Medisys, Inc. v. Hunsberger, S.

J. A10038/17
NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P. 65.37
MEDISYS, INC. : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
v. :
:
STEPHANIE HUNSBERGER, : No. 2594 EDA 2016
:
Appellant :
Appeal from the Order Entered August 5, 2016,
in the Court of Common Pleas of Chester County
Civil Division at No. 2015-08867
BEFORE: DUBOW, J., SOLANO, J., AND FORD ELLIOTT, P.J.E.
MEMORANDUM BY FORD ELLIOTT, P.J.E.: FILED DECEMBER 08, 2017
Stephanie Hunsberger (“Hunsberger”) appeals the August 5, 2016
order of the Court of Common Pleas of Chester County that denied
Hunsberger’ s petition to open confessed judgment. After careful review, we
affirm.
Hunsberger was the sole owner of Medisys Solutions, LLC
(“Solutions”). Hunsberger created Solutions to purchase the assets of
Medisys, Inc. (“Medisys”). On March 12, 2015, Solutions and Medisys
entered into an asset purchase agreement (“Agreement”) whereby Solutions
would purchase the assets that had been necessary for Medisys to operate
its business of providing data collection, project management, and training
services to healthcare companies and managed care organizations. On
March 23, 2015, the parties executed an amendment to the Agreement.
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Under the terms of the Agreement and the amendment, Solutions agreed to
pay Medisys the amount of $1,200,000. Solutions agreed to pay $800,000
at closing with $355,222.60 paid to the escrow agent to cover 110% of
Medisys’s federal, state, and local tax liability with the remainder of the
$800,000 to be paid to Medisys. In addition, the sum of $400,000 was to be
paid by Solutions to Medisys over time pursuant to the terms of a
promissory note. Under the terms of the promissory note, Solutions was
required to pay the $400,000 back in 60 equal monthly payments of
$7,522.32 due on the first of each month. The promissory note also
contained the following language concerning a guaranty agreement
(“Guaranty”):
D. GUARANTY AGREEMENT. The obligations of
[Solutions] hereunder are secured by that
certain Guaranty Agreement dated
concurrently herewith, executed by
[Hunsberger] and [Medisys], whereby
[Hunsberger] guarantees the complete
performance of the obligations of [Solutions]
under this note. [Medisys] may elect, at its
option, to seek enforcement of this Note
against [Hunsberger] without first exhausting
its rights against [Solutions].
Promissory note, 3/27/15 at 2.
Under the Guaranty, Hunsberger guaranteed payment of any and all
sums now or hereafter owing to Medisys from Solutions. Of most interest to
the dispute between the parties here are Sections 9 and 10 of the Guaranty
which provided, as follows:
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Section 9. Obligations Are Unconditional. The
payment and performance of the Obligations shall be
the absolute and unconditional duty and obligation of
[Hunsberger], and shall be independent of any
defense or any rights or setoff, recoupment or
counterclaim which [Hunsberger] might otherwise
have against [Medisys], and [Hunsberger] shall pay
and perform these Obligations, free of any
deductions and without abatement, diminution or
setoff. Until such time as the Obligations have been
fully paid and performed, [Hunsberger]: (a) shall
not suspend or discontinue any payments provided
for herein; (b) shall perform and observe all of the
covenants and agreements contained in this
Guaranty; and (c) shall not terminate or attempt to
terminate this Guaranty for any reason. No delay by
[Medisys] in making demand on [Hunsberger] for
satisfaction of the Obligations shall prejudice or in
any way impair [Medisys’s] ability to enforce this
Guaranty.
Section 10. Defenses Against Maker.
[Hunsberger] waives any right to assert against
[Medisys] any defense (whether legal or equitable),
claim, counterclaim, or right of setoff or recoupment
which [Hunsberger] may now or hereafter have
against [Medisys].
Guaranty Agreement, 3/27/15 at 3, §§ 9 and 10.
The Guaranty also provided for a confession of judgment clause in
Section 25 against Hunsberger in the event of a default.
Solutions made the required payments due on April 1 and May 1,
2015. On May 11, 2015, Solutions issued a check to Medisys in the amount
of $9,840.14 along with a spreadsheet that indicated that Solutions was
attempting to offset the amount due. On May 18, 2015, Medisys’s counsel
sent a default notice to Solutions’s counsel. On July 31, 2015, Hunsberger,
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in her capacity as a member of Solutions, informed Kimm Ebersole,
president and chief executive officer of Medisys, that certain representations,
warranties, and covenants made by Medisys were misleading. The letter
also stated that Solutions had suffered losses as defined in Section 8.1 of the
Agreement so that Solutions was entitled to reduce the principal amount
payable pursuant to the promissory note. Solutions informed Medisys that
its losses totaled $472,087.81. A reduction of that amount exceeded the
amount due on the promissory note.
By letter dated August 20, 2015, Medisys rejected the statements
Hunsberger had made in the July 31, 2015 letter and stated that Solutions
had defaulted for a third time under the promissory note.
On September 23, 2015, Ashley L. Beach, counsel for Medisys,
confessed judgment in favor of Medisys and against Hunsberger in the
amount of $399,470.18 which consisted of unpaid principal due under the
Guaranty, $2,343.88 in interest which accrued prior to default, $3,083.50 in
interest which accrued after the default, and $19,022.39 in attorneys’ fees.
That same date, Medisys also filed a complaint in confession of judgment.
On October 23, 2015, Hunsberger petitioned to strike or open the
confessed judgment. In the petition to strike, Hunsberger alleged that that
the Agreement stated that there were two possible venues for an action
arising out of the Agreement: the Court of Common Pleas of Berks County
and the United States District Court for the Eastern District of Pennsylvania.
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Because Medisys filed the confession of judgment in the trial court and not in
the two venues set forth in the Agreement, Hunsberger asserted that the
confession was unauthorized and should be struck.1
In the petition to open confessed judgment, Hunsberger alleged the
following:
19. As a result of the factual averments set forth in
this Petition, Hunsberger has the following
meritorious defenses that warrant that the
confessed judgment be opened:
a. Medisys, by and through the
conduct of its staff and its former
owner, Kimm Ebersole
(“Ebersole”), has misrepresented
and/or omitted several material
facts incident to the Transaction.
b. Medisys, by and through the
conduct of its staff and its former
owner, Ebersole, has breached the
Agreement.
c. Medisys, by and through the
conduct of its staff and its former
owner, Ebersole, has committed
acts of material misrepresentation
and nondisclosure incident to the
Transaction.
d. Some or all of Medisys’[s] claims
are void and unenforceable.
e. Medisys’[s] claims are barred by
the doctrine of offset.
1By order dated April 13, 2016, the trial court denied the petition to strike.
Hunsberger did not appeal that order.
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f. Medisys’[s] claims are barred by
the doctrine of illegality.
g. Medisys’[s] request for relief is
barred by the doctrine of unclean
hands.
h. Any monies which Medisys claims
are owed to it by Hunsberger are
offset by monies owed to
[Solutions] by Medisys.
i. Medisys’[s] claims are bared in
whole or in part for failure to act in
good faith.
j. Medisys’[s] claims are barred in
whole or in part by the terms of
the agreements between Medisys,
[Solutions], Ebersole, and
Hunsberger.
k. Hunsberger’s actions were entirely
appropriate.
l. Hunsberger reserves the right to
raise any additional defenses not
raised herein of which she may
become aware through discovery,
further investigation, or otherwise,
to assert any other defenses as
they become available.
“Petition to Strike or Open Confessed Judgment”, 10/23/15 (“Petition”) at
4-5.
In the petition, Hunsberger asserted that Medisys had unlawfully
retained contract payments from its prior clients that were due to go to
Solutions under the Agreement. Hunsberger also asserted that Medisys
failed to assist in the transition from Medisys to Solutions so that Solutions
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lost clients and misrepresented the number of medical records that had to
be reviewed under the contract with Health Partners. Hunsberger further
asserted that Medisys did not facilitate the transition of its Information
Technology systems and misrepresented the condition of its information
technology infrastructure. Hunsberger also alleged that Medisys did not pay
taxes due as required under the Agreement and did not account for deferred
revenue. Hunsberger concluded by alleging that Solutions was permitted to
offset its losses against the amount due on the promissory note. (Petition at
8-26.)
Following discovery and the submission of briefs, the trial court denied
the petition to open by order filed on August 4, 2016. On August 9, 2016,
Hunsberger filed a timely notice of appeal. The trial court ordered
Hunsberger to file a statement of errors complained of on appeal, pursuant
to Pa.R.A.P. 2119(b). Hunsberger complied with the order on September 2,
2016. The trial court did not issue a new opinion but referred to the
reasoning set forth in footnote 1 of its August 4, 2016 order. In footnote 1,
the trial court stated:
Hunsberger does not deny that she executed
the Guaranty, that it was an unconditional guaranty
and that she agreed to the above quoted language,
including the waiver language. Rather, Hunsberger
argues that although she has “waived a right to
assert a setoff or counterclaim for damages
unrelated to the [Agreement] . . . [t]he waiver
language of Section 9 of the Guaranty does not apply
to the contractual reductions set out in the
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[Agreement] [Section 7] and incorporated into the
Note.”
The question thus presented to the court by
Hunsberger is this: do the various provisions of the
Guaranty preclude Hunsberger from asserting the
defense she calls ‘contractual reductions?[’] The
court finds that they do.
Hunsberger waived her right to assert her
current defenses.
The plain and unambiguous language of the
Guaranty, including its waiver provision, renders
Hunsberger’s obligations under the Guaranty
absolute and unconditional. Hunsberger agreed that
this absolute and unconditional obligation would be
“independent of any defense or any rights of setoff,
recoupment, or counterclaim.” Hunsberger also
agreed that her obligation to pay and perform would
be “free of any deductions and without abatement,
diminution or setoff.” The parties could not have
made it clearer that in executing the Guaranty
Hunsberger waived her right to challenge her
obligation to pay and perform.
Faced with such clear waiver terms,
Hunsberger argues that her defense is not one of
“common law” setoff – which she acknowledges was
waived in the Guaranty – but a defense of
‘contractual reduction.’ Whether couched as a
common law defense or a contractual defense,
Hunsberger waived her right to assert either when
she agreed to an unconditional and absolute duty in
the Guaranty.
First, Hunsberger’s recent re-characterization
of her defense stands in stark contradiction to the
Petition to Open she verified and filed with the court.
In petitioning the court to open the confessed
judgment, Hunsberger recited the same facts
regarding the alleged losses sustained by Solutions
which she expands upon in her brief, and averred
that she had the following meritorious defenses:
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(b) Medisys’[s] claims are barred by the
doctrine of offset.
...
(h) any monies which Medisys claims are
owed to it by Hunsberger are offset by
monies owed to Solutions by Medisys[.]
Changing the order of the words does not
change the nature of the defense raised.
Hunsberger waived her right to assert any right of
setoff or “offset[.”]
Second, Hunsberger agreed that her obligation
to perform was “free of any deductions and without
abatement, dimunition . . . .” Her claim of a
“contractual reduction” is nothing more than a
deduction, a right she also waived.
Third, the waiver provision makes clear that
Hunsberger waived any defense, not just a claim of
setoff. The Guaranty states that Hunsberger’s
obligation is independent of (1) any defense, or
(2) any rights of setoff, recoupment, or (3) any
counterclaim (emphasis added [by trial court]). The
use of the disjunctive “or” indicates the parties’
intention to preclude Hunsberger from asserting any
of the above. The phrase “any defense” cannot be
read to be tied only to “setoff or recoupment[.”] If
that were the parties’ intention, then it too would
have been stated in the plural as was the term
“rights.” It was not and represents a separate
category of things waived by Hunsberger.
Finally, Hunsberger’s claim that she is entitled
to have the judgment opened to challenge the
amount of the debt owed because of the reductions
taken by Solutions is also without merit. Although
Hunsberger cites secondary sources for the
proposition that the “general rule” is that a
guarantor’s liability will not exceed the debtor’s
liability, the general rule as cited relates to defenses
of the debtor which a guarantor may then raise.
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Hunsberger, however, has waived all such defenses
in her absolute and unconditional Guaranty.
Furthermore, as set forth in Section 6 of the
Guaranty, Hunsberger’s obligations remain valid and
binding “even if the obligations of [Solutions] to
[Medisys] which are guaranteed hereby are now or
hereafter become invalid or unenforceable for any
reason.” Thus, if Solutions’[s] obligation to pay the
$400,000 is unenforceable due to failures on the part
of Medisys (what Hunsberger now calls “contractual
reductions”), under the Guaranty, Hunsberger would
still be obligated to pay the sum due and owing
Medisys at the time she executed the Guaranty.
Furthermore, the right to take reductions was
that of Solutions, not Hunsberger. Moreover,
although the Note acknowledges that the “principal
sum shall be subject to reduction pursuant to
Section 7” of the [Agreement], it also expressly
provides that any such reduction will not change the
payment amounts due in any future month. The
parties do not dispute that the amounts required for
the first three (3) months were not paid in full by
Solutions and no further payment was made. Even if
Solutions was entitled to “reductions” of the principal
sum for “losses,” it could only make such reductions
after providing thirty (30) days[’] written notice to
Medisys, which notice it did not provide. Thus, any
right to reduce the principal referenced in the Note is
expressly contingent upon compliance with notice
terms of the [Agreement], with which Solutions
failed to comply.
Hunsberger’s alleged defenses, meritorious or
not, were waived by her when she executed the
Guaranty and cannot be asserted here as
justification for opening the judgment.
Trial court order, 8/4/16 at footnote 1 pp. 4-6 (emphasis in original).
On appeal, Hunsberger raises the following issues for this court’s
review:
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[1.] Did the [trial] court err as a matter of law by
finding that the Guaranty precludes
Ms. Hunsberger from challenging the confessed
judgment based on the principal obligor's
exercise of its right, pursuant to the express
provisions of the Note, to unilaterally reduce
the amount due and owing under the Note?
[2.] Did Ms. Hunsberger allege and presented [sic]
meritorious defenses to the confessed
judgment and produce sufficient evidence to
warrant submission of the case to a jury,
where the principal obligor exercised its right
to reduce the amount due and owing under the
Note seven weeks before Appellee confessed
judgment against Ms. Hunsberger under the
Guaranty?
Hunsberger’s brief at 3.
A petition to open a confessed judgment is an appeal to the equitable
powers of the trial court. Homart Dev. Co. v. Sgrenci, 662 A.2d 1092,
1097 (Pa.Super. 1995). A confessed judgment will be opened only where
the petitioner acts promptly, asserts a meritorious defense, and presents
sufficient evidence of that defense to warrant submitting the issues of the
case to a jury. Iron Worker’s Sav. & Loan Ass’n v. IWS, Inc., 622 A.2d
367, 370 (Pa.Super. 1993).
In making such a determination, the court employs
the same standard as that of the directed verdict—
viewing all the evidence in the light most favorable
to the petitioner and accepting as true all evidence
and proper inferences therefrom supporting the
defense while rejecting adverse allegations of the
party obtaining the judgment.
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We will not disturb the trial court’s refusal to open a confessed
judgment absent an abuse of discretion or error of law. Germantown Sav.
Bank v. Talacki, 657 A.2d 1285, 1289 (Pa.Super. 1995).
Rules for opening a confessed judgment are set forth at Pennsylvania
Rule of Civil Procedure 2959:
(b) If the petition states prima facie grounds for
relief the court shall issue a rule to show cause
and may grant a stay of proceedings. . . .
....
(e) The court shall dispose of the rule on petition
and answer, and on any testimony,
depositions, admissions and other evidence.
. . . 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.
Pa.R.C.P. 2959.
Initially, Hunsberger contends that the trial court erred when it
concluded that she waived her right to challenge the amount of the
confessed judgment. First, she asserts that a guarantor is always permitted
to challenge the amount of debt the guaranty secures. She explains that
Solutions determined that it could reduce the amount of the debt owed to
Medisys due to various breaches of the Agreement. As a result of these
breaches, Hunsberger asserts that the losses exceeded the amount of the
debt and extinguished the debt. Hunsberger argues that in the absence of
waiver, a challenge to the amount of an obligation “due and owing” is always
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permitted so long as the judgment debtor contests the judgment amount in
his or her petition to open. (Hunsberger’s brief at 16.)
This court notes that the case Hunsberger cites for support for this
proposition, Olson v. Sayers, 2014 WL 10794989 (Pa.Super. Oct. 21,
2014), is an unpublished memorandum opinion of this court and has no
precedential value. See Pennsylvania Superior Court I.O.P. 65.37. Further,
the case cited in Olson for this point of law, Germantown Sav. Bank v.
Talacki, 657 A.2d 1285, 1291 (Pa.Super. 1995), does not address the issue
of waiver which is present here.
The trial court determined that the Guaranty signed by Hunsberger
was unconditional. An unconditional guaranty is one “whereby the guarantor
agrees to pay or perform a contract without limitation.” Continental
Leasing Corp. v. Lebo, 272 A.2d 193, 197 (Pa.Cmwlth. 1970). The trial
court also determined from the plain and unambiguous language of the
Guaranty that Hunsberger waived the defenses or rights of setoff,
recoupment, and counterclaim. The trial court also determined that
Hunsberger waived any deductions, abatement or diminution and any
defense not just setoff, recoupment, or counterclaim. A review of the record
confirms the trial court’s examination of the Guaranty. This court’s review of
the record, the trial court opinion, and the parties’ briefs leads this court to
conclude that the trial court did not abuse its discretion or commit an error
of law when it denied the petition to open.
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Hunsberger next contends that the general rule is that the guarantor’s
liability will not exceed the principal debtor’s liability. However, the case
Hunsberger cites for support, Ford Motor Credit Co. v. Lototsky, 549
F.Supp. 996 (E.D. Pa. 1982), also states that because a contract of guaranty
is a separate undertaking, a guarantor may assume a contractual liability
greater than that of the debtor. Therefore, the case cited by Hunsberger
does not support the proposition she espouses. Also, it should be noted that
Medisys indicates in its brief that Medisys and Solutions are currently in
litigation in the Court of Common Pleas of Berks County regarding the
alleged setoff and reduction in the note.
Hunsberger also asserts that the language of the Guaranty did not
effect a waiver of the right to challenge the amount of the debt the Guaranty
secures. Hunsberger argues that the Guaranty only waived defenses and
rights of setoff, recoupment, and counterclaim that were personal to
Hunsberger and not ones that applied to Solutions. However, Hunsberger
ignores Section 6 of the Guaranty which states, “This Guaranty shall be
valid, binding, and enforceable even if the obligations of the Maker
[Solutions] to the Holder [Medisys] which are guaranteed hereby are now or
hereafter become invalid or unenforceable for any reason.” Therefore, under
Section 6, Hunsberger, as guarantor, would still have a duty under the
Guaranty even if Medisys somehow did not fulfill its obligations to Solutions.
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Hunsberger next asserts that Solutions has the right to take a
reduction in the amount owed under the note and that it is hornbook law
that a guarantor may assert the defenses of the principal obligor. While that
may be the case generally, Hunsberger ignores the explicit waiver in the
Guaranty.
Hunsberger also contends that Solutions’s right to take reductions
against the note for incurred losses has not been compromised because it
complied with the terms of the Agreement when it notified Medisys of the
reduction to which it believed it was entitled. As we have already found that
Hunsberger waived all defenses, we need not address this issue. Similarly,
this court need not address the second main issue raised by Hunsberger that
she presented meritorious defenses to the confessed judgment and sufficient
evidence to warrant submission to a jury because Hunsberger waived any
defenses under the Guaranty.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/8/2017
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