Capstone Capital Grp., LLC v. Alexander Perry, Inc.

263 A.3d 1178

CAPSTONE CAPITAL GROUP, LLC

v.ALEXANDER PERRY, INC., and Patricia Sanford, Appellants

No. 454 EDA 2021

Superior Court of Pennsylvania.

Argued September 1, 2021

Filed: September 30, 2021

David M. MacFarlan, Warrington, for appellant.

Mark L. Rhoades, Cherry Hill, NJ, for appellee.

Andrew Sklar, Cherry Hill, NJ, for appellee.

BEFORE: DUBOW, J., MURRAY, J., and COLINS, J.^*

OPINION BY COLINS, J.:

Alexander Perry, Inc. and Patricia Sanford (collectively, "Appellants") appeal from the order denying their petition to open a New York judgment against them, which was entered in the trial court by Appellee Capstone Capital Group, LLC ("Capstone"). We affirm.

This matter arises out of a factoring agreement between Capstone and Alexander Perry, Inc. ("API"); Ms. Sanford is the president and chief executive officer of API. In the factoring agreement, Capstone purchased certain accounts receivable from API, including accounts related to a construction project that API performed for J.R. Beale, Inc. When J.R. Beale failed to make payment to Capstone as had been guaranteed in the factoring agreement, Capstone demanded payment from Appellants and ultimately brought suit against them in the Supreme Court of the State of New York, New York County.¹

In June 2019, Capstone and Appellants entered into a settlement agreement whereby Appellants agreed to pay $30,000 to resolve the dispute. The agreement further provided that, in the event that Appellants defaulted on their agreement to pay the settlement sum, Appellants would each be immediately liable for a judgment in the amount of $53,400. Ms. Sanford signed the settlement agreement for herself and API, and she also contemporaneously executed an affidavit for confession of judgment on behalf of herself and API in the amount of $53,400 plus interest payable in the event of Appellants’ default on the settlement agreement.

Following Appellants’ failure to pay the $30,000 required in the settlement agreement, Capstone reinstituted the action against Appellants in New York state court. On August 19, 2020, the Clerk of the Supreme Court of New York, New York County entered a default judgment in the amount of $64,931.38, which encompassed the principal sum of $53,400 as well as interest measured from the date of the settlement agreement and the costs of litigation. On November 5, 2020, Capstone filed in the trial court a praecipe to enter the New York judgment against Appellants.

On December 15, 2020, Appellants filed a petition to open the foreign judgment. In the petition, Appellants asserted that their petition was promptly filed within two weeks of the date upon which Capstone served a copy of the entry of judgment. Appellants also aver that they have a meritorious defense to Capstone's New York state action against them because Appellants had in fact repaid Capstone in excess of any moneys owed under the factoring agreements. In support of the claim that they did not in fact owe money to Capstone, Appellants attached an affidavit from Ms. Sanford explaining the history of her business dealings with Capstone and an affidavit from Appellants’ counsel, Eric A. George, Esq. In addition, Appellants maintain that they were not residents of New York, had no legal counsel in that forum, and were unable "physically and financially" to defend Capstone's suit against them in that state. Petition to Open Judgment, 12/15/20, ¶10. Capstone filed an answer to the petition to open on December 23, 2020.

On January 13, 2021, the trial court entered an order denying Appellants’ petition to open the New York judgment. In the order, the trial court found that Appellants had not presented sufficient evidence in their petition to overcome the settlement agreement and confession of judgment that supported the default foreign money judgment. Order, 1/13/21, at 1 n.1. Appellants filed a motion for reconsideration of the trial court's January 13, 2021 order, which the trial court also denied. Appellants thereafter filed a timely appeal.²

On appeal, Appellants raise the following issues:

1. Did the Court below commit an error of law and an abuse of its discretion by denying the Appellants’ Petition to Open Judgment when the [Appellants] acted promptly, alleged reasonable excuse, and alleged a meritorious defense, providing sufficient evidence of that defense to require submissions of the issues to the Court on the merits at trial?

2. Did the Court commit [an] error of law and abuse its discretion by determining that the [Appellants] did not provide stronger evidence that the [Appellants] did not owe money to [Capstone] after the Court failed to issue a Rule to Show Cause Order permitting depositions contrary to Pa.R.C.P. No. 206 and Philadelphia Rule of Civil Procedure No. *206.4(c) ?

Appellants’ Brief at 3 (suggested answers omitted).

In their first issue, Appellants contend that they satisfied the three-part standard that must be met by a petitioner seeking to open a default judgment in Pennsylvania courts. This standard provides as follows:

Generally speaking, a default judgment may be opened if the moving party has (1) promptly filed a petition to open the default judgment, (2) provided a reasonable excuse or explanation for failing to file a responsive pleading, and (3) pleaded a meritorious defense to the allegations contained in the complaint.

Myers v. Wells Fargo Bank, N.A. , 986 A.2d 171, 175-76 (Pa. Super. 2009) ; see also Digital Communications Warehouse, Inc. v. Allen Investments, LLC , 223 A.3d 278, 285 (Pa. Super. 2019).

As to the first part of this standard, Appellants assert that their December 15, 2020 petition was promptly filed upon their receipt of notice that the foreign judgment had been transferred to Pennsylvania. Next, Appellants contend that they had a reasonable excuse for not appearing in the New York action as they are domiciled in Pennsylvania and "had limited contact with" and "limited ability to defend in" New York. Appellants’ Brief at 15. Finally, Appellants argue that they have a meritorious defense to the New York action as set forth in their petition to open and its attachments, in which Ms. Sanford and Appellants’ counsel aver that API had fully paid the amount owed to Capstone. Appellants also point to an API account statement attached to their motion for reconsideration, which they claim shows that API did not in fact owe any money to Capstone.

Appellants’ argument is premised upon the standard employed by Pennsylvania courts when addressing a petition to open a default judgment entered by a court of this Commonwealth. However, they ignore that the judgment they wish to open is one entered by a sister state that was transferred to this jurisdiction. In such cases, the effect given to the foreign judgment is controlled by the full faith and credit clause of the United States Constitution, which requires that "Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State." U.S. Const. art. IV, § 1.

As the United States Supreme Court has explained, the "animating purpose" of the full faith and credit clause

was to alter the status of the several states as independent foreign sovereignties, each free to ignore obligations created under the laws or by the judicial proceedings of the others, and to make them integral parts of a single nation throughout which a remedy upon a just obligation might be demanded as of right, irrespective of the state of its origin.

Baker by Thomas v. General Motors Corp. , 522 U.S. 222, 232, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998) (citation omitted). The United States Congress has also codified the mandates of the full faith and credit clause, providing that

The [ ] judicial proceedings of any court of any such State, Territory or Possession [ ] shall be proved or admitted in other courts within the United States and its Territories and Possessions

....

Such [ ] judicial proceedings [ ] shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken.

28 U.S.C. § 1738. Additionally, Pennsylvania has adopted the Uniform Enforcement of Foreign Judgments Act ("UEFJA") to facilitate the recognition and enforcement of foreign state judgments in the courts of our Commonwealth. See 42 Pa.C.S. § 4306.

When a judgment of one of the United States is transferred to another state, the full faith and credit clause prevents courts of the transferee state from addressing the merits of the decision that forms the basis of the judgment.

A State may not disregard the judgment of a sister State because it disagrees with the reasoning underlying the judgment or deems it to be wrong on the merits. On the contrary, "the full faith and credit clause of the Constitution precludes any inquiry into the merits of the cause of action, the logic or consistency of the decision, or the validity of the legal principles on which the judgment is based."

V.L. v. E.L. , 577 U.S. 404, 407, 136 S.Ct. 1017, 194 L.Ed.2d 92 (2016) (per curiam ) (quoting Milliken v. Meyer , 311 U.S. 457, 462, 61 S.Ct. 339, 85 L.Ed. 278 (1940) ). "A final judgment in one State, if rendered by a court with adjudicatory authority over the subject matter and persons governed by the judgment, qualifies for recognition throughout the land." Baker , 522 U.S. at 233, 118 S.Ct. 657.

As this Court has further explained,

[a] state is required to give full faith and credit to a money judgment rendered in a civil suit by a sister state even where the judgment violates the policy or law of the forum where enforcement is sought. If the judgment was valid and enforceable in the rendering state, it is equally so in all other states. Thus, a transferred judgment cannot be stricken or opened simply because the party seeking to open or strike can demonstrate that he/she would have a valid defense to the

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