STEPHEN G. RINEHART ([email protected]) is a part- ner at Troutman Sanders in New York City. He earned his J.D. from New York University and his B.A. from Harvard University. ADAM S. LIBOVE ([email protected]) is an associate at Troutman Sanders in New York City. He earned his J.D. from Fordham University and his B.A. from Columbia University. You’ve Got a Confession (of Judgment). Now What? By Stephen G. Rinehart and Adam S. Libove What Is a Judgment by Confession? ment”2), in New York, the defendant must execute an A confession of judgment is an affidavit in which a party affidavit that states the sum for which judgment may admits liability to another party, accepts a quantification be entered, authorizes entry of judgment, and states the of damages and agrees that the affidavit may be filed as county where the defendant resides or, if the defendant is a judgment upon the occurrence of a stated condition, a non-resident, the county in which entry is authorized.3 usually an affidavit from the creditor attesting to the The affidavit must also state concisely the facts out of default. A judgment by confession can be a useful tool for which the debt arose and indicate that the sum confessed a creditor because it avoids costly and time-consuming is justly due or to become due.4 This requirement has litigation. The number of confessions filed in New York been interpreted to mean that “there must be sufficient County has risen dramatically in the wake of the 2008 genuine detail to enable other creditors to investigate economic crisis.1 This, combined with drastic staffing the claim and ascertain its validity.”5 If the judgment to reductions in the Supreme Court and the Clerk’s office be confessed is for the purpose of securing the plaintiff and the increased use of sophisticated and complicated against a contingent liability, the defendant’s affidavit confessions, has led to more confessions being rejected. must concisely state the facts constituting the liability and This article reviews the legal requirements for filing a demonstrate that the sum confessed does not exceed the judgment by confession, offers some practical guidance amount of liability.6 to facilitate filing, and reviews certain aspects of the An affidavit of confession of judgment may be filed usury law and common law on interest rates with which with the clerk of the county where the defendant stated in counsel should be familiar. Finally, this article reviews the affidavit that he or she resided when it was executed, available litigation options when initial attempts to file a or if the defendant was then a non-resident, with the clerk confession prove unsuccessful. of the county designated in the affidavit, within three years after the affidavit is executed.7 In addition to calcu- Requirements of CPLR 3218 lating the principal and interest owed on the judgment, CPLR 3218 addresses judgments by confession and sets the Clerk will tax costs, generally adding a $210 filing forth the requirements for filing. Unlike some other states fee.8 Under CPLR 3218 the judgment may be docketed where a judgment by confession may be filed upon an and enforced in the same manner and with the same attorney’s affirmation (often called a “cognovit judg- effect as a judgment in an action in the Supreme Court.9 36 | March/April 2012 | NYSBA Journal The Appellate Division, First Department has held that a authority to reject papers offered for filing unless the judgment by confession has “all of the qualities, incidents refusal is directed by law, rule, or court order.17 Based on and attributes of a judgment on a verdict, including a the foregoing, the court directed the Clerk to accept for presumption as to its validity.”10 filing copies of the affidavits pursuant to CPLR 3218(b).18 A judgment creditor seeking to file a judgment by Notwithstanding the Gehring decision, based on the confession should also file an affidavit of the plaintiff New York County Clerk’s current practices counsel is that relates any important events that occurred after the advised to present original affidavits to avoid delay in defendant executed the affidavit of confession, including filing judgments by confession. any payments of principal or interest that the defendant made before default. The plaintiff’s affidavit can also Usurers Beware include a detailed calculation of the applicable pre- Usury Defined Under the General Obligations Law, judgment interest, including a per diem rate so that the the Banking Law and the Penal Law Clerk can account for the precise day of filing. The inter- The Clerk may refuse to file and enter a judgment by est calculations can also be submitted in the form of an confession if the Clerk believes the interest rate charged attorney’s affirmation. When presenting the confession therein is usurious.19 Thus, it is critical to understand the for filing, counsel should also have on hand a copy of web of New York statutes concerning usury. With cer- the promissory note or other instrument setting forth tain significant exceptions discussed below, the General the interest rate because the Clerk will generally ask to Obligations Law caps the maximum interest rate upon review same before filing the affidavit and entering judg- a loan or forbearance of any money, goods, or things in ment. action at 6% with the important qualifier “unless a differ- ent rate is prescribed in section fourteen-a of the banking Please! File Original Affidavits of Confession of law.”20 The Banking Law, in turn, sets the maximum rate Judgment of interest at 16% per year.21 Practitioners should be aware that the New York County There are, however, important exceptions to the 16% Clerk’s office generally requires original signatures on maximum. For example, loans of $250,000 or more, except the documents it accepts for filing. Confessions of judg- a loan or a forbearance secured primarily by an inter- ment and the accompanying defendant’s affidavit are no est in real property improved by a one- or two-family exception to this practice. Notably, CPLR 3218 does not residence, are exempt from the 16% maximum22 but must expressly require that the defendant’s affidavit of confes- still comply with the criminal usury statutes. The crimi- sion be an original. Indeed, two provisions of the CPLR nal laws set the maximum interest rate at 25% per year.23 and a New York County Supreme Court decision suggest Further, a loan of $2.5 million or more is exempt from that the Clerk’s practice may be extralegal. both the civil cap of 16% and the criminal cap of 25%.24 CPLR 2101(e) states in pertinent part: “Except where otherwise specifically prescribed, copies, rather than When Calculating the Interest Rate for Usury originals, of all papers, including orders, affidavits and Purposes, Remember to Use the Net Loan Amount exhibits may be served or filed.”11 Similarly, CPLR 2102(c) To determine the interest rate on a loan for usury pur- provides: “A clerk shall not refuse to accept for filing poses, prepaid interest or discounts may generally be any paper presented for that purpose except where spe- amortized over the entire loan term.25 That is, when cal- cifically directed to do so by statute or rules promulgated culating the interest rate, the original principal amount is by the chief administrator of the courts, or order of the not considered the amount of the loan. Instead, only the court.”12 net principal amount actually received by the borrower – In Gehring v. Goodman,13 the New York County after deducting points and other fees considered interest Supreme Court adjudicated an Article 78 petition seeking and paid from the loan proceeds – is considered as the an order directing the New York County Clerk to accept amount of the loan.26 Failing to heed this rule increases for filing copies of affidavits that the petitioner wanted the loan’s interest rate for usury purposes and may cause to file, pursuant to CPLR 3218(b).14 The court noted that the loan to be usurious even if the face amount of the loan “CPLR 3218(b) does not specify that only the original is nominally below the usury rate.27 of the affidavit must be accepted for filing and does not proscribe the filing of a copy of the affidavit” and that Usury Is a Defense Personal to the Borrower “CPLR 2101(e) allows the filing of copies of affidavits.”15 As noted, the New York County Clerk may refuse to The court went on to say that “[t]here is neither a statute enter a confession of judgment if the underlying interest nor rule of the Chief Administrator of the Courts that rate is deemed usurious. This practice notwithstand- directs respondent to refuse to accept for filing a copy of ing, the defense of usury is personal to the borrower,28 an affidavit under CPLR 3218(b).”16 Citing to McKinney’s that is, it may be asserted only by the borrower, not by Supplemental Practice Commentaries, the court added someone else on the borrower’s behalf. This raises the that the purpose of CPLR 2102(c) is to strip clerks of any question of whether the Clerk has standing to reject an NYSBA Journal | March/April 2012 | 37 instrument for filing based on usury or, rather, whether CPLR; (2) file an action for summary judgment in lieu of such a defense must be raised by the judgment debtor complaint under CPLR 3213 against the putative judg- in a plenary action.29 In a recent decision, the New York ment debtor; or (3) seek an order to show cause pursuant County Supreme Court held that a determination by the to CPLR 3218 against the putative judgment debtor.