Utah Default Judgment Not Subject to Full Faith and Credit in IL: No Long-Arm Jurisdiction Over Illinois Defendant Equals Void Judgment

Snap Advances, LLC v. Macomb Office Supply, Inc., 2019 IL App(1st) 180773-U examines the enforceability of a Utah judgment against an Illinois-based college bookstore operator.

There, a Utah business lender sued a defunct bookstore, its owner and corporate successor in Utah state court for breach of contract. The underlying contract (signed by the plaintiff and dissolved corporate predecessor) had Utah choice-of-law and venue terms. No defendant appeared in the Utah case and the plaintiff won a default judgment.

After the plaintiff registered the Utah default judgment in Illinois, the Illinois  court granted the successor company’s motion to vacate the Utah default judgment and dismissed the post-judgment proceedings. The plaintiff appealed.

Affirming, the appeals court first held that under the full faith and credit clause of the U.S. Constitution, every court must validate a foreign court’s judicial proceedings. The Uniform Enforcement of Judgments Act, 735 ILCS 5/12-650 et seq. also prevents an enforcing court from considering the merits of a foreign judgment.

But two instances where an enforcing court will look into the merits of a foreign judgment are where (1) the rendering court lacked jurisdiction over the defendant/judgment debtor, or (2) there is fraud in the procurement of the judgment.

This is so because a foreign judgment is not entitled to full faith and credit where an underlying defect (such as lack of jurisdiction) voids the judgment.  However, where the rendering court (here, Utah) specifically finds that it does have jurisdiction over a defendant, its ruling is conclusive and cannot be challenged by the enforcing court (Illinois).

But where the rendering court does not specifically rule on the jurisdiction question, the enforcing court can examine the rendering court’s jurisdiction. [⁋⁋ 22-23]

Since the Utah judgment was silent as to whether the Illinois-based successor company was subject to Utah jurisdiction, the Illinois court could look into whether the Utah court had jurisdiction over the successor defendant.  To do this, the Illinois court looked to Utah’s long-arm jurisdiction and Federal due process principles.

A Utah court has long-arm jurisdiction over a foreign defendant where a defendant does business in Utah, contracts to supply goods or services there, causes injury in Utah or owns Utah real estate. Utah Code Ann. s. 78B-3-205 (West 2016). Federal due process requires an out-of-state defendant to have minimum contacts with a foreign jurisdiction such that it should reasonably anticipate being sued there.

Since the record was silent as to any acts the Illinois successor did in Utah that could support either long-arm jurisdiction or Federal due process concerns, there was no basis for Utah jurisdiction over the Illinois successor entity.

The court rejected the plaintiff’s argument that the successor consented to Utah jurisdiction based on the predecessor’s assent to Utah law and venue provisions. Since the successor was not a party to the contract, there was nothing tying it to the contractual Utah choice-of-law and venue terms.

The court also nixed the plaintiff’s claim that since the Illinois defendants were served in Utah, they were subject to Utah jurisdiction. But, as the court astutely remarked, “service does not confer jurisdiction.”

Even if the Illinois defendant was property served in Utah, the Court continued, a defendant did not have to appear in Utah or respond to the Utah lawsuit. Instead, it could wait until the Utah judgment was registered in Illinois and then seek to vacate the Utah judgment.

But the defendant’s conduct didn’t go unnoticed by one of the appellate judges.  In a special concurrence, Judge Pucinski decried the business owner’s “slick” grifter-like financial “shell trick” where the owner plainly engineered the transfer of the defunct book store’s assets to a new buyer – the Illinois successor –  that operated from the same location, with the same inventory and identical personnel as the prior company.

Judge Pucinski worried about the possible chilling effect the majority’s ruling could have on out-of-state companies doing business with Illinois companies: a foreign company could be dissuaded from commerce with Illinois entities if Illinois courts would not hold their companies accountable for successor liability.

In the end though, the concurring judge sided with the majority. She cited a lack of record evidence that the Illinois successor was subject to Utah jurisdiction and a lack of Utah case law that stood for proposition that a corporate successor was bound by a predecessor’s contractual consent to jurisdiction in a sales contract. [⁋ 51]

Afterwords:

The case illustrates the limits of the Full Faith and Credit in the context of interstate jurisdictional disputes.

Snap Advances also demonstrates that where there is no evidence of a corporate successor’s consent to foreign state jurisdiction, a default judgment entered there could have no effect here.

The case also cements proposition that contractual choice-of-law and venue terms consented to by a corporate predecessor won’t bind its successor.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.