Capstone Capital Group v. Alexander Perry, Inc ( 2021 )

J-A19037-21
2021 PA Super 195CAPSTONE CAPITAL GROUP, LLC : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
ALEXANDER PERRY, INC., AND :
PATRICIA SANFORD :
: No. 454 EDA 2021
Appellants :
Appeal from the Order Entered January 13, 2021
In the Court of Common Pleas of Philadelphia County Civil Division at
No(s): No. 201100411
BEFORE: DUBOW, J., MURRAY, J., and COLINS, J.*
OPINION BY COLINS, J.: Filed: September 30, 2021
Alexander Perry, Inc. and Patricia Sanford (collectively, “Appellants”)
appeal from the order denying their petition to open a New York judgment
against them, which was entered in the trial court by Appellee Capstone
Capital Group, LLC (“Capstone”). We affirm.
This matter arises out of a factoring agreement between Capstone and
Alexander Perry, Inc. (“API”); Ms. Sanford is the president and chief executive
officer of API. In the factoring agreement, Capstone purchased certain
accounts receivable from API, including accounts related to a construction
project that API performed for J.R. Beale, Inc. When J.R. Beale failed to make
payment to Capstone as had been guaranteed in the factoring agreement,
Capstone demanded payment from Appellants and ultimately brought suit
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* Retired Senior Judge assigned to the Superior Court.
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against them in the Supreme Court of the State of New York, New York
County.1
In June 2019, Capstone and Appellants entered into a settlement
agreement whereby Appellants agreed to pay $30,000 to resolve the dispute.
The agreement further provided that, in the event that Appellants defaulted
on their agreement to pay the settlement sum, Appellants would each be
immediately liable for a judgment in the amount of $53,400. Ms. Sanford
signed the settlement agreement for herself and API, and she also
contemporaneously executed an affidavit for confession of judgment on behalf
of herself and API in the amount of $53,400 plus interest payable in the event
of Appellants’ default on the settlement agreement.
Following Appellants’ failure to pay the $30,000 required in the
settlement agreement, Capstone reinstituted the action against Appellants in
New York state court. On August 19, 2020, the Clerk of the Supreme Court
of New York, New York County entered a default judgment in the amount of
$64,931.38, which encompassed the principal sum of $53,400 as well as
interest measured from the date of the settlement agreement and the costs
of litigation. On November 5, 2020, Capstone filed in the trial court a praecipe
to enter the New York judgment against Appellants.
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1 “In New York, the Supreme Court is the trial court of general jurisdiction,
analogous to Pennsylvania’s Court of Common Pleas.” Standard Chartered
Bank v. Ahmad Hamad Al Gosaibi and Brothers Co., 99 A.3d 936, 938
n.2 (Pa. Super. 2014).
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On December 15, 2020, Appellants filed a petition to open the foreign
judgment. In the petition, Appellants asserted that their petition was
promptly filed within two weeks of the date upon which Capstone served a
copy of the entry of judgment. Appellants also aver that they have a
meritorious defense to Capstone’s New York state action against them
because Appellants had in fact repaid Capstone in excess of any moneys owed
under the factoring agreements. In support of the claim that they did not in
fact owe money to Capstone, Appellants attached an affidavit from Ms.
Sanford explaining the history of her business dealings with Capstone and an
affidavit from Appellants’ counsel, Eric A. George, Esq. In addition, Appellants
maintain that they were not residents of New York, had no legal counsel in
that forum, and were unable “physically and financially” to defend Capstone’s
suit against them in that state. Petition to Open Judgment, 12/15/20, ¶10.
Capstone filed an answer to the petition to open on December 23, 2020.
On January 13, 2021, the trial court entered an order denying
Appellants’ petition to open the New York judgment. In the order, the trial
court found that Appellants had not presented sufficient evidence in their
petition to overcome the settlement agreement and confession of judgment
that supported the default foreign money judgment. Order, 1/13/21, at 1 n.1.
Appellants filed a motion for reconsideration of the trial court’s January 13,
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2021 order, which the trial court also denied. Appellants thereafter filed a
timely appeal.2
On appeal, Appellants raise the following issues:
1. Did the Court below commit an error of law and an abuse of its
discretion by denying the Appellants’ Petition to Open Judgment
when the [Appellants] acted promptly, alleged reasonable excuse,
and alleged a meritorious defense, providing sufficient evidence
of that defense to require submissions of the issues to the Court
on the merits at trial?
2. Did the Court commit [an] error of law and abuse its discretion
by determining that the [Appellants] did not provide stronger
evidence that the [Appellants] did not owe money to [Capstone]
after the Court failed to issue a Rule to Show Cause Order
permitting depositions contrary to Pa.R.C.P. No. 206 and
Philadelphia Rule of Civil Procedure No. *206.4(c)?
Appellants’ Brief at 3 (suggested answers omitted).
In their first issue, Appellants contend that they satisfied the three-part
standard that must be met by a petitioner seeking to open a default judgment
in Pennsylvania courts. This standard provides as follows:
Generally speaking, a default judgment may be opened if the
moving party has (1) promptly filed a petition to open the default
judgment, (2) provided a reasonable excuse or explanation for
failing to file a responsive pleading, and (3) pleaded a meritorious
defense to the allegations contained in the complaint.
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2 The trial court did not direct Appellants to file a concise statement of errors
complained of on appeal pursuant to Pa.R.A.P. 1925(b). On March 18, 2021,
the trial court issued an opinion in which it relied upon the reasons offered in
its January 13, 2021 order.
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Myers v. Wells Fargo Bank, N.A., 986 A.2d 171, 175-76 (Pa. Super. 2009);
see also Digital Communications Warehouse, Inc. v. Allen
Investments, LLC, 223 A.3d 278, 285 (Pa. Super. 2019).
As to the first part of this standard, Appellants assert that their
December 15, 2020 petition was promptly filed upon their receipt of notice
that the foreign judgment had been transferred to Pennsylvania. Next,
Appellants contend that they had a reasonable excuse for not appearing in the
New York action as they are domiciled in Pennsylvania and “had limited
contact with” and “limited ability to defend in” New York. Appellants’ Brief at
15. Finally, Appellants argue that they have a meritorious defense to the New
York action as set forth in their petition to open and its attachments, in which
Ms. Sanford and Appellants’ counsel aver that API had fully paid the amount
owed to Capstone. Appellants also point to an API account statement attached
to their motion for reconsideration, which they claim shows that API did not
in fact owe any money to Capstone.
Appellants’ argument is premised upon the standard employed by
Pennsylvania courts when addressing a petition to open a default judgment
entered by a court of this Commonwealth. However, they ignore that the
judgment they wish to open is one entered by a sister state that was
transferred to this jurisdiction. In such cases, the effect given to the foreign
judgment is controlled by the full faith and credit clause of the United States
Constitution, which requires that “Full Faith and Credit shall be given in each
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State to the public Acts, Records, and judicial Proceedings of every other
State.” U.S. Const. art. IV, § 1.
As the United States Supreme Court has explained, the “animating
purpose” of the full faith and credit clause
was to alter the status of the several states as independent foreign
sovereignties, each free to ignore obligations created under the
laws or by the judicial proceedings of the others, and to make
them integral parts of a single nation throughout which a remedy
upon a just obligation might be demanded as of right, irrespective
of the state of its origin.
Baker by Thomas v. General Motors Corp., 522 U.S. 222, 232 (1998)
(citation omitted). The United States Congress has also codified the mandates
of the full faith and credit clause, providing that
The [] judicial proceedings of any court of any such State,
Territory or Possession [] shall be proved or admitted in other
courts within the United States and its Territories and Possessions
....
Such [] judicial proceedings [] shall have the same full faith and
credit in every court within the United States and its Territories
and Possessions as they have by law or usage in the courts of such
State, Territory or Possession from which they are taken.
28 U.S.C. § 1738. Additionally, Pennsylvania has adopted the Uniform
Enforcement of Foreign Judgments Act (“UEFJA”) to facilitate the recognition
and enforcement of foreign state judgments in the courts of our
Commonwealth. See 42 Pa.C.S. § 4306.
When a judgment of one of the United States is transferred to another
state, the full faith and credit clause prevents courts of the transferee state
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from addressing the merits of the decision that forms the basis of the
judgment.
A State may not disregard the judgment of a sister State because
it disagrees with the reasoning underlying the judgment or deems
it to be wrong on the merits. On the contrary, “the full faith and
credit clause of the Constitution precludes any inquiry into the
merits of the cause of action, the logic or consistency of the
decision, or the validity of the legal principles on which the
judgment is based.”
V.L. v. E.L., 577 U.S. 404, 407 (2016) (per curiam) (quoting Milliken v.
Meyer, 311 U.S. 457, 462 (1940)). “A final judgment in one State, if rendered
by a court with adjudicatory authority over the subject matter and persons
governed by the judgment, qualifies for recognition throughout the land.”
Baker, 522 U.S. at 233.
As this Court has further explained,
[a] state is required to give full faith and credit to a money
judgment rendered in a civil suit by a sister state even where the
judgment violates the policy or law of the forum where
enforcement is sought. If the judgment was valid and enforceable
in the rendering state, it is equally so in all other states. Thus, a
transferred judgment cannot be stricken or opened simply
because the party seeking to open or strike can demonstrate that
he/she would have a valid defense to the action if brought in
Pennsylvania.
Standard Chartered Bank v. Ahmad Hamad Al Gosaibi and Brothers
Co., 99 A.3d 936, 942-43 (Pa. Super. 2014) (citation omitted); see also
Baker, 522 U.S. at 234 (“We are aware of no considerations of local policy or
law which could rightly be deemed to impair the force and effect which the full
faith and credit clause and the Act of Congress require to be given to a money
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judgment outside the state of its rendition.”) (citation and extraneous
punctuation omitted).
Therefore, while the UEFJA provides that a respondent may file a
petition to open a foreign judgment upon its transfer to a Pennsylvania court,
42 Pa.C.S. § 4306(b); Tandy Computer Leasing v. DeMarco, 564 A.2d
1299, 1308 (Pa. Super. 1989), our case law makes clear that the Pennsylvania
transferee court may not “open” the foreign judgment and revisit the merits
of the underlying litigation as would be permitted of a domestic default
judgment. Commonwealth Capital Funding, Inc. v. Franklin Square
Hospital, 620 A.2d 1154, 1156 n.2 (Pa. Super. 1993); Greate Bay Hotel
and Casino, Inc. v. Saltzman, 609 A.2d 817, 818 (Pa. Super. 1992); see
also Standard Chartered Bank, 99 A.3d at 942-43. Instead, a trial court’s
authority in weighing a petition to open a foreign judgment runs only so far
as a determination that the transferred foreign judgment is unenforceable in
Pennsylvania. Greate Bay Hotel, 609 A.2d at 818;.
While a foreign judgment may not be attacked on its merits, the party
challenging its validity may, on limited jurisdictional and procedural grounds,
show an “irregularity” in the foreign proceeding that would preclude a
Pennsylvania court from giving full faith and credit to the transferred
judgment. Standard Chartered Bank, 99 A.3d at 942.
[T]he doctrine of full faith and credit precludes retrial in the
Pennsylvania courts of the validity of the judgment of a sister state
affecting Pennsylvania residents except for the limited purpose of
determining whether the transferor court had jurisdiction to enter
the judgment and whether the judgment was obtained without
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derogating the judgment debtor’s due process rights. In order for
our courts to recognize a judgment as valid and enforceable, the
sister state must have had proper jurisdiction over the defendant
and afforded him or her due process of law.
Gersenson v. Pennsylvania Life and Health Insurance Guaranty
Association, 729 A.2d 1191, 1195 (Pa. Super. 1999) (citations, emphasis,
and extraneous punctuation omitted); see also Standard Chartered Bank,
99 A.3d at 942. The party contesting the validity of the foreign judgment
bears the burden of demonstrating the procedural or jurisdictional irregularity
in the foreign proceeding. Standard Chartered Bank, 99 A.3d at 942.
In their petition to open the New York judgment, Appellants focused
primarily on the merits of the underlying action, as they assert that they in
fact did pay Capstone all the money owed to it under the factoring agreement
and therefore there was no basis for Capstone to claim the contrary in its New
York lawsuit. Petition to Open Foreign Judgment, 12/15/20, ¶¶5-7, 9.
Therefore, Appellants requested that the trial court grant the petition to open
and permit Appellants to file an answer and counterclaim to Capstone’s New
York complaint. Id. ¶8. However, the merits of the New York action which
resulted in the instant transferred judgment were not properly before the trial
court, and therefore could not have formed a basis by which that court could
have granted the petition to open. V.L., 577 U.S. at 407; Baker, 522 U.S. at
233; Standard Chartered Bank, 99 A.3d at 942-43.
Appellants also claim in their petition to open that they
are not residents of New York, and have not conducted any
business in New York, and were unable both physically and
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financially to defend the legal action filed in New York State, and
have no legal counsel in that state, excusing their failure to defend
the legal action filed there.
Petition to Open Foreign Judgment, 12/15/20, ¶10; see also Appellants’ Brief
at 15 (arguing that Appellants’ absence in the New York state case was
excused as they “had limited contact with” New York and “limited ability to
defend” themselves in that state). Notably, however, Appellants did not claim
that they lacked the minimum contacts necessary for the exercise of personal
jurisdiction over them by New York state courts nor do they assert that
jurisdiction was improper under the New York long-arm statute. Indeed, any
such claim that the New York courts lacked personal jurisdiction over
Appellants would be belied by the fact that Appellants consented in the
settlement agreement to “submit to the exclusive jurisdiction of the state and
federal courts sitting in the State of New York to resolve any dispute” arising
out of the agreement. Answer to Petition to Open, 12/23/20, Ex. A, at 3; see
also Oak Rock Financial, LLC v. Rodriguez, 50 N.Y.S.3d 108, 110 (N.Y.
App. Div. 2d Dept 2017) (“[A] party may agree by contract to submit to
jurisdiction in a given forum and that such a forum selection clause, when it
is part of the contract that forms the basis of the action, will be enforced,
obviating the need for a separate analysis of the propriety of exercising
personal jurisdiction[.]”) (citation omitted).
Accordingly, as Appellants did not present an argument that the New
York courts lacked jurisdiction over Capstone’s suit against them or that the
New York judgment was procured in derogation of their due process rights,
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they have raised no grounds through which a Pennsylvania court could have
declined to afford full faith and credit to the foreign judgment. Therefore, the
trial court did not commit an abuse of discretion in denying the petition to
open.
In their second issue, Appellants argue that the trial court erred and
abused its discretion by denying the petition to open without first issuing a
rule to show cause to allow for the development of an evidentiary record on
the petition as required by Pennsylvania Rules of Civil Procedure 206.1 to
206.7 and the corresponding local rules. Appellants note that the proposed
rule to show cause order included with their petition to open specifically
provided for the taking of depositions by the parties. Appellants contend that
they intended to depose Ms. Sanford who would have testified that API had
paid Capstone all of the sums owed, including interest, and that they would
have also produced documentary evidence, including financial and accounting
records and checks that demonstrate that they have satisfied all debts to
Capstone.
Under Rule of Civil Procedure 206.4, a trial court has discretion to issue
a rule to show cause order upon the filing of a petition “unless the court adopts
by local rule the procedure of Rule 206.6 providing for issuance as of course.”
Pa.R.C.P. 206.4(a)(1). The Court of Common Pleas of Philadelphia County
has promulgated Local Rule 206.4(c), which adopts the procedure set forth in
Rule of Civil Procedure 206.6. Phila.Civ.R. *206.4(c). The local rule provides
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that the motions court clerk shall issue a rule to show cause as of course upon
the filing of a petition and in the form indicated in the rule. Id.There is some ambiguity regarding whether the instant petition is
controlled by the practice set forth in Rules of Civil Procedure 206.1 to 206.7
as well as the local rules adopted thereunder. Rule of Civil Procedure 206.1
and Local Rule 206.1(a) provide that a petition to open a default judgment is
subject to the petition practice delineated in the following rules, but neither
rule indicates that a petition to open a foreign judgment—which, as described
above, necessarily entails a more limited review of the underlying dispute—is
subject to the same procedures. Pa.R.C.P. 206.1(a)(1); Phila.Civ.R.
*206.1(a)(1).
Even assuming the instant petition is governed by the petition practice
rules, however, we do not agree with Appellants that the trial court was
required to allow depositions or hold an evidentiary hearing. Local Rule
206.4(c) does not mandate that a trial court accept discovery on a petition or
that it issue the proposed rule to show cause submitted by the petitioner;
instead the form rule to show cause order included in the Local Rule only
directs that the respondent file an answer within twenty days and states that
“[a] Hearing or Argument shall be scheduled at the discretion of the Assigned
Judge.” Phila.Civ.R. *206.4(c). Here, in spite of the fact that the clerk of the
trial court did not issue a rule to show cause order upon the filing of the
petition to open, Capstone did substantively respond to the allegations of the
petition by filing an answer, and therefore Appellants effectively received the
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full benefit of the local petition practice. Cf. Dominic’s Inc. v. Tony’s
Famous Tomato Pie Bar and Restaurant, Inc., 214 A.3d 259, 269-71 (Pa.
Super. 2019) (holding that, upon consideration of a petition to strike and/or
open a confessed judgment in Philadelphia County, the trial court was
permitted under the Local Rule 206.4(c) to use its own form order and “the
trial court had full discretion to allow or deny discovery or a hearing”).
Moreover, the Rules of Civil Procedure fail to support Appellants’
argument that they were entitled to take discovery before the trial court could
dispose of the petition to open. Rule of Civil Procedure 206.7 outlines the
procedure after the issuance of a rule to show cause, providing that “[i]f an
answer is filed raising disputed issues of material fact, the petitioner may take
depositions on those issues, or such other discovery as the court allows.”
Pa.R.C.P. 206.7(c). On the other hand, “[i]f the answer does not raise
disputed issues of fact, then the petition and answer are ready for decision by
the court without the fact-finding process” of Rule 206.7. U.S. Spaces, Inc.
v. Berkshire Hathaway Home Services, 165 A.3d 931, 933 (Pa. Super.
2017) (quoting Pa.R.C.P. 206.4, Comment); see also Moss v. SCI -
Mahanoy Superintendent, 194 A.3d 1130, 1134 (Pa. Cmwlth. 2018). Thus,
the discovery envisioned in Rule 206.7 is premised upon a dispute between
the parties concerning facts material to the resolution of the petition, and
discovery is not required where no disputed material fact exists.
Here, there existed no dispute as to material fact that required fact-
finding prior to the trial court’s resolution of Appellants’ petition to open.
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Appellants’ claims in their petition that they fully satisfied their debts to
Capstone go to the merits of the underlying New York lawsuit, an issue that
was beyond the scope of review of the trial court when weighing the question
of whether it should give full faith and credit to the foreign judgment. V.L.,
577 U.S. at 407; Baker, 522 U.S. at 233; Standard Chartered Bank, 99
A.3d at 942-43. Furthermore, Appellants did not raise any arguments in their
petition germane to the subjects within the trial court’s purview, namely
whether the New York state courts had jurisdiction over the parties and action
and whether the New York proceeding complied with the strictures of due
process. Standard Chartered Bank, 99 A.3d at 942; Gersenson, 729 A.2d
at 1195. Therefore, as there were no disputed issues of fact, the trial court
was not required to allow for discovery prior to ruling on the petition to open.
As Appellants did not raise grounds which would have permitted the
refusal of full faith and credit to the New York judgment and as fact-finding
was unnecessary to resolve Appellants’ challenge to the foreign judgment, the
trial court did not abuse its discretion in denying Appellants’ petition to open.
Appellants are not entitled to relief in this appeal.
Order affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/29/21
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