Majestic Inc. v. Berry

• Decision Date: 04 May 1999
• Docket Number: No. C0-98-2138,C0-98-2138
• Parties: MAJESTIC INC., et al., Respondents, v. Richard B. BERRY, Appellant.
• Court: Minnesota Court of Appeals

Page 251

593 N.W.2d 251

MAJESTIC INC., et al., Respondents, v. Richard B. BERRY, Appellant.

No. C0-98-2138.

Court of Appeals of Minnesota.

May 4, 1999.

Syllabus by the Court

I. A cognovit judgment erroneously entered after the one-year limitations period in Minn.Stat. § 541.09 (1996) may be vacated on a motion brought within a reasonable time, but it is not void and may not be set aside under Minn. R. Civ. P. 60.02(d).

II. A properly asserted absence of personal jurisdiction may demonstrate that a judgment is void, but it is not properly asserted when it is raised for the first time at oral argument in an appeal on separate grounds.

Jeffrey S. Sheridan, Aaron T. Stone, Strandemo & Sheridan, P.A., Inver Grove Heights, for respondents.

Robert B. Bauer, Christopher A. Grove, Michael G. Dougherty, Severson, Sheldon, Dougherty & Molenda, P.A., Apple Valley, for appellant.

Considered and decided by SCHUMACHER, Presiding Judge, LANSING, Judge, and WILLIS, Judge.

OPINION

LANSING, Judge.

The district court denied a business debtor's motion to vacate a judgment under Minn. R. Civ. P. 60.02(d). We conclude that the judgment may have been defective, but it is not void. The district court did not err in denying the debtor's motion to vacate, brought three and one-half years after the debtor knew that judgment had been entered. We affirm.

FACTS

This procedurally complicated litigation involves a cognovit judgment entered after a default on a promissory note. The promissory note was part of a 1992 business transaction between Richard Berry and Majestic, Inc., Elliott Grater, and Kathleen Grater (collectively Majestic).

Berry purchased business assets from Majestic with a $60,000 promissory note. Berry signed the installment note and a separate document entitled "Confession of Judgment." Both documents provided for acceleration of the debt in the event of default and authorized entry of judgment against Berry for the unpaid amount. The note required 15 days' written notice by certified mail of intent to accelerate. The confession of judgment authorized the court to enter judgment without further notice to Berry.

Berry defaulted on the note in 1992. After the default, Elliott Grater had monthly discussions with Berry in an attempt to collect the debt. In May 1994, Majestic's attorney sent Berry a notice of acceleration and an intent to obtain judgment on the unpaid amount. The post office provided two notices of certified mail to Berry's address, but the letter was not claimed and was returned to Majestic. On April 20, 1995, Majestic prepared a notarized plea of confession for $63,410.96 in the Dakota County Clerk's office. The clerk's office filed the plea on May 4, 1995, and the court administrator entered judgment against Berry for $63,741.96.

Shortly after judgment was entered, Berry called Grater and told him that he would file for bankruptcy before he would pay anything on the judgment. Approximately three and a half years later, Berry again called Grater in an attempt to negotiate an amount in satisfaction of the judgment because it was impeding Berry's current business transactions. Berry and Grater were unable to agree on an amount, and on October 23, 1998, Berry moved to vacate the judgment under Minn. R. Civ. P. 60.02(d). The district court found that the confession of judgment was not void and denied Berry's motion. Berry appeals the order denying his motion.

ISSUES

I. Did entry of judgment on the cognovit note violate the "separate instrument" requirement of Minn.Stat. § 548.23?

II. Is the judgment void because it was not brought within one year of its accrual as required by Minn.Stat. § 541.09?

III. Is the judgment void because it is not based on a judicial determination or a trial on the merits?

IV. Is Berry's claim that the judgment is void because it was not signed by an attorney reviewable?

ANALYSIS

In this appeal we are asked to determine whether the judgment entered on the cognovit note in April 1995 is void. A cognovit note is an acknowledgement of liability in the form of a confessed judgment. See Minn.Stat. § 548.23 (1996). When properly used, confessions of judgment serve as efficient and inexpensive means to allow parties to settle disputes. See, e.g., Miller v. Shugart, 316 N.W.2d 729, 735 (Minn.1982) (parties used confession of judgment to settle liability dispute). In the early part of this century, it was a common practice of creditors to also use confessions of judgment to secure a debt. See, e.g., Berg v. Burkholder Lumber Co., 164 Minn. 81, 84, 204 N.W. 923, 924 (1925). The practice is less common today.

In a 1972 United States Supreme Court opinion, Justice Blackmun summarized the controversial history of the cognovit note. See D.H. Overmyer Co. v. Frick Co., 405 U.S. 174, 176, 92 S.Ct. 775, 777-78, 31 L.Ed.2d 124 (1972) (observing that cognovit is an ancient device extending at least as far back as Blackstone's Commentaries). By its nature the cognovit judgment limits due process; but due process rights to notice and hearing prior to civil judgment are subject to waiver. Id. at 185, 92 S.Ct. at 782; Hutson v. Christensen , 295 Minn. 112, 118, 203 N.W.2d 535, 538 (1972). The waiver of due process rights must be voluntary, knowing, and intelligently made. Overmyer, 405 U.S. at 185, 92 S.Ct. at 782.

Berry has not argued he did not voluntarily, knowingly, and intelligently sign the confession of judgment. Instead, Berry brought a motion to vacate the judgment under Minn. R. Civ. P. 60.02(d). Relying primarily on statutory language, Berry argues that the judgment against him is void (1) for failure to comply with the "separate instrument" requirement of Minn.Stat. § 548.23; (2) for failure to enter judgment within the limitations period of Minn.Stat. § 541.09 (1996); and (3) because equity requires a judicial determination and a trial on the merits. At oral argument, Berry raised an additional issue, (4) whether the judgment is void because it was not entered by an attorney.

I

In Minnesota, confession of judgment is governed by two statutes, Minn.Stat. §§ 548.22 and 548.23 (1996). Section 548.22 governs a confession of judgment signed by a debtor for a liability based on an agreement between the parties. Minn.Stat. § 548.22. Section 548.23 governs a judgment filed as a plea of confession, under which a debtor authorizes an attorney to act on behalf of the debtor. Minn.Stat. § 548.23. Berry asserts that the judgment entered against him violates Minn.Stat. § 548.23 because the confession instrument is not distinct from the note.

Entry of judgment under Minn.Stat. § 548.23 requires the filing of a plea of confession with the court. The filing must also include an instrument signed by the debtor confessing the debt and authorizing the attorney to act on the debtor's behalf (confession instrument) and a copy of a distinct debt instrument. Minn.Stat. § 548.23 (requiring that debt instrument be distinct, referring to debt instrument as "evidence," indicating that copy of both instruments should be filed with plea of confession).

To be distinct, the confession instrument that authorizes the attorney to act must contain sufficient information to allow a court to give it effect without reference to the debt instrument. Keyes v. Peterson, 194 Minn. 361, 363, 260 N.W. 518, 519 (1935). In Keyes, the debtor executed a promissory note and a confession instrument that authorized an attorney to act on his behalf. Id. The confession instrument was not distinct because it referred to the note to such an extent that "a stranger to the transaction would be able to gather nothing from examining merely the authorization [confession instrument] and without referring to the note." Id. The danger posed by the vague confession instrument was that its holder "could easily substitute" another debt instrument for the one confessed to by the debtor. Id. at 363-64, 260 N.W. at 519.

Similar to Keyes, Berry's confession of judgment refers to the promissory note he executed. Although this confession instrument that Berry signed incorporates the debt instrument and refers to it, the reference does not merge the two documents. Unlike Keyes, the confession instrument states the amount of the debt and the facts out of which the debt arose. Incorporating these facts protects the debtor by making it very difficult for the holder of the confession instrument to substitute a different debt instrument. The district court correctly held that the confession instrument was distinct from the debt instrument.

Berry also argues that the confession instrument is void because it fails to state a specific amount. Berry has confused the provisions of sections 548.22 and 548.23. Compare Minn.Stat. § 548.22 (confession of judgment must state a specific amount), with Minn.Stat. § 548.23 (confession instrument not required to state a specific amount). Although the authorization Berry signed has aspects of a confession of judgment under section 548.22, both Berry and Majestic have argued this entire case as a violation of a confession instrument governed by section 548.23. We address the issue as it was framed in the moving papers and argued in the district court, under the provisions of section 548.23.

In granting authority to an attorney under section 548.23, the debtor grants the attorney power to confess judgment for the amount owed plus any interest or costs specified in the confession instrument. This provision does not, however, grant the attorney unlimited power; when filing the plea of confession, the attorney must state a specific amount.

The court administrator shall enter judgment for the amount specified, as in other cases, and shall attach the judgment to the statement, which shall constitute the judgment roll. The judgment shall be final, and, unless special provision be made for a stay, execution may issue immediately.

Minn.Stat. § 548.22 (emphasis added); see Minn.Stat. § 548.23 (judgment is to be entered...