Citizens Bank of Pennsylvania v. Myers

• Decision Date: 24 March 2005
• Parties: CITIZENS BANK OF PENNSYLVANIA, a Pennsylvania Corporation, Appellee, v. Christy L. MYERS, an individual, Christopher P. Fekos, an individual, Deborah Fekos, an individual, Lee Mazur, Jr., an individual, Erin Mazur, an individual, Joseph Howcroft, an individual, Mazur's LLC, a Pennsylvania Liability Corporation, America Painting Services, Inc., a Pennsylvania Corporation, and Fekos' Famous Eateries, Inc., a Pennsylvania Corporation. Appeal of: Christopher P. Fekos and Joseph Howcroft, Appellants.
• Court: Pennsylvania Superior Court

872 A.2d 827

CITIZENS BANK OF PENNSYLVANIA, a Pennsylvania Corporation, Appellee, v. Christy L. MYERS, an individual, Christopher P. Fekos, an individual, Deborah Fekos, an individual, Lee Mazur, Jr., an individual, Erin Mazur, an individual, Joseph Howcroft, an individual, Mazur's LLC, a Pennsylvania Liability Corporation, America Painting Services, Inc., a Pennsylvania Corporation, and Fekos' Famous Eateries, Inc., a Pennsylvania Corporation.

Appeal of: Christopher P. Fekos and Joseph Howcroft, Appellants.

Superior Court of Pennsylvania.

Argued October 27, 2004.

Filed March 24, 2005.

Kevin C. Abbott, Intervenor, Pittsburgh, for PG Publishing.

Matthew F. Burger, Pittsburgh, for Citizens Bank.

Brian Kuhn, Pittsburgh, for Feko's Famous Eateries.

BEFORE: BENDER, PANELLA, and POPOVICH, JJ.

OPINION BY PANELLA, J.:

¶ 1 Appellants, Christopher P. Fekos and Joseph Howcroft, appeal from the orders entered on December 24, 2003, by the Honorable Martin J. O'Brien,¹ Court of Common Pleas of Allegheny County, which denied their respective motions to dismiss the preliminary injunction obtained by the Appellee, Citizens Bank of Pennsylvania.² After careful review, we affirm.

¶ 2 On December 9, 2003, Citizens commenced a civil action against several defendants, including Fekos and Howcroft. In its complaint, Citizens alleged that one of its employees, Christy Myers, a Retail Sales and Service Representative employed in its Penn Hills, Pennsylvania branch office, conspired with the named defendants for the purpose of misappropriating funds from Citizens' customer accounts. Citizens' complaint further alleged that it had uncovered more than $1,300,000.00 stolen by the defendants in furtherance of their conspiracy. Citizens sought, inter alia, equitable relief, in the form of an injunction to freeze the defendants' bank accounts.

¶ 3 Citizens also filed on December 9, 2003, an emergency ex parte motion for a special injunction seeking to freeze the bank accounts of the defendants named in the complaint. The trial court granted Citizens' motion, which resulted in the freeze of approximately $674,000.00 in an account held at National City Bank.³ The trial court scheduled a hearing on the continuation of the injunction for December 15, 2003. A hearing was held on December 19, 2003, at which time Fekos and Howcroft made two oral motions to dismiss the injunction. In the first motion, Fekos and Howcroft argued that the court lacked subject matter jurisdiction⁴ as they contended that Citizens' complaint was filed at law and not in equity.⁵ In the second motion, Fekos and Howcroft argued that there was an adequate remedy at law and, as such, the grant of a preliminary injunction was improper.

¶ 4 The trial court decided to forego ruling on the motions until after Citizens had an adequate opportunity to research the issues and file a written response to the motions. The trial court also decided to permit the hearing to move forward and hear testimony from Citizens' witnesses. Fekos and Howcroft then stated that they would stipulate to Citizens' offers of proof of its witnesses' testimony for the purpose of the trial court's resolution of their motions to dismiss, thus dispensing of the need for witness testimony.

¶ 5 Counsel for Citizens stated that Matt Clydesdale, an investigator for Citizens, would have testified that he had interviewed Christy Myers on two occasions at which time she described how she misappropriated funds from Citizens' customer accounts to benefit the named defendants who were purchasing restaurants in Florida. Specifically, it was offered that Christy Myers would have testified that she advanced funds from the Citizens customer accounts, without the customers' knowledge, for the support of the restaurant acquisitions until funding of a loan could be secured from another source, which would then be used to repay the Citizens customer accounts. It was also noted that Christy Myers would confirm that Fekos was aware of the embezzlement of the customer bank accounts and that Howcroft had picked up misappropriated funds, in the forms of cash and checks, at the bank.

¶ 6 Counsel for Citizens also made an offer of proof as to the testimony of Jean Yates, Vice-President and Senior Audits Manager for Citizens. It was explained that Jean Yates would have testified how the funds came into the bank, which customers had the funds, how the funds left the customers' respective accounts, and the location where the funds were deposited after they left the owners' accounts. Furthermore, Jean Yates would have testified that she traced approximately $674,000.00 in misappropriated funds to the frozen account at National City Bank, an account which is maintained by Howcroft and which provides Fekos with signing authority and power of attorney. Jean Yates would have also noted that money diverted from the customer accounts went to the benefit of a number of the defendants.

¶ 7 The trial court denied the motions to dismiss the injunction on December 22, 2003, the same day Citizens filed its written responses to the oral motions. This timely appeal followed. On appeal, Appellants raise the following issues:

A. WHETHER THE COURT SHOULD HAVE GRANTED A PRELIMINARY INJUNCTION WHEN THE CASE WAS FILED AT LAW.

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B. WHETHER THE COURT SHOULD HAVE GRANTED A PRELIMINARY INJUNCTION WHEN THE ONLY ISSUE WAS MONEY AND THERE WAS A COMPLETE AND ADEQUATE NON-STATUTORY REMEDY AT LAW.

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C. WHETHER THE COURT SHOULD HAVE IMPOSED A

FREEZE ON A BANK ACCOUNT WHICH WAS ALLEGED TO INCLUDE THE STOLEN FUNDS FROM WHICH [CITIZENS] HAD BEEN DEFRAUDED WHEN THE ALLEGATIONS DID NOT ALLEGE THAT THE ACCOUNT CONSISTED OF ONLY SUCH FUNDS.

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D. WHETHER THIS COURT MAY CONDUCT AN ADEQUATE REVIEW WITHOUT AN ARTICULATION OF THE REASONS FOR THE GRANT OF THE INJUNCTION.

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Appellants' Brief, at 4.

¶ 8 While this appeal was pending, Fekos filed a suggestion of Bankruptcy on December 22, 2004. Therefore, we must determine what effect, if any, the suggestion of bankruptcy has on this appeal.⁶ Section 362(a) of the Bankruptcy Code provides, in pertinent part, that the filing of a petition in bankruptcy operates as a stay, applicable to all entities, of the following:

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under [the Bankruptcy Code.]

11 U.S.C. § 362(a)(1) (emphasis added). Section 362's stay is "`automatic' because it is triggered as against all entities upon the filing of a bankruptcy petition, irrespective of whether the parties to the proceeding stayed are aware that a petition has been filed." Maritime Electric Company, Inc. v. United Jersey Bank, 959 F.2d 1194, 1204 (3d Cir.1992). The automatic stay is designed to give the debtor "a breathing spell from his creditors." Koolik v. Markowitz, 40 F.3d 567, 568 (2d Cir.1994) (quoting Teachers Insurance & Annuity Ass'n of America v. Butler, 803 F.2d 61, 64 (2d Cir.1986)) (internal quotation marks omitted). The automatic stay precludes any non-bankruptcy court, including state and federal courts, from continuing judicial proceedings pending against the debtor. See United Jersey Bank, 959 F.2d at 1206

.

¶ 9 Whether a specific judicial proceeding, e.g., an appeal, comes within the purview of the automatic stay provision of § 362 is determined by looking at the proceeding "at its inception." Id., at 1204 (citation omitted). Accordingly, the key determination is whether a proceeding was "originally brought against the debtor." Id. (citation omitted and emphasis in original). If an action was originally brought against a debtor, an appeal initiated by the debtor must be stayed as such an appeal comes within the scope of § 362. See, e.g., Association of St. Croix Condominium Owners v. St. Croix Hotel Corp., 682 F.2d 446, 449 (3d Cir.1982)

("[S]ection 362 should be read to stay all appeals in proceedings that were originally brought against the debtor, regardless of whether the debtor is the appellant or appellee."); Borman v. Raymark Industries, Inc., 946 F.2d 1031, 1037 (3d Cir.1991) (applying St. Croix Hotel Corp. and staying appeal initiated by debtor); Butler, 803 F.2d at 64-65 (concluding that appeal initiated by the debtor comes within scope of § 362's automatic stay provision where original action was brought against the debtor).

¶ 10 Applying the foregoing case law leads to the conclusion that Fekos' appeal must be stayed. Citizens brought the case sub judice against Fekos. See Complaint, 12/15/03, at Counts II-IV, VI-IX. Subsequent to the filing of the complaint, and while this appeal was pending, Fekos, as mentioned, filed a suggestion of bankruptcy. See Suggestion of Bankruptcy, 12/22/04. Therefore, as the action was originally brought against Fekos, the appeal initiated by him comes within the purview of § 362 and must be stayed. See, e.g., St. Croix Hotel Corp., 682 F.2d at 449 ("In our view, section 362 should be read to stay all appeals in proceedings that were originally brought against the debtor, regardless of whether the debtor is the appellant or appellee.").

¶ 11 We note that Howcroft's appeal is unaffected by our ruling on Fekos' appeal and we may proceed to address the merits of the issues Howcroft raises on appeal. See United Jersey Bank, 959 F.2d at 1205

("[T]he automatic stay is not available to non-bankrupt co-defendants of a debtor even if they are in a similar legal or factual nexus with the debtor."); Queenie, Ltd. v. Nygard International, 321 F.3d 282, 287 (2d Cir.2003) ("[A] suit against a codefendant is not automatically stayed by the debtor's bankruptcy filing.") (citation omitted).

¶ 12 The preliminary injunction in the case sub judice acts to freeze Howcroft's ...