Court Weighs In On Affirmative Defenses To Confessed Judgment
Written by: Alan Nochumson
When a tenant commits a default of a commercial lease, the landlord typically has several options to obtain a judgment for possession of the leased premises and a monetary judgment for the amount owed under the lease.
The landlord must first ascertain whether the lease contains what is commonly referred to as a warrant of attorney provision. A warrant of attorney provision is one of the most powerful tools afforded to landlords in our commonwealth. Under a warrant of attorney provision, a landlord can simply file a complaint in a court of common pleas against a defaulting tenant demanding the immediate entry of a confessed judgment for possession and money. Upon the mere filing of such a complaint, the confessed judgment is then entered as of record against the defaulting tenant. The tenant then has the ability to strike or open the confessed judgment, but the landlord then holds the upper hand against the defaulting tenant.
Whether or not the lease contains a warrant of attorney provision, the landlord also may file either a standard complaint with the court of common pleas or the applicable small claims court. In Philadelphia, the Philadelphia Municipal Court handles landlord-tenant disputes. Unlike the other counties in Pennsylvania, there is no jurisdictional limit in the amount in controversy in the Philadelphia Municipal Court with regards to landlord-tenant disputes. As such, it is quite often that commercial landlords will elect to initially litigate the landlord-tenant dispute in the municipal court because, among other things, of the ability to obtain a prompt hearing as opposed to the cumbersome and prolonged process of the court of common pleas. Even in the other counties, a landlord may still file a complaint with the magisterial district court due to its streamlined process.
With so many avenues for litigation, it is not uncommon for landlord-tenant disputes to be litigated in different venues at the same time. As such, it is ever so important for the parties to exercise and preserve all of their rights during the litigation or face some rather dire consequences.
A recent decision handed down by the Superior Court of Pennsylvania in Pops PCE TT v. R&R Rest. Group, 2016 Pa. Super. Unpub. LEXIS 4232 (Nov. 18, 2016), illustrates why attorneys who handle landlord-tenant disputes must tread carefully during the litigation.
In Pops, in late 2013, R&R Restaurant Group, f/k/a Brewstone Pittsburgh, entered into a 10-year lease arrangement with Pops for commercial space in the western part of the commonwealth, the opinion said.
R&R leased the commercial space from Pops with the intention of operating a bar restaurant on the leased premises, the opinion said.
The parties agreed in the lease that the base rent would be abated for any period of time that R&R was unable to sell alcoholic beverages and that R&R could terminate the lease if it was unable to secure a liquor license for the leased premises, the opinion said.
The lease provided that, in the event of default by R&R, Pops could accelerate the rent due under the lease term and then confess judgment for the accelerated amount.
In early 2015, Pops filed a landlord-tenant complaint before a magisterial district judge for possession of the leased premises only due to alleged monetary defaults committed by R&R under the lease.
After a hearing took place, a judgment for possession was entered in favor of Pops and against R&R.
R&R elected not to appeal the judgment for possession.
Soon thereafter, Pops separately filed with the court of common pleas a complaint in confession of judgment for money only against R&R based upon these same alleged defaults, demanding judgment in favor of Pops and against R&R in the amount of $2,334,608.87 “plus post-judgment interest and costs of suit” for the accelerated rent due under the lease entered into by the parties. The trial court then so entered a confessed judgment.
Upon receiving notice of the entry of the confessed judgment, R&R filed a petition to strike and, in the alternative, to open the confessed judgment.
In its petition, R&R, among other things, argued that it had exercised its right under the lease to terminate the lease based upon its failure to obtain a liquor license for the leased premises. In so doing, R&R “outlined what it alleged were its ‘good faith,’ yet unsuccessful, efforts to obtain a liquor license as well as Pop’s lack of cooperation with respect to those efforts, and it averred that, pursuant to its express right in the lease, it had previously terminated the lease.”
The petition contained other grounds to either strike or open the confessed judgment, such as Pop’s failure: to properly account for the payments made by R&R under the lease, to credit R&R for the improvements made to the leased premises, and to mitigate its damages by securing a replacement tenant for the leased premises.
Upon reviewing the petition, the trial court initially denied the petition to strike the confessed judgment and directed Pops to respond to the petition to open the confessed judgment.
In its response, Pops noted that the magisterial district judge had not only granted possession of the leased premises in its favor but also determined that R&R was in default of the lease and “was responsible for the full unabated rent in the amount of $21,028.41 per month under the lease.” With the entry of the judgment for possession, Pops argued that the defenses asserted by R&R in the “petition are barred by res judicata and collateral estoppel and otherwise fail as a matter of law.” In other words, Pops asserted that R&R should not and could not “re-litigate the breach of the lease in this proceeding.”
In its response, Pops alleged that, at the hearing which occurred before the magisterial district judge, R&R asserted these very same defenses in opposition to Pops’ claim for possession of the leased premises.
Pops argued that R&R waived these defenses based upon the doctrines of res judicata and collateral estoppel because the magisterial district judge “found R&R in breach of the lease and entered a notice of judgment in favor of Pops, awarding landlord possession of the leased premises and determining that the amount of rent per month shall be $21,028.41” and “no appeal was filed from the magistrate award” by R&R.
Furthermore, Pops denied, according to the opinion, “in large part,” R&R averments as they related to R&R’s efforts to obtain a liquor license and Pop’s efforts to obtain a liquor license and Pop’s role and obligations with respect to those efforts.
In reply to Pops’ response to the petition, R&R disputed what had actually transpired at the hearing before the magisterial district judge. While R&R admitted that a hearing was held, that the property manager testified at the hearing, and that evidence was presented as to Tenant’s failure to pay timely rental payments, it denied that evidence was presented at the hearing on the issue of its efforts to obtain a liquor license and whether they were made in “good faith.”
Following oral argument on the petition, the trial court issued an order denying the petition in its entirety.
R&R then appealed the trial court’s ruling as to the denial of the petition to open the confessed judgment only to the Superior Court.
In the appellate proceedings, the trial court judge issued a memorandum opinion justifying the denial of R&R’s petition to open the confessed judgment. In the memorandum opinion, the trial court judge noted that R&R failed to appeal the judgment for possession entered by the magisterial district judge and, thereby, many of the defenses asserted by R&R in the petition had been waived under the doctrines of res judicata and collateral estoppel.
On appeal, the Superior Court ultimately decided that the trial court had abused its discretion in denying the petition to open the confessed judgment by its overly broad application of the doctrines of res judicata and collateral estoppel.
Citing to Rearick v. Elderton State Bank, 97 A.3d 374 (Pa. Super. 2014), the Superior Court pointed out that, in determining whether the doctrine of res judicata, which is also known as claim preclusion, should apply, a court should “consider whether the factual allegations of both actions are the same, whether the same evidence is necessary to prove each action and whether both actions seek compensation for the same damages.”
In comparison, the Superior Court, relying upon its previous ruling in Perelman v. Perelman, 125 A.3d 1259 (Pa. Super. 2015), indicated that collateral estoppel, which is also known as issue preclusion, “applies if the issue decided in the prior case is identical to the one presented in the later case; there was a final judgment on the merits; the party against whom the plea is asserted was a party or in privity with a party in the prior case; the party or person privy to the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the prior proceeding and the determination in the prior proceeding was essential to the judgment.”
The Superior Court concluded that the doctrine of res judicata did not apply under the circumstances as the causes of action filed with the magisterial district judge and the trial court were not identical. Rather, the Superior Court emphasized that the only cause of action before the magisterial court judge was for possession and Pops reserved its right to pursue a separate claim for monetary damages, which it did by later filing the complaint for confession of judgment for money. Since the doctrine of res judicata requires identity of the causes of action, which did not occur, the Superior Court refused to apply the doctrine of res judicata to the defenses asserted by R&R in its petition to open the confessed judgment.
As for the doctrine of collateral estoppel, the Superior Court stated that the determination by the magisterial district judge as to whether R&R was in default under the lease was not essential to the awarding of the judgment for possession. According to the Superior Court, “a review of the … notice of judgment reveals that, if it was even decided, the question whether R&R was in default under the lease was not essential to its judgment that Pops is entitled to possession” but “rather, viewing the record in the light most favorable to the moving party, it appears that R&R conceded possession, as it had already vacated the premises and had no objection to the awarding of possession. As such, the Superior Court concluded that the doctrine of collateral estoppel likewise did not apply under the circumstances.
Reprinted with permission from the January 24, 2017 edition of The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, email@example.com or visit www.almreprints.com.