|
SOUTHWEST LIVESTOCK
AND TRUCKING COMPANY, INC.; DARREL HARGROVE; MARY JANE HARGROVE,
Plaintiffs-Appellees, versus REGINALDO RAMON, Defendant-Appellant. No. 98-50303 UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT 169 F.3d 317; 1999 U.S.
App. LEXIS 5149 March 24, 1999, Decided SUBSEQUENT HISTORY: [*1]
Rehearing Denied May 13, 1999, Reported at: 1999 U.S. App. LEXIS 11837. PRIOR HISTORY: Appeal from the United
States District Court for the Western District of Texas. SA-94-CV-1082. Orlando
L Garcia, US District Judge. DISPOSITION: VACATED and REMANDED. COUNSEL: For SOUTHWEST LIVESTOCK
AND TRUCKING COMPANY, INC, DARREL HARGROVE, MARY JANE HARGROVE, Plaintiffs -
Appellees: Thomas T Black, San Antonio, TX. J Ken Nunley, Boerne, TX. Joseph
McKnight Davis, Nunley, Davis, Jolley, Brock, Hill & Brant, Boerne, TX. For REGINALDO RAMON, Defendant - Appellant:
Dennis K Drake, Charles S Estee, Fred Shannon, Shannon, Drake & Estee, San
Antonio, TX. For THE GOVERNMENT OF THE UNITED MEXICAN STATES,
Amicus Curiae: Van Jackson Hooker, Jay M Vogelson, Dallas, TX. JUDGES: Before EMILIO M. GARZA,
BENAVIDES, and DENNIS, Circuit Judges. OPINIONBY: EMILIO M. GARZA OPINION: EMILIO M. GARZA, Circuit
Judge: Defendant-Appellant, Reginaldo Ramon, appeals
the district court’s grant of summary judgment in favor of
Plaintiffs-Appellees, Southwest Livestock & Trucking Co., Inc., Darrel
Hargrove and Mary Jane Hargrove. Ramon contends that the district court erred
by not recognizing a Mexican judgment, that if recognized would preclude
summary judgment against him. We vacate the district court’s summary judgment
and remand. I Darrel and Mary Jane Hargrove (the
“Hargroves”) are citizens of the United States and officers of
Southwest Livestock & Trucking Co., Inc. (“Southwest Livestock”),
a Texas corporation involved in the buying and selling of livestock. In 1990,
Southwest Livestock entered into a loan arrangement with Reginaldo Ramon
(“Ramon”), a citizen of the Republic of Mexico. Southwest Livestock
borrowed $ 400,000 from Ramon. To accomplish the loan, Southwest Livestock
executed a “pagare”--a Mexican promissory note--payable to Ramon with
interest within [*2] thirty days. Each month, Southwest Livestock
executed a new pagare to cover the outstanding principal and paid the accrued
interest. Over a period of four years, Southwest Livestock made payments
towards the principal, but also borrowed additional money from Ramon. In
October of 1994, Southwest Livestock defaulted on the loan. With the exception
of the last pagare executed by Southwest Livestock, none of the pagares
contained a stated interest rate. Ramon, however, charged Southwest Livestock
interest at a rate of approximately fifty-two percent. The last pagare stated
an interest rate of forty-eight percent, and under its terms, interest
continues to accrue until Southwest Livestock pays the outstanding balance in
full. After Southwest Livestock defaulted, Ramon filed
a lawsuit in Mexico to collect on the last pagare. The Mexican court granted
judgment in favor of Ramon, and ordered Southwest Livestock to satisfy its debt
and to pay interest at forty-eight percent. Southwest Livestock appealed,
claiming that Ramon had failed to effect proper service of process, and
therefore, the Mexican court lacked personal jurisdiction. The Mexican
appellate court rejected this argument and affirmed [*3] the
judgment in favor of Ramon. After Ramon filed suit in Mexico, but prior to
the entry of the Mexican judgment, Southwest Livestock brought suit in United
States District Court, alleging that the loan arrangement violated Texas usury
laws. n1 Southwest Livestock then filed a motion for partial summary judgment,
claiming that the undisputed facts established that Ramon charged, received and
collected usurious interest in violation of Texas law. Ramon also filed a
motion for summary judgment. By then the Mexican court had entered its
judgment, and Ramon sought recognition of that judgment. He claimed that, under
principles of collateral estoppel and res judicata, the Mexican judgment barred
Southwest Livestock’s suit. The district court judge referred both motions to a
magistrate judge. See 28 U.S.C. § 636(b)(1). - - - - - - - - - - - - - - - - - -Footnotes- -
- - - - - - - - - - - - - - - - n1 Southwest Livestock later amended its
complaint to include a claim under the Racketeer Influenced and Corrupt
Organizations Act (“RICO”). See 18 U.S.C. § 1961 et seq. The district court
granted Ramon summary judgment against Southwest Livestock on this claim.
Southwest Livestock has not appealed that decision. - - - - - - - - - - - - - - - - -End Footnotes-
- - - - - - - - - - - - - - - - [*4] The magistrate judge recommended that the
district court grant Southwest Livestock’s motion for summary judgment as to
liability under Texas usury law, and recommended that it hold a trial to
determine damages. In reaching her decision, the magistrate judge first
addressed whether the Texas Uniform Foreign Country Money-Judgment Recognition
Act (the “Texas Recognition Act”) required the district court to
recognize the Mexican judgment. See TEX. CIV. PRAC. & REM. CODE ANN. § 36.001 et
seq.
(West 1998). As the magistrate judge observed, a judgment “that is not
refused recognition . . . is conclusive between the parties to the extent that
it grants or denies recovery of a sum of money. ” TEX. CIV. PRAC. & REM.
CODE ANN. § 36.004 (West 1998). The magistrate judge concluded that, contrary
to Southwest Livestock’s position, the Mexican court properly acquired personal
jurisdiction over Southwest Livestock, and therefore, lack of jurisdiction
could not constitute a basis for nonrecognition. Nonetheless, according to the
magistrate judge, “the district court would be well within its discretion
in not recognizing the Mexican judgment on the grounds that it violates the
public policy [*5] of the state of Texas. ” Thus, the
magistrate judge decided that the Mexican judgment did not bar Southwest
Livestock’s suit. The magistrate judge then addressed whether the district
court should apply Texas or Mexican law to its resolution of Southwest
Livestock’s usury claim. The magistrate judge concluded that, under Texas
choice of law rules, the district court should apply Texas law. Under Texas
law, Ramon undisputably charged usurious interest. The district court adopted the magistrate
judge’s recommendation, granting Southwest Livestock’s motion for summary
judgment as to liability under Texas usury law, and denying Ramon’s motion for
summary judgment. The district court agreed that the Mexican judgment violated
Texas public policy, and that Texas law applied. The district court then heard
evidence on the question of damages and granted $ 5,766,356.93 to Southwest
Livestock. The district court also ordered that amount to “increase by $
1,677.00 for every day after November 17, 1997, until the date this Judgment is
signed,” and awarded Southwest Livestock post-judgment interest and
attorneys’ fees. Ramon appealed. Ramon asks us to reverse the district court’s
grant of summary [*6] judgment in favor of Southwest Livestock. He
contends that the district court erred by failing to recognize the Mexican
judgment. He also argues that the district court erred by applying Texas law.
According to Ramon, the district court should have applied Mexican law because
the pagares executed by Southwest Livestock designated Mexico as the place of
payment, and Mexico has the most significant relationship to the loan
transaction. Ramon also objects to the district court’s continuing charge for
usury. Finally, Ramon contends that the district court erred by using a Texas,
rather than federal, post-judgment interest rate. Southwest Livestock asks us to affirm the
district court. It concedes that the district court should have used a federal
post-judgment interest rate, but refutes Ramon’s other arguments. It contends
that the district court properly withheld recognition of the Mexican judgment
and properly applied Texas law. Additionally, as an alternative ground for
upholding the district court’s decision not to recognize the Mexican judgment,
Southwest Livestock argues that Ramon failed to serve it with proper service of
process, and therefore, the Mexican court lacked personal [*7]
jurisdiction. II We must determine first whether the district
court properly refused to recognize the Mexican judgment. Our jurisdiction is
based on diversity of citizenship. Hence, we must apply Texas law regarding the
recognition of foreign country money-judgments. See Erie R.R. Co. v.
Tompkins,
304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938) (holding that in a diversity
action, a federal court must apply the law of the forum state); Success
Motivation Inst. of Japan, Ltd. v. Success Motivation Inst. Inc., 966 F.2d 1007, 1009-10
(5th Cir. 1992) (“Erie applies even though some courts have found that
these suits necessarily involve relations between the U.S. and foreign
governments, and even though some commentators have argued that the
enforceability of these judgments in the courts of the United States should be
governed by reference to a general rule of federal law.”). Under the Texas Recognition Act, a court must recognize
a foreign country judgment assessing money damages unless the judgment debtor
establishes one of ten specific grounds for nonrecognition. See TEX. CIV. PRAC. &
REM. CODE ANN. § 36.005 (West 1998); n2 Dart v. Balaam, 953 S.W.2d 478, 480
[*8] (Tex. App.--Fort Worth 1997, no writ) (noting that “the
party seeking to avoid recognition has the burden of proving a ground for
nonrecognition”). Southwest Livestock contends that it established a
ground for nonrecognition. It notes that the Texas Constitution places a six
percent interest rate limit on contracts that do not contain a stated interest
rate. See TEX. CONST. art. XVI, § 11. It also points to a Texas statute that
states that usury is against Texas public policy. See VERNON’s TEX. CIV.
STAT., art. 5069-1C.001 (“All contracts for usury are contrary to public
policy”). Thus, according to Southwest Livestock, the Mexican judgment
violates Texas public policy, and the district court properly withheld
recognition of the judgment. See TEX. CIV. PRAC. & REM. CODE ANN. §
36.005(b)(3) (West 1998). - - - - - - - - - - - - - - - - - -Footnotes- -
- - - - - - - - - - - - - - - - n2 TEX. CIV. PRAC. & REM. CODE ANN. § 36.005
(West 1998) provides: (a) A foreign country judgment is not conclusive
if: (1) the judgment was rendered under a system
that does not provide an impartial tribunal or procedures compatible with the
requirements of due process of law; (2) the foreign country court did not have
personal jurisdiction over the defendant; or (3) the foreign country court did not have
jurisdiction over the subject matter. (b) A foreign country judgment need not be
recognized if: (1) the defendant in the proceedings in the
foreign country court did not receive notice of the proceedings in sufficient
time to defend; (2) the judgment was obtained by fraud; (3) the cause of action on which the judgment is
based is repugnant to the public policy of this state; (4) the judgment conflicts with another final
and conclusive judgment; (5) the proceeding in the foreign country court
was contrary to an agreement between the parties under which the dispute in
question was to be settled otherwise than by proceedings in that court; (6) in the case of jurisdiction based only on
personal service, the foreign country court was a seriously inconvenient forum
for the trial of the action; or (7) it is established that the foreign country
in which the judgment was rendered does not recognize judgments rendered in
this state that, but for the fact that they are rendered in this state, conform
to the definition of “foreign country judgment.” - - - - - - - - - - - - - - - - -End Footnotes-
- - - - - - - - - - - - - - - - [*9] We review the district court’s grant of summary
judgment de novo. See Ginsberg 1985 Real Estate Partnership v. Cadle Co., 39 F.3d 528, 531 (5th
Cir. 1994). n3 In reviewing the district court’s decision, we note that the
level of contravention of Texas law has “to be high before recognition
[can] be denied on public policy grounds.” Hunt v. BP Exploration Co.
(Libya) Ltd., 492 F. Supp. 885, 900 (N.D. Tex. 1980). The narrowness of the
public policy exception reflects a compromise between two axioms--res judicata
and fairness to litigants--that underlie our law of recognition of foreign
country judgments. See Ackermann, 788 F.2d 830, 842 (noting that “the
public policy exception indicates a jurisprudential compromise”). - - - - - - - - - - - - - - - - - -Footnotes- -
- - - - - - - - - - - - - - - - n3 Reviewing the district court’s decision de
novo
might seem to conflict with our opinion in Banque Libanaise Pour Le Commerce
v. Khreich, 915 F.2d 1000 (5th Cir. 1990). In that case, we stated that
because the Texas Recognition Act gives judges discretion in deciding whether
to recognize a foreign judgment on public policy grounds, the district court’s
decision not to recognize a foreign country judgment “can only be set
aside upon a clear showing of [an] abuse of that discretion.” Id. at 1004. Khreich, however, did not
involve a grant of summary judgment. Moreover, as the Supreme Court has stated,
“little turns … on whether we label review of this particular question
abuse of discretion or de novo, for an abuse of discretion standard does not
mean a mistake of law is beyond appellate correction.” Koon v. United
States,
518 U.S. 81, 100, 116 S. Ct. 2035, 2047, 135 L. Ed. 2d 392,
(1996); see also Reading & Bates Constr. Co. v. Baker Energy Resources
Corp.,
976 S.W.2d 702, 708 (Tex. App.--Houston [1st Dist.] 1998, writ denied)
(refusing to apply an abuse of discretion standard because “a trial court
has no 'discretion' to improperly determine the law or misapply the law to the
facts”). - - - - - - - - - - - - - - - - -End Footnotes-
- - - - - - - - - - - - - - - - [*10] To decide whether the district court erred in
refusing to recognize the Mexican judgment on public policy grounds, we
consider the plain language of the Texas Recognition Act. See Schwenke v.
State,
960 S.W.2d 227, 230 (Tex. App.--Corpus Christi 1997, writ denied) (“When
interpreting the intent and meaning of a statute, the court focuses on, and
will follow, the plain language of the statute unless doing so leads to absurd
and unintended consequences.”). Section 36.005(b)(3) of the Texas
Recognition Act permits the district court not to recognize a foreign country
judgment if “the cause of action on which the judgment is based is repugnant to
the public policy” of Texas. TEX. CIV. PRAC. & REM. CODE ANN. §
36.005(b)(3) (West 1998) (emphasis added). This subsection of the Texas
Recognition Act does not refer to the judgment itself, but specifically to the
“cause of action on which the judgment is based.” Thus, the fact that
a judgment offends Texas public policy does not, in and of itself, permit the
district court to refuse recognition of that judgment. See Norkan Lodge Co.
Ltd. v. Gillum, 587 F. Supp. 1457, 1461 (N.D. Tex. 1984) (noting that a
“judgment may only be attacked [*11] in the event that 'the
cause of action [on] which the judgment is based is repugnant to the public
policy of this state,' not the judgment itself”). In this case, the Mexican judgment was based on
an action for collection of a promissory note. This cause of action is not
repugnant to Texas public policy. See, e.g., Akin v. Dahl, 661 S.W.2d 914 (Tex. 1983)
(enforcing a suit for the collection of a promissory note). Under the Texas
Recognition Act, it is irrelevant that the Mexican judgment itself contravened
Texas’s public policy against usury. Thus, the plain language of the Texas
Recognition Act suggests that the district court erred in refusing to recognize
the Mexican judgment. Southwest Livestock, however, argues that we
should not interpret the Texas Recognition Act according to its plain language.
Southwest Livestock contends that Texas courts will not enforce rights existing
under laws of other jurisdictions when to do so would violate Texas public
policy. See, e.g., Larchmont Farms, Inc. v. Parra, 941 S.W.2d 93, 95
(Tex. 1997) (noting that “the basic rule is that a court need not enforce
a foreign law if enforcement would be contrary to Texas public
[*12] policy”). It believes that the reasoning of the Texas
Supreme Court in DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex.
1990), requires us to affirm the district court’s decision not to recognize the
Mexican judgment. In DeSantis, the Court refused to apply Florida law to
enforce a noncompetition agreement, even though the agreement contained an
express choice of Florida law provision, and Florida had a substantial interest
in the transaction. The Court concluded that “the law governing
enforcement of noncompetition agreements is fundamental policy in Texas, and
that to apply the law of another state to determine the enforceability of such
an agreement in the circumstances of a case like this would be contrary to that
policy.” Id. at 681. Southwest Livestock argues similarly that the law
governing usury constitutes a fundamental policy in Texas, and that to
recognize the Mexican judgment would transgress that policy. We find that, contrary to Southwest Livestock’s
argument, DeSantis does not support the district court’s grant of summary judgment.
First, in DeSantis the Court refused to enforce an agreement violative of Texas
public policy; it did not refuse to [*13] recognize a foreign
judgment. Recognition and enforcement of a judgment involve separate and
distinct inquiries. See Guinness v. Ward, 955 F.2d 875, 889 (4th Cir. 1992)
(noting the difference between recognizing and enforcing a foreign judgment); see
also RESTATEMENT
(THIRD) OF FOREIGN RELATIONS LAW § 481 cmt. b (1986) (distinguishing between
the recognition and enforcement of judgments). Second, unlike in DeSantis, where the plaintiff
sought to use foreign law offensively to enforce the noncompetition agreement,
in this case, Ramon seeks recognition of the Mexican judgment as an affirmative
defense to Southwest Livestock’s usury claim. Different considerations apply
when a party seeks recognition of a foreign judgment for defensive purposes. As
Justice Brandeis once stated: The company is in a position different from that
of a plaintiff who seeks to enforce a cause of action conferred by the laws of
another state. The right which it claims should be given effect is set up by
way of defense to an asserted liability; and to a defense different
considerations apply. A state may, on occasion, decline to enforce a foreign
cause of action. In so doing, it merely denies [*14] a remedy leaving
unimpaired the plaintiff’s substantive right, so that he is free to enforce it
elsewhere. But to refuse to give effect to a substantive defense under the
applicable law of another state, as under the circumstances here presented,
subjects the defendant to irremediable liability. This may not be done. Bradford Elec. Light Co. v. Clapper, 286 U.S. 145, 160, 52
S. Ct. 571, 576, 76 L. Ed. 1026, (1932); cf. Resource
Sav. Assoc. v. Neary, 782 S.W.2d 897, 900 (Tex. App.--Dallas 1989, writ denied)
(noting that because a party sought recognition of a foreign judgment for
defensive purposes different considerations applied, but refusing to recognize
the foreign judgment nonetheless). Third, DeSantis involved a
noncompetition agreement, and as we have explained elsewhere,
“noncompetition agreements implicate an arguably stronger Texas public
policy than usurious contracts.” Admiral Ins. Co. v. Brinkcraft Dev., 921 F.2d 591, 594 (5th
Cir. 1991). We find our decision in Woods-Tucker Leasing
Corp. v. Hutcheson-Ingram Development Co., 642 F.2d 744 (5th Cir. 1981), more
helpful than DeSantis. n4 In Woods-Tucker, we considered “whether a bankruptcy
[*15] court sitting in Texas should honor a party contractual
choice of Mississippi law in determining whether to apply the Texas or
Mississippi usury statute to a transaction . . . between a Texas partnership
and a Mississippi-headquartered corporate subsidiary of a Georgia
corporation.” Id. at 745. In deciding to honor the parties’ choice of
Mississippi law, we noted that applying Mississippi law did not offend any
Texas fundamental public policy: To
be sure, it is the underlying policy of each state’s usury laws to protect
necessitous borrowers within its borders. Yet, as we have noted, we have found
no Texas cases that have invalidated a party choice of law on grounds that the
application of a foreign usury statute would violate public policy. Id. at 753 n.13. We also relied on the Supreme
Court’s decision in Seeman v. Philadelphia Warehouse Co., 274 U.S. 403, 47 S.
Ct. 626, 71 L. Ed. 1123 (1927). In Seeman, the Supreme Court emphasized its policy
of “upholding contractual obligations assumed in good faith.” It
stated that, although parties may not willfully evade otherwise applicable
usury laws by “entering into [a] contract . . . [that] has no normal
[*16] relation to the transaction,” if the rate of interest
“allowed by the laws of the place of performance is higher than that
permitted at the place of the contract,” the parties may contract for a
higher rate of interest without incurring the penalties of usury. Id. at 407-08; see also
Admiral Ins., 921 F.2d at 593-94 (analyzing Woods-Tucker and Seeman). Woods-Tucker, and its reliance on Seeman, indicates that,
although Texas has a strong public policy against usury, this policy is not
inviolable. - - - - - - - - - - - - - - - - - -Footnotes- -
- - - - - - - - - - - - - - - - n4 We acknowledge that Woods-Tucker involves a sister state
judgment, which distinguishes it from this case. See Reading & Bates
Constr. Co. v. Baker Energy Resources Corp., 976 S.W.2d 702, 714 (Tex. App.--Houston
[1st Dist.] 1998, writ denied) (“Giving full faith and credit to the
judgment of a sister state is vastly different than according it to a foreign
country judgment.”). Nevertheless, we find the decision in Woods-Tucker informative. - - - - - - - - - - - - - - - - -End Footnotes-
- - - - - - - - - - - - - - - - We are especially reluctant to conclude
[*17] that recognizing the Mexican judgment offends Texas public
policy under the circumstances of this case. The purpose behind Texas usury
laws is to protect unsophisticated borrowers from unscrupulous lenders. See
Woods-Tucker, 642 F.2d at 753 n.13 (“It is the underlying policy of each
state’s usury laws to protect necessitous borrowers within its borders”); see
also Quinn-Moore v. Lambert, 272 Ark. 324, 614 S.W.2d 230 (1981) (“As far as we
know, usury laws exist in all states. Such laws are based upon a universally
recognized public policy that protects necessitous borrowers from the exaction
of exorbitant interest from unscrupulous lenders.”). This case, however,
does not involve the victimizing of a naive consumer. Southwest Livestock is
managed by sophisticated and knowledgeable people with experience in business.
Additionally, the evidence in the record does not suggest that Ramon misled or
deceived Southwest Livestock. Southwest Livestock and Ramon negotiated the loan
in good faith and at arms length. In short, both parties fully appreciated the
nature of the loan transaction and their respective contractual obligations. Accordingly, in light of the plain language of
the Texas Recognition [*18] Act, and after consideration of our
decision in Woods-Tucker and the purpose behind Texas public policy against usury, we
hold that Texas’s public policy does not justify withholding recognition of the
Mexican judgment. The district court erred in deciding otherwise. n5 - - - - - - - - - - - - - - - - - -Footnotes- -
- - - - - - - - - - - - - - - - n5 Southwest Livestock argues that, even if the
district court erred by misapplying the public policy exception to the
recognition of foreign country judgments, we should still affirm the district
court’s decision because Ramon failed to effect proper service of process in
accordance with the Inter-American Convention on Letters Rogatory (the
“Convention”). See Inter-American Convention on Letters Rogatory,
Jan. 30, 1975, S. TREATY DOC. No. 27, 98th Cong., 2d Sess. (1984); see also TEX. CIV. PRAC. &
REM. CODE ANN. § 36.005(a)(2) (West 1998). Ramon served Southwest Livestock
through letters rogatory that were transmitted by the Mexican Consul in Del
Rio, Texas. Southwest Livestock contends that service of process under the
Convention requires active participation by the Central Authority of the
destination state, in this case the United States Department of Justice. We
disagree. As the magistrate judge explained, Article 13 of the Convention
permits service of process through consular channels. Ramon, therefore,
effected proper service of process. - - - - - - - - - - - - - - - - -End Footnotes-
- - - - - - - - - - - - - - - - [*19] III For the foregoing reasons, we VACATE the
district court’s summary judgment, and REMAND for further proceedings. |