Ferrick v. Bianchini

• Citation: 2013 PA Super 116,69 A.3d 642
• Parties: Thomas FERRICK and Janice Ferrick, Appellees v. Edward W. BIANCHINI and SAB, LLC, Appellants.
• Decision Date: 14 May 2013
• Court: Pennsylvania Superior Court

69 A.3d 642

2013 PA Super 116

Thomas FERRICK and Janice Ferrick, Appellees

v.Edward W. BIANCHINI and SAB, LLC, Appellants.

Superior Court of Pennsylvania.

Argued Oct. 30, 2013.

Filed May 14, 2013.

Linda T. Jacobs, Philadelphia, for appellants.

Lathrop B. Nelson, III, Philadelphia, for appellees.

BEFORE: STEVENS, P.J., BOWES, and PLATT,^* JJ.

OPINION BY BOWES, J.:

Edward W. Bianchini and SAB, LLC (collectively “Tenant”) appeal from the October 31, 2011 order denying their petition to open or strike a confessed judgment arising from a commercial property lease between the parties. After careful review, we affirm.

On April 17, 2009, Edward Bianchini entered into a ten-year lease with 12th Street Property LLC ¹ (“Landlord”), the owner of a building located at 114 South 12th Street in Philadelphia (the “premises”). Mr. Bianchini planned to operate a high-end restaurant called “Tweed” on the premises, and the lease specifically restricted use of the property to a “bar and restaurant serving alcoholic beverages for consumption.” Net Lease § 1. In addition, Tenant leased the premises in “AS IS” “WHERE IS” condition, and all improvements necessary or desired by Tenant were the sole responsibility of Tenant. Id. at §§ 8(B)(vi) and (C). The lease also contained a conspicuous cognovit clause that entitled Landlord to confess judgment in the case of default. Id. at § 21(A)(iv)(h) and (i). The cognovit clause recited that the warrant of attorney could be exercised multiple times in the event of default for default in payment of rent and it also provided for accelerated rent and possession of the property.²Id. Mr. Bianchini initialed the confession of judgment clause and signed the lease.

On April 27, 2009, Mr. Bianchini assigned the lease to SAB, LLC, but remained liable under its provisions as a guarantor. The assignment and guaranty each contained a cognovit clause, and Mr. Bianchini signed the documents both in his individual capacity and as a Member of SAB, LLC. An amendment to the net lease and assignment and assumption of liability agreement was subsequently executed in spring 2010. That document altered paragraph 2D of the net lease to reduce monthly rent from $12,500 to $10,500 for the period commencing on March 1, 2010, and continuing for forty-eight consecutive months thereafter. On page two, Tenant agreed that the confession of judgment provisions of the original lease and assignment would continue. Mr. Bianchini's signature, individually, and on behalf of SAB, appeared on page three of the three-page document.

Tenant fell into arrears on his rent and other charges, and consequently, Landlord sent Tenant notice of default on June 14, 2011. Complaint ¶ 11. A second letter was sent on August 16, 2011. Id. On August 22, 2011, Landlord filed a complaint in confession of judgment and averred that Tenant was in default for failing to pay rent, taxes, insurance, and utilities and for vacating and abandoning the leased premises prior to the expiration of the lease term. Complaint ¶ 9. Landlord sought both past due rent and charges totaling more than $80,000, together with accelerated rent and fees for the remaining eight years of the lease term, for a total judgment in excess of $1.5 million. Notice of the confessed judgment was served with the writ of execution.

On September 22, 2011, Tenant filed a petition to strike and/or open the confessed judgment pursuant to Pa.R.C.P. 2959, and requested that the trial court issue a rule to show cause pursuant to that rule. Landlord was directed to file a response to the petition on or before October 12, 2011, and Landlord complied. Before any action was taken on the petition, however, Landlord obtained a temporary order for injunction to prevent Tenant from transferring fixtures in the property. On October 25, 2011, there was a hearing to determine whether relief was appropriate and, at that time, the parties brought to the court's attention the pending petition to strike or open the judgment. That same day, the court denied Tenant's petition to open or strike the confessed judgment and request for stay of execution, and dissolved Landlord's motion for preliminary injunction.³ On November 22, 2011, Tenant moved for reconsideration of the order and a stay of execution, which the trial court failed to address. Tenant timely filed an appeal to this Court on November 30, 2011, followed by a Pa.R.A.P. 1925(b) concise statement of errors complained of on appeal, and the trial court issued its Rule 1925(a) opinion.

Tenant presents nine issues for our review:

1. Did the trial court err in failing to issue a rule to show cause permitting the parties to take discovery following the filing of Appellants' Petition to Strike or Open Confessed Judgment and for a Stay (the “Petition”)?

2. Did the trial court apply the appropriate standard of review when adjudicating the Petition?

3. Did the trial court err in finding that the cognovit clause from the original Lease was properly incorporated in the Amendment to the Lease and, thus, enforceable in this action?

4. Did the trial court err in finding that the prior exercise of Appellee's warrant of attorney in 12th Street Property, LLC v. Edward Bianchini, November Term 2010, C.C.P. Phila., No. 03448, a prior separate action, did not exhaust the warrant?

5. Did the trial court err in finding that Appellee's previous breach of the Lease by failing to timely transfer a liquor license did not void the Lease and, thus, void the warrant of attorney?

6. Did the trial court err in failing to find that Appellee's Confessed Judgment constituted a double recovery given that Appellee ejected Appellants from the Premises prior to confessing judgment for fully accelerated rent?

7. Did the trial court err in declining to strike the Confessed Judgment as grossly excessive and inequitable when Appellants were forced to spend in excess of $700,000 on permanent leasehold improvements?

8. Did the trial court err in declining to use its equitable authority to open the Confessed Judgment to provide Appellants with an equitable credit to compensate them for the value of their permanent leasehold improvements?

9. Did the trial [court] err in declining to issue a stay pursuant to Pennsylvania Rule of Civil Procedure 2959?

Tenant's brief at 4–5.

Our review is informed by the following principles. A confessed judgment will be stricken “only if a fatal defect or irregularity appears on the face of the record.” Graystone Bank v. Grove Estates, LP, 58 A.3d 1277 (Pa.Super.2012). A judgment by confession will be opened if the petitioner acts promptly, alleges a meritorious defense, and presents sufficient evidence in support of the defense to require the submission of the issues to a jury. Crum v. F.L. Shaffer Co., 693 A.2d 984 (Pa.Super.1997). In adjudicating the petition to strike and/or open the 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. Homart Development Co. v. Sgrenci, 443 Pa.Super. 538, 662 A.2d 1092 (1995). A meritorious defense is one upon which relief could be afforded if proven at trial. Fox v. Mellon, 438 Pa. 364, 264 A.2d 623 (1970).

In examining the denial of a petition to strike or open a confessed judgment, we review the order for an abuse of discretion or error of law. PNC Bank v. Bluestream Tech., Inc., 14 A.3d 831, 835 (Pa.Super.2010).

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. However, if the truth of the factual averments contained in such record are disputed, then the remedy is by a proceeding to open the judgment and not to strike. An order of the court striking a judgment annuls the original judgment and the parties are left as if no judgment had been entered.

... 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. An order of the court opening a judgment does not impair the lien of the judgment or any execution issued on it.

Hazer v. Zabala, 26 A.3d 1166, 1169 (Pa.Super.2011).

In Graystone, supra, we reaffirmed the

need for strict adherence to rules governing confessed judgments. As a matter of public policy, Pennsylvania applies a similar strict standard to establish the validity of a cognovit clause. This is so because “a warrant of attorney to confess judgment confers such plenary power on the donee in respect of the adjudication of his own claims that certain specific formalities are to be observed in order to effectuate the granting of such a power.” Frantz Tractor Co. v. Wyoming Valley Nursery, 384 Pa. 213, 120 A.2d 303, 305 (1956). Accordingly, “[a] Pennsylvania warrant of attorney must be signed. And it will be construed strictly against the party to be benefited by it, rather than against the party having drafted it.” Egyptian Sands Real Estate, Inc. v. Polony, 222 Pa.Super. 315, 294 A.2d 799, 803 (1972) (citations omitted). “A warrant of attorney to confess judgment must be self-sustaining and to be self-sustaining the warrant must be in writing and signed by the person to be bound by it. The requisite signature must bear a direct relation to the warrant of attorney and may not be implied.” L.B. Foster Co. v. Tri–W Const. Co., 409 Pa. 318, 186 A.2d 18, 20 (1962) (emphasis added).

Graystone, supra at 1282.

Tenant's first two issues involve challenges to the manner in which the trial court addressed the petition. Tenant contends that the trial...