Termnet Merchant Services, Inc. v. Yvonne Marson

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_____________________________ FILED
U.S. COURT OF APPEALS
No. 04-16144 ELEVENTH CIRCUIT
APRIL 17, 2006
_____________________________
THOMAS K. KAHN
CLERK
D. C. Docket No. 04-01026-CV-WSD-1
TERMNET MERCHANT SERVICES, INC.,
Plaintiff-Appellant,
versus
YVONNE MARSON,
Defendant-Appellee.
_________________________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________________________
(April 17, 2006)
Before EDMONDSON, Chief Judge, BLACK and FAY, Circuit Judges.
PER CURIAM:
This appeal involves the full faith and credit clause of the federal
Constitution and the requirements of due process as a limit on the application of
full faith and credit.
The case arose from a dispute about whether Termnet Merchant Services,
Inc. was obligated to process American Express charges for a business operated by
Yvonne Marson. In 2001, Marson sued Termnet in West Virginia state court for
damages then uncertain in amount. Marson later applied to that court for default
judgment against Termnet, and the court entered a default judgment for damages
of $8,146.00, to cover the disputed credit charges and fees Marson paid an
accountant to audit her records, plus costs and interest against Termnet. Termnet
sought unsuccessfully to have West Virginia courts set aside the default judgment.
Termnet then initiated the present action seeking a declaratory judgment in a
Georgia federal court that the West Virginia judgment was not entitled to full faith
and credit because the judgment violated Termnet’s due process rights and, that
therefore, Termnet’s suit in Georgia was not barred by res judicata. The complaint
also alleged breach of contract and fraud.
Marson moved for summary judgment, and Termnet moved for partial
summary judgment on the declaratory judgment claim. The district court granted
Marson’s motion and denied Termnet’s motion. Termnet now appeals the district
court’s grant of summary judgment to Marson and denial of Termnet’s motion for
partial summary judgment. We conclude that the state judgment did not violate
Termnet’s due process rights and affirm the judgment of the district court.
2
We accept that, in a jurisdiction which, by rule or statute, expressly requires
notice to a party before entry of a judgment for damages (if the party has already
“appeared” in the litigation), an entry of such a judgment against such a party (at
least when the party is not represented by legal counsel) without notice is a denial
of due process within the meaning of the federal Constitution. West Virginia
procedural rules entitle a party that has “appeared” in a case to three days written
notice before a default judgment hearing.1 W. Va. R. Civ. P. 55(b)(2). Termnet
argues that it appeared in the case when its Chairman of the Board telephoned
Marson’s attorney after Termnet received the summons. Marson has admitted that
this conversation, in fact, occurred and that Termnet’s intention to oppose the
lawsuit was discussed in it. If Termnet “appeared” in the case and did not receive
notice before default judgment was entered, then Termnet’s procedural due
process rights were violated.2 Roxford Foods, Inc. v. Ford, 12 F.3d 875, 881-82
1
Notice is not required before a trial court finds default on liability. Notice is only required before
the court determines damages and enters default judgment. Farm Family Mut. Ins. Co. v. Thorn
Lumber Co., 501 S.E.2d 786, 790, 792 (W. Va. 1998).
2
Although the West Virginia Supreme Court has said that “default judgments entered without
notice are voidable, but are not void,” Hartwell v. Marquez, 498 S.E.2d 1, 11 (W. Va. 1997), West
Virginia cannot insulate its judgments from the requirements of the due process clause. Kremer v.
Chemical Constr. Corp., 102 S.Ct. 1883, 1897-98 (1982) (“A State may not grant preclusive effect
in its own courts to a constitutionally infirm judgment, and . . . federal courts are not required to
accord full faith and credit to such a judgment.”) About the pertinent default judgment underlying
this case, we are aware that the West Virginia Supreme Court has written, in the context of an appeal
about a state trial court’s jurisdiction to issue contempt sanctions against Termnet, that “the
underlying judgment in this case is valid and enforceable. When this Court refused to hear
3
(9th Cir. 1993) (determining failure to provide notice to defendant before default
judgment hearing violated due process, when defendant had appeared in the case
and thus was entitled to notice by Fed. R. Civ. P. 55(b), which is identical in
relevant part to the West Virginia rule); see Bass v. Hoagland, 172 F.2d 205, 210
(5th Cir. 1949)3 (determining failure to provide notice to defendant who had filed
answer, and who was thus entitled to notice by Fed. R. Civ. P. 55(b), violated due
process).
The question is whether, at the time default judgment was entered, West
Virginia law considered a layperson’s oral communication an appearance for Rule
55(b). A “yes” answer is not obvious from the Rule itself. Termnet argues that a
1998 West Virginia Supreme Court case, Farm Family Mutual Insurance Co. v.
Thorn Lumber Co., held that oral discussions constitute appearances for Rule
55(b). 501 S.E.2d 786, 792 n.9 (W. Va. 1998). A footnote in the opinion said that
an appearance for Rule 55(b) “may consist only of letters or conversations.” No
other West Virginia Supreme Court case prior to the pertinent default judgment
suggested that oral communication was an appearance. Marson disputes that oral
Petitioner’s appeal of that judgment, it became the law of the case.” West Virginia ex rel. Termnet
Merchant Servs., Inc. v. Jordan, 619 S.E.2d 209, 215 (W. Va. 2005).
3
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc), this Court adopted
as binding precedent all Fifth Circuit decisions rendered prior to October 1, 1981.
4
discussions constituted appearances, arguing that an earlier West Virginia
Supreme Court case, in which the court had decided that oral communications
between lawyers did not constitute an appearance, controlled when the default
judgment underlying this case was entered. See generally Intercity Realty Co. v.
Gibson, 175 S.E.2d 452 (W. Va. 1970).4
The outcome-determinative issue is whether Farm Family held that oral
communication could be an appearance or if the quoted language along that line
was dicta. The holding, that is, the binding legal principle of a case, depends on
the specific matter then being decided by the court rather than on every judicial
pronouncement in the opinion. The true holding is inherently limited to the facts
treated as material by the pertinent court and to the decision the court reached on
those facts.
Most of the Farm Family opinion examined the key question before the
court: whether the damages sought in a complaint constituted a sum certain for
the purpose of applying W. Va. R. Civ. P. 55(b). The Farm Family court decided
4
About six months after the default judgment pertinent to this case was entered, the West Virginia
Supreme Court “disapprove[d] of the language in Intercity Realty suggesting that oral
communication does not satisfy the appearance requirement of Rule 55(b)(2).” Cales v. Wills, 569
S.E.2d 479, 486 n.7, 487 (W. Va. 2002) (saying “an ‘appearance’ by an otherwise defaulting party
may consist of any communication to an opposing party that demonstrates either an interest in the
pending litigation, or actual notice of the litigation. The communication may be made in written or
oral form.”) The court decided that the defaulting party “appeared” in Cales when its representative
sent a letter to the plaintiff. Id. at 487.
5
the damages sought were not a sum certain and that the trial court should have
held an evidentiary hearing to determine the proper amount of damages before
granting default judgment under Rule 55(b)(2). It is not material to this outcome
whether the defaulting party had “appeared” in Farm Family. See Farley v.
Economy Garage, 294 S.E.2d 279, 279-80 (W. Va. 1982) (determining Rule
55(b)(2) required the court to hold a hearing to ascertain plaintiffs’ damages when
the damages sought were not a sum certain and noting that defendants had not
appeared in the case). Therefore, the Farm Family opinion’s language about what
would constitute an appearance was dicta.
Termnet had no right to expect notice under Rule 55(b)(2) when no
previous case had held that oral communication constituted an appearance under
that Rule. Because Termnet had no right to expect notice, its procedural due
process rights were not violated when Termnet was not notified about the default
judgment hearing.
Finally, Termnet argues that the state court violated its substantive due
process rights by incorrectly applying West Virginia law in refusing to (1) set
aside the default judgment and (2) enforce the forum selection clause in Termnet’s
contract with Marson. We have reviewed the record and agree with the district
court that Termnet’s claims are meritless.
AFFIRMED.
6