How (Not) to Decide Whether a Foreign Judgment Is Preclusive
August 27, 2024
Foreign judgments are generally entitled to recognition in the United States. Beneath that simple statement, however, lie many complexities. When lawyers and judges do not understand those complexities, they are likely to go astray. That seems to be what happened in Wash v. Finch, a recent federal decision in the District of New Jersey. This post uses the decision in Wash to explain a few basics about the recognition and enforcement of foreign judgments.
The Decision in Wash
Wash v. Finch is a business dispute. The defendant Robert Finch was a shareholder, officer, and director of AFL, an English company based in London. In 2020, another English company, Next Generation Holdings Ltd. (NGHL), sued Finch in English court alleging that he misrepresented AFL’s financial position in 2017, when NGHL purchased part of that company. After the three-week trial, the English court found Finch liable.
In 2022, the plaintiff David Wash sued Finch in federal court in New Jersey. Wash alleged that he relied on the financial report that the English court found to be fraudulent when he sold an interest in his company, Zodiac, to AFL in 2018. Although Wash was not a party to the English action, he argued that the English judgment precluded Finch from rearguing the truthfulness of the 2017 financial report under the doctrine of collateral estoppel, also known as issue preclusion.
The district court agreed and granted summary judgment to Wash on the question of liability. The court found that the English judgment was entitled to preclusive effect as a matter of comity under the U.S. Supreme Court’s decision in Hilton v. Guyot (1895). Applying New Jersey law on collateral estoppel, the court then found that the doctrine’s requirements were met. Under New Jersey law, Wash did not have to be a party to the English action so long as Finch was.
But the district court made two basic errors. First, it relied on federal rather than state law with respect to whether the English judgment was entitled to recognition. Second, the court gave the English judgment greater preclusive effect than it would have in England, since England does not recognize non-mutual collateral estoppel.
State Law Governs the Recognition of Foreign Judgments
As a general matter, state law governs the recognition and enforcement of foreign judgments in the United States. Under the Erie doctrine, federal courts sitting in diversity are required to follow substantive state law, although federal procedural rules apply. Most U.S. states have adopted one of two uniform acts on the recognition and enforcement of foreign judgments: the 1962 Uniform Foreign Money-Judgments Recognition Act or the updated 2005 Uniform Foreign-Country Money Judgments Recognition Act. New Jersey adopted the 1962 Uniform Act in 1997 and has not replaced it with the newer version.
Under the 1962 Act, a foreign judgment is entitled to recognition unless one of the grounds for non-recognition set forth in § 4 applies. But the district court in Wash did not look to the 1962 Uniform Act to decide whether to recognize the English judgment. Instead, it looked to the U.S. Supreme Court’s decision in Hilton v. Guyot, which articulated standards for recognizing foreign judgments as a matter of general common law. Hilton is the source for many of the grounds for non-recognition found in the Uniform Acts, but with one qualification discussed below it does not apply in either state or federal court today.
Even before Erie, under the Rules of Decision Act, a federal court sitting in diversity would have had to follow a state statute on the enforcement of foreign judgments. Erie means that federal courts cannot follow Hilton even in those states that have not adopted a statute. Some of those states do follow Hilton as a matter of state common law. But the point is still that federal courts sitting in diversity must look to state law—they cannot apply Hilton directly.
The one qualification mentioned above concerns federal question cases. The U.S. Supreme Court has held that federal law governs the preclusive effect of prior judgments in federal question cases. One of the cases on which the district court relied, Pony Express Records v. Springsteen (D.N.J. 2001), was a federal question case. Wash v. Finch, however, was a diversity case, and so the district court should have applied state law to decide whether the English judgment was entitled to recognition.
The result under state law would likely have been the same. I see no obvious grounds for not recognizing the English judgment under § 4 of the 1962 Uniform Act. But, even if it did not affect the outcome, applying federal law in this case was a mistake.
Foreign Judgments Are Not Entitled to Greater Preclusive Effect than They Have in Their Country of Origin
The second mistake the district court made in Wash v. Finch was to apply New Jersey’s doctrine of collateral estoppel. To be sure, the preclusive effect of a foreign judgment in a diversity case is governed by state law. But this is subject to the qualification that—to quote § 487 of the Restatement (Fourth) of Foreign Relations Law—“[a] foreign judgment will not be given greater preclusive effect in the United States than the judgment would be accorded in the state of origin.”
The leading statement of this principle is the New York Court of Appeals’ decision in Watts v. Swiss Bank Corp.(1970), in which the court wrote that “the law of the rendering jurisdiction, insofar as it limits the effect of its own judgments, would also limit elsewhere the preclusive effect of the judgment and the definition of the parties bound.” (For further authority, see Restatement (Fourth) § 487 reporters’ note 4.)
New Jersey recognizes non-mutual collateral estoppel. For issue preclusion, New Jersey requires that “the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding” but does not require that the party asserting preclusion have been a party to the earlier proceeding. England, however, does not recognize non-mutual collateral estoppel. For what English courts call “issue estoppel,” the prior judgment be “between the same parties or those who stand in their place.” Because Wash was not a party to the English action, he has no right under English law to issue preclusion based on the English judgment.
To be fair, it seems likely that the defendant Finch did not raise this point of English law. (He seems to have represented himself pro se.) When parties do not provide sufficient information about foreign law, it is common for courts in the United States to presume that foreign law on preclusion is the same as U.S. law. But the district court did not say that this is what it was doing. It seemed as unaware that English law might be relevant to the preclusive effect of an English judgment as it was unaware that state law governs recognition.
Conclusion
Federal judges do not see foreign judgments cases very often, and they see foreign judgments cases involving non-mutual collateral estoppel even less frequently. This makes it all the more important that the parties adequately brief these questions. That seems not to have happened in this case, with the result that the court improperly granted summary judgment.