Opinion
No. 03-CV-4954
December 2, 2003
MEMORANDUM AND ORDER
Pursuant to Fed.R.Civ.P. 60(b), Defendant Catterton seeks to either strike or, in the alternative, open the Judgment by Confession that this Court entered on September 9, 2003, in the amount of $4,480,732.41 plus interest from August 25, 2003, at a per diem rate of $464.03 plus costs of suit. For the reasons discussed below, we deny Defendant's Motion to Strike or Open Confessed Judgment. We thus find it unnecessary to address the Cross Motion of Plaintiff Sovereign Bank to amend its Complaint and the Plaintiff's response thereof. An appropriate order follows.
I. FACTUAL BACKGROUND
On October 11, 2001, Main Street Bank, Plaintiff's predecessor in interest, loaned Defendant and H. Moffette Tharpe, Jr. $150,000.00 (Loan No. 1). The promissory note, signed by Defendant, included a "Confession of Judgment" clause that, upon the borrowers' default, allowed the Prothonotary of any court in Pennsylvania to appear on behalf of the borrowers and confess judgment against the borrowers. The promissory note included several conditions that constituted default, including "[a] material adverse change . . . in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired." (Compl. Ex. A)
The clause further waived the right of Defendant, as borrower, to notice or a hearing in connection with the confession by judgment. Id. In conjunction with the promissory note, on the same day, Defendant signed a Disclosure for Confession of Judgment, declaring that he understood both the promissory note contained a Confession of Judgment that allowed the bank to enter judgment against him, and that bank's representative had specifically called Defendant's attention to the provision. (Compl. Ex. B; Def.'s Mem. in Opp. Ex.1).
The promissory note regarding Loan No. 1 also contained a "Choice of Venue" clause, which stated that Defendant, as borrower, agreed to submit to the jurisdiction of the courts in Berks County, Pennsylvania if Plaintiff so requested. (Compl. Ex. A)
On January 22, 2002, Main Street Bank approved four loans (Loan Nos. 2-5), amounting to $2,300,000.00, which Defendant guaranteed by signing a Guaranty and Suretyship Agreement. (Compl. Ex. G). The Guaranty and Suretyship Agreement included a Judgment of Confession clause, which allowed an attorney to appear on Defendant's behalf to confess judgment against him in the event of default. Id.
On April 24, 2003, the borrower and the Tharpes, who in addition to Defendant had guaranteed Loan Nos. 2-5, entered into a forbearance agreement with Plaintiff. (PL's Mem. in Opp. Ex. 3.) The forbearance agreement recognized that Loan Nos. 2-5 were in default. Id.
Defendant did not sign this forbearance agreement. However, on May 29, 2003, Defendant's lawyer submitted a proposal to Plaintiff to attempt to resolve Defendant's guaranty of defaulted Loan Nos. 2-5 (PL's Mem. in Opp. Ex. 4), which Plaintiff rejected. (PL's Mem. in Opp. Ex. 6.) The letter rejecting Defendant's proposal also acknowledged that the loans were in default. Id.
Without notice to Defendant, on August 25, 2003, Plaintiff sought entry of a judgment by confession through a praecipe filed with the Clerk of Court. On September 2, 2003, Plaintiff filed a Complaint in Confession of Judgment, which averred that Defendant had defaulted on Loan No. 1 due to an adverse material change in his financial condition, and that the borrowers of Loan Nos. 2-5 had defaulted due to a failure to satisfy certain covenants in their loan agreements. (Compl. ¶¶ 13-14). Also filed at that time were the instructions for Defendant to follow if it sought to strike the judgment by confession, which Pennsylvania law requires that Plaintiff provide.
On September 9, 2003, this Court entered the judgment sought by Plaintiff in the amount requested in the praecipe — $4,480,732.41 plus interest from August 25, 2003, at a per diem rate of $464.03 and costs of suit. On September 16, 2003, Plaintiffs lawyer sent Defendant a letter informing Defendant of the Judgment by Confession entered by this Court, as well as the notice and instructions Plaintiff was required to submit with its Complaint. (Def.'s Mot. Ex. A)
On October 16, 2003, Defendant filed the instant motion, seeking to either strike or open the Confession by Judgment. Defendant has set forth various arguments in support of its motion, all of which this Court finds to lack merit.
II. JURISDICTION
Under 28 U.S.C. § 1332(a), this Court has original subject matter jurisdiction over claims between citizens of different states in which the monetary amount in dispute is greater than $75,000. Plaintiff Bank has its headquarters in Pennsylvania. Defendant Catterton resides in Virginia. The amount of the Confessed Judgment far exceeds the statutory minimum. As there is complete diversity between the parties and the amount in controversy exceeds $75,000, this court has jurisdiction to hear the instant matter. See 28 U.S.C. § 1332; HB General Corp. v. Manchester Partners. LP. 95 F.3d 1185, 1197 (3d Cir. 1996).
III. DISCUSSION
Pursuant to Rule 60(b) of the Federal Rules of Civil Procedure, Defendant seeks to either strike or open the Judgment by Confession that this Court ordered on September 9, 2003.
Defendant raises several arguments both with respect to striking the Judgment and, if we reject those arguments, with respect to opening the Judgment to determine issues of material fact. First, Defendant argues that we should strike the Judgment on three grounds: (1) the Complaint is facially invalid; (2) the instructions supplied by Plaintiff regarding the procedure for striking the Judgment were confusing, and thus inadequate; and (3) we have no jurisdiction because one of the loans at issue includes a choice of venue provision mandating that any litigation proceed in state court in Berks County, Pennsylvania.
In the alternative, Defendant moves for us to open the Judgment on grounds that Plaintiff failed to allow Defendant the opportunity to cure the alleged material adverse change leading to default and, moreover, that Plaintiff failed to adequately show a default by Defendant. We find all of Defendants' arguments lacking in merit and thus deny the Motion to Strike or Open Confessed Judgment. We shall address separately the arguments to strike then the arguments to open the Judgment.
Motion to Strike Judgment by Confession
While Rule 60(b) of the Federal Rules of Civil Procedure governs motions to review judgments, "Pennsylvania law govern[s] the substantive aspect of Rule 60(b) motions to open or strike [confessed] judgments." FDIC v. Deglau, 207 F.3d 153, 161, 166-67 (3d Cir. 2000). Motions to strike, which address facial defects, "will be granted only if a fatal defect or irregularity appears on the face of the judgment, and the defect [is] alleged in the motion to strike." Id. at 167; Manor Bldg. Corp. v. Manor Complex Associates. Ltd., 645 A.2d 843, 845-46 ( Pa. Super. 1994).
In considering a motion to strike, we limit our review only to "the record as filed by the party in whose favor the warrant [wa]s given, i.e., the complaint and the documents which contain confession of judgment clauses." Resolution Trust Corp. v. Copley Qu-Wayne Associates. 683 A.2d 269, 273 (Pa. 1996). While we must accept as true all factual assertions set forth in the plaintiff complaint, we are bound to open the Judgment if the defendant contests the validity of those facts. Deglau, 207 F.3d at 167; Manor. 645 A.2d at 846.
Defendant first argues that the Judgment should be stricken because the Complaint is not legally sufficient. Rule 2952 of the Pennsylvania Rules of Civil Procedure sets forth the requirements for a complaint for a Confession by Judgment. While Defendant fails to identify a specific section of the Rule that it claims Defendant's Complaint has not satisfied, it appears that Defendant argues that Plaintiff failed to allege a specific default by Defendant with respect to the Guaranty and Suretyship Agreement (G and S Agreement) he signed guaranteeing Loan Nos. 2-5. (Def.'s Mot. at 5.) We gather that this argument represents a challenge to the requirement that the Complaint include "an averment of the default." Pa. R. Civ. P. 2952(6).
However, this argument lacks merit because Plaintiff adequately alleges a default on the part of the borrower with respect to Loan Nos. 2-5, for which the G and S Agreement shows Defendant acted as guarantor. Contrary to what appears to be Defendant's argument, Rule 2952(6) does not require that Plaintiff plead the default with any particularity or specificity.See Dameron v. Woods Restaurant. Inc., 451 A.2d 681, 683 (Pa.Super. 1981) (recognizing the distinction between Rule 2952 and Pa. R. Civ. P. 1019(b), which requires that pleadings involving fraud or mistake be "averred with particularity").
Plaintiff averred in its Complaint that Defendant guaranteed the repayment of Loan Nos. 2-5 and attached a copy of the G and S Agreement, signed by Defendant, showing that Defendant did guaranty the loans (Compl. ¶ 12, Ex. G.) Plaintiff further averred that the borrower of those loans failed to satisfy specific covenants of the loan agreement, thus placing those loans in default. (Compl. ¶ 14.) As guarantor of the loans, Defendant was required to repay the loans. Moreover, contrary to Defendant's argument, Plaintiff did not need to attach the loan agreement signed by the borrowers because the document at issue showing Defendant's liability was the G and S Agreement, not the loan agreement.
We also note that Defendant does not contest that the borrowers defaulted; rather, Defendant merely argues that Plaintiff failed to identify an express default on the part of Defendant. However, such an allegation is not necessary when Plaintiff has adequately shown that Defendant has guaranteed the loans. Thus, an averment, especially without challenge from Defendant, that the borrowers defaulted is sufficient to satisfy Rule 2952(6).
We recognize that Plaintiff failed to attach to the Complaint §§ 5.10-5.12 of the Loan Agreement, which Plaintiff avers borrowers of Loan Nos. 2-5 violated, thus putting the loans in default. While it certainly would have helped to have those sections attached to the Complaint, for this proceeding, the provisions in the G and S Agreement adequately show Defendant's liability because it included a clause identifying the Agreement as sufficient warrant for purposes of entering a confessed judgment. (See Compl. Ex. G.) Moreover, even if the G and S Agreement did not satisfy the Plaintiffs burdens under Pennsylvania law, we find that the omissions do not constitute a fatal defect, especially considering that Defendants do not contest that the borrowers defaulted on the loans. Moreover, while mistakes in confessed judgments can be remedied by allowing amendments to complaints, West Penn Sand Gravel Co. v. Shippingport Sand Co., 80 A.2d 84, 86 (Pa. 1951), because we do not find any grounds for either striking or opening the judgment, in the interest of judicial efficiency, we will not require that Plaintiff amend the Complaint to include the omitted provisions.
Here, the Pennsylvania Superior Court's rationale in Dameron, Supra, is informative. There, the lessor of an apartment obtained a judgment by confession after averring in a complaint that the lessee violated a section of the lease by making alterations to the structure of the building. 451 A.2d at 683. In finding that the complaint adequately alleged a default, the court rejected the lessee's argument that the complaint was facially invalid because it failed to specify the extent and timing of the alterations, and reasoned that such details were immaterial to whether the lessee had made structural alterations, in violation of the lease. See Id., Similarly, here, the provisions of the loan agreement are immaterial to the extent that they do not show a default. It is adequate that Plaintiff averred that the borrowers defaulted on the loans that Defendant had guaranteed. Especially because Defendant does not contest that the borrowers defaulted on Loan Nos. 2-5, the provisions of the loan agreement, including the definition of "Event of Default" (See Def.'s Mem. at 6), are immaterial.
Moreover, we agree with Plaintiff that Defendant seems to confuse the distinction between the standard for a general civil complaint, where we need not accept legal conclusions, and that involving a judgment by confession. (See Def.'s Mem. at 7-8 (arguing and citing cases involving general pleading requirements for a complaint, rather than for that of a judgment by confession). We remind Defendant that we are required to accept as true all allegations set forth in the Complaint, unless Defendant challenges the veracity of those averments. See Deglau, 207 F.3d at 167; Manor. 645 A.2d at 252. While Defendant argues that the Complaint is rife with legal conclusion rather than fact, he fails to contest any of the allegations set forth in the Complaint. As such, not only could we not strike the judgment, but we could not even open the judgment based on the general denials set forth by Defendant.
Defendant next argues that we should strike the judgment because the Instructions Regarding the Procedure to Strike the Judgment ("Instructions"), which 42 Pa. C.S.P. § 2737.1 mandates that any creditor filing a confession by judgment provide to the debtor, are "hopelessly confused." (Def.'s Mem. at 9.) We find that, having included the necessary and appropriate provisions for moving to strike a judgment by confession, the Instructions provided by Plaintiff satisfy § 2737.1.
As Defendant recognizes, and as stated supra. Rule 60(b) of the Federal Rules of Civil Procedure governs motions to strike judgments. Fed.R.Civ.P. 60(b); Deglau, 207 F.3d at 161; See also Def.'s Mem. at 11. Moreover, as the Third Circuit stated "conclusively" in Deglau. "Pennsylvania law governs the substantive aspects of motions to open or strike confessed judgments." In other words, "Pennsylvania law should govern the substantive aspect of Rule 60(b) motions to open or strike judgment." 207 F.3d at 166-67. Finally, as we are sure Defendant is well aware, every document filed with this Court must abide by the Local Rules of Civil Procedure for the Eastern District of Pennsylvania. Thus, while Defendant may appear "hopelessly confused," the inclusion of Fed.R.Civ.P. 60(b), which governs procedure for challenging a judgment, Pennsylvania statute 42 Pa. C.S.A. § 2737.1, which requires that Plaintiff supply instructions, and Local Rule 7.1(c), which governs all motions filed in the Eastern District of Pennsylvania, was appropriate and necessary. See Deglau, supra (discussing all three of the rules within the context of a motion to strike or open a confessed judgment).
Finally, we reject Defendant's interpretation that the "Choice of Venue" provision in the Promissory Note for Loan No. 1 requires that all litigation take place in Berks County, Pennsylvania. The "Choice of Venue" provision is just that — a choice of venue. As Defendant states, the provision requires the borrower to agree to the jurisdiction of Berks County "upon Lender's request." (Def.'s Mem. at 12; Compl. Ex. A.) As Plaintiff obviously has not requested that this matter proceed in state court in Berks County, the Judgment cannot be stricken on grounds that it should have been brought in Berks County.
We thus deny Defendant's motion to strike, as Defendant has failed to identify any fatal irregularities or defects on the face of the record.
Motion to Open Judgment by Confession
Pursuant to Fed.R.Civ.P. 60(b), when determining whether to open a judgment by confession, the proper inquiry involves consideration of whether the "judgment will visit prejudice on the plaintiff, whether the defendant has a meritorious defense, and whether the default was the result of the defendant's culpable conduct." Resolution Trust Corp. v. Forest Grove. Inc., 33 F.3d 284, 288 (3d Cir. 1994). These proceedings "involve equitable principles, and only those judgments which warrant equitable interference will be opened." Thus, unlike with motions to strike, we can consider matters outside the Complaint and the documents involving the judgment by confession clauses. Manor. 645 A.2d at 251 n. 2 (citing Keystone Bank v. Flooring Spec., Inc., 518 A.2d 1179, 1182 n. 4 (Pa. 1986)).
We will grant a motion to open a judgment by confession if we find that "the defendant has alleged facts which, if established at trial, would constitute a meritorious defense to the cause of action." See Forest Grove. 33 F.3d at 288; Pa. R. Civ. P. 2959(e); see also Deglau, 207 F.3d at 168. However, the motion must provide "`clear, direct, precise' and `believable' evidence'" of such defenses. Deglau, 207 F.3d at 168 (quoting Suburban Mechanical Contractors. Inc. v. Leo. 502 A.2d 230, 232 (Pa.Super. 1985)). Because Defendant fails to provide such evidence, we deny the motion to open the judgment by confession.
Defendant sets forth two arguments for opening the judgment. Defendant argues that, with respect to Loan No. 1, Plaintiff did not provide him an opportunity to cure the default, which the Promissory Note required. He further denies any default on any of the loans. We do not find any of these arguments to constitute potential meritorious defenses.
First, Defendant claims that he should have been provided the opportunity to cure the "adverse material change" in his financial position that Plaintiff claims constituted a default under Loan No. 1. In relevant part, the cure provision of the Promissory Note states that "[i]f any default . . . is curable . . . it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default [satisfies the conditions for curing the default]." (Compl. Ex. A.) (emphasis added) Plaintiff does not deny that it did not provide notice of a breach or a demand that Defendant cure the default.
Thus, the issue for determining whether to open judgment on these grounds turns on whether the default, Defendant's alleged adverse material change in financial status, was curable. If the default was curable, we must open the Judgment because Defendant has provided evidence showing that Plaintiff never gave written notice demanding cure. (See Def.'s Mem. Ex. B; Catterton Aff.) However, if the default was not curable, according to the cure provision in the Promissory Note, Plaintiff was under no obligation to allow Defendant to cure and thus we cannot open the Judgment on these grounds.
As noted supra, the burden is on the defendant to provide believable evidence that were he to raise this defense at trial, it could be meritorious. However, Defendant has failed to provide any evidence to suggest that the change in his financial condition is a curable default. Moreover, while not dispositive, Defendant's May 2003 financial statement, which reveals relatively few assets and substantial liabilities (PL's Mem. in Opp. at Ex. 4), compared to his financial worth when the loans were approved (PL's Mem. in Opp. at Ex. 5 ¶ 14), supports Plaintiff's position, as it suggests a material change in the defendant's financial condition. Because Defendant has failed to identify any evidence or set forth any facts that could present a meritorious defense at trial that his default on Loan No. 1 was curable, we deny his motion to open on these grounds.
It has not gone unnoticed that neither party has cited any case law with respect to the motion to open the judgment by confession, and we do not feel inclined to do the parties' research for them. As the burden at this stage rests with Defendant, the absence of case law serves to hinder Defendant.
Similarly, we reject Defendant's frivolous general denial of defaults on Loan Nos. 1-5. The gross absence of any evidence set forth by Defendant to contest the allegation of default or attempt to show the existence of a meritorious defense to the allegations of default fall well short of the burden Defendant must meet for opening the judgment by confession. Moreover, the forbearance agreement regarding Loan Nos. 2-5, as well as the May 2003 letter from Defendant's attorney attempting to resolve Defendant's guaranty of defaulted Loan Nos. 2-5, the affidavit of Sovereign Bank's Vice-President, and the August 2003 letter from Plaintiff's attorney formally informing Defendant of his default status and Plaintiff's intention to obtain a judgment by confession in this Court, all make clear both that Defendant has defaulted on all loans for which he was borrower or guarantor (Loan Nos. 1-5), and that Defendant is well aware of his default status. (See PL's Mem. in Opp. at Exs. 3-6.) Defendant's motion to open the judgment by confession will be dismissed.
ORDER
AND NOW, this 2nd day of December, 2003, upon consideration of Defendant Catterton's Motion to Strike or Open Confessed Judgment, filed on October 16, 2003, and Plaintiff Sovereign Bank's Answer in Opposition to Defendant's Motion to Strike or Open Confessed Judgment, filed on November 10, 2003, it is hereby ORDERED that Defendant's Motion is DENIED.It is further ORDERED that Plaintiff's Cross Motion to Amend the Complaint in Confession of Judgment is DISMISSED AS MOOT.