EMI SERVICES OF NORTH CAROLINA, LLC,

Transcription

1 No. In The Supreme Court of the United States EMI SERVICES OF NORTH CAROLINA, LLC, v. Petitioner, DOCRX, INC., Respondent ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SUPREME COURT OF NORTH CAROLINA PETITION FOR WRIT OF CERTIORARI William R. Terpening Counsel of Record NEXSEN PRUET, PLLC 227 West Trade Street, Suite 1550 Charlotte, North Carolina (704) (Telephone) (704) (Facsimile) Counsel for Petitioner Dated: September 10, 2014 THE LEX GROUP DC 1825 K Street, N.W. Suite 103 Washington, D.C (202) (800) Fax: (202)

2 i QUESTION PRESENTED 1. Whether a foreign judgment obtained by fraud must be enforced by a forum state under the Full Faith and Credit Clause?

3 ii PARTIES TO THE PROCEEDING The Defendant below, who is the Petitioner before this Court, is EMI Services of North Carolina, LLC ( EMI ). The Plaintiff below, who is the Respondent before this Court, is DocRx, Inc. ( DocRx ).

4 iii TABLE OF CONTENTS Page QUESTION PRESENTED... i PARTIES TO THE PROCEEDING... ii TABLE OF CONTENTS... iii TABLE OF AUTHORITIES... v OPINIONS BELOW... 1 JURISDICTION... 1 CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED... 1 INTRODUCTION... 3 STATEMENT OF THE CASE... 4 REASONS FOR GRANTING THE PETITION I. In Deciding that Judgments Obtained by Only Certain Types of Fraud, and Not Others, Must be Enforced in Accordance with the Full Faith and Credit Clause, the North Carolina Supreme Court has Contributed to Conflict Amongst State Courts on an Issue About Which this Court has Provided No Direct Guidance II. This Court s Prior Decisions are Confusing to Lower Courts and Clarification is Warranted III. The North Carolina Supreme Court s Interpretation of the Full Faith and Credit Clause Disregards the North Carolina Rules of Civil Procedure and Conflicts with the Federal Rules of Civil Procedure... 16

5 iv IV. The North Carolina Supreme Court Erred in Holding that Only Extrinsic Fraud Can Set Aside a Foreign Judgment Under the Full Faith and Credit Clause V. The North Carolina Supreme Court s Decision Creates an Unjust Result by Requiring that a Judgment Based Upon Known Fraud be Entitled to Full Faith and Credit CONCLUSION APPENDIX: A. Decision of the Supreme Court of North Carolina entered June 12, a B. Decision of the Court of Appeals of North Carolina entered January 15, a C. Order of the Superior Court of North Carolina of Stanly County entered February 2, a D. Order of the Circuit Court of Mobile County, Alabama entered April 1, a

6 v TABLE OF AUTHORITIES Page(s) CASES Baker v. Gen. Motors Corp., 522 U.S. 222 (1998)... 4 Blume Law Firm PC v. Pierce, 741 N.W.2d 921 (Minn. Ct. App. 2007) Broderick v. Rosner, 294 U.S. 629 (1935)... 4 Bussey v. Bussey, 95 N.H. 349, 64 A.2d 4 (1949) Caldwell v. Taylor, 218 Cal. 471, 23 P.2d 758 (1933) Carr v. Bett, 291 Mont. 326, 970 P.2d 1017 (1998) Compton v. Compton, 101 Idaho 328, 612 P.2d 1175 (1980)... 11, 17 Dana v. Gulf & S.I.R. Co., 106 Miss. 497, 64 So. 214 (1914) Data Mgmt. Sys., Inc. v. EDP Corp., 709 P.2d 377 (Utah 1985) Elliott v. Hardcastle, 271 Ark. 90, 607 S.W.2d 381 (1980) Hatch v. Hatch, 247 Or. 588, 431 P.2d 832 (1967) Howard v. Scott, 225 Mo. 685, 125 S.W (1910) In re Intermagnetics Am., Inc., 926 F.2d 912 (9th Cir. 1991)... 12

7 vi Larrick v. Walters, 39 Ohio App. 363, 177 N.E. 642 (1930) Laun v. Kipp, 155 Wis. 347, 145 N.W. 183 (1914) LaVerne v. Jackman, 84 Ill. App. 2d 445, 228 N.E.2d 249 (Ill. App. Ct. 1967) Marshall v. Holmes, 141 U.S. 589 (1891) Marworth, Inc. v. McGuire, 810 P.2d 653 (Colo. 1991) McKnett v. St. Louis & S. F. R. Co., 292 U.S. 230 (1934) Mekelburg v. Whitman, 545 S.W.2d 89 (Mo. Ct. App. 1976) Milwaukee County v. M. E. White Co., 296 U.S. 268 (1935)... 4 Missouri P. R. Co. v. Clarendon Boat Oar Co., 257 U.S. 533 (1922) Morris v. Jones, 329 U.S. 545 (1947) Mr. G v. Mrs. G, 320 S.C. 305, 465 S.E.2d 101 (Ct. App. 1995) New York ex rel. Halvey v. Halvey, 330 U.S. 610 (1947) Publicker v. Shallcross, 106 F.2d 949 (3d Cir. 1939), cert denied, 308 U.S. 624 (1940)... 13, 15, 16 Schwartz v. Schwartz, 113 Ohio App. 275 (1960)... 13

8 vii Shammas v. Shammas, 9 N.J. 321, 88 A.2d 204 (1952) Sherrer v. Sherrer, 334 U.S. 343 (1948)... 4 St. Pierre v. Edmonds, 645 P.2d 615 (Utah 1982)... 11, 13 Thomas v. Washington Gas Light Co., 448 U.S. 261 (1980)... 4 Todt v. Todt, 237 La. 168, 110 So. 2d 566 (1959) United States v. Throckmorton, 98 U.S. 61 (1878) CONSTITUTIONAL PROVISIONS U.S. CONST. art. IV, U.S. CONST. art. IV, U.S. CONST. art. VI, STATUTES AND RULES 28 U.S.C. 1257(a) U.S.C , 4, 10 C.R.C.P. 60(b) Fed. R. Civ. P Fed. R. Civ. P. 60(b)... 3, 16, 17 I.R.C.P. 60(b)(3) MCA N.C. Gen. Stat. 1A-1, Rule N.C. Gen. Stat. 1A-1, Rule 60(b)... 3, 8, 16

9 viii N.C. Gen. Stat. 1A-1, Rule 60(b)(3)... 2, 6, 7 N.C. Gen. Stat. 1C-1703(c)... 2, 6, 18 N.C. Gen. Stat. 1C-1705(a)... 2, 3, 5 OTHER AUTHORITIES 11 Fed. Prac. & Proc. Civ Independent Action for Relief (3d ed.) Fed. Prac. & Proc. Civ Fraud, Misrepresentation, and Other Misconduct Distinction Between Intrinsic and Extrinsic Fraud (3d ed.)... 12, 17 Thomas D. Clark, Rule 60(b): Survey and Proposal for General Reform, 60 Cal. L. Rev. 531 (1972) Collateral Attack of Judicially-Approved Settlements of Shareholders Derivative Suits, 74 Yale L.J (1965) Judgments: Fraud as a Basis for Relief in Federal Courts from Final State Court Judgment, 1964 Duke L.J (2002)... 12

10 1 OPINIONS BELOW The decision of the Supreme Court of North Carolina is reported at 758 S.E.2d 390 (June 12, 2014) and is set forth in Appendix A, 1a-25a. The decision of the Court of Appeals of North Carolina is reported at 738 S.E.2d 199 (January 15, 2013) and is set forth in Appendix B, 26a-38a. The Order of the Superior Court of North Carolina of Stanly County filed February 2, 2012 is unreported and set forth in Appendix C, 39a-43a. The Order of the Circuit Court of Mobile County, Alabama filed April 1, 2011 is unreported and set forth in Appendix D, 44a-45a. JURISDICTION The Opinion of the Supreme Court of North Carolina was entered on June 12, This Court has jurisdiction under 28 U.S.C. 1257(a) to review the decision of the Supreme Court of North Carolina by writ of certiorari. CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED Article IV, Section 1 of the United States Constitution provides, in relevant part: Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof. Article VI, Section 2 of the United States Constitution states: This Constitution, and the Laws of the United States which shall be made in

11 2 pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any state to the contrary notwithstanding. Section 1738 of Title 28 of the United States Code provides, in relevant part: The records and judicial proceedings of any court of any such State, Territory or Possession, or copies thereof, shall be proved or admitted in other courts within the United States.... 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. N.C. Gen. Stat. 1A-1, Rule 60(b)(3) provides, in relevant part: On motion and upon such terms as are just, the court may relieve a party... from a final judgment, order, or proceeding for... [f]raud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party[.] N.C. Gen. Stat. 1C-1703(c) provides that [a] judgment so filed has the same effect and is subject to the same defenses as a judgment of this State and shall be enforced or satisfied in like manner[.] N.C. Gen. Stat. 1C-1705(a) provides that judgment debtors may file a motion for relief from, or notice of defense to, the foreign judgment on the grounds that the foreign judgment has been appealed from, or enforcement has been stayed by, the court which to it, or on other ground for which

12 3 relief from a judgment of this State would be allowed. Federal Rule of Civil Procedure 60(b) provides, in relevant part: On motion and just terms, the court may relieve a party... from a final judgment, order, or proceeding for... fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party[.] INTRODUCTION This case involves serious issues of fraud, misrepresentation, and misconduct that warrant declining the enforcement of a foreign judgment under any understanding of the Full Faith and Credit Clause. A North Carolina company seeks to be relieved from an Alabama default judgment awarding damages based on fraud. In North Carolina, a judgment debtor may seek relief from enforcement of the foreign judgment on any other ground for which relief from a judgment of this State would be allowed[.] N.C. Gen. Stat. 1C-1705(a). Rule 60(b) of the North Carolina Rules of Civil Procedure allows a judgment to be set aside for fraud whether heretofore denominated intrinsic or extrinsic. N.C. Gen. Stat. 1A-1, Rule 60(b). Notwithstanding the plain language in Rule 60(b), the North Carolina Supreme Court has ruled that only extrinsic fraud, and not intrinsic fraud, is sufficient to set aside a foreign judgment. The intent and purpose of the Full Faith and Credit Clause is not to facilitate the perpetration of fraud.

13 4 STATEMENT OF THE CASE I. The Full Faith and Credit Clause is one of several provisions in the Federal Constitution designed to transform the individual states from independent sovereignties into a single, unified nation. See Thomas v. Washington Gas Light Co., 448 U.S. 261, (1980); Sherrer v. Sherrer, 334 U.S. 343, 355 (1948); Milwaukee County v. M. E. White Co., 296 U.S. 268, (1935). This Court proclaimed in Baker v. Gen. Motors Corp., 522 U.S. 222, 232 (1998) that the purpose of the Full Faith and Credit Clause was to alter the status of the several states as independent foreign sovereignties, each free to ignore obligations created under the laws or by the judicial proceedings of the others, and to make them integral parts of a single nation throughout which a remedy upon a just obligation might be demanded as of right, irrespective of the state of its origin. The Full Faith and Credit Clause and 28 U.S.C direct the judiciary of individual states to respect the judgments of foreign states and avoid infringement upon their sovereignty. This Court has stated that the full faith and credit clause does not require the enforcement of every right which has ripened into a judgment of another state or has been conferred by its statutes. Broderick v. Rosner, 294 U.S. 629, 642 (1935). Accordingly, this Court has recognized some exceptions to the enforcement of the Full Faith and Credit Clause. But the room left for the play of conflicting policies is a narrow one. Id. Nearly all of the States have also adopted the Uniform Enforcement of Foreign Judgments Act. The North Carolina Uniform Enforcement of Foreign

14 5 Judgments Act ( UEFJA ) provides that foreign debtors may file a motion for relief from, or notice of defense to, the foreign judgment on the grounds that the foreign judgment has been appealed from, or enforcement has been stayed by, the court which rendered it, or on other grounds for which relief from a judgment of this State would be allowed. N.C. Gen. Stat. 1C-1705(a). II. This matter originated as a simple contract dispute between EMI, a wholesale vendor of pharmaceuticals, and DocRx, a pharmaceutical dispensing company. Under a June 28, 2010 Exclusive Finder s Fee Agreement (the Agreement ), DocRx agreed to pay EMI commissions arising from certain pharmaceutical sales by EMI. EMI and DocRx later disagreed over the amount of commissions, and as a result, DocRx sued EMI in Alabama state court for compensatory damages, plus interests and costs for failure to pay DocRx 25% of all net profits of EMI s pharmaceutical sales. The complaint did not allege a specific amount of monetary damages. The Circuit Court of Mobile County, Alabama granted a default judgment against EMI for $453, (App x D, 44a-45a). During the Alabama default judgment proceedings, Brian Ward, the President and CEO of DocRx, submitted an affidavit in which he stated that EMI sold the relevant pharmaceutical products for $500 per unit, for a total profit of $475 per unit. Based on Ward s affidavit, DocRx calculated the net profits to be $1,664,400 from 3,504 sold units. The Alabama court granted damages for $416,100, which represented 25% of EMI s total net profits, plus interest and attorneys fees.

15 6 III. DocRx later attempted to enforce the Alabama default judgment in North Carolina. In response, EMI filed a Motion for Relief From Foreign Judgment and Notice of Defenses. EMI argued that DocRx obtained the Alabama judgment through fraud, misrepresentation, and misconduct, and thus, DocRx was barred from enforcing the Alabama judgment in North Carolina under Rule 60(b)(3) of the North Carolina Rules of Civil Procedure. EMI, in support of its Motion, submitted an affidavit by Douglas R. Smith affirming in part that: (1) Ward and his counsel knew that the statements were false because on June 18, 2010, Ward sent two (2) s to EMI wherein he acknowledged that the selling price per unit was $67.00 per unit, and (2) Ward and his counsel knew that the statements were false because on July 12, 2010, Ward sent an to EMI wherein he acknowledged that the selling price per unit to pharmacies and wholesalers was $45.00 per unit. EMI attached Ward s s as exhibits to Smith s affidavit. Following a hearing on January 30, 2012, the Honorable W. David Lee of the Superior Court of North Carolina of Stanly County declined to enforce the Alabama judgment. (App x C, 39a-43a). The Alabama judgment, according to the trial court, was a final non-appealable foreign judgment which was properly exemplified and authenticated and filed with service and notice. After determining that N.C. Gen. Stat. 1C-1703(c) entitled EMI to raise the same defenses as a judgment of this State against the enforcement of the Alabama judgment, the trial court agreed that a judgment debtor could seek relief under Rule 60(b)(3) if there was fraud (whether heretofore denominated intrinsic or extrinsic),

16 7 misrepresentation, or other misconduct of an adverse party. The trial court found that the Alabama judgment against EMI was obtained by fraud, holding: This Court, however, having determined that the affidavits and exhibits of [EMI] support [EMI s] contention that there was fraud, misrepresentation and misconduct of [DocRx] in obtaining the underlying Alabama judgment, and there being no apparent basis for the statement in paragraph 7 of the supporting affidavit for entry of default of Brian Ward filed in the Alabama proceeding on March 30, 2011 that EMI sold these units, individually, for $500 per unit, for a total profit of $475 per unit, the convincing evidence before this Court being that [EMI] sold these units for far lesser sums. (App x C at 41a). The trial court then concluded that in accordance with NCRCP 60(b)(3) the intrinsic fraud, misrepresentation and misconduct of the plaintiff in obtaining the underlying Alabama judgment precludes enforcement of the Alabama judgment as a judgment of this State. (App x C at 42a-43a). IV. DocRx appealed the trial court s ruling to the North Carolina Court of Appeals. The court of appeals considered the issue before the court as one of first impression, stating in part: The appellate courts of our State have not yet addressed the nature of the relationship between the Full Faith and

17 8 Credit Clause and N.C. Gen. Stat. 1A-1, Rule 60(b). (App x B at 31a). The court of appeals conceded that an interpretation is warranted from the plain language of the statute that Rule 60(b) allows a foreign judgment to be set aside based on fraud. (App x B at 33a). Notwithstanding the plain language of Rule 60(b) and based on its review of other state court decisions, the court of appeals concluded that the remedies available under Rule are limited by the Full Faith and Credit Clause of the United States Constitution when a foreign judgment is at issue. (App x B at 34a). The court of appeals held: [P]ostjudgment relief from foreign judgments under N.C.G.S. 1A-1, Rule 60(b) is limited to the following grounds: (1) the judgment is based upon extrinsic fraud; (2) the judgment is void; or (3) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application. (App x B at 36a). V. EMI appealed the appellate court decision to the North Carolina Supreme Court. In its appeal, EMI argued that a showing of fraud not just extrinsic fraud is sufficient to warrant relief from a foreign judgment under the Full Faith and Credit Clause. The state supreme court identified the central issue to be reviewed de novo as whether the Full Faith and Credit Clause requires North Carolina

18 9 courts to enforce the Alabama monetary judgment obtained by intrinsic fraud. (App x A at 11a). The state supreme court deemed the validity and finality of the judgment in the rendering state as the focal point to answering this question. (App x A at 12a). The court concluded that a valid and final [judgment] in the rendering state is conclusive in the forum state and is entitled to receive full faith and credit. But if the judgment is subject to modification in the rendering state, then it is not conclusive and can be modified by the forum state. (App x A at 16a). The state supreme court observed that other states rejected the notion that a foreign judgment can be modified in the forum state under Rule 60 of the Rules of Civil Procedure. Following those decisions, the state supreme court held: [T]he defenses preserved under North Carolina s UEFJA are limited by the Full Faith and Credit Clause to those defenses which are directed to the validity and enforcement of a foreign judgment. The language of the UEFJA that a foreign judgment has the same effect and is subject to the same defenses as a judgment of this State and shall be enforced or satisfied in this manner, N.C.G.S. 1C-1703(c), does not refer to defenses on the merits but rather refers to defenses directed at the enforcement of a foreign judgment, such as, that the judgment creditor committed extrinsic fraud[.] (App x A at 22a).

19 10 REASONS FOR GRANTING THE PETITION I. In Deciding that Judgments Obtained by Only Certain Types of Fraud, and Not Others, Must be Enforced in Accordance with the Full Faith and Credit Clause, the North Carolina Supreme Court has Contributed to Conflict Amongst State Courts on an Issue About Which this Court has Provided No Direct Guidance. The Court has an opportunity to dispel confusion in the lower courts over a pivotal component of federalism. The reach of the Full Faith and Credit Clause is an issue that has divided and confused the lower courts. Specifically, here, the Court should provide clear guidance on the issue of whether, and under what circumstances, the Full Faith and Credit Clause requires a court to enforce a foreign judgment obtained by fraud. In so ruling, the Court should delineate the distinction, if any, between different types of fraud, and should explain how and why such distinction affects the import and operation of the Full Faith and Credit Clause in a particular circumstance. This is an important federal question that the Court has not, but should, decide to stem the wave of conflicting state court opinions. Under the Full Faith and Credit Clause and Act, the credit that is due foreign judgments is limited to that which the judgments would receive in the courts of such State, Territory or Possession from which they are taken. 28 U.S.C. 1738; accord New York ex rel. Halvey v. Halvey, 330 U.S. 610, 614 (1947). Courts consistently recognize that a judgment obtained by fraud may warrant relief from judgment under appropriate circumstances.

20 11 However, it is not clear what circumstances indeed warrant relief from fraud. Courts use an assortment of terms to describe fraudulent conduct, including for example: extrinsic fraud, intrinsic fraud, collateral fraud, fraud upon the court, fraud in obtaining the judgment, or fraud in the procurement of a judgment. Courts then attempt to apply and distinguish these terms in their decisions to enforce or not enforce judgments. But the application and distinction is often arduous and confounding. The result is considerable conflict among the States over the application of the Full Faith and Credit Clause to foreign judgments based on fraud. Various courts have acknowledged the confusion regarding the distinction between extrinsic and intrinsic fraud. See Howard v. Scott, 225 Mo. 685, 125 S.W. 1158, 1166 (1910) (characterizing the line between fraud in the procuring of the judgment as distinguished from fraud in the cause of action itself as shadowy, uncertain, and somewhat arbitrary ); St. Pierre v. Edmonds, 645 P.2d 615, 618 (Utah 1982) ( Needless to say, the line between [extrinsic and intrinsic fraud] is neither straight nor bright. ); Caldwell v. Taylor, 218 Cal. 471, 479, 23 P.2d 758, 761 (1933) ( The distinction between intrinsic and extrinsic fraud is quite nebulous[.] ); Compton v. Compton, 101 Idaho 328, 334, 612 P.2d 1175, 1181 (1980) ( While the distinction between extrinsic and intrinsic fraud may be easy to state and understand in the abstract, it has proved extremely difficult of application to actual cases. ); Mr. G v. Mrs. G, 320 S.C. 305, 312, 465 S.E.2d 101, 105 (Ct. App. 1995) (Hearn, J., dissenting) ( I believe the extrinsic-

21 12 intrinsic distinction should be discarded because of its propensity for confusion and inequity[.] ). Scholarly commentary confirms the widespread confusion. See 2868 Independent Action for Relief, 11 Fed. Prac. & Proc. Civ (3d ed.) ( The distinction [between extrinsic and intrinsic fraud] rests on clouded and confused authorities, its soundness as a matter of policy is very doubtful, and it is extremely difficult to apply. ); 2861 Fraud, Misrepresentation, and Other Misconduct Distinction Between Intrinsic and Extrinsic Fraud, 11 Fed. Prac. & Proc. Civ (3d ed.) (finding the extrinsic and intrinsic distinction difficult to understand and apply ); Thomas D. Clark, Rule 60(b): Survey and Proposal for General Reform, 60 Cal. L. Rev. 531, 542 (1972) ( The perpetuation of this extrinsic-intrinsic distinction has led the federal courts into a thicket of inconsistency, because the distinction is unnecessary, often irrational, and potentially productive of injustices not outweighed by the interests of finality. ); Collateral Attack of Judicially-Approved Settlements of Shareholders' Derivative Suits, 74 Yale L.J. 1140, 1155 (1965) ( [T]here is still room for considerable uncertainty as to the status of the rule distinguishing extrinsic from intrinsic fraud.); Judgments: Fraud as a Basis for Relief in Federal Courts from Final State Court Judgment, 1964 Duke L.J (2002); In re Intermagnetics Am., Inc., 926 F.2d 912, 916 (9th Cir. 1991) ( The distinction between extrinsic and intrinsic fraud has been criticized by commentators[.] ). The Full Faith and Credit Clause must be applied consistently in each state. State courts cannot pick and choose when the Full Faith and

22 13 Credit Clause is followed and when the Clause is ignored. Besides, it is untenable that foreign judgments may or may not be followed depending on the state in which a foreign judgment is sought to be enforced. Review by this Court is essential to restore order in a fundamental area of the law. a. Courts in Utah, Minnesota, Ohio, Wisconsin, and New Jersey have abandoned the distinction between intrinsic and extrinsic fraud. See Bussey v. Bussey, 95 N.H. 349, 350, 64 A.2d 4, 5 (1949); St. Pierre v. Edmonds, 645 P.2d 615, 619 (Utah 1982) ( Drawing a distinction between extrinsic and intrinsic fraud in deciding whether an independent action for relief from a prior judgment lies, has little merit.... We agree that the extrinsic-intrinsic distinction fails to provide a rational basis for the harsh legal consequences which flow from it. ); Blume Law Firm PC v. Pierce, 741 N.W.2d 921, 926 (Minn. Ct. App. 2007) ( A judgment obtained through fraud is not entitled to full faith and credit. ); Schwartz v. Schwartz, 113 Ohio App. 275, 276 (1960) (recognizing that the Full Faith and Credit Clause was not intended to be a cover-all for fraud ); Laun v. Kipp, 155 Wis. 347, 145 N.W. 183, 192 (1914) ( The real principle of the adjudications is that the power of equity to relieve against unconscionable judgments will not be strictly confined to such as are characterized by fraud extrinsic. ); Shammas v. Shammas, 9 N.J. 321, 330, 88 A.2d 204, 209 (1952) ( We prefer to follow the equity of the matter and to take away an unjust judgment obtained by vital perjury when the injustice and inequity of allowing it to stand are made evident. ); see also Publicker v. Shallcross, 106 F.2d 949, 952 (3d Cir. 1939), cert denied, 308 U.S. 624 (1940) (rejecting distinction

23 14 between intrinsic and extrinsic fraud and noting that [w]e believe truth is more important than the trouble it takes to get it ) b. Courts in Missouri, Colorado, Arkansas, Oregon, Illinois, and Montana continue to try to distinguish between different types of fraud. See Mekelburg v. Whitman, 545 S.W.2d 89, 90 (Mo. Ct. App. 1976) ( [W]e give full faith and credit... to judgments of sister states unless there was (1) lack of jurisdiction over the subject matter, (2) failure to give due notice, or (3) fraud in the procurement or concoction of the judgment. ); Marworth, Inc. v. McGuire, 810 P.2d 653, 656 (Colo. 1991) ( This principle limits the relief available from foreign judgments under C.R.C.P. 60(b) when the judgment is based upon fraud (extrinsic)[.] ); Elliott v. Hardcastle, 271 Ark. 90, 92, 607 S.W.2d 381, 382 (1980) ( The only manner in which a foreign judgment may be defeated is to prove there was fraud in the procurement of the judgment or lack of jurisdiction in the court rendering it. ); Hatch v. Hatch, 247 Or. 588, , 431 P.2d 832, 834 (1967) ( Without question, the defenses of lack of jurisdiction, fraud in obtaining the judgment, and the running of the statute of limitations, and similar defenses going to the viability of the judgment could be interposed in a proceeding for the registration of a foreign judgment. ); LaVerne v. Jackman, 84 Ill. App. 2d 445, 455, 228 N.E.2d 249, 255 (Ill. App. Ct. 1967) ( [O]nly fraud in the procurement of jurisdiction will sustain a collateral attack and preclude enforcement of a foreign judgment. ); Carr v. Bett, 291 Mont. 326, 339, 970 P.2d 1017, 1024 (1998) ( [W]e determine that under , MCA, certain defenses such as lack of personal or subject matter jurisdiction of

24 15 the rendering court, fraud in the procurement of the judgment, lack of due process, satisfaction, or other grounds that make the judgment invalid or unenforceable may be raised by a party seeking to reopen or vacate a foreign judgment filed in Montana. ). II. This Court s Prior Decisions are Confusing to Lower Courts and Clarification is Warranted. The distinction between extrinsic and intrinsic fraud originated in United States v. Throckmorton, 98 U.S. 61 (1878). In Throckmorton, this Court determined that extrinsic fraud, and not intrinsic fraud, must be present for relief from judgment. However, thirteen years later, Marshall v. Holmes, 141 U.S. 589 (1891), declared the settled doctrine that relief from a prior judgment would lie whenever it is against conscience to execute a judgment and the party seeking relief is without fault. Marshall did not expressly overrule or distinguish its ruling from Throckmorton. Since then, courts and scholars have debated what type of fraud could vitiate a prior judgment. The Third Circuit in Publicker v. Shallcross, 106 F.2d 949 (3d Cir. 1939) cited a Columbia Law Review note, stating in part: The Supreme Court of the United States, to show its utter impartiality, has ruled both ways, and left the spectacle of two cases, one of which holds that false evidence is a ground for reversal [Marshall], the other that it is not [Throckmorton], both of which have been followed, and neither of which has

25 16 ever been overruled. In fact, when a Circuit Court, somewhat puzzled as to which of the two authorities it would follow, asked for enlightenment, the Supreme Court refused to commit itself by answering. Id. at 951. This case presents a good opportunity to resolve a conflict in principle over whether, and to what degree, the Full Faith and Credit Clause requires courts to enforce foreign judgments obtained by fraud, and whether the type of fraud at issue affects that determination. III. The North Carolina Supreme Court s Interpretation of the Full Faith and Credit Clause Disregards the North Carolina Rules of Civil Procedure and Conflicts with the Federal Rules of Civil Procedure. The plain language of both Rule 60(b) of the Federal Rules of Civil Procedure and the North Carolina Rules of Civil Procedure allows for a judgment to be set aside by fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party[.] The advisory committee to FRCP 60(b) explains: Fraud, whether intrinsic or extrinsic, misrepresentation, or other misconduct of an adverse party are express grounds for relief by motion under amended subdivision (b). There is no sound reason for their exclusion. The

26 17 incorporation of fraud and the like within the scope of the rule also removes confusion as to the proper procedure.... And the rule expressly does not limit the power of the court, when fraud has been perpetrated upon it, to give relief under the saving clause. It is clear from the plain language of Rule 60(b) and the advisory committee notes that arbitrary distinctions of fraud are disregarded. 11 Fed. Prac. & Proc. Civ (3d ed.) further observes: Rule 60(b)(3), by its express terms, permits judgments to be set aside for fraud whether previously called intrinsic or extrinsic. It thus put to an end, at least when relief is sought by motion, a very troublesome and unsound distinction. The old law had permitted relief for extrinsic fraud, fraud collateral to the matter or question that was tried and determined by the judgment in question, but had denied relief for intrinsic fraud, fraud relating to the subject matter of the action. The former distinction was difficult to understand and apply. See also Compton v. Compton, 101 Idaho 328, 335, 612 P.2d 1175, 1182 (1980) ( [T]he Federal and Idaho Rules of Civil Procedure have abrogated the distinction between extrinsic and intrinsic fraud with respect to motions for relief from judgment, I.R.C.P. 60(b)(3), and many commentators have urged the same abrogation with respect to the independent action. ); Data Mgmt. Sys., Inc. v. EDP

27 18 Corp., 709 P.2d 377, 381 (Utah 1985) ( Neither Rule 60(b) nor our Utah Foreign Judgment Act allows our Utah courts to reopen, reexamine, or alter a foreign judgment duly filed in this state, absent a showing of fraud or the lack of jurisdiction or due process in the rendering state. Only these defenses may be raised to destroy the full faith and credit owed to the foreign judgment sought to be enforced under the Foreign Judgments Act. ) (citing Morris v. Jones, 329 U.S. 545 (1947) (emphasis added)). This conflict between the North Carolina Supreme Court s interpretation of the Full Faith and Credit Clause and the plain language of both the North Carolina and the Federal Rules of Civil Procedure has not been, but should be, settled by this Court. IV. The North Carolina Supreme Court Erred in Holding that Only Extrinsic Fraud Can Set Aside a Foreign Judgment Under the Full Faith and Credit Clause. The North Carolina Supreme Court s decision merits review because it results in unfairness to litigants in different states, and as a result, encourages forum shopping among judgment seekers. This is an important federal question that this Court should resolve. The UEFJA helps enforce the Full Faith and Credit Clause by ensuring that foreign judgments and domestic judgments are treated the same. UEFJA states that a foreign judgment will have the same effect and [be] subject to the same defenses as a judgment of this State and shall be enforced or satisfied in like manner. N.C. Gen. Stat. 1C-1703(c).

28 19 Allowing the North Carolina Supreme Court decision to stand will place foreign judgments on superior footing to North Carolina judgments. Specifically, a foreign judgment is now superior because it cannot be set aside on the same grounds as a North Carolina judgment. This Court should not endorse such a flawed and unjust result. A North Carolina citizen should not be subject to a fraudulent judgment just because the fraud was committed in a different state. This is in direct opposition to the Privileges and Immunities Clause. See, e.g., Missouri P. R. Co. v. Clarendon Boat Oar Co., 257 U.S. 533, 535 (1922) ( Under 2 of Article IV of the Federal Constitution, the citizens of each State are entitled to all privileges and immunities of citizens in the several States. This secures citizens of one State the right to resort to the courts of another, equally with the citizens of the latter State. ); McKnett v. St. Louis & S. F. R. Co., 292 U.S. 230, 233 (1934) ( The power of a State to determine the limits of the jurisdiction of its courts and the character of the controversies which shall be heard in them is, of course, subject to the restrictions imposed by the Federal Constitution. The Privileges and Immunities clause requires a state to accord to citizens of other states substantially the same right of access to its courts as it accords to its own citizens. ). V. The North Carolina Supreme Court s Decision Creates an Unjust Result by Requiring that a Judgment Based Upon Known Fraud be Entitled to Full Faith and Credit. The North Carolina Supreme Court s decision runs counter to principles of fairness and justice.

29 20 The Full Faith and Credit Clause cannot rigidly require a forum state to enforce a foreign judgment based on fraud. See Todt v. Todt, 237 La. 168, 181, 110 So. 2d 566, 571 (1959) ( It is axiomatic that fraud vitiates all things, and the law furnishes a remedy against fraud, when exposed, whatever guise it may assume. ); Dana v. Gulf & S.I.R. Co., 106 Miss. 497, 64 So. 214, 214 (1914) ( Fraud vitiates all things[.] ) (internal citations omitted). A state court s decision to not enforce a foreign judgment based on fraud does not implicate the federal concerns embodied in the Full Faith and Credit Clause. See Larrick v. Walters, 39 Ohio App. 363, 371, 177 N.E. 642, 645 (1930) ( The full faith and credit clause of the Federal Constitution or the rule of comity of states was never meant or intended to aid in the perpetration of a fraud or a wrong. ). The serious issue of fraud and inequity that are raised by DocRx s conduct make the Alabama default judgment unworthy of Full Faith and Credit. This Court should not countenance the enforcement of fraudulent judgments. CONCLUSION The petition for a writ of certiorari should be granted.

30 21 Respectfully Submitted, William R. Terpening Counsel of Record NEXSEN PRUET, PLLC 227 West Trade Street, Suite 1550 Charlotte, North Carolina (704) (Telephone) (704) (Facsimile)

31 APPENDIX

32 ia APPENDIX TABLE OF CONTENTS Page A. Decision of the Supreme Court of North Carolina entered June 12, a B. Decision of the Court of Appeals of North Carolina entered January 15, a C. Order of the Superior Court of North Carolina of Stanly County entered February 2, a D. Order of the Circuit Court of Mobile County, Alabama entered April 1, a

33 1a [Entered: June 12, 2014] 758 S.E.2d 390 (Cite as: 758 S.E.2d 390) Supreme Court of North Carolina. DOCRX, INC. v. EMI SERVICES OF NORTH CAROLINA, LLC. No. 75PA13. June 12, Background: Judgment creditor moved to enforce foreign judgment against judgment debtor. The Superior Court, Stanly County, W. David Lee, J., denied motion. Judgment creditor appealed. The Court of Appeals, 738 S.E.2d 199, vacated and remanded. Judgment debtor petitioned for discretionary review, which was granted. Holdings: The Supreme Court, Parker, C.J., held that: (1) on issue of first impression, defenses under North Carolina s Uniform Enforcement of Foreign Judgments Act (UEFJA) were limited to defenses directed at enforcement and validity of judgment, and (2) judgment debtor s assertion of intrinsic fraud was time barred. Affirmed as modified; remanded. West Headnotes [1] Judgment Judgment

34 2a 228XVII Foreign Judgments 228k814 Judgments of State Courts 228k815 k. Adjudications operative in other states. Most Cited Cases Judgment Judgment 228XVII Foreign Judgments 228k814 Judgments of State Courts 228k820 k. Fraud, perjury, collusion, and other misconduct. Most Cited Cases Judgment Judgment 228XVII Foreign Judgments 228k814 Judgments of State Courts 228k823 k. Enforcement in other states. Most Cited Cases Defenses preserved under North Carolina s Uniform Enforcement of Foreign Judgments Act (UEFJA) were limited by the full faith and credit clause to those defenses which were directed to the validity and enforcement of a foreign judgment, rather than to defenses directed at the merits of the judgment, and therefore full faith and credit clause of the federal constitution precluded the use of intrinsic fraud to defeat a foreign monetary judgment; to permit a party to relitigate matters that could have and should have been litigated in the rendering court was inconsistent with decisions holding that judgments that were valid and final in the rendering state were entitled to enforcement in the forum state under the full faith and credit clause, and, to permit a party to collaterally attack a foreign judgment on the merits would have been contrary to the rationale

35 3a underlying the UEFJA, which was to streamline the procedure for enforcing a foreign judgment and eliminate the need for additional litigation. U.S.C.A. Const. Art. 4, 1; West s N.C.G.S.A. 1C-1703(c). [2] Appeal and Error (1) 30 Appeal and Error 30XVI Review 30XVI(F) Trial De Novo 30k892 Trial De Novo 30k893 Cases Triable in Appellate Court 30k893(1) k. In general. Most Cited Cases The Supreme Court reviews questions of law de novo. [3] Judgment Judgment 228XVII Foreign Judgments 228k814 Judgments of State Courts 228k815 k. Adjudications operative in other states. Most Cited Cases The test for determining when the full faith and credit clause of the federal constitution requires enforcement of a foreign judgment focuses on the validity and finality of the judgment in the rendering state. U.S.C.A. Const. Art. 4, 1. [4] Judgment Judgment 228XVII Foreign Judgments 228k814 Judgments of State Courts 228k815 k. Adjudications operative in other states. Most Cited Cases

36 4a If a foreign judgment is valid and final in the rendering state, it is conclusive in the forum state and is entitled to receive full faith and credit pursuant to the full faith and credit clause of the federal constitution. U.S.C.A. Const. Art. 4, 1. [5] Judgment Judgment 228VIII Amendment, Correction, and Review in Same Court 228k301 k. Judgments which may be amended or corrected. Most Cited Cases Judgment Judgment 228IX Opening or Vacating 228k345 k. Judgments which may be opened or vacated. Most Cited Cases Judgment Judgment 228XVII Foreign Judgments 228k814 Judgments of State Courts 228k815 k. Adjudications operative in other states. Most Cited Cases If a foreign judgment can be modified in the rendering state, it is not conclusive and can be modified by the forum state pursuant to the full faith and credit clause of the federal constitution. U.S.C.A. Const. Art. 4, 1. [6] Judgment (7) 228 Judgment 228IX Opening or Vacating 228k386 Time for Application

37 5a 228k386(7) k. Fraudulent judgments. Most Cited Cases Judgment debtor s assertion of intrinsic fraud as a defense to enforcement of foreign monetary judgment was time barred, where rendering state s rule of procedure governing relief from judgment required a judgment debtor to raise fraud within four months of entry of the judgment. Rules Civ. Proc., Rule 60(b). *390 On discretionary review pursuant to N.C.G.S. 7A-31 of a unanimous decision of the Court of Appeals, N.C.App., 738 S.E.2d 199 (2013), vacating an order entered on 6 February 2012 by Judge W. David Lee in Superior Court, Stanly County, and remanding*391 for further proceedings. Heard in the Supreme Court on 7 January Henson & Talley, LLP, Greensboro, by Karen Strom Talley and Perry C. Henson, Jr., for plaintiffappellee. Chapman Law Group, PLC, by Avery S. Chapman, pro hac vice; and Tin, Fulton, Walker & Owen, PLLC, by Sam McGee, Charlotte, for defendantappellant. PARKER, Chief Justice. The issue in this case is whether the Court of Appeals erred by holding that the Full Faith and Credit Clause precludes the use of intrinsic fraud to defeat a foreign monetary judgment pursuant to North Carolina s Uniform Enforcement of Foreign Judgment Act and N.C.G.S. 1A-I, Rule 60(b)(3). For the reasons stated herein, we modify and affirm the decision of the Court of Appeals.

38 6a DocRx, Inc. (plaintiff), an Alabama corporation, filed a breach of contract action against EMI Services of North Carolina, LLC (defendant) in Mobile County, Alabama on 6 August The complaint alleged that defendant failed to pay plaintiff the agreed upon commission from defendant s pharmaceutical sales under a contract the parties entered on 28 June Specifically, the complaint alleged that defendant failed to pay plaintiff 25% of all net profits of [defendant s] sales made of products supplied... by [an intermediate company] located by plaintiff. The complaint sought, inter alia, compensatory damages, plus interest and costs but did not allege a specific monetary amount of damages. Defendant did not respond to the complaint, and an initial default judgment was entered on 24 September During the default proceedings in Alabama, Brian Ward (Ward), the President and CEO of plaintiff corporation, filed an affidavit with the court in which he stated that defendant sold 3,504 units for $500 per unit, for a total profit of $475 per unit. Plaintiffs counsel filed a Motion To Enter Default Judgment Amount adopting Ward s statement. Plaintiffs counsel calculated that defendant s total net profits for the sale of the units was $1,664,400 and that plaintiff was entitled to a commission payment of $416,100, which represented 25% of defendant s total net profits. Plaintiffs counsel also alleged that plaintiff was entitled to recover reasonable attorneys fees in the amount of $12, and interest on the breach of contract claim in the amount of $24,996. On 1 April 2011, the Circuit Court of Mobile County, Alabama entered a

39 7a second default judgment against defendant for $453, (the Alabama judgment). On 2 August 2011, plaintiff filed a Request To File Foreign Judgment in the Superior Court in Stanly County, North Carolina. Plaintiff presented a certified copy of the Alabama judgment. On 25 August 2011, defendant filed a Motion For Relief From And Notice Of Defense To Foreign Judgment. Defendant argued, inter alia, that the Alabama judgment was obtained by extrinsic fraud. On 2 December 2011, plaintiff filed a Motion To Dismiss Defendant s Defense Of Extrinsic Fraud Pursuant To Rule 12(b)(6) Of The North Carolina Rules Of Civil Procedure and a Motion To Enforce Foreign Judgment As A North Carolina Judgment. Defendant filed an Amended Motion For Relief From And Notice Of Defense To Foreign Judgment on 17 January 2012 in which it added defense based on fraud, pursuant to N.C.G.S. 1A-I, Rule 60(b). Defendant argued that Ward and plaintiffs counsel falsely inflated the amount of damages owed plaintiff in their respective filings in Alabama. In support of its motion, defendant submitted an affidavit of Douglas R. Smith, Jr. (Smith), a representative of defendant. In his affidavit Smith stated that Ward and plaintiffs counsel knew their statements regarding the amount of damages were false because of s Ward sent defendant. Smith alleged that on 18 June 2010, Ward sent two s to defendant wherein he acknowledged that the selling price per unit was $67, not $500 as alleged by Ward and plaintiffs counsel. Smith further alleged that Ward and plaintiffs counsel knew that their statements were false because on 12 July 2010, Ward sent an to defendant wherein he acknowledged the

40 8a selling price per unit to pharmacies and wholesalers was $45. *392 Ward s s were attached as exhibits to Smith s affidavit. On 30 January 2012, Ward and plaintiffs counsel both filed affidavits in opposition to defendant s Amended Motion For Relief From And Notice Of Defense To Foreign Judgment. In his affidavit Ward stated that the s dated 18 June 2010 predated the contract between plaintiff and defendant and referred to pharmaceutical sales that took place prior to the execution of the Agreement. Ward further alleged that the dated 12 July 2010 referred to a rate that was established for plaintiff s clients during the initial business relationship between the parties. The trial court heard the matter on 30 January 2012 and entered an order denying plaintiff s motion to enforce the Alabama judgment as a judgment of the State of North Carolina on 6 February In its order the trial court first determined that the affidavits and exhibits submitted by defendant supported defendant s argument that plaintiff obtained the Alabama judgment as a result of fraud. The trial court then stated that under N.C.G.S. 1C- 1703(c), a provision of North Carolina s Uniform Enforcement of Foreign Judgments Act (UEFJA), the Alabama judgment was subject to the same defenses as a judgment of this State. The trial court explained that under Rule 60(b)(3) of the North Carolina Rules of Civil Procedure, relief from enforcement of a judgment was available if the trial court determined that there was fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party. Finally, the trial court concluded

41 9a that in accordance with NCRCP 60(b)(3) the intrinsic fraud, misrepresentation and misconduct of the plaintiff in obtaining the underlying Alabama judgment precludes enforcement of the Alabama judgment as a judgment of this State. Plaintiff gave timely notice of appeal to the Court of Appeals. On appeal plaintiff argued that the trial court erred in denying its motion to enforce the Alabama judgment as a judgment of the State of North Carolina, contending that under the Full Faith and Credit Clause of the United States Constitution a state may only deny enforcement of a sister state s judgment for extrinsic fraud, not intrinsic fraud. The Court of Appeals vacated the trial court s order denying enforcement of the Alabama judgment and remanded for further proceedings. DOCRX, Inc. v. EMI Servs. of N.C., LLC, N.C.App.,, 738 S.E.2d 199, 204 (2013). The court below recognized that the interplay among the Full Faith and Credit Clause, N.C.G.S. 1A-I, Rule 60(b), and our UEFJA is an issue of first impression in this State. Id. at, 738 S.E.2d at The Court of Appeals noted that [t]raditionally, foreign judgments have been subject to attacks on limited grounds, requiring a showing that the court lacked jurisdiction, or that the judgment was procured through fraud. Id. at, 738 S.E.2d at 201 (emphasis and quotation marks omitted) (citing Thomas v. Frosty Morn Meats, Inc., 266 N.C. 523, 146 S.E.2d 397 (1966)). The court also recognized that the UEFJA, enacted in 1989, states, in pertinent part, that a foreign judgment has the same effect and is subject to the same defenses as a judgment of this State and shall be enforced or satisfied in like manner[.] Id. at, 738 S.E.2d at 202 (brackets in original) (quoting N.C.G.S. 1C-

42 10a 1703(c) (2011)). The Court of Appeals acknowledged that the plain language of the UEFJA would seem to allow a foreign judgment debtor to utilize any defense applicable to a domestic judgment, such as Rule 60(b). Id. at, 738 S.E.2d at 202. However, relying on cases from Utah, Montana, and Colorado that have interpreted similar statutes, the court below held that in North Carolina the remedies available under Rule are limited by the Full Faith and Credit Clause of the United States Constitution when a foreign judgment is at issue. Id. at, 738 S.E.2d at (quoting Bankler v. Bankler, 963 P.2d 797, (Utah Ct.App.1998)). The court adopted the rule articulated by the Colorado Court of Appeals in Craven v. Southern Farm Bureau Casualty Insurance Co., 117 P.3d 11, 14 (Colo.App.2004), and then concluded that intrinsic fraud, misrepresentation and misconduct were not sufficient *393 grounds under the Full Faith and Credit Clause to deny plaintiffs motion to enforce the Alabama judgment. Id. at, 738 S.E.2d at 203. This Court allowed defendant s petition for discretionary review. Before this Court defendant argues that the Full Faith and Credit Clause does not limit attack on fraudulent foreign judgments to those obtained by extrinsic fraud. Defendant contends that the decision of the Court of Appeals improperly gives foreign judgments more deference than domestic judgments because a foreign judgment cannot be attacked for intrinsic fraud under Rule 60(b) and the UEFJA, but a domestic judgment can be attacked on such grounds. We disagree.