New York Law Review

Tag: Cognovit Judgment

  • Fiore v. Oakwood Plaza Shopping Center, Inc., 78 N.Y.2d 572 (1991): Enforceability of Cognovit Judgments and Waiver of Due Process

    Fiore v. Oakwood Plaza Shopping Center, Inc. , 78 N.Y.2d 572 (1991)

    A cognovit judgment from another state is enforceable in New York if the judgment debtor voluntarily, knowingly, and intelligently waived their due process rights to notice and a hearing.

    Summary

    This case addresses whether a Pennsylvania cognovit judgment should be given full faith and credit in New York. The plaintiffs sold land in Pennsylvania to the defendants, who executed a bond and warrant containing a cognovit clause allowing confession of judgment. After the defendants defaulted, the plaintiffs obtained a judgment in Pennsylvania and then sought to enforce it in New York. The New York Court of Appeals held that the Pennsylvania judgment was enforceable because the defendants, as sophisticated parties represented by counsel, had voluntarily, knowingly, and intelligently waived their due process rights.

    Facts

    Plaintiffs contracted to sell land to defendants in Pennsylvania. The defendants, Oakwood Plaza Shopping Center, and its principals, Aronow and Galioto, executed a “bond and warrant” that included a cognovit clause authorizing the plaintiffs’ attorney to confess judgment against them if they defaulted on their payment obligations. After defendants failed to make the required payments, plaintiffs obtained a judgment by confession in Pennsylvania.

    Procedural History

    Plaintiffs obtained a judgment in Pennsylvania Court of Common Pleas. Defendants’ petition to open or strike the judgment was denied. Plaintiffs then commenced an action in New York seeking to enforce the Pennsylvania judgment. Supreme Court granted summary judgment to plaintiffs, and the Appellate Division affirmed. This appeal followed.

    Issue(s)

    Whether a Pennsylvania cognovit judgment is entitled to full faith and credit in New York, where the defendants claim they did not knowingly waive their due process rights.

    Holding

    Yes, because the defendants, as sophisticated commercial parties represented by counsel, voluntarily, knowingly, and intelligently waived their rights to notice and a hearing by agreeing to the cognovit clause.

    Court’s Reasoning

    The court reasoned that while cognovit judgments are viewed with disfavor, the U.S. Supreme Court in Overmyer Co. v. Frick Co., 405 U.S. 174 (1972), established that they are not per se unconstitutional. Instead, the enforceability of such judgments depends on whether the debtor made a voluntary, knowing, and intelligent waiver of their due process rights. The court distinguished its prior holding in Atlas Credit Corp. v. Ezrine, 25 N.Y.2d 219 (1969), noting that subsequent Supreme Court decisions clarified the issue. The court emphasized that the defendants were sophisticated commercial parties, represented by counsel, and that the cognovit clause was part of a bargained-for exchange. The court noted, “where the contract is one of adhesion, where there is great disparity in bargaining power, and where the debtor receives nothing for the cognovit provision, other legal consequences may ensue.”(Overmyer Co. v. Frick Co., 405 U.S. at 188). The court found that the defendants understood they were giving the plaintiff a significant advantage should default occur, and upheld the Pennsylvania judgment. The court also noted that the Pennsylvania cognovit procedure had been amended since Atlas to provide more judicial oversight and better notice to the debtor.

  • Atlas Credit Corp. v. Ezrine, 25 N.Y.2d 219 (1969): Enforceability of Cognovit Judgments Based on Warrants of Attorney

    Atlas Credit Corp. v. Ezrine, 25 N.Y.2d 219, 303 N.Y.S.2d 382, 250 N.E.2d 474 (1969)

    Cognovit judgments entered in a sister state pursuant to an unlimited warrant of attorney are not entitled to full faith and credit in New York, and warrants of attorney authorizing judgment anywhere in the world violate due process.

    Summary

    Atlas Credit Corporation sought to enforce Pennsylvania judgments obtained pro confesso under a warrant of attorney against Ivan and Sarah Ezrine in New York. The New York Supreme Court initially denied Atlas’s motion for summary judgment, but the Appellate Division reversed, holding the Pennsylvania judgments were not subject to collateral attack. The New York Court of Appeals reversed, holding that such cognovit judgments are not judicial proceedings entitled to full faith and credit, and that the unlimited warrant of attorney violated due process, depriving the Pennsylvania court of jurisdiction. Therefore, the judgments were unenforceable in New York.

    Facts

    Ivan and Sarah Ezrine executed an agreement guaranteeing the mortgage indebtedness of a Pennsylvania corporation, with Pennsylvania law governing the agreement. The guarantee agreement contained a warrant of attorney empowering any attorney of any court of record in the United States, or elsewhere, to confess judgment against them in favor of Atlas in the event of default. Upon alleged defaults, Atlas obtained cognovit judgments against the Ezrines in Pennsylvania courts without notice to them. Later, Atlas initiated foreclosure proceedings in Pennsylvania and purchased property at sheriff’s sales, crediting a fair market value (determined in a separate proceeding with service by publication) against the judgments.

    Procedural History

    Atlas Credit Corporation sued in New York to enforce the Pennsylvania judgments. The Supreme Court initially denied Atlas’s motion for summary judgment. The Appellate Division reversed. The New York Court of Appeals then reversed the Appellate Division, dismissing the complaint with leave to replead.

    Issue(s)

    1. Whether a cognovit judgment, entered without notice in a sister State pursuant to an unlimited warrant of attorney, is a judicial proceeding within the purview of the Full Faith and Credit Clause?

    2. If so, whether such an unlimited warrant of attorney so offends due process as to deprive the rendering State of judicial power to issue a judgment cognizable under the Full Faith and Credit Clause?

    Holding

    1. No, because cognovit judgments are not judicial proceedings within the intendment of the Full Faith and Credit Clause.

    2. Yes, because the warrant of attorney, pursuant to which the cognovit judgments were taken, violates due process because of its unlimited authority to enter a judgment anywhere in the world.

    Court’s Reasoning

    The Court reasoned that cognovit judgments, entered without meaningful judicial process, are not the type of “judicial proceedings” entitled to full faith and credit. The procedure lacks the essential elements of a judicial determination because it does not involve the exercise of discretion or judgment usually associated with judicial proceedings. The court emphasized New York’s long-standing policy against such judgments, noting that New York law requires personal acknowledgement by the obligor of the facts underlying the liability. The court stated, “[I]t is evident that the procedure by which these cognovit judgments were obtained is repugnant to New York’s policy as it has been expressed by statute for over 100 years.”

    Even if cognovit judgments were generally entitled to full faith and credit, the Court found the specific warrant of attorney in this case violated due process. The warrant authorized “any Attorney of any Court of record within the United States of America, or elsewhere” to confess judgment. The Court held that this unlimited authority, coupled with a waiver of notice, was inconsistent with fundamental fairness. Citing Cutler Corp. v. Latshaw, 374 Pa. 1, 4, the Court acknowledged that “[a] warrant of attorney authorizing judgment is perhaps the most powerful and drastic document known to civil law.” The court found that consenting to entry of a judgment anywhere in the world, in advance of commencement of an action, and coupled with a waiver of notice, is not in accordance with fundamental principles of justice and fair play. Therefore, the warrant was ineffective to give the Pennsylvania court jurisdiction. As the court observed, “The mere fact that judgments by confession have ancient origins does not establish reasonableness under current standards.”

    The Court explicitly overruled Teel v. Yost, 128 N.Y. 387, which had previously held that cognovit judgments valid in the rendering state were entitled to full faith and credit in New York. The Court concluded that enforcement of these judgments was barred both because they are not entitled to full faith and credit and because they violate due process.