The Indiana Court of Appeals has reversed a decision to set aside judgment in favor of a New York company serving as a creditor to an Indiana business, finding Indiana law regarding cognovit notes cannot supersede the Full Faith and Credit Clause in a dispute over a New York judgment.
In July 2016, Evolving Solutions, Inc. agreed to sell $69,000 of its future proceeds to EBF Partners, LLC – a Delaware company doing business in New York – for a $50,000 purchase price. Evolving president Frank Terranova executed a cognovit note and personal guaranty requiring his company to make regular payments to EBF until the full $69,000 had been paid out.
Less than one month after the agreement began, EBF stopped receiving payments and, thus, obtained a confessed judgment from a court in New York, which Evolving had previously agreed would have jurisdiction. EBF then moved to domesticate the judgment in the Marion Superior Court, but Evolving challenged that motion. The trial court entered judgment against Evolving in March 2017.Evolving then filed an Indiana Trial Rule 60(B) motion to set aside judgment, alleging its counsel had not received notice of the entry of judgment and was not aware of the final judgment until June or July 2017. The trial court agreed to set the judgment aside, but the Indiana Court of Appeals reversed that decision in EBF Partners, LLC v. Evolving Solutions, Inc. d/b/a, et al., 49A05-1710-CC-2384.
Judge Mark Bailey wrote in a Tuesday opinion that neither the Trial Rule 60(B) motion nor the appealed order specified a particular ground for relief for judgment. Further, assuming Evolving had established at least one ground for relief, the company failed to allege a meritorious defense.
“In seeking relief, Evolving made no allegation that the New York court lacked adjudicatory authority or that EBF had not actually obtained a final judgment that was valid under New York law; in fact, Evolving conceded that New York ‘allows for’ confessed judgments,” the judge wrote. “Moreover, Evolving did not allege EBF’s petition to domesticate the judgment was somehow deficient. Rather, Evolving’s Trial Rule 60(B) motion relied on principles of Indiana law that cannot surmount the mandates of the Full Faith and Credit Clause.”
In a separate concurring opinion, Judge Rudolph Pyle agreed the Full Faith and Credit Clause required reversal in this case, but also noted that cognovit notes are prohibited in Indiana.
“This fact would likely make the confession of judgment unenforceable,” Pyle wrote. “But, that is a matter for the trial court in the State of New York.”