The Virginia Business Litigation Blog
A confessed judgment is a court judgment entered against someone without a lawsuit or trial, based on an agreement signed in advance authorizing the creditor to obtain a judgment if the debtor fails to pay. In Virginia, confessed judgments are commonly used in commercial lending arrangements, promissory notes, and settlement agreements, where they allow creditors to collect unpaid debts quickly without first having to prove their claims in court. However, a confessed judgment is not necessarily the final word. Under Virginia Code § 8.01-433, a debtor may ask the court to set aside or reduce a confessed judgment by filing a motion within 21 days after receiving notice that the judgment was entered. The debtor must demonstrate “any ground which would have been an adequate defense or setoff” to the underlying debt, such as payment, fraud, or an incorrect amount claimed. But with what level of detail? The Virginia Supreme Court hasn’t answered this question directly, but Judge McEvoy of the Fairfax County Circuit Court wrote a carefully reasoned analysis recently in the case of PFF LCC v. Kuog, Inc., in which he concluded that the debtor need only articulate a facially adequate ground of defense. At this initial stage, the debtor need not prove the defense or submit evidence.
The basic factual background is as follows. In September 2022, Kuog, Inc. executed a confessed judgment note to induce PFF LCC to extend it a line of credit. When the relationship soured, PFF caused judgment to be confessed in the Clerk’s Office of the Fairfax County Circuit Court in the amount of $9,019,551.12. Kuog timely invoked Code § 8.01-433, which permits a judgment debtor to move to set aside or reduce a confessed judgment within 21 days of receiving notice. Under the statute, the debtor must set forth “any ground which would have been an adequate defense or setoff” in an action brought on the underlying debt instrument. If the debtor does so, the confessed judgment is set aside, the case is placed on the trial docket, and the proceedings thereafter follow the ordinary course of civil litigation.
Kuog proffered four grounds of defense: that no event of default had occurred under the loan agreement and promissory note; that it had not received all of the loan proceeds PFF allegedly advanced; that it had already repaid all or a portion of the amounts loaned prior to maturity; and that the alleged debts had not yet matured and were therefore not due and owing. PFF argued that it was insufficient for Kuog to simply recite a list of defenses without offering any factual support. PFF also argued that Kuog was in default on numerous additional grounds and that resistance to the confessed judgment would be futile. Kuog amended its motion to 
add some detail but PFF maintained that each defense still lacked merit and that none would withstand scrutiny.
Judge McEvoy began by observing that the Supreme Court of Virginia has never defined what constitutes an adequate “ground” of defense under the statute. The closest authority is Catjen, LLC v. Hunter Mill West, L.C., 295 Va. 625 (2018), which stated that the only issue at this stage is whether the debtor’s pleadings assert a “facially adequate” defense or setoff and that the debtor need not prove the merits. But Catjen said little about what facial adequacy entails.
Judge McEvoy evaluated the § 8.01-433 motion within the broader mechanics of Virginia civil procedure. When a debtor files a motion under § 8.01-433, the case is not yet on the trial docket. The parties are not “at issue.” Under Rule 3:2, normal civil cases are initiated by the filing of a complaint, and the parties become at issue only after responsive pleadings are filed. A court may not properly address the factual merits of a case or render a merits-based judgment under Rule 3:20 until that point. Catjen‘s injunction against merits litigation at the § 8.01-433 stage, the court reasoned, is therefore wholly consistent with the mechanics of the trial process: you cannot adjudicate the merits of claims that have not yet been formally pleaded.
The word “ground” in the statute, the court continued, serves the same function it serves elsewhere in Virginia civil procedure: to provide notice. The court drew an analogy to the historical “grounds of defense” (the predecessor to the modern answer) and to the specificity requirement for demurrers under Code § 8.01-273, both of which serve a notice function rather than a merits-testing function. Citing Monahan v. Obici Medical Management Services, 271 Va. 621 (2006), the court observed that the primary purpose of stating grounds of defense has always been to provide the opposing party with reasonable notice so that it is not surprised at trial. Against that backdrop, the court held that Code § 8.01-433 requires only that the debtor articulate an intelligible ground that would constitute a recognized defense if proven. The court need only look at the face of the asserted defense to determine whether it is “adequate.”
The court identified three specific dangers of going further. First, engaging in any merits inquiry at this stage would violate Catjen‘s express holding. Second, the parties are not at issue, so the court lacks authority to render a merits-based disposition. Third, considering evidence would risk converting a § 8.01-433 motion into a summary judgment proceeding at a stage where summary judgment is procedurally unavailable. Absent a stipulation, evidence cannot be considered before the parties are at issue.
PFF pointed out that allowing a debtor to avoid a confession-of-judgment clause by simply reciting a list of defenses defeats the purpose of the confessed-judgment procedure. “That may or may not be true,” wrote the court, adding that the defendant “may lose on summary judgment, it may lose at trial, and its positions may even prove to be sanctionable.” But the procedural mechanisms that lead to those outcomes must be honored, it held. The creditor’s remedy for a meritless defense is not to prevent the case from reaching the trial docket; it is to seek summary judgment or move for sanctions once the case is there.