Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Action No. 92-cv-06707).
Present: Sloviter, Chief Judge, Hutchinson, Circuit Judge, and Diamond, District Judge*fn*
HUTCHINSON, Circuit Judge.
Appellants, Forest Grove, Inc. ("Forest Grove"), Ronald Isenhart ("Mr. Isenhart"), and Delores A. Isenhart ("Mrs. Isenhart") (collectively the "Isenharts"), appeal an order of the United States District Court for the Eastern District of Pennsylvania denying their motion for Relief from Judgment pursuant to Federal Rules of Civil Procedure 60 and 62. In that order, the district court refused to open or strike a judgment which appellee, the Resolution Trust Corporation ("RTC"), had confessed against Forest Grove, as principal debtor, and against the Isenharts pursuant to a surety agreement ("Surety Agreement") they had signed.
The district court held that opening the judgment confessed against Forest Grove and the Isenharts was not warranted because they had failed to state a meritorious defense. The district court found that Mr. Isenhart had knowingly and intelligently waived his constitutional right to procedural due process when he signed the Surety Agreement.*fn1 It also concluded that Mrs. Isenhart's execution of a power of attorney appointing her husband her attorney-in-fact gave him authority to sign the Surety Agreement for her and to authorize confession of judgment as provided in the Surety Agreement. Applying federal law rather than Pennsylvania law to determine the procedural requirements for a valid confession of judgment in federal court, it held that the judgment against Mrs. Isenhart could not be stricken as facially defective solely because she did not personally sign the Surety Agreement. It also concluded that Mrs. Isenhart had knowingly and intelligently waived her right to procedural due process under the Fourteenth Amendment to the United States Constitution. Finally, the district court rejected the common defense of Forest Grove and the Isenharts that the confession of judgment provisions in the bond and warrant executed by Forest Grove as principal and in the Surety Agreement by the Isenharts were unenforceable because there was a failure of consideration.
We will affirm the district court's order denying the motions of Forest Grove and Mr. Isenhart to open or strike the judgments; we will reverse the part of the district court's order that refused to strike or open the judgment against Mrs. Isenhart. We believe the district court applied an incorrect legal standard in refusing Mrs. Isenhart's motion, and its finding of fact that she had knowingly and intelligently waived her due process rights was clearly erroneous. Therefore, we conclude it abused its discretion when it refused to open or strike the judgment against Mrs. Isenhart based on its determination that Mrs. Isenhart's execution of the power of attorney gave her attorney-in-fact authority to confess judgment against her.
I. Factual & Procedural History
Forest Grove is a Delaware corporation. Mr. Isenhart, Robert Quick and William Dougherty were Forest Grove's officers. In 1986, Forest Grove applied to Hill Financial Savings Association ("Hill") for a loan of $1,815,000.00 to finance construction of a mobile home park. Hill had already loaned millions of dollars to Forest Grove's officers. When Forest Grove submitted the 1986 loan application, Hill had over $9.5 million in loans outstanding to these officers. When Forest Grove applied for the 1986 loan from Hill, the mobile home park had fifty fully developed mobile home lots, forty-eight partially developed mobile home lots and sixty-nine undeveloped mobile home lots.
On October 1, 1986, Hill issued a commitment letter ("Commitment Letter") agreeing to lend Forest Grove the $1,815,000.00. It provided:
1. Loan - $1,815,000.00 (a maximum of $660,000.00 to be released at settlement). The balance is to be escrowed and disbursed as spaces are completed and leased up to achieve the "stabilized value."
Appendix ("App.") at 74.*fn2 The Commitment Letter also required each of Hill's officers to submit personal financial and income statements and required each of the officers and their spouses to guarantee the loan. All the property listed in Mr. Isenhart's financial statement was held jointly with Mrs. Isenhart. Hill and Forest Grove signed the Commitment Letter on October 15, 1986.
On November 12, 1986, Mrs. Isenhart executed a "General Power of Attorney" ("Power of Attorney"). Id. at 83. That Power of Attorney appointed Mr. Isenhart as her attorney-in-fact. In relevant part, it gave Mr. Isenhart the following authority:
1. To exercise the following powers with respect to any real estate or interest therein which may now or hereafter belong to me
(f) To execute and deliver, extend, renew, replace or increase any mortgages affecting such real estate, and, for such purpose, to sign, seal, and deliver any notes or extension, renewal or other agreements necessary or useful to accomplish such purpose.
5. To borrow any sum or sums of money, at such rates of interest and upon such terms, provisions and conditions as my said attorney may think proper, and for such purposes to sign, seal, acknowledge and deliver any notes, drafts, acceptances or other obligations, and to sign, seal, acknowledge and deliver mortgages on any of my real or personal property, or any other form of security my attorney may deem proper.
8. To enter into, make, sign, execute, deliver, acknowledge and perform all contracts, agreements, writings or things that may in the opinion of my said attorney be necessary or proper to be done, including, but without limiting the generality of the foregoing, any agreements involving medical, maintenance, support, educational or emergency expenditures on behalf of myself or persons designated by my said attorney.
20. Without in any manner limiting the foregoing, generally to do, execute and perform any other act, deed, matter or thing of every nature and kind whatsoever, that ought to be done, executed and performed, or that, in the opinion of my said attorney ought to be done, executed or performed in and about the premises, as fully and effectually as I could do if personally present.
Id. at 83-84. Mrs. Isenhart's Power of Attorney does not expressly authorize her attorney-in-fact, Mr. Isenhart, to enter into agreements containing a confession of judgment clause.
On the same day Mrs. Isenhart signed the Power of Attorney, Mr. Isenhart signed a Surety Agreement in compliance with the Commitment Letter's condition that Forest Grove's individual officers and their spouses guarantee the repayment of the loan from Hill. Mr. Isenhart signed the Surety Agreement on behalf of Mrs. Isenhart on a signature line beneath which her typed name appeared followed by the handwritten statement "BY RONALD ISENHART HER ATTORNEY-IN-FACT." Id. at 30.
The Surety Agreement is a four-page, fifteen paragraph document. Paragraph 7, on the third page, provides:
CONFESSION OF JUDGMENT. The Surety hereby irrevocably authorizes the Prothonotary or any attorney of any court of record to appear for and confess judgment against the Surety for the amount set forth under Principal Debtor's Liabilities to Hill with or without default by either Surety or Principal Debtor, with five percent (5%) thereof added as reasonable attorneys' commission with costs of suit and release of errors. . . .
Id. at 29. The Surety Agreement, at paragraph 15, has a choice of law clause. It provides "All issues arising hereunder shall be governed and determined by the laws of ...