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HADDEN v. RUMSEY PRODUCTS, Inc., et al.

United States Court of Appeals for the Second Circuit1952-04-01No. No. 106, Docket 22171
196 F.2d 92

Summary

Holding. The judgment is reversed and remanded. While the New York court properly acquired jurisdiction and the trustee's confession of judgment pursuant to valid warrants of attorney cannot itself constitute fraud on the Ohio court, the defendants may pursue an independent action alleging fraud in the procurement of the notes, and such claims require evidentiary hearing rather than summary disposition.

A trustee obtained a judgment by confession against Rumsey Products, Inc. and five individual defendants in Ohio federal court based on cognovit promissory notes. The trustee then sought to register this judgment in New York federal court under federal law. The defendants petitioned the New York court for relief, seeking to enjoin enforcement of the Ohio judgment and prevent its registration. They claimed the judgment was procured through fraud because the trustee's attorney confessed judgment without disclosing that the defendants had asserted defenses to the notes.

The New York court granted the defendants' request and permanently enjoined enforcement of the Ohio judgment. On appeal, the court addressed two main issues: whether the New York court had personal jurisdiction over the trustee, and whether the judgment was obtained by fraud. The court found jurisdiction was proper because the trustee sought affirmative relief from the court, constituting a general appearance that waived any jurisdictional objection.

However, the court ruled that the fraud claim failed on its merits. The promissory notes contained express warrants of attorney authorizing the trustee's attorney to confess judgment without notice or trial of defenses—this was the precise purpose of cognovit notes and thus could not constitute fraud on the court. Nevertheless, the court held that the defendants could pursue an independent action alleging fraud in the execution of the notes themselves, such as duress or misrepresentation. Because the lower court entered its injunction without hearing evidence on these underlying claims, the judgment was reversed.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

  • Personal jurisdiction of the New York court over the out-of-state judgment creditor
  • Whether confession of judgment pursuant to cognovit notes constitutes fraud on the court
  • Whether a district court may entertain an independent action to challenge a judgment registered under federal inter-district registration procedures
  • Validity and enforceability of warrants of attorney in promissory notes

Procedural posture

The defendants appealed from a judgment of the United States District Court for the Western District of New York that permanently enjoined enforcement and registration of a judgment previously entered by the United States District Court for the Northern District of Ohio.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion

majority opinion

SWAN, Chief Judge.

John A. Hadden, Disinterested Trustee for Manufacturers Trading Corporation, a corporation in reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., obtained, on December 30, 1949, in the United States District Court for the Northern District of Ohio, Eastern Division, a judgment by confession against Rumsey Products, Inc., a New York corporation, and five individuals, residents of New York. The judgment was confessed by the plaintiff’s attorney upon cognovit promissory notes made by Rumsey Products, Inc. and endorsed by each of the five individual defendants. For brevity the court which entered the judgment by confession will be referred to as the Ohio court. On January 16, 1950, the judgment creditor forwarded to the Clerk of the United States District Court for the Western District of New York (referred to hereafter as the New York court) an exemplified copy of the Ohio court’s judgment for registration in the New York court pursuant to § 1963 of Title 28 of the Code. Upon learning from the Qerk of the existence of the Ohio judgment and of the judgment creditor’s attempt to register it in the office of the Clerk of the New York court, the judgment debtors initiated by petition for a show cause order the proceeding in which was entered on April 2, 1951 the judgment brought before us by the present appeal. This judgment permanently enjoins the judgment creditor from attempting to enforce the Ohio judgment and permanently restrains the Clerk of the New York court fromi entering the transcript of said judgment in his office. The appeal presents two questions: (1) whether the New York court had acquired personal jurisdiction of the judgment creditor, and (2) whether the judgment by confession was obtained by fraud upon the Ohio court. These questions will be considered seriatim.

In its procedural aspects the question whether the New York court had jurisdiction of the judgment creditor is quite complex. The appellees’ first petition for a show cause order was filed January 20, 1950. It alleged that the judgment by confession was taken without notice to the maker and endorsers of the notes, that they had absolute defenses tO the notes, and that filing in the New York court of a copy of the judgment was premature because the time to appeal had not expired. No summons was issued on the petition. The court forthwith issued a show cause order returnable January 30, and directed that the order be served upon the judgment creditor and his Cleveland attorneys by-mail. On the return date, the judgment creditor not appearing, the court found that service had been had by mail and forthwith granted a preliminary injunction against causing execution to be issued on the judgment, restrained the Clerk of the New York court “from entering the transcript” of the Ohio judgment, and ordered that the matter remain open for further orders. Thereafter on October 3,1950 the appellees filed a second petition more fully alleging the defenses referred to in their first petition, except as to the unexpired time to appeal, and sought an order to set aside the Ohio judgment. The court issued an order to show cause returnable October 10. The petition and order were served on the trustee by mail. On October 9 the appellees filed a “Supplemental Petition” which alleged that the appellant’s attorney had confessed judgment on the notes despite notice given by tl\e maker and endorsers that they had absolute defenses to the notes. Such action was alleged to be a fraud on the court, rendering the Ohio judgment void. A copy of the Supplemental Petition was handed to the appellant’s local attorney during the hearing on the show cause order returnable October 10. The attorney attempted to appear specially to contest jurisdiction, but the court ruled that the appellant had appeared generally.

Rule 60(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A., provides that on motion and upon such terms as are just, the court may relieve a party from a final judgment for fraud, misrepresentation or other misconduct of an adverse party. Whether an attack under this Rule is limited to the district court which originally entered the judgment or may also be made in another district where the judgment was registered under 28 U.S.C.A. § 1963 does not appear to have been judicially determined. The judgment debtors evidently assumed that they could make such a motion in the New York court as soon as the judgment creditor forwarded a copy of the judgment to the Qerk of the New York court. But we need not decide whether the Ohio judgment could properly be attacked by motion in the New York court. Rule 60(b) expressly provides that the rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment. The appellees’ several petitions to the New York court may be treated as an independent action to obtain equitable relief from the Ohio judgment. Although Rule 3 states that an action is commenced by filing a complaint it would be quite out of harmony with the spirit of Rule 1 to hold the appellees bound by the labels placed on the papers submitted to the district court. Nor is it necessary that a summons should have been issued and served as contemplated by Rule 4, provided the appellant took action equivalent to entering his general appearance. The district court’s opinion as quoted in note 5 supra, states that on October 10 the appellant’s attorney “again” attempted to file an exemplified copy of the journal entry of the Ohio judgment. By thus seeking affirmative relief from the court, the appellant on well settled principles waived any question of personal jurisdiction. Consequently the appellant’s contention that the court never acquired jurisdiction over him cannot be sustained.

The next question for consideration is the court’s ruling that the judgment was procured by a fraud upon the Ohio court because the plaintiff’s attorney confessed judgment without informing that court that the defendants had asserted defenses to the notes. That ruling is erroneous. The notes contained warrants of attorney expressly authorizing the precise procedure which the plaintiff followed. The very purpose of cognovit notes is to permit the note holder to obtain judgment without a trial of possible defenses which the signers of the notes might assert. The validity of such warrants of attorney is recognized both by statute and decision in Ohio. To do precisely what the warrants of attorney authorized cannot be a fraud upon the court. This does not mean, however, that the judgment debtors cannot attack the Ohio judgment in an independent action in the New York court on charges of fraud in procuring the execution of the notes. As already stated, that court has jurisdiction to entertain an independent action to relieve a party from a judgment. The appellees’ allegations of duress, fraudulent misrepresentation and concealment, if substantiated upon a trial, may entitle them to a decree. Without taking proof on these charges, the court entered the judgment appealed from. This was error. The judgment must be reversed and the cause remanded for further proceedings. It is so ordered, with costs of the appeal awarded the appellant.

. Each note contained the following clause: “The undersigned and all endorsers, whose names now appear or are hereafter written on the reverse side of this instrument, do jointly and severally, waive presentment, demand, protest, and notice of protest and non-payment hereof, and further do hereby authorize any attorney-at-law to appear before any Justice of the Peace, or in any court of record in the State of Ohio, or in any other State or Federal District in the United States, after the above obligation becomes due, and waive the issuing and service of process and confess a judgment against the undersigned and the endorsers, jointly and severally, in favor of the payee or any holder of this note, for the amount then appearing due, together with all costs of suit, and thereupon release all errors and waive all right of appeal, stay of execution and right of appraisal of real and personal property.”

A similar clause was printed on the reverse side of each note immediately above the signature of the endorsers.

. 28 U.S.C.A. § 1963 provides: “A judgment in an action for the recovery of money or property entered in any distinct court which has become final by appeal or expiration of time for appeal may be registered in any other district by filing therein a certified copy of such judgment. A judgment so registered shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner.”

. The ease in the New York court is entitled the same as is the Ohio judgment; hence the judgment creditor appears as plaintiff, although the moving parties seeking relief from the Ohio judgment are the judgment debtors.

. We find it unnecessary to determine whether the waiver in the notes of “all rights of appeal” accelerated the time for registration under 28 U.S.C.A. § 1963.

. The court’s opinion states [96 F.Supp. 991]: “By attempt to file an exemplified copy of the journal entry of the judgment on January 16, 1950, and again on October 10, 1950, the plaintiff must be deemed to have submitted the validity of the judgment to this Court to take jurisdiction of the investigation and to have appeared generally so that any words of ‘special appearance’ are not sufficient to produce such a result. Farmer v. National Life Association, 138 N.Y. 265, 270, 33 N.E. 1075; Merchants Heat & L. Co. v. James B. Clow & Sons, 204 U.S. 286, 290, 27 S.Ct. 285, 51 L.Ed. 488.”

. Cf. Moore’s Commentary on the U. S. Judicial Code, 385-6.

. See Merchants Heat & Light Co. v. James B. Clow & Sons, 204 U.S. 286, 289, 27 S.Ct. 285, 51 L.Ed. 488; Marcus v. Otis, 2 Cir., 168 F.2d 649, 659; Leonardi v. Chase National Bank, 2 Cir., 81 F.2d 19, 20, certiorari denied 298 U.S. 677, 56 S.Ct. 941, 80 L.Ed. 1398; Jos. Riedel Glass Works, Inc., v. Keegan, D.C., 43 F.Supp. 153, 159.

. Ohio Gen.Code, § 11597; First National Bank of Findlay v. Trout, 58 Ohio St. 347, 51 N.E. 27; Swisher v. Orrison Cigar Co., 122 Ohio St. 195, 171 N.E. 92. See also Wassell v. Reardon, 11 Ark. 705, 54 Am.Dec. 245; Withers v. Starace, D.C.E.D.N.Y., 22 F.Supp. 773.

. See Notes of Advisory Committee on Amendments to Rules, Rule 60(b); Moore’s Federal Rules 1951, 279-280; Wallace v. United States, 2 Cir., 142 F.2d 240, 244, certiorari denied 323 U.S. 712, 65 S.Ct. 37, 89 L.Ed. 573.

. See Simon v. Southern Ry. Co., 236 U.S. 115, 35 S.Ct. 255, 59 L.Ed. 492; Wyman v. Newhouse, 2 Cir., 93 F.2d 313, certiorari denied 303 U.S. 664, 58 S.Ct. 831, 82 L.Ed. 1122; Griffith v. Bank of New York, 2 Cir., 147 F.2d 899, 901, 160 A.L.R. 1340, certiorari denied 325 U.S. 874, 65 S.Ct. 1414, 89 L.Ed. 1992; Brone v. Golde, 267 N.Y. 284, 196 N.E. 58; Trebilcox v. McAlpine, 62 Hun. 317, 17 N.Y.S. 221.