Capital Partners Network OT, Inc. v. TNG Contractors, LLC ( 2020 )

11/16/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
October 20, 2020 Session
CAPITAL PARTNERS NETWORK OT, INC. v.
TNG CONTRACTORS, LLC, ET AL.
Appeal from the Circuit Court for Davidson County
No. 17C2766 Hamilton V. Gayden, Jr., Judge
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No. M2020-00371-COA-R3-CV
___________________________________
Defendants appeal the trial court’s grant of summary judgment to the plaintiff
corporation, the effect of which was to accord full faith and credit to a New York
judgment based on a confession of judgment, or cognovit note. Defendants argue that the
foreign judgment should not be enrolled in Tennessee because it is contrary to public
policy, based on Tennessee Code Annotated section 25-2-101(a), which prohibits the use
of prelitigation confessions of judgment and declares void any judgment based upon such
a device. After reviewing the record and case law, we hold that the Constitution’s full
faith and credit mandate requires enrollment of the foreign judgment so long as
Defendants validly waived their due process rights. Accordingly, we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed; Case Remanded
JOHN W. MCCLARTY, J., delivered the opinion of the court, in which FRANK G.
CLEMENT, JR., P.J., M.S., and ANDY D. BENNETT, J., joined.
Benjamin E. Goldammer and Christopher B. Fowler, Nashville, Tennessee, for the
appellants, Akbar Arab and TNG Contractors, LLC.
J. Michael Clemons, Nashville, Tennessee, for the appellee, Capital Partners Network
OT, Inc.
John A. Bell, Jr., Nashville, Tennessee, for the appellee, M & A Development, LLC.
OPINION
I. FACTUAL AND PROCEDURAL HISTORY
On April 25, 2017, Defendant Akbar Arab, individually and on behalf of co-
Defendants, TNG Contractors, LLC (“TNG”), and M&A Development, LLC (“M&A”),
entered into an agreement for the Purchase and Sale of Future Receipts (“the purchase
agreement”) with Plaintiff Capital Partners Network, OT, Inc. Mr. Arab is the principal
member and officer of TNG and M&A, both Tennessee LLCs, and Plaintiff is a Florida
corporation. Mr. Arab also executed a personal guaranty and, personally and on behalf of
TNG and M&A, he executed an Affidavit of Confession of Judgment (“the affidavit”).
The affidavit, a separate document from the purchase agreement, stated, in relevant part:
The Defendants (referred to hereinafter jointly and severally as the
“Judgment Debtors/Defendants”) all jointly and severally hereby Confess
Judgment herein, and authorize entry of judgment against them as the
Judgment Debtors/Defendants in the sum of (a) $176,250.00, less any
receivables delivered, plus (b) interest thereon at 16% per annum from the
date of default to the date of the entry of the Judgment, and (c) all of the
costs and disbursements, and an additional sum for (d) legal fees to Plaintiff
calculated at 33% of the total of all of the aforesaid sums. Such amount
shall be set forth in an affidavit under oath by Plaintiff which shall be
attached hereto and filed contemporaneously with this Confession of
Judgment.
. . . Judgment Debtors/Defendants authorize entry of Judgment
against each and every one of them in any and all Counties in the State of
New York, as well as in each and every State, County and foreign country
where they reside and/or do business at any time hereafter, which addresses
are not in New York State.
This confession of judgment is for an obligation due to Plaintiff
arising from TNG CONTRACTORS, LLC / M & A DEVELOPMENT
LLC’s failure to deliver to Plaintiff, TNG CONTRACTORS, LLC / M & A
DEVELOPMENT LLC’s accounts receivable, which were purchased by
Plaintiff pursuant to the Agreement for the Purchase and Sale of Future
Receipts dated April 25, 2017 (hereinafter, the “Agreement”) and
Debtors/Defendants’ breach thereof. This Affidavit is made in connection
with the Agreement and is solely for the purchase of commercial or
business commodities. This Affidavit may be filed ex parte by Plaintiff,
without further notice. Agreed-upon interest, reasonable attorneys’ fees,
costs and disbursements, are to be included as agreed upon by
Debtors/Defendants, under the secured Agreement, of which supporting
documents include a Personal Guarantee of Performance and a UCC-1
financing statement(s).
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The purchase agreement set out the events that constitute a default and included a choice
of law and forum selection clause that stated that New York law and courts would govern
the agreement and “[a]ny suit, action or proceeding arising hereunder, or the
interpretation, performance or breach of this Agreement.”
On September 6, after Defendants breached the terms of the agreement, Plaintiff
filed the affidavit signed by Mr. Arab in the Supreme Court1 of Orange County, New
York, and obtained a judgment by confession for $96,124.23 against Defendants.2
Judgments by confession are authorized by statute in New York. N.Y. CPLR. 3218
(McKinney). Defendants’ New York counsel argued before the New York court that the
court lacked jurisdiction and that the judgment was void for failure to designate a New
York county in which it could be filed. Counsel was unsuccessful in getting relief from
the judgment.
On November 3, Plaintiff petitioned the Davidson County Circuit Court Clerk to
enroll the foreign judgment in accordance with the Uniform Enforcement of Foreign
Judgments Act (“UEFJA”), Tennessee Code Annotated section 26-6-101, et seq.
Defendants answered the petition and moved to dismiss, asserting that the foreign
judgment is void as a matter of law under Tennessee Code Annotated section 25-2-
101(a), which provides, “Any power of attorney or authority to confess judgment which
is given before an action is instituted and before the service of process in such action, is
declared void; and any judgment based on such power of attorney or authority is likewise
declared void.” Following a hearing, the trial court denied the motion and held that it
was “required to accord full faith and credit to the foreign judgment at issue.” The trial
court stayed execution on the judgment pending appeal. Following Defendants’ appeal,
this Court reversed and remanded, reasoning:
In the case at bar, the [trial] court only heard the Defendants’ motion to
dismiss before enrolling the New York judgment. Pursuant to the UEFJA
and [Tenn. R. Civ. P.] 3A, however, Defendants were entitled to a trial on
the merits of the defenses to enrollment and enforcement that were raised in
their Answer.
Capital Partners Network OT, Inc. v. TNG Contractors, LLC, No. M2018-00411-COA-
R3-CV, 2018 WL 4350065, at *3 (Tenn. Ct. App. Sept. 11, 2018).
On August 2, 2019, Plaintiff filed a motion for summary judgment to enroll the
1
In New York, “Supreme Court” is the name given to the trial level courts of general jurisdiction.
The New York Court of Appeals is the state’s highest appellate court.
2
The record is silent as to the nature of the breach.
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foreign judgment in Tennessee. There were no material facts in dispute, but, in response,
Defendants again argued that the foreign judgment is void in Tennessee and should be
denied full faith and credit because, as a judgment obtained by a pre-litigation confession
of judgment, it violates Tennessee public policy. Following a hearing in which
Defendants presented their defenses to enrollment and enforcement that were raised in
their answer, the trial court granted Plaintiff’s motion for summary judgment, reasoning
that the foreign judgment at issue is valid because it was obtained in accordance with
New York law which allows judgment by confession. All Defendants now appeal.3
The sole issue before us is whether the trial court erred in granting summary
judgment to Plaintiff, according the foreign judgment full faith and credit in Tennessee.
II. STANDARD OF REVIEW
A trial court’s decision of whether to grant or deny a motion for summary
judgment is a question of law; thus, our review is de novo with no presumption of
correctness afforded to the trial court’s determination. Guseinov v. Synergy Ventures,
Inc., 467 S.W.3d 920, 924 (Tenn. Ct. App. 2014) (citation omitted). Summary judgment
is appropriate if no genuine issues of material fact exist, and the movant meets its burden
of proving that it is entitled to a judgment as a matter of law. Tenn. R. Civ. P. 56.03.
Because the facts that are material to the issue raised in this appeal are not in dispute, we
are tasked only with resolving issues of law, specifically, whether the New York
judgment should be accorded full faith and credit in Tennessee. “[P]ersons seeking to
domesticate a foreign judgment may do so using a summary judgment as long as they
satisfy the trial court . . . that there are no disputes as to any material fact and that they are
entitled to a judgment as a matter of law.” Biogen Distribs., Inc. v. Tanner, 842 S.W.2d
253, 255 (Tenn. Ct. App. 1992); Guisenov, 467 S.W.3d at 924. A trial court’s decision to
grant full faith and credit to a foreign judgment is a question of law; therefore, our review
is de novo upon the record with no presumption of correctness for the trial court’s
conclusions. Id. (citations omitted).
III. ANALYSIS
Defendants assert that the foreign judgment obtained pursuant to New York law
and valid in New York state should not be accorded full faith and credit because it
violates the Tennessee public policy set forth in Tennessee Code Annotated section 25-2-
101(a), which declares that an authority to confess judgment given before an action is
instituted and before the service of process in such action is void. Defendants rely on the
3
M&A, designated as an appellee, joined appellants TNG Contractors and Akbar Arab and
adopted their brief in full. We could find no explanation for designating M&A as an appellee; the record
shows that TNG and M&A presented the same arguments to the trial court and were equally affected by
the grant of summary judgment to Plaintiff.
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language of the statute itself to support their argument, claiming that it “articulates a
clear, unequivocal Tennessee public policy that affidavits confessing judgment – and the
judgments on which they are based – are void.”
Plaintiff points out that Mr. Arab, on behalf of all Defendants, freely and
voluntarily signed an affidavit of confession of judgment which granted Plaintiff the right
to file it in the event of a breach, and that Tennessee law recognizes a strong public
policy of individual autonomy and freedom of contract. Plaintiff states that in accordance
with the United States Constitution, Tennessee courts presume that a foreign judgment is
valid and that the party seeking to attack a valid foreign judgment bears a heavy burden.
Plaintiff further argues that there is no strong public policy implicated by the enrollment
and enforcement of a money judgment resulting from a breach of contract, and that
Defendants have not specifically identified otherwise.
A. The Constitutional Requirement of Full Faith and Credit
The Full Faith and Credit Clause of the United States Constitution provides: “Full
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. The Clause serves an
important federal interest, as the U.S. Supreme Court has explained:
The animating purpose of the full faith and credit command . . . “was to
alter the status of the several states as independent foreign sovereignties . . .
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. Gen. Motors Corp., 522 U.S. 222, 232 (1998) (quoting Milwaukee
Cnty. v. M.E. White Co., 296 U.S. 268, 277 (1935)). The clause has been codified by
Congress:
Acts, records and judicial proceedings [of any State, Territory, or
Possession of the United States] . . . 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. Tennessee has adopted the UEFJA in Tennessee Code Annotated
sections 26-6-101 through -109 to streamline the process of enrolling a foreign judgment
in Tennessee, and our courts presume that “absent proper proof to the contrary . . . the
decrees of the courts of record of any sister states are valid.” Four Seasons Gardening &
Landscaping, Inc. v. Crouch, 688 S.W.2d 439, 441–42 (Tenn. Ct. App. 1984).
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B. Exceptions to the Full Faith and Credit Clause
Tennessee courts have recognized three situations in which the state may refuse to
apply full faith and credit to the judgment of another state: (1) where a judgment is void
due to the adjudicating court’s lack of subject-matter or personal jurisdiction, (2) where
the judgment was based on fraud, and (3) where the enforcement of the judgment would
violate the public policy of Tennessee. E.g. Biogen, 842 S.W.2d at 256; Mirage Casino
Hotel v. J. Roger Pearsall, No. 02A01-9608-CV-00198, 1997 WL 275589, at *4 (Tenn.
Ct. App. May 27, 1997). It is the third exception that Defendants invoke and that will
guide our analysis.
The U.S. Supreme Court case Baker by Thomas v. General Motors Corporation
concerned whether the Full Faith and Credit Clause required that a court abide by a sister
state’s injunction forbidding a certain witness’ testimony. 522 U.S. 222, 225–26 (1998).4
Relevant to the case at bar is the summary in Baker of the Supreme Court’s Full Faith
and Credit jurisprudence; regarding the role of public policy, the Court states:
Our precedent differentiates the credit owed to laws (legislative
measures and common law) and to judgments. . . .
A court may be guided by the forum State’s “public policy” in
determining the law applicable to a controversy. See Nevada v. Hall, 440
U.S. 410, 421–424, 99 S. Ct. 1182, 1188–1190, 59 L. Ed. 2d 416 (1979). But
our decisions support no roving “public policy exception” to the full faith
and credit due judgments. See Estin, 334 U.S., at 546, 68 S.Ct., at 1217
(Full Faith and Credit Clause “ordered submission ... even to hostile
policies reflected in the judgment of another State, because the practical
operation of the federal system, which the Constitution designed, demanded
it.”); Fauntleroy v. Lum, 210 U.S. 230, 237, 28 S. Ct. 641, 643, 52 L. Ed.
1039 (1908) (judgment of Missouri court entitled to full faith and credit in
Mississippi even if Missouri judgment rested on a misapprehension of
Mississippi law). In assuming the existence of a ubiquitous “public policy
exception” permitting one State to resist recognition of another State’s
judgment, the District Court in the Bakers’ wrongful-death action, see
supra, at 662, misread our precedent. . . . 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] judgment outside the state of
its rendition.” Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 438, 64
4
The Court (J. Ginsberg) held that the Michigan injunction, which was issued in an employment
dispute case, was not binding on a Missouri court in a wrongful death action in Missouri which had a
different plaintiff because “a . . . [court’s] decree cannot command obedience elsewhere on a matter the . .
. [issuing] court lacks authority to resolve.” Baker, 522 U.S. at 241 (citing Thomas v. Washington Gas
Light Co., 448 U.S. 261, 282–283 (1980)).
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S.Ct. 208, 213, 88 L. Ed. 149 (1943).
Baker, 522 U.S. at 232–34 (emphasis in original).
Notwithstanding the Supreme Court’s distinction in Baker between the credit
owed to foreign laws and to foreign judgments, this Court has recited the public policy
exception to the enrollment of foreign judgments in several post-Baker cases, e.g.
Guseinov, 467 S.W.3d 920; BancorpSouth Bank v. Johnson, No. W2012-00452-COA-
R3CV, 2013 WL 3770856 (Tenn. Ct. App. July 16, 2013); Trustmark Nat. Bank v.
Miller, 209 S.W.3d 54 (Tenn. Ct. App. 2006); Seiller & Handmaker, LLP v. Finnell, 165
S.W.3d 273 (Tenn. Ct. App. 2004). Even so, we have shown reluctance to actually hold
that a foreign judgment sufficiently violates our state’s public policy such that the
judgment should be denied full faith and credit. We have stated that the party opposing
enforcement of a foreign judgment has a “stern and heavy” burden. Seiller, 165 S.W.3d
at 277 (citation omitted). Moreover, the fact that the particular cause of action underlying
a judgment is not one that is recognized in Tennessee is insufficient to give rise to a
public policy exception. E.g. Seiller, 165 S.W.3d at 279; Francis v. Francis, 945
S.W.2d 752, 753 (Tenn. Ct. App. 1996) (holding that a North Carolina judgment
resulting from an alienation of affections suit was entitled full faith and credit even
though Tennessee had abolished the cause of action); Four Seasons, 688 S.W.2d at 445
(“[T]he judgment of the court of another state does not necessarily violate the public
policy of this State merely because the law upon which it is based is different from our
law.”) Indeed, we have accorded full faith and credit to many judgments that were based
on laws directly contrary to our own.
In Trustmark National Bank v. Miller, this Court affirmed a trial court’s extension
of full faith and credit to a Mississippi replevin judgment. The debtors in that case
argued that the Mississippi judgment violated Tennessee public policy because it
conflicted with Tennessee Code Annotated section 47-9-333(b) (2006) regarding which
class of secured creditor has priority in goods. Id. This Court noted that our law
regarding priority had changed over the years and was not an “age old rule” and,
furthermore, stated that a foreign judgment does not necessarily violate Tennessee’s
public policy solely because it is based on law that differs from ours. Id. at 58–59
(citation omitted).
In BancorpSouth Bank v. Johnson, a defendant debtor challenged the enrollment
in Tennessee of a deficiency judgment obtained in Arkansas, arguing that it violated the
public policy of this state. 2013 WL 3770856, at *1. In that case, the plaintiff creditor,
BancorpSouth, obtained a decree of foreclosure on real property in Arkansas owned by
the plaintiff creditor; the decree directed a judicial foreclosure. Id. Prior to the
foreclosure sale, the creditor bank obtained an appraisal of the property and then
purchased the property at the sale for a price more than $800,000 below the appraised
value. Id. The debtor argued that the Arkansas judgment was not entitled to full faith and
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credit as it was contrary to our state’s public policy in Tennessee Code Annotated section
35-5-118 “against enforcing a deficiency judgment if the sale price for property securing
the debt is inadequate and so far below the market price as to shock the conscience of the
Court.” Id. at *5. Even so, this Court held that the judgment was entitled to full faith and
credit, stating that we have found “no strong public policy of this state that would be
implicated in an attempt to enforce a judgment on a debt,” Id. at *6 (quoting Tareco
Props. v. Morriss, No. M2002-02950-COA-R3-CV, 2004 WL 2636705, at *9 n.18
(Tenn. Ct. App. Nov. 18, 2004)).
Tennessee law states, “Gambling is contrary to the public policy of this state”
(Tenn. Code Ann. § 39-17-501), yet foreign judgments for gambling debts amassed in
other states are granted full faith and credit in Tennessee:
[B]oth gambling and the promotion of gambling are misdemeanors, Tenn.
Code Ann. §§ 39-17-502 and 503 (1997), and gambling debts incurred in
Tennessee cannot be collected in Tennessee’s courts. Tenn. Code Ann. §
29-19-102 (2000). However, notwithstanding Tennessee’s official
antipathy toward gambling, our courts have long held that judgments for
out-of-state gambling debts are enforceable in Tennessee. In the words of
the Tennessee Supreme Court, reducing a gambling debt to judgment
“purifies the contract from the gaming taint.” Holland v. Pirtle, 29 Tenn.
(10 Hum.) 167, 169 (1849). Thus, we have consistently enforced foreign
judgments for gambling debts. Robinson Props. Group, L.P. v. Russell, No
W2000-00331-COA-R3-CV, 2000 WL 33191371, at *4 (Tenn. Ct. App.
Nov. 22, 2000) (No Tenn. R. App. P. 11 application filed); Mirage Casino
Hotel v. Pearsall, No. 02A01-9608-CV-00198, 1997 WL 275589, at *4-5
(Tenn. Ct. App. May 27, 1997) perm. app. denied (Tenn. Dec. 8, 1997);
Hotel Ramada of Nevada, Inc. v. Thakkar, No. 03A01-9103-CV-00113,
1991 WL 135471, at *3-4 (Tenn. Ct. App. July 25, 1991) perm. app. denied
(Tenn. Jan. 6, 1992). In this case, the fact that the casinos have judgments
for gambling debts presents no impediment to their enrollment and
enforcement by a Tennessee court.
Boardwalk Regency Corp. v. Patterson, No. M1999-02805-COA-R3-CV, 2001 WL
1613892, at *3 (Tenn. Ct. App. Dec. 18, 2001).
We have identified only one case in which public policy considerations precluded
the enforcement of a foreign judgment in Tennessee:5 In In re Riggs, concerning a
5
In their brief, Defendants cite several Tennessee cases to support their public policy argument;
however, none of the cases cited concern the enrollment and enforcement of foreign judgments. DeLaney
Furniture Co. v. Magnavox Co. of Tenn., 435 S.W.2d 828 (Tenn. 1968) concerns a Kentucky court’s
appointment of a receiver. In Paper Products Co. v. Doggrell, 261 S.W.2d 127 (Tenn. 1953), the
Tennessee Supreme Court was called on (and declined to) enforce an Arkansas statute, not a judgment.
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Georgia judgment granting the adoption of a child, this Court held that the foreign
judgment was not entitled to full faith and credit because the adoption order was entered
without notice of service of process on the biological father. 612 S.W.2d 461, 469 (Tenn.
Ct. App. 1980). The Court stated “For this court to enforce the Georgia judgment, which
is fraught with constitutional difficulties, and to deny the natural father due process of
laws, would be repugnant to the Federal Constitution and the public policy of
Tennessee.” Id. We note, however, that even though we stated, “This state has a strong
interest in sustaining the father-child relationship and protecting the family unit,” the
Court’s actual analysis focused on constitutional due process interests. Id.
The foregoing Tennessee case law suggests an accord, in practice, with the Baker
distinction between full faith and credit with respect to judgments as opposed to laws.
Furthermore, our research has yielded no cases in which either this Court or the
Tennessee Supreme Court has denied full faith and credit to a money judgment issued by
a sister state.
C. Judgments by confession and cognovit notes
There is varied and overlapping terminology used in different jurisdictions when
referring to judgments by confession. A judgment by confession, sometimes called a
cognovit judgment or “judgment on warrant of attorney” is “a grant of authority by one
contracting party to the other, upon the happening of a certain event, i.e., a breach of the
terms of the agreement wherein the warrant is contained, to enter . . . a judgment.” 46
Am. Jur. 2d Judgments § 194 (Aug. 2020 update).6 A judgment by confession may be
secured when a debtor has signed a cognovit note, which is a document or contractual
clause by which he relinquishes the right to notice, a hearing, or appearance at an action
to collect a judgment in the event of breach of contract. 46 Am. Jur. 2d Judgments § 201
(Aug. 2020 update). “The cognovit is the ancient legal device by which the debtor
consents in advance to the holder’s obtaining a judgment without notice or hearing, and
possibly even with the appearance, on the debtor’s behalf, of an attorney designated by
the holder.” D. H. Overmyer Co. Inc., of Ohio v. Frick Co., 405 U.S. 174, 176 (1972).
Such a provision in a promissory note “cuts off every defense, except payment, which the
And, In re Estate of Davis, 184 S.W.3d 231 (Tenn. Ct. App. 2004) and Martin v. Dealers Transp. Co.,
342 S.W.2d 245 (Tenn. Ct. App. 1960) concern the enforcement in Tennessee of contractual provisions
drafted under the laws of other states, not foreign judgments.
6
Some authorities make the following distinction:
If the judgment confessed is with respect to a pending action, it is simply termed the
judgment by confession. If the judgment confessed is made in relation to no action
actually begun, it likewise is a judgment by confession, but for the purpose of
distinguishing it, it is termed a judgment on warrant of attorney.
63 Ohio Jur. 3d Judgments § 250.
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maker of the note may have against enforcement of the note.” 46 Am. Jur. 2d Judgments
§ 201 (Aug. 2020 update).
In Tennessee, a judgment on warrant of attorney is only valid when made after an
action is instituted and there has been service of process in the action. Tenn. Code Ann. §
25-2-101. Thus, cognovit notes or clauses are void under Tennessee statute. See id.
Only a few states recognize judgment by confession by means of a cognovit note that
waives service of process and a hearing.7 One of those states is New York, where the
cognovit under consideration was executed. New York Civil Practice Laws and Rules,
section 3218, states, in relevant part:
[A] judgment by confession may be entered, without an action . . . for
money due . . . upon an affidavit executed by the defendant[,] stating the
sum for which judgment may be entered, authorizing the entry of judgment,
and stating the county where the defendant resides . . . . The judgment may
be docketed and enforced in the same manner and with the same effect as a
judgment in an action in the supreme court.
N.Y. CPLR. 3218 (McKinney).8
Tennessee courts have not previously addressed the specific issue of whether to
accord full faith and credit to a judgment by confession obtained by means of cognovit
from a sister state. When other jurisdictions have confronted the issue, the question has
turned on whether the underlying cognovit note or clause denies the debtor due process of
law. E.g. Fiore v. Oakwood Plaza Shopping Ctr., Inc., 585 N.E.2d 364, 368 (N.Y. 1991)
(stating that for recognition of a foreign cognovit judgment, “it must be determined that
the judgment debtor made a voluntary, knowing and intelligent waiver of the right to
notice and an opportunity to be heard”); Commercial Nat. Bank of Peoria v. Kermeen,
275 Cal. Rptr. 122, 126 (Cal. Ct. App. 1990) (denying full faith and credit to a cognovit
7
Michigan courts, for example, uphold judgments by confession provided that the underlying
cognovit was presented to the signer as a separate and distinct instrument rather than “inserted
surreptitiously by the drafter in an attempt to mislead the unwary signer.” USA Jet Airlines, Inc. v.
Schick, 247 Mich. App. 393, 399 (2001); Mich. Comp. Laws Ann. § 600.2906 (West). Virginia
recognizes cognovit notes by statute (see Va. Code Ann. § 8.01-432 (West); Pate v. S. Bank & Tr. Co.,
203 S.E.2d 126, 128 (Va. 1974)), as does Ohio (see Ohio Rev. Code Ann. § 2323 (West); Henry Cty.
Bank v. Stimmels, Inc., 992 N.E.2d 1153, 1159 (Ohio Ct. App. 2013)). In the states in which they are
recognized, cognovit notes are valid only in commercial transactions, as they are deemed an “unfair act or
practice” in consumer transactions under Federal Trade Commission rules. 16 C.F.R. § 444.2
8
An August 30, 2019, amendment to N.Y. CPLR. 3218 ends the use of the statute where the
debtor has no residence-based connection to New York (or if not a natural person, the debtor must have a
place of business in New York). The amended statute operates prospectively from the date it was passed
into law, and, thus, does not bear on this cause of action. NY LEGIS 214 (2019), 2019 Sess. Law News
of N.Y. Ch. 214 (S. 6395) (McKinney).
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contained within “a bank’s preprinted promissory note form, [because it] does not,
without more, show a voluntary and knowing waiver of the fundamental due process
rights to notice and hearing”); see also N. Ohio Bank v. Ket Assocs., Inc., 253 N.W.2d
734, 735 (Mich. Ct. App. 1977) (stating that there is a defense to a cognovit note when
“the particular notes in question and procedure employed in entry of judgment, were so
repugnant to due process as to deprive the rendering court of jurisdiction”). The U.S.
Supreme Court has stated that “due process rights to notice and hearing prior to a civil
judgment are subject to waiver” (Overmyer, 405 U.S. at 185); and therefore, “a cognovit
clause [in a contract] is not, per se, violative of Fourteenth Amendment due process,” but
that it may be so under some circumstances, such as “where the contract is one of
adhesion, where there is great disparity in bargaining power, and where the debtor
receives nothing for the cognovit provision” (Id. at 187–88).
Likewise, we hold that a foreign money judgment resulting from a cognovit note
or clause that was entered into with a knowing, voluntary waiver of the right to notice
and an opportunity to be heard must enjoy full faith and credit in Tennessee, in accord
with the Constitutional mandate as described in Baker.
The record before us shows that the foreign judgment in the case at bar is a money
judgment made by a New York court in accordance with the laws of that state; that the
judgment was entered in accordance with the UEFJA procedures; that Defendants were
afforded the opportunity to be heard by the trial court on the merits of the defenses to
enrollment and enforcement of the foreign judgment, as required by the UEFJA; and that
Defendants have not raised a due process issue. Accordingly, we conclude that the New
York judgment must be accorded full faith and credit.
IV. CONCLUSION
Based on the foregoing, we affirm the trial court’s grant of summary judgment in
favor of Capital Partners Network OT, Inc. Costs of this appeal are taxed to Akbar Arab,
TNG Contractors, LLC, and M & A Development, LLC. The case is remanded for such
further proceedings as may be necessary and consistent with this opinion.
_________________________________
JOHN W. MCCLARTY, JUDGE
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