November 16, 2021 In Business Law, Business Litigation

Refiling a Stricken Confessed Judgment – Is It Permitted?

If you are not familiar with confession of judgment, I suggest you read my prior article entitled “Confession of Judgment – Be Careful When Giving Up Your Right to Due Process.” Boiled down to its basics, a confession of judgment clause is a provision in a contract that permits a party to skip the entire litigation process and obtain a court judgment against the other party if that other party breaches the contract. Such clauses are most often found in promissory notes (loan contracts) and commercial (business) leases of real estate.

I have a plethora of experience both filing, and attempting to strike or open, confessed judgments; so much that I was asked to testify as an expert on the topic before the United States House of Representatives Small Business Committee. It is not often that an interesting and novel question of law relating to confessions of judgment arises.  However, a recent Pennsylvania Superior Court decision caused me to think about the following question:  In what circumstances may a plaintiff re-file a previously stricken confessed judgment based upon the same contract and same debt? Let’s explore that question in light of existing court decisions.

First, here are the basics of what may be done to defend against a confessed judgment.  A confessed judgment may be “stricken” if it is defective on its face. In other words, if a court can determine, solely from the documents filed with the court, that a confessed judgment was filed without fully complying with the requirements of the contract at issue, or without complying with the Pennsylvania Rules of Civil Procedure in some way, the court should strike it (remove it completely). Alternatively, the confessed judgment may be “opened” if the defendant acts promptly (usually within 30 days of being served with a certain required notice) and if the defendant can show the court that he or she has a “meritorious defense” to the claim upon which the confessed judgment is based.  If a confessed judgment is “opened,” the case then proceeds through the standard litigation process. In this article, I am only discussing what may happen if a plaintiff re-files a confessed judgment upon the same contract and the same debt after it was previously stricken by the court.

The default rule in Pennsylvania is that “a warrant of attorney to confess judgment may not be exercised twice for the same debt.” TCPF L.P. v. Skatell, 976 A.2d 571, 575 n. 5 (Pa. Super. 2009). However, in Dime Bank v. Andrews, 115 A.3d 358, 369 (Pa. Super. 2019), the Pennsylvania Superior Court recognized that “under certain circumstances, and to certain extents, parties to a note may waive [the exhaustion rule], allowing for multiple exercises of a warrant of authority to confess judgment.” But what are those “circumstances” and “extents”? The use of both such terms indicates that courts should closely examine the confession of judgment clause to determine the specifically stated situations in which a confessed judgment may be refiled. Moreover, the “circumstances” and “extents” under which a stricken confession of judgment may be re-filed must be determined in light of existing Pennsylvania law relating to confession of judgment.

Pennsylvania is one of only a handful of states that even permits confession of judgment. As the Pennsylvania Supreme Court has explained, a confession of judgment clause “is perhaps the most powerful and drastic document known to civil law” and “is equivalent to a warrior of old entering a combat by discarding his shield and breaking his sword.” Cutler Corp. v. Latshaw, 374 Pa. 1, 4, 97 A.2d 234, 236 (1953). As a result, a confession of judgment clause “will be strictly construed against the party to be benefited by it” such that “any ambiguities [must be] resolved against the party in whose favor the warrant is given.”  Egyptian Sands Real Estate, Inc., v. Polony, 294 A.2d 799, 803 (Pa. Super. 1972). In other words, unless a confession of judgment clause confers a particular power, that power does not exist.

With this backdrop, let’s examine two different confession of judgment clauses. Here is the first one, which is taken from the recent case of SDO Fund II D32, LLC v. Donahue, 234 A.3d 738 (Pa. Super. 2020), appeal denied, 249 A.3d 251 (Pa. Feb. 17, 2021):

“[The Plaintiff may] [c]onfess judgment, or a series of judgments, against the Guarantor in favor of the Bank for the amount of the Obligations … [and] [n]o single exercise of the foregoing power to confess judgment, or a series of judgments, shall be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void, but the power shall continue undiminished and it may be exercised from time to time as often as the Bank shall elect until such time as the Bank shall have received payment in full of the Obligations and costs.”

(Emphasis added). And here is the second one, which is hypothetical but uses language commonly found in confession of judgment clauses:

“Such authority to confess judgment shall not be exhausted by one exercise thereof, but may be exercised from time to time and as often as there is an occurrence of an event of default by borrower under this promissory note.”

Note that the main difference between the two clauses is the inclusion of the bolded and italicized language in the first example, which specifically permits the plaintiff to refile the confessed judgment even if it is determined by a court to be invalid or void (e.g. if it is stricken by a court). Such language is notably absent from the second example clause and, to date, no Pennsylvania appellate court has specifically permitted a plaintiff to re-file a stricken confessed judgment based upon the second clause, but nor has any such court prohibited it.

It is my opinion that, because the general rule is that a confession of judgment cannot be refiled once it is stricken, and because a confession of judgment clause only confer the powers specifically set forth therein and will be strictly construed, a confessed judgment may not be refiled upon the same contract and the same debt once it is stricken by a court unless the contract specifically permits it. I do not believe that general “from time to time” language like that from my hypothetical example above is sufficient and, instead, more specific language similar to what was in the contract in SDO Fund II would be necessary to confer such power.  The Pennsylvania appellate courts will eventually decide this issue and, therefore, time will tell if I am right or wrong.