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Pennsylvania Appellate Court Affirms Order Granting of Summary Judgment to Title Insurer Based on Survey Exception Banner Image

Pennsylvania Appellate Court Affirms Order Granting of Summary Judgment to Title Insurer Based on Survey Exception

Month: February 2018

Pennsylvania Appellate Court Affirms Order Granting of Summary Judgment to Title Insurer Based on Survey Exception

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The Superior Court of Pennsylvania recently affirmed a trial court’s order granting a title insurance company summary judgment based on a defect that a survey of the premises would have shown.  See Kreider v. Correia, 2018 WL 359285 (Pa. Super. Ct. Jan. 11, 2018).  In the case, the plaintiff insured purchased a property after the lender had obtained it via a foreclosure (the “Property”).  Before plaintiff purchased it, the real estate agent informed him that the Property included a two-car garage and some other surrounding land.  However, the garage and surrounding land were actually part of a separate parcel that, although also owned by the borrowers, was not encumbered by the foreclosed mortgage (the “Parcel”).  Accordingly, the Parcel was not part of the foreclosure and not owned by the lender.  After purchasing the Property, a neighbor informed plaintiff that the Property did not include the garage or the surrounding land.  Plaintiff then had a survey conducted and also discovered that there was a twenty-two foot overlap between the Parcel and the Property.  Plaintiff initiated this lawsuit against the title insurance company, among others, alleging breach of contract based on these title issues.  The title insurance company then moved for summary judgment.  The trial court granted the motion, finding that “[t]he title insurance policy expressly excludes ‘Any encroachments, easements, measurements, variations in area or content, party walls or other. facts which a correct survey of the premises would show.’”  On appeal, the Superior Court affirmed.  It held that “the policy expressly excludes defects that a survey would have shown,” including the boundary issues alleged here.  As such, it dismissed the claim against the title insurance company.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

New Jersey District Court Finds Defendants Liable to Title Insurance Company for Conversion, But Factual Issues Preclude Summary Judgment on Fraud Claim

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In an action by plaintiff title insurance company against defendants for claims of fraud and conversion arising out of defendants’ sale of their house and the use of the proceeds thereafter, the United States District Court for the District of New Jersey granted in part plaintiff’s motion for summary judgment as to the conversion claim, but denied the motion with respect to the fraud claim, acknowledging that plaintiff has put forward circumstantial evidence that the husband committed fraud but ultimately determining that there remains genuine issues of fact.  First Am. Title Ins. Co. v. Sadek, 2017 WL 6663899 (D.N.J. Dec. 29, 2017).  In the case, defendants, a husband and wife, owned a home encumbered by two recorded mortgages.  In October 2005, the husband, who was the primary shareholder of a mortgage banking firm (“FFE”), applied for another loan from FFE in order to refinance the two loans.  The husband signed the promissory note and does not dispute that he prepared the mortgage.  Further, the title search for the refinance was performed by Winthrop Abstract, a company used by FFE to perform the title searches for a significant amount of loans.  The wife and the husband’s mother both held positions at Winthrop Abstract, and the husband received a share of revenue from its New York counterpart.  The refinancing loan was then sold to National City Bank, but the mortgage was never recorded.  Defendants sold their home in March 2006, and did not disclose the sale to National City.  The proceeds of the sale were deposited into defendants’ bank account instead of being used to pay off the outstanding loan.  FFE apparently continued to pay the National City loan for another two and a half years following the closing of the sale of the property.  PNC Bank, successor by merger with National City, then brought this action against defendants and later assigned its rights to plaintiff.

Both parties moved for summary judgment.  First, the Court denied summary judgment with respect to plaintiff’s fraud claim, determining that there is a factual dispute as to whether defendant had knowledge of or a belief as to the falsity of the representation he made to the lender regarding the loan or mortgage.  However, the Court acknowledged that plaintiff’s contentions have merit and that plaintiff put forward circumstantial evidence that the husband committed common law fraud (i.e., defendant does not dispute there was a close relationship between FFE and Winthrop Abstract; that the money from the sale was deposited into his bank account; that he executed the mortgage; that the mortgage from National City went unrecorded; or that the loan continued to be paid by FFE after the closing).  Plaintiff argued that all defendant put forth in opposition was his own self-serving and implausible deposition testimony (i.e., that he was not aware that the loan had not been paid, that he never personally advised his employee at FFE to continue paying the loan, and that he did not know that FFE continued to pay it), but the Court noted that “to weigh the evidence and conclude that [defendant] did or did not knowingly perpetrate a fraud would exceed the bounds of the summary judgment standard.”

Second, the Court granted plaintiff’s motion as to its conversion claim, finding all three elements are established by the undisputed facts: first, by depositing the funds in their own bank account, defendants exercised dominion over the aforementioned identifiable funds and thereby repudiated the superior rights of the lender; second, that defendants did this without authorization; and third, the lender had an undisputed interest in the funds because the promissory note entitled the lender to demand immediate payment of the balance of the loan if defendants sold or transferred their interest in the property without prior consent from the lender.  Thus, plaintiff was granted summary judgment on conversion.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

WOTUS Rule Remains Uncertain Even After U.S. Supreme Court Ruling

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During the Obama Administration, the United States Environmental Protection Agency (“USEPA”) revised the Clean Water Act definition of Waters of the United States (“WOTUS Rule”) to broaden (to some overly so) federal protection of certain waterbodies.  The WOTUS Rule sparked numerous lawsuits in a number of federal District Courts and Courts of Appeals.  The Supreme Court recently decided in National Association of Manufacturers v. Department of Defense, 138 S. Ct. 617 (2018), that challenges to the WOTUS Rule are properly brought in federal District Courts and not in Courts of Appeals, disagreeing with the government’s argument that the Court of Appeals was the proper venue to hear challenges to the WOTUS Rule under the Clean Water Act.

Across the country, certain parties challenging the WOTUS Rule filed suits in District Courts and others filed petitions in Courts of Appeals.  Parties that filed petitions in the Court of Appeals argued that the language of the Clean Water Act allowed them to bring initial challenges to the WOTUS Rule at the appellate level.   The Courts of Appeals cases were consolidated and transferred to the Sixth Circuit where the Sixth Circuit was asked to decide whether it was the proper venue for such cases.  After reviewing the language of the Clean Water Act, the Sixth Circuit found it had jurisdiction over the WOTUS Rule challenges.  The National Association of Manufacturers appealed this Sixth Circuit decision to the Supreme Court and the Supreme Court overturned the Sixth Circuit.

The government argued before the Supreme Court that challenges to the WOTUS Rule fell under two specifically identified conditions set forth in the Clean Water Act where a party can first file in the Court of Appeals rather than the District Court.  These were Subparagraphs E and F of section 1369(b)(1) of the Act.  The Supreme Court reviewed both Subparagraphs and disagreed.

Subparagraph E grants the Courts of Appeals exclusive jurisdiction to review an action by the  USEPA in “approving or promulgating any effluent limitation or other limitation.”  The Court found that the WOTUS Rule was not an “effluent limitation” in that it did not impose a restriction on pollutants that could be discharged into navigable waters.  Instead, according to the Court, the WOTUS Rule is purely a regulatory definition for a statutory term.  The Court also found that “other limitation” as used in subparagraph E must be read to be similar in kind to an “effluent limitation.”  Likewise, the Court refused to read “other limitation” to include the WOTUS Rule.

The Court also found that the WOTUS Rule does not fall under Subparagraph F, which provides Courts of Appeals with exclusive jurisdiction to review any USEPA action “in issuing or denying any permit.”  The Court rejected the government’s argument that the WOTUS Rule was functionally similar to “issuing or denying permits.”  Rather, the Court found that the WOTUS Rule “makes no decision whatsoever on individual permit applications.”

The government also maintained that for public policy reasons the Courts of Appeals should hear the WOTUS Rule challenges, alleging that it would be more efficient and promote uniformity with respect to the interpretation of the WOTUS Rule.  The Court acknowledged that the government’s argument was reasonable, but found that Congress did not authorize this course of action, and therefore, neither could the Court. 

Accordingly, the Supreme Court found that the District Courts have jurisdiction to hear challenges to the WOTUS Rule.  Although the Court’s reasoning is sound, its decision may lead to varying rulings across the country.  In response to this decision, the USEPA suspended the WOTUS Rule for two years allegedly “due to regulatory uncertainty.”   This action by the USEPA has only sparked new litigation questioning the legality of the USEPA’s actions to suspend the Rule.  At this time, the only thing that can be said with confidence about the WOTUS Rule is that its implementation and outcome continues to be the subject of litigation and uncertainty.

For more information, please contact the author Laurie Sands at lsands@riker.com or any attorney in our Environmental Practice Group.

New York’s Second Department Holds Commercial Tenant’s Waiver of the Right to Bring a Declaratory Judgment Action Was Enforceable

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In a matter of first impression, New York’s Second Department recently held that a waiver of the right to declarative relief in a commercial lease was enforceable and not violative of public policy. See 159 MP Corp., et al. v. Redbridge Bedford, LLC, 2018 WL 635946 (2d Dept. Jan. 31, 2018). In the case, the plaintiffs were two related entities that had entered into nearly identical leases for units in the subject building. The rider to each lease contained the following waiver provision:

Tenant waives its right to bring a declaratory judgment action with respect to any provision of this Lease or with respect to any notice sent pursuant to the provisions of this Lease. Any breach of this paragraph shall constitute a breach of substantial obligations of the tenancy, and shall be grounds for the immediate termination of this Lease. It is further agreed that in the event injunctive relief is sought by Tenant and such relief shall be denied, the Owner shall be entitled to recover the cost of opposing such an application, or action, including its attorney’s fees actually incurred, it is the intention of the parties hereto that their disputes be adjudicated via summary proceedings.

On March 12, 2014, the defendant landlord served each plaintiff with a Notice to Cure alleging that the plaintiffs had breached several provisions of their leases relating to the failure to obtain various permits, the creation of fire hazards, the existence of nuisances, and the refusal to allow the Fire Department to inspect the sprinkler system. The Notice to Cure also demanded that the alleged lease violations be cured within 15 days or the defendant would terminate the tenancies and thereafter commence summary proceedings to recover possession of the premises. In response, and before the expiration of the cure period, the plaintiffs commenced an action in the Kings County Supreme Court for a judgment declaring that the two commercial leases were in full force and effect and that the plaintiffs were not in violation of their obligations under the leases. Additionally, the plaintiffs moved for a Yellowstone injunction staying and tolling the cure period and enjoining the defendant from terminating the leases or commencing a summary proceeding for eviction.

The defendant asserted that the plaintiffs had “contractually waived the right to seek injunctive relief,” and cross-moved for summary judgment seeking dismissal of the plaintiffs’ complaint due to that waiver. Additionally, based on the waiver language, the defendant asserted that the very act of commencing an action for declaratory relief constituted a breach of the plaintiffs’ contractual obligations, which provided sufficient grounds for terminating the tenancies.

Ultimately, the trial court denied the plaintiffs’ application for a Yellowstone injunction. The court distilled that, “although the leases did not expressly prohibit Yellowstone applications, such relief was nevertheless encompassed within the broader provisions in the riders that prohibited declaratory actions.” The trial court interpreted the waiver of declaratory remedies provision as an agreement to resolve contractual disputes through the mechanism of summary proceedings. The trial court further explained that the waiver of declaratory remedies did not prevent any of the parties from performing the agreements, or from commencing actions seeking damages for either breach of contract or tortious conduct.

In upholding the trial court’s decision, the Second Department first held that, pursuant to the plain meaning of the waiver provisions contained in the lease riders, the plaintiffs expressly waived both declaratory and Yellowstone relief. In reaching this decision, the Court analyzed the rest of this lease provision, which further evidenced the parties’ mutual intent to adjudicate disputes by means of summary proceedings. Moreover, the Court disagreed with the plaintiffs’ argument that there was a distinction between a prohibited declaratory judgment on the one hand, and permissible Yellowstone relief on the other. The Court explained that “[b]y nature and definition, a Yellowstone injunction springs from the declaratory judgment action that gives rise to it.”

The Court also considered whether the waiver of declaratory relief would violate public policy. In addressing this issue, the Court noted that the parties were sophisticated entities that negotiated at arm’s length and entered into lengthy and detailed leases defining each party’s rights and obligations with great apparent care and specificity. The Court further explained that “to hold that the waiver of declaratory judgment remedies in contractual leases between sophisticated parties is unenforceable as a matter of public policy does violence to the notion that the parties are free to negotiate and fashion their contracts with terms to which they freely and voluntarily bind themselves.” The Court accepted the notion that parties to a contract must ordinarily remain free to make the agreements they wish on terms they deem satisfactory, no matter how unwise it might appear to a third party. The Court also noted that the State Legislature has enacted provisions that identify non-waivable rights in leases, such as the right of habitability. Because the State Legislature did not enact any prohibition on a tenant’s waiver of declaratory judgment remedies, “this Court, which is not a legislative body, should not attempt to create such a blanket prohibition here.” Finally, the Court held that the provision was enforceable because the plaintiffs were not without remedy, as they could raise these objections in a summary proceeding brought against them or a breach of contract action seeking monetary damages. The Court, therefore, upheld the trial court’s decision to enforce the waivers in the lease riders and declined to strike them.

However, in a lengthy dissenting opinion, Justice Connolly voted to reverse the trial court’s order, holding that such a provision violates public policy and is unenforceable. Justice Connolly explained that it is well settled that a party may only waive a right that is exclusively a matter of private right and where no considerations of public policy come into play. In other words, “when a right has been created for the betterment or protection of society as a whole, an individual is incapable of waiving that right; it is not his to waive.” Thus, Justice Connolly found that the right to bring a declaratory judgment action is not personal to an individual, but rather, such an action serves important societal functions and to waive such a right would be a violation of public policy. In the commercial landlord-tenant context, Justice Connolly found declaratory relief serves a public purpose of allowing a tenant to protect its property interest while contesting the landlord’s assessment of its rights. Finally, Justice Connolly noted that a tenant who waives the right to a declaratory judgment action and is served with a notice to cure is stuck in “a metaphorical limbo” whereby the tenant is unable to determine its future in the property and “would be faced with great uncertainties with respect to any decision-making related to improving the property, accepting deliveries of new stock or merchandise, or the negotiation of any type of long-term agreement with customers or suppliers.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Nicholas Racioppi, Jr. at nracioppi@riker.com, or Sarah Heba-Escobar at sheba@riker.com.

Third Circuit Holds Debt-Collection Letter Offering Settlement of Time-Barred Debt May Violate the FDCPA

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The United States Court of Appeals for the Third Circuit recently reversed a district court’s decision and held that a debt-collection letter that made a settlement offer on a time-barred debt may have violated the Fair Debt Collection Practices Act (“FDCPA”).  See Tatis v. Allied Interstate, LLC, 2018 WL 818004 (3d Cir. Feb. 12, 2018).  In the putative class action, defendant sent a letter to plaintiff stating that it would be “willing to accept payment in the amount of $128.99 in settlement of” plaintiff’s $1,289.86 debt.  The letter did not disclose that defendant could not legally enforce the debt because the statute of limitations had run.  The plaintiff filed this action, alleging that the least sophisticated debtor would interpret the word “settle” to imply a threat of a legal action that cannot be taken, which would constitute a false representation or use of deception to collect a debt in violation the FDCPA.  See 15 USC 1692e.  The defendant filed a motion to dismiss, arguing that a Third Circuit decision previously found that offers to settle time-barred debts do not violate the FDCPA.  The District Court, citing the Third Circuit decision in Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011), agreed and dismissed the action.

On appeal, the Third Circuit vacated the District Court’s decision.  The Court first distinguished the present case from the Huertas case, in which the debt collector sent a letter to a debtor regarding a time-barred debt that asked the debtor to call to “resolve this issue.”  Since the Huertas decision, three other United States Courts of Appeals—in the Fifth, Sixth and Seventh Circuits—have addressed the question of whether offering to “settle” a time-barred debt is misleading under the FDCPA, and all three held that it was misleading because the word “settle” could imply legal action to the least-sophisticated debtor.  The Third Circuit agreed with the rationale of these other courts, and held that “[b]ecause the words ‘settlement’ and ‘settlement offer’ could connote litigation, the least-sophisticated debtor could be misled into thinking Allied could legally enforce the debt.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New York Federal Court Grants Insured’s Motion To Amend Complaint

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The United States District Court for the Southern District of New York recently granted the plaintiff-insured’s motion for leave to amend its complaint and to add its affiliate as a new co-plaintiff over the title insurance companies’ objections.  See Morris Builders, L.P. v. Fidelity National Title Insurance Co. et. al., 2017 WL 5032996 (S.D.N.Y. 2017).  In 1989, the defendant title insurance companies issued title insurance policies to plaintiff to cover plaintiff’s long-term development lease of a property.  In 2011, plaintiff discovered an alleged title defect, namely that portions of the property were dedicated public parkland owned by the city, and put defendants on notice of the same.  The next year, plaintiff entered into a sublease agreement with a tenant to develop a retail store on the parcel of land that contained the alleged title defect.  In 2014, plaintiff commenced a federal action against the parties that had leased the disputed property and, in 2016, the parties settled the lawsuit.  As part of the settlement, plaintiff obtained title to the disputed property.  On that same day, plaintiff assigned the sublease to its affiliate, MWR, and sold MWR the property at issue.  Plaintiff commenced this action against defendants in 2016, and in 2017, the tenant notified plaintiff and MWR that it was going to terminate the sublease, allegedly in part because of the title issue.  Plaintiff then moved to add MWR as a co-plaintiff, to add factual allegations about the sublease, and to seek additional damages attributable to the termination of the sublease.

The Court granted plaintiff leave to amend the Complaint over defendants’ objections.  First, the court held that MWR had standing and could be added as a party—even though it was not an insured under the policy—because MWR was alleged only as a nominal party and did not seek damages separate from plaintiff.  Second, the Court held that plaintiff itself had standing to assert a claim for damages arising from the termination of the sublease because, under the policy, plaintiff could recover for “damages which the insured may be obligated to pay to any sublessee on account of the breach of any sublease of all or part of the land caused by the eviction.”  Although defendants disputed the applicability of this provision to plaintiff, who had assigned the sublease to MWR, the Court found that “this motion to amend is an inappropriate means by which to adjudicate the precise meaning of the title insurance policy” and that defendants would have the opportunity to litigate that issue later in the action.  Finally, the Court held that plaintiff could amend the complaint to add additional damages arising from the sublease because these were not new causes of action.  It did hold, however, that “[d]efendants may . . . challenge plaintiff's damages on a motion for summary judgment or at trial.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New Jersey Appellate Division Holds Entire Controversy Doctrine Bars Law Division Action Regarding Loan Modification After Claim Was Abandoned in Foreclosure Action

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In a decision approved for publication, New Jersey’s Appellate Division recently affirmed that a defendant in a foreclosure action was barred from pursuing a separate action against the lender for fraud by foreclosure under New Jersey’s entire controversy doctrine as well as the principles of res judicata and collateral estoppel. See Adelman v. BSI Fin. Servs., Inc., 2018 WL 636756 (N.J. Super. Ct. App. Div. Jan. 31, 2018). In the case, the defendant lender made a loan to the borrower in 2006, and secured the note with a mortgage on the borrower’s home. The borrower married plaintiff eighteen months later. In 2009, the borrower defaulted on the loan and the lender commenced a foreclosure action against the borrower and plaintiff. They did not contest the foreclosure action, but the borrower began discussing a loan modification with the lender in 2010. On December 14, 2010, a final judgment of foreclosure was entered. The borrower did not object or seek to vacate the final judgment. Instead on June 30, 2011, he and plaintiff filed this action in the Law Division in which they argued that the borrower and the lender had entered into a modification agreement in 2010 that the lender then breached. The property nonetheless was sold at a sheriff’s sale in 2012 and, when the lender filed a motion for possession of the property in 2013, the borrower and plaintiff raised this modification argument in opposition. The court nonetheless granted the lender’s motion for possession, and plaintiff and the borrower filed an appeal in the foreclosure action. After the borrower died in 2014, plaintiff withdrew the foreclosure appeal and vacated the home. In 2015, plaintiff amended the complaint in the Law Division action to add claims for breach of contract and violation of the Consumer Fraud Act, among others. The trial court dismissed these claims because plaintiff was not a party to the loan documents at issue, and later granted summary judgment on the remaining claims based on the entire controversy doctrine, res judicata and collateral estoppel. This appeal followed.

The Appellate Division affirmed the trial court’s decision. Under Rule 4:64-5, only germane counterclaims may be raised in foreclosure actions without leave of court, and the failure to raise them can result in the germane claims being barred under the entire controversy doctrine. Here, the Court held that the allegation that the parties had entered into a loan modification that cured the default was a “fundamental defense” to the lender’s right to foreclose that was required to be brought in the foreclosure action. Indeed, plaintiff and the borrower raised this defense in the foreclosure action, albeit belatedly, but did not pursue the appeal on that argument after the trial court rejected it. The Court further held that, even if the issue was not fully litigated in the foreclosure action, that was only because plaintiff failed to timely raise it and then later abandoned it. Thus, “[b]ecause the loan modification issue should have been fully and timely litigated during the previous foreclosure proceedings, the entire controversy doctrine, res judicata, and collateral estoppel prevent plaintiff from raising the issue in an independent lawsuit.” This is a significant victory for lenders who are often ensnared in fights over their good faith in negotiating and consummating loan modifications.

For a copy of the statute, please contact Michael O’Donnell at modonnell@riker.com.

Tenth Circuit Holds FDCPA Does Not Apply to Non-Judicial Foreclosures

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The United States Court of Appeals for the Tenth Circuit recently joined the Ninth Circuit and affirmed a district court’s holding that the Fair Debt Collection Practices Act (“FDCPA”) does not apply to a non-judicial foreclosure.  See Obduskey v. Wells Fargo, 2018 WL 477257 (10th Cir. Jan. 19, 2018).  In the case, plaintiff defaulted on his loan, and defendant law firm sent a letter to plaintiff stating that it “MAY BE CONSIDERED A DEBT COLLECTOR ATTEMPTING TO COLLECT A DEBT” and that it was “instructed to commence foreclosure against” plaintiff’s property.  Plaintiff responded to the letter to dispute the debt, but defendant nonetheless initiated a foreclosure.  Plaintiff filed this lawsuit alleging that the defendant violated the FDCPA.  Defendant moved to dismiss, arguing, among other things, that non-judicial foreclosures are not subject to the FDCPA.  The district court agreed and dismissed the action.

On appeal, the Tenth Circuit affirmed.  In doing so, it held that there is a “critical difference” between a judicial foreclosure and a non-judicial foreclosure in that the non-judicial foreclosure seeks only to enforce a security interest, and the creditor in a non-judicial foreclosure must bring a separate action if it wants to collect a deficiency.  The Court further found that other circuits that had reached contrary conclusions had misinterpreted the FDCPA, and that the provisions they reference apply only to “action[s],” which does not encompass non-judicial proceedings.  Finally, the Court noted that its decision does not apply to judicial foreclosures, and that “[w]hether or not more aggressive collection efforts leveraging the threat of foreclosure into the payment of money constitute ‘debt collection’ is left for another day.”  This decision is consistent with a 2016 decision from the Ninth Circuit, but other circuits to address this question have held to the contrary.  See Vien-Phuong Thi Ho v. ReconTrust Co., 858 F.3d 568 (9th Cir. 2016); Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 461 (6th Cir. 2013); Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 378-379 (4th Cir. 2006); Kaltenbach v. Richards, 464 F.3d 524 (5th Cir. 2006).

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New Jersey Amends Its Requirement for the Recognition of Foreign Judgments

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On his
last day in office, Governor Christie enacted new legislation that will change
the way foreign-country judgments are recognized in New Jersey. The Foreign
Country Money-Judgments Recognition Act of 2015 (the “FCMJRA”) amends the
statutory basis for enforcing judgments of other nations in New Jersey. Under
the prior version of the FCMJRA, a copy of any authenticated foreign judgment
could be filed in the office of the clerk along with an affidavit from the
judgment creditor, and the clerk would be required to “treat the foreign
judgment in the same manner as a judgment of the Superior Court of this State.”
See Enron (Thrace) Expl. & Prod. BV v. Clapp, 378 N.J. Super.
8, 15 (App. Div. 2005). Although the judgment debtor would receive notice of
the domestication, this would not occur until after the judgment was filed, and
there was no provision requiring courts to approve the foreign-country judgment
beforehand. Additionally, the burden of establishing grounds for a judgment’s
non-enforceability was on the judgment debtor. See Kam-Tech Sys.
Ltd. v. Yardeni, 340 N.J. Super. 414, 423 (App. Div. 2001). Thus, in Enron,
the Appellate Division suggested that the New Jersey Legislature amend the
FCMJRA:

We note that concerns about the constitutionality of the filing .
. . of judgments from nations that do not adhere to basic principles of due
process of law may be addressed by amending the FCMJRA
to require prior judicial approval of judgments of foreign countries
by way of motion or a separate enforcement proceeding. We suggest that the
Legislature consider such a change to avoid potential claims that the filing of
judgments of certain foreign nations, without prior notice and the opportunity
to be heard, may result in an unconstitutional taking of property without due
process of law.

Enron, 378 N.J. Super. at 20. The Appellate Division’s suggestions were
incorporated into this recently-passed amendment.

In the newly-amended version of the FCMJRA, the judgment creditor
seeking to have the foreign-country judgment recognized may no longer simply
file it with the clerk, but must file a complaint seeking recognition. In
the event the creditor already is engaged in a pending action with the judgment
debtor, the creditor may seek recognition of the judgment by counterclaim,
cross-claim, or affirmative defense. The creditor also now carries the burden
of establishing that the judgment is final, conclusive and enforceable under
the foreign country’s laws, and that it is not a judgment for taxes, fines, or
rendered in connection with a domestic relations action. Additionally, if the
judgment was entered by default, the creditor has the burden of establishing
the foreign court’s jurisdiction.

Because the judgment creditor must now bring an action to
domesticate the judgment, the judgment debtor will have the opportunity to
argue at that time that the judgment should not be recognized based on
number of possible objections, most of which existed under the prior version of
the FCMJRA. The FCMJRA provides that New Jersey courts “shall not” recognize a
foreign-country judgment if: (i) the judgment is “rendered under a judicial system
that does not provide impartial tribunals or procedures compatible with the
requirements of due process of law, as determined by the court using standards
developed by the American Law Institute and the International Institute for the
Unification of Private Law to govern resolution of transnational disputes;”
(ii) the foreign court lacked personal jurisdiction over the defendant; or
(iii) the foreign court lacked jurisdiction over the subject matter. Moreover,
the law gives courts the discretion not to recognize a foreign judgment in
certain situations, including if the foreign court failed to give adequate
notice to the debtor, the judgment was obtained by fraud that deprived the
losing part of an adequate opportunity to present its case, or if the judgment
or cause of action on which the judgment is based is repugnant to the public
policy of New Jersey or the United States. Additionally, the amended version of
the FCMJRA now allows the court the discretion to deny recognition when “the
judgment was rendered in circumstances that raise substantial doubt about the
integrity of the rendering court with respect to the judgment,” an
unquestionably ambiguous standard. The burden shifts to the debtor to prove one
of these exceptions applies.

The newly-amended version of the FCMJRA will have a dramatic
effect on the domestication of foreign-country judgments in New Jersey. Parties
can no longer file the judgment and affidavit with the clerk, and will now be
required to initiate new actions seeking recognition and deal with adversaries
potentially intent on relitigating issues from foreign courts here in New
Jersey. This could result in protracted litigations focusing on foreign court
procedures and whether they, for example, “raise substantial doubt about the
integrity of the rendering court with respect to the judgment.” Additionally,
although many of the provisions remain the same, the creditor now has the
burden of proving its prima facie entitlement to the judgment before the
judgment can be recognized. Accordingly, parties seeking recognition of
foreign-country judgments must be mindful of these new provisions.

For a copy of the statute, please contact Michael O’Donnell at modonnell@riker.com or Sarah Heba-Escobar at sheba@riker.com.

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