People v. Art Steel Co., Inc.

• Citation: 133 Misc.2d 1001,509 N.Y.S.2d 715
• Decision Date: 25 November 1986
• Docket Number: AR-9
• Parties: The PEOPLE of the State of New York on the Information of Charles Desiervo v. ART STEEL COMPANY, INC., Debtor-in-Possession, Alexander Burger and Irwin Goldfeder, Defendants
• Court: New York City Court

Page 715

509 N.Y.S.2d 715

133 Misc.2d 1001

The PEOPLE of the State of New York on the Information of Charles Desiervo v. ART STEEL COMPANY, INC., Debtor-in-Possession, Alexander Burger and Irwin Goldfeder, Defendants.

Criminal Court of the City of New York,

Bronx County,

Part AR-9.

Nov. 25, 1986.

Robert Abrams, Atty. Gen. (Frank J. Tinghino, of counsel), New York State Dept. of Law, Labor Bureau, New York City, for the People.

Joan E. Rothermel, Seham, Klein & Zelman, New York City, for defendants.

HARVEY M. SKLAVER, Judge.

Defendants Alexander Burger and Irwin Goldfeder are charged with having violated section 198-c of the Labor Law, in that Art Steel Company, Inc. ("Art Steel"), a corporation in which they were officers, willfully failed to pay supplemental wage benefits. ¹ They now move to dismiss the information pursuant to (i) C.P.L. 170.30(1)(a) on the grounds that the information is defective under 170.35(1)(a) and 170.35(1)(c) and (ii) C.P.L. 170.40 in furtherance of justice.

Before enumerating the issues raised it will be helpful to set forth the facts, all of which are essentially undisputed. ²

During the period relevant to this proceeding Art Steel and its employees operated under a collective bargaining agreement which ran from November 6, 1980, to November 5, 1983, and which was extended for one year on November 23, 1983. The agreement provided for the payment of vacation benefits pursuant to a schedule set forth therein. Employees who worked at least 1752 hours during the year ³ were entitled to the full yearly benefits while those who did not were entitled to half-benefits if they worked at least 876 hours. It appears that on March 11, 1982, Art Steel filed a voluntary petition for arrangement under Chapter 11 of the Bankruptcy Code and that it continued its operations as debtor-in-possession. It further appears that on February 27, 1984, an order was entered converting the Chapter 11 to a Chapter 7 proceeding and a trustee was appointed to liquidate the business. On that date the trustee terminated the employment of all employees, including Messrs. Burger and Goldfeder.

This criminal proceeding followed since vacation benefits for the 1984 year had not been paid. ⁴

Defendant assign several grounds upon which the proceeding ought to be dismissed: (1) The information is defective in that neither it, nor the supporting depositions, contains non-hearsay allegations from which the court can conclude that the defendant committed any offense; (2) as to the 61 employees who were discharged by the trustee, the defendants were not in control of Art Steel 30 days after the vacation benefits became due, i.e. the date of termination; (3) as to the 15 employees who were discharged prior to the conversion to Chapter 7 proceedings, under the Bankruptcy Code the defendants could not pay those benefits without a Court order held after a hearing at which the Creditor's Committee would be heard, that argument being based on the federal preemption doctrine; ⁵ (4) this criminal proceeding may not be brought because the National Labor Relations Act (29 U.S.C. § 141 et seq.) preempts the field; (5) this proceeding may not be brought because the Employee Retirement Income Security Act, "ERISA", (29 U.S.C. § 1001 et seq.) preempts the field; and, (6) the defendants urge that the proceeding should be dismissed in furtherance of justice.

Section 198-c of the Labor Law provides that

"... any employer who is party to an agreement to pay ... wage supplements to employees ... and who fails ... furnish such supplements within thirty days after such payments are required to be made, shall be guilty of a misdemeanor ... Where such employer is a corporation, the president, secretary, treasurer or officers exercising corresponding functions shall each be guilty of a misdemeanor."

The parties do not dispute that vacation pay falls within section 198-c.

I.

The general rule is that penal statutes are to be strictly construed, McKinney's Statutes, § 271, subd. a. The more relaxed rule of construction found in section 5.00 of the Penal Law is limited to crimes enumerated in that chapter of the consolidated laws and has no application to construction of other penal statutes of the State, McKinney's, Statutes, § 276, People v. Thomas, 71 Misc. 339, 130 N.Y.S. 246; People v. Sansanese, 17 N.Y.2d 302, 270 N.Y.S.2d 607, 217 N.E.2d 660. More directly in point, it has been held that the predecessor to section 198-a of the Labor Law (which imposes criminal sanctions for failure to pay direct wages) was to be strictly construed, People v. Louis Meyers & Son, Inc., 23 A.D.2d 942, 260 N.Y.S.2d 68.

As to the 61 employees who were discharged by the bankruptcy trustee on February 27, 1984, there is no dispute that the defendants were not officers of Art Steel at the time of discharge nor on the thirtieth day after the appointment of the bankruptcy trustee on that date. Consequently, the defendants do not fall within the scope of section 198-c as to those employees. This case is unlike People v. Doundoulakis, 38 Misc.2d 984, 239 N.Y.S.2d 452, in which amounts of money had already remained due and unpaid for more than thirty days at the time that the defendant was superseded as president of the corporation.

In the immediately preceeding paragraph this court proceeded from the premise, as asserted by the People, that vacation benefits became due on February 27th, the day employment was terminated. However, with respect to the 15 persons whose employment terminated prior to February 27th it becomes necessary to test that assumption. In Ross v. Specialty Insulation Mfg. Co. Inc., 71 A.D.2d 766, 419 N.Y.S.2d 311, and Glenville Gage Co., Inc. v. Industrial Bd. of Appeals, etc., 70 A.D.2d 283, 421 N.Y.S.2d 408, aff'd 52 N.Y.2d 777, 436 N.Y.S.2d 621, 417 N.E.2d 1009, section 198-c was construed to require only that the employer abide by the terms of its agreement to provide benefits. In both of those cases the agreements required that the employee be in service at the time that vacation benefits were required to be paid. The Court held that there could be no pro-ration of benefits for employees who were not in service on the agreed payment date, determining, in effect, that the agreement is to be strictly construed according to its provisions.

In the present case the agreement does provide for pro-rata benefits (Article VI, section 1, subdivision G) but with respect to the time of payment of these benefits the agreement is silent. Subdivision D, which is the only provision relating to the time of payment, provides:

"The vacation shutdown shall be designated by employer at least eight (8) weeks prior to the time it is scheduled to begin, and vacation monies shall be paid on the pay day immediately preceeding the beginning of the vacation. Vacation can be given at anytime after June 15th of each calendar year ..." [Emphasis added].

The second paragraph of subdivision G, which calls for pro-rated vacation benefits to those not in service on June 15th, provides that those employees "shall be entitled to vacation monies on a pro-rated basis in accordance with this Article VI". Therefore, since subdivision D is the only provision relating to the time of payment and it calls for payment on the pay day preceding the vacation shutdown, the court concludes that vacation pay was not due on the various dates that the employees were discharged. Even if, by reasons of the conversion of the Chapter 11 proceeding to the Chapter 7 proceeding, the vacation period be deemed to have started upon the conversion, so that vacation benefits were due at the time, the result must be the same since the defendants were not officers when the payments were due nor on the 30th day thereafter so as to render them liable under section 198-c of the Labor Law since, according to People v. Louis Meyers & Son, Inc., supra, the section must be strictly construed.

Thus by reason of the unique facts in this case section 198-c is not applicable.

II.

Another ground for dismissal is that application of section 198-c in this case is preempted by ERISA, 29 U.S.C. § 1144.

A. We may begin with a recognition of Gilbert v. Burlington Industries, Inc., 765 F.2d 320 (2nd Cir.), aff'd, --- U.S. ----, 106 S.Ct. 3267, 91 L.Ed.2d 558, and this court's belief that Gilbert did not resolve all the ERISA issues applicable to this case. Gilbert held that severance pay due to employees under a collective bargaining agreement falls within the definition of "employee welfare benefit plan" (29 U.S.C. § 1002(1)) and that ERISA preempts section 198-c of the Labor Law. ⁶ In the instant case the People urge that despite Gilbert ERISA does not apply to vacation pay, citing California Hospital Association v. Henning, 770 F.2d 856 (9th Cir.), cert. den., 477 U.S. 904, 106 S.Ct. 3273, 91 L.Ed.2d 564. That latter case specifically dealt with vacation payment plans. The District Court held the California statute preempted. The U.S. Court of Appeals reversed and held that ERISA does not apply to unfunded vacation pay plans since a regulation of the U.S. Department of Labor (29 C.F.R. 2510.3-1(b)(3)) excludes them. The People urge that the Supreme Court's denial of certiorari lays the issue to rest. This court disagrees since a denial of certiorari is not a determination of the merits and no inference is to be drawn as to how the Supreme Court would have held had it granted certiorari, Maryland v. Baltimore Radio Show, Inc., 338 U.S. 912, 919, 70 S.Ct. 252, 255, 94 L.Ed. 562 (1950). ⁷ Accordingly, this court is not bound by the U.S. Court of Appeals decision in California Hospital Associates and must make its own determination of the issue.

In California Hospital Associates the District Court had held the Department of Labor Regulation to be invalid as being contrary to the express language of 29 U.S.C. § 1002(1) which states:

"The terms 'employee welfare benefit plan' and 'welfare plan' mean any...