November 20, 2013
CUSTOMERS BANK, formerly known at New Century Bank, Plaintiff,
MICHAEL A. ZIMMERMAN, CONNIE JO ZIMMERMAN, BBC PROPERTIES, INC. and GOVERNORS CLUB PROFESSIONAL CENTER, LLC., Defendants.
Submitted: September 27, 2013
Upon Hearing Held on Confession of Judgment.
Richard M. Beck, Esquire of Klehr Harrison Harvey Branzburg LLP, Wilmington, Delaware; attorney for Plaintiff.
Peter K. Schaeffer, Jr., Esquire of Avenue Law, Dover, Delaware; attorney for Defendants.
William L. Witham, Jr. Resident Judge
Plaintiff has filed a complaint with this Court seeking to confess judgment against Defendants. Defendants have objected. Pursuant to Superior Court Civil Rule 58.1(g)(3), this Court held a hearing on the issue of whether Defendants effectively waived their due process rights to notice and a hearing. The Court's factual findings from the hearing and holding on the issue of waiver follows. For the reasons discussed herein, confession of judgment is ENTERED against Defendants.
FACTS AND PROCEDURE
The Defendants in this matter are Michael A. Zimmerman (hereinafter "Michael"); Michael's wife, Connie Jo Zimmerman (hereinafter "Connie") (collectively "the Zimmermans"); BBC Properties, Inc. (hereinafter "BBC"); and Governors Club Professional Center, LLC (hereinafter "Governors Club") (collectively "Defendants"). Plaintiff is Customers Bank (hereinafter "Plaintiff"), formerly known as New Century Bank at times relevant to the instant proceeding.
Plaintiff filed a complaint with this Court on June 21, 2013 seeking to confess judgment against Defendants on two separate commercial loans totaling $602, 163.30 and $1, 558, 792.95, respectively, not including interest that has accrued since June 20, 2013. Defendants executed a series of promissory notes and other related instruments from 2006 through 2011. The instrument under which Plaintiff is seeking to confess judgment against Defendants is a forbearance agreement executed in 2011 (hereinafter "the Forbearance Agreement"), as it is the most recently executed agreement to include a confession of judgment provision. Defendants objected to the entry of confessed judgment, and on September 27, 2013 the Court held a hearing on whether Defendants voluntarily, knowingly and intelligently waived their rights to notice and a hearing. Plaintiff presented testimony from only one witness, Robert DeYoung (hereinafter "DeYoung"), Vice President of Customers Bank and previously a loan processor employed by the bank since 2007. Both parties also submitted exhibits in support of their respective positions.
The Zimmermans are commercial real estate developers. Both Michael and Connie are members of the Governors Club LLC. Michael is the President of BBC. Defendants entered into loan transactions with Plaintiff to refinance mortgages that encumbered the Governors Club property in Dover. Defendants defaulted on their loan obligations to Plaintiff, and in 2011 executed the Forbearance Agreement, under which Plaintiff agreed to forbear from exercising its rights and remedies on the notes underlying the loans. It is the Forbearance Agreement that contains notice and authorization under which Plaintiff seeks to confess judgment against Defendants.
DeYoung testified that he was involved in the negotiations surrounding the Forbearance Agreement, and had personal knowledge that both parties were represented by counsel throughout negotiations. DeYoung also testified that the attorneys for both parties carefully negotiated the terms of the Forbearance Agreement. DeYoung testified that all of the parties agreed to the provisions of the Forbearance Agreement, and that both Michael and Connie personally executed the agreement. DeYoung testified that multiple defaults occurred under the terms of the Forbearance Agreement, which led Plaintiff to file the instant complaint.
The Forbearance Agreement includes a "Warrant of Attorney to Confess Judgment" provision. The provision is typed in all capital letters, and "Warrant of Attorney to Confess Judgment" is in capital letters, bold-faced type, and underlined. Further, any time the words "confessed judgment" or "confess judgment" appear in the provision, the words are in bold-faced type. Documents executed by Defendants prior to the Forbearance Agreement included nearly identical confession of judgment provisions. These include: three promissory notes executed in 2006, 2007 and 2008, respectively; a commercial guaranty executed in 2007; a forbearance agreement executed in 2009; and a guaranty and suretyship agreement executed in 2011.
During Defendants' cross-examination, DeYoung testified that he did not personally meet or interact with Connie during any of the loan transactions or negotiation of the 2011 Forbearance Agreement. However, DeYoung stated that he had knowledge via memoranda related to the Governors Club loan transactions of Connie's professional experience as BBC's business manager.
During closing arguments, Defendants argued that Plaintiff failed to meet its burden in establishing a knowing and voluntary waiver. Defendants specifically contended that: Plaintiff did not establish that Connie had any personal involvement in the loan transactions; Plaintiff did not prove that necessary steps were taken to ensure the Defendants read and understood the terms of the Forbearance Agreement; and Plaintiff did not establish that Defendants consulted an attorney prior to signing the other loan documents that preceded the Forbearance Agreement.
Defendants raised several other arguments in the course of the hearing unrelated to the issue of waiver, including: Plaintiff failed to establish that Michael's indictment for bank fraud constituted a default; Delaware is the improper forum for this action under the terms of the Forbearance Agreement; Pennsylvania law, not Delaware law, applies under the Forbearance Agreement's choice of law provision; the affidavit attached to Plaintiff's complaint is defective under Rule 58.1; and Plaintiff failed to comply with the requirements of 10 Del. C. § 2306(c) by failing to file an additional affidavit executed by Michael and Connie, as is required for defendants who are nonresidents. Plaintiff was not notified prior to the hearing that Defendants intended to raise these arguments.
Plaintiff argued that there was overwhelming evidence to illustrate that Defendants effectively waived their due process rights, including the Zimmermans' relatively high business sophistication, the fact that the Forbearance Agreement was heavily negotiated, and the fact that Defendants were represented by counsel during these negotiations. Plaintiff also argued that the additional arguments raised by Defendants were outside the narrow scope of the hearing, and, if Defendants wished to pursue them, they could raise these defenses at a later hearing prior to execution upon the judgment.
The majority of Defendants' arguments are outside the limited scope of the hearing
Rule 58.1(g)(3) provides that if a debtor objects to an entry of confessed judgment, the Court shall hold a hearing at which "the burden shall be on the plaintiff to prove that debtor effectively waived debtor's right to notice and a hearing prior to the entry of judgment against debtor." The opportunity for a hearing prior to an entry of confessed judgment is also secured by statute pursuant to 10 Del. C. § 2306(b). Rule 58.1(h)(3)(III) further provides that prior to the issuance of a first writ of execution upon a confessed judgment, the debtor may object to said execution, and the Court shall hold another hearing at which the "debtor may raise any appropriate defenses." This hearing is also statutorily mandated. This Court has previously noted the bifurcated nature of a debtor's right to separate hearings on the issue of waiver and on any defenses to execution upon the confessed judgment.
As noted supra, Defendants attempted to raise a host of defenses wholly unrelated to the issue of waiver at the September 27 hearing. The foregoing authority clearly illustrates that such arguments were beyond the narrow scope of the hearing. Defendants will still have the opportunity to raise these arguments at a later hearing prior to Plaintiff's execution upon the judgment, at which time the Plaintiff may present evidence to refute these claims. For the instant proceeding, however, such arguments are irrelevant. Further, and perhaps most importantly, counsel for Plaintiff indicated that he was unaware Defendants intended to raise these defenses at the September 27 hearing, and would have evidence to present to refute these arguments at a later hearing. Thus, this Court will not hear these arguments at this time.
Defendants effectively waived their due process rights
For a waiver of rights to be knowing, voluntary, and intelligent, it must be "an intentional relinquishment or abandonment of a known right or privilege." The Court's determination as to whether a debtor has made an effective waiver is based on the totality of the circumstances. In RBS Citizens, N.A. v. Caldera Mgmt., Inc.,  the District of Delaware summarized the following non-exhaustive list of factors that Delaware courts examine in determining whether there has been an effective waiver for purposes of entering a confessed judgment:
(1) the defendant's business sophistication and experience with similar documents ; (2) whether the defendant consulted an attorney ; (3) whether all bargaining parties took the necessary steps to ensure that the terms of the agreement were read and understood at the time the transaction was entered ; and (4) whether defendant had the opportunity and time to review the document containing the confession of judgment. . . .
As to the final factor listed by the District of Delaware, a debtor's failure to read a confession of judgment provision does not weigh against a finding of effective waiver if there was still adequate opportunity to review the document. Additionally, the form of the confession of judgment provision itself is also a factor for the Court to consider.
In RBS Citizens, the plaintiff attempted to enforce a confession of judgment provision in a guaranty against a defendant who guaranteed loans made by a business entity controlled by the defendant's husband. The defendant had previously executed at least five other commercial financing documents containing similar provisions in the past. The defendant had extensive experience as a home care nurse, but did not participate in the business operations of her husband's business nor did she seem to have any other business experience of any kind. The District of Delaware concluded that the plaintiff had failed to meet its burden that the defendant made an effective waiver of her due process rights. A central reason for the court's holding was that the defendant did not have "any level of business sophistication or experience with similar documents which would engender the understanding that signing the Guaranty" would waive the defendant's due process rights.
The Court concludes that Plaintiff has met its burden in establishing a knowing, voluntary and intelligent waiver by Defendants prior to execution of the Forbearance Agreement. Firstly, DeYoung testified that the Zimmermans were represented by attorneys throughout the negotiation of the Forbearance Agreement, and that the parties' attorneys carefully negotiated the specific terms of the agreement.Secondly, the form of the "Warrant of Attorney to Confess Judgment" provision was clear, conspicuous and unambiguous, appearing in all capital letters and bold-faced type. Thirdly, Defendants have prior experience with such provisions, as illustrated by the inclusion of nearly-identical provisions in six other documents related to the Governors Club loans.
Finally, and most importantly, the Zimmermans are sophisticated business professionals who were likely to understand the implications of the confession of judgment provisions when they signed the Forbearance Agreement and other relevant instruments. Defendants' waiver argument mainly focused on Connie and her lack of personal involvement in the loan transactions. However, Connie personally executed the Forbearance Agreement and other documents in her individual capacity. Further, the Court notes that Connie should be viewed differently than the defendant in RBS Citizens. Unlike the defendant in that case, Connie possesses a high degree of business acumen, based on her experience in commercial real estate. Further, Connie was personally involved in the management and operation of her husband's businesses: Connie was a member of the Governors Club LLC, and was business manager of BBC for a number of years. Connie's business sophistication and experience with similar documents thus would engender Connie's understanding that her signing of the Forbearance Agreement would waive her due process rights.
Based on the totality of the circumstances, Plaintiff has met its burden in showing that Defendants made an effective waiver of their due process rights for the purposes of entering a confession of judgment. Accordingly, judgment is ENTERED against Defendants in the amounts of $602, 163.30 and $1, 558, 792.95, not including interest that has accrued since June 20, 2013. Plaintiff may present an order for signature. IT IS SO ORDERED.