Tit for tat, U.S.V.I. court rules N.C. judgment void

The Supreme Court of the U.S. Virgin Islands has ruled that a judgment entered in favor of a North Carolina man in Johnston County court was void and unconstitutional, the latest twist in a long-running legal dispute that has now seen courts in both North Carolina and the Virgin Islands refuse to enforce the other’s judgments on the grounds that the other one had acted in an unconstitutional manner.

Tropic Leisure Corp., a resort, sued Jerry Hailey, a North Carolina resident, in small claims court in the Virgin Islands after Hailey allegedly failed to pay for a timeshare there, and in 2014 it obtained a default judgment in the amount of $5,764. A Wake County District Court judge domesticated the judgment in North Carolina, and the state’s Court of Appeals initially affirmed that ruling. But the appeals court later agreed to rehear the case, and, in an extremely unusual move, the court changed its mind after a rehearing.

In the replacement opinion handed down in February 2017, the Court of Appeals unanimously ruled that the Virgin Islands’ small claims court had deprived Hailey of his due process rights because it prohibited litigants from being represented by counsel at any fact-finding stage of the proceedings. In essence, the North Carolina court ruled that the whole statutory framework for handling small claims cases in the Virgin Islands was constitutionally invalid, and so the judgment against Hailey wasn’t entitled to full faith and credit. The North Carolina Supreme Court declined to review that ruling.

Hailey, meanwhile, sued Tropic Leisure in Johnston County, alleging that it had violated his due process rights by filing the claim against him in the small claims court in the Virgin Islands. The court entered summary judgment in Hailey’s favor on the question of liability, and a jury awarded Hailey $29,311 in compensatory damages. The court later entered a judgment against Tropic Leisure for $182,070 for Hailey’s attorneys’ fees. (Those judgments remain under appeal in North Carolina.)

But when Hailey sought to domesticate those judgments in the Virgin Islands, the shoe (or sandal, maybe) moved squarely to the other foot. A superior court judge there stayed enforcement of the judgment without requiring the company to post a bond, as would have been required in North Carolina. Hailey promptly appealed the ruling to the Virgin Islands’ highest court.

Chief Justice Rhys S. Hodge, writing for a unanimous Supreme Court (which has three justices) in an Aug. 19 opinion, said that the U.S. Supreme Court has ruled that state courts violate the Petition Clause of the First Amendment of the U.S. Constitution if they impose civil liability on a litigant for filing a non-frivolous lawsuit, even if the lawsuit is ultimately unsuccessful.

“Here, the two North Carolina judgments impose civil liability on the respondents for filing a successful lawsuit against Hailey in the Small Claims Division of the Superior Court of the Virgin Islands resulting in a judgment that, while not enforced by the North Carolina courts, still remains valid and enforceable in the Virgin Islands.” Hodge wrote. (Emphasis in the original.)

Hodge wrote that the North Carolina judgments thus effectively punished the company for exercising its constitutional right to utilize the courts of the Virgin Islands to obtain redress against Hailey, and so the rulings were void from the outset and couldn’t be enforced in the Virgin Islands.

Hodge also penned a stem-winder of a footnote taking offense to Hailey’s allegations that the Virgin Islands amended the procedural rules for its small claims court in response to the North Carolina litigation—Hodge contended that the changes had been in the works even before Hailey’s lawsuit—and hotly disputing Hailey’s contention that litigants were ever systematically denied the opportunity to be represented by counsel when sued in its small claims court.

The upshot, then, is that a dispute that kicked off over a sum of less than $6,000 has now been litigated all the way to not one, but two, Supreme Courts, one of which appears to have been more than a little annoyed by the experience.

Russell Pate, a graduate of the University of North Carolina School of Law who now lives and practices in the Virgin Islands and is licensed both there and in North Carolina, is a past president of the Virgin Island Bar Association, which unsuccessfully implored the Court of Appeals to re-reconsider its ruling and asked the North Carolina Supreme Court to hear an appeal. He said he was disappointed that the court declined to grant review.

Pate said although it’s not explicitly provided for in the relevant stature, it’s quite common for litigants in the Virgin Islands to transfer a case from small claims court to superior court, where attorneys are permitted, and a long record of case law establishing this right was included in the petition for reconsideration. He said that the Virgin Islands ruling essentially undoes the opinion of the Court of Appeals.

“In sum, the North Carolina Court of Appeals did really poor legal research and essentially issued an opinion looking at just Virgin Islands statutes without ever looking into case law. Just imagine the reverse, a New York court saying that a certain law doesn’t exist in North Carolina because the New York court didn’t see it in the N.C. Code, when a vast majority of common laws exist by case law,” Pate wrote in an email to Lawyers Weekly.  

“It’s rare to see state courts fighting, but it could have been avoided if the North Carolina court had done some basic U.S.V.I. case law research or referred the issue to the Virgin Islands Supreme Court for guidance.”

Follow David Donovan on Twitter @NCLWDonovan