stage.
[PAUL V. NIEMEYER AND LINDA M. SCHUETT,
Maryland Rules Commentary 466 (4th ed.
2014)]. If the court finds that a basis for
a defense exists, the rule requires the
court to order that the confessed judgment
be opened, modified, or vacated so that the
defendant can file a responsive pleading to
the plaintiff's complaint and the merits can
be determined. Md. Rule 2-611(d).
[Id. at 656.]
Applications to open, modify, or vacate entry of default must be
filed within sixty days of service. See Md. Rule 2-611(d) & 2-
321(b)(1) ("A defendant who is served with an original pleading
outside of the State [of Maryland] but within the United States
shall file an answer within [sixty] days after being served.").
Further, Maryland law does not presuppose a waiver is
valid. In fact, Maryland Rule 2-611(b) requires the trial court
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to determine, among other things, "the pleadings and papers
demonstrate a factual and legal basis for entitlement to a
confessed judgment."
In this matter, the Estate suggests the motion judge erred
in concluding plaintiff fully complied with Maryland procedures
in entering its judgment against Burnett. However, the Estate
does not dispute the same complaint contained separate requests
for judgment against JTB, Inc. and to confess judgment against
the guarantors. The pleading appended all documentation
necessary to identify the rights and responsibilities of the
respective parties. Plaintiff filed and served its complaint
against JTB, Inc. and the other defendants; no response or
objection was filed. Once judgment was entered against the
corporation, plaintiff was free to request relief against the
guarantors.
The Estate also suggests Burnett's waiver of pre-judgment
notice contained in the Guaranty was uncounseled and, therefore,
uninformed. We cannot agree.
There is no statement of personal knowledge by the
executrix stating whether Burnett consulted with legal counsel
prior to executing the CSA or Guaranty. Plaintiff certified
JTB, Inc. defaulted under the CSA and provided the documents
supporting entry of judgment against it. JTB, Inc. never
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challenged the action or the relief sought. Proof of the
Guaranty and its execution by Burnett was also provided to
support judgment under the cognovit provision.
Moreover, the Guaranty is clearly written and its waiver
provisions are boldly identified, as is the confession of
judgment clause. Importantly, plaintiff's action was based on
the Guaranty, not the terms of its CSA with JTB, Inc. See Tara
Enters., supra, 369 N.J. Super. at 59 (holding a guarantee of a
note that contains a cognovit provision alone is insufficient to
permit confession of judgment against the guarantors). Further,
the provision contains a succinct statement that Maryland law
governs enforcement and that any attorney so appointed may enter
judgment against the guarantors.
Maryland law provides:
an evidentiary hearing to determine whether
[the] defendant's waiver was voluntarily,
knowingly, and intelligently made before a
confessed judgment may be entered by the
court. Rather, the burden is on [the]
defendant in its motion to vacate and in any
hearing thereon to set forth fully the
evidence showing either that the alleged
amount owed had no basis in fact (e.g., was
miscalculated) or that the agreement was not
knowingly and voluntarily entered.
[Atl. Leasing & Fin., Inc. v. IPM Tech.,
Inc., 885 F.2d 188, 193 (4th Cir. 1989).]
The Estate has failed to meet this burden. After reviewing
all the documents and considering the executor's certification,
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we find no support for concluding Burnett's execution of the
Guaranty was involuntary or unknowing.
We also reject the Estate's due process challenge. The
Maryland judgment was entered and plaintiff served Burnett,
individually, as mandated by Maryland Rule 2-611(a). The post-
judgment process affords additional notice and an opportunity to
challenge the confessed judgment's validity within sixty days of
its entry. This fully complies with the rigors of due process.
See Tara Enters., supra, 369 N.J. Super. at 56 (recognizing
"[i]n certain contexts . . . a post-judgment hearing may afford
the requisite due process"). Despite the availability of a
constitutionally valid post-judgment procedure to challenge
entry of the judgment in Maryland, which could include whether
Burnett's waiver was knowing and voluntary, Burnett did not act
within the permitted sixty-day period. Thereafter, plaintiff
properly filed its complaint to domesticate the Maryland
judgment in New Jersey, attaching all requisite documents.
Contrary to the Estate's contention, a waiver hearing is
not mandated prior to confessing judgment, so long as the waiver
provisions are clear and unambiguous. See Billingsley v.
Lincoln Nat'l Bank, 271 Md. 683, 693 ("Overmyer cannot be read
to mandate a 'waiver hearing' prior to entry of a confessed
judgment and, insofar as one may be required thereafter, it was
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clearly available to [the] appellants at the hearing on their
motion to vacate. No more is required.").
In this state action to domesticate the Maryland judgment,
the Estate cannot now raise substantive claims collaterally
attacking the enforceability of the cognovit provision or its
voluntary acceptance, as these issues could and should have been
presented in the Maryland post-judgment process. Sec. Ben. Life
Ins., supra, 279 N.J. Super. at 424. Burnett was given notice
of the judgment and had the right to petition the Maryland court
to open, modify, or vacate that judgment if a valid basis to do
so was presented. See Md. Rule 2-611(d). For reasons not
disclosed, he chose not to do so.2 Judge Scully's determination
of the validity of Burnett's waiver to pre-judgment notice and
declination to pursue post-judgment process must be upheld. Id.
at 426 (barring a defendant from raising in an action to
register a judgment "any of the issues that were, could[,] or
should have been litigated in the [foreign] action" resulting in
the judgment).
Finally, the Estate alleges New Jersey was an express forum
set forth in the CSA, suggesting plaintiff "can neither delimit
New Jersey's plenary jurisdiction nor its availability as a
2
We note this record contains no facts to support the Estate's
claim the Maryland court lacked personal jurisdiction to enter
the judgment against Burnett.
15 A-2770-13T1
forum for collateral attack when a foreign entity seeks to
utilize New Jersey's jurisdiction for enforcement." The Estate
is incorrect.
The terms of the parties' agreement designates New Jersey
as a supplementary forum for "collection or enforcement
action[s]" filed for domestication within its borders. As we
noted, review of a domesticated foreign judgment by our courts
is limited to whether the constitutional guarantee of notice and
a hearing has been satisfied. See Sontag, supra, 374 N.J.
Super. at 537. Having answered that question in the
affirmative, we reiterate "[t]he appropriate forum for a
defendant to raise defenses to a claim is in the tribunal where
the judgment was rendered." Ibid.Affirmed.
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