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Belcufine v. Aloe

April 28, 1997

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)

Before: GREENBERG, ALITO, and ROTH, Circuit Judges:

ALITO, Circuit Judge

Argued: November 26, 1996

Opinion Filed: April 28, 1997

OPINION OF THE COURT

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 of the Bankruptcy Code bars the payment of pre-petition claims by the company. See 11 U.S.C. Section(s) 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. Section(s) 260.1 et seq. The employees' complaint asserted that Mark and Andrew Aloe, as officers of Shenango *fn1or 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 provides for penalties to be imposed for non-compliance. See 43 Pa.C.S.A. Section(s) 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. Section(s) 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. Section(s) 260.9a, the WPCL also provides for criminal penalties, see 43 Pa.C.S.A. Section(s) 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.

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. Section(s) 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. Section(s) 1334. *fn2s 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. *fn3 We affirm.

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. Section(s) 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. Section(s) 1334(b) *fn4ave 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 ...


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