Fleetway Capital Corp. v. SH&T Express, LLC

• Court: Superior Court of Pennsylvania
• Decided: May 15, 2017
• Docket: Fleetway Capital Corp. v. SH&T Express, LLC No. 1853 EDA 2016
• Status: Unpublished

Opinion

J-A06026-17

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

FLEETWAY CAPITAL CORPORATION, IN THE SUPERIOR COURT OF PENNSYLVANIA Appellee

v.

SH&T EXPRESS, LLC, SHUKRI TEMIROV, GUARANTOR, KHALIDA TEMIROV, GUARANTOR, SHUHRAT TEMIROV, GUARANTOR, TRANSPORT CARRIER HOUSE, LLC, GUARANTOR, SEVILA TRUCKING, INC., GUARANTOR AND TEMUR TRUCKING, INC., GUARANTOR,

Appellants No. 1853 EDA 2016

Appeal from the Order Entered May 10, 2016 In the Court of Common Pleas of Philadelphia County Civil Division at No(s): 04827 Feb. Term, 2016

BEFORE: PANELLA, SHOGAN, and RANSOM, JJ.

MEMORANDUM BY SHOGAN, J.: FILED MAY 15, 2017

Appellants, SH&T Express, LLC (“SH&T”), Shukri Temirov, Khalida

Temirov, Shuhrat Temirov, Transport Carrier House, LLC, Sevila Trucking,

Inc., and Temur Trucking, Inc., appeal from the May 10, 2016 order denying

their petition to open a confessed judgment arising from a commercial

property lease with Appellee, Fleetway Capital Corporation (“Fleetway”).

After careful review, we affirm.

The underlying facts and procedural history are as follows: On

February 24, 2012, SH&T and Fleetway entered into a Master Lease

Agreement (“Master Lease”) that provided for future monthly payments to J-A06026-17

be made by Appellants pursuant to future Equipment Schedules that would

become part of the Master Lease. Complaint, 3/3/16, at ¶¶ 10, 13–18. The

complaint in confession of judgment asserts that Appellants Shukri Temirov,

Khalida Temirov, and Shuhrat Temirov each executed personal guaranties of

SH&T’s obligations under the Master Lease; the other business-entity

defendants executed either a limited liability company guaranty or a

corporate guaranty. Id. at ¶¶ 11–12. The Master Lease contained a

Warrant of Attorney with a confession-of-judgment clause, initialed by SH&T,

in the event that Appellants breached any of the leases. Id. at Exhibit 1

(Master Lease), ¶ 6. The individual and corporate guarantees also contained

Warrant of Attorney clauses that were initialed by Appellants. Id. at Exhibits

1–9. Fleetway leased three trucks and three trailers to Appellants between

February of 2012 and July of 2015. Id. at ¶¶ 16–18. SH&T informed

Fleetway that it could no longer maintain monthly lease payments for the

three trailers and three trucks, and it ultimately returned the trucks and

trailers. Id. at ¶ 17, 23.

On March 3, 2016, Fleetway filed a confession of judgment against

Appellants. On April 11, 2016, Appellants petitioned the trial court to open

the confessed judgment claiming, inter alia, defenses of Fleetway’s bad

faith/unclean hands and failure to mitigate damages. Petition to Open

Judgment by Confession, 4/11/16. By order dated May 9, 2016, and

docketed May 10, 2016, the trial court denied the petition to open.

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Appellant filed a timely notice of appeal to this Court on June 9, 2016.1 The

trial court did not order the filing of a Pa.R.A.P. 1925(b) statement, and

none was filed. The trial court utilized its memorandum opinion in support

of its order denying the petition to open filed May 10, 2016 as its Rule

1925(a) opinion.

Appellants raise the following issues on appeal to this Court:

1. Did the lower court err by denying Appellants’ petition to open the confessed judgment on the basis that no evidence existed to support the petition where the court decided the petition on the initial pleadings only and did not allow for an actual evidentiary record to be developed th[r]ough discovery?

2. Did the lower court err by denying Appellants’ [sic] petition to open the confessed judgment where Appellants could have presented a meritorious defense in the form of Appellee’s duty to mitigate its damages?

Appellants’ Brief at 4. We address these issues in tandem.

We review the trial court’s order for an abuse of discretion. Neducsin

v. Caplan, 121 A.3d 498, 506 (Pa. Super. 2015), appeal denied, 131 A.3d

492 (Pa. 2016). “[T]he court abuses its discretion if, in resolving the issue

for decision, it misapplies the law or exercises its discretion in a manner

lacking reason.” Id. ____________________________________________

1 The appeal period ran from the order’s filing date of May 10, 2016. Moreover, denial of a petition to open a default judgment is an appealable order. See Keller v. Mey, 67 A.3d 1, 3 (Pa. Super. 2013) (“Although orders of court denying motions to strike or petitions to open default judgments are interlocutory, Pennsylvania Rule of Appellate Procedure 311 provides that ‘[a]n appeal may be taken as of right . . . from:. . . [a]n order refusing to open, vacate or strike off a judgment.’”).

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“Historically, Pennsylvania law has recognized and permitted entry of

confessed judgments pursuant to the authority of a warrant of attorney

contained in a written agreement.” Neducsin, 121 A.3d at 505. In

adjudicating a petition to open a confessed judgment, the trial court is

charged with “determining whether the petitioner presented sufficient

evidence of a meritorious defense to require submission of that issue to a

jury.” Ferrick v. Bianchini, 69 A.3d 642, 647 (Pa. Super. 2013) (citing

Homart Development Co. v. Sgrenci, 662 A.2d 1092 (1995)). “When

determining a petition to open a judgment, matters dehors the record filed

by the party in whose favor the warrant is given, i.e., testimony,

depositions, admissions, and other evidence, may be considered by the

court.” Graystone Bank v. Grove Estates, LP, 58 A.3d 1277, 1282 (Pa.

Super. 2012).

A petition to open a confessed judgment is governed by Pa.R.C.P.

2959 and is an appeal to the trial court’s equitable powers:

It is committed to the sound discretion of the hearing court and will not be disturbed absent a manifest abuse of that discretion. Ordinarily, if a petition to open a judgment is to be successful, it must meet the following test: (1) the petition to open must be promptly filed; (2) the failure to appear or file a timely answer must be excused; and (3) the party seeking to open the judgment must show a meritorious defense....

Century Surety Co. v. Essington Auto Center, LLC, 140 A.3d 46, 53 (Pa.

Super. 2016). There is no challenge herein to the first two provisions of the

test; rather, Appellants focus on the trial court’s determination that they did

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not present a meritorious defense. A meritorious defense is one upon which

relief could be afforded if proven at trial. Ferrick, 69 A.3d at 647.

Moreover:

Pa.R.[C.]P. 2959(e) sets forth the standard by which a court determines whether a moving party has properly averred a meritorious defense. If evidence is produced which in a jury trial would require the issues to be submitted to the jury the court shall open the judgment. Furthermore, the court must view the evidence presented in the light most favorable to the moving party, while rejecting contrary evidence of the non- moving party. The petitioner need not produce evidence proving that if the judgment is opened, the petitioner will prevail. Moreover, we must accept as true the petitioner’s evidence and all reasonable and proper inferences flowing therefrom.

In other words, a judgment of confession will be opened if a petitioner seeking relief therefrom produces evidence which in a jury trial would require issues to be submitted to a jury. The standard of sufficiency here is similar to the standard for a directed verdict, in that we must view the facts most favorably to the moving party, we must accept as true all the evidence and proper inferences in support of the defense raised, and we must reject all adverse allegations.

Neducsin, 121 A.3d at 506–507 (internal citations and quotation marks

omitted) (emphasis added).

Referencing Pa.R.C.P. 2959(e), Appellants complain the trial court

faulted them for not producing evidence of their defenses, and it disposed of

Appellants’ petition to open based solely on the initial pleadings without

“affording” Appellants the opportunity to develop any evidence. Appellants’

Brief at 9. Pa.R.C.P. 2959(e) provides as follows:

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

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* * *

(e) The court shall dispose of the rule on petition and answer, and on any testimony, depositions, admissions and other evidence. The court for cause shown may stay proceedings on the petition insofar as it seeks to open the judgment pending disposition of the application to strike off the judgment. If evidence is produced which in a jury trial would require the issues to be submitted to the jury the court shall open the judgment.

Pa.R.C.P. 2959(e) (emphasis added). Appellants suggest their averment in

the petition to open that they could present proof of their defenses, Petition

to Open, 4/11/16, at ¶¶ 12, 21, “should have triggered the lower court’s

action in allowing for discovery.” Appellants’ Brief at 9. Thus, in conclusory

fashion, Appellants assert that this case should be reversed and remanded

for discovery. Id. at 10.

Initially, we respond to Fleetway’s waiver argument. Fleetway asserts

that the petition to open was properly denied because it was verified through

Appellants’ attorney of record, not by one of the parties. Fleetway’s Brief at

13–14. We agree with Appellants that because Fleetway did not file

preliminary objections below, it has waived any argument concerning

Appellants’ counsel’s verification. Appellants’ Reply Brief at 1–2. See

Roberts v. Estate of Pursley, 700 A.2d 475, 479 (Pa. Super. 1997)

(objection to form of pleading waived by failure to raise preliminary

objections in response to the Amended Complaint); see also Pa.R.C.P.

1028(a)(2) (failure of pleading to conform to law or rule of court is to be

raised by preliminary objection); Pa.R.C.P. 1032 (failure to raise such an

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objection by preliminary objection results in waiver). Thus, Fleetway has

waived any objection to counsel’s verification.

Regarding the merits, Fleetway maintains that Appellants’ reliance on

Pa.R.C.P. 2959(e) is misplaced, contending that the trial court was not

required to provide Appellants’ discovery “to enable them to prove their

alleged meritorious defense to the judgment confessed against them.”

Fleetway’s Brief at 12–13. Fleetway asserts that subsection (e) is triggered

only upon the satisfaction of subsection (b), which provides, in pertinent

part: “If the petition states prima facie grounds for relief the court shall

issue a rule to show cause . . . .” Pa.R.C.P. 2959 (b) (emphasis added).

Fleetway maintains that the trial court never issued a rule to show cause

because it determined that Appellants failed to state prima facie grounds for

relief. Fleetway’s Brief at 13. We agree.

Appellants cite multiple cases in their brief, see, e.g., Ecumenical

Enterprises, Inc. v. NADCO Construction Co., 385 A.2d 392 (Pa. Super.

1974), for the proposition that the trial court must consider not only the

petition to open, but it must also credit depositions and other evidence.

Appellants’ Brief at 8. There is no controversy that this provision is true and

accurate. Appellants do not assert that the trial court failed to consider

evidence they produced in support of their pleading, nor do they contend the

court improperly denied Appellants’ request for discovery. Indeed, as

Fleetway points out, Appellants never raised the issue of discovery to the

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trial court. Rather, Appellants maintain that this case must be reversed and

remanded, relying upon Liazis v. Kostka, Inc., 618 A.2d 450 (Pa. Super.

1992), because the trial court did not order discovery. In Liazis, because

we determined that the trial court abused its discretion in concluding that

the petition to open therein did not allege prima facie grounds for relief, we

reversed and remanded to the trial court. Id. at 452. Herein, we likewise

must evaluate whether the trial court abused its discretion; therefore, we

consider Appellants’ second issue, whether they raised a meritorious

defense.

Appellants maintain that the trial court erred in concluding that

Appellants failed to plead a meritorious defense. Appellants’ Brief at 10.

They contend that their petition to open “was rife with factual allegations

that demonstrated that Fleetway made no attempt to mitigate its damages.”

Id. Specifically, Appellants aver that because “Fleetway knew all along that

[Appellants] would likely breach the lease agreements,” Appellants

presented “a valid defense in the form of Fleetway’s failure to mitigate its

damages.” Id. at 11–12.

In this regard, Appellants first aver that they requested a letter of

confirmation from Fleetway to solidify business relationships, and that letter

would have allowed Appellants to generate income to pay the lease

payments. Appellants’ Brief at 11. Second, when Appellants apprised

Fleetway that they had lost business as a result of Fleetway’s failure to

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provide the requested reference letter, Appellants “proactively provided two

potential lessees who were willing to step into [Appellants’] shoes and take

over the lease payments.” Id. Instead, Appellants contend that Fleetway

demanded that Appellants return the trucks and trailers. Id. Third, after

having received its property, Fleetway allegedly told Appellants it would sell

the trucks and trailers at a private sale to off-set the future rental payments,

but instead, Fleetway confessed judgment against Appellants. Id.

Appellants submit that these factors support that Appellants averred a valid

defense “in the form of Fleetway’s failure to mitigate its damages.” Id. at

12. Moreover, Appellants maintain that because the trucks and trailers were

returned to Fleetway, the trial court’s refusal to open the confessed

judgment “effectively allows for Fleetway to obtain a double recovery.” Id.

Fleetway responds that Appellants’ factual allegations do not establish

a basis upon which to open the confessed judgment. Instead, it maintains

that Appellants’ unverified factual allegations set forth only counterclaims or

claims for set-off, neither of which can properly serve as the basis for

opening a judgment by confession. Fleetway’s Brief at 17–18. Further,

Fleetway submits that even if it were required to consider the two individuals

allegedly willing to assume the leases, Appellants were required to remain

compliant with the Master Lease. Id. at 18.

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Fleetway refers to Newton v. First Union Nat. Bank, 316 F.Supp.2d

225 (E.D.Pa. 2004),2 to explain the difference between a defense and a

counterclaim, and it cites the case for support of its position that Appellants

failed to establish a meritorious defense. Newton stated:

Distinguishing between “counterclaims” and “defenses,” the Third Circuit [Court of Appeals] has held that while “a counterclaim may entitle the defendant in the original action to some amount of affirmative relief, a defense merely precludes or diminishes the plaintiff’s recovery” and “although the facts underlying some defenses might also support a counterclaim, not all counterclaims are valid defenses.” [Riverside Mem’l Mausoleum, Inc. v. Umet Trust,] 581 F.2d [62, 68 (3d Cir. 1978)]. Further elucidating the distinction, the Pennsylvania Supreme Court has held that, in the context of petitions to open confessed judgments, “a set-off is a ‘counter-claim demand which defendant holds against plaintiff, arising out of a transaction extrinsic of plaintiff’s cause of action.’” M.N.C. Corp. v. Mount Lebanon Medical Center, Inc., 510 Pa. 490, 509 A.2d 1256, 1259 (1986) (quoting BLACK’S LAW DICTIONARY 1230 (rev. 5th ed. 1979) (emphasis added)).

Id. at 239. Fleetway thus counters that the allegations of Appellants’

petition to open “are counterclaims and/or claims for set-off which cannot

serve as grounds for opening a confessed judgment under Pennsylvania case

law.” Fleetway’s Brief at 18; see also J.M. Korn & Son, Inc. v. Fleet-Air

Corporation, 446 A.2d 945, 947 (Pa. Super. 1982) (“In the absence of ____________________________________________

2 While federal court decisions do not control the determinations of this Court absent a United States Supreme Court pronouncement, whenever possible “Pennsylvania state courts follow the Third Circuit [Court of Appeals] so that litigants do not improperly ‘walk across the street’ to achieve a different result in federal court than would be obtained in state court.” McDonald v. Whitewater Challengers, Inc., 116 A.3d 99, 106 n.13 (Pa. Super. 2015), appeal denied, 130 A.3d 1291 (Pa. 2015).

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fraud, an unliquidated counterclaim or set-off is not grounds for opening a

judgment confessed under a warrant of attorney.”)

The allegations in the petition are that 1) the guarantor Appellants, for

whom “English is not [their] first . . . language, did not understand the

Warrant of Attorney language;” 2) those Appellants indicated they would

“take over” the leases; and 3) Fleetway had informed Appellants it would sell

the trucks and trailers, and it did not do so. Petition to Open Judgment by

Confession, 4/11/16, at ¶¶ 6–10, 16–18, 24–26.

In denying the petition to open and concluding that Appellants failed to

raise any meritorious defense, the trial court addressed Appellants’ assertion

that they did not knowingly and intelligently waive their due process rights.

Appellants alleged in the petition that when they executed the pertinent

documents, they relied on a Russian-speaking translator who failed to

apprise them of the significance and implications of the warrant of attorney

clause incorporated in the Master Lease. The trial court rejected this

argument, asserting that in Pennsylvania “there is no merit to [Appellants’]

assertion that their purported lack of knowledge and/or understanding of the

warrant of attorney provisions . . . requires . . . the judgment [to] be . . .

opened.” Trial Court Opinion, 5/10/16, at 2. The trial court held that the

failure to read a confession of judgment clause will not justify avoidance of

it. See Dollar Bank v. Northwood Cheese Co., 637 A.2d 309, 313 (Pa.

Super. 1994) (rejecting assertion that lack of understanding of warrant of

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attorney provisions requires judgment to be opened and concluding that

failure to read a confession of judgment clause will not justify avoidance of

it).

The trial court also rejected Appellants’ claim regarding the two

individuals purportedly ready to assume the leases. The trial court held that

Appellants did not provide any evidence that Fleetway was contractually

obligated to allow new parties to assume the obligations of Appellants or

obligated to issue the certificate of ongoing business relationships which may

have enabled Appellants to obtain new investors. Trial Court Opinion,

5/10/16, at 3.

Finally, the trial court rejected Appellants’ assertions regarding the

alleged sale of the trucks and trailers. It referenced Appellants’ claim in the

petition to open that Fleetway, in a letter dated February 29, 2016, stated

that the trucks would be sold at a private sale. The court noted that

Appellants failed to provide the letter. Trial Court Opinion, 5/10/16, at 3–4.

Moreover, Appellants failed to offer any evidence that Fleetway had a duty to

mitigate Appellants’ default. Id. at 4.

We agree that Appellants failed to present a meritorious defense.

Appellants have not shown that the trial court manifestly abused its

discretion. Dollar Bank, 637 A.2d at 311. Furthermore, because the

petition failed to state prima facie grounds for relief, the trial court was not

required to issue a rule to show cause. Pa.R.C.P. 2959(b).

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Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq. Prothonotary

Date: 5/15/2017

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