Circuit Court for Prince George's County Case No. CAL16-40448

Circuit Court for Prince George’s County

Case No. CAL16-40448

UNREPORTED

IN THE COURT OF SPECIAL APPEALS

OF MARYLAND

No. 1080

September Term, 2017

______________________________________

1501 SOUTHERN LLC

S.F.C., LLC

______________________________________

Leahy,

Reed,

Salmon, James P.

(Senior Judge, Specially Assigned),

JJ.

______________________________________

Opinion by Reed, J.

______________________________________

Filed: November 13, 2019

*This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other

document filed in this Court or any other Maryland Court as either precedent within the

rule of stare decisis or as persuasive authority. Md. Rule 1-104.

— Unreported Opinion —

______________________________________________________________________________

The Circuit Court for Prince George’s County entered judgment in favor of S.F.C.,

LLC (“Appellee”) after it filed a complaint for default on a confessed judgment note

seeking damages of $3,655,618.06 from 1501 Southern LLC (“Appellant”). Contending

that a prior payment of $135,000 to Appellee applied towards the payment of the Note,

Appellant filed a motion to open and modify the default judgment by $135,000. The trial

court denied Appellant’s motion on the ground that there was not a substantial or sufficient

basis for an actual controversy as to the merits of the action pursuant to Md. Rule 2-611(e).

It is from that denial that Appellant files this timely appeal. In doing so, it brings one

question for our review:

I. Did the circuit court err in denying Appellant’s motion

to open and modify judgment pursuant to Md. Rule 2-

611(e)?

For the foregoing reasons, we affirm the judgment of the circuit court.

FACTUAL AND PROCEDURAL BACKGROUND

On December 11, 2015, Appellant executed a confessed judgment note (“Note”)

promising to pay a principal sum of $3,250,000.00 (“the Loan”), plus interest, to Appellee.

Full payment of the Note was due on June 10, 2016. However, Appellant failed to pay off

the note by June 10, 2016. Appellee subsequently sent demand letters to Appellant in July

2016 and August 2016 demanding $3,549,361 and $3,567,263.11 respectively, totals

reflecting the principal sum of the Note plus interest.

In November 2016, Appellant provided Appellee with a $135,000 insurance check

(“Check”) for property owned by Khalid Mohamed, the member/manager of Appellant.

Though the Check stemmed from a different property than the property secured by the

— Unreported Opinion —

______________________________________________________________________________

Note, Appellant intended for the $135,000 to be applied towards payment of the Note.

However, Appellee did not credit the Check as payment towards the balance due on the

Note and continued to demand Appellant pay the entire principal sum due on the Note plus

interest.

On November 14, 2016, Appellee filed its complaint for default on the Note in the

Circuit Court for Prince George’s County. On December 13, 2016, the circuit court entered

judgment by confession against Appellant in the amount of $3,655.618.06. On March 21,

2017, Appellant filed a Motion to Open and Modify the Confessed Judgment, arguing that

it was entitled to a setoff for the amount of the Check provided to Appellee. On July 6,

2017, the circuit court denied Appellant’s motion, stating that Appellant failed to

demonstrate a “substantial and sufficient basis for an actual controversy as to the merits of

the action pursuant to Maryland Rule 2-611(e).” It is from the denial that Appellant files

this timely appeal.

STANDARD OF REVIEW

Pursuant to Maryland Rule 2-611(d), a court must open, modify, or vacate a

confessed judgment “if [it] finds that there is a substantial and sufficient basis for an actual

controversy as to the merits of the action…” A trial court’s legal conclusions – including

whether the evidentiary proffers of a defendant seeking to open, modify or vacate a

confessed judgment qualify as a meritorious defense – are reviewed under non-deferential

appellate scrutiny. See Nils, LLC v. Antezana, 171 Md. App. 717, 727-28 (2006) (“On the

issue of whether what is offered by a party seeking to open, modify, or vacate a confessed

judgment qualifies as a meritorious defense, that is a question of law for the judge.”); see

— Unreported Opinion —

______________________________________________________________________________

also Shafer Bros. v. Kite, 43 Md. App. 601, 606 (1979) (“The issue of what can constitute

a meritorious defense, assuming that the supporting facts are believed, is a question of

law.”).

DISCUSSION

A. Parties’ Contentions

Appellant contends that the circuit court erroneously denied Appellant’s motion and

that it should have submitted the issue to a trier of fact. In doing so, Appellant argues that

it has properly presented a “meritorious defense” to the confessed judgment, namely that

the $135,000 partial payment made to Appellee constitutes a setoff and requires the

judgment against Appellant to be modified. Appellant notes that Appellee has neither

returned nor rejected the partial payment. Further, Appellant states that Appellee agreed to

apply the proceeds of the Check to the Loan. As such, Appellant feels it has satisfied its

burden and is entitled to a reduced judgment reflecting the $135,000 payment made to

Appellee.

Appellee believes the denial by the circuit court was proper because Appellant failed

to set forth a meritorious defense to the confessed judgment. Relying on Maryland Rule

2-611(e), Appellee contends that Appellant has not provided any legal basis requiring

Appellee to accept or apply the $135,000 payment as a setoff for the debt under the Note.

Further, Appellee states that the Check was not tendered until after Appellant had defaulted

on the Loan, meaning an application of the Check as a setoff would not be proper. Finally,

Appellee argues that it “never applied the Check to the debt, never deposited the Check,

and never cashed or negotiated the Check.” As such, Appellee asserts that Appellant has

— Unreported Opinion —

______________________________________________________________________________

failed to demonstrate there are “substantial and sufficient grounds for an actual

controversy” and cannot be entitled to any kind of credit. We agree.

B. Analysis

Maryland Rule 2-611(a) contains the procedure for confessing judgment.

Confession of judgment is not a judicial act, but rather the pro forma entry of a judgment

by the clerk of the circuit court. See EMI Excavation, Inc. v. Citizens Bank of Maryland,

91 Md. App. 340, cert. denied, 327 Md. 523 (1992). Upon receiving the notice required by

Rule 2-611(b), a defendant may move to open, modify, or vacate a judgment by confession,

offering evidence constituting a defense to the note upon which the judgment was

confessed. Id.

In Schlossberg v. Citizens Bank, 341 Md. 650, 655 (1996), the Court of Appeals set

forth the procedures to be followed when a motion to open, modify, or vacate a confessed

judgment is filed.

Rule 2–611 governs the procedure for confessed judgments in

Maryland. Judgment by confession may be entered by the circuit court clerk

upon the filing of a complaint accompanied by the original or a copy of the

instrument authorizing the confessed judgment and an affidavit specifying

the amount due and stating the address of the defendant. Md. Rule 2–611(a).

Upon entry of a judgment by confession, the clerk is required to notify the

defendant of the entry of judgment and of the deadline for filing a motion to

“open, modify or vacate” the judgment. Md. Rule 2–611(b).

Judgments by confession are not favored in Maryland. Maryland courts have long

recognized that promissory notes containing provisions authorizing confession of

judgment lend themselves far too readily to fraud and abuse. See Keiner v. Commerce Trust

Co., 154 Md. 366 (1927). As such, judgments by confession are freely stricken “on motion

to let in defenses.” Id. at 370 (quoting Phillips v. Taylor, 148 Md. 157, 163 (1925)).

— Unreported Opinion —

______________________________________________________________________________

If the defendant so moves, the circuit court must determine whether there is

a “substantial and sufficient basis for an actual controversy as to the merits

of the action.” Md. Rule 2–611(d). In other words, the court must determine

whether the defendant has a potentially meritorious defense to the confessed

judgment complaint. The court does not, however, decide the merits of the

controversy at this stage. MARYLAND RULES COMMENTARY, at 466.

If the court finds that a basis for a defense exists, the rule requires the court

to order that the confessed judgment be opened, modified, or vacated so that

the defendant can file a responsive pleading to the plaintiff's complaint and

the merits can be determined. Md. Rule 2–611(d).

Schlossberg, 341 Md. at 655–56 (emphasis supplied).

As the moving party on a motion to open, modify, or vacate a confessed judgment,

the debtor is allocated the burden of proof. Nils, LLC v. Antezana, 171 Md. App. 717, 726

(2006). The debtor must prove that there is a meritorious defense to the execution or

amount of the confessed judgment itself. In Remsburg v. Baker, 212 Md. 465, 569 (1957),

the Court of Appeals spoke on both the allocation and nature of the burden of proof:

Necessarily, one making the motion assumes the burden of supporting the

facts alleged in it, and as to all matters not going to the merits of the

controversy, such as surprise or deceit in the entry of the judgment itself, he

must prove such facts by a fair preponderance of the evidence. But as to

defenses going to the merits of the claim upon which the judgment rests, a

different rule prevails. In such cases, if the evidence adduced in support of

the motion is sufficient to persuade the fair and reasoned judgment of an

ordinary man that there are substantial and sufficient grounds for an actual

controversy as to the merits of the case, the defendant should be deemed to

have met the burden of showing that he has a meritorious defence. In other

words, if the evidence is such that persons of ordinary judgment and

prudence could honestly and fairly draw different inferences from it, one

favoring the plaintiff and the other the defendant, the court should not itself

decide that conflict, but should submit it to a jury.

(Emphasis supplied). See also Billingsley v. Lincoln National Bank, 271 Md. 683, 689

(1974); Gambo v. Bank of Maryland, 102 Md. App. 166, 185 (1994) (“In connection with

a motion to vacate, the moving party has the burden of presenting evidence sufficient to

— Unreported Opinion —

______________________________________________________________________________

support the purported defense.”); Garliss v. Key Federal Savings Bank, 97 Md. App. 96,

104 (1993) (“One moving to strike a judgment by confession has the burden of presenting

evidence satisfactorily supporting its purported defense.”); Shafer Brothers v. Kite, 43 Md.

App. 601, 605 (1979). The issue of whether what is offered by a party seeking to open,

modify, or vacate a confessed judgment qualifies as a meritorious defense is a question of

law for the judge. Gambo, 102 Md. App. at 185 (“What constitutes a meritorious defense

is a question of law.”).

The question before this Court is whether the Check issued by Appellant to partially

set-off the debt owed to Appellee on the Note constitutes a meritorious defense. In Gelzer

v. Scamoni, 238 Md. 73 (1965), the Court of Appeals held “that a showing of a set-off . . .

is a ‘meritorious defense’ so as to open a confessed judgment[.]” However, “one must

adduce evidence in support of his motion sufficient to persuade the fair and reasoned

judgment of an ordinary man than there are substantial and sufficient grounds for an actual

controversy as to the merits of the case.”

Appellant contends that the $135,000 in proceeds from the Check should be applied

to the debt owed to Appellee on the Note. Appellant argues that the Check was provided

to Appellee to partially satisfy its debt, which Appellant states was agreed to by Appellee.

The Court applied the standards established in Stankovich v. Lehman, 230 Md. 426

(1936). Stankovich set forth the test to be applied to determine whether an alleged defense

to a confessed judgment is a ‘meritorious’ one. 230 Md. at 432 (“To be successful in

moving to strike a judgment by confession, one must adduce evidence in support of his

motion sufficient to persuade the fair and reasoned judgment of an ordinary man than there

are substantial and sufficient grounds for an actual controversy as to the merits of the

case.”).

— Unreported Opinion —

______________________________________________________________________________

Unfortunately, Appellant’s assertions are without merit. As provided in Stankovich,

the party bringing a motion under Rule 2-611(d) must provide evidence sufficient to

persuade a fair and reasonable person to conclude there are substantial and sufficient

grounds for an actual controversy. In Garliss v. Key Federal Sav. Bank, 97 Md. App. 96

(1993), Garliss moved to vacate a confessed judgment against him on the grounds that he

was entitled to a set-off. However, at his hearing, Garliss was unable to produce any

evidence that he had been damaged by Key and was entitled to such a set-off. Id. at 104.

As such, this Court affirmed the decision by the circuit court to deny Garliss’ motion.

Here, Appellant’s motion provided no evidence corroborating its allegations.

Appellant has provided no evidence that Appellee agreed to apply the proceeds of the

Check in partial satisfaction of the debt owed on the Note. Further, Appellant has provided

no evidence that Appellee even accepted or deposited the Check. Simply put, Appellant

has failed to satisfy its burden in proving that substantial and sufficient grounds for an

actual controversy exists.

Also, Appellant and Appellee disagree as to whether a payment made after the due

date on the Note would have constituted a valid set-off for purposes of Rule 2-611(d). In

Antezana, this Court held that a defense challenging the amount of debt due on a note based

on a valid set-off or partial payment previously made constitutes a meritorious defense.

171 Md. App. 717, 728-30 (2006) (emphasis added). Appellant contends that any payments

made after the debt became due on June 10, 2016 and accepted by Appellee are valid set-

offs under Antezana. Appellee argues that Appellant’s reliance on Antezana is misplaced.

— Unreported Opinion —

______________________________________________________________________________

In this case, an acceleration clause in the Note made the entire outstanding debt

owed by Appellant due after Appellant defaulted. An acceleration clause gives the creditor

the ability to accelerate the due date of all outstanding debt owed on a note by a debtor

after the debtor defaults. See Gerber v. Karr, 231 Md. 180 (1963). Once an acceleration

clause is effected, the creditor has discretion in accepting any partial payments offered by

the debtor in satisfaction of the outstanding debt owed. As such, Appellee was not required

to accept the Check as partial payment for the outstanding debt owed on the Note. The

mere offer by Appellant to partially satisfy its debt to Appellee does not constitute a valid

set-off.

However, once partial payment is accepted by a creditor, albeit before or after an

acceleration clause is effected, the holding in Antezana applies. Had Appellee accepted the

Check as partial payment for the outstanding debt owed by Appellant, Appellant would be

entitled to a reduction of the confessed judgment equal to the amount of the Check.

Unfortunately, Appellant provided no evidence that Appellee accepted the Check. As such,

the circuit court’s decision to deny Appellant’s motion was proper.

Accordingly, we affirm the judgment of the Circuit Court for Prince George’s

County.

JUDGMENT OF THE CIRCUIT COURT

FOR PRINCE GEORGE’S COUNTY

AFFIRMED; COSTS TO BE PAID BY

APPELLANT.