YOU CANNOT DISCHARGE UNPAID WAGES IN BANKRUPTCY AS THIS ONE EMPLOYER HAD DISCOVERED

MORTGAGE BROKER EMPLOYER (AT LEAST IN CALIFORNIA) CANNOT DISCHARGE UNPAID WAGES IN BANKRUPTCY IF THE FAILURE TO PAY IS WILLFUL

 FACTS

 From June 1981 to January 1983, Petralia was employed by George Jercich, Inc., a real estate company wholly owned and operated by debtor Jercich. The company performed mortgage broker services, and Petralia's primary duty was to obtain investors to fund loans arranged by Jercich. Pursuant to an employment agreement between Petralia and Jercich, Petralia was to be paid a salary plus a commission for loans which were funded through his efforts. The commissions were to be paid on a monthly basis.

Jercich failed to pay Petralia his commissions as required under the employment agreement. Petralia quit his employment with Jercich in January 1983 and in February 1983 filed an action against Jercich in California state court. In this action, Petralia sought to recover unpaid wages, "waiting time penalties" (penalties imposed on employers under California law for failure to timely pay employees), and punitive damages.

After a bench trial, the state court granted judgment in favor of Petralia. The court found that Jercich had not paid Petralia commissions and vacation pay as required under the employment contract; that "Jercich had the clear ability to make these payments to Petralia, but chose not to"; that instead of paying Petralia and other employees the money owed to them, "Jercich utilized the funds from his company to pay for a wide variety of personal investments, including a horse ranch"; and that Jercich's behavior was willful and amounted to oppression within the meaning of Cal. Civ. Code Section 3294. The state court held, (1) that Petralia was entitled to his unpaid wages; (2) that Jercich owed Petralia waiting time penalties; and (3) that BECAUSE JERCICH'S FAILURE TO PAY WAS WILLFUL AND DELIBERATE AND "CONSTITUTED SUBSTANTIAL OPPRESSION," PUNITIVE DAMAGES WOULD BE ASSESSED AGAINST JERCICH IN THE AMOUNT OF $ 20,000.00. The state trial court's judgment against Jercich was affirmed by the California Court of Appeal in May 1986.

 While the appeal of the state trial court judgment was pending, Jercich filed a Chapter 7 bankruptcy petition. In November 1986, after the state trial court judgment had been affirmed on appeal, Petralia initiated the an adversary proceeding seeking to have the state court judgment excepted from discharge under 11 U.S.C. § 523(a)(6). This would allow Petralia to collect on the judgment even though Jercich had filed bankruptcy.  The bankruptcy court and the bankruptcy appellate panel said the debt was discharged.  The employee appealed.

The 9^th Circuit of the U.S. Court of Appeals said . . .

Reversed.  Wages owed were excepted from discharge. Under the circumstances, the failure to pay the wages was tortious, and the injury resulting therefrom was willful and malicious.  (Petralia v. Jercich, 238 F.3d 1202 (2001)

 MORAL

Now you might say why bring up a case that is 9 years old.  Well, with the state of the economy and people not being paid, it is wise to know that the employer, no matter who he is, can be sued and possibly be personally liable even though the employee is an employee of the corporation as was the case here.  Do you own a corporation?  Are you the sole owner?  Do you have employees?  Before you abandon the corporation are they all paid current?  Was there money available to pay them current?  Did you use company money to pay your own personal bills before paying the employees?  Wrong answers can engender personal liability that is not dischargeable in bankruptcy.

BY THE WAY, THIS APPLIES TO ALL EMPLOYERS, NOT JUST MORTGAGE BROKERS!