NJ Business Litigation Decision Highlights Broad Reach of Full Faith and Credit Clause

A recent business litigation decision highlights that the full faith and credit clause can make it very difficult to challenge the enforcement of a judgment rendered outside of New Jersey. The case specifically involved an Iowan judgment where the exertion of personal jurisdiction over defendant, with no contact with Iowa, was based on a “

The Facts of the Case

In defendant William Cregar executed a lease for a television marketing system in his dental office located in New Jersey. The lease contained a “floating forum selection clause” under which Cregar agreed that if the lease were assigned, he would consent to personal jurisdiction and venue in the state or federal court located where the assignee’s corporate headquarters was located. The lease was assigned shortly after the agreement was executed.

After Cregar stopped making lease payments, the assignee, Professional Solutions Financial Services, filed suit in its home state of Idaho. A default judgment was entered and later docketed in the Superior Court of New Jersey, pursuant to the Uniform Enforcement of Foreign Judgments Act. Cregar sought relief from judgment, arguing on appeal that the trial court (1) erred in enforcing the Iowa judgment because he was denied due process, and (2) erred in applying Iowa law, rather than New Jersey law, when considering the enforceability of the floating forum selection clause.

The Court’s Decision

The Appellate Division concluded that it was required to enforce the Iowa judgment. As the court explained, the U.S. Constitution requires that “Full Faith and Credit shall be given in each State to the public Acts, Records and judicial Proceedings of every other State.” Moreover, a state is obligated to enforce the judgment of a sister state even when the suit in which the judgment was entered “could not have been maintained under the laws and policy of the forum to which the judgment is brought.”

As noted by the Appellate Division, the only basis for refusing to enforce a judgment is a due process violation, such as lack of subject matter or personal jurisdiction or the failure to provide the judgment debtor with adequate notice and the opportunity to be heard. In this case, Cegar argued that the Iowa court could not fairly exert personal jurisdiction over him because the application of the floating forum selection clause in question was fundamentally unfair.

However, the court ultimately rejected the argument, pointing out that the question was not whether a New Jersey court would enforce this forum selection clause but whether the judgment was in accord with the laws and policies of the rendering state. “Despite any repugnance we may have for the floating forum selection clause in question, there is ‘no roving public policy exception’ to our obligation to give full faith and credit to judgments duly entered in a sister state,” the justices concluded.

If you have any questions about this case or would like to discuss the legal issues involved, please contact me, Robert Levy, or the Scarinci Hollenbeck attorney with whom you work.