Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.
This month's newsletter deals with the ability to recognize a state court judgment in federal court. As the Second Circuit has noted, "Actions to enforce state court judgments in federal court are rare. . . They are not unknown, however." Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 863 F.3d 96, 122 (2d Cir. 2017) (citations omitted). However, two recent decisions on this issue have made the practice more difficult. On February 12, 2021, the United States Court of Appeals for the First Circuit held that the federal judgment recognition statute (28 U.S.C. § 1963) does not permit registration of state court judgments if the federal court otherwise lacked subject-matter jurisdiction to hear the case. See Woo v. Spackman, No. 20-1527, 2021 WL 528691 (1st Cir. Feb. 12, 2021). At the end of January, the United States District Court for the Southern District of New York, while allowing the possibility of employing such a tactic, nonetheless dismissed a diversity action to enforce a state court judgment because it held that the plaintiff was required to prove personal jurisdiction over the judgment-debtors and it found such jurisdiction lacking in that case. See Manichaean Capital, LLC v. SourceHOV Holdings, Inc., No. 20 CIV. 5679 (AKH), 2021 WL 276674 (S.D.N.Y. Jan. 27, 2021).[1]
This month we discuss these recent cases and the challenges of enforcing state court judgments in federal court. The takeaway from these cases is that going from state court to federal court to enforce a judgment is difficult. Registering a state court judgment in another state court is typically easy to do under the uniform acts that recognize sister-state judgments. Federal to federal is likewise ministerial pursuant to 28 U.S.C. § 1963. But enforcing a state court judgment in federal court requires an independent basis for subject-matter jurisdiction and, at least in SDNY, proof of personal jurisdiction allegations or quasi in rem jurisdiction accomplished through attaching property when commencing the action.
Woo v. Spackman, (1st Cir. Feb. 12, 2021)
In Woo, a judgment-creditor sought to register a New York state court judgment in the United States District Court for the District of Massachusetts pursuant to the federal registration statute, 28 U.S.C. § 1963. Woo, 2021 WL 528691, at *1-*2. After its filing for registration, Woo served post-judgment subpoenas for deposition testimony and other discovery on the judgment-debtor’s wife, Kim. Id. Kim moved to quash the subpoenas claiming that § 1963 did not permit registration of a state court judgment. Id. The district court agreed and dismissed the case for lack of jurisdiction. Id. at *2. Woo filed a motion for reconsideration and asserted that diversity jurisdiction existed but that too was denied. Id. The First Circuit considered both the motion to quash and the motion to reconsider and affirmed the district court’s rulings on both motions. Id. at *2, *7.
The judgment at issue in Woo originated in Korea. Woo, 2021 WL 528691, at *1. Woo sued Spackman in Korea for violations of Korean securities law. Id. A long-fought battle ensured with multiple appeals within the Korean court system but a $4.5 million judgment was finalized in May 2018. Id.
In September 2018, Woo obtained recognition of the Korean judgment in New York state court pursuant to N.Y. C.P.L.R. §§ 5301-5309 ("Uniform Foreign Country Money-Judgments Recognition Act"). Woo, 2021 WL 528691, at *1. The New York state court entered a judgment in Woo's favor for more than $13 million—including the original Korean judgment for $4.5 million plus accrued interest at 9%. Id. The New York judgment remained unsatisfied and the judgment-creditor sought enforcement in Massachusetts where Spackman's wife, So-Hee Kim resided. Id.
On December 21, 2018, Wood sought to register the New York judgment in the federal district court of Massachusetts. Thereafter, Woo served subpoenas on Kim, Spackman’s wife, seeking deposition testimony and other discovery. Kim moved to quash, arguing that 28 U.S.C. § 1963 does not permit registration of state court judgments. Woo, 2021 WL 528691, at *1. The district court agreed that section 1963 did not authorize the registration of state-court judgments and, therefore, the district court lacked subject-matter jurisdiction. Id. at 2. Woo moved to reconsider, asserting that the court had diversity jurisdiction. Id. The district court denied that motion, too. Id.
The First Circuit affirmed both of the district court’s rulings. On the section 1963 issue, the court started with the text of the statute and found that "[i]t is clear beyond peradventure that section 1963 identifies only federal courts as registering courts, and we think it follows that the rendering court must be a federal court as well. To hold otherwise would be to ignore Congress's carefully chosen wording." Woo, 2021 WL 528691, at *3.
The First Circuit also recognized it was not "making this determination . . . on a blank slate. Three of the four courts of appeals that have addressed the issue directly have held that the reach of section 1963 does not extend that far. See Caballero v. Fuerzas Armadas Revolucionarias de Colombia, 945 F.3d 1270, 1274 (10th Cir. 2019); Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 863 F.3d 96, 122-23 (2d Cir. 2017); Fox Painting Co. v. NLRB, 16 F.3d 115, 117 (6th Cir. 1994). And the fourth such court, while less definitive, has not held to the contrary. See GE Betz, Inc. v. Zee Co., 718 F.3d 615, 625 (7th Cir. 2013)." Woo, 2021 WL 528691, at *2.
The First Circuit analyzed the Seventh Circuit's decision in GE Betz and found it addressed whether section 1963 prohibited federal courts from registering and enforcing state-court judgments where alternate grounds for federal jurisdiction exist—such as removal, which was the issue in GE Betz. The Seventh Circuit concluded that "§ 1963 does not prohibit the removal of all matters related to the registration of state-court judgments . . ." and that a federal court may enforce a state-court judgment if "other requirements for federal jurisdiction" are satisfied. Woo, 2021 WL 528691, at *3-*4.
The First Circuit summed up its holding that "[s]ection 1963 says what it means and means what it says. We thus conclude that section 1963 does not, in and of itself, authorize federal courts to register state-court judgments. Even so, we recognize—as did the Seventh Circuit in GE Betz . . . that section 1963 does not foreclose other avenues for enforcing a state-court judgment in federal court where some independent basis for federal jurisdiction exists." Woo, at *4.
Woo asserted an alternative basis for subject-matter jurisdiction—diversity—but did so in a motion for reconsideration, which under an abuse of discretion standard, the First Circuit was unwilling to reverse (or consider the underlying merits). Woo, 2021 WL 528691, at *4. "Woo's attempt to shoehorn a new and previously available theory into a motion for reconsideration distorts the office of such a motion . . . . [Woo's] initial filing in the district court contained no allegations at all concerning the parties' citizenship, nor did he even mention—in any pleading, memorandum, or other document served prior to his motion for reconsideration—the possibility that diversity jurisdiction might exist." Id. at 5. Since no claim of diversity was made in the pleadings, the First Circuit would not consider it given the posture in which it was presented. Id. at *5, *7.
Manichaean Capital, LLC v. SourceHOV Holdings, Inc., (S.D.N.Y. Jan. 27, 2021)
In this judgment enforcement action, the judgment-creditor filed a plenary action asserting diversity jurisdiction to enforce a Delaware Court of Chancery judgment—without relying on section 1963. The district court held that it lacked personal jurisdiction over the judgment-debtor in New York.
In 2017, Plaintiff shareholders petitioned the Delaware Court of Chancery to appraise the fair value of their shares in connection with a merger. Manichaean Capital, 2021 WL 276674, at *1. The Delaware Court of Chancery in 2020 determined that $57 million plus interest (the Delaware Judgment) was fair value. Id. The Delaware Supreme Court summarily affirmed the Delaware Judgment. Id. The judgment-creditors commenced the SDNY action under diversity subject-matter jurisdiction to recognize and enforce the Delaware Judgment, pursuant to the Full Faith and Credit Act, 28 U.S.C. § 1738. Id.
The judgment-creditor contended that the court has personal jurisdiction over Defendant because the Delaware Judgment is entitled to full faith and credit. The Southern District disagreed. While recognizing that the full faith and credit clause gives res judicata effect to jurisdictional questions about the rendering court's jurisdiction, nothing about "full faith and credit excuses a plaintiff from its burden to establish personal jurisdiction." Manichaean Capital, 2021 WL 276674, at *2.
Since full faith and credit did not resolve the issue, the court found that it did not otherwise have personal jurisdiction. here were no allegations that the court had general jurisdiction over the judgment-debtor. Id. at *1. As for specific jurisdiction, the court focused on the underlying dispute "against a defendant incorporated in Delaware, arising from a merger transaction under Delaware law" and found there was an insufficient connection to New York. Id. at *2. The court recognized that quasi in rem may be a basis for jurisdiction in a judgment enforcement action but that "[t]he entire concept of quasi in rem jurisdiction depends on property of a defendant being found and attached." Id. at *2. Since the judgment-creditors did not seek attachment of any property in New York, there could be no quasi in rem jurisdiction. Id.
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The takeaway from these cases is that going from state court to federal court to enforce a judgment is difficult. Registering a state court judgment in another state court is typically easy to do under the uniform acts that recognize sister-state judgments. Federal to federal is likewise ministerial pursuant to 28 U.S.C. § 1963. But enforcing a state court judgment in federal court requires an independent basis for subject-matter jurisdiction and, at least in SDNY, proof of personal jurisdiction or quasi in rem jurisdiction accomplished through attaching property when commencing the action.
[1] Steptoe & Johnson was counsel of record for the judgment-creditor.
