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Neducsin v. Caplan

Superior Court of Pennsylvania

July 23, 2015

DANIEL R. NEDUCSIN, Appellee
v.
SCOTT CAPLAN, Appellant

Argued February 3, 2015

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[Copyrighted Material Omitted]

Page 500

Appeal from the Order of the Court of Common Pleas, Philadelphia County, Civil Division, No(s): September Term, 2012 No. 002706. Before DEMBE, J.

Daniel S. Bernheim, III, Philadelphia, for appellant.

Paul R. Rosen and David B. Picker, Philadelphia, for appellee.

BEFORE: GANTMAN, P.J., SHOGAN, J., and ALLEN, J.

OPINION

Page 501

GANTMAN, P.J.

Appellant, Scott Caplan, appeals from the order entered in the Philadelphia County Court of Common Pleas, following denial of Appellant's petition to strike and/or open a confessed judgment in favor of Appellee, Daniel R. Neducsin, in this breach of contract action. We affirm

The relevant facts and procedural history of this case are as follows. In 1996, Appellant founded Sweat Gyms (" Sweat" ), a chain of fitness centers. To expand the chain, on July 21, 2010, Appellant obtained a loan and a $250,000.00 line of credit from Wells Fargo, which Appellee guaranteed. On December 31, 2011, Appellant and Appellee executed a promissory note (" Bedrock Note" ), which Appellant's attorney had previously reviewed.

By early 2012, Sweat was nearly bankrupt and needed debt restructuring and a cash infusion to keep operating. Appellee worried he would be held responsible if Sweat defaulted on the Wells Fargo line of credit. Appellee blamed Sweat's " business practices" for the company's financial difficulties and offered to lend Appellant additional funds in exchange for Appellee's greater oversight of the business and for changes in the corporate governance.

On March 9, 2012, Appellant as " Maker" and other Sweat shareholders and entities entered into a new note with Appellee in exchange for $2,000,000.00 in additional funds. The relevant terms of the note were taken from the original Bedrock Note and gave Appellee the right to file a confessed judgment in the event of a default. The grounds for default included: (1) failure to make payment on the note when due; or (2) " If any certification, warranty, or representation made or hereafter made by Maker to [Appellee] should prove to be false, incorrect, incomplete or misleading in any material respect" ; or (3) bankruptcy; insolvency proceedings against any party liable under the note; assignment for the benefit of creditors; appointment of a receiver, etc.; or (4) if Maker should obtain additional financing from another source, senior or junior, secured or unsecured. (See Promissory Note, dated 3/9/12, at 2-3; R.R. at A.25--A.26.) Appellant expressly represented in the 3/9/12 note that he would use the proceeds of the note solely to pay the business' outstanding debts, and the funds " shall not be used for personal, family, household, or other business uses." (See

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id. at 5; R.R. at A.28.) As in the original Bedrock Note, the last paragraph of the 3/9/12 note also stated:

THIS NOTE CONTAINS A WARRANT OF ATTORNEY FOR CONFESSION OF JUDGMENT (SECTION 18) AND A WAIVER OF TRIAL BY JURY AND OF THE RIGHT TO INTERPOSE DEFENSES, COUNTERCLAIMS OR SETOFFS (SECTION 37). MAKER HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY AND (ON THE ADVICE OF THE SEPARATE COUNSEL OF MAKERS) UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS MAKER HAS OR MAY HAVE TO TRIAL BY JURY AND THE RIGHT TO INTERPOSE ANY DEFENSE (EXCEPT THOSE BASED ON PAYMENT OR ERRORS IN COMPUTING THE BALANCE DUE), SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA AND EXPRESSLY AGREES AND CONSENTS TO PAYEE NEDUCSIN'S ENTERING JUDGMENT AGAINST ALL MAKERS HERETO PURSUANT TO THE TERMS HEREOF[.]

(Id. at 8-9; R.R. at A.31--A.32). Appellant's signature appears directly under this paragraph.

On the same day, Appellant signed a revised shareholders' agreement, which stated no shareholder, including Appellant, could take funds from the Corporation's bank accounts for personal use without unanimous consent of all shareholders. Several months after executing the 3/9/12 note, Appellant unilaterally used the line of credit for certain undocumented transactions, including a deposit into his personal bank account. At two separate shareholder meetings on July 24, 2012, and on August 21, 2012, Appellee asked Appellant how much Appellant had drawn down on the line of credit, and Appellant twice replied with inaccurate information, stating he had drawn down only $50,000.00, when in fact the amount was actually $170,000.00.

On September 24, 2012, Appellee filed a confession of judgment against Appellant for $2,005,970.50, averring Appellant's misrepresentation regarding the draw-down on the line of credit triggered a default under the 3/9/12 note. After several agreed-upon extensions of time, on November 8, 2012, Appellant filed a petition to strike and/or open the confessed judgment. On June 4, 2013, the court denied Appellant's petition to strike but ordered discovery and briefs on Appellant's petition to open.

On January 29, 2014, the court initially granted the petition to open judgment, without conducting oral argument. Appellee asked the court to vacate its order and conduct oral argument. On January 31, 2014, the court vacated the January 29, 2014 order and conducted oral argument on February 6, 2014. The court denied Appellant's petition to open the confessed judgment on February 25, 2014.[1] Appellant timely filed a notice of appeal on March 26, 2014. The court did not order

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Appellant to file a concise statement per Pa.R.A.P. 1925(b), and Appellant filed none.

Appellant raises the following issues on appeal:

WHETHER THE JUDGMENT ENTERED BY CONFESSION SHOULD HAVE BEEN STRICKEN WHERE THE PROMISSORY NOTE UPON WHICH JUDGMENT WAS BASED LACKS CLARITY AND PRECISION AND PRESENTS AMBIGUITIES WHICH ...

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