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Midwest Financial Acceptance Corp. v. Rony E.

Superior Court of Pennsylvania

August 23, 2013

MIDWEST FINANCIAL ACCEPTANCE CORPORATION, Appellant
v.
RONY E. AND SUSAN M. LOPEZ, Appellees

Appeal from the Order Entered October 4, 2011 In the Court of Common Pleas of Centre County Civil Division at No(s): 2010-1662.

BEFORE: GANTMAN, J., LAZARUS, J., and MUNDY, J.

OPINION

GANTMAN, J.

Appellant, Midwest Financial Acceptance Corporation ("MFAC"), appeals from the order entered in the Centre County Court of Common Pleas, which granted the petition of Appellees, Rony E. and Susan M. Lopez, to strike, for improper venue, the confessed judgment entered against them in Allegheny County and transferred to Centre County. Given the non- adversarial nature of a confession of judgment, as well as the limited definition of "action" in Rule 2950, we hold that, unless otherwise specified in the agreement, the general venue terms of Rule 1006 do not automatically apply to the initial filing of a judgment of confession and cannot be used to strike an otherwise lawful confession of judgment that has been entered in strict compliance with a valid warrant of attorney. Accordingly, we reverse the order striking the confession of judgment entered against Appellees and remand for reinstatement of the judgment in Centre County.

The relevant facts and procedural history of this case are as follows. Appellees are residents of Centre County. They executed a promissory note ("Note") in exchange for a commercial loan in the amount of $131, 500.00 from Mid-State Bank and Trust Company in 1998. A successor in interest, MFAC, is a Missouri corporation that eventually took over the Note in 2007, at the end of a series of assignments. A provision in the Note, called LENDER'S RIGHTS stated that the parties agreed the Note would be governed by and construed in accordance with Pennsylvania law. Significantly, the Note authorized the entry of judgment in any competent jurisdiction, upon the occurrence of a default described in the document, as follows:

CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE, TO APPEAR AT ANY TIME FOR BORROWER AFTER A DEFAULT UNDER THIS NOTE, AND WITH OR WITHOUT COMPLAINT FILED, AS OF ANY TERM, CONFESS OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE, ALL ACCRUED INTEREST, LATE CHARGES, AND ANY AND ALL AMOUNTS EXPENDED OR ADVANCED BY LENDER RELATING TO ANY COLLATERAL SECURING THIS NOTE TOGETHER WITH INTEREST ON SUCH AMOUNTS, TOGETHER WITH COSTS OF SUIT, AND AN ATTORNEY'S COMMISSION OF TEN PERCENT (10%) OF THE UNPAID PRINCIPAL BALANCE AND ACCRUED INTEREST FOR COLLECTION, BUT IN ANY EVENT NOT LESS THAN FIVE HUNDRED DOLLARS ($500) ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY ISSUE IMMEDIATELY; AND FOR SO DOING, THIS NOTE OR A COPY OF THIS NOTE VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN THIS NOTE TO CONFESS JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY EXERCISE OF THAT AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE. BORROWER HEREBY WAIVES ANY RIGHT BORROWER MAY HAVE TO NOTICE OR TO A HEARING IN CONNECTION WITH ANY SUCH CONFESSION OF JUDGMENT, EXCEPT ANY NOTICE AND/OR HEARING REQUIRED UNDER APPLICABLE LAW WITH RESPECT TO EXECUTION OF THE JUDGMENT, AND STATES THAT EITHER A REPRESENTATIVE OF LENDER SPECIFICALLY CALLED THIS CONFESSION OF JUDGMENT PROVISION TO BORROWER'S ATTENTION OR BORROWER HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.

(Promissory Note, dated 7/2/98, at 2; R.R. at 12a). The confession of judgment provision appeared prominently in bold, capital letters at the end of the Note immediately before and on the same page as the signature lines. Just beneath the provision Appellees signatures appear on the Note as signed under seal. (Id.)

Appellees defaulted on their obligations under the Note as of February 18, 2009. By letter dated June 8, 2009, MFAC advised Appellees they were in default of the loan by reason of their failure to make payments due on April 2, 2009 and May 2, 2009, and the payment received on June 1, 2009 was returned for non-sufficient funds ("NFS") on June 5, 2009. The letter gave Appellees an opportunity to cure the default.

Pursuant to the confession of judgment provision in the Note, MFAC filed a complaint in confession of judgment in Allegheny County Court of Common Pleas on April 14, 2010, and the court entered judgment against Appellees in the amount of $111, 397.73. That same day, Appellees were given proper notice of the entry of judgment and sent a complete copy of the pleadings. MFAC immediately transferred the judgment to Centre County on April 16, 2010.

On May 11, 2010, MFAC offered a payment plan to Appellees. By virtue of the payment plan, MFAC allowed Appellees to continue to make payments and avoid further collection efforts. The payment plan called for Appellees to pay $9, 000.00 on or before May 14, 2010, and monthly payments in the amount of $1, 494.00 beginning on June 5, 2010, and by the fifth day of every month thereafter until February 5, 2011; the remaining balance of the judgment would become due and owing on February 20, 2011. The judgment would remain in effect and attach as a judgment lien by operation of law. The payment plan did not reinstate the loan. Appellees accepted and signed the payment plan whereby, inter alia, they also acknowledged the judgment, the amount of the judgment, its validity and enforceability, service of process, and waived their right to vacate the judgment for any reason.

Notwithstanding the parties' May 11, 2010 agreement, over fourteen months later on July 29, 2011, Appellees filed a petition to strike/set aside the transfer and entry of the judgment in Centre County, on numerous grounds, including a challenge to the original default, asserting the basis for the "alleged" default was their failure to obtain insurance. Appellees averred they had the proper insurance but "simply did not realize" they had to respond to MFAC's 2009 notice of default. Appellees also claimed (a) they were entitled to fifteen days to cure the alleged default, (b) MFAC increased Appellee's monthly payments due to the "improper default, " (c) Appellees paid MFAC "large sums of money" only to be told that the amounts were insufficient, (d) MFAC breached the loan contract by finding Appellees in default when they were abiding by the terms of the loan. Appellees further averred the Allegheny County Court of Common Pleas had no jurisdiction to enter the judgment because neither they nor MFAC had any connection to Allegheny County. Appellees likewise claimed they were not given proper notice or opportunity to defend the confession of judgment, where they "might have" filed preliminary objections based on a suggested flaw in the pleading regarding a "lost Note affidavit" of a predecessor note holder. (See Petition to Strike Transfer of Judgment and Entry of Judgment, filed 7/29/11, at 1-3; R.R. at 34a-36a.) Appellees asked the Centre County court to enter a rule to show cause against MFAC, which the court entered.

MFAC answered Appellees' petition to strike, paragraph by paragraph, denied all the conclusions of law, and attached relevant exhibits to call into question the averments in Appellees' petition. In particular, MFAC responded, inter alia, by stating Appellees had defaulted on the loan in numerous ways, including their failure to make loan payments when due in April and May 2009, and their payment received on June 1, 2009, was returned for "NFS" on June 5, 2009. Appellees were advised by letter dated on June 8, 2009, of their default, the application of the default interest rate with late charges and "NFS" fees, and the time to cure the default to avoid acceleration of the debt and legal action. MFAC also demonstrated how Appellees had later entered into a written and signed Payment Plan with MFAC on May 11, 2010, less than one month after the confessed judgment was entered and transferred to Centre County. Significantly, the Payment Plan included an explicit term that stated as follows:

9. Acknowledgment: Debtor acknowledges that: (i) the Judgment is valid and enforceable, Debtor was duly served with all process, Debtor has no defenses to the lawsuit, and Debtor hereby waives any right to seek or vacate the Judgment for any reason; (ii) Debtor executed the loan documents underlying the Judgment; (iii) MFAC is the lawful owner and holder of the loan documents[;] and (iv) Debtor is in default under the loan documents and the balance due there under is due and payable and fully accelerate[d].

(See Payment Plan, dated 5/11/10, at 3; R.R. at 59a.) MFAC averred that in further confirmation of the judgment, Appellees had made the first payment required under the May 11, 2010 Payment Plan and continued to make payments for the next nine months. MFAC also countered that Appellees had expressly acknowledged service of the complaint in confession of judgment was proper. MFAC similarly emphasized that preliminary objections are not permitted under the applicable rules of court as a challenge to a confession of judgment. For all of these reasons, MFAC asked the court to dismiss Appellees' petition to strike with prejudice. (See Reply to Petition to Strike, filed 9/19/11, at 1-9; R.R. at 41a-64a.)

By order entered October 4, 2011, the trial court struck the confessed judgment. Relying on the case of The Mountbatten Sur. Co., Inc. v. Williams Graphics, Inc., 2004 WL 1921110 (Pa.Com.Pl. Aug. 12, 2004), the court reasoned a confessed judgment must be entered in a county with proper venue governed by Pa.R.C.P. 1006. The court reasoned the confession of judgment clause in the Promissory Note was "merely" a warrant of attorney, but it was too broad to be a forum selection clause. The court stressed it had considered only matters of record, existing at the time of entry of the confessed judgment, in reaching its decision, and properly considered the law on "forum selection clauses" when it favored Appellees' oral argument that venue with respect to Allegheny County as the original county of entry of judgment was "improper." The court declined to transfer the judgment back to Allegheny County but announced its order did not prohibit MFAC from refilling its confession of judgment in a county with proper venue. (See Trial Court Opinion, dated December 9, 2011, at 1-2.)

MFAC timely filed a notice of appeal on October 31, 2011. On November 3, 2011, the court ordered MFAC to file a concise statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). MFAC timely complied on November 17, 2011.

MFAC raises three issues for our review:

WHETHER THE TRIAL COURT ERRED BY CONSIDERING, OR ASSUMING, MATTERS OUTSIDE OF THE RECORD AT THE TIME OF ENTRY OF JUDGMENT?
WHETHER THE TRIAL COURT ERRED BY FAILING TO EFFECT THE CLEAR AND UNAMBIGUOUS LANGUAGE OF THE NOTE?
WHETHER THE TRIAL COURT ERRED IN APPLYING THE VENUE RULES FOR CIVIL ACTIONS TO THE ENTRY OF A CONFESSED JUDGMENT?

(MFAC's Brief at 2).

In its issues combined, MFAC first argues that a venue question is inherently fact-intensive, in contrast to the well-settled principles governing the striking of a confessed judgment. MFAC claims Appellees' petition to strike set forth and relied upon averments of fact outside the relevant record, when they asserted they had no connection with Allegheny County. To support its contention that venue is fact-based, MFAC also observes improper venue must be raised by preliminary objection, per Pa.R.C.P. 1028, and requires both a responsive pleading and a factual record. Nevertheless, the trial court stated in its venue disposition as follows:

In this case, the Allegheny County Court of Common Pleas lacked venue over the Complaint in Confession of Judgment because [Appellees] could not be served in Allegheny county, the loan transaction did not occur in Allegheny county, and no pertinent property is located in Allegheny county. In addition, [MFAC] has presented no evidence of a connection to Allegheny County.

(See Trial Court Order, filed October 4, 2011, at 3.) MFAC contends the court had to rely on matters outside the relevant record to come to that conclusion because MFAC's complaint in confession of judgment recited only the parties' respective addresses. MFAC submits the court erred in striking the judgment based on matters outside the relevant record as it existed when the confession of judgment was initially entered in Allegheny County.

Moreover, MFAC contends that, while proceedings to strike are limited to matters of record at the time the original confession of judgment was entered, Pennsylvania law recognizes an exception to this rule, where Appellees waived their right to have the judgment set aside. In other words, MFAC asserts Appellees are estopped from contesting the confession of judgment in any respect because they acknowledged the amount of the judgment, its validity and enforceability, service of process, and waived their right to vacate the judgment for any reason. MFAC attached to its reply to Appellees' petition to strike a copy of the written May 11, 2010 Payment Plan that Appellees had entered into with MFAC after the confession of judgment at issue was entered in Allegheny County and transferred to Centre County. Under these circumstances MFAC submits the court should have considered MFAC's reply to Appellees' petition and permitted MFAC to rely on Appellees' waiver as an exception to the strict rules governing the striking of judgments. Due to Appellees' unequivocal waiver, MFAC reasons Appellees should have been estopped from attacking the judgment in Centre County.

Next, MFAC states the clear and unambiguous language of the confession of judgment provision in the loan document authorizes any court, within the Commonwealth, to confess judgment against Appellees upon the event of their default. As the Allegheny County Court of Common Pleas is unquestionably a competent court of this Commonwealth, MFAC submits it was expressly authorized to confess judgment against Appellees in that court. The terms of the confession of judgment provision in the loan document were broad, but that alone did not render the provision ambiguous. MFAC maintains the court erred when it disregarded the parties' contract in favor of striking the confessed judgment.

MFAC's final position is that the general venue rules governing civil actions do not apply to confession of judgment proceedings. MFAC takes the position that actions in confession of judgment are distinct "civil actions" under Rule 2950, such that resort to the general venue rules under Rule 1006 is inapposite. MFAC faults the trial court's reliance on Mountbatten because that case, without any citation to authority, summarily concluded the general venue framework and rules for civil actions applied with equal force to confessed judgments. Although the trial court recognized the Mountbatten case was not binding, the court used it anyway as persuasive. MFAC claims it is unaware of any other Pennsylvania cases which apply ordinary venue rules to confessed judgments. MFAC contends the general venue rules are also unavailing to Appellees because the commercial parties agreed in writing to entry of the confessed judgment in any Pennsylvania court. MFAC concludes we should reverse and reinstate the confessed judgment in Centre County. We agree.

"A petition to strike a judgment is a common law proceeding which operates as a demurrer to the record. A petition to strike a judgment may be granted only for a fatal defect or irregularity appearing on the face of the record." Resolution Trust Corp. v. Copley Qu-Wayne Associates, 546 Pa. 98, 106, 683 A.2d 269, 273 (1996).

In considering the merits of a petition to strike, the court will be limited to a review of only the record as filed by the party in whose favor the warrant is given, i.e., the complaint and the documents which contain confession of judgment clauses. Matters dehors the record filed by the party in whose favor the warrant is given will not be considered. If the record is self-sustaining, the judgment will not be stricken. … An order of the court striking a judgment annuls the original judgment and the parties are left as if no judgment had been entered.

Hazer v. Zabala, 26 A.3d 1166, 1169 (Pa.Super. 2011) (quoting Resolution Trust Corp., supra). In other words, the petition to strike a confessed judgment must focus on any defects or irregularities appearing on the face of the record, as filed by the party in whose favor the warrant was given, which affect the validity of the judgment and entitle the petitioner to relief as a matter of law. ESB Bank v. McDade, 2 A.3d 1236, 1239 (Pa.Super. 2010). "[T]he record must be sufficient to sustain the judgment." Id. The original record that is subject to review in a motion to strike a confessed ...


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