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.