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Capital Finance, LLC v. Rosenberg

United States District Court, D. Maryland

November 1, 2017

OSCAR ROSENBERG, el. al., Defendants.


          A. David Copperthite United States Magistrate Judge

         This Report and Recommendation addresses the Motion to Open, Modify, or Vacate Judgment by Confession (the "Motion") (ECF No. 11) filed by Defendants, Oscar Rosenberg and Josef Neuman. The parties" submissions have been reviewed, and no hearing is necessary. Loc.R. 105.6 (D.Md. 2016). For the reasons stated herein, I recommend that the Motion be DENIED.

         I. Factual and Procedural Background

         On July 1, 2015. Plaintiff, Capital Finance, LLC, and a non-party borrower ("Borrower") entered into a Credit and Security Agreement ("Credit Agreement") under which Plaintiff agreed to extend a revolving line of credit financing to Borrower. ECF No. 1-2. The Credit Agreement was executed pursuant to a Revolving Loan Note, as subsequently amended, supplemented, and modified (ECF No. 1-3), whereby Borrower agreed to receive revolving credit financing up to the amount of $9, 000, 000 from Plaintiff in return for Borrower's obligation to pay back the loan(s) with interest. Borrower also was obligated under the terms of the Revolving Loan Note to provide Plaintiff with a security interest in certain property belonging to Borrower to ensure payment and performance on the loan. ECF No. 1-3. The Credit Agreement further authorized the administrative agent (Plaintiff) to exercise "all other rights, options, and remedies granted to Agent under this Agreement or at law or in equity" and "all rights and remedies granted to it under all Financing Documents" in the event that Borrower failed to perform its obligations. ECF No. 1-2 at 66.

         Contemporaneously with the Credit Agreement and Revolving Loan Note. Defendants executed separate Guaranty Agreements which contained a Confession of Judgment clause, wherein Plaintiff could obtain a confessed judgment against Defendants if they did not perform their obligations to complete payment and performance:

SECTION 12. Confession of Judgment. If the Guarantor should fail to pay or perform the Guaranteed Obligations in accordance with this Guarantee, the Guarantor hereby authorizes any attorney designated by the Agent or any clerk of any court of record to appear for the Guarantor in any court of record and confess judgment against the Guarantor, without prior hearing, in favor of the Agent and Lenders for, and in an amount equal to, the total of the Guaranteed Obligations then due and payable by the Guarantor hereunder, all other amounts then due and payable by the Guarantor to the Agent and Lenders under the provisions of this Guarantee, costs of suit and attorneys' fees equal to 15% of the amount of such Guaranteed Obligations. In connection therewith, the Guarantor hereby releases, to the extent permitted by applicable laws, all errors and all rights of exemption, appeal, stay of execution, inquisition, and other rights to which the Guarantor may otherwise be entitled under the applicable laws now in force and which may hereafter be enacted, including, without limitation, those of the United States of America. The authority and power to appear for and enter judgment against the Guarantor shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Agent or Lenders shall deem necessary and desirable, for all of which this Guarantee shall be a sufficient warrant.

ECF Nos. Inland 1-5 at 7.

         On July 26, 2017, Plaintiff filed a Complaint for Confession of Judgment (the "Complaint"), requesting that this court enter judgment by confession in favor of Plaintiff and against Defendants for breach of guarantees owed to Plaintiff. ECF No. 1. With the Complaint. which sought damages, jointly and severally, in the principal amount of $1, 166, 228.11, plus accrued interest and attorney's fees. Plaintiff filed the Credit Agreement, Revolving Loan Notes, Guaranties, and the Affidavit of Jeff Stein, the authorized representative of Plaintiff. On September 6. 2017, the Court found that the documents filed by Plaintiff substantively met the requirements of Local Rule 108. La, that Plaintiffs made a prima facie showing that Defendants voluntarily, knowingly, and intelligently waived their right to notice and a prejudgment hearing, and that Plaintiffs had a meritorious claim for liquidated damages.[1] ECF No. 7. Accordingly, the Clerk of the U.S. District Court for the District of Maryland entered a Judgment by Confession against Defendants in the amount of $1, 166, 228.11 plus additional interest and attorney's fees. See ECF No. 8.

         On October 4, 2017, having received notice of the judgment against them. Defendants filed the Motion, requesting that the Court vacate the Judgment by Confession because they have a meritorious defense. ECF No. 11 at 1. Specifically, Defendants argue that the confessed judgment was entered in contravention of the express contractual terms, Plaintiff had failed to allege or prove that the condition precedent to Defendants' payment obligations were satisfied, and Borrower had not committed fraud. ECF No. 11-2 at 2. Plaintiff opposed the Motion, ECF No. 15, and Defendants replied, ECF No. 16.

         II. Discussion

         The entry of judgment by confession is governed by District of Maryland Local Rule 108.1. Local Rule 108.1(d) states, in pertinent part:

The motion shall be made on the ground that the defendant has a meritorious defense to the cause of action. It shall set forth fully the facts relied on for such defense.

         Local Rule 108.1(e) governs the determination of a motion to vacate a confessed judgment and provides, in part:

If the evidence presented establishes that there are substantial and sufficient grounds for an actual controversy as to the merits of the case, the Court shall order the judgment by confession vacated, opened, or modified, with leave to the defendant to file a pleading. and the case shall stand for trial. If the evidence does not establish that there are substantial and sufficient grounds for actual ...

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