SDO Fund II D32, LLC v. Donahue, G.

2020 Pa. Super. 144

• Court: Superior Court of Pennsylvania
• Decided: June 17, 2020
• Docket: 889 MDA 2019
• Status: Published

Opinion

J-A07036-20

2020 PA Super 144

SDO FUND II D32, LLC : IN THE SUPERIOR COURT OF : PENNSYLVANIA : v. : : : GERARD T. DONAHUE : : Appellant : No. 889 MDA 2019

Appeal from the Order Entered May 3, 2019 In the Court of Common Pleas of Lackawanna County Civil Division at No(s): 2017 CV 4574

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

OPINION BY McLAUGHLIN, J.: FILED JUNE 17, 2020

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”) J-A07036-20

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

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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.

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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

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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

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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., 683 A.2d 269, 273 (Pa. 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.

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Donahue’s Br. at 17. He cites Scott Factors, Inc. v. Hartley, 228 A.2d 887

(Pa. 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 exhausted. Id. at 9, 22-23. He argues

that there is no authority holding that the words “ratify and confirm” in

amendments to a loan agreement have the effect of revitalizing an exhausted

warrant. Id. at 10.

SDO agrees with Donahue that the general rule is that a warrant of

attorney may not be used to confess judgment for the same debt more than

once. However, SDO contends that several recent cases from this Court allow

the parties to waive the general rule by agreement and permit multiple

exercises of a warrant of attorney for the same debt. SDO’s Br. at 14 (citing

Dominic’s Inc. v. Tony’s Famous Tomato Pie Bar & Restaurant, Inc.,

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214 A.3d 259, 274 (Pa.Super. 2019), Dime Bank v. Andrews, 115 A.3d 358,

369 (Pa.Super. 2015), and Atlantic Nat’l Trust, 922 A.2d at 924).

SDO argues that the Guaranty plainly permitted multiple exercises of

the warrant of attorney and, after the PNC Judgment was withdrawn without

prejudice, Donahue admits that he repeatedly executed Consents of

Guarantor that ratified and confirmed that the provisions of the Guaranty,

including the warrant of attorney, remained “unaltered and in full force and

effect.” Id. at 16, 18. SDO further contends that Donahue submitted himself

to new warrants of attorney in the Second and Third Amendments to the Term

Note, each of which authorized SDO to confess judgment against “any

Guarantor,” including Donahue. Id. at 16, 21-22.

A warrant of attorney “constitutes a grant of authority by one

contracting party to the other, upon the happening of a certain event, i.e., a

breach of the terms of the agreement wherein the warrant is contained, to

enter that which results ordinarily only after a trial of the issue between the

parties, i.e., a judgment.” TCPF Ltd. P’ship, 976 A.2d at 575, n.5 (quoting

Scott Factors, 228 A.2d at 888). The general rule in Pennsylvania is that “a

warrant of attorney to confess judgment may not be exercised twice for the

same debt.” Id. at 575 (citations omitted).

However, we recognized in Dime Bank that “under certain

circumstances, and to certain extents, parties to a note may waive this rule,

allowing for multiple exercises of a warrant of authority to confess judgment.”

115 A.3d at 369 (citations omitted). This is because a warrant of attorney is

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a contractual agreement and the parties to the contract are free to determine

the extent of the power the warrant confers, including the number of times

the holder of the warrant may exercise it. Id. (citing Atlantic Nat’l Trust,

922 A.2d at 924). See also Dominic’s Inc., 214 A.3d at 274 (finding that

although appellee did not properly aver notice of nonpayment and cure period,

note allowed appellee “to confess judgment as many times as necessary until

payment in full of all amounts due; so, [a]ppellee did not exhaust the warrant

of attorney in this flawed attempt to confess judgment”).

Here, acknowledging our decision in Dime Bank, the trial court

observed that parties to a note may waive the general rule that precludes

repeated exercises of a warrant of attorney to confess judgment by contract.

The court stated:

What Defendant Donohue essentially alleges is that the Warrant of Attorney had been exhausted when it was most recently exercised against him, which he maintains is a meritorious defense to the judgment and evidences a material or prejudicial defect in the record, necessitating the striking of the judgment. We disagree. In his Petition, [Donahue] admits execution of the Guaranty and Surety Agreement (the “Guaranty”) containing the Warrant of Attorney clause upon which this particular judgment was entered and admits as well that he subsequently executed several Consents of Grantor, each of which expressly ratified and confirmed the validity of the original loan obligations and the Guaranty, including the Warrant of Attorney. Further, Donahue ratified and submitted himself to separate Warrants of Attorney in the First, Second, and Third Amendments to the loan documents and the Forbearance Agreement, each of which authorized Plaintiff SDO to confess judgment against [Donahue] for the default under the Guaranty. [Donahue] has not denied that he and his co- obligors defaulted on the loan obligations, therefore taking

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that away as a potential meritorious defense. Donohue has admitted to signing the Guaranty and the Consents, and he has not denied default on the loan obligations he guaranteed, without condition.

Trial Ct. Op., 10/8/19, at 5.

Upon review, we find no abuse of discretion by the trial court. The plain

language of the Guaranty empowered SDO to confess judgment as many

times as necessary until it received payment in full. Donahue thereafter

executed multiple agreements that ratified and confirmed the confession of

judgment provision contained in the original Guaranty. In essence, the parties,

through their own contracts, agreed to allow for multiple exercises of the

warrant of attorney to confess judgment, which is plainly permissible. Dime

Bank, 115 A.3d at 369.

Therefore, we agree with the trial court that the PNC Judgment did not

exhaust the warrant of attorney. Donahue’s exhaustion argument is neither a

fatal defect on the face of the record that would permit the striking of the

confessed judgment nor a meritorious defense such that the trial court should

have opened the judgment.

Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq. Prothonotary

Date: 06/17/2020

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