Smith & Loveless, Inc. v. JJID, Inc.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
SMITH & LOVELESS, INC.
Plaintiff,
.. C.A. N0. K15J-Ol162 WLW
v, - 1 Kent County
JJID, INC.,
Defendant.
Submitted: Apn`l 5, 2016
Decided: July 15, 2016
OPINION
Defendant’s Motion to Strike and/or Set Aside Foreign
judgment Pursuant to 8 Del. C. § 383(a).
Denied.
Defendant’s Motion to Strike and/or Set Aside Foreign Judgment
Pursuant to Superior Court Civil Rules 55(c) and 60(b)
Denied.
Patrick Scanlon, Esquire, of LaW Offlces of Patrick Scanlon, P.A., Milford,
Delaware, attorney for Plaintiff.
Kevin A. Guerke, Esquire, of Seitz, Van Ogtrop & Green, PA., Wilmington,
De1aWare and Paul A. Logan, Esquire, of Powell, Trachtman, Logan, Carrle &
Lombardo, P.C., King of Prussia, Pennsylvania; attorneys for Defendant.
WITHAM, R.J.
Smith & Loveless, Inc. V. JJID, Inc.
C.A. N0. Kl5J-()1 162 WLW
July l5, 2016
Before the Court are two separate motions related to the efforts of Plaintiff
Smith & Loveless, Inc. ("S&L") to file the judgment of a Kansas court against
Defendant JJID, Inc. ("JJID"). JJID first claims that S&L is barred from bringing
any action in the courts of this State because S&L is doing business in Delaware
and has not properly registered as a foreign corporation as required by 8 Del. C. §
371. JJID next claims the Kansas judgment should be set aside under Superior
Court Civil Rules 55(c) and 60(b) because JJID was not subject to in personam
jurisdiction in the courts of Kansas, a meritorious defense exists, and S&L made
misrepresentations to the Kansas court to obtain the judgment. For the following
reasons, JJID’s motions to strike and/or set aside the judgment of the District Court
of Johnson County, Kansas based on 8 Del. C. § 383 and to strike and/or set aside
the judgment pursuant to Rules 55(c) and 60(b) are DENIED.
FACTUAL AND PROCEDURAL BACKGROUND
JJID is a Delaware corporation with its principal place of business located in
Delaware. S&L is a Kansas corporation with its principal place of business located
in Kansas. In July 2014, S&L made a written offer to sell JJID a pumping station
that was to be incorporated into a waste water treatment facility in Dover,
Delaware. The offer stated that the pumping station would be shipped F.O.B.
S&L’s factory in Kansas,‘ and included a forum selection clause designating
Kansas courts as having jurisdiction over any disputes. In September 20l4, JJID
sent a purchase order for the pumping station to S&L via fax. The purchase order
1 F.O.B. (Free On Board) is a shipping term that determines the point where the seller transfers
ownership to the buyer. Because the owner of the goods is responsible for damage or loss during
shipment, the F.O.B. point determines liability.
2
Smith & Loveless, Inc. V. JJID, Inc.
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directly related to a sale in interstate commerce is not inherently local in nature.
Because S&L has stated that it does not maintain offices or employees in
Delaware, a contention that was not challenged by JJID, the Court must assume
that any warranty work will be completed by S&L employees who will come to
Delaware for the sole purpose of performing the warranty work before returning
home. Moreover, as JJID noted in its reply brief`, "[t]he warranty was a
requirement of the City of Dover and of the JJID contract.""’ For these reasons, the
Court finds that the warranty services to be provided by S&L are relevant and
appropriate to the contract and not inherently local. The Court therefore finds that
S&L is exempted from complying with section 371 because the contract is
interstate in character.
T he filing of a foreign judgment under the Uniform Enforcement of
Foreign judgments Act as codified in 10 Del. C. § 4 781 et seq. is not
an "action " as contemplated by 8 Del. C. § 383.
The Uniform Enforcement of Foreign Judgments Act ("UEFJA") is codified
at 10 Del. C. §§ 478l et seq. Section 478l defines a "foreign judgment" as "any
judgment, decree or order of a court of the United States or of any other court
which is entitled to full faith and credit in this State." Section 4782 allows a copy
of any foreign judgment to be filed in the office of the prothonotary and orders that
the prothonotary treat "the foreign judgment in the same manner as a judgment of
the Superior Court of this State."“ Section 4786 states that "[t]he right of a
14 1d. at 9 n.7.
15 10 Del. c_ § 4782 sraces;
A copy of any foreign judgment authenticated in accordance with an act of
Congress, or the statutes of this State, may be filed in the office of any
ll
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C.A. NO. KlSJ-Ol 162 WLW
July l5, 2()16
judgment creditor to bring an action to enforce a judgment, instead of proceeding
under this subchapter, remains unimpaired." The language of the UEFJA
differentiates between a filing under the Act and an action to enforce the judgment.
An action infers a case in controversy. In Application of Buresch, the
Delaware Supreme Court stated that "[a] cause, or a cause of action, is generally
defined as a dispute or controversy between litigants arising out of the
infringement of a civil right or breach of a civil duty.“ In Buresch, the Court was
considering whether it had jurisdiction to hear an appeal from a Superior Court
ruling on an application for a gun permit pursuant to ll Del. C. § l44l. The Court
held that it did not consider a judicial ruling on a license application to be a
judgment entered in a civil case and thus found the Court did not have jurisdiction
to hear the appeal. In thus finding, the Court noted:
In considering applications for permits to carry concealed deadly
weapons, the Superior Court is engaging in an administrative function
delegated by the General Assembly. Over time, the Superior Court
has exercised legislatively delegated administrative functions, e.g., the
appointment of members of school districts pursuant to 14 Del. C. §
505 (1953) (repealed), and the appointment of fence-viewers under 8
Del. C. ch. 57, § 3 (1893) (repealed), Such functions do not involve
the resolution of disputes between private parties in the first instance.
prothonotary of this State. The prothonotary shall treat the foreign judgment in
the same manner as a judgment of the Superior Court of this State. A
judgment so filed has the same effect and is subject to the same procedures,
defenses and proceedings for reopening, vacating or staying, as a judgment of
the Superior Court of this State and may be enforced or satisfied in like
manner.
16 Application of Buresch, 672 A.2d 64, 65 (Del. l996) (citing Black’s Law Dictionary 221 (6th
ed. l990)).
12
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C.A. No. K15J-01162 WLW
July 15, 2016
Nor does the exercise of judicial authority in such instances resolve
controversies between litigants."
The UEFJA refers to actions under the Act as a "filing" on numerous
occasions."‘ Section 4782 allows a copy of any foreign judgment to be filed in the
office of the prothonotary; Section 4785 notes that the fee for filing a foreign
judgment is the same amount required for the filing of a civil action.” Section
4786 states that "[t]he right of a judgment creditor to bring an action to enforce a
judgment, instead of proceeding under this subchapter, remains unimpaired." The
statute clearly differentiates a filing from an action. Moreover, the Buresch
Court’s definition of an action requires a dispute or case in controversy and
differentiates actions from administrative functions.
In the case sub judz'ce, the case in controversy was settled when a judgment
was entered in the courts of Kansas. S&L’s attempt to register that judgment with
the Delaware Superior Court is not an action. lt is nothing more than a filing or an
administrative function, and does not implicate judicial authority in a way that
" 1a at 65-66.
18 See, e.g., 10 Del. C. § 4782 titled Filing and Status of Foreign Judgrnents ("A copy of a
foreign judgment . . . may be filed in the office of the prothonotary of this State" and "[a]
judgment so filed ...."); 10 Del. C. § 4783 titled Notice of Filing ("At the time of the fi1ing,"
"Promptly upon filing," and "after the judgment is filed."); 10 Del. C. § 4785 ("Any person filing
a foreign judgment shall pay to the prothonotary the same amount as is required for the filing of
a civil action in the Superior Court of this State.").
19 10 Del. c. §4785 srates:
Any person filing a foreign judgment shall pay to the prothonotary the same amount
as is required for the filing of a civil action in the Superior Court of this State. Fees
for docketing, transcription or other enforcement proceedings shall be as provided for
judgments obtained in the Superior Court of this State.
13
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C.A. No. Kl5J-Ol 162 WLW
July l5, 2016
would resolve controversies between litigants. Thus, S&L’s filing of its foreign
judgment under the UEFJA is not an "action" as contemplated by 8 Del. C. § 383.2°
T he use of 8 Del. C. § 383 to strike or set aside a sister state ’s
judgment would violate the Full Faith and Credit Clause of the United
States Corzstitution
Article IV, Section l of the United States Constitution states that "Full Faith
and Credit shall be given in each State to the public Acts, Records, and judicial
Proceedings of every other State." "The United States Supreme Court has held
that the full faith and credit obligation is ‘exacting’ and that there is ‘no roving
)9721
public policy exception to the full faith and credit due judgments. In Pyott v.
Louisiana Municipal Police Employees ’ Retirement System, the Delaware Supreme
Court stated that a sister state’s judgment is entitled to full faith and credit even if
enforcing another state’s judgment is repugnant to Delaware law and policy.”
Pyott involved a derivative action, and the Court reasoned that “[u]nder this
20 8 Del. C. § 383 is titled "Actions by and against unqualified foreign corporations," and states:
(a) A foreign corporation which is required to comply with §§ 371 and 372 of
this title and which has done business in this State without authority shall not
maintain any action or special proceeding in this State unless and until such
corporation has been authorized to do business in this State and has paid to the
State all fees, penalties and franchise taxes for the years or parts thereof
during which it did business in this State without authority. This prohibition
shall not apply to any successor in interest of such foreign corporation.
(b) The failure of a foreign corporation to obtain authority to do business in
this State shall not impair the validity of any contract or act of the foreign
corporation or the right of any other party to the contract to maintain any
action or special proceeding thereon, and shall not prevent the foreign
corporation from defending any action or special proceeding in this State.
21 Pyott v. La. Mun. Police Employees ’ Ret. Sys., 74 A.3d 612, 616 (Del. 20l3) (quoting Baker v.
Gerieral Motors Corp., 522 U.S. 222, 232-33 (1998)).
22 1a
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C.A. No. KlSJ-Ol 162 WLW
July l5, 2016
Court’s precedents, the undisputed interest that Delaware has in governing the
internal affairs of its corporations must yield to the stronger national interests that
all state and federal courts have in respecting each other’s judgments."”
The Delaware Supreme Court has acknowledged that section 383 "was
designed, at least partially, as a revenue generating measure."z" Section 383 was
also intended "to prevent a non-qualified foreign corporation from invoking the
processes of the Delaware court system to the disadvantage of a Delaware resident
or qualified entity as a penalty for refusal to pay the applicable franchise fee."”
However, just as Delaware’s undisputed interest in goveming the intemal affairs of
its corporations must yield to the stronger national interests, so too must
Delaware’s interests embodied in section 383 yield to the stronger national interest.
The Court finds that requiring compliance with section 383 under the
circumstances of this case would violate the Full Faith and Credit Clause of the
United States Constitution.
II. Motion of Defendant JJID, Inc. T0 strike and/or set aside foreign
judgment pursuant to Superior Court Civil Rules 55(c) and 60(b)
The Judgment of the District Court of Johnson County, Kansas,
will not be Vacated Because Jurisdiction was proper under the
53 ld.
24 Hudson Farms, Inc. v. McGrellis, 620 A.2d 215, 221 (Del. l993). As part of its analysis, the
Court noted "the statute was designed, at least partially, as a revenue generating measure." The
Court further noted that dismissal of a suit would deny a foreign corporation access to the courts
and the corporation would then have no incentive to pay taxes for previously unauthorized
activities The Court held that foreign corporations not in compliance with section 371 could file
suit in Delaware, but could not maintain the action until they were in compliance.
25 ld.
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Smith & L0veless, Inc. V. JJID, Inc.
C.A. No. KlSJ-Ol 162 WLW
July l5, 2016
Kansas Long Arm Statute and the Alleged Misrepresentati0ns to
the Kansas Court Did Not Amount to Extrinsic Fraud
A foreign judgment filed in the Superior Court is treated in the same manner
as a judgment of the Superior Court. A properly filed foreign judgment is
therefore subject to the same procedures, defenses, and proceedings for reopening,
vacating, or staying a` Superior Court judgment, and may be enforced or satisfied in
a like manner.“’ Superior Court Civil Rule 55(c) allows for a default judgment to
be set aside in accordance with Rule 60(b).27 Rule 60(b) allows the Court to
relieve a party from final judgment under certain circumstances, including fraud,
misrepresentation, or misconduct, or if the judgment is void.” "The grounds for
26 10 Del. C. § 4782 states:
A copy of any foreign judgment authenticated in accordance with an act of
Congress, or the statutes of this State, may be filed in the office of any
prothonotary of this State. The prothonotary shall treat the foreign judgment in
the same manner as a judgment of the Superior Court of this State. A
judgment so filed has the same effect and is subject to the same procedures,
defenses and proceedings for reopening, vacating or staying, as a judgment of
the Superior Court of this State and may be enforced or satisfied in like
manner.
27 Super. Ct. Civ. R. 55(c) is titled Setting Aside Default Judgrnent and states "[t]he Court may
set aside a judgment by default in accordance with Rule 60(b)."
28 Super. Ct. Civ. R. 60(b) states:
On motion and upon such terms as are just, the Court may relieve a party or a
party’s legal representative from a final judgment, order, or proceeding for the
following reasons: (l) Mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence which by due diligence could not have been
discovered in time to move for a new trial under Rule 59(b); (3) fraud
(whether heretofore denominated intrinsic or extrinsic), misrepresentation or
other misconduct of an adverse party; (4) the judgment is void; (5) the
judgment has been satisfied, released, or discharged, or a prior judgment upon
which it is based has been reversed or otherwise vacated, or it is no longer
equitable that the judgment should have prospective application; or (6) any
16
Smith & L0veless, Iric. I/. JJID, Inc.
C.A. NO. Kl5J-Ol 162 WLW
July 15, 2016
reopening or vacating a foreign judgment are limited to ‘lack of personal or subject
matter jurisdiction of the rendering court, fraud in procurement (extrinsic),
satisfaction, lack of due process, or other grounds that make a judgment invalid or
unenforceable. "’29
The District Court of johnson County, Kansas, did have personal
jurisdiction over JJID
"It is fundamental that for a judgment to take effect in another jurisdiction
under the Full Faith and Credit Clause, there must be first established personal
7130
jurisdiction over the defendant. To determine whether personal jurisdiction
existed in the case sub judice, the Court must look to the Kansas long arm statute.
Like Delaware, Kansas applies a two-step analysis to determine whether a Kansas
court has personal jurisdiction.” A Kansas court first determines if there is
jurisdiction under the Kansas long ann statute as codified at K.S.A. 60-308(b). If
60-3()8(b) is satisfied, the Kansas court then determines whether the exercise of
personal jurisdiction would comply with the due process requirements of the
Fourteenth Amendment of the United States Constitution. The Kansas Supreme
Court has held that "[t]he Kansas long arm statute is liberally construed to assert
other reason justifying relief from the operation of the judgment. A motion
under this subdivision does not affect the finality of a judgment or suspend its
operation.
29 E.R.G. v. soda Ren¢al servs, lnc., 1988 wL 22346, ar *2 (Del. super. Mar. 4, 1988) (quoting
Matson v. Matson, 333 N.W.2d 862, 867 (Minn. 1983)).
3° Id_ (¢icing Lewzs v. Hanson, 128 A.2d 819, 831-32 (Del. 1957)).
31 Kluin v. American Suzuki Motor Corp., 56 P.3d 829, 834 (Kan. 2002).
17
Smith & Loveless, Inc. V. JJlD, Inc.
C.A. N0. Kl5J-01 162 WLW
July l5, 2016
personal jurisdiction over nonresident defendants to the full extent permitted by the
due process clause of the Fourteenth Amendment to the U.S. Constitution."”
Kansas statute 60-308(b) states that a person submits to the jurisdiction of
the courts of Kansas when, inter alia, that person transacts any business in Kansas,
or that person enters into a contract, express or implied, by mail or otherwise, with
a resident of Kansas to be performed in whole or in part by either party in Kansas.
The defendant does not need to be physically present in the State to transact
business within the meaning of the statute.”
In Aspen Products, Inc. v. Glob'al Distributors, Inc., the plaintiff filed suit to
recover contract damages after not being paid in full for paper plates that were
manufactured in Kansas.“ The Plaintiff, whose principal place of business was in
Lenexa, Kansas, entered into an oral agreement with an Illinois corporation whose
principal place of business was in Chicago. After receiving a bill for the
manufacture of the paper plates, the defendant sent a partial payment to the
plaintiff The plaintiff sued for the balance in the courts of Kansas, and the
defendant challenged jurisdiction. On appeal, the Appeals Court of Kansas noted
that K.S.A. 60-308(b)(5) confers jurisdiction when a person enters an express or
implied contract with a resident of Kansas when the contract is to be performed in
whole or in part by either party in Kansas. The court found that (l) the paper
plates ordered by the defendant were manufactured in Kansas, and (2) the
3:/011? Delta Res., Inc. v. Devine, 740 P.Zd 1089, 1092 (Kan. l987).
33 Envtl. Ventures, Inc. v. Ala'a Ser'vs. Corp., 868 P.2d 540, 544 (Kan. Ct. App. l994).
34 Aspen Proa's., Inc. v. Global Distribs., Inc., 947 P.2d 49, 50 (Kan. Ct. App. l997).
18
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C.A. No. KISJ-Ol 162 WLW
July 15, 2016
defendants made partial payment on the contract, and that the defendant had
therefore subjected itself to the jurisdiction of the Kansas courts.
ln the case sub judice, JJID sent a purchase order to the offices of S&L in
Kansas, and the pump station was manufactured in Kansas. JJID claims they have
never been present within the State of Kansas, but physical presence is not a
requirement.” They claim they have never transacted business in Kansas, but they
sent a purchase order to S&L in Kansas. JJID contends that the purchase order
operated as an offer to purchase a pump station from S&L, and the signature of
S&L operated as an acceptance."’“ Under JJID’s scenario, the contract was formed
in Kansas. JJID denied that the purchase order contained a forum selection clause,
but that is irrelevant if Kansas is able to claim personal jurisdiction through their
long arm statute. JJID also claims S&L has not proven that the pump station was
manufactured in Kansas, but the Order of the District Court, Johnson County,
Kansas, found that the contract "was performed in this State where the subject
pump station (for which payment is sought herein) was custom built by Plaintiff
Smith & Loveless, lnc." The case is much like the Aspen Proa'ucts case in that a
contract was reached between the parties, and after the manufacture of the ordered
goods, payment was withheld. The holding of Aspen Products applies here.
Because the pumping station was manufactured in Kansas, JJID is subject to
personal jurisdiction in Kansas per K.S.A. 60-3()8(b)(5).
35 sea ag., Mooaa v. Iat'z Lifa bia co., 355 U.s. 220 (1957) (hoidiog that a california oourt
could exercise jurisdiction over a Texas insurance company that had never solicited or done
business in California apart from a single insurance policy that became its responsibility after
assuming the obligations of the insurance company issuing the policy).
36 Def. Mot. to Strike pursuant to Super. Ct. Civ. R. 55(c) and 60(B)(4.6) at ll.
l 9
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C.A. NO. Kl5J-Ol 162 WLW
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Because 60-308(b) applies, the Court must look to the second part of the
analysis and ask whether jurisdiction complies with the due process clause of the
Fourteenth Amendment. Both Kansas and Delaware use the minimum contacts
analysis required by International Shoe v. State of Washington, Ojj‘z`ce of
Unemployment Compensatz`on and Placement” and its progeny.” In the landmark
case of International Sh0e, the United States Supreme Court found that a state may
exercise personal jurisdiction over a person who is not physically present within
the state when that person has "certain minimum contacts with it such that the
maintenance of the suit does not offend traditional notions of fair play and
substantial justice."” In subsequent decisions, the Court held that individuals must
have "fair warning" that an activity may subject them to jurisdiction in another
State. In Burger King Corp. v, Rudzewicz, the Court explained:
[W]here the defendant ‘deliberately’ has engaged in significant
activities within a State, . . . or has created ‘continuing obligations’
between himself and residents of the forum, . . . [the defendant]
manifestly has availed himself of the privilege of conducting business
there, and because his activities are shielded by ‘the benefits and
protections’ of the forum’s laws it is presumptively not unreasonable
to require him to submit to the burdens of litigation in that forum as
well."°
37 Int’l Sho;z v. State of Washington, Ojfice of Unemployment Comp. and Placement, 326 U.S.
310 (l945).
38 See Hazout v. Tsang Mun Ting, 134 A.3d 274, 278 (Del. 2016); Envtl. Ventures, Inc., 868
P.2d at 545.
39 1»1¢’1Sh0e,326 U.S. ar 316.
"° Burger long corp v. Rudzewzcz, 471 U.s. 462, 475-76 (1985).
20
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C.A. NO. Kl5J-()l 162 WLW
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contained terms and conditions on the reverse side, and there was no
acknowledgment of S&L’s written offer. S&L wrote JJID acknowledging the
purchase order and stating that the acknowledgment incorporated the terms in the
unexecuted sales agreement that was sent to JJID in July 2014. JJID contends the
fully executed purchase order is the contract, and that the unexecuted sales
agreement that S&L attempted to incorporate was nothing more than a proposed
amendment that included materially different terrns.
S&L wrote JJID on October l, 2()14, to note that they had yet to receive a
reply from JJID acknowledging the incorporation of the terms of the unexecuted
sales agreement. S&L wrote again on October l4, 2014, and stated that they had
yet to receive a response, and that they were recognizing the unexecuted sales
agreement as an amendment to the purchase order. They advised JJID that they
were proceeding on the understanding that the purchase order, as amended by the
unexecuted sales agreement, was the contract. JJID did not respond to S&L’s
October l4, 2014, letter.
S&L then fabricated and manufactured the pumping station in Lexena,
Kansas. In December 2014, the pumping station was shipped F.O.B. S&L’s
factory in Kansas. JJID alleged that a fiberglass hood on the pumping station was
damaged upon arrival. S&L alleged that in February and March 2015, they
advised JJID to return the pumping station to Kansas for inspection and repair.
Apparently, there was no more communication between the parties until S&L filed
a breach of contract action in the Kansas courts.
Smith & Loveless, Inc. V. JJID, Inc.
C.A. No. Kl5J-Ol 162 WLW
July l5, 2016
The relevant contacts between JJID and Kansas are as follows: (l) JJID sent
a purchase order to S&L in Kansas after receiving a solicitation; (2) JJID entered
into a contract with a corporation whose principal place of business is in Kansas;
(3) under JJID’s proffered scenario, the contract was formed in Kansas when the
purchase order was signed by S&L; and (4) the pumping station ordered by JJID
was designed and manufactured in Kansas. These contacts comply with the
minimum contacts requirement of International Shoe and do not offend traditional
notions of fair play and substantial justice. Moreover, these contacts show that
JJID purposefully directed their activities to the forum state and derived benefits
from those activities. JJID could reasonably foresee that any actions related to the
pumping station might originate in the Kansas courts. Based on the foregoing, the
Court finds that the exercise of personal jurisdiction by Kansas over JJID complies
with the due process clause of the Fourteenth Amendment.
JJID had the opportunity to present any meritorious defenses to the
District Court of Johnson County, Kansas
Superior Court Civil Rule 60(b)(l) provides relief where the judgment was
ordered as a consequence of "mistake, inadvertence, surprise, or excusable
7)41
neglect. When exercising its discretion, this Court pays deference to the policy
favoring disposition of the case on its merits, and generally favors such motions
2
upon almost any reasonable excuse." When considering a motion under Rule
60(b)(l), the Court must first determine whether the conduct of the moving party
‘" super. cr. crv. R. 60(b)(l)
42 keith v. Melvzn L_ Joseph const co., 451 A.zd 842, 846 (Del. super. 1982).
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can be characterized as the conduct of a reasonably prudent person.‘” If the Court
determines that the moving party’s actions can be so characterized, the Court will
grant the motion if the moving party shows (l) the possibility of a meritorious
defense, and (2) that the non-moving party will not suffer substantial prejudice.""
JJlD’s claim that the judgment should be set aside because they have a
meritorious defense to S&L’s claims is properly analyzed in the context of Rule
60(b)(l). To be successful on their motion, JJID must show that their conduct was
that of a reasonably prudent person. In this case, JJID was hauled into the courts
of Kansas. JJID could have responded to the summons in various ways. For
instance, they could have defended the action in Kansas, or they could have
entered a special appearance to contest jurisdiction and venue. However, JJID
chose to ignore the summons. lt appears that JJID did nothing until the default
judgment of the District Court of Johnson County was filed with this Court. The
Court finds that this was not the act of a reasonably prudent person and relief based
upon JJID’s claim of a meritorious defense is denied.
S&L ’s alleged misrepresentation to the Kansas court does not render
the default judgment void
The definition of fraud, misrepresentation, or other misconduct in Rule
60(b)(3) is narrowly construed.‘“ In the context of Rule 60, "courts typically
confine the concept to serious cases of misconduct that threaten ‘the integrity of
43 1d. (citing _Cohen_v. Brandjrivine Raceway Ass’n, 238 A.2d 320, 325 (Del. Super. 1968))_,_
"" Banaglza v. wilmington sav_ Ftmd soc., 379 A.2d 1132, 1135 (Del. 1977).
45 See Smith v. Williams, 2007 WL 2193748, at *4 (Del. Super. July 27, 2007).
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the court and its ability to function impartially.""‘° Thus, relief would be
appropriate where a defendant with a valid legal defense was prevented from
47
maintaining the defense by fraud, misrepresentation, or mistake. The rationale
sustaining this doctrine is stated as follows:
The ground for the exercise of this jurisdiction is that there has been
no fair adversary trial at law. Consequently a distinction is made
between fraud, accident, mistake and the like relating to the subject-
matter of the action and similar elements relating to the conduct of the
suit. Fraud relating to the subject-matter is not of itself sufficient
ground for relief. Where it relates to the conduct of the suit, as where
it prevents a party from asserting his rights, there is no fair adversary
proceeding, and equity will interfere. The courts commonly speak of
the former class as intrinsic and of the latter as extrinsic, fraud, etc.
Thus, it is generally said that it is extrinsic fraud, mistake and the like
which are grounds for relief.‘“‘
Simply stated, relief will not be granted for fraud, misrepresentations, or
misconduct that would be revealed in the normal judicial process, but will be
granted when fraud, misrepresentations, or misconduct impairs the judicial process
itself.
In this case, JJlD claims S&L made misrepresentations to the Kansas court
in that S&L misrepresented the terms of the contract. S&L allegedly represented
to the Kansas court that JJlD had assented to materially different terms such as .;
forum selection and where JJlD would take possession. The type of
‘*“P@s¢@rzv@ v. AG Pazn¢bazl Holdzngs, Inc., 2008 wL 3376199, ar *21 (Dei. ch. Aug. 20, 2008)
(quoting Smith, 2007 WL 2193748 at *4).
47 mason v_ Lay¢on, 107 A. 785, 787(1)¢1. ch. 1919).
48 Id. (quoting 5 Pomeroy’s Equity Jurisprudence (2d. ed.) § 648).
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C.A. No. KlSJ-()l 162 WLW
July l5, 2016
misrepresentations that JJID claims S&L made to the Kansas court were not the
type that would threaten the integrity of the court and its ability to function
impartially. The Kansas court would have uncovered such alleged
misrepresentation in the course of its normal judicial process if JJID would have
defended the action. Because S&L’s conduct did not affect the integrity of the
Kansas court, and because JJID was not prevented from presenting their defense by
fraud, misrepresentation, or mistake, the Court finds that relief cannot be granted
under Rule 60(b)(3).
CONCLUSION
JJID was summoned to appear before the courts of Kansas and ignored the
summons at its own peril. As Plaintiff, S&L chose Kansas as the forum. JJID had
the opportunity to defend the action or to challenge jurisdiction and venue in
Kansas, but chose to allow the process to play out to its detriment. JJID now seeks
to challenge the authority of the Kansas court or to prevent S&L from using the
Delaware courts. JJlD’s challenge is unsuccessful. For the foregoing reasons,
JJlD’s motions to strike or, in the altemative, set aside the foreign judgment are
DENIED.
IT IS SO ORDERED.
24
Smith & Loveless, Inc. V'. JJID, Inc.
C.A. No. Kl5J-0l 162 WLW
July l5, 2016
On April 9, 20l5, a breach of contract action was filed against JJID in the
District Court of Johnson County, Kansas. On April 21, 2015, JJID was served
with a summons and petition. JJID failed to file an answer or otherwise enter an
appearance in the Kansas case. On August 10, 20l5, the Kansas court entered an
order finding JJID in default and scheduled a damages hearing for September l,
2015. S&L claims (and JJID does not dispute) that JJID and its attorney were
given advanced notice of the damages hearing. The damages hearing was held on
September l, 2()15, with no appearance on behalf of JJID. The Kansas court
entered a judgment against JJID in the amount of $92,607.5(). On September 24,
2()15, S&L filed to register the Kansas judgment with this Court. That filing led to
the current motions by JJID to strike and/or set aside the default judgment.
DISCUSSION l
I. Motion of Defendant JJID, Inc. to strike and/or set aside foreign
judgment for lack of legal capacity pursuant to 8 Del. C. § 383(a)
Title 8, Sections 371 et seq. do not prevent Smith & Loveless from
filing a foreign judgment in Delaware.z
Whether failure to register as a foreign corporation will prevent a judgment
creditor from filing a foreign judgment in the State of Delaware is an issue of first
impression for this Court. An attempt to enforce a foreign judgment implicates not
only Delaware Statutory law, but Federal Constitutional law as well. Before
passing judgment, the Court must consider whether exceptions contained in 9 Del.
2 JJID has alleged that S&L has engaged in many transactions over the years that would subject
S&L to the provisions of section 383; however, there is no specific accusation that any of the
transactions are materially different from the transaction at bar, and the Court will therefore not
consider the circumstances of previous transactions.
4
Smith & L0veless, Inc. I/. JJID, Inc,
C.A. No. Kl 5J-0l 162 WLW
July l5, 2016
C. § 373 exempt S&L from the requirements of 8 Del. C. § 37l, whether the filing
of a foreign judgment is an "action" as contemplated by 8 Del. C. § 383, and
whether State restrictions on a foreign corporation’s ability to seek enforcement of
a sister state’s judgment would run afoul of the United States Constitution’s Full
Faith and Credit Clause.
Smith & Loveless’ transactions fall within the exceptions listed in
8 Del. C. § 3 73 thereby exempting S&L from the requirements of
8 Del. C. § 3 71
Title 8, section 37l(a) of the Delaware Code defines a "foreign corporation"
as "a corporation organized under the laws of any jurisdiction other than this
State." Section 37l(b) prohibits a foreign corporation from doing business in
Delaware without first having paid eighty dollars for the use of this State and
having filed a certificate evidencing its corporate existence with the Secretary of
State.3 However, section 373(a) allows exceptions to these requirements under
certain conditions." S&L claims they are exempt from the requirements of section
37l because they meet the criteria of sections 373(a)(3) and 373(a)(4).
3 8 Del. C. § 371(b) scares;
No foreign corporation shall do any business in this State, through or by
branch offices, agents or representatives located in this State, until it shall
have paid to the Secretary of State of this State for the use of this State, $80,
and shall have filed in the office of the Secretary of State:
(l) A certificate, as of a date not earlier than 6 months prior to the filing
date, issued by an authorized officer of the jurisdiction of its incorporation
evidencing its corporate existence. . . .
The statutory rate to be paid by a foreign corporation was increased from $50 to $80 in
1990. 67 Del. Laws ch. 229, § 1 (1990).
4 8 Del. C. § 373 states in pertinent part:
(a) No foreign corporation shall be required to comply with §§ 371 and 372 of
this title, under any of the following conditions:
5
Smith & Loveless, Inc. V. JJID, Inc.
C.A. No. Kl5J-Ol 162 WLW
July 15, 2016
Section 373(a)(3) exempts a foreign corporation from the requirements of
section 371 if a contract for the sale of machinery or equipment is consummated
outside of this State even though the contract requires the supervision of technical
engineers or skilled employees during installation when such services are not
locally available. The statutory language creates both temporal and substantive
limitations. The temporal limitation limits the exemption to services performed
during construction, erection, or installation, and the substantive limitation limits
the exemption to "such services only."
In this case, S&L contacted JJID to solicit an order for a pump station, and
JJID responded to the solicitation by sending a purchase order to S&L. The order
was subject to the approval of S&L’s corporate office in Lenexa, Kansas, and the
pump station was shipped free on board ("FOB") S&L’s factory in Kansas, The
startup of the pump station required the supervision of persons with technical
expertise that was not generally available in this area, and that supervision was
supplied by S&L. If the transaction was limited to these facts, the transaction
would fall squarely within the temporal limitation which limits the time frame to
* =|¢ *
(3) If it sells, by contract consummated outside this State, and agrees, by the
contract, to deliver into this State, machinery, plants or equipment, the
construction, erection or installation of which within this State requires the
supervision of technical engineers or skilled employees performing services
not generally available, and as a part of the contract of sale agrees to furnish
such services, and such services only, to the vendee at the time of
construction, erection or installation;
(4) If its business operations within this State, although not falling within the
terms of paragraphs (a)(l), (2) and (3) of this section or any of them, are
nevertheless wholly interstate in character; . . .
6
Smith & L0veless, Inc. V. JJID, Inc.
C.A. NO. Kl5J-01 162 WLW
July l5, 2016
that during which construction, erection, or installation services were perforrned.
It would also fall squarely within the substantive limitation which limits services to
only such services as construction, erection, or installation.
However, any services provided under S&L’s one-year warranty would not
be services provided to JJID at the time of construction, erection, or installation.
The one year warranty could require that work be performed at any time within a
one year period subsequent to the installation of the pump station. Therefore, the
warranty services do not comply with the temporal limitation contained in
subsection (a)(3). Moreover, warranty services are not construction, erection, or
installation services and therefore do not comply with the substantive limitation
contained in subsection (a)(?)). Hence, S&L cannot fall within the exception
contained in section 373(a)(3) because warranty services fail to meet the temporal
and substantive limitations.
Section 373(a)(4) excepts a foreign corporation from the requirements of
section 371 if the contract is wholly interstate in character. The United States
Supreme Court has stated that "the right to make an interstate commerce contract
includes in its very terms the right to incorporate into such contract provisions
which are relevant and appropriate to the contract made."$ A comparison of two
early United States Supreme Court cases illustrates the difference between services
which are relevant and appropriate to the sales contract and services which become
local in nature.
§ Y0rk Mfg.TCo. v._ é0lley,1247 U.S. 21, 24-25 (l9l8).
7
Smith & Loveless, Inc. V. JJID, Inc,
C.A. No. Kl5J-Oll62 WLW
July 15, 2016
ln Browning v. Waycross, the Court resolved the question of whether a
contract involving the sales and installation of lightning rods was completely
interstate in nature. The question before the Court was whether a local
municipality had the right to collect a tax against a person who erected the
lightning rods when the "price paid for the rods to the corporation includ[ed] the
duty to erect them without further charge."6 The person erecting the lightning rods
claimed to be an agent of the manufacturer and therefore exempt from the local tax
because the contract was one of interstate commerce. In a subsequent analysis of
the Waycross opinion, the Court noted that because:
the business of erecting lightning rods bore no relevant or appropriate
relation to the contract made for the sale of such rods, it was decided
that the contract for the erection of the rods did not lose its local
character simply because it was made a part of an interstate commerce
contract for the sale of the rods any more than would a contract for
materials with which to build a house cause the building of the house
to be a transaction of interstate commerce and not local business.7
The Waycross Court found the installation of the lightning rods "was wholly
separate from interstate commerce, involved no question of the delivery of
property shipped in interstate commerce, or of the right to complete an interstate
commerce transaction, but concemed merely the doing of a local act after interstate
commerce had completely terminated."g
6 Browning v. Waycross, 233 U.S. 16, 19 (l9l4).
7 York Mfg. c@., 247 U.s. ar 24.
8 Waycross, 233 U.S. at 22-23.
Smith & Loveless, Inc. V. J/ID, Inc.
C.A. No. KlSJ-Ol 162 WLW
July l5, 2016
In York Manufacturz`ng Co. v. Colley, the United States Supreme Court
refined the elements of interstate commerce.° The plaintiff, a Pennsylvania
corporation, entered into a contract with the defendant for the purchase of ice
manufacturing machinery in Texas. The contract required the manufacturer to
supply an engineer to supervise the installation of the machinery and perform
startup tests. When a breach of contract action ensued, the defendant claimed the
plaintiff had maintained an office and transacted business in Texas without
complying with Texas statutes requiring a permit and therefore was not authorized
to prosecute the action. The Court determined the contract was interstate in nature.
lt noted "there can be no doubt that the right to make an interstate commerce
contract includes in its very terms the right to incorporate into such contract
provisions which are relevant and appropriate to the contract made."‘° The Court
° asked if the particular provisions of the contract, specifically the service of an
engineer to assemble and erect the machinery at the point of destination and to test
its efficiency upon delivery, were relevant and appropriate to the interstate sale of
the machinery.“ The Court noted that "[g]enerically this must be unless it can be
said that an agreement to direct the assembling and supervision of machinery
whose intrinsic value largely depends upon its being united and made operative as
a whole is not appropriate to its sale."‘z The Court found that, unlike the
9 Y@rk Mfg. CO., 247 U.s. ar 21.
1° 1a ar 24-25.
“ 1a ar 25.
12 ld.
Smith & L0veless, Inc. V. JJID, Inc.
C.A. NO. Kl5J-01 162 WLW
July l5, 2016
installation of lightning rods in Waycross, the services provided in York were an
integral part of the contract.
In determining whether the contract in the case sub judice is interstate in
nature, York instructs us to ask whether the services provided by S&L, including
warranty services, are relevant and appropriate to the interstate sales contract.
Unlike the installation of lightning rods in Waycross, the startup services provided
by S&L do not take on an inherently local character. S&L’s startup services
require expertise that is not locally available. The intrinsic value of the pump
station largely depends upon its being united and made operative as a part of a
larger system. These services are therefore relevant and appropriate to the
COH'[I`&C'[ .
The warranty services are of a different nature than the installation services.
The warranty services are not necessary to the process of uniting the pump station
to the larger system, but that does not mean they are not relevant and appropriate to
the contract. The pumping station was a custom designed piece of machinery, and
JJID acknowledged that "[t]he warranty is an integral part of the ‘typical
contract."’"’ If installation requires expertise not available in the local area, then it
makes sense that repair work would require expertise not available in the local
area. There is little doubt that the warranty work would take place in Delaware,
but this fact does not ipso facto make the services local in nature. Generic labor
used to install lightning rods is inherently local in nature. Generic labor used to
build a house is inherently local in nature. However, specialized labor that is
13 Reply Br. of Def. JJID, Inc. to Pl. Supplemental Mem. in Opp’n to Def. Mot. to Strike and/or
Set Aside Foreigr1 J. Based on 8 Del. C. § 383, at 9.
lO