Preview:

Appellants, The Second Shift, Inc. d/b/a Jobsite Staffing, and Robert B. Renner (hereinafter collectively, Second Shift), appeal from an order of the Circuit Court for Baltimore County denying their motion to vacate a judgment by confession entered against them and in favor of appellee, Reservoir Capital Corporation

(Reservoir). FACTS In 1995, Second Shift entered into a written factoring

agreement with Reservoir, and Robert Renner executed a guarantee of the obligations of Second Shift. into in March and June of 1996. to allow Second Shift to Written amendments were entered

The essence of the arrangement was promptly from Reservoir a

obtain

discounted amount of certain of Second Shift's accounts receivable. The agreement between the parties provided that Second Shift would offer selected accounts receivable to Reservoir, which

Reservoir could accept or refuse.

Reservoir would pay to Second

Shift seventy-five percent of the balance due on those accounts accepted (amended in June 1996 to eighty percent), and the debtor would be notified to make future payments to a designated account controlled by Reservoir. If Second Shift received any payment on

an assigned account, it held that payment in trust for Reservoir and was obligated to remit it immediately to Reservoir. Second Shift further agreed to pay a processing fee to

Reservoir on all assigned accounts, the amount of which varied according to the age of the account, as fixed by a schedule

attached to the agreement.

Second Shift obligated itself to

provide a minimum of $500,000 per month in acceptable accounts and agreed to pay the processing fees on not less than that amount, even if the acceptable accounts fell below the minimum guarantee. The volume was computed on a rolling three-month average.1 When

Reservoir received a payment, it was obligated to pay to Second Shift the difference, if any, between the payment and the assigned price of that account, less all unpaid processing fees. If the

account on which payment was made was part of a group of accounts for which Reservoir had paid an aggregate price, payment to Second Shift would be made only on the aggregate differential, less all processing fees on the aggregate accounts. Second Shift also agreed to repurchase, upon demand of

Reservoir, any account not paid when due, and to pay all collection costs incurred by Reservoir in efforts to enforce payment of assigned accounts. Second Shift's Reservoir was authorized at any time to charge with the amount of Second Shift's

account

obligations, including collection costs. The agreement provided that Reservoir could declare a default upon the happening of certain enumerated events, including default in payment of any of Second Shift's obligations or failure to perform any promise contained in the agreement. Upon the

By the amendment of June 1996, the minimum was reduced to $150,000 and the volume was computed on a rolling six-month average. 2

1

occurrence of a default, Reservoir was authorized to obtain a confessed judgment for the amount of Second Shift's obligations then outstanding, together with attorneys' fees of ten percent and costs. On August 5, 1996, Reservoir filed a complaint for confession of judgment, together with copies of the original agreement and first amendment, and an affidavit of Jeffrey Ignall, Assistant Vice President of Portfolio Management and Underwriting for Reservoir. The complaint alleged that Second Shift had "defaulted on its obligations under the Master Factoring Agreement, as amended, by diverting accounts receivable proceeds of Reservoir and by failing, despite demand, to pay to Reservoir all sums due Reservoir under the Master Factoring Agreement, as amended." The complaint also

alleged that "as of July 15, 1996, [Second Shift] owes Reservoir, under the terms of the Master Factoring Agreement, the total amount of $205,379.69 plus attorneys' fees of $20,537.96, costs and

expenses." The affidavit of Mr. Ignall repeated the principal allegations of the complaint, and the allegations of a default. With respect

to the amount then due under the agreement, the affidavit stated, without elaboration: As of July 15, 1996, [Second Shift] owes Reservoir, under the terms of the Master Factoring Agreement, the total amount of $205,379.69 plus attorneys' fees of $20,537.96, costs and expenses. The clerk entered a confessed 3 judgment for $205,379.69 plus

attorneys' fees of $20,537.96 and costs, and issued notices to Second Shift and Renner. Second Shift filed a timely motion to vacate the confessed judgment, and thereafter filed an amended motion, an affidavit of Robert Renner, and exhibits. Second Shift argued that the

confessed judgment was improperly entered because the claim was not for a liquidated amount, that Second Shift was not in default, that it did not owe the amounts claimed, that it was entitled to setoffs and credits, and that Reservoir had not performed in

accordance with the requirements of the agreement. Reservoir controversy responded a by contending amount that the amount in

was

liquidated

because

arithmetical

computation made in accordance with the agreement could produce a sum certain. It contended that the amount it had represented was

in fact due, and that even if it was incorrect in any respect or Second Shift was found to be entitled to set-offs or credits, the judgment should not be vacated but, rather, opened to receive testimony on any disputed amounts, while still preserving to Reservoir its lien of judgment. A hearing was held on March 31, 1997, after which the trial court denied Second Shift's motion to vacate the confessed

judgment.

This appeal followed. DISCUSSION

Maryland Rule 2-611 provides in pertinent part as follows:

4

(a) Entry of judgment. -- Judgment by confession shall be entered by the clerk upon the filing of a complaint, the original or a photocopy of the written instrument authorizing the confession of judgment for a liquidated amount, and an affidavit specifying the amount due and stating the address of the defendant or that the whereabouts of the defendant are unknown to the plaintiff. * * * * (c) Motion by defendant. -- The defendant may move to open, modify, or vacate the judgment within the time prescribed for answering by sections (a) and (b) of Rule 2-321. The motion shall state the legal and factual basis for the defense to the claim. (d) Disposition of motion. -- If the court finds that there is a substantial and sufficient basis for an actual controversy as to the merits of the action, the court shall order the judgment by confession opened, modified, or vacated and permit the defendant to file a responsive pleading. This Court reviewed certain basic concepts of the confessed judgment law of this State in Garliss v. Key Federal, 97 Md. App. 96, 627 A.2d 64 (1993). Judgments by confession are not favored in Maryland. See Alger Petroleum, Inc. v. Spedalere, 83 Md. App. 66, 573 A.2d 423, cert. denied, 320 Md. 800, 580 A.2d 219 (1990), because Maryland courts have long recognized that the practice of including in a promissory note a provision authorizing confession of judgment lends itself far too readily to fraud and abuse. Keiner v. Commerce Trust Co., 154 Md. 366, 141 A. 121 (1927). Thus, judgments by confession are freely stricken `on motion to let in defenses.' Id., 154 Md. at 370, quoting Phillips v. Taylor, 148 Md. 157, 163, 129 A. 18 (1925).

5

Although motions to vacate or strike judgments by confession must be supported by satisfactory evidence of defenses supporting the vacation of such judgments, trial judges must assure themselves that improper advantage has not been taken of the maker of the note. Remsburg v. Baker, 212 Md. 465, 129 A.2d 687 (1957). Id. at 103-04. The requirement of Rule 2-611 that confessed judgment be entered only for a liquidated amount is not new. of Judgments,

Download Second Shift Inc v. Reservoir Capital Corp..pdf

Maryland Law