Belculfine v. Aloe

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit

4-28-1997

Belculfine v. Aloe
Precedential or Non-Precedential:

Docket 96-3237

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________

No. 96-3237
____________

PASCHAL F. BELCUFINE;
SCOTT BERRINGER; GUY GADOLA;
MARGARET HROMYAK; EDWARD KRAFFT;
BETTY LAWRENCE; JOSEPHINE NAUMAN;
KEN SEKERSKY; JAMES R. ZWIKL;
H. SPENCER CARLOUGH; RICHARD D. OWEN;
RICHARD BORNES, and other
similarly situated salaried individuals,

Appellants

v.

MARK ALOE; ANDREW ALOE,
individuals, jointly and severally, and
SHENANGO INC.,

Appellees
____________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
____________________

(D.C. Civil No. 95-cv-01615)
_________________

Argued: November 26, 1996
Before: GREENBERG, ALITO, and ROTH, Circuit Judges:

(Opinion Filed: April 28, 1997)
____________________

Lee R. Golden, Esq. (Argued)
Todd T. Zwikl, Esq.
Suite 660 USX Tower,
Pittsburgh, PA 15219

Attorneys for Appellants
Jay Flowers Conti, Esq. (Argued)
BUCHANAN INGERSOLL, P.C.
One Oxford Centre, 20th Floor
300 Grant Street
Pittsburgh, PA 15219

Wendy E.D. Smith, Esq.

1
 KIRKPATRICK & LOCKHART LLP
1500 Oliver Building
Pittsburgh, PA 15222

Clem C. Trischler, Esq. (Argued)
Raymond G. McLaughlin, Esq.
38th Floor
One Oxford Centre
Pittsburgh, PA 15219

Attorneys for Appellees

____________________

OPINION OF THE COURT
____________________

ALITO, Circuit Judge:

Under Pennsylvania law, when a corporation fails to pay

wages and benefits that it owes its employees, the corporation’s

top officers can be held personally liable for the non-payments.

See, e.g., Carpenters Health and Welfare Fund v. Ambrose, Inc.,

727 F.2d 279, 282-83 (3d Cir. 1983); see also Antol v. Esposto,

100 F.3d 1111, 1119 (3d Cir. 1997). The purpose of this rule is

to give top corporate managers an incentive to use available

corporate funds for the payment of wages and benefits rather than

for some other purpose. Carpenters, 727 F.2d at 282-83. Holding

the managers personally liable serves to give them an incentive

not to divert funds away from the payments owed to employees.

The issue raised by this case is what happens when their company

files a Chapter 11 bankruptcy petition and the employees seek to

recover from the corporate managers for unpaid vacation and

retirement benefits that were allegedly earned in the pre-
petition period, but that became due only in the post-petition

period. The filing of a petition for bankruptcy under Chapter 11

2
of the Bankruptcy Code bars the payment of pre-petition claims by

the company. See 11 U.S.C. § 362 (providing for automatic stay

of creditors’ efforts to seek repayment); In re Eagle-Picher

Indus., Inc., 963 F.2d 855, 861 (6th Cir. 1992). The question,

then, is whether, in this context, where, by law, the company’s

managers have no discretion to order payment of the amounts owed

to the employees, they can simultaneously be held liable for not

making the payments. We think not.

I.

The Shenango Corporation (“Shenango”) is a

Pennsylvania-based producer of coke and iron products. In

December 1992, Shenango filed a voluntary petition for relief

under Chapter 11 of the Bankruptcy Code. A group of Shenango’s

former employees (the “employees”) claim that they are owed

specific sums of money for vacation and supplemental retirement

benefits. They filed this action pursuant to the Pennsylvania

Wage Payment and Collection Law (“WPCL”), 43 Pa.C.S.A. § 260.1 et

seq. The employees’ complaint asserted that Mark and Andrew

Aloe, as officers of Shenango1, were personally liable for the

benefits payments not made by Shenango.

The WPCL arms Pennsylvania employees with a statutory

vehicle for the collection of unpaid wages and benefits and

1. Mark A. Aloe was a member of Shenango’s board of directors
from March 25, 1986 until February 17, 1993, and was chief
executive officer and chairman of the board from March 25, 1986
through June 20, 1990. Andrew Aloe has been on the board of
directors since March 25, 1986, and has been chief executive
officer in the period subsequent to the filing of the bankruptcy
petition.

3
provides for penalties to be imposed for non-compliance. See 43

Pa.C.S.A. § 260.1 et seq. The WPCL defines an “employer” to

include “every person, firm, partnership, association,

corporation, receiver or other officer of a court of this

Commonwealth and any agent or officer of any of the above-

mentioned classes employing any person in this Commonwealth.” 43

Pa.C.S.A. § 260.2a. The definition of an “employer” under the

WPCL has been held to include a corporation’s highest ranking

officers, because they are the persons who are likely to have

“established and implemented the policy for the non-payment” of

the wages and benefits at issue. Carpenters, 727 F.2d at 283.

In addition to providing for civil remedies and penalties, see 43

Pa.C.S.A. § 260.9a, the WPCL also provides for criminal

penalties, see 43 Pa.C.S.A. § 260.11a.

The employees in this case are seeking recovery of

vacation pay and supplemental retirement benefits. If Shenango

had not filed for bankruptcy, it appears that the Aloes, as

officers of Shenango, might indeed have been personally liable

for the claimed amounts. Any sums that may have been due and

owing by Shenango prior to the filing of the Chapter 11 petition

appear to fall within the ambit of the WPCL and, thus, arguably

were residual obligations of the Aloes. The employees’ claims

here, however, arose out of the post-petition cessation of the
employees’ benefits. The claims arose out of pre-petition

obligations, but arose with respect to payments that came due in
the post-petition period.

4
 The employees originally brought their action in

Pennsylvania state court. The Aloes then removed the action to

the United States District Court for the Western District of

Pennsylvania pursuant to the bankruptcy removal statute, 28

U.S.C. § 1452, which generally permits the removal of any claim

or cause of action if the district court has subject matter

jurisdiction under 28 U.S.C. § 1334.2 From there, the matter was

referred to the bankruptcy court. The bankruptcy court granted

Shenango’s and the Aloes’ motions for summary judgment on the

ground that the WPCL was pre-empted by federal bankruptcy law.

The district court affirmed the grant of summary judgment, but

not based on pre-emption. The court reasoned that because the

filing of a Chapter 11 bankruptcy petition operated to bar

Shenango from making payments on debts, such as the employees’

claims, that came due in the post-petition period, the purpose of

the WPCL would not be furthered by holding the corporation’s

officers personally liable.3 We affirm.

2. The Aloes, through a third-party complaint, joined Shenango
as a defendant on a claim for indemnification. The
indemnification claim was based on the by-laws of Shenango that
imposed an affirmative obligation on Shenango to indemnify its
officers and directors for reasonable expenses, judgments, fines,
or costs incurred in a legal proceeding.

3. In a recent case, Antol v. Esposto, 100 F.3d 1111, 1114 (3d
Cir. 1997), employees brought suit under the WPCL against a
corporation’s officers and shareholders for wages earned in the
post-petition period pursuant to a Collective Bargaining
Agreement (“CBA”). The court rejected the WPCL claims on the
ground that the suit was based on the terms of the CBA and was
therefore preempted by the Labor Management Relations Act and the
National Labor Relations Act. Id. The court noted, however,
that 11 U.S.C. § 1113 provides that a CBA remains in full force
in a Chapter 11 proceeding until rejection is approved by a
bankruptcy judge, id. at 1121 n.4, and that, in the Chapter 11

5
 II.

A. Subject Matter Jurisdiction

The employees question whether the bankruptcy court had

subject matter jurisdiction over this matter. They argue here,

as they did before the district court, that (1) the Aloes’ claim

for indemnification against Shenango is barred by 11 U.S.C. §

502(e)(1)(B) because it is a contingent claim against the

bankrupt estate, (2) the Aloes’ indemnity claim is barred by the

terms of Shenango’s confirmed plan because the Aloes did not file

a timely proof of claim before the bankruptcy court, and (3) the

Aloes’ indemnity claim was a collusive attempt to manufacture

jurisdiction.

In analyzing the question of subject matter

jurisdiction, the district court first looked to the relevant

statutory sections. Pursuant to 28 U.S.C. § 1334(b)4, a district

court

(..continued)
context, arbitration brought pursuant to a CBA is not subject to
the automatic stay. Id.

4. Similarly, pursuant to 28 U.S.C. §§ 157 (a) & (b)(1):

(a) Each district court may provide that any or all
cases under title 11 and any or all
proceedings arising under title 11 or arising
in or related to a case under title 11 shall
be referred to the bankruptcy judges for the
district.

(b)(1) Bankruptcy judges may hear and determine all
cases under title 11 and all core proceedings
arising under title 11, or arising in a case
under title 11, referred under subsection (a)
of this section, and may enter appropriate
orders and judgments, subject to review under
section 158 of this title.

6
shall have original but not exclusive jurisdiction of
all civil proceedings arising under title 11,
or arising in or related to cases under title
11.

Under the above provision, the answer to whether there

is subject matter jurisdiction depends on whether the cause of

action “aris[es] under,” “aris[es] in,” or is “related to” a case

under title 11 -- in this case, the Shenango bankruptcy

proceeding. See 28 U.S.C. § 1334(b).

The employees are suing the Aloes for nonpayment of

amounts allegedly owed to them by Shenango. Based on an express

provision in Shenango’s by-laws, the Aloes have an

indemnification claim against Shenango. The district court held

that, at a minimum, the existence of this indemnification claim

demonstrated that the employees’ claims against the Aloes could

conceivably have an effect on the bankruptcy estate and therefore

satisfied the “related to” test. Hence, the court determined

that there was subject matter jurisdiction over the cause of

action.

In Pacor v. Higgins, 743 F.2d 984 (3d Cir. 1984), we

explained that:
the test for determining whether a civil proceeding is
related to bankruptcy is whether the outcome
of that proceeding could conceivably have any
effect on the estate being administered in
bankruptcy . . . . Thus, the proceeding need
not necessarily be against the debtor or
debtor’s property. An action is related to
bankruptcy if the outcome could alter the
debtor’s rights, liabilities, options, or
freedom of action (either positively or
negatively) and which in any way impacts upon
the handling and administration of the
bankrupt estate.

7
Id. at 994 (internal citations omitted; emphasis in original).

Pacor holds that the reach of “related to” jurisdiction

is very broad, extending to any action the outcome of which

“could conceivably have any effect on the estate being

administered in bankruptcy.” Id.; see also Donaldson v.

Bernstein, 104 F.3d 547, 552-53 (3d Cir. 1997). Based on the

broad reach of the term “related to,” we agree with the district

court’s determination that it had subject matter jurisdiction

over the employees’ action. In fact, Pacor specifically notes

that contractual indemnity claims can have an effect on a

bankruptcy estate and thus provide a basis for the exercise of

“related to” jurisdiction. 743 F.2d at 995; see also A.H. Robins

Co., Inc. v. Piccinin, 788 F.2d 994, 1001 (4th Cir.), cert.

denied, 479 U.S. 876 (1986).5

5. In an analogous context, the Sixth Circuit affirmed a stay
granted by a district court in derivative actions against a
bankrupt debtor corporation’s non-bankrupt directors. See In re
Eagle-Picher Indus., Inc., 963 F.2d 855, 857 (6th Cir. 1992).
The debtor corporation in Eagle-Picher had filed a Chapter 11
petition and availed itself of the automatic stay against
creditor actions. Id. There remained, however, actions against
two of the debtor corporation’s individual officers. Id.
Reasoning, in part, that the existence of absolute indemnity
agreements between the officers and the debtor corporation
created such an identity between the debtor and the individual
officers that allowing the suit to proceed against the officers
would, in effect, be allowing the suit to proceed against the
bankrupt debtor, the court affirmed the stay on the actions
against the non-bankrupt officers. Id. at 860-61; see also David
A. Skeel, Jr., Rethinking the Line Between Corporate Law and
Corporate Bankruptcy, 72 Tex. L. Rev. 471, 501 & n.128 (1994).
The rationale applied in Eagle-Picher was one first articulated
in A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999-1001 (4th
Cir.), cert. denied, 479 U.S. 876 (1986), that has since been
adopted by this Circuit. See McCartney v. Integra Nat’l Bank N.,
106 F.3d 506, 510-11 (3d Cir. 1997) (describing and applying the
Robins principle).

8
 The employees’ attacks on the district court’s

determination that there was subject matter jurisdiction are

misdirected. The employees’ first two arguments are that the

indemnification claims are barred since (1) the claims were

contingent and (2) timely proof of claim was not made. As the

district court pointed out, however, the question whether the

claims are barred is one for none other than the bankruptcy

court.

The employees’ third argument is that the Aloes’

indemnification claims represent a collusive attempt to

manufacture jurisdiction and are therefore barred under the

collusive joinder provision of 28 U.S.C. § 1359. This provision

states:
A district court shall not have jurisdiction of a civil
action in which any party, by assignment or
otherwise, has been improperly or collusively
made or joined to invoke the jurisdiction of
such court.

The district court pointed out that it was unclear

whether Section 1359 even applied to federal question cases,

i.e., non-diversity cases. But whether or not it applied, the

court held that the “collusive joinder” claim failed because it

was not supported by any evidence. We agree. The employees

state in conclusory fashion that the Aloes’ indemnity claim

against Shenango was pretextual and was asserted solely in order

to create federal jurisdiction. The only explanation the

employees give for their conclusion is that “Shenango has never

defended against [the Aloes’] third party claims for indemnity.”

But we do not see why Shenango should necessarily have defended

9
against the Aloes’ claims if the claims were valid -- as they

appear to be under Shenango’s by-laws. In sum, the employees

have failed to show error in the district court’s analysis of

subject matter jurisdiction. Cf. Sterling Nat’l Mortgage Co., v.

Mortgage Corner, Inc., 97 F.3d 39, 44 (3d Cir. 1996) (conclusory

allegations are not sufficient to survive summary judgment).

B. Removal

An issue not raised by the employees, but raised by us,

sua sponte, is whether, notwithstanding the existence of subject

matter jurisdiction, removal was proper under the general removal

provision, 28 U.S.C. § 1441(b). This provision states:
Any civil action of which the district courts have
original jurisdiction founded on a claim or
right arising under the Constitution,
treaties or laws of the United States shall
be removable without regard to the
citizenship or residence of the parties. Any
other such action shall be removable only if
none of the parties in interest properly
joined and served as defendants is a citizen
of the State in which such action is brought.

The Aloes, as defendants, do not contend that they are

citizens of a state other than the one in which the action was

brought, i.e., Pennsylvania. Accordingly, if 28 U.S.C. § 1441(b)

applies to this case6 removal was proper only if the action is

6. As previously noted, this action was removed, not under 28
U.S.C. § 1441, but under 28 U.S.C. § 1452, which specifically
authorizes the removal of most claims or actions over which the
district court has subject matter jurisdiction under 28 U.S.C. §
1334. In Pacor, we said that “sections 1441-1447 were never
meant to be read into the procedures for bankruptcy removals.”
743 F.2d at 992. However, in Things Remembered, Inc., v.
Petrarca, 116 S. Ct. 494, 497 (1995), the Supreme Court held that
the procedural requirements under 28 U.S.C. § 1447(d) apply to a
case that is removed under the special bankruptcy removal
provision, 28 U.S.C. § 1452, that the defendants utilized here.
See also Donaldson, 104 F.3d at 553 n.1. Consequently, if the

10
one that “aris[es] under” federal law within the meaning of that

provision.

Whether this is so is an interesting question. On the

one hand, the employees’ action plainly asserted a claim under

state law (namely, the Pennsylvania WPCL), and federal law

appears to have been implicated in the form of a defense to the

state law claim. Cf. Robert A. Ragazzo, Reconsidering the Artful

Pleading Doctrine, 44 Hastings L. J. 273, 275-76 (1993)

(defendant cannot create federal question jurisdiction by

pleading federal defenses to state claims alleged in state

court). On the other hand, if we are correct in holding that the

district court had subject matter jurisdiction under 28 U.S.C. §

1334(b) -- and we believe that binding precedent plainly dictates

that conclusion -- and if the jurisdictional grant set out in 28

U.S.C. § 1334(b) is based on the “arising under” jurisdiction of

Article III of the Constitution, it must follow that the

(..continued)
reasoning of Things Remembered applies to 28 U.S.C. § 1441(b), as
well as 28 U.S.C. § 1447(d), the former provision applies in this
case.

To read Sections 1452 and 1441(b) as working in conjunction
would provide plaintiffs in “related to,” but not “arising
under,” cases with greater control over the choice of forum than
defendants. Cf. Richard H. Fallon, Jr., Daniel J. Meltzer and
David L. Shapiro, The Federal Courts and the Federal System 1616
(1996) (noting, in the context of removal, that there are a
number of federal statutes under which defendants are denied the
choice of forum given to plaintiffs). Under such a system, a
state law claim that was “related to,” but not “arising under,” a
title 11 proceeding, could be brought by the plaintiff in a state
court of the state in which the defendant was a citizen, and
would not be removable, even though the case could have
originally been brought in federal court. See 28 U.S.C. §§
1441(b) & 1452.

11
employees’ action is one that arises under federal law for

constitutional purposes.

We need not, however, attempt to resolve the question

whether the removal in this case was improper under 28 U.S.C. §

1441(b). The issue of improper removal was not raised at the

time of the removal, and any claim was therefore waived. Where a

case could have been originally filed in federal court but there

is an irregularity in its removal from state court, that

irregularity is waivable. See Korea Exch. Bank v. Trackwise

Sales Corp., 66 F.3d 46, 50 (3d Cir. 1995). In other words,

since this cause of action could have been brought originally in

federal court, any defects in the removal of the case from state

court were “procedural,” as opposed to “jurisdictional,” and were

thus waivable. Id. As the Supreme Court said in Grubbs v.

General Elec. Credit Corp., 405 U.S. 699 (1972):
We have concluded that, whether or not the case was
properly removed, the District Court did have
jurisdiction of the parties at the time it
entered judgment. Under such circumstances
the validity of the removal procedure
followed may not be raised for the first time
on appeal.

Id. at 700; cf. Caterpillar Inc. v. Lewis, 117 S. Ct. 467, 475

(1996) (citing Grubb).

C. WPCL

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 post-

petition 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.

III.

The decision of the district court is affirmed.

19
GREENBERG, Circuit Judge, concurring and dissenting.

I respectfully dissent in part in this case which

is of enormous significance under bankruptcy law. As the

majority points out, Shenango Corporation in December 1992 filed

a voluntary petition for relief under Chapter 11 of the

Bankruptcy Code. A group of Shenango's former employees sought

to recover specific sums of money for vacation and supplemental

retirement benefits earned before the petition was filed but due

in the post-petition period in an action under the Pennsylvania

Wage Payment and Collection Law ("WPCL"), Pa. Stat. Ann. tit. 43,

§ 260.1, et seq. (West 1992). The employees brought the action

against Mark and Andrew Aloe, officers of Shenango, in a

Pennsylvania state court, but the Aloes removed the case to the

district court which then referred it to the bankruptcy court.

The Aloes then filed a third-party complaint against Shenango

predicated on an indemnification agreement. The bankruptcy court

granted the Aloes and Shenango summary judgment against the

employees' claims, and the district court affirmed. The

employees then appealed to this court.

The majority makes a comprehensive analysis

upholding the bankruptcy court's exercise of subject matter

jurisdiction, and I join this portion of its opinion. The

majority then defines the "substantive issue" as "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

filed for bankruptcy." Typescript at 13. The majority points

20
out that employers must pay "fringe benefits and wage

supplements," "as required" by the WPCL, and that employees may

institute actions to collect such items if they are "payable."

Id. at 14. The majority recognizes that the top management of a

company can be liable under the WPCL but characterizes their

liability as being "contingent on the corporation's failure to

pay debts that it owes." Id. at 14. It then indicates that once

the corporation files a petition under Chapter 11, "it is

obligated to pay wages and benefits only to the extent required

by the bankruptcy workout." Id. The majority then concludes

that the bankruptcy and district courts reached the correct

result because "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." Id. at 15.

The majority contends that its result is

consistent with the goals underlying the WPCL. It reasons that

Pennsylvania law holds agents and officers liable "to give [them]

an incentive to pay wages and benefits while the corporation

still has the resources to do so," typescript at 15, citing

Mohney v. McClure, 568 A.2d 682, 685 (Pa. Super. Ct. 1990), aff'd
per curiam, 604 A.2d 1021 (Pa. 1992). It then concludes that

"[g]iven 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 apply in

only those contexts in which the managers have room to behave

strategically." Typescript at 16. The majority supports this

21
conclusion by citing Mohney v. McClure and Central Pa. Teamsters

Pension Fund v. Burten, 634 F. Supp. 128, 131 (E.D. Pa. 1986),

for the proposition that only decision makers in the corporation

can be liable under the WPCL.

According to the majority, the logic of Mohney

applies here because "[o]nce Shenango filed for bankruptcy . . .

management no longer had the power to choose not to use [its]

funds to pay wages [because] bankruptcy law compelled it to

refrain from paying the employees' claims." Typescript at 17.

It thus concludes that "the WPCL did not come into play." Id. at

18.

I reject the foregoing analysis. Under the WPCL,

the definition of employer encompasses "every person, firm,

partnership, association, corporation, receiver or other officer

of a court of this Commonwealth and any agent or officer of any

of the above-mentioned classes employing any person in this

Commonwealth." Pa. Stat. Ann. tit. 43, § 260.2a. For clarity,

in applying this definition throughout this opinion I distinguish

"statutory employer(s)" from "conventional employer(s)." Under

the facts of this case, the corporation, Shenango, was the

employer in the conventional sense; that is, the employer who

actually paid wages and benefits to the employees (when such

payments were made). Under the WPCL, however, both a corporation

and its agents and officers are deemed "employers"; I call the

agents and officers "statutory employers."

For purposes of these proceedings, there is no

doubt but that the Aloes are agents or officers of Shenango and

22
are thus the employees' statutory employers. In fact, the

bankruptcy court said as much for it indicated that "[a]bsent

bankruptcy, the Aloes, in their positions as officers of

Shenango, would have been liable for claimed amounts pursuant to"

the WPCL. Indeed, the majority does not suggest otherwise.

Thus, in analyzing this case we undoubtedly must start from the

premise that had there been no bankruptcy and Shenango had not

made the payments, the Aloes would be liable under state law;

again the majority does not suggest otherwise.

The majority characterizes agents' and officers'

liability as a "contingent" liability which comes into play when

the corporation does not make the payments it owes. I do not

believe that the majority uses the term "contingent" in a

technical or legal sense for the WPCL requires that "[e]very

employer . . . must remit the deductions or pay or provide the

fringe benefits or wage supplements" as required by the WPCL. Id

§ 260.3(b). Inasmuch as the Aloes are employers, their

responsibility under the WPCL was as primary as that of Shenango.

Yet, as a practical matter, I have no quarrel with the

characterization of their liability as "contingent"; undoubtedly

in the ordinary situation, the corporation, or conventional

employer, pays the benefits; the liability of its agents or

officers as statutory employers is significant only when the

conventional employer does not make those payments.

But whether we characterize the Aloes' liability

as contingent or primary makes no difference. There cannot be

the slightest doubt but that the legislature contemplated that if

23
the corporate employer, i.e., the conventional employer, did not

make the payments required under the WPCL, then the decision-

making agents and officers as statutory employers would be liable

for them. This liability cannot be avoided by the majority's

conclusion that the agents and officers should not be liable

because the corporation lawfully could not make the payments.

Nothing in the WPCL even remotely can be read to excuse the

agents and officers as statutory employers, in this case the

Aloes, from liability merely because the conventional employer,

in this case, Shenango, cannot make the payments. Nor does the

WPCL distinguish a corporation's inability to make payments by

reason of operation of law from its inability to make payments

because it does not have the money to do so.

In fact, whether an agent's or officer's liability

is viewed as primary or contingent, when the corporation as the

conventional employer does not make the payments required by the

WPCL, the parties confront the exact circumstance in which the

legislature contemplated that the employees could hold the agents

or officers as statutory employers liable. Nothing could be

clearer for, as we explained in Carpenters Health and Welfare

Fund v. Kenneth R. Ambrose, Inc., 727 F.2d 279, 282 (3d Cir.

1983) (internal quotation marks omitted), "the [legislature's]

only apparent purpose [for defining an agent or officer as an

employer] was to subject these persons to liability in the event

that a corporation or similar entity failed to make wage

payments." I cannot join an opinion which excuses the agents and

officers from liability at the exact time when it is important

24
that they be liable because the legislature cannot possibly have

intended such a result.

I also point out that a decision-making agent's or

officer's liability for payments due under the WPCL is not

dependent on a showing of his or her culpability or scienter. As

the Pennsylvania Superior Court explained in Laborers Combined

Funds v. Mattei, 518 A.2d 1296, 1300-01 (Pa. Super. Ct. 1986)

(emphasis in original), "[o]f those courts which have had

occasion to rule on the personal liability of corporate officers

in the face of a corporation's failure to make its required

contributions to various union funds, as provided for in their

collective bargaining agreement, all have, without exception,

held the officer(s) of the corporation personally liable, and

they did so without reference to any proof of culpability or

scienter as a sine qua non to establishing a contravention of the

Act in a civil suit." So there you have it. If, as seems to be

the case, the Aloes were the decision makers, they are liable for

the amounts due under the WPCL and the case should be remanded to

the bankruptcy court for further proceedings.

I respectfully suggest that the majority's

contrary points are unavailing. It points out that the

imposition of agent or officer liability seeks to deter the

corporate agents and officers from diverting to another purpose

"funds that are meant to go towards paying wages and benefits."

Typescript at 16. I certainly agree with that proposition, yet

the fact that an agent or officer who diverts funds may be liable

under the WPCL does not mean that an agent or officer cannot be

25
liable without diverting funds. Laborers Combined Funds makes

this point clear for in that case even though a bookkeeper

embezzled the money that should have been used to satisfy the

obligations under the WPCL, the officers were liable because

their liability was not dependent on their "culpability or

scienter." We should consider, too, the case of a corporation

which never generated income, i.e., a new business, but which

incurred obligations under the WPCL. In that case there would be

no funds to divert, yet surely the decision-making agents or

officers would be liable.

The bottom line on the diversion theory is this:

there is nothing in the WPCL itself or in the case law to support

a conclusion that an agent or officer can be liable only if he or

she diverts funds that should have been applied to obligations

due under the WPCL. The WPCL is not a trust fund statute

imposing liability only when the agent or officer has misapplied

the res, and thus it should not be treated as a trust fund

statute. Yet by predicating liability on the diversion theory,

the majority treats the WPCL as a trust fund statute. In fact,

the WPCL establishes employers' liability without regard for

trust fund concepts and, as we must on this appeal treat the

Aloes as employers, they are potentially liable and were not

entitled to summary judgment.

The majority contends that inasmuch as 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 apply in only those contexts in which

26
the managers have room to behave strategically." Typescript at

16-17. Here Shenango's bankruptcy deprived them of that room.

Yet the cases the majority cites on the point do not support its

conclusion in this case for they merely establish that corporate

agents who are not corporate decision makers are not liable under

the WPCL because they are not statutory employers. See Mohney,

568 A.2d 682, and Central Pa. Teamsters Pension Fund, 634 F.

Supp. 128. The immunity of the officers in those cases stemmed

from the circumstance that they were not decision makers in the

corporation, not from their failure or inability to have

exercised control over the "decision" not to make the required

payments. These cases are not relevant to the issue at hand

which is whether an agent or officer who is a statutory employer,

and who by reason of a bankruptcy loses his or her freedom to

apply the corporate assets strategically, nevertheless remains

liable under the WPCL.

At the outset of this dissent, I said that this

case is of enormous significance to bankruptcy law. I will now

explain why. The principles involved in this case are applicable

in any case in which a person has guaranteed a debt of a bankrupt

corporation. (I use the term "guaranteed" broadly to include co-

obligors, endorsers, and guarantors in situations in which, as

between the debtors, the obligation to pay is primarily on the

bankrupt.) The majority seeks to distinguish this case "from an

ordinary third-party guaranty of a debt," typescript at 18 n.7,

and indicates that it intends to predicate its opinion solely on

an interpretation of the Pennsylvania law as set forth in the

27
WPCL. Thus, it believes that this case should not have

implications in other contexts.

I believe, however, that this case is not

distinguishable from a case involving an ordinary guaranty. The

majority says that the liability of agents and officers under the

WPCL "is not automatic," but rather accrues only when the

officers exercise decision-making authority with respect to the

challenged nonpayment. Transcript at 18 n.7. However, for

statutory employers the liability arises by operation of law, and

thus to that extent it is indeed automatic. Liability under the

WPCL is not dependent on the circumstances surrounding or the

causes of the nonpayment, whether external to or intrinsic within

the statutory employers. Thus, just like an ordinary guaranty,

the liability of agents and officers under the WPCL is

"automatic." Furthermore, in the case of an ordinary guaranty,

just as here, the creditors call on the guarantor to pay because

the corporation cannot.

The majority's attempt to limit this case to an

application of the WPCL fails for the additional reason that

there is not even a hint in that Act that the liability of a

statutory employer is affected by the bankruptcy of the corporate

or conventional employer. If a court can create a bankruptcy

exception to the statutory employers' liability here, persons who

have made other types of guarantees will seek similar relief.

Accordingly, this case opens a door which will be hard to close.

But even if somehow the impact of this case could be limited to

situations under the WPCL, I nevertheless think that the majority

28
is reaching the wrong result in this case which in itself is of

great importance.

I close with one final point. The majority

apparently believes that practical considerations require it to

reach its result. It points out that "[c]orporate bankruptcies

are not unusual events" and that corporations in Chapter 11

proceedings are stayed from paying prepetition debts. It thus

indicates that an application of the WPCL in a situation such as

this may result in imposition of "staggering personal liability"

on corporate officers, thereby creating an incentive for

corporations to avoid locating in Pennsylvania. Typescript at

18-19 n.8. The problem with this point is that we are judges,

not legislators, and it is beyond our power to rewrite the WPCL

so as to create a bankruptcy exception in favor of statutory

employers merely because we believe that it would be good for

business to do so.

The majority does not point to a bankruptcy

exception in the WPCL to support its conclusion that the

"staggering personal liability" should not be imposed for the

very good reason that the WPCL does not include any such

provision. Rather, the WPCL imposes liability on statutory

employers without exception under the WPCL. Thus, even under the

majority's view that its result is consistent with the policy of

the WPCL, which I reject, the majority should not read a

bankruptcy exception into that act. Rather, it should heed the

point we made so recently in In re Barshak, 106 F.3d 501, 506 (3d
Cir. 1997), that we "are not free to ignore the clear language of

29
a Pennsylvania statute merely because by rewriting the statute we

arguably would act consistently with a legislative policy."

In fact, the majority's creation of a

bankruptcy exception in the WPCL has frustrated the purpose of

the Act because relegating the employees to a remedy against the

corporate employer means that they can recover only as provided

in a plan of reorganization or, as I explain below, not recover

at all. This relegation almost surely will mean that the

employees will not receive the payments due under the WPCL.

Thus, I cannot understand why the majority suggests that this

case merely involves a situation where the corporation is

"temporarily stayed, by operation of the Bankruptcy Code,"

typescript at 18-19 n.8, from paying the employees' claims. In

fact, the employees' claims against Shenango largely have been

discharged. Shenango itself makes this point clear for it

explains in its brief that "the Former Employees hold allowed

unsecured claims against Shenango's estate and pursuant to the

Plan the claims were discharged except to the extent that they

will receive pro rata payments under the confirmed Plan of

reorganization in satisfaction of the Wage Claims." Br. at 3.

I also point out that there is no principled way

to distinguish between large corporations in which claims against

the statutory employers could be "staggering" and small one-

person corporations. Thus, according to the logic of the

majority opinion, if a small corporation owned and operated by a

single person receives a discharge under Chapter 7 of the

Bankruptcy Code, even if, as is likely, the owner is a statutory

30
employer under the WPCL and is not in bankruptcy personally, he

or she will be discharged from liability under the WPCL. After

all, the Bankruptcy Code restrains a corporation being liquidated

under Chapter 7 from using its funds as it sees fit just as its

restrains a corporation reorganizing under Chapter 11 in its use

of its funds. In such a case under Chapter 7 the employees may

receive nothing on their WPCL claims even though the statutory

employer has substantial assets. I cannot conceive that the

legislature intended such a result.

For the foregoing reasons, I respectfully concur

in part and dissent in part.

31