Gur v. v. Nadav, J.

J-A25021-17
2018 PA Super 10VICTOR GUR : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
JONATHAN NADAV :
:
Appellant : No. 917 EDA 2017
Appeal from the Order February 15, 2017
In the Court of Common Pleas of Philadelphia County Civil Division at
No(s): November Term, 2016 No. 02384
BEFORE: OTT, STABILE, JJ., and STEVENS, P.J.E.*
OPINION BY STEVENS, P.J.E.: FILED JANUARY 22, 2018
Jonathan Nadav, Appellant/Borrower, appeals from the order entered in
the Court of Common Pleas denying his petition to strike and/or open the
confessed judgment entered against him by Victor Gur, Appellee/Lender.
After careful review, we affirm the trial court’s order in all respects except on
Appellant’s claim for offset, which we remand to the trial court for appropriate
resolution.
The trial court aptly sets forth the case history as follows:
On March 18, 2016, defendant Jonathan Nadav (hereinafter
“Borrower”), executed a Commercial Judgment Promissory Note
(the “Note”), containing his promise to repay certain loaned funds
to plaintiff Victor Gur (hereinafter “Lender”), in a principal amount
not to exceed $200,000.00. Under the Note, Borrower agreed to
pay a simple rate of interest of fifty (50%) per year, payable on a
monthly basis. Borrower also agreed to pay a default interest of
two percent (2%). In addition, the Note contained a warrant-of-
attorney clause which, upon default, authorized the entry of a
confessed judgment against Borrower for the full amount owing
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* Former Justice specially assigned to the Superior Court.
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to Lender. Specifically, the Note stated as follows in pertinent
part:
UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT … [BORROWER] AUTHORIZES … ANY
ATTORNEY … TO ENTER JUDGMENT AGAINST …
[BORROWER] FOR THE FULL AMOUNT DUE
HEREUNDER … AND … THE AMOUNT DUE
HEREUNDER SHALL INCLUDE THE UNPAID
PRINCIPAL SUM, INTEREST AND ALL SUMS
OWED BY … [BORROWER] PURSUANT TO THIS
NOTE, INCLUDING COSTS AND ATORNEY’S FEES
IN THE AMOUNT OF TEN (10% PERCENT OF THE
FULL AMOUNT DUE….
On November 25, 2016, Lender confessed judgment against
Borrower in the amount of $146,721.71. This amount includes
the full, unpaid principal of $100,000.00, interests of $31,249.95,
default interest of $2,000.00, attorney’s fees of $13,325.00, and
court costs of $146.76.
On December 22, 2016, Borrower filed a petition to strike or open
the confession of judgment. On January 20, 2017, the Court
issued an Order staying execution proceedings and directing
Lender to file a response in opposition and memorandum to
Borrower’s petition to strike or open the confession of judgment.
The response in opposition was timely filed, and the [trial court
determined the] petition to strike or open the confessed judgment
[was] ripe for a decision.
***
On February 15, 2017, [the trial court] denied [Borrower’s]
petition to strike or open the confession of judgment [and lifted
the stay of execution]. In the Order-and-Memorandum-Opinion
denying the petition, [the court] rejected Borrower’s argument
that the inordinate amount of interest charged by Lender
constituted a “Racketeering Activity” in violation of 18 Pa.C.S.§
911(b) of the Crime-and-Offenses Code [the “RICO Statute”].
In the Memorandum Opinion, [the court] noted that “the express
intent of the corrupt organization statute [is] to prevent infiltration
of legitimate businesses by organized crime.” Based on the
foregoing, [the court] rejected Borrower’s argument because “the
petition to strike or open … [failed to even] remotely aver that the
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inordinate interest charged by Lender [was] connected with an
attempt by organized crime to infiltrate Lender’s legitimate
business.
On the same day, but nearly two hours after [the court] issued its
Order-and-Memorandum Opinion, a supplemental brief appeared
on its docket. The supplemental brief, filed by Borrower,
reasserted the same argument contained in the petition to strike
or open—namely, that the judgment should be stricken because
the rate of interest contemplated under the Note was usurious and
in violation of the RICO Statute. In that supplemental brief,
Borrower relied upon an unpublished Opinion issued by the
Pennsylvania Superior Court to support his conclusion that “[t]he
purpose of the RICO Statute’s interest rate limit is to prohibit
loaning money to individuals at excessive interest rates.” [(citing
First Surety Financial, LLC v. Taylor Associates, LP 134 A.3d
91 (Pa.Super. 2015))].
On the following day, February 16, 2017, Borrower filed a motion
for reconsideration. In that motion, Borrower asked the Court to
reconsider its decision and to rule in his favor on the strength of
the same argument stated the previous day in the supplemental
brief. On February 22, 2017, this Court issued an Order denying
the motion for reconsideration and Borrower filed an appeal.
Trial Court Order and Opinion, dated 2/15/2017, at 1-2; Trial Court Pa.R.A.P.
1925(a) Opinion, dated 3/22/2017, at 2-3.
Appellant presents the following questions for our review:
1. WHETHER THE TRIAL COURT ERRED IN DENYING
APPELLANT’S MOTION TO STRIKE THE CONFESSED
JUDGMENT WHERE THE INTEREST RATE CHARGED ON
THE LOAN, EFFECTIVELY 74% PER ANNUM, PLUS
ATTORNEY’S FEES, WAS USURIOUS IN VIOLATION OF
THE PENNSYLVANIA “CIVIL RICO” STATUTE, 18
PA.C.S.A. § 911(H)(1)(IV), WHICH DEFINES
“RACKETEERING ACTIVITY,” AS CHARGING INTEREST
AT A RATE IN EXCESS OF 25%, AND WHERE THE
INTEREST AND ATTORNEY’S FEES CHARGED WERE
OTHERWISE GROSSLY EXCESSIVE AND WHERE THE
COMPLAINT FAILED TO CONTAIN AN ITEMIZED
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COMPUTATION OF THE AMOUNT ALLEGED DUE, IN
VIOLATION OF PA.R.C.P. 2952(7)?
2. WHETHER THE TRIAL COURT ERRED AND ABUSED ITS
DISCRETION IN DENYING THE PETITION TO OPEN THE
CONFESSED JUDGMENT WHERE THE INTEREST RATE
CHARGED WAS USURIOUS, THE INTEREST AND
ATTORNEY’S FEES GROSSLY EXCESSIVE, THE
COMPLAINT DID NOT CONTAIN AN ITEMIZED
COMPUTATION OF THE AMOUNT ALLEGED DUE, AS
REQUIRED BY PA.R.C.P. 2952(7), AND THE APPELLANT
ALLEGED FACTS SUFFICIENT TO SET FORTH A CLAIM
FOR OFFSET OF AMOUNTS ALLEGED DUE?
Appellant’s brief at 4.
We review the trial court's order denying Appellant/Borrower’s petition
to strike or open for an abuse of discretion. Neducsin v. Caplan, 121 A.3d
498, 506 (Pa. Super. 2015). “[T]he court abuses its discretion if, in resolving
the issue for decision, it misapplies the law or exercises its discretion in a
manner lacking reason.” Id.“A petition to strike a judgment is a common law proceeding which
operates as a demurrer to the record. [It] may be granted only for a fatal
defect or irregularity appearing on the face of the record.” Knickerbocker
Russell Co., Inc. v. Crawford, 936 A.2d 1145, 1146–1147 (Pa. Super. 2007)
(citations omitted). In assessing whether “there are fatal defects on the face
of the record ..., a court may only look at what was in the record when the
judgment was entered.” Cintas Corp. v. Lee's Cleaning Servs., Inc., 700
A.2d 915, 917 (Pa. 1997) (quoting Resolution Trust, Corp., v. Copley Qu–
Wayne Assocs., 683 A.2d 269, 273 (Pa. 1996)). Therefore, the original
record that is subject to review in a petition to strike a confessed judgment
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consists only of the complaint in confession of judgment and the attached
exhibits. See id.In contrast, “if the truth of the factual averments contained
in [the complaint in confession of judgment and attached exhibits
is] disputed, then the remedy is by proceeding to open the
judgment,” not to strike it. A petition to strike a confessed
judgment and a petition to open a confessed judgment are distinct
remedies; they are not interchangeable. A petition to open a
confessed judgment is an appeal to the equitable powers of the
court. 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.
Midwest Fin. Acceptance Corp. v. Lopez, 78 A.3d 614, 622–23 (Pa.Super.
2013) (internal citations omitted).
In his first issue, Appellant/Borrower argues that the trial court erred
and/or abused its discretion by failing to grant his petition to strike the
confessed judgment, as the annual interest rate of 50% set forth in the Note
was manifestly usurious under Pennsylvania’s “Civil RICO” statute, 18 Pa.C.S.
§ 911. Section 911(b) prohibits “Racketeering Activity,” Appellant argues,
and Section 911(h)(1)(iv) defines “Racketeering Activity” to include:
(iv) The collection of money or other property in full or partial
satisfaction of a debt which arose as the result of the lending or
other property at a rate of interest exceeding 25% per annum or
the equivalent rate for a longer or shorter period, where not
otherwise authorized by law.
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18 Pa.C.S. § 911(h)(1)(iv). By lending money at an interest rate double the
statutory limit,1 Appellant argues, Lender engaged in racketeering activity
proscribed under the RICO statute, rendering the promissory note he signed
patently unlawful and unenforceable, and necessitating the striking of the
confessed judgment.
The trial court, however, denied that the RICO statute applied to the
present loan, which was, because of its undisputed categorization as a
business loan entered into by presumptively sophisticated parties of their own
free accord, otherwise exempt from this Commonwealth’s statutory scheme
dedicated to the task of policing lending abuse, i.e., the Loan Interest and
Protection Law (“LIPL”), 41 P.S. §§ 101-605.2 Specifically in this regard,
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1Appellant contends that effective interest rate applicable under the note was
actually 74% per annum, when one factors the default interest of 2% per
month. Further indicative of a racketeering activity in this regard was the
imposition of attorney’s fees equal to 10% of the combined balance of the
confessed judgment.
2 As noted above, the lower court found instructive the non-precedential
memorandum decision of a Superior Court panel in First Surety Financial,
LLC v. Taylor Associates LP, No. 3233 EDA 2014, unpublished
memorandum (Pa.Super. filed Oct. 5, 2015). In First Surety, the
plaintiff/commercial lender had prevailed at bench trial on its breach of loan
agreement claim against multiple defendants, including an incorporated
construction company, for failure to pay the loan in full.
The defendant/borrower construction company had raised a defense that the
loan agreement violated RICO’s criminal usury provision at Section
911(h)(1)(iv) because it charged an interest rate of 72% per annum. The
lower court rejected this RICO claim, opining that the PIPL’s exemption of
business loans from an interest rate limit also brought such loans within
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Section 201 sets the lawful maximum rate of interest at 6%, but it specifically
exempts business loans from its ambit. See 41 P.S. § 201.3 No other
provision in the LIPL limits interest rates attendant to business loans.
____________________________________________
section 911(h)(1)(iv)’s exception conferred upon loans otherwise authorized
for higher rates.
Our panel affirmed, “conclud[ing] that the claims raised in [the appellant’s]
brief are meritless and that [the trial court’s] opinions … meticulously and
accurately explain why Appellant’s claims fail.[] Therefore, we adopt the trial
court’s opinions as our own.” Id, at *4.
The panel did, however, assume, arguendo, that “even if section 911(h)(1)(iv)
were applicable to business loans, [the appellant’s] claim would fail because
[defendant/borrower construction company] is a Pennsylvania corporation
and, under 15 Pa.C.S.A. § 1510(a), [] cannot use ‘the taking of more than the
lawful rate of interest … as a defense to any action or proceeding brought
against it to … enforce payment of any obligation executed or effected by’ it.”
Id, at *4 n. 2. Notably, the panel also held that another named defendant,
sued in his individual capacity as an accommodation party to the construction
company for purposes of obtaining the construction loan, likewise could not
assert the defense of usury, as an accommodation party, though an individual,
is entitled to only those protections available to the corporate borrower.
3 Section 201, Maximum lawful interest rate, provides:
(a) Except as provided in Article III of this act, the maximum lawful rate of
interest for the loan or use of money in an amount of fifty thousand dollars
($50,000) or less in all cases where no express contract shall have been made
for a less rate shall be six per cent per annum.
(b) The maximum lawful rate of interest set forth in this section shall not apply
to:
(1) an obligation to pay a sum of money in an original bona fide principal
amount of more than fifty thousand dollars ($50,000);
(2) an unsecured, noncollateralized loan in excess of thirty-five thousand
dollars ($35,000); or
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After careful review of the complaint in confession of judgment,
accompanying exhibits, and relevant law bearing on the matter, we discern
no merit to the Appellant/Borrower’s claim challenging the trial court’s order
denying the motion to strike. As noted, supra, the RICO act sets a maximum
interest rate of 25% per annum, but, significantly, it waives this proscription
in the event another statute authorizes rates exceeding 25%. 41 P.S. § 201,
which establishes a 6% per annum maximum lawful rate to stem the
imposition of usurious rates, specifically exempts business loans of any
principal amount from this statutory limitation, effectively authorizing higher,
albeit unspecified, rates in the business setting.
Given the RICO Act’s self-limiting scope where higher interest rates are
otherwise authorized by law, we decline to hold, as a matter of law, that the
agreement between the business entities here to a 50% interest rate
represented a per se RICO violation where the PIPL, with its focus on curbing
usurious lending in this Commonwealth, expressly provides that business
loans are exempt from the maximum lawful interest rate set therein. 4 Thus
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(3) business loans of any principal amount
41 P.S. § 201
4 In this respect, we believe this decision, relying as it does on Appellant’s
status as a bona fide sophisticated business owner, harmonizes with principles
informing both the PIPL, whose thrust is to protect “unsuspecting borrowers”
from being exploited, see Smith v. Mitchell, 616 A.2d 17 (Pa.Super. 1992)
(discussing why business loans are exempt from protections of “Usury Law”
at 41 P.S. § 101 et seq.), and the Business Corporation Law, 15 Pa.C.S.A. §
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discerning no fatal defect or irregularity on the face of the complaint or
accompanying attachments, we find no error with the trial court’s denial of
Appellant/Borrower’s petition to strike.
Instead, we consider the question of whether the interest rate charged
ran afoul of Pennsylvania’s RICO statute to be better presented within a
petition to open confessed judgment, as that vehicle provides an opportunity
for a defendant/borrower to present evidence supporting the allegation of a
corrupt organization infiltrating a legitimate business by means of a usurious
interest rate. Turning, then, to the propriety of the court’s denial of
Appellant’s petition to open, we observe the following standard of review:
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.” Neducsin, 121 A.3d at 505. In
adjudicating a petition to open a confessed judgment, the trial court is charged
with “determining whether the petitioner presented sufficient evidence of a
meritorious defense to require submission of that issue to a jury.” Ferrick v.
Bianchini, 69 A.3d 642, 647 (Pa. Super. 2013) (citing Homart
Development Co. v. Sgrenci, 662 A.2d 1092 (1995)). “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
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1510(a), which goes so far as to deny altogether a corporate defendant of the
“use of usury as a defense.”
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other evidence, may be considered by the court.” Graystone Bank v. Grove
Estates, LP, 58 A.3d 1277, 1282 (Pa. Super. 2012).
A meritorious defense is one upon which relief could be afforded if
proven at trial. Ferrick, 69 A.3d at 647. Moreover:
Pa.R.[C.]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 rejecting contrary evidence of the non-moving party.
The petitioner need not produce evidence proving that if the
judgment is opened, the petitioner will prevail. Moreover, we
must accept as true the petitioner's evidence and all reasonable
and proper inferences flowing therefrom.
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. 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.
Neducsin, 121 A.3d at 506–507 (internal citations and quotation marks
omitted) (emphasis added).
In charging error with the court’s denial of his alternate motion to open
judgment, Appellant assails the trial court’s determination that it was his
burden to present evidence that Lender charged the interest rate in question
as part of a broader enterprise in organized crime. Specifically, the court
referenced “the express intent of the corrupt organization statute to prevent
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infiltration of legitimate businesses by organized crime[,]” and it denied that
Appellant presented any evidence raising a jury question as to whether
Lender’s conduct fit this description. Order and Memorandum-Opinion, dated
2/15/17, at 3-4 (citing Commonwealth v. Bobitski, 632 A.2d 1294, 1296
(Pa. 1993).
According to the court, Appellant failed to so much as allege, let alone
offer details of how, Lender was involved “in the acquisition of any interest in,
or the establishment or operation of, any enterprise” through organized crime
or racketeering activity.” Trial Court Opinion, dated 3/22/17, at 3-5 (citing
Pa.C.S.A. § 911(a) and (b)). Appellant responds that such evidence was not
necessary to open the judgment where the RICO statute defines the collection
on a debt charging more than 25% interest as a proscribed “racketeering
activity” in and of itself.5
Our review of the record supports the trial court’s conclusion that
Appellant failed to present sufficient evidence raising a jury question as to
whether Lender attempted to leverage Appellant’s legitimate business in
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5 Initially, we note that Appellant offers this argument exclusively within his
first issue challenging the court’s denial of his petition to strike. He does not
offer a RICO-based challenge in his second briefed issue challenging the
court’s denial of his petition to open confessed judgment. We may, thus, find
he has waived this challenge. See Moses Taylor Hosp. v. White, 799 A.2d
802, 804 (Pa. Super. 2002) (observing it is well-settled that “[w]hen an
appellant attempts to incorporate by reference issues addressed elsewhere
and fails to argue them in his brief, the issues are waived.”); see also
Pa.R.A.P. 2119(a). Nevertheless, we decline to find waiver in this regard and
elect, instead, to read his second issue in conjunction with the first, stating an
integrated challenge to the court’s denial of his petitions to strike and open.
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violation of the RICO law. Again, other than referencing the interest rate
charged, Appellant failed to offer evidence of any kind to support the allegation
that Lender was acting corruptly in the making of the business loan at issue.
Instead, the only evidence bearing on the relationship of the parties and the
nature of the loan was that Appellant, the owner of an established business,
sought a business loan from Lender, Lender provided the loan at terms agreed
upon knowingly and intelligently by Appellant, Appellant failed to make a
single payment of principal or interest on the loan, and Lender initiated this
legal action after several months of unsuccessful attempts to collect
installment payments on the loan. Even when read most favorably to
Appellant as the moving party, such facts did not compel the court to open
the confession of judgment.
Next, Appellant posits that the court erred in failing to open judgment
where the Lender’s complaint lacked sufficient information allowing one to
determine how much interest was due and whether such interest conformed
to the rate specified on the promissory note. This is so, Appellant argues,
because the complaint neither included an itemized calculation of the amount
due as required by Pa.R.C.P. 2952(7)6 nor indicated when the disbursements
of loan principal occurred. He, therefore, asks that the confession of judgment
be opened to allow Lender to prove the amounts claimed as due.
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6 Pa.R.C.P. 2952(7) requires that a complaint in confession of judgment
contain “an itemized computation of the amount then due, based on matters
outside the instrument if necessary, which may include interest and attorneys’
fees authorized by the instrument.”
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Reviewing the pertinent record in a light most favorable to Appellant as
the moving party, we conclude, nevertheless, that the record confirms Lender
provided the court with copies of bank records indicating the dates on which
Appellant posted loan checks for payment in the aggregate amount of
$100,000.00. See “Plaintiff’s Supplemental Memorandum of Law in
Opposition to Defendant’s Petition to Strike and/or Open Confessed
Judgment,” Exhibit I, filed 1/27/17. Accordingly, we reject Appellant’s appeal
to the equitable powers of the court in this regard, as an adequate basis for
Lender’s calculations of interest due existed at the time the court denied
Appellant’s petition to open confessed judgment.
Appellant’s petition to open also averred that Lender came to Appellant’s
place of business following the alleged default and took merchandise having a
value in excess of $7,000.00 without Appellant’s consent. In Lender’s
responsive Memorandum of Law in opposition to Appellant’s petition to open,
Lender argued that the issue of offset was “impertinent and irrelevant to the
judgment at issue[,]” and he emphasized that Appellant provided no evidence
to support the contention that any such merchandise was offered or accepted
as a payment towards the Note. See Lender’s “Memorandum of Law in
Opposition to Defendant’s Petition to Strike And/Or Open Confessed
Judgment,” filed 1/27/17, at 8.
Appellant, therefore, submits it was error for the court to deny his
petition without a hearing, where he had raised a legitimate factual dispute
and requested a hearing to address the as to whether the amount of the loan
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due should have been offset by the value of the merchandise taken. On this
point, we find the equities to weigh in favor of Appellant’s position that his
request for a hearing should have been granted, particularly since Lender’s
response hardly denied acquisition of merchandise in question but, instead,
asserted only that Appellant offered insufficient evidence establishing the
acquisition of any such merchandise was related to the loan. Finding a factual
dispute bearing upon the actual amount due on the loan, we conclude that
remand is appropriate to resolve this issue.
Accordingly, we grant Appellant’s petition to open confessed judgment
and remand this matter for resolution of the limited question of whether
Appellant’s claim of offset is meritorious. In all other respects, we affirm the
order of the trial court. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 1/22/18
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