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[U] DNB First, N.A. v. Fretz

Superior Court of Pennsylvania

January 13, 2014

DNB FIRST, N.A., Appellee
v.
WILLIAM B. FRETZ, JR., Appellant DNB FIRST, N.A., Appellee
v.
WILLIAM B. FRETZ, JR., Appellant

NON-PRECEDENTIAL DECISION

Appeal from the Order January 22, 2013 in the Court of Common Pleas of Chester County Civil Division at No.: 2011-06531.

BEFORE: GANTMAN, J., SHOGAN, J., and PLATT, J.[*]

MEMORANDUM

PLATT, J.

In these consolidated cases, Appellant, William B. Fretz, Jr., appeals from the trial court's orders denying his petition to strike or open the judgment entered by confession, and the related order denying his motion for sanctions. We affirm.

Appellant and his business associate, John Irvine, are each 49.95% limited partners in KI Real Estate Associates, LP (KI).[1] On October 23, 2006, Appellee, DNB First, N.A., extended two loans to KI: specifically, an acquisition and improvements loan in the amount of $1, 797, 000.00, and a construction loan in the amount of $1, 595, 000.00 (collectively, the 2006 Loans). The purpose of the loans was to finance construction of six luxury townhomes in a community located in Willistown Township, with a target sales price of approximately $750, 000.00 for each home. KI executed promissory notes in favor of Appellee for each loan. Appellant and Irvine executed a guaranty unlimited in amount in connection with both notes. The guaranty contains a warrant of attorney, which reads as follows:

The undersigned hereby irrevocably authorize the Prothonotary or any attorney of any court of record to appear and confess judgment hereon against the undersigned, or any of them, for the amount for which the undersigned may be or become liable to [Appellee] under this Guaranty, with or without default . . . . The undersigned waive the right to any stay of execution and the benefit of all exemption laws now or hereafter deemed to exhaust the power to confess judgment granted herein, whether or not any such exercise shall be held by any [c]ourt to be invalid, void, or voidable, but the power shall continue undiminished and may be exercised from time to time as often as [Appellee] shall elect, until all sums payable or that may become payable by the undersigned have been paid in full.

(Guaranty, 10/23/06, at unnumbered page 2) (emphasis added; original emphasis omitted).

On June 19, 2008, KI and Appellee entered into an amended promissory note modifying the original 2006 Loans, providing $700, 000.00 in additional financing to complete construction of the townhomes (2008 Loan). Appellant signed the note on behalf of KI as "[m]anaging [m]ember of KI Real Estate Associates, LLC, its general partner, and in his personal capacity as Guarantor of the [2006] Loans." (Amended and Restated Promissory Note Modification, 6/19/08, at unnumbered page 6).[2] The 2008 Loan includes the following provisions extending the terms of the original guaranty:

Recitals.

F. As part of the [2008] Loan, the terms of the [2006] Loans are being modified as per the terms below.

12. Effect of Guaranty. [Appellant] and Irvine, each a Guarantor under the [2006] Loans, hereby join in the terms of this Modification and acknowledge that the terms of the Guaranty Agreement signed by them on October 23, 2006 shall be deemed amended to cover the terms of the [2006] Loans as amended hereby.

(Id. at unnumbered pages 1, 2, 5).

On October 21, 2009, Appellant, Irvine, KI, and Appellee entered a second loan modification agreement, extending up to $275, 000.00 of additional financing to Appellant and Irvine to fund the development project (2009 Loan). The loan modification agreement (2009 Agreement) provides, in pertinent part, as follows:

BACKGROUND

E. As part of the 2009 Loan, the terms of the [2006] Loans and the 2008 Loan are being modified as per the terms below[.]
F. The parties have agreed that the remaining Lots will be sold by auction scheduled to occur on December 5, 2009 . . . [.]
1. Payments of Loans Borrower shall make monthly payments as follows[.]
d. . . . [Appellee] shall be paid all proceeds generated by the sale of the Lots at the Auction . . . All payments by [Appellant, Irvine, and KI] under any of the [2006, 2008 or 2009] Loans shall be applied against and among the [2006] Loans, the 2008 Loan and/or the 2009 Loan as [Appellee] elects in its sole discretion.
Following the Auction, the parties shall negotiate in good faith to reasonably renegotiate the terms for repayment of the resulting balances of the [2006, 2008, and 2009] Loans, provided, however, that the terms of the Loan Documents in place following the execution of this Modification and the other Loan Documents executed in connection therewith shall control unless and until the parties further modify the terms thereof in a writing signed by all parties.
8. No Waiver [Appellant], Irvine and KI acknowledge and agree that, notwithstanding the execution and implementation of this Modification (I) [Appellee] reserves the right to strictly enforce the Loan Documents, (II) [Appellee] is under no duty or obligation of any kind or nature whatsoever to grant any reduction, extension, waiver or forbearance . . . (iv) [Appellee's] actions in entering into this Modification are not intended nor shall they be construed as a waiver or estoppel of any right or remedy under the Loan Documents or applicable law . . . [.]

(2009 Agreement, 10/21/09, at 1-4) (emphasis omitted).

In December 2009, KI sold five of the six townhomes at auction at a price of $414, 000.00 per home.[3] On March 11, 2011, Appellee confessed judgment against KI and Irvine in the amount of $2, 077, 856.31. On June 14, 2011, Appellee confessed judgment against Appellant in the same amount pursuant to the guaranty.

On July 14, 2011, Appellant filed a petition to strike or open the judgment by confession. Appellant's original attorney failed to move the petition forward and he retained new counsel. On August 22, 2012, Appellant filed a supplemental brief in support of his petition to strike or open the judgment and a motion for sanctions requesting the court to strike Appellee's complaint in confession. On January 22, 2013, following discovery and argument, the trial court denied Appellant's motion for sanctions. On January 24, 2013, the trial court denied Appellant's petition to strike or open the confessed judgment. These timely appeals followed.[4]

Appellant raises six issues for our review:

1. Did the trial court err and/or abuse its discretion in denying the [p]etition in that the judgment was not supported by the record because [Appellee] knowingly and voluntarily confessed judgment on a paid-off [n]ote?
2. Did the trial court abuse its discretion in denying the [m]otion for [s]anctions where [Appellee] knowingly confessed judgment on a paid off note and refused to take corrective action?[5]
3. Did the trial court err and/or abuse its discretion in denying the [p]etition to [s]trike or [o]pen where [Appellee] purported to confess on a "modification" of a loan without alleging the terms of that "modification, " how the modification supported the amount confessed under the guaranty or attaching the modifying instruments and where the modification did not actually increase the debt of KI as guaranteed by [Appellant]?
4. Did the trial court err in finding that the guaranty did not require [Appellee] to aver a default on the part of the borrower to permit confession of judgment against [Appellant] under the guaranty?
5. Did the trial court err in denying the [p]etition to [s]trike where the judgment was void having been rendered invalid by: the satisfaction of the underlying debt, an exhausted warrant and the lack of a confession of judgment provision or warrant of attorney in the modifying loan documents?
6. Did the trial court abuse its discretion in denying the [p]etition to [o]pen where [Appellant] presented evidence of meritorious defenses sufficient to reach a jury of prior material breach and equitable estoppel?

(Appellant's Brief, at 3-4).

We review a trial court's order denying a petition to strike a confessed judgment to determine whether the record is sufficient to sustain the judgment. A petition to strike a judgment may be granted only if a fatal defect or irregularity appears on the face of the record. Similarly, we review the order denying [an a]ppellant's petition to open the confessed judgment for an abuse of discretion. A petition to open judgment is an appeal to the equitable powers of the court. As such, it is committed to the sound discretion of the hearing court and will not be disturbed absent a manifest abuse of discretion.

PNC Bank, Nat. Ass'n, supra at 835 (citations and quotation marks omitted). "[A] petition to open . . . [a confessed judgment] may be granted 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." Hazer v. Zabala, 26 A.3d 1166, 1169 (Pa.Super. 2011) (citation omitted).

Initially, we must address whether Appellant's issues are properly before this Court. Appellee contends that Appellant waived his first, second, fourth and fifth issues because he failed to assert these grounds for relief in his petition to strike or open the confessed judgment. (See Appellee's Brief, at 13-18). After review, we agree.

Pennsylvania Rule of Civil Procedure 2959 prescribes the petition process for relief from a judgment by confession and states, in relevant part, as follows:

Rule 2959. Striking Off or Opening Judgment; Pleadings; Procedure

(a)(1) Relief from a judgment by confession shall be sought by petition. Except as provided in subparagraph (2), all grounds for relief whether to strike off the judgment or to open it must be asserted in a single petition. . . .
(c) A party waives all defenses and objections which are not included in the petition or answer.

Pa.R.C.P. 2959(a)(1), (c). Therefore, under Rule 2959, a debtor must raise all grounds for relief in a single petition to strike or open, and he or she waives all defenses not included in the petition. See Midwest Fin. Acceptance Corp. v. Lopez, 2013 WL 4500036 at *9 (Pa.Super. 2013); see also Stahl Oil Co., Inc. v. Helsel, 860 A.2d 508, 514-15 (Pa.Super. 2004), appeal denied, 885 A.2d 43 (Pa. 2005) (determining that additional claims raised by debtor in subsequent petition that were not raised in original petition to strike or open judgment by confession were waived, and it was improper for trial court to determine that the additional claims provided a meritorious defense); Leasing Serv. Corp. v. Benson, 464 A.2d 402, 408 (Pa.Super. 1983) (concluding that supplemental petition to open filed by debtor failed to comply with Rule 2959 (a) and (c), and limiting this Court's review to only the issue properly raised in original petition).

Here, Appellant did not raise his first, second, fourth, or fifth issues in his July 14, 2011 petition to strike or open the confessed judgment. (See Petition to Strike or Open Judgment by Confession, 7/14/11, at 1-10). Instead, a review of the record indicates that he raised these issues in his August 22, 2012 motion for sanctions and supplemental brief in support of his petition to strike or open judgment. (See Motion for Sanctions, 8/22/12, at 1-8; Supplemental Brief in Support of Petition to Strike or Open Judgment by Confession, 8/22/12, at 28-37). Accordingly, because these issues were not included in Appellant's original petition to strike or open the judgment, they are waived, and we will limit our review to those issues advanced in the original petition, specifically, issues three and six. See Pa.R.C.P. 2959(a)(1), (c); see also Stahl Oil Co., Inc., supra at 514-15; Leasing Serv. Corp., supra at 408.

In his third issue, Appellant claims that the trial court erred by denying the petition to strike or open where Appellee confessed judgment based on modifications to the 2006 Loans without attaching or explaining the subsequently-executed loan modification documents. (See Appellant's Brief, at 32-35; Petition to Strike or Open Judgment by Confession, 7/14/11, at 7 ¶ 31). This issue does not merit relief.

Pennsylvania Rule of Civil Procedure 2952 sets forth the required content for a complaint in confession of judgment and states, in relevant part, as follows:

Rule 2952. Complaint. Contents

(a) The complaint shall contain the following:
* * * (2) the original or a photostatic copy or like reproduction of the instrument showing the defendant's signature; if the original is not attached, an averment that the copy attached is a true and correct reproduction of the original; if neither the original nor a reproduction can be attached, an explanation why they are not available;

Pa.R.C.P. 2952(a)(2) (emphasis added).

Here, Appellee confessed judgment pursuant to the guaranty executed by Appellant on October 23, 2006, which contained a warrant of attorney applicable to "all sums payable or that may become payable[.]" (Guaranty, 10/23/06, at unnumbered page 2). Appellee attached a copy of the guaranty showing Appellant's signature to the complaint. (See Complaint, 6/14/11, at Exhibit B). The complaint expressly states that certain terms of the 2006 Loan were subsequently modified and amended, and that KI is in default of its obligations under the 2006 Loans, as modified and amended, because of Appellant and Irvine's refusal to meet their payment obligations under the guaranty. (See id. at unnumbered pages 2 ¶¶ 10-12, 4 ¶¶ 22-24). Based on the foregoing, we conclude that the record supports the trial court's determination that Appellee's complaint complied with Rule 2952(2). See PNC Bank, supra at 835; (see also Trial Court Opinion, 1/24/13, at 3).[6] Appellant's third issue lacks merit.

In his sixth issue, Appellant claims that the trial court abused its discretion by denying the petition to open where Appellant presented evidence sufficient to reach a jury of the meritorious defense of equitable estoppel. (See Appellant's Brief, at 48-50; Petition to Strike or Open Judgment by Confession, 7/14/11, at 8-9 ¶ 36-37).[7] Appellant asserts that Appellee is estopped from enforcing the warrant of attorney contained in the guaranty because Appellee's "egregious and inequitable conduct" led him to believe that it would discuss a reduction in the debt, and he relied on these representations before submitting to a "disastrous" auction process. (Appellant's Brief, at 49-50). This issue does not merit relief.

Equitable estoppel is a doctrine that prevents one from doing an act differently than the manner in which another was induced by word or deed to expect. A doctrine sounding in equity, equitable estoppel recognizes that an informal promise implied by one's words, deeds or representations which leads another to rely justifiably thereon to his own injury or detriment may be enforced in equity. . . . Additionally, under the estoppel concept, a contract may be modified if either words or actions of one party to the contract induce another party to the contract to act in derogation of that contract, and the other justifiably relies upon the words or deeds of the first party.

Kreutzer v. Monterey Cty. Herald Co., 747 A.2d 358, 361-62 (Pa. 2000) (citation omitted). Our Supreme Court has observed that cases involving modification of written contracts by estoppel present evidentiary problems and often become a credibility dispute between the parties. Id. at 362 n.3. In addition, "[t]he party asserting estoppel bears the burden of establishing estoppel by clear, precise and unequivocal evidence." Prime Medica Assocs. v. Valley Forge Ins. Co., 970 A.2d 1149, 1157 (Pa.Super. 2009), appeal denied, 989 A.2d 918 (Pa. 2010) (citation omitted).

Here, the parties expressly agreed to sell the five remaining townhomes by auction. (See 2009 Agreement, 10/21/09, at unnumbered page 2). While the 2009 Agreement includes a provision requiring the parties to "negotiate in good faith to reasonably renegotiate the terms for [loan] repayment, " the agreement also reserves Appellee the right to enforce all of the loan documents strictly, including the guaranty. (Id. at unnumbered page 3; see id. at unnumbered pages 1-4). The 2009 Agreement also specifically states that "[Appellee] is under no duty or obligation of any kind or nature whatsoever to grant any reduction, extension, waiver or forbearance[.]" (Id. at 4).

Appellant's argument on this issue consists of his assertion that, by entering the 2009 Agreement, Appellee represented that it would negotiate loan repayment terms, coupled with a litany of complaints related to the bank's handling of the auction process. (See Appellant's Brief at 49-50). Appellant also points to his own deposition testimony in which he stated that Appellee's Chief Executive Officer, William S. Latoff, advised him regarding repayment of the loan that Appellee was "absolutely not" going to "take a loss" prior to the auction, and "we can discuss more" after the townhomes sold and the loss quantified. (N.T. Appellant's Deposition, 4/30/12, at 134; see also Appellant's Brief, at 15, 50).

On review, we conclude that Appellant provides no citation to the record that would support a determination that Appellee's words and actions effectively modified the written terms of the contract, precluding it from enforcing the warrant of attorney contained in the guaranty. See Kreutzer, supra, at 362; Prime Medica Assocs., supra at 1157. Therefore, we agree with the trial court's decision that "there is simply no basis upon which to grant [Appellant equitable estoppel] relief[.]" (Trial Ct. Op., at 6). Appellant's sixth issue lacks merit.

Accordingly, we conclude that the trial court properly denied Appellant's petition to strike or open the confessed judgment and related motion for sanctions. See PNC Bank, Nat. Ass'n, supra at 835.

Orders affirmed.

Judgment Entered.


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