Oxendine v. SLM Capital Corp.

MEREDITH, J. In the Supreme Court of the State of New York, SLM Capital Corporation, appellee, obtained a default judgment against Willie and Joan Oxendine, appellants, for $832,845.02. Appellee recorded the foreign judgment against the Oxendines in the Circuit Court for Prince George’s County. The Oxen-dines moved to vacate entry of the foreign judgment, and, in support of their motion, argued that the State of New York did not have sufficient contacts to exercise personal jurisdiction over them. The circuit court ruled that the Oxendines had waived any challenge to personal jurisdiction by failing to raise the issue in the New York proceedings, and the court therefore denied their motion.

We disagree that the issue of personal jurisdiction was waived by the Oxendines’ failure to participate in the New York proceedings. We reverse the circuit court’s ruling on the motion to vacate, and remand the case for further proceedings. Facts and Procedural History SLM Capital Corporation (“SLM”) is a corporation existing under the laws of the State of New York, with its principal place of business in Melville, New York. SLM made a commercial loan in the principal amount of $250,000 to Falcon Constructors, Inc., (“Falcon”), a corporation organized and existing under the laws of the State of Florida.

The Oxen-dines and Wendall Marshall were allegedly guarantors of the loan pursuant to a Guaranty Agreement dated March 20, 2003. The Oxendines are residents of Maryland, and Marshall is a resident of Florida. Falcon and Marshall are not parties to the Maryland proceedings. ⁴⁸² Marshall negotiated the commercial loan documents between SLM and Falcon. Falcon defaulted under its loan obligation to SLM.

Before SLM filed suit, SLM’s counsel sent a letter dated February 2, 2004, to Falcon, with a copy to the Oxendines, demanding payment on the loan. According to an affidavit filed in the New York proceedings, Joseph Tripodi, SLM’s counsel, thereafter received a telephone call from Willie Oxendine, who indicated that Marshall “would be handling the matter.” On April 7, 2004, SLM filed suit against Falcon, the Oxen-dines, and Marshall in the Supreme Court of the State of New York. The Oxendines were served at their home in Mitchell-ville, Maryland, with summonses from the New York court. Neither the Oxendines nor any attorney acting on their behalf filed any response to the New York suit.

SLM filed a motion to enter default judgment against the defendants on August 12, 2004. Marshall, acting pro se, appeared via telephone for oral argument on the motion for default judgment. On November 19, 2004, the New York court granted SLM’s motion for default judgment and, at some point thereafter, entered judgment in favor of SLM against Marshall and the Oxen-dines, jointly and severally, in the principal amount of $280,886.02, plus pre-judgment interest of $52,009, plus costs. The default judgment further provided “that plaintiffs’ claims against defendant Falcon Constructors, Inc. are discontinued without prejudice and without costs.” On or about April 13, 2005, SLM filed in the Circuit Court for Prince George’s County, Maryland, a request to record the foreign judgment obtained in the New York court against the Oxendines.

Judgment was entered by the clerk as requested, and notice thereof was mailed to the Oxendines. The Oxen-dines filed in the Maryland case a motion to vacate the foreign judgment, arguing that the judgment was based upon a document that was a forgery and that the New York court did not have jurisdiction over them because they had no contacts with that state. The Circuit Court for Prince George’s County ruled that the issue of personal jurisdiction was no longer open to question ⁴⁸³ because the Oxendines had waived their opportunity to be heard on that issue in New York. The court further ruled that any allegation regarding forged documents could not be raised at this stage because, again, the Oxendines waived their opportunity to make that argument in the New York proceedings.

The court denied the Oxendines’ motion to vacate. This appeal followed. Questions Presented The Oxendines present the following questions on appeal: 1. Did the court err as a matter of law in finding that the appellants waived their rights to challenge jurisdiction by failing to file an objection or responsive pleading in the New York case? 2.

Did the court err as a matter of law in finding that the Supreme Court of New York had personal jurisdiction over the appellants? 3. Did the court err as a matter of law in finding that the appellants are barred from raising the issue of forgery because the court concluded it was intrinsic fraud? We conclude that the circuit court erred in holding that the Oxendines waived any objection to personal jurisdiction by their failure to participate in the New York proceedings. Because the circuit court denied the motion to vacate on the basis of waiver, we reverse that ruling and remand the case for the court to take evidence and inquire into whether the New York court had a sufficient basis to exercise long-arm jurisdiction over the Oxendines.

In connection with the inquiry into the jurisdiction of the New York court, the Oxendines are not barred from offering evidence to prove that they did not sign the guaranty agreement. Discussion I. Whether the Oxendines waived their rights to challenge the New York court’s jurisdiction over them According to Article IV, § 1 of the United States Constitution, “Full Faith and Credit shall be given in each ⁴⁸⁴ State to the public Acts, Records, and judicial Proceedings of every other State.” The Supreme Court has held that, “in order to fulfill this constitutional mandate, ‘the judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which [the judgment] had in the state where it was pronounced.’ ” Imperial Hotel, Inc. v. Bell Atlantic Tri-Con Leasing Corp., 91 Md.App. 266, 270 , 603 A.2d 1371 (1992) (quoting Underwriters Nat’l Assurance Co. v. North Carolina Life & Accident & Health Ins. Guaranty Assoc., 455 U.S. 691, 704 , 102 S.Ct. 1357 , 71 L.Ed.2d 558 (1982)). The foreign judgment is “presumed valid until it is declared invalid by a competent court.” Imperial Hotel, 91 Md.App. at 271-272 , 603 A.2d 1371 .

The full faith and credit principle does have its limitations, however. For instance, in a suit to enforce a foreign judgment, the jurisdiction of the court which rendered it is “open to judicial inquiry.” Imperial Hotel, 91 Md.App. at 270 , 603 A.2d 1371 . See also Durfee v. Duke, 375 U.S. 106, 111 , 84 S.Ct. 242 , 11 L.Ed.2d 186 (1963); Adam v. Saenger, 303 U.S. 59, 62 , 58 S.Ct. 454 , 82 L.Ed. 649 (1938). The Supreme Court has stated: Chief among those limitations [of the full faith and credit doctrine] is the caveat, consistently recognized by this Court, that “a judgment of a court in one State is conclusive upon the merits in a court in another State only if the court in the first State had power to pass on the merits — had jurisdiction, that is, to render the judgment.” Underwriters Nat’l Assurance Co., 455 U.S. at 704 , 102 S.Ct. 1357 (quoting Durfee, 375 U.S. at 110 , 84 S.Ct. 242 ).

If the rendering court acted without jurisdiction, “the full faith and credit clause does not operate and the foreign judgment is of no force and effect.” Imperial Hotel, 91 Md.App. at 270 , 603 A.2d 1371 . As the Supreme Court stated in Underwriters Nat’l Assurance Co., 455 U.S. at 705 , 102 S.Ct. 1357 : [B]efore a court is bound by the judgment rendered in another State, it may inquire into the jurisdictional basis of the foreign court’s decree. If that court did not have ⁴⁸⁵ jurisdiction over the subject matter or the relevant parties, full faith and credit need not be given. Accord Superior Court v. Ricketts, 153 Md.App. 281, 330-31 , 836 A.2d 707 (2003).

Maryland has also adopted the Uniform Enforcement of Foreign Judgment Act, which requires Maryland courts to examine whether the foreign judgment is entitled to full faith and credit under the laws of Maryland. See Md.Code, Courts & Judicial Proceedings Article (1973, 2002 Repl.Vol.), §§ 11-801 et seq.; Legum v. Brown, 395 Md. 135, 142-43 , 909 A.2d 672 (2006). That statute “places the onus on the trial judge of the ‘receiving’ forum to determine whether the foreign court properly exercised jurisdiction.” Imperial Hotel, 91 Md.App. at 272 , 603 A.2d 1371 . The Court of Appeals held in Legum v. Brown that, when a foreign judgment is properly authenticated, and the rendering court was one of general jurisdiction, “jurisdiction over the cause and the parties is to be presumed unless disproved by extrinsic evidence or by the record itself.” 395 Md. at 145 , 909 A.2d 672 (quoting Adam v. Saenger, 303 U.S. at 62 , 58 S.Ct. 454 ).

The Court of Appeals then stated that it follows from that presumption that “the burden is on a resisting party to establish that the rendering court lacked either subject matter or personal jurisdiction.” Legum, 395 Md. at 145-46 , 909 A.2d 672 . This burden on the resisting party also applies even when the foreign judgment was entered by default. Id. In Legum , the Court of Appeals confirmed, however, that when a colorable challenge to the jurisdiction of the foreign court is raised, the Maryland court is required to conduct an evidentiary hearing to determine whether the foreign court had jurisdiction to render the judgment.

The Court of Appeals said in Legum : Obviously, if the person resisting registration or enforcement of the foreign judgment asserts a lack of subject matter or personal jurisdiction and offers some competent evidence to support the attack, the forum court must make an inquiry and determine from the evidence whether juris ⁴⁸⁶ diction existed. It cannot give full faith and credit to the judgment based solely on the presumption of regularity once competent and persuasive evidence is presented that is facially sufficient to rebut the presumption. 395 Md. at 147 , 909 A.2d 672 . As this Court stated in Superior Court v. Ricketts, supra, 153 Md.App. at 332 , 836 A.2d 707 , there is a two-step process involved in determining whether the foreign court properly exercised jurisdiction: First, “the trial court must determine whether the [foreign state] purports to authorize the assertion of personal jurisdiction ... to the full limits allowed by constitutional due process.” Second, the Maryland court must determine “whether the exercise of jurisdiction permitted by the [foreign] statute violates the due process clause of the fourteenth amendment.” Id. (quoting Imperial Hotel, 91 Md.App. at 274 , 603 A.2d 1371 ).

But there are limitations on the scope of the inquiry into whether the foreign court had the proper jurisdiction. “An independent inquiry into the foreign court’s jurisdiction is not automatic, however, and when undertaken in response to a jurisdictional attack, is subject to some limitations.” Legum, supra, 395 Md. at 145 , 909 A.2d 672 . For example, if the foreign court’s jurisdiction was raised and fully litigated in the foreign court, then principles of res judicata preclude relitigation of the question in Maryland. Id. at 147 , 909 A.2d 672 (The forum court does not relitigate jurisdiction if it has been fully and fairly litigated and finally decided in the court that rendered the foreign judgment.). See also Imperial Hotel, 91 Md.App. at 272 n. 1, 603 A.2d 1371 (“If the issue of personal jurisdiction had been raised and fully adjudicated in [the rendering state], the doctrine of res judicata could have served to bar the appellants from relitigating the issue in Maryland.”).

In the instant case, the Oxendines argue that the New York court did not have personal jurisdiction over them and that the ⁴⁸⁷ judgment against them should not be given full faith and credit in Maryland. The Oxendines contend that, even though forged signatures purporting to be their signatures appear on the loan documents, they did not transact business in the State of New York so as to allow the New York court to have personal jurisdiction over them under that state’s long-arm statute. As the party resisting the New York court’s jurisdiction over them, the Oxendines have the burden of establishing, by extrinsic evidence or the record itself, that the New York court lacked proper personal jurisdiction over them. Legum, 395 Md. at 145-46 , 909 A.2d 672 .

As the Court of Appeals stated in Legum, id. at 147 , 909 A.2d 672 , the Maryland court “must make an inquiry and determine from the evidence whether jurisdiction existed.” In denying the Oxendines’ motion to vacate entry of the foreign judgment, the Circuit Court for Prince George’s County held that the Oxendines were “afforded the opportunity to participate in the [New York] proceedings,” and therefore had had an opportunity to contest the personal jurisdiction of the New York court, but failed to do so. The circuit court ruled that the Oxendines waived their right to now challenge the jurisdiction of that foreign court over them. But there is no evidence in the record before us to show that the Oxendines did contest any of the allegations themselves or participate in the New York proceedings in any way. It is true that, after they were personally served, the Oxen-dines could have filed a motion to dismiss the action on the ground that the New York court did not have sufficient contacts to assert jurisdiction over them, pursuant to the Consolidated Laws of New York Annotated Civil Practice Law and Rules, Rule 3211(a).

It is also true that New York Rule 3211(e) states that an objection based upon lack of personal jurisdiction is waived if, having made no objection, a person does not raise such objection in the responsive pleading. The Oxendines, however filed no responsive pleading in New York, and did not in any way litigate the issue of personal jurisdiction in that state. They now argue that the circuit court erred ⁴⁸⁸ as a matter of law in finding that they waived their right to challenge personal jurisdiction by failing to file an objection or responsive pleading in the New York action. The circuit court relied on Dixon v. Keeneland Associates, Inc., 91 Md.App. 308 , 604 A.2d 502 , cert. denied, 327 Md. 625 , 612 A.2d 256 (1992), as authority for its holding that the Oxendines waived their right to