|
83 Misc.2d 694, 371 N.Y.S.2d 246 Supreme Court, Westchester County, New York. Daniel H. OVERMYER, Plaintiff, v. ELIOT REALTY,
Defendant. June 6, 1975. SUBSEQUENT HISORY: Distinguished by: On Motion for Reargument
July 25, 1975. [*696] [**250] Greenspan &
Aurnou, White Plains, Easton & Echtman, P.C., New York City, for
plaintiff. Carroll, Carroll &
Butz, Syracuse, Corwin & Freidman, White Plains, for defendant. DECISION JOSEPH F. GAGLIARDI,
Justice. By order to show cause
dated May 1, 1975, plaintiff obtained a temporary restraining order staying
execution of a Texas judgment, which order similarly enjoined plaintiff from
transferring any assets without adequate consideration. The order further
provided that service was to be made upon defendant’s New York counsel
by certified or registered mail, return receipt requested. Issues are raised
regarding the Full Faith and Credit clause of the Federal Constitution
(U.S.Const., Art. IV, s 1). Plaintiff is a New York
resident and the principal behind several corporations that bear his name (see D.
H. Overmyer v. Frick Co., 405 U.S. 174, 92 S.Ct. 775,
31 L.Ed.2d 124). The underlying facts herein emanate from plaintiff’s
financial difficulties throughout his corporate empire. Annexed to the order to
show cause is a summons and complaint, and several exhibits. An amended
complaint containing three causes of action, was served on defense counsel on
May 7, 1975. The amended complaint is not substantially different from the
original as the thrust of each pleading is for a declaratory judgment and
permanent injunction. The amended complaint alleges that defendant is a
Connecticut corporation that has retained a New York law firm to enforce and
execute upon the Texas judgment; that said judgment was filed and docketed with
the Westchester County Clerk; and execution directed to the Sheriff in April
1975, which is the first time plaintiff received notice of the judgment (cf.
CPLR 5403; Texas Rules of Civil Procedure 306d). The essential factual
background pertaining to the judgment, as alleged, is as follows: On July 1,
1973, defendant sued plaintiff and one of [*697] his
corporations[FN1] for monies due under a certain lease agreement on real
property located in Texas; [FN2] plaintiff and the corporation were defended by
house counsel which vigorously engaged in pretrial matters; on October 10,
1973, the corporation’s right to do business in Texas was revoked; on
October [**251] 24, 1973, the corporation deposited a check with
the Texas court in the sum of $90,810.47 representing partial payment of
corporate debts created prior to October 10, 1973; the check was dishonored; in
November 1973 the corporation filed a petition in bankruptcy; on November 15,
1973, house counsel, on notice to all parties, obtained an order from the Texas
court permitting them to withdraw because virtually all attorneys associated
with this plaintiff’s legal department were being let go; [FN3] in
December 1973, a receiver was appointed and undertook the defense of actions
against the corporations; on February 5, 1974, defendant filed a
‘Trial Amendment’ in the Texas action requesting judgment
against plaintiff personally pursuant to Article 12.14 of the Texas Tax Code;
no notice of said amendment was sent to the receiver and, although there is an
affidavit of service annexed thereto by defendant’s Texas counsel that
said amendment was sent by certified mail, return receipt requested, to
plaintiff’s New York counsel and to plaintiff, both plaintiff and his
former counsel aver that they have no recollection regarding receipt of said
amendment; and final judgment was entered on March 15, 1974. FN1
That is the allegation. In fact several corporations bearing
plaintiff’s name were sued and judgment rendered against them. FN2
Actually, the Texas action was somewhat complex. As noted, defendant sued
plaintiff and at least one of his corporations. That suit was consolidated with
an interpleader action commenced by a tenant (Gulf State Paper Corp.) in a
Dallas warehouse, which premises were under the control of D. H. Overmyer Co.,
Inc. (Texas) and Overmyer Distribution Services, Inc., both corporations being
controlled by The Overmyer Co., Inc. (Delaware). FN3
Edmund Connery, formally Chief Counsel of the Overmyer legal staff states in an
affidavit that prior to November 1973, his staff consisted of seventeen
attorneys but as of February 1974, only two remained on salary. In 1973, this
staff and local counsel were affording representation to Overmyer interests in
107 actions being litigated throughout the country. The ‘Trial
Amendment’ recites the appropriate time sequence of the check issuance
and subsequent revocation of the corporation’s right to do business in
Texas; that the check was issued for a pre-revocation debt and was approved and
consented to by plaintiff herein; and requests a judgment against said
plaintiff pursuant to Article 12.14 of the Texas Tax Code. The Texas judgment in
pertinent part states: [*698] ‘On February 18, 1974, came on for trial
the above-entitled and numbered cause, wherein Eliot Realty, Inc., is
Plaintiff, and D. H. Overmyer Company, Inc., a Texas corporation, D. H.
Overmyer Company, Inc., an Ohio corporation, Overmyer Distribution Services,
Inc., and D. H. Overmyer, an individual, are Defendants. Eliot Realty, Inc.,
appeared through its corporate representatives and its attorney of record and
announced ready for trial. Each of the defendants, having been duly served with
process having entered a general appearance herein, and having been duly
notified of the trial date in the manner and for the length of time required by
law, failed to appear. ‘Whereupon, Plaintiff waived its right to trial by
jury and all matters of fact and of law were submitted to the Court. The Court,
having examined the pleadings and records herein, determined that the same are
in due form and contain all of the allegations and information required by law,
and determined that this Court has [**252] jurisdiction
over the subject matter and over all parties and proceeded to try said cause.
The Court, having read the pleadings and having heard the testimony of the
witnesses and the documentary evidence and the arguments of counsel, and being
fully advised in the premises, is of the opinion and finds that the law and the
facts are with the Plaintiff, Eliot Realty, Inc., and enters judgment against
the Defendants in accordance with the findings and rulings herein set
out.’ The judgment consists of
nine pages and finding number 3 states:[FN4] FN4 In finding number 8, the judgment denies a
counter-claim interposed by D. H. Overmyer Company, Inc. (Texas), which was
filed on October 11, 1973. ‘That the Defendant, D. H. Overmyer Company, Inc., a
Texas corporation, on October 24, 1973, tendered to this Court its draft in the
sum of $90,810.47, that said draft represented partial payment of the damages
due Plaintiff under the contract of lease described above, that said Defendant
wholly defaulted in the payment of said draft and became indebted to Plaintiff
for the principal sum thereof in the amount of $90,810.47, that the Defendant
D. H. Overmyer, an individual, was at the time of the creation of said
indebtedness the Chairman and Chief Executive Officer of D. H. Overmyer
Company, Inc., a Texas corporation, that the right of said corporation to do
business in this State was duly and lawfully [*699] forfeited
by the Comptroller of Public Accounts of this State on September 10, 1973, in
accordance with Article 12.14, V. A.T.S., Tax.-Gen., and the Defendant D. H.
Overmyer, an individual, having known of the creation of such indebtedness and
having approved and consented thereto, became jointly and severally liable with
the Defendant D. H. Overmyer Company, Inc., a Texas corporation, to Eliot
Realty, Inc., in the sum of $90,810.47 of the $95,196.88 indebtedness. . .
.’ The first ordering
paragraph directed judgment against two Overmyer corporations in the sum of
$95,196.88 and against plaintiff herein personally in the sum of $90,810.47. Subsequently, a
reorganization plan was considered by the referee in bankruptcy and the
Overmyer creditors, including defendant herein. The plan is still viable and
would exonerate plaintiff from all individual liability but does not
contemplate the instant judgment because defendant did not notify the referee
in time for said judgment to be included. The Texas judgment was docketed in
this Court by New York counsel on January 24, 1975 (Eliot Realty Inc., v. D.
H. Overmyer Co., S.Ct.West.Cty.,
Index No. 1187/75). Execution was subsequently directed to the Sheriff but it
appears that no levy has been made. The County Clerk’s file also
contains a letter and affidavit from New York counsel for defendant. In the margin
of the affidavit is written the following ‘1/7/75 Approved for filing
pursuant [**253] to Section 5402 CPLR’ and is signed by a
Senior Assistant County Attorney. The first cause of action
prays for a declaration that the Texas judgment is a nullity on the ground that
defendant obtained the judgment by trick and design in improperly filing the
‘Trial Amendment’ and obtaining judgment at a time when
defendant was without legal representation. The brief amplifies this claim and
asserts that defendant’s action constituted a fraud on the court. The
complaint further states that the judgment is void under Texas law. The second
cause of action alleges that the Texas judgment is a penal judgment, not
entitled to full faith and credit in this State. The third cause of action
prays for a permanent injunction restraining enforcement. The order to show cause
contains a request for a preliminary injunction. Defendant, who has not
answered, has also moved for dismissal for lack of jurisdiction In rem and in
personam (CPLR 3211(a)(2), (8)), or, alternatively, [*700] for a bond in the amount of $100,000.00. Said motion shall be treated
as a cross-motion. Defendant, through its New
York counsel, contends that it is a foreign corporation, not licensed to do
business in this state and does no business here. Plaintiff urges that the
lease agreement, which is the predicate for the Texas judgment, was consummated
in New York. Plaintiff has submitted a personal affidavit stating that all
negotiations relating to the lease and its execution ‘upon information
and belief, took place in New York’. Plaintiff further states that
defendant sent representatives here to collect rent due on the Texas premises.
Plaintiff and his former Chief Counsel also aver that defendant has sent
representatives here to participate in the reorganization arrangements. Defense
counsel’s bald assertion of no forumrelated activity is merely
conclusory and not entitled to any weight. Furthermore, it is clear that defendant
engaged in purposeful activity in this state by seeking enforcement of the
Texas judgment and the Court holds such activity to be transaction of business
here, which supports acquisition of In personam jurisdiction (CPLR
302(a)(1)).[FN5] FN5
In any event, were an injunction to issue, the lawful mandate of the Court must
be obeyed and persons with knowledge thereof who violate said order would be
guilty of criminal contempt, notwithstanding lack of jurisdiction (In re
Lennon, 166 U.S. 548, 17 S.Ct. 658,
41 L.Ed. 1110; Puro v. Puro, 33
N.Y.2d 805, 350 N.Y.S.2d 658, 305 N.E.2d 778; Peo. ex rel. Stearns v. Marr, 181 N.Y. 463, 74 N.E. 431; Mount Sinai Hosp.
v. Davis, 8 A.D.2d 361, 188
N.Y.S.2d 298; Mtr. of Waterhouse v. Celli, 71 Misc.2d 600, 336 N.Y.S.2d 960; Brandenburg v. Metropol. Store
Assn., 29 Misc.2d 817, 211
N.Y.S.2d 621). Other than the reference to CPLR 3211(a)(2) (subject matter
jurisdiction) in its moving papers, defendant does not mention the point and
since the Res (assets) are within this jurisdiction, the issue, if any, is
without merit. Defendant also urges that
the method of service herein was improper. The short answer is that another
justice of this Court [**254] authorized the service in question and I, a
justice of coordinate jurisdiction, cannot review that order (CPLR 2221).
Additionally, defendant was subsequently personally served in Texas on the
return date of this motion, which service is proper (CPLR 308, 311, 313)[FN6]
and cured any defect herein Ab [*701] initio. Defense
counsel, of course, had previously been served and argued the question of
jurisdiction before the Court. Due process requires notice and an opportunity
to be heard and defendant was deprived of neither. Furthermore, the rationale
of Jay’s Stores v. Ann Lewis Shops (15 N.Y.2d 141, 256 N.Y.S.2d 600, 204 N.E.2d 638)
coupled with CPLR 303 also sustains the method of service used herein. In
Jay’s Stores,supra, the defendant corporation surrendered its
authority to do business in this state in 1956. A New York statute (General
Corporation Law s 216, now Business Corporation Law s 1310) provided that the
Secretary of State remained as agent for service of process on any
‘liability or obligation incurred within the State of New
York’ prior to surrender of authority to do business. In 1953,
defendant had executed in New York a contract which guaranteed lease payments
on property in Massachusetts. Plaintiff obtained a money judgment in that state
upon the contract and in 1963 sued upon said judgment in New York. Service here
had been made upon the Secretary of State and defendant moved for summary
judgment for lack of jurisdiction. The Court of Appeals in reversing the grant
of summary judgment held service to be proper since for jurisdictional purposes
the predicate for the judgment had not merged therein but continued to be a
‘liability or obligation’ incurred in this state. A fortiori,
the predicate herein, execution of a contract in New York, has not merged in
the judgment and if a statute makes defense counsel an agent for process,
service on him is proper. FN6
The affidavit of service states that the summons and complaint were served on
defendant’s registered agent in Texas. Counsel for plaintiff, at the
oral argument, stated that service of the amended complaint was also made
simultaneously by the same process server. It might be noted that service could
have been effected pursuant to section 307(a), (b) of the Business Corporation
Law by serving the New York Secretary of State and delivering process in Texas
or Connecticut personally or by registered mail. CPLR 303 provides in
pertinent part: ‘The commencement of an action in the state by a
person not subject to personal jurisdiction is a designation by him of his
attorney appearing in the action * * *, as agent, * * * for service of a
summons pursuant to section 308, in any separate action * * * if such separate
action would have been permitted as a counterclaim * * *’. By
statutory definition ‘action’ includes a ‘special
proceeding’ (CPLR 105(b)). The within judgment was filed in accordance
with our ‘Uniform Enforcement of Foreign Judgments Act’ (CPLR
Art. 54) which was enacted in 1970 (L.1970, ch. 982) simultaneously with the
‘Uniform Foreign Country Money Judgments Recognition Acts’
(CPLR Art. 53, L.1970, ch. 981). Both of the aforesaid acts are loosely based
upon the American Law [**255]
Institute’s 1948 and 1964 versions of the ‘Uniform
Enforcement of Foreign Judgments Act’ (9a ULA 475, 488), which have
received scant judicial attention (Anno. 72 A.L.R.2d 1255 ‘Foreign
Judgment-Uniform Act’). Prior to 1970, [*702] judgment
creditors on foreign judgments (except federal judgments: CPLR 5018(b)) had to
sue upon such judgments in this state by commencement of an action or by
service of a summons and motion for summary judgment (9 Carmody-Wait 2d,
Enforcement of Money Judgments, s 64:8). One purpose of the new legislation was
to obviate the bringing of an action (13th Ann.Rep. of the Jud.Conf. 248, 262
(1968)), although the former procedures remain viable (CPLR 5406). Nonetheless,
some form of proceeding under CPLR Article 54 is contemplated [FN7] since an
index number must be purchased as in any other action (CPLR 5405), notice of
the filing given (CPLR 5403) which is akin to service of process, a stay may be
obtained by showing cause (CPLR 5404(b)) and the foreign judgment ‘has
the same effect and is subject to the same procedures, defenses and proceedings
for reopening, vacating, or staying as a judgment of the supreme court of this
state’ (CPLR 5402(b)). The grounds for stay of enforcement herein
could have been asserted under CPLR Article 54 rather than by plenary suit;
but, in any event, the grounds alleged could be construed as a counterclaim
within the meaning of CPLR 303, since a counterclaim is merely the assertion of
a cause of action (CPLR 3019(a)), which in this case relates to the judgment
sued upon and would, as a matter of pleading, be a defense under CPLR Article
54. Hence, the Court concludes that counsel was an agent for service under CPLR
303 (Semble contra, Banco Do Brasil v. Madison S.S. Corp., 61 Misc.2d 1028, 307 N.Y.S.2d 341) and it was not
necessary, as the other justice determined, to attempt to effect personal
service on defendant (1 Weinstein-Korn-Miller, N.Y. Civil Prac., 303.05;
McLaughlin, Practice Commentaries to CPLR 303, McKinney’s Cons. Laws
of N.Y., vol. 7B, pp. 157—58), although that was ultimately
accomplished. FN7
If CPLR Article 54 is the equivalent of a special proceeding, one may question
the propriety of an unauthorized foreign corporation’s suit here on a
judgment (Business Corporation Law s 1312(a); cf. CPLR 8501). This point is not
raised by the parties (cf. Sirois Leather, Inc. v. Lea-Suede Corp., 44 A.D.2d 815, 355 N.Y.S.2d 428). Plaintiff raises several
issues regarding the validity of the Texas judgment and contends that it is
penal and not entitled to full faith and credit; the Texas court lacked
subject-matter jurisdiction and the judgment was procured by fraud. While these
allegations and assertions are not answered by defendant by affidavit, counsel
met these arguments orally on the [*703] return day of the
motion and it is necessary to scrutinize the issues raised. There exists authority to
the effect that penal judgments are not constitutionally entitled to full faith
and credit (3 Freeman on Judgments (5th ed), s 1360). The question appears to
be an open one in this state as no New York court has yet been properly
presented [**256] with the issue (23 N.Y.Jur., Foreign Judgments, s
19, pp. 598—99). In City of Philadelphia v. Cohen (11 N.Y.2d 401, 230 N.Y.S.2d 188, 184 N.E.2d 167,
cert. den. 371 U.S. 934, 83 S.Ct. 306, 9 L.Ed.2d 270) the Court of Appeals
refused enforcement of a tax Claim obligation that arose in another state.
Subsequently, the Court of Appeals noted that a judgment for unpaid franchise
taxes was not entitled to full faith and credit because the rendering
jurisdiction failed to acquire In personam jurisdiction and also neglected to
substitute the administrator as a party for the deceased defendant (Mtr. of
Einstoss, 26 N.Y.2d 181, 187, 309
N.Y.S.2d 184, 188, 257 N.E.2d 637, 639—640). While the court in Einstoss
appeared to recognize the rule
against enforcement of penal judgments (26 N.Y.2d at 186, 309 N.Y.S.2d at 187,
257 N.E.2d at 639), it has recently questioned the reasons and validity of such
principle (Banco Frances e Brasileiro, S.A. v. Doe, 36 N.Y.2d 592, 370 N.Y.S.2d 534, 331 N.E.2d 502,
dec. May 8, 1975 (but compare dissenting opinion of Wachtler, J. at p. 660, 370
N.Y.S.2d at p. 541, 331 N.E.2d at p. 507); see Milwaukee County v. White, 296
U.S. 268, 279, 56 S.Ct. 229, 80 L.Ed. 220; cf. Wisconsin v. Pelican
Insurance Co., 127 U.S. 265, 8
S.Ct. 1370, 32 L.Ed. 239). Moreover, it is significant that CPLR Article 53
specifically excludes from the definition of ‘foreign country
judgments’ judgments for penalties and taxes (CPLR 5301(b)), which
precludes their filing here and enforcement thereof, while CPLR Article 54 is
silent thereon and necessarily implies that penal judgments rendered in
sister-states are entitled to full faith and credit. Hence, enforcement cannot
be denied on the ground that the judgment is penal. [FN8] FN8
Assuming for the moment that New York would deny enforcement of penal
judgments, it is clear that the purpose of Article 12.14 of the Texas Tax Code
(20a Vernon’s Civil Statutes of Texas, Ann.) is to raise revenue (Acme
Color Art Printing Co., Inc. v. Brown,
Tex.Civ.App., 488 S.W.2d 507) and the predecessor statute was construed as
‘penal in nature’ (Deveny v. Success Co., Tex.Civ.App., 228 S.W. 295, 296; Real Estate-Land
Title & Trust Co. v. Dildy, Tex.Civ.App., 92 S.W.2d 318). The question
that arises is whether this judgment is penal. The test is usually couched in
terms of private versus public redress; if the wrong sought to be redressed is
a wrong to the public, the judgment is penal; but if redress is for the benefit
of a private individual, the judgment is not penal (Huntington v. Attrill, 146
U.S. 657, 13 S.Ct. 224, 36 L.Ed. 723). At bar, it seems clear that the
judgment against plaintiff, while imposed under a penal statute, is not a
penalty for public wrongs but inured solely to the benefit of the instant
defendant and is predicated upon a private liability of one of
plaintiff’s corporations. Thus, it is concluded that the judgment is
not penal. Plaintiff’s next
contention, that the Texas court lacked subject-matter jurisdiction is without
merit. ‘Subject-matter [*704] jurisdiction is
lacking where the court enters a judgment which by the law of its creation, it
had no authority to make (Mtr. of Will of Walker, 136 N.Y. 20, 32 N.E. 633)’ (Murphy v.
Itcha Realty Corp., NYLJ 5/21/71,
p. 19 col. 6 (S.Ct.West.Cty.); 1 Freeman on Judgments (5th ed.), s 337). At
bar, it appears that the Texas judgment which fastened liability upon plaintiff
personally under Article 12.14 of the Tax Code is contrary to an earlier
opinion of a higher court in Texas (Schwab v. Schlumberger Well Surveying
Corp., 145 Tex. 379, 198 S.W.2d 79). In Schwab it was held that, under the
predecessor [**257] statute, personal liability attaches only for
debts contracted after revocation of the franchise; and where the corporation
renews a note after revocation for a pre-revocation debt, no personal liability
exists. However, the instant judgment is not void for lack of subject-matter
jurisdiction. The Texas court clearly had the power to adjudicate
responsibility under the statute; rather plaintiff complains about an error of
law which is no ground for denying full faith and credit, even if the judgment
is erroneous on its face and the pleadings fail to state facts authorizing the
relief granted (Mtr. of Acheson,
28 N.Y.2d 155, 162—64, 320 N.Y.S.2d 905, 909—912, 269 N.E.2d
571, 574—576, cert. den.
404 U.S. 826, 92 S.Ct. 58, 30 L.Ed.2d 55; Restatement, Law of Judgments, s 106;
Second Restatement on the Conflict of Laws, s 106; 3 Freeman on Judgments (5th
ed.), s 1400; id. vol. 1, s 365, p. 762; see Wycough v. Bennett, Tex.Civ.App.,
510 S.W.2d 112, 114—15; Heard v. State, 146 Tex. 139, 204 S.W.2d 344,
346). Plaintiff’s last
contention, that the judgment was procured by fraud, requires analysis.
Generally, full faith and credit is accorded sister-state judgments where the
rendering court had jurisdiction of the parties and of the subject-matter, even
if the judgment is obtained by default, provided there is no fraud or collusion
(Williams v. North Carolina, 325
U.S. 226, 65 S.Ct. 1092, 89 L.Ed. 1577; id. 317 U.S. 827, 63 S.Ct. 207, 87 L.Ed. 279; Atlas
Credit Corp. v. Ezrine, 25 N.Y.2d
219, 231, 303 N.Y.S.2d 382, 392—393, 250 N.E.2d 474, 481—482;
Vander v. Casperson, 12 N.Y.2d
56, 236 N.Y.S.2d 33, 187 N.E.2d 109; Parker v. Hoefer, 2 N.Y.2d 612, 616, 162 N.Y.S.2d 13,
16—17, 142 N.E.2d 194, 196—197; Mtr. of National Surety
Co. (Laughlin), 283 N.Y. 68, 27
N.E.2d 505; Acuri v. Acuri, 265 N.Y. 358, 361, 193 N.E. 174, 175; O’Donoghue
v. Boies, 159 N.Y. 87, 99, 53 N.E.
537—540; 23 N.Y.Jur., Foreign Judgments, ss 6, 8—10; Second
Restatement on the Conflict of Laws, ss 103—111). Collateral attacks
on judgments are ordinarily not permitted (Restatement, Law of Judgments, s 47,
comment i) although a non-appearing defendant may litigate jurisdictional
issues in the forum state, but once the forum finds that the rendering state
had jurisdiction the inquiry ceases (Williams v. North Carolina, 317
U.S. 827, 63 S.Ct. 207; Vander v. Casperson, supra). Of course, the foreign
judgment is only entitled to the same weight here as the rendering state [*705] would accord it there and, if the judgment can be impeached there, it
can be collaterally attached here (Johnson v. Muelberger, 340
U.S. 581, 71 S.Ct. 474, 95 L.Ed. 552; Lynn v. Lynn, 302 N.Y. 193, 97 N.E.2d 748, cert. den. 342 U.S. 849, 72 S.Ct. 72, 96 L.Ed. 640).
Collateral attack on the ground of fraud is a well recognized exception to the
general rule and even if direct attack does not lie, equity will intervene to
provide a remedy (3 Freeman on Judgments, (5th ed.), ss 1401—1403). At bar, plaintiff does not
urge that the Texas court lacked In personam jurisdiction; rather it is urged
that Texas would permit a [**258] collateral attack there in equity to restrain
enforcement because of the court’s erroneous determination and,
further, is subject to attack for fraud in procurement. The cases cited by
plaintiff in support of the first posit above are distinguishable from the
instant facts and this Court cannot hold that the judgment is void for an error
of law and not entitled to enforcement in Texas (cf. Stevenson v. Thomas, Tex.Civ.App., 56 S.W.2d 1095). Nonetheless, it is
well settled that a judgment procured through extrinsic fraud is not entitled
to full faith and credit (Gray v. Richmond Bicycle Co., 167 N.Y. 348, 60 N.E.
663; Tamimi v. Tamimi, 38
A.D.2d 197, 328 N.Y.S.2d 477; Fischel v. Abrahams, N.Y., 227 N.Y.S.2d 935; J. J. Miller
Construction Co. v. Berlanti Const. Co.,
N.Y., 197 N.Y.S.2d 818; 23 N.Y.Jur., Foreign Judgments, s 16; Anno. 55 ALR 2d
673, 686—88 ‘Foreign Judgment— Fraud as
Defense’; cf. CPLR 5015(a)(3); 5304(b) (3)). The fraud must relate to
matters other than issues that could have been litigated and must be a fraud on
the court (cf. Mtr. of Holden,
271 N.Y. 212, 218, 2 N.E.2d 631, 633—634). Sister-state judgments are
presumed valid and are entitled to Prima facie recognition even where fraud in
procurement is alleged (Mtr. of Joseph, 27 N.Y.2d 299, 317 N.Y.S.2d 338, 265 N.E.2d 756; 23 N.Y.Jur.,
Foreign Judgments, ss 15, 23). The burden is upon plaintiff to establish his
allegations. Here it is claimed that the judgment was obtained by default and a
new cause of action was added only after plaintiff’s counsel withdrew,
which was a fraud upon the court. As noted earlier, default judgments were accorded
full faith and credit (Parker v. Hoefer, 2 N.Y.2d 612, 162 N.Y.S.2d 13, 142 N.E.2d 194). However, section
5401 of the CPLR indicates that a judgment obtained ‘by default in
appearance’ is not entitled to recognition. The Texas judgment was obtained
by default but not by default in appearance since plaintiff did appear through
counsel in the action (see Black’s Law Dictionary (4th ed.), pp.
125—26). An appearance confers jurisdiction and once conferred cannot
be withdrawn by the unilateral act of failing to proceed in the [*706] action (Lynde v. Lynde,
162 N.Y. 405, 414—15, 56 N.E. 979, 982; Mtr. of Sutera v. Sutera, 1 A.D.2d 356, 150 N.Y.S.2d 448). Nonetheless, it
has been held that acts of one party which prevent a real hearing on all issues
is equivalent to extrinsic fraud (Tamimi v. Tamimi, 38 A.D.2d 197, 328 N.Y.S.2d 477; see United
States v. Throckmorton, 98 U.S.
61, 65—66, 25 L.Ed. 93). Rule 63 of the Texas Rules
of Civil Procedure permits a party by ‘Trial Amendment’ to
amend his pleadings ‘by filing such pleas with the clerk at such time
as not to operate as a surprise to the opposite party’ and, further,
that any amendment offered within seven days prior to trial requires a court order.
The ‘Trial Amendment’ was filed almost four months after the
check had been dishonored, two weeks prior to trial and at a time when
defendant knew plaintiff lacked legal representation. Upon this record, it must
be assumed [**259] that plaintiff and his former counsel did not
receive notice of said amendment since defendant could easily have submitted
evidence of proof of service (cf. Texas Rules of Civil Practice 72). Under the theory of
continuing jurisdiction, pleadings may be amended and judgment awarded thereon
provided that the adverse party be given reasonable notice and an opportunity
to be heard at every step of the proceeding (Second Restatement on the Conflict
of Laws, s 26, comment d, pp. 116—117, comment f, p. 119; id. s 25).
‘Even though the State has jurisdiction over the parties and even
though the court is one with competency to render the judgment, a judgment by
default is void if it was outside the cause of action stated in the plaintiff
and if the defendant was not given a fair opportunity to defend against the
claim on which the judgment was based. Such judgment is subject to collateral
attack’ (Restatement, Law of Judgments, s 8, comment c, pp.
48—49; id. s 5, comment g). The obvious purpose of this rule is to
assure a defendant who consciously allows judgment to be taken against him,
that he may rest secure in the knowledge that the award will not exceed the
issues in the pleadings of which he had knowledge and an opportunity to be
heard (Rippe v. Doran, 4 Wash.App. 952, 486 P.2d 107). The factual pattern herein
is strikingly similar to that in Chapman v. Chapman (284 App.Div. 504, 132
N.Y.S.2d 707, mot. for lv. to app. den. 284 App.Div. 857, 134 N.Y.S.2d 173,
mot. to amend decision 285 App.Div. 991, 138 N.Y.S.2d 709). In Chapman
plaintiff sued for a separation in Vermont where the parties had resided.
Defendant appeared by Vermont counsel and served an answer; and, on a
preliminary application for temporary alimony appeared in person. Prior to the [*707] suit defendant had moved to New York and during the action moved to
Pennsylvania and ultimately became domiciled in Florida. When the case was
scheduled for trial, the Vermont attorney wrote to defendant but received no
response. The trial date was adjourned to another date and counsel wrote again
stating that if he did not hear from defendant he would withdraw. Four days
prior to trial plaintiff filed with the court clerk amended pleadings
requesting a divorce and defense counsel was so notified. Two days prior to trial
defense counsel, not having heard from defendant, moved for withdrawal.
Defendant was never notified of the amended pleading although his address was
known to plaintiff. On the date of trial, both motions were granted and
plaintiff awarded a divorce and alimony. Prior to grant of the Vermont
judgment, defendant had become a domiciliary of Florida and had obtained an Ex
parte divorce there but he did not amend his answer in the Vermont action or
otherwise bring this fact to the attention of the Vermont court. Thereafter,
plaintiff sued upon the alimony provisions of the Vermont judgment in this
state and moved for summary judgment. [**260] The appellate court first noted that at the time
of the Vermont action, the only way that court could have obtained In personam
jurisdiction was through defendant’s general appearance. It held that
‘The withdrawal of defendant’s attorney did not result in a
withdrawal of the defendant’s appearance’ (284 App.Div. p.
509, 132 N.Y.S.2d p. 712). The court then stated that ‘it was the duty
of the plaintiff to give notice of the new cause of action to the defendant and
to give him a reasonable opportunity to be heard’ (p. 509, 132
N.Y.S.2d p. 712). Notice of the trial on the separation action was not notice
on the amended action for divorce. Finding that ‘it is undisputable
upon this record that the defendant was not given a reasonable opportunity to
appear and defend’ (284 App.Div. p. 510, 132 N.Y.S.2d p. 713) the
court affirmed denial of summary judgment and remanded the matter for a hearing
to determine if defendant had such notice and opportunity (285 App.Div. 991,
138 N.Y.S.2d 709). Interestingly, at the factual hearing, it was ascertained
that subsequent to the Vermont determination, defendant petitioned the Vermont
court for a new trial on the ground that the Florida decree was a defense to
the Vermont action and also alleged that plaintiff had amended her pleadings
and the case tried when he was without counsel. The Vermont court denied
defendant’s application for new trial and the New York appeals court
held that defendant’s attack in Vermont was Res [*708] judicata since all issues were litigated there. Thus, it was held
that the Vermont judgment was entitled to full faith and credit (Chapman v.
Chapman, 5 A.D.2d 257, 168 N.Y.S.2d 872). In my opinion, the first
Chapman opinion controls this case at this stage of the proceedings, although
plaintiff may have been subject to In personam jurisdiction in Texas by virtue
of his business activity there absent a general appearance (Restatement on
Judgments, s 8, comment c, Supra). It is significant that the first Chapman
opinion temporarily denied full faith and credit despite the fact that the
pleadings were amended at a time when defendant had legal representation. The
record herein is vague regarding defendant’s original prayer for
relief against plaintiff personally but it is uncontraverted that the
‘Trial Amendment’ constituted a sustantial change from the original
cause of action and personal liability was adjudged on the allegations
contained therein. The amendment was filed when plaintiff lacked counsel and,
upon this record, without notice to him. The doctrine of continuing
jurisdiction ‘has its limits and, where a party appears but takes no
further action in a case, a court’s jurisdiction does not go beyond
the general subject matter of the suit in which he appeared’ (Matter
of Einstoss, 26 N.Y.2d 181, 187, 309 N.Y.S.2d 184, 188, 257 N.E.2d 637, 640).
While the ‘Trial Amendment’ asserted a related cause of
action vis-a-vis the general subject [**261] matter, it was
a new cause of action for a liability not heretofore placed in issue and
plaintiff was entitled to notice and an opportunity to be heard (id. at p. 188;
cf. Hodges, ‘Collateral Attacks on Judgments’ 41 Tex.L.Rev.
498, 508 (1963)). The prerequisites for the
issuance of a temporary injunction are: (1) likelihood of ultimate success on
the merits; (2) irreparable injury absent the granting of the preliminary
injunction; and (3) a balancing of the equities (Albini v. Solork Assoc., 38 A.D.2d 835, 326 N.Y.S.2d 150). Plaintiff has
met this initial burden. The purpose of a temporary injunction is to prevent
further perpetration of an alleged wrong until a trial, without determining the
merits of permanent relief (Intercontinental Ry. Co. v. Barone, 246 App.Div.
450, 284 N.Y.S. 122). An injunction Pendente lite restores the Status quo as it
existed prior to the alleged violation and its grant or denial lies within the
sound discretion of the court (Colson v. Pelgram, 259 N.Y. 370, 182 N.E. 19; Paul v. Munger, 47 N.Y. 469). The court is faced with the
delicate task of balancing the equities and relative hardship of the parties in
determining whether or not the injunction shall issue [*709] (Boomer v. Atlantic Cement Co., 26 N.Y.2d 219, 309 N.Y.S.2d 312, 257
N.E.2d 870)’ (Career Placement v. Vaus, 77 Misc.2d 788, 795—96, 354 N.Y.S.2d
764, 771—772). At bar, plaintiff has established Prima facie
likelihood of ultimate success, irreparable injury and that the equities weigh
heavily in his favor. Consequently, it is concluded that the portion of the
judgment imposing personal liability must be stayed, on the terms set forth
post, pending a determination on the issues raised regarding notice of the
‘Trial Amendment’ and whether plaintiff had a reasonable
opportunity to have been heard. In temporarily staying enforcement of the
foreign judgment the court expresses no view on the merits and is merely
exercising its inherent equitable jurisdiction (Wandschneider v. Bekeny, 75 Misc.2d 32, 38—39, 346 N.Y.S.2d 925,
931—932), since it would, upon this record, be against the conscience
of the Court to sanction enforcement (Kinnier v. Kinnier, 45 N.Y. 535). Defendant requests a bond
in the sum of $100,000.00 to secure the temporary injunction. Plaintiff urges
that at common-law no bond was required to enjoin enforcement of a judgment
procured by fraud (Burns v. Morse,
6 Paige Ch. 108 (1836)). However, common-law rules on undertakings have been
preempted by statutory provisions (see e.g., CPLR 2201, 5404(b), 6312(b)(1)), and, it appears
that upon the grant of a temporary injunction staying enforcement of a judgment
where it has been established Prima facie that the stayed judgment was obtained
by fraud, the Court may fix the undertaking at less than the amount awarded in
the stayed judgment (7a Weinstein-Korn-Miller, N.Y.Civil Prac., 6312.19).
Accordingly, plaintiff shall post an undertaking in the sum of $10,000.00 to
secure defendant if it sustains damages by reason of the injunction and if it
is [**262] ultimately determined that plaintiff was not
entitled to one (CPLR 6312(b), 6315). Additionally, the temporary injunction is
further conditioned upon the terms set forth in the order to show cause
regarding transfers for adequate consideration and the Texas judgment shall
stand as security pending determination at the hearing hereon. The only issue remaining[FN9]
is whether the hearing should be [*710] conducted in this
state or whether the action for a declaratory judgment ought to be held in
abeyance pending commencement and determination in a plenary suit in Texas (cf.
Second Restatement on the Conflict of Laws, 115). In the Court’s
opinion, Texas is a more appropriate forum for resolution of the questions
raised since it is in a superior position for examination of its own statutes,
regulations and trial calendar customs (cf. CPLR 327). Indeed, plaintiff might
be able to persuade the Texas court that an error of law was committed and the
judgment is void. On the other hand, plaintiff is free to proceed in this state
for a determination on the merits (Davis v. Corune, 151 N.Y. 172, 45 N.E. 449; Tamimi v. Tamimi, 38 A.D.2d 197, 328 N.Y.S.2d 477). Thus, the Court
shall afford plaintiff the option of choosing which forum to proceed in and
such selection shall be embodied in the order hereon. FN9
Defendant in its affidavit in support of the motion for dismissal argues that
the time requirements of CPLR 5015(a)(1) apply (cf. CPLR 317). However, it
seems clear that CPLR 5015 is not applicable to judgments filed under Article
54 (13th Ann.Rep. of the Jud.Conf. 248, 283 (1968)) and, in any event, the
cited section does not apply to the instant facts (cf. CPLR 5015(a)(3)).
Further, plaintiff has presented a ‘justiciable controversy’
in an action for declaratory judgment (CPLR 3001) which has been timely
commenced (CPLR 213(1); cf. CPLR 213(9); see Sorrentino v. Mierzwa, 25 N.Y.2d 59, 302 N.Y.S.2d 565, 250 N.E.2d 58;
Siegel, Practice Commentaries to CPLR 3001, McKinney’s Consol.Laws of
N.Y., vol. 7B, pp. 369—70). If plaintiff opts for
Texas, the proceeding must be commenced therein within 30 days after entry of
the order hereon and an affidavit filed with this Court and the Westchester
County Clerk stating that such proceeding has been initiated; copies of the
pleadings, briefs and exhibits must be filed with the Westchester County Clerk
within 10 days after service or filing thereof in the Texas action; and a
certified copy of the Texas court decision and order filed within 20 days after
rendition thereof. If plaintiff opts for a hearing here before the court
without a jury, he shall file a note of issue on the Calendar Clerk within 10
days after entry of the order hereon and the matter shall be referred to
Special Term, Part III—A for a hearing limited to the issues of notice
and an opportunity to have been heard. Accordingly, the motion for
a preliminary injunction is granted upon the terms and conditions set forth in
this opinion, which conditions shall apply pending a determination in this
court or in the court in Texas. Submit order on notice within 10 days after the
date of this decision which order shall provide for service of a copy thereof
on the [**263] County Clerk and Sheriff of Westchester County and
the Clerk of the District Court, Dallas County, 160th Judicial District, Texas
(No. 73—4893—H). The cross-motion is denied and defendant
shall serve its answer within 10 days after service of a copy of the order
hereon with notice of entry. [*711] ON MOTION FOR REARGUMENT Plaintiff moves for
reargument of that portion of this Court’s decision, dated June 6,
1975, and order, dated June 18, 1975, which directed the posting of a bond to
stay enforcement of a Texas judgment pending a determination at a hearing to be
held on certain issues. Defendant cross-moves for leave to reargue so as to
increase the amount of security directed to be posted. It should be noted that
defendant has filed a notice of appeal and that plaintiff has served a hearing
note of issue on the Calendar Clerk. In all probability, absent any stay, the
hearing will be heard during the month of August 1975. Reargument is granted and
upon reargument, the Court adheres to its original decision. Contrary to
plaintiff’s assertion, the Court has not found that defendant
committed a fraud; rather the Court determined that prima facie proof had been
submitted to warrant the intervention of equity and the issuance of a temporary
injunction. Thus, it is really not relevant whether or not this Court has the
inherent power to dispense with the statutory bond requirement since it has
concluded that an undertaking be filed and, as a matter of judicial discretion,
that it be in an amount less than the stayed judgment. Defendant, in its
cross-motion, does not indicate the necessity for an increase and, in the
absence of compelling reasons therefor, the amount shall remain as directed.
The notice of cross-motion does not specifically set forth any additional
grounds for reargument nor does the eleven page reply memorandum submitted in
support thereof. Nonetheless, by letter dated July 14, 1975, defendant sent
certain exhibits to the Court regarding proof of receipt by plaintiff of notice
of the Trial Amendment. This is a matter of proof to be considered by the trier
of the facts and cannot, at this belated time, alter the original disposition. Accordingly, the motion and
cross-motion are granted to the extent of granting reargument and are otherwise
denied. |