In re Solfanelli

• Decision Date: 10 December 1996
• Docket Number: Bankruptcy No. 5-90-01120,Adv. No. 5-92-0013.
• Citation: 206 BR 699
• Parties: In re Joseph R. SOLFANELLI and Natalie G. Solfanelli, his wife, Debtors. Joseph R. SOLFANELLI and Natalie G. Solfanelli, his wife, Plaintiffs, v. MERIDIAN BANK and Stevens and Lee, a Professional Corporation, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

206 B.R. 699 (1996)

In re Joseph R. SOLFANELLI and Natalie G. Solfanelli, his wife, Debtors.

Joseph R. SOLFANELLI and Natalie G. Solfanelli, his wife, Plaintiffs, v. MERIDIAN BANK and Stevens and Lee, a Professional Corporation, Defendants.

Bankruptcy No. 5-90-01120, Adv. No. 5-92-0013.

United States Bankruptcy Court, M.D. Pennsylvania.

December 13, 1996.

Order for Judgment December 10, 1996.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Edward Mannino, Philadelphia, PA, for Joseph R. Solfanelli, Debtor/Plaintiff.

John Doran, Wilkes-Barre, PA, for Natalie G. Solfanelli, Debtor/Plaintiff.

Joan Sheak, Allentown, PA, for Meridian Bank/Defendant.

OPINION

JOHN J. THOMAS, Bankruptcy Judge.

Joseph and Natalie Solfanelli, together with Carmen Tomaine, were indebted to Meridian Bank ("Bank") in the approximate amount of $4.8 million dollars when the Solfanellis filed for bankruptcy under the provisions of Chapter 11 of the United States Bankruptcy Code on October 12, 1990.

At the time of filing, the Bank had as collateral for this debt, some real estate, but more importantly, a significant number of the shares of First Eastern Bank, N.A., then in the name of the Debtor, Joseph R. Solfanelli. Those shares numbered 206,254 on the filing date. (Plaintiffs' Exhibit 41 at p. 4.)

Confronted with a motion to lift the automatic stay filed by the Bank, the Solfanellis and the Bank entered into a Stipulation and Security Agreement, ("Stipulation"), which Stipulation was approved by the bankruptcy court on January 22, 1991. (Plaintiffs' Exhibit 41.)

Thereafter, the Stipulation governed the rather rocky relationship between the parties, a relationship which culminated in the filing of this litigation.

The Plaintiffs' complaint was originally filed on February 27, 1992 to the above adversary number. An amended complaint was filed on March 24, 1992, and that complaint included the following Counts.

Count I Violation of the Stay

Count II Abuse of Process

Count III Request for Punitive Damages

Count IV Request to Void the Release

Count V Misrepresentation and Fraud

Count VI Conspiracy

Count VII Violation of 9504 of the Uniform Commercial Code and Rule 10(b) of the Securities and (sic) Exchange Act of 1934 as amended

By agreement, Joseph Solfanelli has waived his claims for damages on Counts I through IV. (Transcript of 01/09/95 at 10.)

The Plaintiffs have settled their claim against Defendant, Stevens and Lee, who were then dropped from the litigation. The trial of the entire complaint appeared to involve a significant investment of court time. Therefore, on July 5, 1994, on motion of the Plaintiffs, the court granted a request to bifurcate the trial into a litigation of Counts I, II, III, IV and VII, with Counts V and VI being deferred to a later time. The initial litigation of the five Counts took four trial days.

In reviewing the various issues ripe for adjudication, we will address them in seriatim fashion.

Count I — Violation of the Automatic Stay

On October 10, 1990, the Defendant, Meridian Bank, confessed judgment against the Plaintiffs. The Bank executed on various accounts maintained by the Debtors. On October 12, 1990, the Debtors filed for relief under Chapter 11 of the Bankruptcy Code. On October 23, 1990, the Bank filed a motion for relief which resulted in the Stipulation of December 27, 1990. That Stipulation and Security Agreement was approved by the court on January 22, 1991.

Under the terms of that Stipulation and, specifically at paragraph 2 on page 5, the Debtors were authorized to use cash collateral "in the ordinary course of their businesses and for ordinary and customary living expenses. . . ." The evidence indicates that the accounts were so used and, in fact, not only were checks written on the accounts, but deposits were also made.

Determining that the Stipulation was breached by the Debtors, the Bank declared a default in its terms on March 18, 1991. While some details are disputed, it is acknowledged that the Bank garnished various pre-petition accounts including accounts which contained post-petition funds of the Debtors-in-Possession on February 10, 1992. The Bank asserts that pursuant to paragraph 12 of the Stipulation, it was immediately entitled to relief from the automatic stay upon default.

Count I of the complaint argues that this action was a violation of the automatic stay and requires the Debtors to be compensated.

Regardless of whether the Bank properly declared a default in the terms of the Stipulation and Security Agreement, we reject the proposition that a pre-petition lien extends to post-petition deposits absent a replacement lien. In re New York City Shoes, Inc., 78 B.R. 426, 432 (Bankr.E.D.Pa. 1987). There was no evidence within the Stipulation and Security Agreement that a replacement lien was granted. The Bank's authority, at best, extended to the encumbered funds that existed in the account at the time of the original garnishment on October 10, 1990 and remained in these accounts through February 10, 1992.

Having found a violation, we turn to 11 U.S.C. § 362(h) to determine our responsibility relative to such violation. Section 362(h) reads as follows:

(h) An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys\' fees, and, in appropriate circumstances, may recover punitive damages.

As we had discussed in In re Micro Marketing International, Inc., 150 B.R. 573 (Bankr.M.D.Pa.1992), no award of damages including attorneys' fees can be entered without some evidence that actual damages were incurred. Mrs. Solfanelli presented no evidence of monetary damages. Nevertheless, we find that her testimony was sufficient for this court to establish the existence of embarrassment, humiliation, and mental anguish. She had no reason to believe, even upon default, that her post-petition deposits would be at risk without notice to her. When those deposits did not support the checks written against them because the funds had been removed, she was understandably embarrassed. While we all suffer humiliation and embarrassment at various stages of our life, a finding that this was caused by the Bank's violation of the automatic stay is sufficient to support an award under 11 U.S.C. § 362(h). Mercer v. D.E.F., Inc., 48 B.R. 562, 565 (Bankr.D.Minn.1985); In re Wagner, 74 B.R. 898, 905 (Bankr. E.D.Pa.1987); In re Clark, 96 B.R. 569, 579 (Bankr.E.D.Pa.1989). See also Restatement (Second) of Torts § 905 (1979).

What we are not free to do, however, is to speculate about the measure of those damages. While the aforecited courts have awarded various dollar amounts ranging from $100 to $2000 for such degradation, I am extremely uncomfortable in pulling some number out of the air and suggesting that it is a fair measure of compensatory damages. Suffice it to say that we are satisfied to award nominal damages in the amount of $1.00 in favor of Natalie G. Solfanelli and against Meridian Bank for this violation. Having done that, we are free to further award attorneys' fees in advancing this litigation as it relates to the violation of the automatic stay and will direct Debtors' counsel to file an itemization of same within thirty (30) days.

An award of punitive damages is also a possibility under the provisions of 11 U.S.C. § 362(h) and I will so consider that in my discussion of Count III of Plaintiffs' complaint.

Count II — Abuse of Process

The Plaintiffs maintain that the Bank's action in executing upon post-petition accounts was an abuse of process by the Bank. The Plaintiffs demand damages for such action.

"The gist of an action for abuse of process is the improper use of process after it has been issued, that is, a perversion of it." Hart v. O'Malley, 436 Pa.Super. 151, 647 A.2d 542, 546 (1994) citing Mayer v. Walter, 64 Pa. 283 (1870). Its "touchstone" is a use of process for a purpose for which it was not intended. Neill v. Eberle, 153 Pa.Cmwlth. 181, 620 A.2d 673, 674 (1993). While there is no cause of action for abuse of process if the claimant, even with bad intentions, merely carries out the process to its authorized conclusion, abuse of process usually pertains to situations involving "extortion by means of attachment, execution or garnishment. . . ." Cameron v. Graphic Management Associates, Inc., 817 F.Supp. 19, 21 (E.D.Pa.1992) citing Zappala v. Hub Foods, Inc., 683 F.Supp. 127, 129 (W.D.Pa.1988) (quoting W. Prosser & W. Keeton, Prosser and Keeton on Torts § 121 (5th ed. 1984)).

"A cause of action for abuse of process requires `some definite act or threat not authorized by the process, or aimed at an objective not legitimate in the use of the process.'" Rosen v. Tesoro Petroleum Corp., 399 Pa.Super. 226, 237, 582 A.2d 27, 32 (1990), allocatur denied, 527 Pa. 636, 592 A.2d 1303 (1991) citing Shaffer v. Stewart, 326 Pa.Super. 135, 139, 473 A.2d 1017, 1019 (1984).

An example of an abuse of process can be found in the comments to § 682 of the Restatement (Second) of Torts as follows:

1. A, the master and owner of a vessel, mortgages it to B, with a stipulation that A shall retain the possession of the vessel and make voyages in it. In order to compel A to give up the register of his vessel, to which B was not entitled under the terms of the mortgage, B causes a capias to issue in an action to recover the amount loaned, knowing that A cannot pay the money or obtain bail. A is arrested under capias and kept in prison until he gives up the register, his lack of which prevents him from making several profitable voyages. B is subject to liability to A for abuse of process, although the proceedings have not terminated in A\'s favor and irrespective of whether B has probable cause for the action in which the capias was issued.

Restatement (Second) of Torts § 682 cmt. a, illus. 1 (1977).

Using this illustration as guidance, it is apparent that the process in this case, the...