Neducsin, D. v. Caplan, S. , 2015 Pa. Super. 158 ( 2015 )

J-A05009-15
2015 PA Super 158DANIEL R. NEDUCSIN IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
SCOTT CAPLAN
Appellant No. 1116 EDA 2014
Appeal from the Order Entered February 25, 2014
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): September Term, 2012 No. 002706
BEFORE: GANTMAN, P.J., SHOGAN, J., and ALLEN, J.
OPINION BY GANTMAN, P.J.: FILED JULY 23, 2015
Appellant, Scott Caplan, appeals from the order entered in the
Philadelphia County Court of Common Pleas, following denial of Appellant’s
petition to strike and/or open a confessed judgment in favor of Appellee,
Daniel R. Neducsin, in this breach of contract action. We affirm
The relevant facts and procedural history of this case are as follows.
In 1996, Appellant founded Sweat Gyms (“Sweat”), a chain of fitness
centers. To expand the chain, on July 21, 2010, Appellant obtained a loan
and a $250,000.00 line of credit from Wells Fargo, which Appellee
guaranteed. On December 31, 2011, Appellant and Appellee executed a
promissory note (“Bedrock Note”), which Appellant’s attorney had previously
reviewed.
By early 2012, Sweat was nearly bankrupt and needed debt
J-A05009-15
restructuring and a cash infusion to keep operating. Appellee worried he
would be held responsible if Sweat defaulted on the Wells Fargo line of
credit. Appellee blamed Sweat’s “business practices” for the company’s
financial difficulties and offered to lend Appellant additional funds in
exchange for Appellee’s greater oversight of the business and for changes in
the corporate governance.
On March 9, 2012, Appellant as “Maker” and other Sweat shareholders
and entities entered into a new note with Appellee in exchange for
$2,000,000.00 in additional funds. The relevant terms of the note were
taken from the original Bedrock Note and gave Appellee the right to file a
confessed judgment in the event of a default. The grounds for default
included: (1) failure to make payment on the note when due; or (2) “If any
certification, warranty, or representation made or hereafter made by Maker
to [Appellee] should prove to be false, incorrect, incomplete or misleading in
any material respect”; or (3) bankruptcy; insolvency proceedings against
any party liable under the note; assignment for the benefit of creditors;
appointment of a receiver, etc.; or (4) if Maker should obtain additional
financing from another source, senior or junior, secured or unsecured. (See
Promissory Note, dated 3/9/12, at 2-3; R.R. at A.25─A.26.) Appellant
expressly represented in the 3/9/12 note that he would use the proceeds of
the note solely to pay the business’ outstanding debts, and the funds “shall
not be used for personal, family, household, or other business uses.” (See
-2-
J-A05009-15
id. at 5; R.R. at A.28.) As in the original Bedrock Note, the last paragraph
of the 3/9/12 note also stated:
THIS NOTE CONTAINS A WARRANT OF ATTORNEY FOR
CONFESSION OF JUDGMENT (SECTION 18) AND A WAIVER
OF TRIAL BY JURY AND OF THE RIGHT TO INTERPOSE
DEFENSES, COUNTERCLAIMS OR SETOFFS (SECTION 37).
MAKER HEREBY KNOWINGLY, INTENTIONALLY, AND
VOLUNTARILY AND (ON THE ADVICE OF THE SEPARATE
COUNSEL OF MAKERS) UNCONDITIONALLY WAIVES ANY
AND ALL RIGHTS MAKER HAS OR MAY HAVE TO TRIAL BY
JURY AND THE RIGHT TO INTERPOSE ANY DEFENSE
(EXCEPT THOSE BASED ON PAYMENT OR ERRORS IN
COMPUTING THE BALANCE DUE), SET-OFF OR
COUNTERCLAIM OF ANY NATURE OR DESCRIPTION UNDER
THE CONSTITUTIONS AND LAWS OF THE UNITED STATES
AND THE COMMONWEALTH OF PENNSYLVANIA AND
EXPRESSLY AGREES AND CONSENTS TO PAYEE
NEDUCSIN’S ENTERING JUDGMENT AGAINST ALL MAKERS
HERETO PURSUANT TO THE TERMS HEREOF[.]
(Id. at 8-9; R.R. at A.31−A.32). Appellant’s signature appears directly
under this paragraph.
On the same day, Appellant signed a revised shareholders’ agreement,
which stated no shareholder, including Appellant, could take funds from the
Corporation’s bank accounts for personal use without unanimous consent of
all shareholders. Several months after executing the 3/9/12 note, Appellant
unilaterally used the line of credit for certain undocumented transactions,
including a deposit into his personal bank account. At two separate
shareholder meetings on July 24, 2012, and on August 21, 2012, Appellee
asked Appellant how much Appellant had drawn down on the line of credit,
and Appellant twice replied with inaccurate information, stating he had
-3-
J-A05009-15
drawn down only $50,000.00, when in fact the amount was actually
$170,000.00.
On September 24, 2012, Appellee filed a confession of judgment
against Appellant for $2,005,970.50, averring Appellant’s misrepresentation
regarding the draw-down on the line of credit triggered a default under the
3/9/12 note. After several agreed-upon extensions of time, on November 8,
2012, Appellant filed a petition to strike and/or open the confessed
judgment. On June 4, 2013, the court denied Appellant’s petition to strike
but ordered discovery and briefs on Appellant’s petition to open.
On January 29, 2014, the court initially granted the petition to open
judgment, without conducting oral argument. Appellee asked the court to
vacate its order and conduct oral argument. On January 31, 2014, the court
vacated the January 29, 2014 order and conducted oral argument on
February 6, 2014. The court denied Appellant’s petition to open the
confessed judgment on February 25, 2014.1 Appellant timely filed a notice
of appeal on March 26, 2014. The court did not order Appellant to file a
concise statement per Pa.R.A.P. 1925(b), and Appellant filed none.
____________________________________________
1
Appellant filed a second petition to strike on March 10, 2014. On March
26, 2014, the court dismissed with prejudice Appellant’s March 10, 2014
petition to strike, because the issue raised in the March 10, 2014 petition to
strike was the same as the issue raised in the original petition to strike, the
new petition was untimely, it sought unavailable relief, and nothing in the
record indicated that the decision to deny the prior petition to strike should
be revisited.
-4-
J-A05009-15
Appellant raises the following issues on appeal:
WHETHER THE JUDGMENT ENTERED BY CONFESSION
SHOULD HAVE BEEN STRICKEN WHERE THE PROMISSORY
NOTE UPON WHICH JUDGMENT WAS BASED LACKS
CLARITY AND PRECISION AND PRESENTS AMBIGUITIES
WHICH SHOULD HAVE BEEN RESOLVED IN FAVOR OF
[APPELLANT].
WHETHER [APPELLANT] WAS ENTITLED TO A FULL
EVIDENTIARY HEARING TO DETERMINE IF THE JUDGMENT
ENTERED BY CONFESSION SHOULD HAVE BEEN STRICKEN
DUE TO THE INABILITY OF APPELLEE, AS CREDITOR, TO
MEET HIS BURDEN THAT THERE WAS A KNOWING,
VOLUNTARY AND INTELLIGENT WAIVER OF [APPELLANT’S]
PROCEDURAL DUE PROCESS RIGHT TO A HEARING
BEFORE THE ENTRY OF JUDGMENT.
WHETHER [APPELLANT] PRESENTED SUFFICIENT
EVIDENCE OF A MERITORIOUS DEFENSE TO THE CLAIM
OF MISREPRESENTATION…AND, IF SO, WHETHER IT WAS
MATERIAL, PLUS WHERE THERE WAS NO DETRIMENTAL
RELIANCE UPON ANY STATEMENTS AND NO MONETARY
LOSS TO WARRANT A $2 MILLION JUDGMENT UPON A
FULLY PERFORMING LOAN.
WHETHER, NOTWITHSTANDING THE LACK OF AN
EVIDENTIARY HEARING, THE RECORD WAS SUFFICIENT
TO OPEN THE JUDGMENT BASED UPON A LACK OF A
KNOWING, VOLUNTARY AND INTELLIGENT WAIVER OF
THE RIGHTS WHERE THE NOTE WAS CUT AND PASTED
FROM ANOTHER TRANSACTION AND FALSELY STATED IT
WAS EXTENSIVELY REVIEWED BY COUNSEL BUT WAS
ONLY PRESENTED MOMENTS BEFORE SIGNATURE AND
REFERENCED PARAGRAPHS THAT DID NOT EXIST,
SECURITY AGREEMENTS WHICH DID NOT EXIST AND
GUARANTIES THAT DID NOT EXIST.
(Appellant’s Brief at 4).
In his issues combined, Appellant initially argues the 3/9/12 note lacks
the requisite precision to be enforceable and is internally inconsistent
-5-
J-A05009-15
because it is a “cut-and-paste job” from the Bedrock Note. Specifically,
Appellant contends the default provisions of the 3/9/12 note are unclear and
ambiguous, as strict construction of the terms suggests the default
provisions only apply to Sweat, and not to Appellant; and the sections
referred to in the last paragraph do not exist as numbered in the 3/9/12
note. Additionally, Appellant asserts he did not knowingly, voluntarily, and
intelligently waive his rights to notice and hearing regarding the confession
of judgment, because Appellee presented the 3/9/12 note to Appellant
moments before signing and without time for Appellant to obtain counsel’s
review. Appellant insists he is entitled to an evidentiary hearing under the
rules of court to determine if he knowingly, voluntarily, and intelligently
waived his due process rights under the 3/9/12 note. Appellant submits the
failure of the trial court to conduct an evidentiary hearing on Appellant’s due
process challenge constitutes an abuse of discretion.
Alternatively, Appellant wants to open the confessed judgment,
claiming he has raised several meritorious defenses, including the
“materiality” of the amount drawn down on the line of credit, Appellant’s
attempt to cure the default, and Appellee’s decision not to confess judgment
against the other shareholders. Appellant baldly states the record had a
number of factual discrepancies, such as whether Appellee justifiably relied
on Appellant’s misrepresentation and whether the damages are potentially a
penalty. Appellant complains a jury should hear those issues. Appellant
-6-
J-A05009-15
submits the discrepancy between the actual draw-down and the amount
Appellant disclosed was insignificant in light of the overall debt. Appellant
repeats his contention that the trial court’s analysis does not reflect
adequate consideration of whether Appellant properly waived his due
process rights.
Appellant concludes this Court should reverse the trial court’s decision
and strike the judgment entered by confession; or remand the matter for a
full evidentiary hearing to determine whether Appellant exercised a knowing,
voluntary, and intelligent waiver of his procedural due process rights; or
simply reverse the trial court’s decision and open the judgment, based on
the meritorious defenses raised in Appellant’s petition to open the confessed
judgment. We disagree.
Initially, we observe:
“A petition to strike a judgment is a common law
proceeding which operates as a demurrer to the record. A
petition to strike a judgment may be granted only for a
fatal defect or irregularity appearing on the face of the
record.” Resolution Trust Corp. v. Copley Qu–Wayne
Associates, 546 Pa. 98, 106, 683 A.2d 269, 273 (1996).
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…. An order of the court striking a judgment
annuls the original judgment and the parties are left
as if no judgment had been entered.
-7-
J-A05009-15
Hazer v. Zabala, 26 A.3d 1166, 1169 (Pa.Super. 2011)
(quoting Resolution Trust Corp., supra). In other
words, the petition to strike a confessed judgment must
focus on any defects or irregularities appearing on the face
of the record, as filed by the party in whose favor the
warrant was given, which affect the validity of the
judgment and entitle the petitioner to relief as a matter of
law. ESB Bank v. McDade, 2 A.3d 1236, 1239
(Pa.Super. 2010). “[T]he record must be sufficient to
sustain the judgment.” Id. The original record that is
subject to review in a motion to strike a confessed
judgment consists of the complaint in confession of
judgment and the attached exhibits. Resolution Trust
Corp., supra at 108, 683 A.2d at 274.
In contrast, “if the truth of the factual averments
contained in [the complaint in confession of judgment and
attached exhibits] are disputed, then the remedy is by
proceeding to open the judgment,” not to strike it. Id. at
106, 683 A.2d at 273. A petition to strike a confessed
judgment and a petition to open a confessed judgment are
distinct remedies; they are not interchangeable. Hazer,
supra. A petition to open a confessed judgment is an
appeal to the equitable powers of the court. PNC Bank v.
Kerr, 802 A.2d 634, 638 (Pa.Super. 2002), appeal denied,
572 Pa. 735, 815 A.2d 634 (2002). Factual disputes by
definition cannot be raised or addressed in a petition to
strike off a confession of judgment, because factual
disputes force the court to rely on matters outside the
relevant record to decide the merits of the petition.
Resolution Trust Corp., supra at 109, 683 A.2d at 275.
Historically, Pennsylvania law has recognized and
permitted entry of confessed judgments pursuant to the
authority of a warrant of attorney contained in a written
agreement. See Scott Factors, Inc. v. Hartley, 425 Pa.
290, 228 A.2d 887 (1967). “[A] warrant of attorney is a
contractual agreement between the parties and the parties
are free to determine the manner in which the warrant
may be exercised.” Atlantic Nat. Trust, LLC v. Stivala
Investments, Inc., 922 A.2d 919, 924 (Pa.Super. 2007),
appeal denied, 594 Pa. 702, 936 A.2d 39 (2007). Entry of
a valid judgment by confession must be “made in rigid
-8-
J-A05009-15
adherence to the provisions of the warrant of attorney;
otherwise, such judgment will be stricken.” Dollar Bank,
Federal Sav. Bank v. Northwood Cheese Co., Inc.,
637 A.2d 309, 311–12 ([Pa.Super.] 1994), appeal denied,
539 Pa. 692, 653 A.2d 1231 (1994). “A warrant to confess
judgment must be explicit and will be strictly construed,
with any ambiguities resolved against the party in whose
favor the warrant is given.” Id. “A warrant of attorney to
confess judgment must be self-sustaining and to be self-
sustaining the warrant must be in writing and signed by
the person to be bound by it. The requisite signature must
bear a direct relation to the warrant of attorney and may
not be implied.” Hazer, supra at 1171; See also Ferrick
v. Bianchini, 69 A.3d 642 [Pa.Super. 2013] (stating
same).
Midwest Financial Acceptance Corp. v. Lopez, 78 A.3d 614, 622-23
(Pa.Super. 2013).
Rules 2950 to 2967 of the Pennsylvania Rules of Civil
Procedure govern confessions of judgment for money.
See generally Pa.R.C.P. 2950–2967. A confession of
judgment “action” under these rules is distinctly defined as
“a proceeding to enter a judgment by confession for
money pursuant to an instrument…authorizing such
confession.” Pa.R.C.P. 2950. Rule 2952 expressly
authorizes the practice of allowing a party to file a
complaint in confession of judgment without either a notice
to defend or a notice to plead, and no responsive pleading
is required (even if the complaint has a notice to defend or
is endorsed with a notice to plead). Pa.R.C.P. 2952(b).
The rules requiring and establishing the form of notices to
defend and to plead in ordinary civil complaints do not
apply to actions for confession of judgment. See id. Note
(stating Rule 1018.1 and Rule 1361 do not apply to
complaint in confession of judgment). Instead, “A
confession of judgment clause ‘permits the creditor or its
attorney simply to apply to the court for judgment against
the debtor in default without requiring or permitting the
debtor…’ to respond at that juncture.” Southwestern
Pennsylvania Regional Council, Inc. v. Gentile, 776
A.2d 276, 279 n. 3 (Pa.Super. 2001). Because the creditor
is entitled to file the complaint and enter judgment against
-9-
J-A05009-15
the debtor without any appearance or response from the
debtor, Pennsylvania’s initial procedure for confessing
judgments lacks “the hallmarks of an adversary
proceeding” until the debtor files a petition to strike off or
open the judgment. See Newton v. First Union Nat.
Bank, 316 F.Supp.2d 225, 233–34 (E.D.Pa. 2004).
Nevertheless, “[t]he record of the entry of a judgment by
the prothonotary under a power contained in the
instrument is a record of the court, and it has all the
qualities of a judgment on a verdict.” O’Hara v. Manley,
12 A.2d 820, 822 ([Pa.Super.] 1940).
Generally, notice and service of a confessed judgment to
the debtor is contemporaneous with the entry of the
judgment against the debtor. See Pa.R.C.P. 2956 Note
(referring to Rule 236(a)(1)) requiring prothonotary to
give written notice to defendants of entry of confessed
judgment by ordinary mail together with all documents
filed with prothonotary in support of confession of
judgment. “The prothonotary shall note in the docket the
giving of notice and, when a judgment by confession is
entered, the mailing of the required notice and
documents.” Pa.R.C.P. 236(b).
Following a confession of judgment, the debtor can choose
to litigate the judgment by filing a petition in compliance
with Rule 2959. See Pa.R.C.P. 2959. The debtor must
raise all grounds for relief (to strike off or open) in a single
petition, which can be filed in the county where the
judgment was originally entered or in any county where
the judgment has been transferred. Id. A party waives all
defenses and objections which are not included in the
petition or answer. See Pa.R.C.P. 2959(c).
Id. at 625-26 (footnote omitted).
“[W]e review the order denying Appellant’s petition to open the
confessed judgment for an abuse of discretion.” PNC Bank, Nat. Ass'n v.
Bluestream Technology, Inc., 14 A.3d 831, 835 (Pa.Super. 2010)
(quoting ESB Bank, supra).
- 10 -
J-A05009-15
Judicial discretion requires action in conformity with law on
facts and circumstances before the trial court after hearing
and consideration. Consequently, the court abuses its
discretion if, in resolving the issue for decision, it
misapplies the law or exercises its discretion in a manner
lacking reason.
Miller v. Sacred Heart Hosp., 753 A.2d 829, 832 (Pa.Super. 2000)
(internal citations omitted). The trial court may open a confessed judgment
“if the petitioner (1) acts promptly, (2) alleges a meritorious defense, and
(3) can produce sufficient evidence to require submission of the case to a
jury.” PNC Bank, Nat. Ass'n, supra at 836 (emphasis added). Generally,
the court will dispose of the rule on petition and answer, along with other
discovery and admissions. Pa.R.C.P. 2959(e).
When determining if the petitioner acted promptly, “the courts are not
bound by an inflexible time frame. The crucial factor in determining whether
a petition is timely is not the specific time which has elapsed but rather the
reasonableness of the explanation given for delay.” First Seneca Bank &
Trust Co. v. Laurel Mountain Development Corp., 506 Pa. 439, 443, 485
A.2d 1086, 1088 (1984).
“A meritorious defense is one upon which relief could be afforded if
proven at trial.” Ferrick, supra, at 647.
Pa.R.Civ.P. 2959(e) sets forth the standard by which a
court determines whether a moving party has properly
averred a meritorious defense. If evidence is produced
which in a jury trial would require the issues to be
submitted to the jury the court shall open the judgment.
Furthermore, the court must view the evidence presented
in the light most favorable to the moving party, while
- 11 -
J-A05009-15
rejecting contrary evidence of the non-moving party.
Continental Bank v. Axler, 510 A.2d 726, 728
([Pa.Super.] 1986); Pawco v. Bergman Knitting Mills,
Inc., 424 A.2d 891, 897 ([Pa.Super.] 1981). The
petitioner need not produce evidence proving that if the
judgment is opened, the petitioner will prevail. Id.Moreover, we must accept as true the petitioner’s evidence
and all reasonable and proper inferences flowing
therefrom. Federman v. Pozsonyi, 529 A.2d 530, 533
([Pa.Super.] 1987) [(citing Hamilton Bank v. Rulnick,
475 A.2d 134, 137 ([Pa.Super.] 1984).
Liazis v. Kosta, Inc., 618 A.2d 450, 453 (Pa.Super. 1992). In other
words, a judgment of confession will be opened if “a petitioner seeking relief
therefrom produces evidence which in a jury trial would require issues to be
submitted to a jury.” Foerst v. Rotkis, 368 A.2d 805, 807-08 (Pa.Super.
1976). The standard of sufficiency here is similar to the standard for a
directed verdict, in that we must view the facts most favorably to the
moving party, we must accept as true all the evidence and proper inferences
in support of the defense raised, and we must reject all adverse allegations.
Greenwood v. Kadoich, 357 A.2d 604, 606 (Pa.Super. 1976). The trial
court can make this decision as a matter of law when the defense presented
is without adequate substance, because contract construction and
interpretation is generally a question of law for the court to decide. Profit
Wize Marketing v. Wiest, 812 A.2d 1270, 1274 (Pa.Super. 2002).
A contract’s language is unambiguous if it can be determined without
any other guide than knowledge of the simple facts on which its meaning
depends. Id. When the contract is clear and unambiguous, the meaning of
- 12 -
J-A05009-15
the contract is ascertained from the writing alone. Kmart of
Pennsylvania, L.P. v. MD Mall Associates, LLC, 959 A.2d 939, 944
(Pa.Super. 2008), appeal denied, 602 Pa. 667, 980 A.2d 609 (2009). A
court must not distort the meaning of the language or resort to a strained
contrivance to find an ambiguity. Mitsock v. Erie Ins. Exchange, 909
A.2d 828, 831 (Pa.Super. 2006). Additionally, a mere disagreement
between the parties regarding the proper construction of the language does
not render the contract ambiguous. Baney v. Eoute, 784 A.2d 132, 136
(Pa.Super. 2001). In the context of a petition to open a confessed
judgment, “[t]he function of our [C]ourt is not to [w]eigh the evidence in
support of the defense, but merely to determine whether there was
sufficient evidence to go to the jury.” Foerst, supra.“Whether a judge has correctly interpreted a writing and
properly determined the legal duties which arise therefrom
is a question of law for the appellate court.” Riccio v.
American Republic Ins. Co., 550 Pa. 254, 263, 705 A.2d
422, 426 (1997). The legal effect or enforceability of a
contract provision presents a question of law accorded full
appellate review and is not limited to an abuse of
discretion standard. Id. See also Patriot Commercial
Leasing Co., Inc. v. Kremer Restaurant, 915 A.2d 647(Pa.Super. 2006), appeal denied, 597 Pa. 720, 951 A.2d
1166 (2008). … Likewise, if the matter under review
involves the interpretation of the Pennsylvania Rules of
Civil Procedure, we have before us a question of law,
where our standard of review is de novo and our scope of
review is plenary. Boatin v. Miller, 955 A.2d 424, 427
(Pa.Super. 2008).
Midwest Financial Acceptance Corp., supra at 624.
In the present case, Appellant founded Sweat Gyms in 1996, a chain
- 13 -
J-A05009-15
of fitness centers. To expand the chain, Appellant obtained a loan and a
$250,000.00 line of credit from Wells Fargo on July 21, 2010, which Appellee
guaranteed. On December 31, 2011, Appellant and Appellee executed the
Bedrock Note, which Appellant’s attorney had reviewed. By early 2012,
Sweat was almost bankrupt and needed debt restructuring and a cash
infusion to continue operating. Appellee blamed the company’s “business
practices” for its financial difficulties and offered to lend additional funds in
exchange for Appellee’s greater oversight of the business and for changes in
the corporate governance.
On March 9, 2012, Appellant as “Maker” and other Sweat shareholders
and entities entered into a new note with Appellee in exchange for
$2,000,000.00 of additional funds. The relevant terms of the 3/9/12 note
were taken from the original Bedrock Note, which gave Appellee a warrant to
confess judgment in the event of a default. The express grounds for default
included: (1) failure to make payment on the note when due; or (2) “If any
certification, warranty, or representation made or hereafter made by Maker
to [Appellee] should prove to be false, incorrect, incomplete or misleading in
any material respect”; or (3) bankruptcy; insolvency proceedings against
any party liable under the note; assignment for the benefit of creditors;
appointment of a receiver, etc.; or (4) if Maker should obtain additional
financing from another source, senior or junior, secured or unsecured. (See
Promissory Note, dated 3/9/12, at 2-3; R.R. at A.25─A.26).
- 14 -
J-A05009-15
On the same day, Appellant signed a revised shareholders’ agreement,
which stated no shareholder could take funds from the Corporation’s bank
accounts for personal use without unanimous consent of all shareholders.
Several months after executing the 3/9/12 note, Appellant unilaterally used
the line of credit for certain undocumented transactions, including a deposit
into his personal bank account. Appellee asked Appellant twice about the
amount Appellant had drawn down on the line of credit. Appellant twice
replied with inaccurate information that the draw-down was in the amount of
$50,000.00. Based on the discovery that the draw-down was actually
$170,000.00, Appellee asserted Appellant’s misstatements and this
discrepancy constituted a default under the 3/9/12 note.
Appellee filed a complaint in confession of judgment against Appellant
for $2,005,970.50 on September 24, 2012.2 Appellant filed a petition to
open or strike the confessed judgment on November 8, 2012, after several
agreed-upon extensions of time. By order of June 4, 2013, the court denied
Appellant’s petition to strike but ordered discovery and briefs on Appellant’s
petition to open. The court conducted oral argument on February 6, 2014,
and denied Appellant’s petition to open the confessed judgment on February
____________________________________________
2
Appellant does not raise any issue in his appeal regarding compliance with
the applicable rules for confessed judgments. Nonetheless we observe that
Appellee’s complaint in confession of judgment fully complied with Pa.R.C.P.
2952 by including the required averments, a demand for judgment, a
signature and verification in accordance with the rules relating to civil
actions; and no notice to plead or defend. See Pa.R.C.P. 2952.
- 15 -
J-A05009-15
25, 2014.
We begin our analysis by recognizing that the claims Appellant raised
in his petition to strike (relating to the ambiguity and precision of the 3/9/12
note, or the absence of a knowing, voluntary, and intelligent waiver of his
rights to notice and hearing regarding the confession of judgment) were
inappropriate grounds to strike the confessed judgment. The confession of
judgment provision at issue in the 3/9/12 note was in writing and placed
within the note, prominently on its own page in all capital letters. (See
Promissory Note, dated 3/9/12, at 4; R.R. at A.27.) The last paragraph of
the 3/9/12 note expressly states, in capital letters, that the note contains a
warrant of attorney for confession of judgment as well as a waiver of a trial
by jury and a waiver of the right to interpose defenses, counterclaims or
setoffs; this paragraph also states that the “Maker” (Appellant) knowingly,
intentionally, and voluntary waives these rights. Appellant’s signature
appears directly below this paragraph. (See Promissory Note, dated 3/9/12,
at 8-9; R.R. at A.31─A.32.)
By virtue of the confession of judgment/warrant of attorney provisions
in the 3/9/12 note, Appellant irrevocably authorized and empowered any
attorney or the prothonotary of any court in the United States, or elsewhere,
to appear at any time for Appellant, pursuant to the terms of the note, and
with or without complaint filed, as of any term, confess or enter judgment
against Appellant. We conclude the confession of judgment and the warrant
- 16 -
J-A05009-15
of attorney provisions were valid, self-sustaining, explicit, and
unambiguously without limit, except as required under the terms of the
note. See Midwest Financial Acceptance Corp., supra. Therefore, the
trial court had no reason to strike the confession of judgment or revisit the
court’s June 4, 2013 order denying the petition to strike. (See Trial Court
Opinion, filed February 25, 2014, at 2.)
Appellant’s complaint, that he unknowingly, involuntarily, and
unintelligently signed the waiver, is actually an argument for opening a
confessed judgment. In response to Appellant’s petition to open the
confessed judgment, the trial court reasoned as follows:
[Appellant] raises a number of unpersuasive grounds for
opening the judgment. None of them rise to the level of a
meritorious defense. The fact that [Appellee] chose to act
only against [Appellant] and not the other shareholders is
not significant in light of the facts. [Appellant’s] claim that
he tried to cure the default does not negate the default.
[Appellant’s] claim that he…had “always” taken these loans
in the past is not significant. It is clear that [Appellee]
tailored the default provisions in the [3/9/12 note] to
prevent this practice. Claiming that [Appellee] had
independent access to [Sweat’s] financial information does
not negate the fact that [Appellant] misrepresented crucial
facts on two occasions.
Similarly, [Appellant] argues that the misstatement was
not material because the business owed approximately
four and a half million in total. This is not a defense. The
question was directed to the topic of the line of credit, the
line of credit was vital to the continued operation of the
business, and its reduction by more than two-thirds was
alarming and material.
[Appellant] also argues that he was denied due process
because he was force[d] to sign the [3/9/12 note] and
- 17 -
J-A05009-15
revised Shareholders Agreement under threat of loss of the
monetary infusion that [Appellee] was offering. This does
not constitute a due process violation. In any case, the
choice between securing financing under unpleasant terms
and insolvency is a perennial dilemma for small businesses
that need to borrow to stay open. [Appellant] does not
claim that he asked for time to review the agreement with
counsel and was denied permission to do so. Nor does he
assert that he took the agreement subsequently to counsel
to learn of his rights and obligations.
[Appellant’s] other position, an attempt to convert
[Appellant] from a [M]aker (i.e. borrower) into a guarantor
or accommodation party, is ludicrous. If [Appellant] were
a guarantor, he would not have needed to borrow from
[Appellee]. It was always [Appellee’s] funds which were at
risk, and [Appellee] had to answer to Wells Fargo.
[Appellant] either never read, or never took seriously, the
instruments which worked a substantial limitation on his
ability to treat the Sweat Funds as his own. While the
[3/9/12 note] in question is not a masterpiece of clarity,
the terms of default are clearly set out. [Appellant] is
clearly described as a Maker, not a guarantor. The other
documents make it crystal clear that shareholders were no
longer allowed to take undocumented personal loans from
the business.
There having been no showing of a meritorious defense,
the Petition to Open is denied, and the discovery motions
are denied as Moot.
(Trial Court Opinion at 3-4). We accept the court’s analysis. As further
commentary, we recognize the relevant portions of the 3/9/12 note were
taken directly from the Bedrock Note, which Appellant’s counsel had
reviewed and Appellant had signed. Additionally, Appellee (not Appellant)
was the guarantor of the line of credit and could be held responsible for the
money owed. The record makes clear Appellant gave Appellee the power to
- 18 -
J-A05009-15
confess judgment on specified grounds of default. Appellant twice defaulted
by providing false information to Appellee about the amount of money
Appellant drew down on the line of credit. At one if not both shareholder
meetings, Appellant disclosed that he drew down only $50,000.00 on the
line of credit, which he claimed he used for the business. In fact, Appellant
had really drawn down $170,000.00 on the line of credit and utilized
$85,000.00 of it for personal use. Appellant’s representation to Appellee
regarding the total amount of money drawn down on the credit line was
incorrect and misleading in a material respect because the $170,000.00
draw-down was a substantial portion of the $250,000.00 line of credit.
Further, the 3/9/12 note does not include any “cure” conditions. We
observe that Appellant’s belated and incomplete attempts to replenish the
line of credit for his personal draw occurred after Appellee had declared
default and confessed judgment. Appellant essentially admitted he took
money from the corporate line of credit for personal use, without unanimous
consent of the shareholders, and misrepresented the amount he took. In
light of Appellant’s false statements and his admissions, Appellant was in
default of the 3/9/12 note as a matter of law. Upon Appellant’s default, the
3/9/12 note allowed Appellee to “declare the entire unpaid principal balance
together with interest accrued thereon and all other sums due or owed by
[Appellant] hereunder…to be due and payable immediately….” (Id. at 3;
R.R. at A.26). Appellant failed to support any of the “meritorious” defenses
- 19 -
J-A05009-15
he alleged. See PNC Bank, Nat. Ass’n, supra. Therefore, the court had
no need to conduct an evidentiary hearing on Appellant’s petition to open
the confessed judgment.
Based upon the foregoing, Appellant’s claims raised no defect on the
face of the record to strike the confessed judgment. Given Appellant’s
misstatements and admissions, he was in default of the parties’ agreements,
and without adequate meritorious defenses. Accordingly we hold the trial
court properly denied Appellant relief on the grounds asserted, and we
affirm.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/23/2015
- 20 -