When Can a Confessed Judgment Be Opened? A Case SummaryJuly 23, 2013 – In The News
The case of Thomas Ferrick and Janice Ferrick v. Edward W. Bianchini and SAB, LLC, (2013 Pa. Super 116) involved a commercial real estate Tenant’s efforts to strike or open a confessed judgment that was filed by the Landlord after a breach of the Tenant’s lease. The Tenant raised a number of issues in an attempt to void or open the judgment, and the court’s analysis is instructive in determining what a properly written confession clause should say, and what considerations are relevant in determining if a confessed judgment can or should be opened.
In April 2009, Edward Bianchini entered into a 10-year lease with 12th Street Property LLC (Landlord) for space in a building located at 114 S. 12th Street, Philadelphia, PA. Bianchini intended to operate a restaurant from the premises. Later in April, 2009, Bianchini assigned the lease to SAB, LLC (Tenant), but Bianchini remained liable under the provisions of the lease as a guarantor. The original lease, assignment and guaranty contained a confession of judgment clause. In addition, in the amendment to the lease that was executed in connection with the assignment, SAB, LLC and Bianchini agreed that the confession of judgment provisions in the original lease and the assignment would continue. In June 2011, the Tenant defaulted under the lease. In August 2011, the Landlord filed a complaint in confession of judgment and sought both past due rent and accelerated rent and fees for the remaining eight years of the lease term. In September 2011, Bianchini and the Tenant filed a petition to strike or open the confession of judgment pursuant to Pa. R.C.P. 2959. The court denied the petition, and in November 2011 Bianchini and Tenant filed an appeal to the Superior Court of Pennsylvania, raising a number issues relevant to the question of whether the judgment should be stricken or opened.
The first two issues involved claims that the trial court erred in failing to permit the parties to take discovery following the filing of Petition to strike or open the confessed judgment, and whether the trial court applied the appropriate standard of review when adjudicating the petition. The court disposed of the first issue by noting that issuance of a rule to show cause to open a confessed judgment was not compelled by Philadelphia Civil Rule 206.4, as maintained by the Tenant. The court agreed with the Landlord that the petition did not state a prima facie ground for relief that would compel the issuance of the Rule. Moreover, it was unclear why the Tenant needed discovery in support of its petition. The Tenant claimed that allowing the Landlord to confess judgment was grossly excessive because the Tenant made approximately $700,000 in permanent leasehold improvements. However, the court noted that the Tenant took the premises as-is and was expected to make the improvements. The court stated it was unclear why the Tenant thought that allowing the Landlord to recover on a confession of judgment would be excessive, and went on to find that there was nothing in the lease that entitled the Tenant to any kind of credit for the improvements that the Tenant made to the premises.
Next, the Tenant claimed that the trial court failed to apply strict review and close scrutiny when it adjudicated the petition. However, the Superior Court found that the trial court recited the proper legal standard and concluded that the Tenant’s arguments were refuted by the terms of the Lease and applicable law. The trial court determined that the signed lease, assignment and amendment were valid, the rent was properly accelerated and that repeated use of the warrant to collect successive judgments was permitted. The court determined that on its face, the confession of judgment was valid and enforceable and that the proper standard of review was applied in adjudicating the petition.
The Tenant also alleged that the confession of judgment was not properly incorporated into the amendment and binding on the Tenant. The Tenant claimed that the confession of judgment had to be restated in the amendment and not merely referenced, and that the signature on the original lease did not bear a “direct relation to the provision authorizing the warrant” (quoting Frantz Tractor Co. Inc. v. Wyoming Valley Nursery, 120 A.2d 303 (Pa. 1956)). The Landlord argued, and the court agreed, that unlike in other cases cited by the Tenant, in the case at issue the connection between the original confession of judgment and the debtor was not in fact severed. The court distinguished a number of cases where the confession of judgment provision was on the reverse side of a pre-printed lease and the back page was not signed, and where the confession was in a separate addendum to the lease that was not signed — situations where the confession of judgment was physically separated from the balance of the lease. In this case, the court noted that although the addendum did not recite the confession of judgment again, Bianchini initialed or signed the conspicuous confessions of judgment in the Lease, the Assignment and the guaranty and executed each of those documents. The amendment also expressly references the confession of judgment in the lease and Bianchini, on behalf of himself and the Tenant, signed the Amendment. The court thus determined that Bianchini and the Tenant clearly consented to the confession of judgment.
Next, the Tenant alleged that the Landlord’s prior exercise of the confession of judgment prohibited its reuse. In 2010, the Landlord had previously confessed judgment under the lease. The court, however, pointed out that by its express terms, the confession of judgment language permitted successive actions and successive judgments, and stated that the confession of judgment would not be exhausted by one or more exercised thereof. The court also agreed with the Landlord that the amounts for which judgment was being confessed were distinct from the rents for which judgment was confessed in 2010.
Finally, and of particular note, the Tenant claimed that the trial court was permitting a double recovery, insofar as the Landlord both obtained possession of the premises and fully accelerated the rent for the balance of the term. However, the court drew a distinction between the facts of the present case and a situation where a landlord attempts to confess judgment for both possession of the property and for rent for the balance of the term. While it was true that the Landlord had possession of the premises, the court found that the Tenant had actually abandoned the premises, and the Landlord merely re-took possession as a result of that abandonment. The court confirmed the general principal that a landlord must choose between taking possession of the property and collecting future rents, but in this case the Landlord was not attempting to exercise dual remedies. The Tenant could not prevent the Landlord from exercising his right to accelerate rent (and confess judgment for that rent) by abandoning the premises, but the Tenant could claim a credit against the judgment at execution for any rent the Landlord received from a new tenant. Thus, Landlord’s possession of the premises gave the Tenant a claim for a credit, but was not a reason to open or strike the confessed judgment.
As a result, the court affirmed the trial court’s denial of the petition.