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.

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.

 

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.