PATRICK J. SANJENIS v. ENVIRONMENTAL TECHNOLOGY, LLC, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1448-05T41448-05T5

PATRICK J. SANJENIS,

Plaintiff-Appellant,

v.

ENVIRONMENTAL TECHNOLOGY, LLC,

TARGET ENERGY PARTNERS, LLC,

FRED J. MILLER and ERIC RIEDMAN,

Defendants-Respondents.

_______________________________________

 

Submitted September 20, 2006 - Decided October 16, 2006

Before Judges Wefing, Parker and Yannotti.

On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket Nos. DJ-224145-03 and DJ-224141-03.

DeCotiis, Fitzpatrick, Cole & Wisler, attorneys for appellant (Robert A. Ortiz, Jr., of counsel; Jason D. Attwood, on the brief).

William Z. Shulman, attorney for respondents.

PER CURIAM

Plaintiff Patrick J. Sanjenis appeals from an order entered in the Law Division on October 7, 2005, vacating for enforcement purposes in New Jersey a default judgment entered by the United States District Court for the Southern District of Texas on November 10, 1999 against defendants Environmental Technology, LLC (Environmental Technology), Target Energy Partners, LLC (Target Energy), Fred J. Miller (Miller) and Eric Riedman (Riedman); and a default judgment entered by the Texas state court on January 2, 2001, against Environmental Financing Partners, LLC (Environmental Financing) and Crossroads Environmental Corporation (Crossroads). For the reasons that follow, we reverse.

The facts that inform our decision are relatively straightforward. Plaintiff is an attorney who provided legal services to defendants over a three-year period, which ended on or about December 11, 1996, because defendants had not paid certain fees and expenses. In 1997, plaintiff approached defendants with respect to an investment in Crossroads, an entity that possessed permits for the commercial disposal of non-hazardous wastewater. Defendants invested $581,250 in the Crossroads project.

The parties entered into an agreement dated August 22, 1997, in which they agreed that defendants owed plaintiff $23,630 for the legal fees and expenses. According to the agreement defendants had made payments totaling $5,000, leaving a balance due of $18,630 that would be paid by defendants on or before October 1, 1997. The agreement additionally stated that defendants would "devise a method" to "gather" 12,500 shares of Janus stock, transfer the shares to plaintiff and purchase the shares back at a price of $18,750. The agreement further provided that:

[Plaintiff] is entitled to a finder's fee in the Crossroads transaction. The amount of the fee and the manner of the payment thereof, either in cash or Net Profits Interest, shall be determined equitably by [defendants] and will be the subject of a separate agreement to be entered into by the parties on or before October 1, 1997.

Defendants did not pay the $18,630 due for the counsel fees and expenses, failed to "gather" the Janus shares and never entered into the agreement for payment of the finder's fee. Accordingly, plaintiff filed a complaint against defendants in the federal district court in Texas. Defendants were served but failed to answer. The court entered default against Reidman on July 31, 1998, and against the other defendants on June 2, 1999. On July 13, 1999, the judge conducted a hearing to consider plaintiff's evidence of damages and thereafter filed his findings of fact and conclusions of law.

The judge determined that defendants owed plaintiff: $18,630 for the unpaid attorneys' fees and expenses; $18,750 for the undelivered Janus stock; and a finder's fee for the Crossroads transaction in the amount of $372,962. In addition, the judge found that plaintiff was entitled to attorneys' fees and expenses in the amount of $11,782.20 for the prosecution of the claims against defendants. A default judgment dated November 10, 1999 in the amount of $422,124.20, plus pre-judgment interest, post-judgment interest and costs was entered in the federal action on November 12, 1999.

In 2000, plaintiff commenced a second action against Environmental Financing and Crossroads in the District Court of Texas for the 410th Judicial District, Montgomery County. The defendants in this action were served but did not answer the complaint. On January 2, 2001, a default judgment was entered against these defendants in the amount of $422,124.20, plus pre-judgment interest, post-judgment interest, and attorneys' fees in the amount of $2,500.

Plaintiff filed the two judgments here in New Jersey for enforcement purposes and on November 5, 2003, defendants filed a motion to vacate the judgments because the judgments allegedly had been obtained by fraud and a fraud on the court; Riedman had not been properly served in the federal action; and the judgments were not entitled to full faith and credit in New Jersey.

The trial court denied the motion for the reasons stated in a written opinion filed February 10, 2004. Relying upon R. 4:50-2 the judge concluded that the motion was time-barred because it sought to vacate the judgments under R. 4:50-1(c) on the ground of fraud but had not been filed within one year after the entry of the original judgments. The judge noted that defendants alleged that plaintiff perpetrated a fraud on the Texas courts by making false representations concerning the value and projected income of the Crossroads project. The judge made no finding on this allegation.

Defendants appealed and we reversed. Sanjenis v. Envtl. Tech., LLC, No. A-3855-03T5 (App. Div. April 25, 2005). We held that the judge erred in finding defendants' motion untimely because the time to file the motion began to run from the date the judgments were lodged in New Jersey, not the dates when the judgments were originally obtained in Texas. Sanjenis, supra, slip. op. at 5-6. We noted that the trial judge had not ruled on the issue of whether plaintiff had procured the judgments by a fraud on the court and we declined to rule on that issue. Id. at 6.

However, in our opinion, we commented that the federal court in Texas had determined the finder's fee that was due to plaintiff by applying the so-called "Lehman" formula, under which fees were computed on a sliding scale: 5% of the first million dollars of earnings, 4% of the second million; 3% of the third million, 2% of the fourth million, and 1% of the balance. Id. at 4 n.2. We noted that in applying this formula, the court found that the Crossroads project had net earnings of $3,470,520 in the first two years of its operation and for the next twenty-eight years, $224,000,000. We stated that, because the Crossroads project had not been completed, the finding that Crossroads had net earnings of $224,000,000 had "a less than solid foundation." Id. at 7. We remanded the matter for further proceedings.

The matter came before the trial court again on October 7, 2005. After hearing argument from counsel, the judge found that defendants' motion to vacate the default judgments was timely, since it had been made within two months of the filing by plaintiff of the judgments in New Jersey. The judge noted that the Crossroads project "never even got to a point of completing the drilling for a 6,000 foot waste water well." According to the judge, this indicates that the federal court's finding of net earnings of $224 million "had a less than solid foundation." The judge entered an order vacating the default judgments and this appeal followed.

Plaintiff argues that: 1) the trial judge erred in vacating the judgments without a finding of fraud in the procurement of the underlying Texas court judgments; 2) the trial court's order cannot be sustained on the basis of fraud; and 3) the relief sought by defendants is not otherwise warranted pursuant to R. 4:50. We agree with plaintiff's contention that the judgments should not have been vacated without a finding by the judge that the judgments were obtained by means of a fraud on the court. Because the trial judge's findings of fact on that issue are deficient, we reverse.

The Texas judgments at issue in this case were filed with the Superior Court for enforcement purposes pursuant to the Uniform Enforcement of Foreign Judgments Act, N.J.S.A. 2A:49A-25 to -33 (the UEFJA). Under the UEFJA, a copy of any foreign judgment may be filed with the Clerk of the Superior Court. N.J.S.A. 2A:49A-27. The Clerk must treat "the foreign judgment in the same manner as a judgment of the Superior Court of this State." Ibid.

According to the UEFja, when so filed, the foreign judgment "has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a judgment of a Superior Court of this State and may be enforced in the same manner." Ibid. However, our recent decision in Sonntag Reporting Serv., Ltd. v. Ciccarelli, 374 N.J. Super. 533 (App. Div. 2005), makes clear that, notwithstanding the plain language of N.J.S.A. 2A:49A-27, the full faith and credit clause of the United States Constitution imposes limits upon the power of the New Jersey courts to vacate judgments of sister states that are filed here for enforcement purposes under the UEFJF.

In Sonntag Reporting, the plaintiff asserted a breach of contract claim against an entity and two of its shareholders, Wiegmann and Ciccarelli. Wiegmann answered the complaint but failed to appear in an arbitration proceeding that was scheduled to occur shortly after the September 11, 2001 terrorist attacks. Ciccerelli also failed to appear. The arbitrator ruled for the plaintiff. The Illinois court enforced the arbitrator's award and entered judgment against Wiegmann and the other defendants. Id. at 536.

The plaintiff filed the judgment in New Jersey pursuant to the UEFJA and Wiegmann moved to vacate the judgment arguing that the Illinois court should not have entered the judgment because of related litigation in New Jersey between Wiegmann and Ciccarelli; Wiegmann was no longer a shareholder of the breaching entity; and he had difficulty traveling to Illinois for the arbitration after the events of September 11, 2001. Id. at 536-37. The trial court granted Wiegmann's motion and vacated the judgment pursuant to R. 4:50-1(f), which allows a judgment to be set aside "for any other reason justifying relief." We reversed.

We noted in our decision that under the mandate of the full faith and credit clause of the federal constitution, New Jersey will enforce a judgment of a sister state unless the defendant has been denied due process of law. We stated that, "These due process denials occur when "the rendering state 1) lacked personal jurisdiction over the judgment debtor, 2) lacked subject matter jurisdiction, [or] 3) failed to provide the judgment debtor adequate notice and an opportunity to be heard." Id. at 538 (quoting Choi v. Kim, 50 F.3d 244, 248 (3d Cir. 1995)). We said that a New Jersey court "may inquire into defenses of lack of jurisdiction in the foreign court or fraud in procurement of the judgment provided that those issues have not been litigated in the forum court." Ibid. (citing Firstar Bank Milwaukee, NA v. Cole, 678 N.E.2d 668, 670 (1997)).

We determined in Sonntag Reporting that although N.J.S.A. 2A:49A-27 states that a foreign judgment which is filed under the UEFJA is subject to the same procedures for vacating as a judgment of our Superior Court, the statute was intended to facilitate the enforcement of foreign judgments, not "to alter [the] substantive rights of the parties in an action for enforcement of a foreign judgment." Id. at 539 (citing Mike Smith Pontiac, GMC, Inc. v. Mercedes-Benz of North America, Inc., 719 A.2d 993, 996 (Md. Ct. Spec. App. 1998), aff'd, 741 A.2d 462 (Md. 1999)). We held that to the extent N.J.S.A. 2A:49A-27 suggests that a New Jersey court is authorized to vacate a judgment of a sister state on the same grounds as a New Jersey judgment, the statute is inconsistent with the full faith and credit clause of the United States Constitution. Id. at 539.

Our decision in Sonntag Reporting makes clear that in this case plaintiff is entitled to enforcement of the Texas judgments as a matter of federal constitutional mandate unless defendants establish that they were denied due process when the judgments were obtained. Ibid. The New Jersey courts may consider whether the Texas courts lacked jurisdiction and whether the judgments were obtained by means of a fraud upon the court, provided these issues were not litigated in the forum state. Ibid.

Here, there is no claim that the Texas courts lacked subject matter jurisdiction over the actions, nor a claim that the Texas courts lacked personal jurisdiction over defendants. It is undisputed that defendants were properly served in both the federal and state court actions in Texas. Although Riedman initially argued that he had not been properly served in the Texas actions, he later abandoned that claim. Consequently, defendants may only avoid enforcement in New Jersey of the Texas judgments if they establish that the judgments were procured by means of a fraud on the Texas courts.

To meet their burden, defendants must prove that plaintiff engaged in deceitful actions that were directed at the Texas courts and directly interfered with the judicial process. Fellerman v. Bradley, 99 N.J. 493, 504 (1985). Perjurious testimony alone may constitute a fraud on the court. Shammas v. Shammas, 9 N.J. 321, 328 (1952). However, a party seeking to vacate the judgment on this basis must show by clear and convincing evidence that the perjured testimony was not merely false but was given "willfully and purposely." Id. at 330. The party must establish that the false testimony was "material to the issue tried and not merely cumulative" but "controlled the result." Ibid. Furthermore, the party "must show that the fact of the falsity of the testimony could not have been discovered by reasonable diligence in time to offset it at the trial or that for other good reason the failure to use diligence is in all the circumstances not a bar to relief." Ibid.

According to defendants, in the federal court plaintiff misrepresented that: all of the funding for Crossroads was in place; the project was soon to be operational; there would be two wells in operation twenty-four hours per day, seven days per week; there was a guarantee that the project would dispose of two million gallons of waste water treated a month, which would be treated at 20 cents per gallon; Crossroads would generate $9.6 million in revenue per year in its first two years of operation, with an annual net profit before taxes of about $8 million; the project had assets of $2.6 million as of February 1999; the waste water wells would be open within two months; and there was a market for the disposal of about 150 million gallons a year.

Defendants assert that when plaintiff presented this testimony to the federal judge, the construction on the Crossroads project had ceased; the project had been abandoned for months; the funding had not closed; there had been drilling but it was only on one well and it was incomplete; and no customers had been lined up. Defendants also argue that it was improper for plaintiff to advocate use of the "Lehman" formula to determine the amount of the finder's fee because that formula purportedly applies only to mergers and acquisitions of completed operations.

Plaintiff responds to these contentions by asserting that the judgments were not obtained by means of a fraud upon the Texas courts. Plaintiff contends that, when he testified at the federal proof hearing, the project was still viable. He says that a "very expensive" well had been drilled and Crossroads had obtained a permit to operate the same from the Texas regulators. Plaintiff also points out that under the agreement, the finder's fee was to be agreed upon by October 1, 1997. Plaintiff contends that there was no expectation that Crossroads had to become operational before the amount of the fee was determined or paid.

Plaintiff further argues that at no point did he represent to the federal court that the figures used to calculate the finder's fee were anything other than projected income. Plaintiff maintains that the evidence presented to the federal court in Texas regarding the status of the wells and the potential productivity of the project originated from defendants' own representations to prospective investors.

Here, the trial judge failed to make specific findings of fact and conclusions of law on the claim that plaintiff had obtained his judgments by means of a fraud upon the Texas courts. The judge merely commented that the findings by the federal judge regarding Crossroad's net earnings did not have a "solid foundation." That may be so but this is not the equivalent of a fraud upon the court. Under Sonntag Reporting, this finding is an insufficient basis to preclude enforcement of a judgment of a sister state.

We therefore reverse and remand to the trial judge to make appropriate findings of fact. On remand, the judge must determine whether plaintiff deceived the Texas courts when presenting proof of his damages respecting the finder's fee for the Crossroads project. Defendants must establish that plaintiff's testimony in the federal court was not only false but given willfully and purposely to deceive the court. Defendants must show that any false statements made by plaintiff in the proof hearing were material and probably controlled the judge's findings respecting damages.

Defendants also must provide an explanation to excuse their failure to seek relief from the Texas judgments after they knew of or should have known of the basis upon which the default judgments had been obtained. Defendants' must establish that their neglect was excusable and their lack of diligence should not be a bar to relief from the Texas judgments.

The judge may decide these issues based on the record previously created or allow the parties to supplement their submissions. A hearing should be conducted if the written submissions give rise to genuine issues of material fact requiring testimony under oath. Suffice it to say, if defendants fail to carry their burden of establishing a fraud on the court by clear and convincing evidence, or fail to provide a reasonable explanation to excuse their failure to seek relief from the judgments in the Texas courts, plaintiff is entitled to enforce his judgments in New Jersey.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

 

(continued)

(continued)

15

A-1448-05T5

 

October 16, 2006