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Security Ben. Life Ins. Co. v. TFS Ins. Agency

Decided: February 14, 1995.

SECURITY BENEFIT LIFE INSURANCE COMPANY, PLAINTIFF-RESPONDENT,
v.
TFS INSURANCE AGENCY, INC. AND TOMORROW'S FINANCIAL SERVICES, INC., DEFENDANTS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Law Division, Monmouth County.

Before Judges Michels, Keefe and Humphreys.

Michels

The opinion of the court was delivered by MICHELS, P.J.A.D.

Defendants TFS Insurance Agency, Inc. (TFS) and Tomorrow's Financial Services, Inc. (Tomorrow's Financial) appeal from a summary judgment of the Law Division that (1) awarded plaintiff Security Benefit Life Insurance Company damages in the amount of $38,931.50 on a default judgment obtained by plaintiff against them in Kansas and (2) dismissed their counterclaim.

Briefly, TFS and Tomorrow's Financial are New Jersey corporations and have their principal places of business in New Jersey. Tomorrow's Financial is the holding company and TFS is a subsidiary of that company. TFS is in the business of accepting and processing life insurance for a large sales force consisting of independent representatives who are not employees of either of the defendant corporations. The representatives also sell various other financial products, including securities, property casualty insurance, mortgages and financial advising. Plaintiff is an insurance company incorporated in Kansas, with its principal place of business in Kansas.

In 1990, TFS, with Tomorrow's Financial as guarantor, entered into various agreements with plaintiff, to process insurance for TFS representatives. Defendants claimed that plaintiff refused and was unwilling to process significant portions of the business that was being submitted to it. On April 1, 1992, Thomas P. Hyland, Vice President and Charles C. Tomaro, Chief Executive Officer of TFS, wrote to Howard Fricke, President and Chief Executive Officer of plaintiff, as well as all the members of plaintiff's Board of Directors, explaining their position, seeking to discuss any matters in dispute in order to resolve them.

On April 24, 1992, plaintiff instituted suit against defendants in the District Court of Shawnee County in Kansas to recover monies allegedly due under their contracts. Plaintiff obtained an order in Kansas, by which a special process server was appointed to serve the complaint on defendants in New Jersey. Defendants did not answer or otherwise move with respect to this suit. Rather, on June 12, 1992, defendants instituted an action in the Law Division of the Superior Court of New Jersey, alleging unlawful and unreasonable interference with their prospective economic advantage, failure to process the business forwarded by their business representatives, ineffective processing, breach of contract and loss of advanced commissions structure and investment of their monies. Plaintiff entered an appearance in the Law Division and then removed the matter from the Law Division to the United States District Court for the District of New Jersey.

On June 18, 1992, a default judgment was entered in the Kansas action against both defendants in the sum of $35,081.07, together with interest at the rate of $9.11 each day after June 18, 1992, until the court signed the order. Defendants then moved in Kansas to vacate the default judgment. While the motion was pending in Kansas, the Federal District Court action in New Jersey was administratively dismissed without prejudice with the consent of both parties. Subsequently, the Kansas court found that the service upon defendants was proper and that defendants' failure to answer the Kansas action "was not due to inadvertence" or "to neglect," but rather "was intentional based upon strategy of New Jersey counsel designed to serve the clients." The Kansas court, thereupon denied defendants' motion to set aside the default judgment.

Plaintiff then instituted this action in the Law Division to enforce the Kansas judgment against defendants. Defendants denied liability and filed a counterclaim against plaintiff, setting forth the same claims that were asserted in their original action, removed to the Federal District Court and subsequently dismissed without prejudice. Plaintiff's motions for summary judgment to enforce the Kansas judgment and to dismiss defendants' counterclaim were granted, and judgment was entered in favor of plaintiff against defendants in the sum of $38,931.50. This appeal followed.

Defendants seek a reversal of the summary judgment and a remand for a trial. They contend that the trial court erred in enforcing the Kansas judgment and in dismissing their counterclaim. We disagree and affirm.

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." U.S. 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: "Judicial 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." [City of Philadelphia v. Bauer, 97 N.J. 372, 376-77, 478 A.2d 773 (1984)].

In general, the Full Faith and Credit Clause:

requires every state to give at least the res judicata effect which the judgment would be accorded in the state which rendered it. Duke v. Durfee, 375 U.S. 106, 109, 84 S. Ct. 242, 11 L. Ed. 2d 186 (1963). However, it is a well established constitutional principle that a judgment entered without due process of law is not entitled to full faith and credit and may not be enforced even as a matter of comity. Griffin v. Griffin, 327 U.S. 220, 228-229, 66 S. Ct. 556, 90 L. Ed. 635 (1946); See also, Restatement, Conflicts 2d, § 104 at 315 (1969). Thus, a court of this State, when asked to enforce a foreign state judgment, must deny full faith and credit if the rendering court lacked in personam jurisdiction, Duke v. Durfee, supra, 375 U.S. at 106, 84 S. Ct. 242, 11 L. Ed. 2d 186; subject matter jurisdiction, James v. Francesco, 61 N.J. 480, 485, 295 A.2d 633 (1972); Klaiber v. Frank, 9 N.J. 1, 86 A.2d 679 (1952), or failed to provide adequate notice and an opportunity to be heard. National Exchange Bank v. Wiley, 195 U.S. 257, 25 S. Ct. 70, 49 L. Ed. 184 (1904); Griffin v. Griffin, supra. [City of Philadelphia v. Stadler, 164 N.J. Super. 281, 286 (Cty. Ct. 1978), aff'd, o.b. 173 N.J. Super. 235, certif. denied, 85 N.J. 465 (1980), cert. denied, 450 U.S. 997, 101 S. Ct. 1702, 68 L. Ed. 2d 198 (1981)].

"A judgment properly entered in accordance with local procedure is entitled to full faith and credit in any other state provided that the judgment is not entered in violation of due process of law." Hupp v. Accessory Distributors, Inc., 193 N.J. Super. 701, 708, 475 A.2d 679 (App. Div. 1984). ...


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