North Carolina Judgment Enforcement and Collection Attorney Thomas Kerner

Enforcing Foreign Judgments in North Carolina - Court of Appeals Rules on Rule 60 Defense

Enforcing out of state judgments in North Carolina is typically a straightforward matter. The North Carolina Uniform Enforcement of Foreign Judgments Act permits a judgment from another state to be recorded and enforced the same as if it had originally been entered in a North Carolina court, so long as the Act's procedures are correctly followed.

 At first blush, the Act appears to allow a Defendant to raise any defense to enforcement of the foreign judgment that it would have had in North Carolina court. Indeed, this is how the trial court read Section 1C-1703(C) in DOCRX, Inc. v. EMI Servies of NC, LLC, COA12-783.

 In DOCRX, the Defendant opposed enforcement of an Alabama judgment on grounds that fraud occurred during the course of the plaintiff obtaining the judgment in the Alabama trial court (the opinion does not provide any information about what this alleged fraud was, unfortunately). Since 1C-1703(c) allows a defendant to use "any... ground for which relief from a judgment of this State would be allowed."

 Following that, the trial court noted that Rule 60(a)(3) of the North Carolina Rules of Civil Procedure permit a defendant to move for relief from a judgment on grounds of "fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party." Reading the two sections together, the trial court found that the Alabama judgment had procured via what it called "intrinsic" fraud, and therefore, invoking the Rule 60 defense it believed was available to the defendant via its reading of 1C-1703(c), denied the Plaintiff's motion to enforce the foreign judgment.

 The Court of Appeals, however, noted that the Full Faith and Credit Clause of the US Constitution limits which state law defenses are available under the Uniform Enforcement of Foreign Judgments Act.  Reviewing decisions from other states (which had expressly ruled on the issue), as well as prior decisions in North Carolina (which had not, but whose opinions had been consistent with those from other states), the Court of Appeals held that "intrinsic" fraud is not a valid defense to a foreign judgment.  Had the fraud been found to have been "extrinsic" the defendant would have had a valid defense. Accordingly, the Court of Appeals vacated the trial court's order denying the plaintiff's motion to enforce.

Freezing Assets in North Carolina After a Judgment

Freezing the assets of a defendant after getting a judgment is a critical component of any successful judgment collection.  North Carolina Gen. Stats. 1`-358 permits a judgment creditor (the plaintiff) to obtain a court order to forbid any "transfer or other disposition of, or any interference with, the property of the judgment debtor not exempt from execution." 

The broad language of this section is designed to capture all non-exempt property (that is, property that the Defendant is not able exempt from execution under NC Gen Stat 1C-1601) and preserve it so that the Plaintiff may have the Sheriff seize it to satisfy the judgment.

One word of caution with this is that each county has a different policy on handling these orders.  You will want to know the tendencies of the Clerk of Court and the Senior Resident Superior Court judge in the county where you attempt to seek a 1-358 order.  In addition, in certain instances, you can run into a situation where the properyt you are seeking to freeze is, itself, subject to a bankruptcy proceeding.  For example, you may have a judgment against a corporation or LLC that is 100% owned by an individual person.  If that person is in bankruptcy, they will argue that their shares in that business are part of the bankrtupcy estate.  But what if the company itself owns separate property?

We have run into this situation before, and I can say that while we did prevail, it is not something you would want to try yourself (if you are representing yourself) or as an attorney inexperienced in these types of matters.  You do run the risk of a trustee moving for sanctions for violating an automatic stay (which has happened to us), and must be prepared to navigate a narrow and tricky, trap-laden path to success.  A win is there to be had, but again, I urge caution in these situations.

Post Judgment Veil Piercing in NC

North Carolina corporations cannot be pierced in supplemental proceedings, the NC Court of Appeals recently held. Piercing the corporate veil in post judgment proceedings is prohibited in cases where the shareholder defendants were not named in pleadings or served individually with a Summons.

 In Travelers Indemnity v. Triple S Marketing Group (July, 2011), the Court of Appeals held that when a shareholder is not served with a summons or complaint, North Carolina's supplemental proceedings statutes are not broadly worded enough to confer subject matter jurisdiction over the issue of whether that shareholder can be found personally liable for the debts of the corporation.

 In Travelers, the defendant corporation accepted a consent judgment against it. When the plaintiff sought to execute on the judgment, it filed a motion in the supplemental proceedings phase, seeking to pierce the corporate veil. The plaintiff cited the court's broad equitable powers to enter orders affecting property of the judgment debtor. However, because only the corporation is a judgment debtor within the meaning of those statutes, the court is without authority to issue orders as to the property of others, except of course those specifically identified in various post judgment statutes (e.g. - 3rd parties in possession of debtor's property).   

 

Judgments vs Maritime Liens: Can the Coast Guard Record a Judgment?

Today I ran across this article, which discusses whether a judgment creditor can record a judgment lien with the Coast Guard in order to proceed against the boat or other vessel of a judgment debtor.  The short answer seems to be no.  But that said, a boat may be seized and sold to satisfy a judgment, just as any other type of personal property can be.