In re Johnston, Bankruptcy No. 81-988

• Decision Date: 29 October 1982
• Docket Number: 81-2010 and 81-2012.,81-1635 and 81-990,Adv. No. 81-2011,Bankruptcy No. 81-988
• Parties: In re Harold S. JOHNSTON, Jr., and Nancy E. Johnston, James J. Santelli and Marie Santelli, Maynard C. Coward and Margaret E. Coward, Debtors. Peter J. LIVOLSI, et al., Plaintiffs, v. Harold S. JOHNSTON, Jr., James J. Santelli, and Maynard C. Coward, Defendants.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania

24 B.R. 685 (1982)

In re Harold S. JOHNSTON, Jr., and Nancy E. Johnston, James J. Santelli and Marie Santelli, Maynard C. Coward and Margaret E. Coward, Debtors.

Peter J. LIVOLSI, et al., Plaintiffs, v. Harold S. JOHNSTON, Jr., James J. Santelli, and Maynard C. Coward, Defendants.

Bankruptcy Nos. 81-988, 81-1635 and 81-990, Adv. Nos. 81-2011, 81-2010 and 81-2012.

United States Bankruptcy Court, W.D. Pennsylvania.

October 29, 1982.

Joel M. Helmrich, Pittsburgh, Pa., for Union.

F. Scott Gray, Pittsburgh, Pa., for Coward and Johnston.

Christopher M. Beck, Pittsburgh, Pa., for Santelli.

MEMORANDUM OPINION

JOSEPH L. COSETTI, Bankruptcy Judge.

In these adversary proceedings, the Plaintiffs are asserting that certain debts of the Debtors are not dischargeable because they arise from defalcation while the Debtors were acting in a fiduciary capacity.

STATEMENT OF THE FACTS

The Debtors, James J. Santelli, Harold S. Johnston and Maynard C. Coward, were all officers of a debtor corporation known as Mideastern Fabricators and Erectors, Inc. (the "Corporation"). The Corporation filed for bankruptcy under Chapter 11 on April 14, 1981. Santelli, Johnston and Coward filed their individual petitions in bankruptcy on June 24, 1981, April 14, 1981 and April 14, 1981 respectively. The testimony revealed that certain payments due to the Plaintiffs pursuant to a collective bargaining agreement had not been made. These included payments for dues and payments for fringe benefits, which included payments for health insurance and pension. The principal amount due by the Corporation at the time of trial was $17,353.91. Of this amount, the amount owed for union dues was $2,703.26.

The testimony by Johnston revealed that all the officers were aware of these obligations, although only Santelli had signed the collective bargaining agreement. Further, none of the officers was aware of the agreements of trust for the pension fund and the welfare fund that had been incorporated in the collective bargaining agreement. Johnston testified that the payments received on each job on which the Corporation did work were placed in a general corporate fund. These general fund monies were transferred to a Payroll Account in another bank to pay the wages of individual union members. Johnston related that the pay stubs of the individual workers recited that dues had been deducted from the paychecks prior to payment. On examination the Plaintiffs attempted to have Johnston admit that this money was withheld and used for a purpose other than paying union dues. Johnston, however, stated that this money may or may not ever have existed in the general corporate account. He also stated that the first job in which the company engaged was bid as a non-union job and that there was no prior allocating of payments for the union. He admitted that a shortage developed when payments to the union had to be made. There was testimony that the payments to the welfare and pension funds were to be contributions from the company and were not items deductible from a union member's individual wages. Johnston also admitted that payments were made to materialmen, suppliers and others at this time. The Corporation also did not pay a large amount of withholding tax due the Internal Revenue Service.

There was testimony that Santelli had left the company in September of 1980, some six months before the filing of the bankruptcy.

DISCUSSION

Section 523(a)(4) of the Bankruptcy Code states:

(a) a Discharge under 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt —

(4) for fraud or defalcation while acting in a fiduciary capacity ...;

The Plaintiffs in this case allege that the debts owed by the Debtors herein should be declared nondischargeable pursuant to this provision.

Plaintiffs rely on a statute of the Commonwealth of Pennsylvania to establish the individual liability of these corporate officers and to further hold them to be fiduciaries for the payments due the union under the collective bargaining agreement. The Pennsylvania Wage Payment and Collection Law, 43 P.S. § 260.3(b) (1981), states:

(b) Fringe benefits and wage supplements. Every employer who by agreement deducts union dues from employee\'s pay or agrees to pay or provide fringe benefits or wage supplements, must remit the deduction 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 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 proper claim was filed by the employee in situations where no required time for payment is specified.

Plaintiffs state that this section is applicable to these Debtors, as officers of the corporation by virtue of Section 260.2a of this statute (43 P.S. § 260.2a (1981), which defines employer as follows:

"Employer". Includes every person, firm, partnership association, corporation, receiver or other officer of any of the above mentioned classes employing any person in this Commonwealth.

Plaintiffs cite three cases in Pennsylvania that have held there is a personal liability for corporate officers pursuant to this statute. See Carpenter's Health and Welfare Fund of Philadelphia and Vicinity v. Kenneth B. Ambrose, Inc., C.A. 79-1224...