Neducsin v. Caplan

• Decision Date: 23 July 2015
• Docket Number: No. 1116 EDA 2014,1116 EDA 2014
• Citation: 2015 PA Super 158,121 A.3d 498
• Parties: Daniel R. NEDUCSIN, Appellee v. Scott CAPLAN, Appellant.
• Court: Pennsylvania Superior Court

121 A.3d 498

2015 PA Super 158

Daniel R. NEDUCSIN, Appellee

v.Scott CAPLAN, Appellant.

No. 1116 EDA 2014

Superior Court of Pennsylvania.

Argued Feb. 3, 2015.

Filed July 23, 2015.

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

OPINION BY 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 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 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 SHOULD HAVE BEEN RESOLVED IN FAVOR OF [APPELLANT].

WHETHER [APPELLANT] WAS ENTITLED TO A FULL EVIDENTIARY HEARING TO DETERMINE IF THE JUDGMENT ENTERED BY CONFESSION SHOULD HAVE BEEN STRICKEN DUE TO THE INABILITY OF APPELLEE, AS CREDITOR, TO MEET HIS BURDEN THAT THERE WAS A KNOWING, VOLUNTARY AND INTELLIGENT WAIVER OF [APPELLANT'S] PROCEDURAL DUE PROCESS RIGHT TO A HEARING BEFORE THE ENTRY OF JUDGMENT.

WHETHER [APPELLANT] PRESENTED SUFFICIENT EVIDENCE OF A MERITORIOUS DEFENSE TO THE CLAIM OF MISREPRESENTATION ... AND, IF SO, WHETHER IT WAS MATERIAL, PLUS WHERE THERE WAS NO DETRIMENTAL RELIANCE UPON ANY STATEMENTS AND NO MONETARY LOSS TO WARRANT A $2 MILLION JUDGMENT UPON A FULLY PERFORMING LOAN.

WHETHER, NOTWITHSTANDING THE LACK OF AN EVIDENTIARY HEARING, THE RECORD WAS SUFFICIENT TO OPEN THE JUDGMENT BASED UPON A LACK OF A KNOWING, VOLUNTARY AND INTELLIGENT WAIVER OF THE RIGHTS WHERE THE NOTE WAS CUT AND PASTED FROM ANOTHER TRANSACTION AND FALSELY STATED IT WAS EXTENSIVELY REVIEWED BY COUNSEL BUT WAS ONLY PRESENTED MOMENTS BEFORE SIGNATURE AND REFERENCED PARAGRAPHS THAT DID NOT EXIST, SECURITY AGREEMENTS WHICH DID NOT EXIST AND GUARANTIES THAT DID NOT EXIST.

(Appellant's Brief at 4).

In his issues combined, Appellant initially argues the 3/9/12 note lacks the requisite precision to be enforceable and is internally inconsistent because it is a “cut-and-paste job” from the Bedrock Note. Specifically, Appellant contends the default provisions of the 3/9/12 note are unclear and ambiguous, as strict construction of the terms suggests the default provisions only apply to Sweat, and not to Appellant; and the sections referred to in the last paragraph do not exist as numbered in the 3/9/12 note. Additionally, Appellant asserts he did not knowingly, voluntarily, and intelligently waive his rights to notice and hearing regarding the confession of judgment, because Appellee presented the 3/9/12 note to Appellant moments before signing and without time for Appellant to obtain counsel's review. Appellant insists he is entitled to an evidentiary hearing under the rules of court to determine if he knowingly, voluntarily, and intelligently waived his due process rights under the 3/9/12 note. Appellant submits the failure of the trial court to conduct an evidentiary hearing on Appellant's due process challenge constitutes an abuse of discretion.

Alternatively, Appellant wants to open the confessed judgment, claiming he has raised several meritorious defenses, including the “materiality” of the amount drawn down on the line of credit, Appellant's attempt to cure the default, and Appellee's decision not to confess judgment against the other shareholders. Appellant baldly states the record had a number of factual discrepancies, such as whether Appellee justifiably relied on Appellant's misrepresentation and whether the damages are potentially a penalty. Appellant complains a jury should hear those issues. Appellant submits the discrepancy between the actual draw-down and the amount Appellant disclosed was insignificant in light of the overall debt. Appellant repeats his contention that the trial court's analysis does not reflect adequate consideration of whether Appellant properly waived his due process rights.

Appellant concludes this Court should reverse the trial court's decision and strike the judgment entered by confession; or remand the matter for a full evidentiary hearing to determine whether Appellant exercised a knowing, voluntary, and intelligent waiver of his procedural due process rights; or simply reverse the trial court's decision and open the judgment, based on the meritorious defenses raised in Appellant's petition to open the confessed judgment. We disagree.

Initially, we observe:

“A petition to strike a judgment is a common law proceeding which operates as a demurrer to the record. A petition to strike a judgment may be granted only for a fatal defect or irregularity appearing on the face of the record.” Resolution Trust Corp. v. Copley Qu–Wayne Associates, 546 Pa. 98, 106, 683 A.2d 269, 273 (1996).

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

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