United States: Delaware Supreme Court Clarifies Confession Of Judgment Procedure, Applicability Of Nonresident Obligor Affidavit

In the case of Zimmerman v. Customers Bank (Del. Supr. No. 668, 2013), the Delaware Supreme Court clarified the procedures for obtaining entry of a judgment by confession, holding that obtaining the nonresident obligor affidavit set forth in 10 Del. C. §2306(c) is not a requirement for a judgment by confession that is entered by the Superior Court itself, as opposed to a judgment by confession entered by the prothonotary.

In 2006, Michael Zimmerman and Connie Jo Zimmerman obtained two separate commercial loans totaling $602,163.30 and $1,558,792.95, respectively, from the predecessor in interest of Customers Bank. The Zimmermans later defaulted on these loans and on June 21, 2011, entered into a forbearance agreement that included confession of judgment language in all capital letters and had a bold paragraph header. In addition to the forbearance agreement, the Zimmermans each executed a disclosure for the confession of judgment acknowledging that the confession of judgment provision contained in the forbearance agreement had been called to their attention, that they understood that the provision permitted Customers Bank to enter judgment against them without notice or opportunity for a hearing and that the waiver of the right to notice and a hearing was knowing, intelligent and voluntary. The forbearance agreement also provided that all notices, requests, demands and other communications were to be sent to the Zimmermans at an address in Dover, Delaware, with a copy sent to their attorney.

Based on the warrant of attorney to confess judgment provision contained in the forbearance agreement, Customers Bank filed a complaint and supporting affidavit in Superior Court seeking the entry of a judgment by confession against the Zimmermans by the prothonotary pursuant to Superior Court Civil Rule 58.1. The Zimmermans opposed the entry of judgment by confession, and a hearing was held before Superior Court on September 27, 2013. At the hearing, the Zimmermans argued, among other things, that (1) at the time of executing the forbearance agreement, they were residents of the state of Florida and Customers Bank had not complied with the requirements for entry of a judgment by confession against a nonresident under Rule 58.1 and (2) they did not knowingly, intelligently and voluntarily waive their right to notice and a hearing before judgment could be entered against them. After deliberating on the hearing record, the Superior Court on November 22, 2013, held that the Zimmermans' waiver of their right to notice and a hearing had been knowing, intelligent and voluntary, and entered judgment by confession against the Zimmermans in the amounts of $602,163.30 and $1,558,792.95.

On appeal, the Zimmermans raised two arguments. First, they argued the lender was required to comply with the requirements of 10 Del .C. §2306(c) and Superior Court Rule 58.1(a)(3) and file the nonresident obligor affidavit prior to entry of judgment by confession and failed to do so. The court noted that under 10 Del. C. §2306(c), before a confession of judgment may be entered by the prothonotary against defendants who were not residents of the state of Delaware at the time of executing the document authorizing the confession of judgment, the plaintiff must file an affidavit executed by the defendant, which (1) states the sum of money for which judgment may be entered, (2) authorizes entry of judgment in the Superior Court of Delaware in and for a specific county, (3) states the defendant's contact with Delaware and (4) includes the mailing address and residence where defendant would most likely receive mail. The court also noted that Superior Court Civil Rule 58.1(a)(3) provides that, "In the case of a debtor who was a nonresident at the time of execution of the document, the plaintiff shall also file the affidavit required by 10 Del. C. §2306(c)." Second, the Zimmermans argued that Superior Court erred in finding that they had knowingly, intelligently and voluntarily waived their rights to notice and a hearing before the entry of judgment.

On the first issue, the court noted that Section 2306 and Rule 58.1 address the situation where a judgment by confession is entered by the prothonotary, but that Section 2306 and the Superior Court Civil Rules also provide for the entry of judgment by the Superior Court itself rather than by the prothonotary. The court pointed out that 10 Del .C. §2306(h) provides, "In addition to the procedure herein set forth, the Superior Court may adopt rules for confession of judgments by defendant-obligor in open court, provided, however, the debtor is afforded a judicial determination on the question of whether he or she has understandingly waived any of his or her constitutional rights concerning the entry of judgment and the right to execution thereon." The court further noted that Superior Court adopted such a rule when it adopted Rule 58.2 which in part provides that, "A judgment by confession may be entered in open court by the Superior Court either for money due or to become due, or to secure the obligee against a money contingent liability, or both, on the application by the obligee or assignee of a bond, note or other obligation containing a warrant for an attorney-at-law or other person to confess judgment." The court noted that Rule 58.2(a) expressly contemplates entry of judgment by confession by the Superior Court based upon an obligation that contains a warrant for an attorney-at-law to confess judgment, like the one contained in the forbearance agreement at issue in the present case, and further noted that neither Section 2306(h) nor Rule 58.2 require a plaintiff to file the Section 2306(c) affidavit when judgment by confession is entered by the Superior Court as opposed to the prothonotary. The court stated that the procedures followed by the Superior Court at the September 27, 2013, hearing satisfied all the requirements in Rule 58.2: Both Customers Bank and the Zimmermans appeared at the hearing, a court reporter was present and the proceedings were recorded, Customers Bank provided the Superior Court with both the praecipe described in Rule 58.1(a)(1) and the forbearance agreement authorizing the confession of judgment, and, most importantly, the Superior Court issued an opinion – after a full hearing where the Zimmermans presented evidence and arguments – holding that Customers Bank had proven that the obligation was genuine and that the Zimmermans had knowingly, intelligently and voluntarily waived their constitutional rights.

With respect to the second issue regarding whether the waiver was knowing, intelligent and voluntary, the court noted that it must defer to the Superior Court's findings of fact as long as those facts are sufficiently supported by the record and are the product of an orderly and logical deductive process, and the court stated that the Superior Court's findings on this issue were supported by ample evidence in the record. The court noted that since it found that the record indisputably demonstrated that the procedures used by the Superior Court satisfied the requirements of Section 2306(h) and Rule 58.2, and any noncompliance with Rule 58.1 would not be a reason for reversal, the final judgment of the Superior Court was affirmed.

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