California Default Judgment Bars Litigation in New Jersey

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Appellate Court Attorney

When it comes to deciding the merits of a case, default judgments are final adjudications (a default judgement means one party in a lawsuit failed to answer the complaint).  A court in one state does not generally have the power to void a judgement or attempt to re-litigate the same case decided in another state because it interferes with the jurisdiction of a specific state court.  This concept of not being able to re-litigate issues or specific claims decided by a foreign state court is a principle in the law called res judicata.  Ultimately, it is up to the court granting default judgment to set it aside.

A recent case involving a N.J. corporation, Vasquez v. Pacific Associates Corporation reminds us of this rule.

Plaintiff, a New Jersey company, leased a tow truck from a company based in California.  During the negotiations of the lease agreement, the Plaintiff believed the lease agreement contained a clause stating that after making all lease payments the Plaintiff would own this truck.  The agreement did not contain this clause, and so when the Plaintiff kept the tow truck after making all the required lease payments, the Defendant filed suit in California for money damages and to get its truck back.  The Plaintiff never answered, and the court in California entered a default judgment.

The judgment was domesticated in New Jersey, but was not initially enforced because the defendant filed an order to show cause preventing its enforcement.  The judge ultimately allowed its enforcement, concluding that the judgment needed to be attacked in California.  Not satisfied, Plaintiff filed a complaint against the Defendant in New Jersey related to its contract, alleging consumer fraud, intentional infliction of emotional distress, and breach of contract.  Defendant filed a motion to dismiss, claiming lack of jurisdiction.  The trial court agreed and dismissed the complaint based on the forum selection clause requiring contract disputes to be handled in California instead of New Jersey.

The Appellate Division agreed with the trial court, but on a res judicata ground.  It stated that the default judgment entered in California was a final decision on the lease dispute, and that any other claims arising out of that dispute should have been plead as a counterclaim in the California action.  Instead, the Plaintiff defaulted and never made a motion to set aside the default judgment nor appealed the judgment.  Therefore, the Appellate Division held the Plaintiff could not move forward with its complaint in New Jersey.

This case may have been mishandled from the beginning.  Why didn’t the Plaintiff try to set aside the default in the California court?  The opinion doesn’t disclose if any efforts were taken in California to do this.  The Plaintiff could have been told to hire counsel in California by his New Jersey lawyer, and did not listen, instead insisting on bringing a lawsuit in New Jersey.

To discuss your NJ Contract Appellate matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.