A promissory note in a commercial transaction governed by Pennsylvania law may contain a clause that allows the lender to confess a judgment against the borrower in the event of a default under the promissory note. Most confession of judgment clauses contain language that allows “any attorney or the prothonotary or clerk of any court in the Commonwealth of Pennsylvania” to confess judgment. Until recently, it was unclear whether Pennsylvania Rule of Civil Procedure (Pa.R.C.P.) 1006 relating to venue applied in confession of judgment actions. As a result, it was possible for courts to open or strike a confessed judgment on the grounds that the judgment was obtained in a court that did not have proper venue.
Prior to August 2013, only two courts published decisions regarding whether Pa.R.C.P. 1006 applied to confessed judgments. In Mountbatten Sur. Co., Inc. v. Williams Graphics, Inc., 2004 WL 1921110 (Pa.Com.Pl. Aug. 12, 2004), a County Court of Common Pleas held that a confessed judgment must be entered in a county with proper venue governed by Pa.R.C.P. 1006 However, in PNC Bank v. SNS Buddies, Inc., 2009 WL 6355124 (Pa.Com.Pl. Jan. 29, 2009), affirmed, 996 A.2d 567 (Pa.Super. 2010 (unpublished memorandum1)) a County Court of Common Pleas held that general civil action venue rules do not apply to confession of judgment actions.
In August 2013, the Superior Court of Pennsylvania decided Midwest Financial Acceptance Corporation v. Rony E. and Susan M. Lopez, 78 A.3d 614 (2013), which determined whether Pa.R.C.P. 1006 applied in a confession of judgment action.
The relevant facts of Midwest Financial Acceptance Corporation are summarized as follows. Midwest Financial Acceptance Corporation (MFAC) entered into a commercial transaction with Mr. and Mrs. Lopez. The promissory note contained a confession of judgment provision that authorized MFAC to confess judgment “in any court of the Commonwealth of Pennsylvania, or elsewhere.” Then Mr. and Mrs. Lopez defaulted under the terms of the promissory note by failing to make payments, and MFAC filed its confession of judgment action in Allegheny County, despite the fact that Mr. and Mrs. Lopez were residents of Centre County. After the confessed judgment was entered in Allegheny County, MFAC transferred the judgment to Centre County. It was at that time that Mr. and Mrs. Lopez filed a motion to strike the confessed judgment for, among other reasons, the confessed judgment was entered in a county that did not have proper venue. The trial court determined that the confession of judgment clause was “merely” a warrant of attorney and not a forum selection clause. Because the court held that the confession of judgment clause was not a forum selection clause, the court reasoned that the confessed judgment should be struck because MFAC failed to comply with Pa.R.C.P. 1006 by obtaining the confessed judgment in a county did not have proper venue.
Upon reviewing the trial court’s decision, the Superior Court primarily focused on the difference between a confession of judgment action under Pa. R.C.P. 2950-2967 and other types of actions under Pa.R.C.P. 1001 to determine whether Pa.R.C.P. 1006 applies to confessions of judgment for money. Upon reviewing Pa. R.C.P. 2950-2967 and Pa.R.C.P. 1001, the Court noted differences between a civil action and a confession of judgment action. First, the Court noted that Pa.R.C.P 1001 defines action as a “civil action” that brings all claims for relief asserted in the action of assumpsit, the action of trespass and the action in equity. Further, Pa.R.C.P. 1001(c) provides that other forms of actions which incorporate by reference the rules regarding actions are also considered “civil actions”. Second, the Court noted that there are specific rules relating to the time for service process or for filing or serving pleadings in civil actions, while confession of judgment actions do not require the moving party to file and serve the action on the defendant or allow the defendant an opportunity to defend. Third, the Court noted that Pa.R.C.P. 2950-2967, which pertains solely to confession of judgment actions, do not contain any reference to “venue,” other than the procedure the judgment debtor must follow when seeking relief from a confessed judgment. As a result, the Court determined that: (a) confession of judgment actions are not actions as defined in Pa.R.C.P. 1001 and differ substantively and procedurally from other civil actions, and (b) Pa.R.C.P. 1006 does not automatically apply to confession of judgment actions.
The Court’s decision in Midwest Financial Acceptance Corporation for now gives comfort to lender’s counsel that venue should not be a valid basis to open or strike a confessed judgment.
1 Unpublished memorandums of the Superior Court of Pennsylvania do not carry precedential weight. (see Boring v. Erie Ins. Group, 641 A.2d 1189, 1191 (Pa.Super. 1994).