Court Weighs In On Affirmative Defenses To Confessed Judgment

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.

Warrant of Attorney Provision

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.

Alternative Court Venues

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.

Concurrent Proceedings

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.

Case Study: Pops PCE TT v. R&R Rest. Group

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.

Lease Terms & Default

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.

Magisterial District Court Action

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.

Confession of Judgment in Common Pleas

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. The trial court then so entered a confessed judgment.

Petition to Strike or Open

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.

Trial Court’s Memorandum and Order

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 many of R&R’s defenses were barred by res judicata and collateral estoppel.

In reply, R&R disputed Pops’ characterization of the magisterial hearing and denied that evidence was presented on its liquor-license efforts.

Following oral argument, the trial court issued an order denying the petition in its entirety.

Superior Court Appeal

R&R then appealed the trial court’s ­ruling on the petition to open the confessed judgment to the Superior Court.

In its memorandum opinion, the trial court judge had applied res judicata and collateral estoppel at an overly broad scope. On appeal, the Superior Court agreed the trial court abused its discretion.

Analysis of Res Judicata & Collateral Estoppel

Citing Rearick v. Elderton State Bank, 97 A.3d 374 (Pa. Super. 2014), the Superior Court pointed out that res judicata requires identity of causes of action, which did not exist here—the magisterial action was for possession only, and the confessed-judgment action was for money.

Regarding collateral estoppel, the Court noted the magisterial judge’s finding of default was not essential to the possession judgment, as R&R had conceded possession by vacating the premises. Thus, issue preclusion did not apply either.

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, reprints@alm.com or visit www.almreprints.com.

Alan Nochumson