Confessed or stipulated judgments are fairly common in the pre-litigation and litigation contexts, and disputes in the cannabis industry are no different. They are slightly different concepts so here’s an overview of both, why they might be the best-case scenario for you, and how to make sure they’re effective (provided a court is willing to accept the filing).
Confession of Judgment
A confession of judgment allows a judgment to be entered for money due or to become due. Once a confession is entered with the court, it is just as enforceable as any other judgment. Amazingly, it can be obtained before a lawsuit is even filed – which makes it an awesome and highly efficient resolution in any dispute setting. However, it is quite rare and difficult to obtain because few defendants (or would-be defendants) will agree to it. In some cases though, we have seen would-be defendants agree to a confession of judgment when they understand that the alternative – litigation – is ultimately not going to be worth it because their chances of success are low, they don’t have the funds to defend a lawsuit, etc.
Of course, because it involves the defendant contracting away its rights of defense, confessions can be seen as violations of due process rights. Therefore, it is important that all procedural requirements are strictly met when filing one. In California, the plaintiff must file two statements with any confession. The first is a statement of the defendant under oath that: (a) authorizes entry of judgment for a specific sum, (b) states the facts from which the sum or liability arose, and (c) shows the sum confessed is “justly” due, or will become due. The second is a certificate of the defendant’s attorney that certifies he/she: (a) reviewed the proposed judgment, (b) advised the defendant regarding the rights and defenses he/she are waiving, and (c) advised the defendant to confess the judgment.
Stipulation for Judgment
A stipulation for judgment is similar, and is generally what is used if a plaintiff is forced to file a lawsuit but is able to reach a settlement with the defendant. Settlement often involves compromise, so it may be the case that the parties were able to agree on some kind of repayment plan and the plaintiff wants collateral to ensure all payments are made. Or it may be the case that the plaintiff is willing to discount the amount of debt that the defendant owes because its likelihood of success at trial is unclear.
There are a multitude of reasons a stipulated judgment could make sense and, in those cases, these judgments should be executed and filed with the court as soon as possible. Again, the same due process considerations are involved, so make sure the stipulated judgment is personally signed by all parties – not just the attorneys.
A few odds and ends to cover in closing. First, if a stipulated judgment is entered, you might also consider obtaining post-judgment liens. If, for example, judgment will only be entered when the defendant defaults on a payment plan months down the line, it could be the case that other creditors will encumber the defendant’s assets in the meantime. Second, it’s important to know that in general, a stipulated judgment does not have preclusive effect if the defendant ends up filing for bankruptcy. One way to combat this is to include language in the stipulation that shows all parties’ intent that the amount owed would not be dischargeable in bankruptcy (which may not even be an option if the judgment debtor is a cannabis business).