Foreign Judgment – Creditors Rights 101

Foreign Judgments based on Confessions of Judgment are valid in Tennessee

I get 6 calls a year from out-of-state clients, asking me to file a lawsuit to enforce a confession of judgment contained in their out-of-state loan documents.

It’s been happening so long that, for the past 7 years, I just send them a link to this post “Confessions of Judgment aren’t Valid in Tennessee: Here’s Why.”

Some background: A confession of judgment is a provision in a loan or an entirely separate loan document that grants, at the time the loan is signed, the lender an unequivocal right to take a judgment for the debt under that note in the event of a breach, sometimes without the right to notice of the suit, a hearing, or any defenses. In short, when you sign the loan documents, you also sign an agreed judgment for the unpaid debt in advance. This is a device that is sometimes used by predatory lenders–lenders “of last resort,” who serve desperate borrowers and expect the loans to go bad.

Tennessee law expressly prohibits judgments based on confessions of judgment. Tenn. Code Ann. § 25-2-101(a) says:

Any power of attorney or authority to confess judgment which is given before an action is instituted and before the service of process in such action, is declared void; and any judgment based on such power of attorney or authority is likewise declared void.

Couldn’t be more clear, right? Well, what happens when a New York creditor takes a judgment in New York (where it’s valid) based on a confession of judgment and asks a Tennessee court (where it’s not) to recognize it as valid and enforceable, under the Uniform Enforcement of Foreign Judgments Act?

Doesn’t the statute say “any judgment” based on a confession of judgment is “declared void”?

It’s an interesting question, and, yesterday, the Tennessee Court of Appeals issued the first opinion ever deciding this issue. The case is Capital Partners Network OT, Inc. v. TNG Contractors, LLC, et al. AL., No. M202000371COAR3CV, 2020 WL 6708232 (Tenn. Ct. App. Nov. 16, 2020).

The opinion provides a great background on defenses to the UEFJA and goes on to note that, under the Full Faith and Credit Clause of the United States Constitution, every state must respect the judgments and sovereignty of its sister states, and that a state would be “reluctant” to question another state’s judgments on public policy concerns and only after the defendant satisfies a “stern and heavy burden.”

In order to deny another state’s judgment, then, it’s got to be a really, really big deal, and the words the Court used was “repugnant to the Federal Constitution.”

When discussing a judgment based on a confession of judgment or cognovit note, the Tennessee courts will look to whether the loan document “denies the debtor due process of law.” A question is whether there was a “voluntary and knowing waiver of the fundamental due process notice and a hearing.”

In the end, the Court wrote that “a foreign money judgment resulting from a cognovit note or clause that was entered into with a knowing, voluntary waiver of the right to notice and an opportunity to be heard must enjoy full faith and credit in Tennessee.” So, a small-print provision hidden in a loan note will not satisfy this test, but a separate document that clearly and prominent states the purpose of the document and the rights being waived will suffice.

Again, to be clear, this doesn’t mean that the Tennessee court will enter a judgment based on the out-of-state confession of judgment. Tenn. Code Ann. § 25-2-101(a) doesn’t allow that.

Instead, this case says that, if a creditor has a confession of judgment and is smart, the creditor will take a judgment in the other state (where these types of judgments are allowed), and then hire a Tennessee creditors rights attorney to enroll and domesticate this foreign judgment.

New Tennessee Law Allows Judgments from Foreign Countries to be Enforced in State

A few years ago, I asked the question “How ‘Foreign’ can a foreign judgment be and still be entitled to domestication?“

In that post, I considered whether a a truly foreign judgment, i.e. one entered by a different country, could be domesticated and enforced in a state court, whether under state law (i.e. the Uniform Enforcement of Foreign Judgment Act) or under federal law. In the end, I thought it would, citing the Uniform Foreign Money-Judgments Recognition Act, a federal statute that can be found at 13 U.L.A. 261.

To my surprise, I just discovered that the Tennessee Legislature passed a brand new set of statutes on this issue, effective on July 1, 2019.

Found at Tenn. Code Ann § 26-6-201, et. seq., these statutes are titled the “Uniform Foreign Money-Judgments Recognition Act.” Per Tenn. Code Ann § 26-6-202 and -203, this Act expressly applies to judgment issued in a court of a foreign country that “[g]rants or denies recovery of a sum of money” and is “final, conclusive, and enforceable.” Interestingly, the Act doesn’t apply to a foreign judgment for taxes or fines/penalties.

Nothing beats actually reading the statutes, so I’ll just recap some highlights.

Be sure to read Tenn. Code Ann. § 26-6-204, which recites the various standards for recognition. Most importantly, check out subpart (b), which provides examples of matters in which a Tennessee court “may not” recognize the foreign judgment (where the court lacks “impartial tribunals or procedures”; no personal jurisdiction; no subject matter jurisdiction). Also, see subpart (c), which provides the examples for when a Tennessee “need not” recognize the foreign judgment (insufficient notice; fraud; repugnant policy; inconvenient forum; conflicting venue provisions).

Tenn. Code Ann. § 26-6-205(a) provides some examples of where a Tennessee court can pretty easily find personal jurisdiction (i.e. the defendant was actually served in that country; made a voluntary appearance in the proceeding; a car accident in that country).

Pursuant to Tenn. Code Ann. § 26-6-204(c), “[a] party resisting recognition of a foreign-country judgment has the burden of establishing that a ground for nonrecognition stated in subsection (b) or (c) exists.”

Some quick thoughts:

With all the legislative fights in Tennessee over this past summer, I’m surprised that there was no mention of this new Act;
This is a fairly obscure issue, and I’m honestly impressed that Tennessee has such a fair process for recognition of foreign judgments;
I think the statutory text of the Act has some language that will be difficult to navigate, including the “may not recognize” and “need not recognize” phrases in Tenn. Code Ann. § 26-6-204 (b) and (c).
If a party digs in on the “need not” criteria, including whether a cause of action is “repugnant to the public policy of this state,” we’re going to be having some really interesting arguments in Davidson County Chancery Court.

In short, I’m glad that Tennessee has adopted a version of the Act and that we have clarity as to whether a judgment from a foreign country will be enforceable and domesticated in Tennessee.

For years, I’ve handled a number of these, generally shoe-horning these judgments into the existing Tennessee Foreign Judgments Act.

Judgment Creditors are Limited to the terms of their Foreign Judgments

Last week, the Tennessee Court of Appeals issued a decision on an action to enforce a default judgment under the Uniform Enforcement of Foreign Judgments Act, found at Tenn. Code Ann. §§ 26-6-101 to -108.

The case has a few interesting twists and turns, and the full text can be found at The Wolf Organization, Inc. v. TNG Contractors, LLC, M201800073COAR3CV, 2019 WL 2883813 (Tenn. App. July 3, 2019).

Today, I’m looking at only one issue: Whether the Judgment Creditor in a Foreign Judgment Enforcement action can get additional attorney’s fees for its efforts to domesticate the judgment.

Continue reading “Judgment Creditors are Limited to the terms of their Foreign Judgments”

New Davidson County Chancery Court Ruling: Certified Copies are Good Enough to Support a Foreign Judgment Domestication

Last October, I talked about how failure to get a properly “authenticated” copy of a judgment would be fatal to a creditor’s action under the Uniform Foreign Judgment Enforcement Act.

So, here I am, in March, and I’m writing about how a Davidson County Chancery Court has now ruled that a simple “certified copy” of the judgment would suffice. Five months is a pretty quick turnaround, even by my standards.

The reasoning of the Chancellor is this:

The purpose of the Full Faith and Credit Clause was to make it easy to enroll and domesticate judgments granted in other jurisdictions;
As you know, the requirements for filing a foreign judgment in Tennessee are “few and straightforward.” See Boardwalk Regency Corp. v. Patterson, No. M1999-02805-COA-R3-CV, 2001 WL 1613892, at * 4 (Tenn. Ct. App. Dec. 18, 2001).
As I’ve written about before, there are essentially three “defenses” to a filing under the Act. Those are: (1) if the judgment is “void due to a lack of personal or subject matter jurisdiction;” (2) if it was “based upon fraud;” or (3) where its enforcement “would violate public policy of the forum state.” Guseinov v. Synergy Ventures, Inc., 467 S.W.3d 920, 924 (Tenn. Ct. App. 2014).
Per Guseinov, a party seeking to prevent the enrollment of a foreign judgment carries “a stern and heavy burden” in Tennessee.
So, if the only defense is that the judgment wasn’t authenticated consistent with the Acts of Congress/triple certification process/exemplified, the creditor hasn’t met a “stern and heavy burden.”
If there is no indication or argument that the simple certification on the certified judgment is invalid or not the Clerk’s signature, then a certified copy will suffice.

Today isn’t the day that I argue against the ruling; instead, this is just me, warning you.

But, this hasn’t always been the practice in Tennessee or other jurisdictions interpreting the Foreign Judgment domestication Act, so, if you want to be 100% safe, go with the authenticated copy.

Tune back in 4 months to see if I have reversed course again.

Sure, the Debtor is Foreign, but Is his Bank?

I’ve talked about the process of domestication of judgments, which is basically the process by which you make a judgment from one state enforceable in another state. You see, a judgment awarded in Tennessee can only reach a debtor’s assets located inside the State of Tennessee. So, if you have a judgment against somebody who lives in Texas, you may have to file a second lawsuit in Texas to attach his assets.

But don’t go buy a pair of cowboy boots just yet.

I mean, sure, if he owns land in Texas, owns a car that’s registered in Texas, or has a million dollars in cash under his Texas bed, then your Tennessee judgment is not going to be effective to execute on those assets. To get those things that are actually in Texas, you need to go through the domestication process, which results in your out of state judgment being recognized by that foreign state as a valid judgment for enforcement in that state.

But, here’s a trick: What if the debtor has all his assets in that foreign state, but he banks at a national bank with offices all over the country? And what if that bank has a branch in Tennessee? The answer is that you can levy on that bank account.

So, debtors with accounts at Wells Fargo Bank, National Association and Bank of America, watch out.

The Law is All Paperwork: An Improperly Authenticated Judgment may Result in Dismissal of Foreign Judgment Action

On my Facebook page, I describe myself as “The Garth Brooks of Paperwork.” Which is a way of poking fun at lots of things about me and my job.

But, law students, please know that success as a lawyer is basically 65% being really good at paperwork.

Thankfully, for the other 35% of us, you can generally amend pleadings to correct mistakes or errors. I’ve recently found a situation where you can’t amend a court filing, such that the entire case might be dismissed.

It’s when there’s an error in your initial filing of a Notice of a Foreign Judgment under the the Uniform Enforcement of Foreign Judgments Act (the “Act”), found in Tennessee at Tenn. Code Ann. § 26-6-101 et.seq.

If a judgment creditor fails to attach a proper exhibit, i.e. a properly authenticated copy of the out-of-state judgment to be enforced, there is a line of cases in Tennessee that say the entire lawsuit is defective because the failure to follow the statutory procedure for authenticating a foreign judgment is fatal as a matter of law.

What’s scary about this line of cases is that there appears to be no ability to file a Motion to Amend Pleadings under Rule 15. Those types of requests are generally granted and would usually allow the plaintiff to correct the error and move on.

Not in proceedings under the Act, Tennessee Courts have said. A recent trial court decision found that a Notice of Filing was not one of the expressly provided list of “pleadings” in Rule 7.01 and, therefore, not subject to amendment under Rule 15.01.

Tenn. R. Civ. P. 15.01 allows parties to amend their pleadings, and leave to amend pleadings is freely granted by the courts when justice demands. Tenn. Rule 7.01 defines “pleading” as a complaint, answer, counter-complaint, answer to a cross-claim, a third-party complaint and third-party answer and states that “no other pleading shall be allowed.’ The Notice of Filing required by Tenn. Code Ann. § 26-6-104 is not one of the pleadings listed in Rule 7.01.

Apparently, then, the judgment creditor’s only recourse when the foreign judgment notice is defective is to dismiss the domestication action, and then re-file a corrected, new proceeding. Yikes.

Enforcement and Domestication of Foreign Judgments in Tennessee: Simple Under The Uniform Enforcement of Foreign Judgments Act

To creditors’ chagrin, judgments aren’t enforceable across state lines. Before a Tennessee judgment can be enforced against the debtor’s assets in Florida, the creditor has to “domesticate” that judgment, which requires that a second action be filed in the new state to recognize the out-of-state judgment.

Fortunately, this process is governed by a commonly adopted act, the Uniform Enforcement of Foreign Judgments Act (Tenn. Code Ann. § 26-6-101, et. seq.), which creates a stream-lined process for creditors to follow.

It’s generally just a two step process. The creditor must (1) file an authenticated copy of the judgment and (2) file a supporting Affidavit. In most cases, the judgment of the sister state will be entitled to “full faith and credit” by the new court.

There are limited grounds for attack on domestication. The defendant doesn’t get to re-litigate the case; instead, he or she can only contest procedural defects, like no service of process or fraud. These issues must be raised in the 30 days after service of the domestication action.

On June 30, 2011, the Tennessee Court of Appeals issued a new opinion, at Cadlerock, LLC v. Sheila R. Weber, which provides a good summary of the issues and law presented on foreign judgment enforcement actions. This Act isn’t often litigated, but this is a good case to have handy, just in case.