Friedman, R. v. Pascotti, J. & L'Equip, Inc. ( 2016 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
RICHARD S. FRIEDMAN IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
JAMES A. PASCOTTI AND L’EQUIP, INC.
Appellee No. 237 MDA 2016
Appeal from the Order Entered January 21, 2016
In the Court of Common Pleas of Dauphin County
Civil Division at No(s): 2014-CV-08150-NT
BEFORE: GANTMAN, P.J., PANELLA, J., and JENKINS, J.
MEMORANDUM BY JENKINS, J.: FILED OCTOBER 03, 2016
Richard Friedman appeals from an order striking a judgment by
confession that Friedman entered against L’Equip, Inc. and James Pascotti.
We affirm.
L’Equip, a corporation, had two owners: Pascotti, the majority (90%)
shareholder and president, and Friedman, the minority (10%) shareholder.
On September 18, 2000, Commerce Bank loaned L’Equip $500,000.00 in
exchange for a promissory note. Pascotti signed the note in his capacity as
president of L’Equip. The note contained a confession of judgment and
warrant of attorney clause applicable to “Borrower” (L’Equip) and provided
that the “obligations under this note are joint and several.”
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On the same date, September 18, 2000, L’Equip signed a business
loan agreement. The agreement did not have a confession of judgment
clause, but it did identify Pascotti and Friedman as guarantors of the loan
and stated that they were each jointly and severally liable for the
$500,000.00 principal sum.
Finally, on the same date, Pascotti and Friedman signed separate but
identical guarantees that guaranteed repayment of the note. The
guarantees had confession of judgment and warrant of attorney clauses
applicable to “guarantor”.
On July 14, 2005, Pascotti entered into a mortgage with Commerce
Bank and pledged his home in Harrisburg as further collateral for the
business loan.
On June 16, 2008, L’Equip, as “Borrower”, executed a change-in-terms
agreement in which it agreed to pay the remaining principal balance of
$320,739.26 on the loan in 59 consecutive monthly installments of principal
and interest at a rate of 6.5% per annum, with a final payment of all
remaining principal and interest in the amount of $190,152.28 due on April
18, 2013.
On August 4, 2008, L’Equip, Pascotti and Friedman entered into a
purchase agreement with Kitchen Resource in which Kitchen Resource
agreed to purchase certain assets of L’Equip to facilitate payment of the
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Commerce Bank loan. The purchase agreement provided that Friedman and
Pascotti continued to remain as guarantors on the Commerce Bank loan.
On or about May 16, 2012, L’Equip, through Friedman, entered into an
amendment of the August 4, 2008 purchase agreement which reduced the
purchase price for L’Equip’s assets. Pascotti later “acquiesced” to this
amendment.
On January 11, 2013, Friedman entered into an agreement with
Commerce Bank to purchase the foregoing instruments -- the 2000
promissory note, the 2000 business loan agreement, the 2000 guarantees of
Friedman and Pascotti, the 2005 mortgage on Pascotti’s home, the June 16,
2008 change in terms agreement, and the May 16, 2012 amendment to the
change in terms agreement -- for $148,460.70.
On September 8, 2014, Friedman confessed judgment against Pascotti
and L’Equip for $189,148.86, consisting of principal of $148.460.70 (the
amount Friedman paid to Bank for the purchase of the instruments), plus
interest, attorney fees and late charges. It appears from the record that the
sheriff served the confession of judgment papers on September 9, 2014. On
October 9, 2014, Pascotti and L’Equip filed a timely petition to strike or open
the confessed judgment.
On July 24, 2015, Pascotti and L’Equip moved to admit bank loan
documents into the record as supplemental exhibits. On December 9, 2015,
Friedman stipulated to the admission of most of the documents, including
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documents in which Commerce Bank officials stated that the loan was paid
off in full. In particular, the bank records stated “loan is being paid off with
guarantor’s cash,” “loan paid off and closed 1/11/13,” “the note and all
documents will be assigned to Mr. Friedman in consideration of payment in
full of all principal, interest, and costs of the Metro Bank loan,” and “the
above file has been sold to Richard Friedman, one of the guarantors. He
already paid the ‘purchase price’.”
On January 21, 2016, the trial court entered an order striking the
judgment. Friedman filed a timely appeal, and both Friedman and the trial
court complied with Rule 1925.
Following Friedman’s appeal, this Court directed him to show cause
why we should not quash his appeal. Our concern was that the order
striking Friedman’s judgment was not appealable, because it appeared that
the order did not end the case but merely resulted in additional litigation
between the parties. Friedman filed a response to the show cause order,
and the matter was referred to this panel for consideration.
Friedman raises the following issues on appeal, which we have re-
ordered for purposes of disposition:
1. Whether or not Friedman’s appeal is proper and can be heard
when the trial court’s order striking the confessed judgment
meets the definition of a final order under Pa.R.A.P. 341 because
it disposes of “all claims and all parties”?
2. Whether or not the court erred as a matter of law by granting
[Pascotti’s and L’Equip’s] motion to strike when a fatal defect did
not exist?
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a. Whether or not the court erred as a matter of law by
granting [Pascotti’s and L’Equip’s] motion to strike when
Friedman was not suing himself but rather a guarantor of
the note?
b. Whether or not the court erred as a matter of law by
granting [Pascotti’s and L’Equip’s] motion to strike when
Friedman was transferred and assigned the right to
confess judgment from the bank?
Brief For Friedman, at 4.
Friedman’s first argument concerns whether we have jurisdiction over
this appeal as a final order. We hold that the order striking Friedman’s
judgment is immediately appealable.
In general, an order striking a judgment is not appealable, because
“[s]uch an order anticipates further litigation because the parties are placed
back in the position they were in prior to the entry of the judgment.” UPS
v. Hohider, 954 A.2d 13, 16 (Pa.Super.2008). An order striking judgment
is appealable, however, when its effect is to end the existing litigation and
require the filing of a new action. Id. (worker’s compensation judge ordered
that employer had subrogation interest of $67,223.23 in employee’s lawsuit
against third party, and employer entered judgment in common pleas court
against employee for this amount; court granted employee’s motion to strike
judgment, and employer appealed; order held appealable because it
effectively required employer to file new, separate civil action to enforce its
subrogation rights).
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Under Hohider’s rationale, the present order striking Friedman’s
judgment is immediately appealable. Confession of judgment actions are
stand-alone actions; different rules of procedure govern confession actions
than standard contract or tort actions. For example, in a confession action,
the Rules prohibit the confession complaint from having a notice to plead,
Pa.R.Civ.P. 2952(b), whereas civil complaints must have a notice to plead.
As a result, Friedman’s complaint only had a single count seeking confession
of judgment – so when the court struck Friedman’s judgment, the order
effectively ended Friedman’s confession action. He can still file a new action
to prosecute other civil claims,1 but he cannot prosecute these claims in the
present action.
In his second argument on appeal, Friedman contends that the trial
court erred in striking his judgment, because there was no fatal defect on
the face of the record. We conclude that the trial court’s decision was
proper.
A petition to strike a judgment
may be granted only if a fatal defect or irregularity appears on
the face of the record. Similarly, we review [an] order denying
[an] Appellant’s petition to open [a] confessed judgment for an
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Pascotti and L’Equip agree that Friedman can file another action against
them, notwithstanding the order striking the judgment against them in the
present case. See Pascotti’s and L’Equip’s brief at 37 (“even though the
confessed judgment was stricken, Friedman can, and undoubtedly will,
further pursue Pascotti and L’Equip for indemnification under the note and
business loan, as the applicable statute of limitations has not run”).
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abuse of discretion. In considering the merits of a petition to
strike, the court will be limited to a review of only the record as
filed by the party in whose favor the warrant is given, i.e., the
complaint and the documents which contain confession of
judgment clauses. Matters dehors the record filed by the party
in whose favor the warrant is given will not be considered. If the
record is self-sustaining, the judgment will not be stricken.
However, if the truth of the factual averments contained in such
record are disputed, then the remedy is by a proceeding to open
the judgment and not to strike. An order of the court striking a
judgment annuls the original judgment and the parties are left
as if no judgment had been entered… When determining a
petition to open a judgment, matters dehors the record filed by
the party in whose favor the warrant is given, i.e., testimony,
depositions, admissions, and other evidence, may be considered
by the court.
Hazer v. Zabala, 26 A.3d 1166, 1169 (Pa.Super.2011) (citations omitted).
Normally, in reviewing a petition to strike, the court is limited to the
record in existence at the time the plaintiff confesses judgment. Hazer, 26
A.3d at 1169. This rule, however, has one exception: the court may also
consider additional facts admitted by the confessing party subsequent to
confession of judgment. Peterson v. Schultz, 58 A.2d 360, 363
(Pa.Super.1948) (“when the fact on which the court is asked to strike off a
judgment … is admitted or not questioned, the judgment [may] be stricken
off”). In this case, subsequent to confessing judgment, Friedman stipulated
to the admission of bank loan records into the record. The trial court was
authorized to take these records into account in its review of Pascotti’s and
L’Equip’s petition to strike. Id.
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With these standards in mind, we examine the reasons given by the
trial court for striking judgment. We agree with the court’s second reason
for striking the judgment:
The record shows that [Friedman] paid the remaining principal
balance of the Promissory Note as consideration for the
assignment from Commerce Bank. An assignment does not
confer upon the assignee any greater right, power, or interest
than that possessed by the assignor. … [Friedman], as Guarantor
of the Promissory Note, satisfied the same by paying the
remaining balance to Commerce Bank. Commerce Bank cannot
confess judgment on a Note that has been satisfied. Therefore,
Commerce Bank had no right to confession of judgment that
could be conferred upon [Friedman], thus evidencing a fatal
defect to the record.
Pa.R.A.P. 1925 Opinion, at 3 (citations omitted).
Under the law of assignment, the assignee, Friedman, stood in the
shoes of the assignor, Commerce Bank, and “succeed[ed] to no greater
rights than those possessed by the assignor.” Crawford Central School
District v. Commonwealth, 888 A.2d 616, 619 (Pa.2005). The bank
records that Friedman admitted into the record via stipulation establish that
on January 11, 2013, the date Friedman received the assignment,
Commerce Bank deemed the loan paid in full. Since Commerce Bank could
not have confessed judgment on a fully satisfied loan, neither could
Friedman in his capacity as assignee of Commerce Bank’s rights.
Friedman attempts to escape this outcome by arguing that he
“purchased” the debt instead of satisfying it. We agree with L’Equip and
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Pascotti that labeling the transaction as a “purchase” does not overcome the
fact that Commerce Bank treated the loan as paid in full.
Because we agree with the trial court’s second reason for striking
judgment, we need not address its other reason for this decision.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/3/2016
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