Case Name: CITY OF PHILADELPHIA, PLAINTIFF-APPELLANT, v. RALPH E. BAUER, DEFENDANT-RESPONDENT
Court: Supreme Court of New Jersey
Jurisdiction: New Jersey
Decision Date: 1984-08-02
Citations: 97 N.J. 372
Docket Number: 
Parties: CITY OF PHILADELPHIA, PLAINTIFF-APPELLANT, v. RALPH E. BAUER, DEFENDANT-RESPONDENT.
Judges: 
Reporter: New Jersey Reports
Volume: 97
Pages: 372–390

Head Matter:
CITY OF PHILADELPHIA, PLAINTIFF-APPELLANT, v. RALPH E. BAUER, DEFENDANT-RESPONDENT.
Argued April 30, 1984
Decided August 2, 1984.
Nicholas Panarella, Jr., argued the cause for appellant.
James E. Rafferty argued the cause for respondent.

Opinion:
The opinion of the Court was delivered by
GARIBALDI, J.
This case is yet another chapter in the continuing saga of New Jersey residents employed by the federal government seeking to avoid the wage tax imposed by the City of Philadelphia (Philadelphia). See, e.g., City of Philadelphia v. Austin, 86 N.J. 55 (1981); City of Philadelphia v. Smith, 82 N.J. 429 (1980); City of Philadelphia v. Stadler, 164 N.J.Super. 281 (D.Ct.1978). In this appeal the question is whether the amendment to N.J.S.A. 2A:17-17, which provides that "[n]o judgment obtained for the payment of any employment wage tax shall be enforced" by levying on the taxpayer's real property, violates the Ml faith and credit clause of the United States Constitution. U.S. Const., art. IV, § 1. Specifically, the issue is whether the State of New Jersey may prevent Philadelphia from enforcing a money judgment obtained for unpaid wage taxes by levying on a taxpayer's property. We hold that under the guise of changing a remedy, the State of New Jersey is denying full faith and credit to a judgment of a sister state. Accordingly, the amendment to N.J.S.A. 2A:17-17 violates the full faith and credit clause of the United States Constitution.
I
Ralph Bauer is a New Jersey resident employed in Philadelphia by the federal government. He is subject to the Philadelphia Wage and Net Profits Tax Ordinance, Philadelphia, Pa., Code ¶ 19-508 (Ordinance), but failed to pay the tax due under the Ordinance for the years 1972 through 1974. Philadelphia then instituted an action in Pennsylvania against Bauer for nonpayment of those Philadelphia wage taxes. Judgment was entered in favor of Philadelphia in the amount of $3,017.26.
The judgment was ultimately placed into the form of an Exemplified Judgment. In December 1980 Philadelphia commenced an action to obtain a judgment in the Camden County District Court. The District Court entered a judgment in the amount of $3,000, which recited that Philadelphia waived all amounts outside the then-jurisdictional limit of the District Court. The judgment was subsequently docketed in the Superi- or Court and became a Superior Court judgment. Bauer did not appeal from the judgment.
After attempts to attach Bauer's personal property proved inadequate and unavailing, further execution efforts were commenced, resulting in a request to the Sheriff of Camden County to schedule a sale of Bauer's real property. The Sheriff's sale originally was scheduled for November 4, 1981, but was adjourned three times until March 5, 1982.
In the interim, the New Jersey Legislature amended N.J.S.A. 2A:17-17, which provides for satisfaction of judgments by levy on real property. The amendment provides:
No judgment obtained for the payment and satisfaction of any employment wage tax, including penalties, shall be enforced pursuant to this section. [L. 1982, c. 548, § 1.]
As originally proposed, the amendment was much broader. It would have exempted real estate from levy to satisfy a judgment obtained for wage taxes or "any judgment of any court out of this State which had an underlying cause of action which would be subject to the jurisdiction of the county district courts in this State." See Assembly Bill No. 3547 (June 25, 1981). This latter language was deleted by amendment of the bill. See Senate Judiciary Committee, Statement to Assembly Bill No. 3547 (December 7, 1981). According to the Governor, in its final form "[t]he intent of the bill [was] to block the City of Philadelphia from attaching or disposing of the property of New Jersey residents to satisfy judgments for unpaid Philadelphia city wage taxes." Governor's Office, "Message on Signing."
This amendment became effective on January 12,1982. Soon thereafter, Bauer filed a complaint to enjoin permanently the execution on the judgment. The action was based on the amendment to N.J.S.A. 2A:17-17. The trial court granted the injunctive relief and the Appellate Division affirmed the trial court's Order. We granted Philadelphia's appeal as of right on the grounds that the case involves a substantial question arising under the Constitution of the United States or this state. R. 2:2-1. We now reverse the judgment of the Appellate Division.
II
The United States Constitution provides that "Full Faith and Credit shall be given in each state to the public acts records, and Judicial Proceedings of every other state." US. Const. art. IV, § 1. The full faith and credit required to be given judgments does not depend on the Constitution alone. Congress also enacted 28 U.S.C.A. § 1738, which provides in part: "[Jjudicial proceedings shall have the same full faith and credit in every court within the United States as they have by law or usage in the courts of such State from which they are taken."
The clear purpose of the full faith and credit clause, along with other constitutional provisions with the same purpose, was to alter the status of the states as independent sovereigns and to integrate them into a single nation here so that a party could enforce a just claim regardless of the claim's state of origin. The full faith and credit clause thus became a nationally unifying force. See Milwaukee Cty. v. M.E. White Co., 296 U.S. 268, 276-77, 56 S.Ct. 229, 233-34, 80 L.Ed. 220, 228 (1935); City of Philadelphia v. Austin, supra, 86 N.J. at 58.
It is well established that both the Constitution and 28 U.S.C.A. § 1738 require that a state must accord full faith and credit to a judgment of a sister state. This is so even if the underlying cause of action in the original judgment would not necessarily be a valid cause of action in the state providing the forum for enforcement. Id. We have applied this well-recognized principle to cases involving the tax at issue and held that a Pennsylvania judgment for monies owed under the Philadelphia wage tax, including fines and penalties, is entitled to full faith and credit when reduced to a New Jersey money judgment. See City of Philadelphia v. Austin, supra, 86 N.J. 55; City of Philadelphia v. Smith, supra, 82 N.J. 429.
It is equally well established that under the doctrine of merger Thus, the judgment obtained in the enforcing state on the foreign judgment becomes a simple money judgment, its original identity having been lost because of the merger doctrine.
[a] cause of action on a judgment is different from that upon which the judgment was entered. In a suit upon a money judgment for a civil cause of action the validity of the claim upon which it was founded is not open to inquiry, whatever its genesis. Regardless of the nature of the right which gave rise to it, the judgment is an obligation to pay money in the nature of a debt upon a specialty. [Milwaukee Cty. v. M.E. White Co., supra, 296 U.S. at 275, 56 S.Ct. at 233, 80 L.Ed. at 227.]
In People of New York v. Coe Mfg. Co., 10 N.J.Misc. 1161, 1163 (Sup.Ct.1932), aff'd, 112 N.J.L. 536 (E. & A.), cert. den., 293 U.S. 576-77, 55 S.Ct. 89, 79 L.Ed. 674 (1934), we applied the doctrine of merger and stated that "the suit in this court is not for the collection of taxes, but for the collection of a judgment which is based on a tax claim, and the original character of the claim has been merged in the judgment." Likewise, we have applied the doctrine of merger to judgments originally based on a claim for nonpayment of Philadelphia wage taxes. In City of Philadelphia v. Austin, supra, 86 N.J. at 61 we held that for purposes of the full faith and credit clause a fine for failure to file returns for Philadelphia wage tax, once reduced to judgment, was to be treated the same as any other money judgment. We stated that:
We recognize that the reduction of the penalty to a civil judgment is a significant change in its status. That metamorphosis diminishes the penal nature of the claim and enhances the enforceability of the judgment under the Full Faith and Credit Clause. As the Milwaukee County Court wrote, "[a] cause of action on a judgment is different from that upon which the judgment was entered." [Id. (citation omitted).]
See also City of Philadelphia v. Smith, supra, 82 N.J. 429 (for purposes of full faith and credit, a penalty imposed for nonpayment of Philadelphia wage tax, once reduced to judgment, is to be treated like any other money judgment).
Applying the doctrine of merger to this case leaves no doubt that the judgment is not a judgment based on a cause of action for the Philadelphia wage tax but a money judgment issued by the Superior Court of New Jersey based on the foreign judgment. The original cause of action is not before the New Jersey courts.
N.J.S.A. 2A:17-17 blocks execution on real property on two grounds: (1) on judgments obtained in county district courts and (2) on judgments obtained for payment and satisfac tion of any employment wage tax. The first ground is not relevant here despite the dissent's attempt to make it appear so. The judgment at issue is not a county district court judgment but a Superior Court judgment. As such, it is entitled to a lien on real property unless it is deemed to be a judgment obtained for the payment of any employment wage tax. Thus, without going behind the judgment, the amendment on its face is not applicable here. Only by ignoring the simple money judgment and inquiring into the original cause of action may the amendment conceivably apply to the judgment before the court. Such an inquiry violates the general purpose and specific dictates of the full faith and credit clause. It leads inexorably to states imposing improper restrictions on the enforcement of judgments from sister states based on the nature of the original claim. See generally Milwaukee Cty. v. M.E. White Co., supra, 296 U.S. at 276-77, 56 S.Ct. at 233-34, 80 L.Ed. at 228 (noting that the weightiness of the purpose and the numerous situations in which full faith and credit must be given to fulfill that purpose); City of Philadelphia v. Austin, supra, 86 N.J. at 58 (explaining the purpose of the full faith and credit clause).
Ill
Mr. Bauer and the dissent argue that N.J.S.A. 2A:17-17 does not deny full faith and credit to the Pennsylvania judgment because the amendment treats the judgment like all other judgments and merely forecloses a single enforcement remedy. This argument ignores the realities of the situation. First, the judgment is a New Jersey Superior Court judgment, not a county district court judgment as the dissent implies. The treatment of this judgment is not the same as the treatment of other New Jersey Superior Court judgments. Moreover, all the relevant indicia, including the legislative history, the limited class of one, the alleged purpose of the amendment, the elimination of any effective remedy, and the fact that the amendment itself is against the declared public policy of the state, confirm that the amendment violates the full faith and credit clause.
Because of the extreme importance of the full faith and credit clause to our national unity, "[t]hat purpose ought not lightly to be set aside ." Milwaukee Cty. v. M.E. White Co., supra, 296 U.S. at 277, 56 S.Ct. at 234, 80 L.Ed. 228. As we stated in Coons v. American Honda Motor Co., 94 N.J. 307, 318 (1983): "The legislature cannot accomplish indirectly that which it could not do directly." A state may not by subterfuge refuse to give full faith and credit to the judgment of a sister state.
As is evident from the Governor's statement, "[t]he intent of the bill is to block the City of Philadelphia from attaching or disposing of the property of New Jersey residents to satisfy judgments for unpaid Philadelphia city wage taxes." Indeed, it is difficult to believe that the amendment is not aimed at Philadelphia's judgments, since no New Jersey municipality has an employment wage tax subject to the amendment. Thus, the argument that Philadelphia's judgments are treated like any other judgments in New Jersey is specious.
Further support for the position that the amendment does more than deny a method of enforcing a valid judgment of a sister state is found by examining the purpose of the amendment. The supposed purpose behind N.J.S.A. 2A:17-17 is to protect debtors from losing their homes to satisfy relatively small and insignificant judgments, see Assembly Judiciary, Law, Public Safety and Defense Committee, Statement to Assembly Bill No. 3547 (November 16, 1981) ("In most cases, real estate represents the primary personal or family asset and, therefore, should be subject to execution only in matters of a more significant nature."). That the method chosen to fulfill this purpose cannot possibly do so suggests that the amendment is aimed squarely at attempting to avoid recognizing valid Pennsylvania judgments. There is absolutely no evidence to indicate that a wage-tax judgment levy is in any way different from any other judgment levy either in kind or number. The removal of the right to levy on real property to enforce a wage-tax judgment without imposing a similar restriction on other judgment creditors does not offer the homeowner much protection. Had the real purpose been to protect real estate from execution in insignificant matters, the amendment would have classified judgments based on their size, not their source. As the statute reads now, the home of a taxpayer who owed Philadelphia $15,000 on a judgment for unpaid wage taxes would be protected, but the home of a poor person who owed a store $1,000 would not be.
Most significantly, the amendment denies Philadelphia the only effective means of enforcing its judgment. To deny such enforcement is in reality to render the judgment virtually worthless, in clear violation of the full faith and credit clause.
IV
Although judgments of sister states must be given full faith and credit, local law may determine the scope and nature of available remedies. See Gulick v. Loder, 13 N.J.L. 68, 69-70 (Sup.Ct.1832); Restatement (Second) of Conflict of Laws § 99 at 303 (1971); see also M'Elmoyle v. Cohen, 38 U.S. 312, 13 Pet. 312, 10 L.Ed. 177 (1839) (upholding Georgia statute providing that actions on foreign judgments must be brought within five years); Sainz v. Sainz, 36 N.C.App. 744, 746, 245 S.E.2d 372, 374 (1978) (North Carolina court not required to enforce a judgment ordering specific enforcement of a separation agreement because the remedy of specific enforcement was not available in North Carolina).
Nevertheless, it is clear that a state may not, by unduly burdening the means to enforce a foreign judgment, refuse to give full faith and credit to that judgment. Moreover, the enforcing state "may not, under the guise of merely affecting the remedy, deny the enforcement of claims otherwise within the protection of the full faith and credit clause ." Broderick v. Rosner, 294 U.S. 629, 643, 55 S.Ct. 589, 592, 79 L.Ed. 1100, 1107 (1935).
A state which may not constitutionally refuse to open its courts to a suit on a judgment of another state because of the nature of the cause of action merged in the judgment obviously cannot by the adoption of a particular rule of liability or of procedure, exclude from its courts a suit on the judgment. [Titus v. Wallick, 306 U.S. 282, 292, 59 S.Ct. 557, 562, 83 L.Ed. 653, 659-60 (1939) (citation omitted).]
The reality of the situation is that Philadelphia has no viable alternatives to execution on real property. Garnishment of the wages of federal employees is not possible because the federal government has sovereign immunity. See Johnson v. Johnson, 332 F.Supp. 510, 511 (E.D.Pa.1971); Applegate v. Applegate, 39 F.Supp. 887 (E.D.Va.1941). Execution on personalty is not effective when, as here, there is insufficient personalty to satisfy the judgment. Liens on real property may force Philadelphia to forego the tax money for years until the real property is sold. Finally, an equitable payout order not only would require a court proceeding but perpetually would be subject to attempted modifications by the debtor. In view of the tenacity of New Jersey residents in avoiding payment of the Philadelphia wage tax, use of this remedy undoubtedly would lead to further court battles and require Philadelphia to invest substantial time and money appearing in court to enforce the order. In addition, in many cases, upon retirement, sickness, or death of the debtor, the order would be unenforceable.
The situation, then, is very similar to that in Broderick v. Rosner, supra, 294 U.S. 629, 55 S.Ct. 589, 79 L.Ed. 1100. In Broderick, the United States Supreme Court struck down a New Jersey statute that barred actions at law to enforce the statutory liability of stockholders to corporate creditors that arose under the laws of another state. An action in equity was permissible but all the stockholders and creditors were necessary parties. As here, the Court noted that the requirements were so burdensome as effectively to deny recognition of the statute of the sister state. Id. at 639-40, 55 S.Ct. at 591, 79 L.Ed. at 1105-06. Further, there was no policy involved to which recognition could be accorded. As the Court stated:
Obviously recognition could not be accorded to a local policy of New Jersey, if there really were one, of enabling all residents of the State to escape from the performance of a voluntarily assumed statutory obligation, consistent with morality, to contribute to the payment of the depositors of a bank of another State of which they were stockholders. [Id. at 644, 55 S.Ct. at 593, 79 L.Ed. at 1108.]
The court in Hieston v. National City Bank of Chicago, 280 F. 525 (D.C.Cir.1922), reached a similar conclusion in a case involving an enactment to exempt property from execution. Under that statute, the enforcement of a foreign judgment against the property of a judgment debtor would not have been possible had the original judgment been entered in the enforcing state. The statute claimed to bar execution on a married woman's own property for the debts of her husband. The court rejected the argument that the enforcement of the foreign judgment was therefore contrary to the laws of the enforcing state and invalid as against the policies of the enforcing state. That court refused to deny full faith and credit to the foreign judgment, stating:
It is conceded that the judgment is in every respect valid and enforceable in the state of Maryland, but it is urged on behalf of defendant that the cause of action which formed the basis of that judgment may be inquired into to determine whether the judgment may be enforced against the property of the plaintiff in this District. To sustain this contention would mean the denial of full faith and credit to the judicial proceedings resulting in the Maryland judgment. [Id. at 526.]
See also Lamb v. Powder River Live Stock Co., 132 F. 434, 440 (8th Cir.1904) ("the original cause of action is merged in the judgment").
Here, as distinct from the Hieston case, the enforcement of the judgment conforms with New Jersey policy. As in the Broderick case, there is no valid state policy to justify a refusal to enforce Philadelphia's judgment. Recognition cannot be afforded any policy enabling citizens to escape paying taxes. As we stated in City of Philadelphia v. Smith, supra, 82 N.J. at 434: "Obviously it is to the mutual advantage of neighboring states to recognize and enforce one another's tax revenue laws." Similarly, in City of Philadelphia v. Austin, supra, 86 N.J. at 65-66, we stated:
[TJaxes are the lifeblood of government, the vital force needed to sustain the public interest. Stated otherwise, "Taxes are what we pay for civilized society." Compania General de Tabacos v. Collector, 275 U.S. 87, 100, 48 S.Ct. 100, 105, 72 L.Ed. 177 (1927). When one taxpayer fails to bear his or her fair share, the burden becomes heavier on other taxpayers. The inability to enforce a tax obligation in another state increases the burden on citizens of the taxing state. Tax evasion does not reduce the cost of government; it merely shifts the cost to others.
Our examination of the totality of the circumstances here leads to the conclusion that the amendment is an attempt by the State of New Jersey to deny full faith and credit to a judgment of a sister state under the guise of merely denying a particular remedy. It is tempting and popular to favor the interests of your own citizens over the interests of another state, but this favoritism and parochial self-interest was exactly what the full faith and credit clause was intended to prevent. Accordingly, we hold that N.J.S.A. 2A:17-17 violates the full faith and credit clause of the United States Constitution.
The judgment below is reversed.