SDO Fund II D32, LLC v. Donahue

234 A.3d 738

SDO FUND II D32, LLC

v.Gerard T. DONAHUE, Appellant

No. 889 MDA 2019

Superior Court of Pennsylvania.

Argued March 11, 2020

Filed June 17, 2020

Gerald J. Butler, Scranton, for appellants.

James W. Hennessey, Philadelphia, for appellee.

BEFORE: OLSON, J., DUBOW, J., and McLAUGHLIN, J.

OPINION BY McLAUGHLIN, J.:

Gerard T. Donahue ("Donahue") appeals from the order entered in the Lackawanna County Court of Common Pleas, denying his petition to strike and/or open the confessed judgment entered in favor of SDO Fund II D32, LLC ("SDO"). The key issue is whether the subject confessed judgment was infirm because the warrant of attorney was "exhausted" by a previous use of the warrant to confess judgment against Donahue. Because the warrant of attorney contained explicit language permitting the lender to confess judgment against Donahue multiple times without exhausting the warrant, we affirm.

This case arises out of the purchase and development of a large commercial office building in Scranton, Pennsylvania, pursuant to a commercial real estate loan. Donahue is a commercial real estate investor. In July 2008, he entered into a Guaranty and Surety Agreement (the "Guaranty") with SDO's predecessor-in-interest, PNC Bank, N.A. ("PNC"). The Guaranty rendered Donahue an "absolute, unconditional, irrevocable and continuing" guarantor and surety of a debt of 417 Lackawanna Avenue, LLC ("417 Lackawanna"). Guaranty, 7/1/08, at ¶ 2. Donahue is 417 Lackawanna's president. The debt was in the original principal amount of $5.4 million, as evidenced by a note ("Term Note").

The Guaranty contained a warrant of attorney that authorized the lender to confess judgment for the total amount due, upon an event of default. It provided that "[n]o single exercise" of the warrant, "or a series of judgments," would exhaust the warrant of attorney:

Power to Confess Judgment. The Guarantor hereby empowers any attorney of any court of record, after the occurrence of any Event of Default hereunder, to appear for the Guarantor and, with or without complaint filed, confess judgment, or a series of judgments, against the Guarantor in favor of the Bank for the amount of the Obligations[.]...

No 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.

Guaranty, at 7/1/08, at ¶ 9 (emphasis added).

Approximately three years after entering into the Guaranty, in June 2011, Donahue, acting in his capacity as president of 417 Lackawanna, executed an amendment to the Term Note (the "First Amendment"). First Amendment to Loan Documents, 6/30/11. Included within the First Amendment, he also executed, acting in his individual capacity, a Consent of Guarantor, which provided that all of the terms in the Guaranty remained "unaltered and in full force and effect." Id. at 7. It also stated that "[t]he Guarantor ratifies and confirms the indemnification, confession of judgment (if applicable) and waiver of jury trial provisions contained in the Guaranty. " Id. (emphasis in original).

Approximately seven months later, in January 2012, PNC confessed judgment against Donahue for $5,671,904.74 (the "PNC Judgment"). However, it did not execute on the judgment.

Subsequently, in September 2012, Donahue – acting in his capacity as president of 417 Lackawanna – executed a second amendment to the Term Note ("Second Amendment"), again altering the payment terms. The Second Amendment contained a warrant of attorney authorizing the confession of judgment against both 417 Lackawanna and Donahue. It also permitted the entry of multiple successive judgments until the debt was paid in full. Second Amendment to Loan Documents, 9/21/12, at ¶ 9. As part of the Second Amendment, Donahue also executed – in his individual capacity – a second Consent of Guarantor, in which he again "ratifie[d] and confirm[ed] the indemnification, confession of judgment and waiver of jury trial provisions contained in its Guaranty ." Id. at p. 7 (emphasis in original).

In October 2012, PNC voluntarily discontinued the PNC Judgment without prejudice.

There was a third amendment to the Term Note ("Third Amendment"), which Donahue also signed in his capacity as president of 417 Lackawanna. The Third Amendment changed the payment terms of the Term Note to require final payment under the Term Note on March 31, 2014. Like the Second Amendment, the Third Amendment contained a warrant of attorney authorizing the confession of judgment not only against 417 Lackawanna, as principal, but also against Donahue, as guarantor. It also permitted the entry of multiple successive judgments until the debt was paid in full. Third Amendment to Loan Documents, 11/21/13, at ¶ 9. Donahue executed a third Consent of Guarantor, in which he again "ratifie[d] and confirm[ed] " the confession of judgment provision contained in the Guaranty. Id. at p. 7 (emphasis in original).

417 Lackawanna defaulted on the Term Note by failing to pay all sums due by March 31, 2014.

On March 11, 2016, PNC assigned its rights under the Term Note and Guaranty, as amended, to SDO. SDO and 417 Lackawanna then entered into a Forbearance Agreement, whereby SDO agreed not to take any action on the default under the Term Note until December 31, 2016. Forbearance Agreement, 5/20/16, at ¶ 6.2. The Forbearance Agreement contained a warrant of attorney authorizing the confession of judgment against 417 Lackawanna including the entry of "a series of judgments" until the debt was paid in full. Id. at ¶ 22. As part of the Forbearance Agreement, Donahue executed in his personal capacity another Consent of Guarantor, in which he again "ratifie[d] and confirm[ed]" the confession of judgment provision in the Guaranty. Id. at unpaginated p. 13.

When December 31, 2016 arrived, SDO and 417 Lackawanna entered into an Amendment to Forbearance Agreement in which SDO agreed not to take action on the default under the Term Note until March 31, 2017. Amendment to Forbearance Agreement, 12/31/16, at ¶ 2(b).

The debt remained unsatisfied on March 31, 2017. As a result, SDO filed a Complaint in Confession of Judgment on August 23, 2017, and entered judgment for $5,689,780.41, against Donahue. Donahue then filed a petition to strike/open the judgment, which the trial court denied on May 3, 2019. This timely appeal followed.

Donahue raises one issue for our review:

Whether the hearing judge erred and abused its discretion in not striking/opening the judgment confessed by assignee SDO on the basis that PNC's prior use of the warrant of attorney to confess judgment exhausted the warrant which merged into the confessed judgment and which could not be revivified by any language in the amendments to loan and forbearance agreements, including "ratify and confirm" thereby rendering SDO's second confession of judgment a nullity[?]

Donahue's Br. at 4.

"[W]e review the order denying Appellant's petition to open the confessed judgment for an abuse of discretion." Neducsin v. Caplan , 121 A.3d 498, 506 (Pa.Super. 2015) (citation omitted). Our scope of review on appeal is "very narrow" and we will overturn the trial court decision only if the trial court has abused its discretion or committed manifest error. Atlantic Nat'l Trust, LLC v. Stivala Invs., Inc., 922 A.2d 919, 925 (Pa.Super. 2007) (citation omitted).

Opening and striking a judgment are different remedies subject to different standards. "A petition to strike a judgment is a common law proceeding which operates as a demurrer to the record." Resolution Trust Corp. v. Copley Qu-Wayne Assocs. , 546 Pa. 98, 683 A.2d 269, 273 (1996) (citation omitted). "A petition to strike a judgment may be granted only for a fatal defect or irregularity appearing on the face of the record." Id. (citation omitted).

"A petition to open a confessed judgment is an appeal to the equitable powers of the court." Neducsin , 121 A.3d at 504. The court may open a confessed judgment "if the petitioner (1) acts promptly, (2) alleges a meritorious defense, and (3) can produce sufficient evidence to require submission of the case to a jury." Id. at 506 (citation and emphasis omitted). "[I]f the truth of the factual averments contained in the complaint in confession of judgment and attached exhibits are disputed, then the remedy is by proceeding to open the judgment, not to strike it." Id. at 504 (internal quotation marks, citation, and brackets omitted).

Donahue argues the trial court erred by not striking or opening the confessed judgment. Specifically, he contends that the entry of a judgment on a warrant of attorney has the effect of exhausting the warrant, and a second confessed judgment based on the same warrant of attorney is invalid. Donahue's Br. at 17. He cites Scott Factors, Inc. v. Hartley , 425 Pa. 290, 228 A.2d 887 (1967), and TCPF, Ltd. P'ship v. Skatell , 976 A.2d 571 (Pa.Super. 2009), to argue that a judgment may be confessed but once for the same debt and the law precludes repeated exercises of a warrant of attorney to confess judgment. Donahue's Br. at 17. Donahue contends that since PNC had previously confessed judgment against him on the same debt, the warrant of attorney in the Guaranty had been exhausted when SDO most recently exercised it against him, such that SDO could not use the warrant. Id. at 9.

Donahue further asserts that he never signed a new confession of judgment with a fresh warrant and that the Consents of Guarantor that he signed in conjunction with the amendments to the Guaranty contained no new confession of judgment provisions.

Rather, according to Donahue, the Consents of Guarantor merely ratified and confirmed a confession of judgment with the original warrant of attorney...