NCCOA: The Constitution Reins In The Uniform Enforcement Of Foreign Judgments Act

If you've been practicing law for more than a few years, you've undoubtedly been asked to "domesticate" in North Carolina's courts a judgment entered in another state. A pretty easy task you think, covered by North Carolina's adoption of the Uniform Enforcement of Foreign Judgments Act, N.C. Gen. Stat. Sec. 1C-1701 to -1708.

Let's say that the lawyer defending against the domestication tells you that the out-of-state judgment was obtained based on "intrinsic fraud, misrepresentation, and misconduct."  Those would probably be grounds for setting aside a North Carolina judgment under Rule 60(b) of the North Carolina Rules of Civil Procedure.  Can the foreign judgment be enforced in North Carolina under the Uniform Act?

Those of you who are particularly sharp are wondering about the constitutional principle of Full Faith and Credit.  Article IV, Section 1 of the Constitution says that "Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State."  Not surprisingly, there is a good bit of judicial discussion of the interplay between the Uniform Act and the Constitution, with the most recent comment this week from the North Carolina Court of Appeals, in DOCRX, Inc. v. EMI Services of NC, LLC.

DOCRX was on the receiving end of a judgment in Mobile County, Alabama, of nearly half a million dollars.  When EMI sought to have its Alabama judgment enforced in North Carolina, DOCRX argued per NCRCP 60(b) that the judgment  could not be enforced because it was obtained on the basis of intrinsic fraud.  

The trial judge refused to enforce the judgment based on the Rule 60(b) argument and the Court of Appeals noted that this interpretation was "warranted from the plain language of the statute." Section 1C-1703(c) states that a foreign "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[.]"  And Rule 60(b) refers to "[f]raud (whether heretofore denominated intrinsic or extrinsic)" as a ground for setting aside a judgment.

But the Constitution intervenes here.  The core of the Court of Appeals' holding was that:

We hold that postjudgment 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.

Op. at 9 (quoting Craven v. Southern Farm Bureau Cas. Ins., 117 P.3d 11, 14 (Colo. App. 2004))(emphasis added)

These were the only grounds on which the trial court could have denied enforcement.  The arguments of "intrinsic fraud, misrepresentation and misconduct" were insufficient.  So, the Court of Appeals reversed the trial judge and remanded the case "for further proceedings."  Op. at 11.

Oh, and what about "intrinsic" fraud anyway?  What is that and how is it different from "extrinsic" fraud?  The federal Third Circuit called the terms a "most unfortunate" distinction, in Averbach v. Rival Mfg. Co., 809 F.2d 1016 (3d Cir. 1987).  Intrinsic fraud is fraud deceiving the court in obtaining a judgment. Extrinsic fraud is conduct which happens outside of court, but which deprives an adversary of the opportunity to present his case.

 

Funeral Homes In Charlotte Battle Over Trademark Infringement

You don't see a trademark infringement action in the Business Court every day, let alone a TRO decision, but a case with both came along last Friday in SCI Carolina Funeral Services, LLC v. McEwen Ellington Funeral Services, Inc.  Moreover, this was a common law trademark case, with no federal registration -- or even a state registration -- involved.

The Defendants had previously operated funeral homes under the McEwen name in the Charlotte, North Carolina area.  In 1986, they sold those funeral homes, and their trademarks and trade names, to the Plaintiffs.

Then, notwithstanding their agreement, the Defendants opened a funeral home under the McEwen name and began advertising under that name as well.  They also registered a trade name with the North Carolina Board of Funeral Services as McEwen Ellington Funeral Services.  

There's very little North Carolina state law on trademark infringement, but Judge Murphy found enough to enter a temporary restraining order against the Defendants.

He held, relying on a 1907 North Carolina Supreme Court decision, that "North Carolina common law protects corporations' trade names," stating that

It is well settled that an exclusive right may be acquired in the name in
which a business has been carried on, whether the name of a partnership or
of an individual, and it will be protected against infringement by another
who assumes it for the purpose of deception, or even when innocently
used without right, to the detriment of another; and this right, which is in
the nature of a right to a trade-mark, may be sold or assigned. 

Op. ¶9 (quoting Blackwell’s Durham Tobacco Co. v. American Tobacco Co., 145 N.C. 367, 374, 59 S.E. 123, 127 (1907).

Then, although there's no reported state court decision on when a trademark infringement plaintiff has shown the likelihood of confusion necessary to prevail, Judge Murphy relied on a federal decision from the Western District of North Carolina holding that the factors to be considered are:

1) the strength or distinctiveness of the mark; 2) the similarity of the two
marks; 3) the similarity of the goods/services the marks identify; 4) the
similarity of the facilities the two parties use in their businesses; 5) the
similarity of the advertising used by the two parties; 6) the defendant’s
intent; and 7) actual confusion.

Op. ¶10 (quoting Wachovia Bank & Trust Co. v. Crown Nation Bancorporation, 835 F. Supp. 882, 886(W.D.N.C. 1993)).

If that standard sounds familiar, that's because it is, and drawn from the Fourth Circuit Court of Appeals' often cited opinion in Pizzeria Uno v. Temple, 747 F.2d 1522, 1527 (4th Cir. 1984)).

Given that the Plaintiffs had shown that their McEwen mark was distinctive, the marks in question appeared to be similar, the funeral services provided by the parties were identical, the parties use similar facilities, the parties' advertising is similar, and that one of the Defendants had registered and operated under the challenged mark with the intent to cause confusion among the consuming public, it was any easy step to enjoin the Defendants from using the McEwen name in connection with funeral services.

It's hard to tell how the Defendants defended this pretty clear case of infringement, given that they didn't even file a brief in opposition to the motion for a TRO.

 

The Middle District Of North Carolina Okays Cellphones (With Cameras!)

If you are a lawyer practicing in the Middle District of North Carolina, you will be excited about Standing Order #2, issued by the Judges of the Court on January 8th.

The Order authorizes the use of cellphones -- even those with cameras -- in the courthouses of the District.  The banning of cellphones with cameras has long been a bugaboo for lawyers practicing here.  And after all, can you even buy a cellphone without a camera anymore?

Here are the answers to some of the questions you may have about this sea change in Middle District procedures:

When is the new policy effective?  It is effective immediately.

What about my clients?  Can they bring their cellphones to Court?  No, the policy applies only to attorneys, including out of state attorneys who are appearing with local counsel per Local Rule 83.1(d).

What about paralegals and personnel of my law firm?  They are not covered by this policy.

Can I let someone with me use my cellphone in the courthouse?  No, the Standing Order says that "[p]ermitted attorneys shall maintain sole custody over the electronic device and shall not allow it to be used by anyone else unless they have been given court permission."

Is there anything I need to do to get my cellphone into the courthouses?  Yes, you need to fill out a form for an "Electronic Device Permission Card."  Submit the form with a self-addressed stamped envelope.  You'll need to show the card upon entering a courthouse with your cellphone.

But I already have a Laptop Authorization Card.  Do I need to reapply for an Electronic Device Permission Card?  Yes. Here's the form.

Does this new policy apply in the Bankruptcy Court courthouses?  Yes, it applies to all of the federal courthouses in the Middle District.

What about my iPad and other electronic devices?  They are all included.  The new policy extends to "cell phones, laptops, tablets [and] other electronic devices."

Are there any other restrictions I should know about?  Yes, you need to make sure that your device is not emitting any sounds while in the courtroom.  In most situations, it should be turned off while in the courtroom. As always, you are prohibited from "record[ing], broadcast[ing] or transmit[ting] any video images or audio sounds of the proceedings or the environs."  You agree in advance to these restrictions (and others) when applying for an Electronic Device Permission Card.

What if I violate the restrictions?  You might forfeit your privileges, have your device confiscated, or be held in contempt of court.

What about the Eastern and Western Districts?  The policy on electronic devices varies from District to District.  I wrote about the Eastern and Western District's policies a couple of years ago.

 

 

Be Ready To Prove Your Damages If You Want To Get To Trial

The lesson in the Business Court's first opinion of the year, Allen Smith Investment Properties, LLC v. Barbarry Properties, LLC, 2013 NCBC 1 is to be ready to present your calculation of damages at the summary judgment stage or to be prepared to have your claim dismissed.

The Plaintiffs in Allen Smith were suing their business partner for breach of fiduciary duty. They said that the Defendant's decision to defer maintenance on an apartment complex that the parties co-owned had caused them damages in the form of lost profits.

The problem for Judge Murphy was the lack of any reasonably certain calculation of the claimed lost profits.  The damages witness had said in his deposition that he was "still trying to figure out how to quantify losses" and that he didn't think he could calculate the lost profits until "[t]he day before the trial."  Op. ¶23.

Judge Murphy ruled that:

Although the parties conducted discovery for over a year, Plaintiffs could not provide sufficient evidence for the Court to determine the causation or amount of damages with reasonable certainty. Therefore, the Court concludes that [the Defendant] has met its burden of demonstrating Plaintiffs’ failure to provide adequate proof of damages to support their breach of fiduciary duty claim.

Op. ¶55.

He also rejected the efforts of the Plaintiffs to present a new calculation of damages after the discovery period had ended.  They tried this by way of an affidavit presented two months after discovery had closed.  The Judge said that the Plaintiffs had presented no reason why the late-breaking damages calculation could not have been provided during the discovery period, and said that "[s]uch conduct goes directly against the purpose of Rule 26(e) in preventing 'untimely, evasive, and incomplete responses.'"  Op. ¶74.

It's easy to lose sight of damages during discovery when you are focused on proving liability. Don't let that happen to you or you may have your case dismissed.

 

Hotels.com And Other Online Travel Vendors Don't Have To Pay Occupancy Taxes To North Carolina Counties

It's hard to like the result in Wake County v. Hotels.com, LP, 2012 NCBC 61.  The case is a consolidation of cases brought by several North Carolina counties (Mecklenburg, Wake, Dare, and Buncombe) against Hotels.com and other internet travel sites (like Orbitz.com, priceline.com, and travelocity.com).  Hotels.com, the first named Defendant, is an online booking service that promises the lowest available rates for a multitude of hotels.

The NC County Plaintiffs allege that Hotels.com and the other Defendants contract with hotels for rooms at a discounted rate, and then sell the rooms to consumers at a higher rate.  Their beef is over the non-payment by hotels.com of the Occupancy Tax ordinarily paid by hoteliers.  They allege that Hotels.com and the other Defendants charge their customers for tax at the higher rate at which the hotels actually sell the room, but then only remit taxes based on the discounted rate they pay the hotel operator.

What happens to the difference?  Hotels.com and the other Defendants pocket it.  Shouldn't they pay the excess collected to the counties or the North Carolina Department of Revenue?  The Counties thought so.

But the upshot of Judge Murphy's decision in the Wake County case is that the Counties had no cause of action against the Defendants.  He granted summary judgment in favor of the Defendants.

The why of it took 30 pages of statutory analysis of North Carolina's taxation scheme.  The Occupancy Tax is not contained in the General Statutes.  Instead, the General Assembly passed statutes authorizing counties to levy an Occupancy Tax.  The counties levy the Occupancy Tax via resolutions or ordinances.

So the cases turned on the counties' ordinances, and upon whom they placed the obligation to collect the tax.  In Mecklenburg and Wake Counties, it was the "operator of a taxable establishment."  In Dare and Buncombe Counties, it was the "operator of a business subject to a room occupancy tax."

Judge Murphy concluded that the Defendants were not responsible for collecting the Occupancy Tax.  If you are curious about how he reached that conclusion -- and you must be a state taxation junkie if you are -- you can read about it in Paragraphs 33 through 53 of the Opinion.

Other Interesting Things About This Opinion

For those of you who aren't enamored  by the Occupancy Tax, you might find interesting Judge Murphy's discussion of Rule 8 of the North Carolina Rules of Civil Procedure and his disposition of a conversion claim.

 

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