Opinion ID: 3010499
Heading Depth: 2
Heading Rank: 3

Heading: wpcl

Text: The substantive issue in this case is whether the employees can sue the Aloes, as officers of Shenango, under the WPCL for Shenango’s non-payment of certain pre-petition benefits that became due to the employees in the period after Shenango had 12 filed for bankruptcy. The district court rejected the employees’ WPCL claim because the failure to pay benefits by Shenango occurred after the bankruptcy petition was filed. The court reasoned that the failure to pay was caused by the Bankruptcy Code’s prohibition on Shenango’s making such payments, and not by the Aloes’ voluntary choice to refrain from making them. The WPCL provides, with respect to fringe benefits and wage supplements, that [e]very employer who by agreement deducts union dues from employees’ pay or agrees to pay or provide fringe benefits or wage supplements, must remit the deductions or pay or provide the fringe benefits or wage supplements, as required, within 10 days after such payments are required to be made to the union in the case of dues or to a trust or pooled fund, or within 10 days after such payments are required to be made directly to the employee, or within 60 days of the date when the proper claim was filed by the employee in situations where no required time for payment is specified. 43 Pa.C.S.A. § 260.3(b). The WPCL further provides that [a]ny group of employees, labor organization or party to whom any type of wages is payable may institute actions provided under this act. 43 Pa.C.S.A. § 260.9a(a) (emphasis added). The parties do not dispute that under the WPCL the top management of a company can be held liable for wages that are owed by the company. The dispute here is over whether the employees’ claim is for benefits that were “due and payable” under the WPCL. The district court held that they were not since federal bankruptcy law operated to prevent these benefits (which 13 came due after Shenango filed for bankruptcy) from being “due and payable.” We agree. The liability of corporate managers under the WPCL is a “contingent” liability, i.e., it is contingent on the corporation’s failure to pay debts that it owes. See Laborers Combined Funds of W. Pa. v. Mattei, 518 A.2d 1296, 1300 (1986) (“the only apparent purpose [of holding managers liable for wages and benefits not paid fully by the company] was to subject these persons to liability in the event that a corporation failed to make wage payments”) (emphasis added); accord Carpenters, 727 F.2d at 282-83. Once a corporation files a Chapter 11 petition, however, it is obligated to pay wages and benefits only to the extent required by the bankruptcy workout. Cf. In re Ribs-R-Us, Inc., 828 F.2d 199, 203 (3d Cir. 1987) (describing the effect on a debtor of the filing of a petition in Chapter 11). Hence, when a corporation under Chapter 11 fails to make payments that the Bankruptcy Code does not permit, the contingency needed to trigger the liability of corporate managers under the Pennsylvania WPCL never occurs. Here, Shenango was current on all of its payments in the pre-petition period. The employees’ claims are for amounts that technically came due in the postpetition period. Since the corporation was not permitted by law to pay these claims in the post-petition period, the contingency of the amounts becoming “due and payable” under the WPCL did not occur, and hence the managers were not personally liable. 14 This conclusion is consistent with the goals underlying the WPCL. Pennsylvania’s purpose in holding the agents and officers of a corporation liable for unpaid wages and benefits is to give those agents and officers an incentive to pay wages and benefits while the corporation still has the resources to do so. See Mohney v. McClure, 568 A.2d 682, 685 (1990), aff’d per curiam, 604 A.2d 1021 (1992). Put differently, the WPCL seeks to deter corporate managers from diverting corporate funds that are meant to go towards paying wages and benefits. For example, one could imagine a situation in which a firm is under the threat of bankruptcy and the managers’ primary concern is saving their jobs (i.e., keeping the company out of bankruptcy) as opposed to paying the employees from the available funds. In such a situation, managers might be tempted not to use available funds to pay wages and benefits owed to the employees. Instead, they might be tempted to employ the funds in a high risk gamble that, if successful, might prevent bankruptcy and hence save the managers’ jobs but that most likely will fail and result in a loss of the funds. See, e.g., Susan Rose-Ackerman, Risk Taking and Ruin: Bankruptcy and Investment Choice, 20 J. Legal Stud. 277 (1991); cf. Robert K. Rasmussen, The Ex Ante Effects of Bankruptcy Reform on Investment Incentives, 72 Wash. U. L. Q. 1159, 1162 & n.16 (1994). Given that the purpose of the WPCL is to deter managers from strategically diverting company resources away from the payment of wages and benefits, it makes sense for the WPCL to 15 apply in only those contexts in which the managers have room to behave strategically. Indeed, the courts have applied the WPCL in precisely this manner. In Mohney, the court refused to hold a corporate secretary liable for unpaid wages and benefits, where the secretary, who earned no more than a small retainer, had no role in the corporate decision making processes. 568 A.2d at 686 (liability under the WPCL is premised on the person being held liable being an “active decision mak[er]” in the context of deciding not to pay the employees); see also Central Pa. Teamsters Pension Fund v. Burten, 634 F. Supp. 128, 131 (E.D. Pa. 1986) (absent some indication that the defendant exercised a policy-making function in the company, he could not be held liable under the WPCL). The logic of Mohney applies to this case.7 Shenango was current on its payments to the employees up to the point of filing for bankruptcy. Once Shenango filed for bankruptcy, however, management no longer had the power to choose not to use the corporation’s funds to pay wages. Specifically, once Shenango went into bankruptcy, bankruptcy law compelled it to refrain from paying the employees’ claims. In this context, it is easy to see that management was not in the position of an 7. The WPCL is a penal statute. The narrow interpretation given to it by the Mohney court is consistent with Pennsylvania’s rule of statutory interpretation that doubts about the reach of a penal provision are to be resolved in favor of a narrow construction. See 1 Pa.C.S.A. § 1928(b)(1) (penal provisions are to be strictly construed); cf. David L. Shapiro, Continuity and Change in Statutory Interpretation, 67 N.Y.U. L. Rev. 921, 935 (1992). 16 “active decision maker” vis-a-vis choosing not to pay employees benefits that technically became due in the post-petition period.8 Therefore, the WPCL did not come into play.9 8. This exception to the applicability of the WPCL is not an attempt to incorporate a scienter requirement into the WPCL. See Mohney, 568 A.2d at 686. We note, however, that there exists at least one situation in which corporate officers are held statutorily liable for the non-payment of debts owed by the corporation and where this liability is premised on a determination of willfulness. The context is that of taxes, such as withholding and social security taxes, that are required to be deducted by employers from the wages paid to employees. In this context, Congress has imposed personal liability on any officer or employee who “willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof.” 26 U.S.C. 6672(a); Ribs-R-Us, 828 F.2d at 200. Part of the rationale underlying the imposition of such liability was the recognition that “taxes collected by a corporate employer on behalf of employees `can be a tempting source of ready cash for a failing corporation beleaguered by its creditors.’” Ribs-R-Us, 828 F.2d at 200 (quoting Slodov v. United States, 436 U.S. 238, 243 (1978)). 9. One might ask, as the dissent does, why this case is different from an ordinary third-party guaranty of a debt, where the purpose of the guaranty is to ensure that the creditor receives complete and timely payment even if the primary debtor goes into bankruptcy and avails itself of the automatic stay. The reason for the difference is that the secondary liability of managers under the WPCL attaches only when they are “active decision makers.” In other words, their liability is not automatic, but is premised on their being in a position to stop the original non-payment. This makes the WPCL manager liability different from an ordinary contract guaranty. The dissent fears that this case will radically alter the law applicable to all forms of contractual guaranties. Our decision here, however, is predicated solely on an interpretation of Pennsylvania law on the WPCL. It is predicated on the existence of the “active decision maker” component of the WPCL; a component provided by the Pennsylvania courts. Unless private parties agree to include such a component in their guaranties, we fail to see how this decision will affect those contracts. Further, the dissent suggests that under the WPCL there cannot be any doubt as to Pennsylvania’s legislative intent to 17 The employees, however, argue that the district court’s decision was inconsistent with the applicable case law. In particular, they point to Mohney and Adams v. Benjamin, 627 A.2d 1186 (1993). We disagree with the employees with respect to both cases. In Mohney, the plaintiff was asserting claims for wages that allegedly had been accrued but were only partially paid at the time of filing for bankruptcy. 568 A.2d at 684. The employees read Mohney to hold that claims for wages that were accrued at the time of the filing for bankruptcy, but that did not come due until after the filing of the petition, were valid under the WPCL. We do not read Mohney to say any such thing. The language in Mohney to which the employees point is the (..continued) hold its corporate officers and directors liable for the unpaid wage and benefits debts of the corporation when the corporation itself is temporarily stayed, by operation of the Bankruptcy Code, from paying those debts. We disagree. Corporate bankruptcies are not unusual events. When companies go into Chapter 11, it can take them substantial periods of time to emerge. During the period the corporation is in Chapter 11, it is stayed from paying its pre-petition debts. Under the dissent’s interpretation of the WPCL, the officers and directors of Pennsylvania corporations would be personally liable for covering these unpaid wage and benefits debts during the entire period of the stay -- even though these were amounts that became due only after the bankruptcy petition was filed. The combination of (1) a corporation with a large workforce and (2) a lengthy bankruptcy workout, would result in staggering personal liability for the corporate officers. That, in turn, would produce a serious incentive for corporations to avoid locating in Pennsylvania. Without clear indication from the legislature that its intent was to impose such a regime, we, unlike the dissent, decline to read such an intent as obvious. 18 portion of the opinion in which the court articulates the claim made. Id. The court then, without holding whether or not the wage claims in and of themselves were valid under the WPCL, see id., rejected the plaintiff’s claim since the defendant played no active decision-making role in the non-payment of the wages and benefits at issue. See id. at 686. Adam is inapplicable because that case did not involve the question of what happens to wages and benefits that are accrued pre-petition, but come due only in the post-petition period. 627 A.2d at 1189-90. Instead, in Adam, the wages and benefits at issue appear to have come due prior to the filing of the bankruptcy petition. Id. at 1189.