Court Opinion

ID: 4248916
Source: CourtListenerOpinion
Date Created: 2018-02-28 17:19:32.039673+00
Date Added: 2024-06-11T14:16:48.952507
License: Public Domain

FILED
                                                              Feb 28 2018, 7:49 am

                                                                   CLERK
                                                               Indiana Supreme Court
                                                                  Court of Appeals
                                                                    and Tax Court

      ATTORNEY FOR APPELLANT
      Mickey J. Lee
      Maurice Wutscher, LLP
      Indianapolis, Indiana

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      EBF Partners, LLC,                                         February 28, 2018
      Appellant-Plaintiff,                                       Court of Appeals Case No.
                                                                 49A02-1705-CC-961
              v.                                                 Appeal from the Marion Superior
                                                                 Court
      Novabella, Inc. d/b/a                                      The Honorable Thomas J. Carroll,
      and Frank Terranova,                                       Judge
      Appellee-Defendant.                                        Trial Court Cause No.
                                                                 49D06-1611-CC-39165

      Pyle, Judge.

                                        Statement of the Case
[1]   EBF Partners, LLC (“EBF”) appeals the trial court’s order dismissing with

      prejudice its petition to domesticate a foreign judgment from New York, which

      was entered pursuant to a confession of judgment in a cognovit note, against

      Novabella Inc. (“Novabella”) and Frank Terranova (“Terranova”). EBF argues

      Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018            Page 1 of 15
      that the trial court erred by dismissing its petition and by failing to give full faith

      and credit to the New York judgment.

[2]   Although cognovit notes are prohibited in Indiana, the Full Faith and Credit

      Clause of our Federal Constitution requires reversal of the trial court’s

      judgment. Because the New York judgment appears on its face to be rendered

      by a court of competent jurisdiction and Novabella did not challenge the

      jurisdiction of the New York court to enter the judgment, the trial court was

      required to afford full faith and credit to the New York judgment.

[3]   We reverse.

                                                        Issue
               Whether the trial court erred by dismissing EBF’s petition to
               domesticate the judgment of a sister state.

                                                        Facts
[4]   EBF is a Delaware limited liability company with its place of business in New

      York. Novabella is an Indiana corporation with its place of business in

      Indiana. Terranova, the owner of Novabella, is a resident of Indiana.

[5]   On June 28, 2016, Novabella entered into a Payment Rights Purchase and Sale

      Agreement (“Purchase Agreement”) wherein Novabella sold $204,000 of its

      future receivables to EBF for a purchase price of $150,000. 1 Thus, Novabella

      1
          Terranova signed the Purchase Agreement on behalf of Novabella.

      Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018   Page 2 of 15
      received $150,000 up front from EBF and agreed to repay EBF $204,000 from

      Novabella’s business receipts. Under the Purchase Agreement, Novabella was

      required to deposit its sales proceeds into a designated account from which EBF

      would withdraw a daily payment of either $1,457.14 or fifteen percent (15%) of

      the daily deposit until EBF had received its full purchased amount. Terranova

      also signed a Security Agreement and Guaranty (“Guaranty”) to guarantee

      Novabella’s performance under the Purchase Agreement.

[6]   The Purchase Agreement contained the following relevant provisions regarding

      EBF’s available remedies in the event of a default:

              3.2 Remedies. If any Event of Default occurs, EBF may proceed
              to protect and enforce its rights including, but not limited to, the
              following:

                                                     *****

              B. EBF may enforce the provisions of the Personal Guaranty of
              Performance against the Guarantor(s).

              C. If permitted under the laws of the state in which the Seller
              [Novabella] resides; Seller hereby authorizes EBF to execute in
              the name of the Seller a Confession of Judgment in favor of EBF
              in the full uncollected Purchase Amount and enter that
              Confession of Judgment with the Clerk of any Court and execute
              thereon.

                                                     *****

              E. EBF may protect and enforce its rights and remedies by
              lawsuit. In any such lawsuit, under which EBF shall recover
              Judgment against Seller, Seller shall be liable for all of EBF’s
              costs of the lawsuit, including but not limited to all reasonable
              attorneys’ fees and court costs.
      Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018   Page 3 of 15
                                                        *****

                 All rights, powers and remedies of EBF in connection with this
                 Agreement may be exercised at any time by EBF after the
                 occurrence of an Event of Default, are cumulative and not
                 exclusive, and shall be in addition to any other rights, powers or
                 remedies provided by law or equity.

      (App. Vol. 2 at 21). The Purchase Agreement also contained a clause

      indicating that it would be governed by and construed under the laws of New

      York.

[7]   A few days later, on July 6, 2016, Terranova, individually and on behalf of

      Novabella, signed an Affidavit of Confession of Judgment (“Confession of

      Judgment”),2 in which he again consented to the jurisdiction of any court in

      New York. The Confession of Judgment also contained the following relevant

      provisions:

                 5. Business Defendant [Novabella] and I [Terranova] each
                 confess judgment, jointly, severally, and individually, and
                 authorize the entry of judgment in favor of Plaintiff [EBF] and
                 against the Defendants [Novabella and Terranova] in the sum of
                 $204[,]000, less any payments made in accordance with the
                 Payment Rights Purchase and Sale Agreement dated
                 06/28/2016, plus [EBF’s] attorneys’ fees calculated at twenty-
                 five percent (25%) of the aforesaid sum, plus pre-judgment and
                 post-judgment interest at New York’s statutory rate of 9% from
                 06/28/2016 through the entry of judgment herein, and the costs
                 of filing this affidavit and entering judgment as agreed to in the
                 Payment Rights Purchase and Sale Agreement. Such amount

      2
          Terranova’s confession of judgment was notarized by a notary public in Indiana.

      Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018           Page 4 of 15
              shall be set forth in an affidavit or affirmation executed by [EBF]
              or [EBF’s] attorney(s) and attached hereto at the time of entry of
              this Confession of Judgment.

              6. This Confession of Judgment is for money justly due and
              owing to [EBF] arising from i) [Novabella and Terranova’s]
              failure to pay [EBF] accounts receivables and sales proceeds that
              were purchased by [EBF] from [Novabella] pursuant to the
              Payment Rights Purchase and Sale Agreement dated
              06/28/2016, ii) [Novabella and Terranova’s] breach of the
              Payment Rights Purchase and Sale Agreement, and iii)
              [Novabella and Terranova’s] breach of the personal guaranty of
              the Payment Rights Purchase and Sale Agreement, plus pre-
              judgment and post-judgment interest at New York’s statutory
              rate of 9% from 06/28/2016 through the entry of judgment
              herein, [EBF’s] attorneys’ fees in the amount twenty-five percent
              (25%) of the aforesaid sum, and the costs of filing this affidavit
              and entering judgment as agreed to in the Payment Rights
              Purchase and Sale Agreement. The supporting documents
              include the Payment Rights Purchase and Sale Agreement with
              personal guaranty, and UCC-1 financing statement(s).

      (App. Vol. 2 at 12).

[8]   Thereafter, on August 8, 2016, EBF filed, in a New York trial court, the

      Confession of Judgment. EBF also filed an affidavit from an EBF collections

      manager, who averred that Novabella and Terranova had breached the

      Purchase Agreement on July 21, 2016 by “placing a stop payment on all debits

      of the specified percentage from the designated deposit account” and interfered

      with EBF’s ability to collect its daily payment. (App. Vol. 2 at 15). EBF

      obtained a “confessed” judgment in the amount of $237,570.27 against

      Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018   Page 5 of 15
       Novabella and Terranova (“New York confessed judgment”).3 (App. Vol. 2 at

       35). This New York confessed judgment was obtained without notice to

       Novabella and Terranova and without a hearing.

[9]    Subsequently, on November 1, 2016, EBF filed, in Marion County Superior

       Court, a Notice and Petition to Domesticate Foreign Judgment (“foreign

       judgment enforcement petition”), seeking to have Indiana recognize and

       enforce the New York confessed judgment that remained unsatisfied. In

       December 2016, Novabella and Terranova (collectively, “Novabella”) filed an

       answer and affirmative defenses. Among its defenses, Novabella contended

       that EBF’s foreign judgment enforcement petition was barred because it was

       “illegal[]” and “contrary to [the] public policy in the state of Indiana.” (App.

       Vol. 2 at 62). Additionally, it requested that the trial court dismiss EBF’s

       foreign judgment enforcement petition with prejudice.

[10]   Thereafter, in March 2017, EBF filed a motion to strike Novabella’s answer. In

       its motion, EBF argued that the answer was not relevant and that Novabella

       was barred from raising any defenses to the New York confessed judgment

       because that case had already been “decided on the merits[.]” (App. Vol. 2 at

       64). On March 9, 2017, the trial court entered an order (“the Motion to Strike

       Order”), in which it granted EBF’s motion to strike Novabella’s answer.

       3
         The $237,570.27 judgment included the $188,352.88 balance owed under the Purchase Agreement plus
       interest, attorney fees, costs, and fees.

       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018                Page 6 of 15
[11]   On March 16, 2017, Novabella filed a motion to set aside, in which it requested

       the trial court to: (1) set aside the Motion to Strike Order; and (2) dismiss

       EBF’s foreign judgment enforcement petition.4 Novabella argued that EBF’s

       New York confessed judgment had been entered without service of process and

       was “improper in the state of Indiana” and “in direct violation of Indiana Code

       [§] 34-54-3-4.” (App. Vol. 2 at 68). Novabella also argued that the Confession

       of Judgment, which EBF included in a cognovit note and had Terranova sign

       prior to the occurrence of any default or the accrual of any cause of action, was

       contrary to Indiana statutes.

[12]   On April 5, 2017, the trial court held a hearing on Novabella’s motion.5 That

       same day, the trial court entered an order in which it: (1) granted Novabella’s

       motion to set aside the Motion to Strike Order; and (2) dismissed the case with

       prejudice. EBF now appeals.

                                                       Decision
[13]   EBF argues that the trial court erred by dismissing with prejudice its foreign

       judgment enforcement petition and by failing to give full faith and credit to the

       New York confessed judgment.

       4
        In it motion to set aside the Motion to Strike Order, Novabella mentioned Indiana Trial Rule 60(B) but did
       not reference any specific subsection of that rule.
       5
         When EBF filed its notice of appeal, it did not request that the transcript from this hearing be transcribed;
       therefore, the record on appeal does not include a copy of the transcript from this hearing.

       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018                          Page 7 of 15
[14]   Initially, we note that Novabella and Terranova have not filed an Appellee

       Brief. When an Appellee fails to submit an appellate brief, “‘we need not

       undertake the burden of developing an argument on the [A]ppellee’s behalf.’”

       Front Row Motors, LLC v. Jones, 5 N.E.3d 753, 758 (Ind. 2014) (quoting Trinity

       Homes, LLC v. Fang, 848 N.E.2d 1065, 1068 (Ind. 2006)). Rather, “‘we will

       reverse the trial court’s judgment if the appellant’s brief presents a case of prima

       facie error.’” Id. (quoting Trinity Homes, 848 N.E.2d at 1068). “Prima facie

       error in this context is defined as, at first sight, on first appearance, or on the

       face of it.” Id. (internal quotation marks and citation omitted).

[15]   This appeal stems from EBF’s attempt to domesticate a foreign judgment that

       was based upon a confession of judgment contained in a cognovit note. A

       “cognovit is the ancient legal device by which the debtor consents in advance to

       the holder’s obtaining a judgment without notice or hearing, and possibly even

       with the appearance, on the debtor’s behalf, of an attorney designated by the

       holder.” D. H. Overmyer Co. Inc., of Ohio v. Frick Co., 405 U.S. 174, 176 (1972).

       INDIANA CODE § 34-6-2-22 defines a cognovit note as follows:

               “Cognovit note”, for purposes of IC [§] 34-54-4, means a
               negotiable instrument or other written contract to pay money
               that contains a provision or stipulation:

                        (1) giving to any person a power of attorney, or authority
                        as attorney, for the maker, endorser, assignor, or other
                        person liable on the negotiable instrument or contract, and
                        in the name of the maker, endorser, assignor, or other
                        obligor:

       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018   Page 8 of 15
                                 (A) to appear in any court, whether of record or
                                 inferior; or

                                 (B) to waive personal service of process;

                        in any action to enforce payment of money or any part of
                        the money claimed to be due;

                        (2) authorizing or purporting to authorize an attorney,
                        agent, or other representative, however designated, to
                        confess judgment on the instrument for a sum of money
                        when the sum is to be ascertained, or the judgment is to be
                        rendered or entered otherwise than by action of court upon
                        a hearing after personal service upon the debtor, whether
                        with or without attorney’s fee; or

                        (3) authorizing or purporting to authorize an attorney,
                        agent, or representative to:

                                 (A) release errors or the right of appeal from any
                                 judgment; or

                                 (B) consent to the issuance of execution on the
                                 judgment.

[16]   “Cognovit notes are prohibited in Indiana.” Jaehnen v. Booker, 806 N.E.2d 31,

       34 (Ind. Ct. App. 2004), trans. denied. See also I.C. § 34-54-3-2 (prohibiting the

       execution of an agreement or stipulation that is “in connection with the

       execution of any negotiable instrument or other written contract to pay money”

       and is executed “before a cause of action on the instrument or contract has

       accrued”); I.C. § 34-54-3-3 (providing that a contract, stipulation, or power of

       attorney “given or entered before a cause of action accrues on a promise to pay

       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018    Page 9 of 15
       is void”).6 Indeed, it is a misdemeanor to “procure another” to execute a

       cognovit note or to attempt to enforce within Indiana a foreign judgment based

       upon a cognovit note. See IND. CODE § 34-54-4-1 (explaining that a person who

       knowingly commits such actions commits a Class B misdemeanor).

       Additionally, INDIANA CODE § 34-54-3-4 provides that certain foreign

       judgments are unenforceable, including a judgment from another state that is

       based upon an agreement or stipulation that is prohibited by Indiana statutes.

[17]   However, “in spite of Indiana’s aversion to cognovit provisions, a valid foreign

       judgment based on a cognovit note will be given full faith and credit in

       Indiana.” Cox v. First Nat. Bank of Woodlawn, 426 N.E.2d 426, 430 (Ind. Ct.

       App. 1981). Indeed, “[t]he general rule in Indiana, based upon the authority of

       the Federal Constitution7 and 28 U.S.C.A. § 1738,8 is that judgments of a sister

       state court will be given full faith and credit by Indiana courts.” Id. at 429-30.9

       6
         Indiana does allow for a confession of judgment by personal appearance, see I.C. § 34-54-2-1, or by power of
       attorney if, “at the time the party confessing executes the power of attorney . . . , make[s] [an] affidavit stating
       that: (1) the debt is just and owing; and (2) the confession is not made for the purpose of defrauding the
       person’s creditors.” I.C. § 34-54-2-3 (format altered).
       7
        Article IV, Section 1 of the United States Constitution provides, in relevant part, that “Full Faith and Credit
       shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State.”
       8
           28 U.S.C.A. § 1738 provides, in relevant part, as follows:

                Such Acts, records and judicial proceedings or copies thereof, so authenticated, 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.

       9
         Indiana has codified the concept of full faith and credit at INDIANA CODE § 34-39-4-3, which provides that
       records and judicial proceedings from courts in other states “shall have full faith and credit given to them in
       any court in Indiana as by law or usage they have in the courts in which they originated.” I.C. § 34-39-4-3(b).

       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018                          Page 10 of 15
[18]   The United States Supreme Court has explained the importance of the

       application of full faith and credit as follows:

               The concept of full faith and credit is central to our system of
               jurisprudence. Ours is a union of States, each having its own
               judicial system capable of adjudicating the rights and
               responsibilities of the parties brought before it. Given this
               structure, there is always a risk that two or more States will
               exercise their power over the same case or controversy, with the
               uncertainty, confusion, and delay that necessarily accompany
               relitigation of the same issue.

       Underwriters Nat’l Assurance Co. v. N. Carolina Life and Accident and Health Ins.

       Guar. Ass’n, 455 U.S. 691, 703-04 (1982)). Full faith and credit means that “‘the

       judgment of a state court should have the same credit, validity, and effect, in

       every other court of the United States, which it had in the state where it was

       pronounced.’” N. Ind. Commuter Transp. Dist. v. Chicago SouthShore & S. Bend

       R.R., 685 N.E.2d 680, 685 (Ind. 1997) (quoting Underwriters Nat’l Assurance

       Co., 455 U.S. at 704).

[19]   When interpreting the Full Faith and Credit Clause’s application to judgments

       of sister states, the Supreme Court has explained as follows:

               With respect to judgments, “the full faith and credit obligation is
               exacting.” Baker v. General Motors Corp., 522 U.S. 222, 233, 118
               S.Ct. 657, 139 L.Ed.2d 580 (1998). “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.” Ibid. 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
       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018   Page 11 of 15
               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.” Milliken v. Meyer, 311 U.S. 457, 462, 61 S.Ct. 339, 85
               L.Ed. 278 (1940).

       V.L. v. E.L., -- U.S. --, 136 S. Ct. 1017, 1020 (2016). “The judgment of a sister

       state, regular and complete upon its face, is prima facie valid.” Tom-Wat, Inc. v.

       Fink, 741 N.E.2d 343, 348 (Ind. 2001) (internal quotation marks and citation

       omitted).

[20]   The application of full faith and credit, however, is not without limitations.

       Indiana is not required to give full faith and credit to a foreign judgment entered

       by a court that lacked subject matter jurisdiction or personal jurisdiction. See

       Gardner v. Pierce, 838 N.E.2d 546, 550 (Ind. Ct. App. 2005); see also V.L., 136 S.

       Ct. at 1020. Indeed, “before a court is bound by the judgment rendered in

       another State, it may inquire into the jurisdictional basis of the foreign court’s

       decree.” Underwriters Nat. Assur. Co., 455 U.S. at 705. See also Hays v. Hays, 49

       N.E.3d 1030, 1037 (Ind. Ct. App. 2016) (explaining that “[a]n Indiana court

       may inquire into the jurisdictional basis for a foreign judgment”). However, the

       scope of any such jurisdictional review is “a ‘limited’ one” and “does not entail

       de novo review of the jurisdictional issue by the second court.” N. Ind.

       Commuter Transp. Dist., 685 N.E.2d at 685. “[I]f the judgment on its face

       appears to be a record of a court of general jurisdiction, such jurisdiction over

       the cause and the parties is to be presumed unless disproved by extrinsic

       evidence, or by the record itself.” V.L., 136 S. Ct. at 1020 (citations and

       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018   Page 12 of 15
       internal quotation marks omitted). See also Commercial Coin Laundry Sys. v.

       Enneking, 766 N.E.2d 433, 439 (Ind. Ct. App. 2002) (explaining that a “party

       attacking the judgment of a sister state has the burden of rebutting the

       presumption of validity and of showing that the sister state lacked

       jurisdiction”).

[21]   Here, after EBF obtained a confessed judgment in New York, it filed the foreign

       judgment enforcement petition at issue in this case to have Indiana recognize

       and enforce the New York confessed judgment. The trial court ultimately

       granted Novabella’s request to dismiss EBF’s foreign judgment enforcement

       petition.10 Effectively, the only way that the trial court in this case could have

       properly refused to afford full faith and credit to the New York confessed

       judgment was if the New York court lacked subject matter jurisdiction or

       personal jurisdiction. Below, Novabella made no such challenge to either form

       of jurisdiction. Nor did Novabella challenge the propriety of EBF’s foreign

       judgment enforcement petition. Instead, Novabella acknowledged that New

       York “allows for” confessed judgments and argued that the trial court should

       not domesticate and recognize the New York confessed judgment because the

       judgment was “improper in the state of Indiana” and the Confession of

       Judgment was contrary to Indiana statutes. (App. Vol. 2 at 68). The trial court,

       10
            Novabella’s dismissal request was contained within its motion to set aside the Motion to Strike Order.

       Court of Appeals of Indiana | Opinion 49A02-1705-CC-961 | February 28, 2018                       Page 13 of 15
       apparently agreeing with Novabella’s argument, granted Novabella’s request to

       dismiss EBF’s foreign judgment enforcement petition.

[22]   The United States Supreme Court, however, has clarified that a trial court

       cannot use its own public policy as a reason to refuse to recognize the judgment

       of a sister state.

               A court may be guided by the forum State’s “public policy” in
               determining the law applicable to a controversy[,] . . . [b]ut our
               decisions support no roving “public policy exception” to the full
               faith and credit due judgments. The full faith and credit clause is
               one of the provisions incorporated into the Constitution by its
               framers for the purpose of transforming an aggregation of
               independent, sovereign States into a nation. We are aware of
               [no] considerations of local policy or law which could rightly be
               deemed to impair the force and effect which the full faith and
               credit clause and the Act of Congress require to be given to [a
               money] judgment outside the state of its rendition.

       Baker by Thomas, 522 U.S. at 233-34 (emphasis in original; internal cites and

       quotation marks omitted). See also V.L., 136 S.Ct. at 1020 (explaining that “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”); Ledoux-

       Nottingham v. Downs, 210 So. 3d 1217, 1222-23 (Fla. 2017) (stating that the

       United States Supreme Court “continues to reject any notion that a state may

       elevate its own public policy over the policy behind a sister state’s judgment and

       thereby disregard the command of the Full Faith and Credit Clause”).

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[23]   Because the New York confessed judgment appears on its face to be rendered

       by a court of competent jurisdiction and Novabella did not challenge the

       jurisdiction of the New York court to enter the confessed judgment, the trial

       court was required to afford full faith and credit to the New York confessed

       judgment. See, e.g., V.L., 136 S.Ct. at 1022. Accordingly, the trial court erred

       by refusing to grant the judgment full faith and credit and by dismissing with

       prejudice EBF’s foreign judgment enforcement petition.11 Thus, we reverse the

       trial court’s judgment and remand this case to the trial court for further

       proceedings not inconsistent with this opinion.

[24]   Reversed.12

       Riley, J., and Robb, J., concur.

       11
         We recognize that Section 3.2(C) of the Purchase Agreement executed by the parties provides that a
       confession of judgment could be entered only “[i]f permitted under the laws of the state in which the Seller
       [Novabella] resides . . . .” (App. Vol. 2 at 21). However, the question before the trial court below and us on
       appeal is whether the Indiana trial court was required to enforce and give full faith and credit to the New
       York confessed judgment. If the New York court should not have entered the confessed judgment,
       Novabella’s recourse to challenge the New York confessed judgment lies in the New York court.
       12
         We note that EBF and Terranova, along with another one of his companies, have a similar appeal pending
       before our Court under cause number 49A05-1710-CC-2384.

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