                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-24-2004

Walsh v. Alarm Security Grp
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-1514




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                                                              NOT PRECEDENTIAL

                     UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT

                                   No. 03-1514

                             RAYMOND J. WALSH,

                                               Appellant
                                          v.

                      ALARM SECURITY GROUP, INC.,
                   ROBERT GAUCHER, DONALD M. YOUNG


                    Appeal from the United States District Court
                      for the Eastern District of Pennsylvania
                          (Civil Action No. 01-CV-00287)
                        District Judge: Hon. J. Curtis Joyner

                            Argued: November 4, 2003

                Before: McKEE, SMITH, and WEIS, Circuit Judges.

ROBERT W. SMALL, ESQ.
Berlinger & Small
1494 Old York Road
Suite 200
Abington, PA 19001
Attorney for Appellant

JEFFREY P. LEWIS, ESQ
McKissock & Hoffman, P.C.
1035 East Evans Street
P.O. Box 3086
West Chester, PA 19381
Attorney for Appellees Robert Gaucher and Donald Young
                               OPINION OF THE COURT

McKEE, Circuit Judge.

       Raymond Walsh appeals the district court’s dismissal of his complaint against

defendants Robert Gaucher and Donald Young individually on his claims for breach of

contract, fraud and back pay under the Pennsylvania Wage Payment and Collection Law.

For the reasons that follow, we will reverse and remand to the district court for further

proceedings consistent with this opinion.

                                             I.

       Alarm Security Group (“ASG”) sold alarm systems and alarm monitoring services.

At all times relevant to this suit, Robert Gaucher was ASG’s president and chief

executive officer, and Donald Young was ASG’s chief operating officer. In July 1999,

ASG planned to open a branch office in the Philadelphia area sometime in 2000.

However, that plan was contingent upon ASG acquiring sufficient business in the area to

warrant opening and maintaining a branch office. In August 1999, Gaucher instructed

Young to have a branch manager for ASG’s Philadelphia branch office in place by

January 2000. ASG had already offered the branch manager position to two people, but

they had both turned the offer down because it was conditioned upon the uncertainty of

ASG acquiring a certain amount of business in the Philadelphia area.1 In October 1999



   1
    ASG’s business strategy was to acquire existing alarm companies. ASG would then
open a branch office in a given area once ASG’s volume in that area was sufficiently high
to warrant opening and maintaining a branch office there.

                                             2
Gaucher and Young contacted Walsh. After an interview, Walsh accepted Young’s offer

to head the Philadelphia office that ASG was purportedly planning to open. Thereafter,

Young sent Walsh a letter confirming Walsh’s acceptance of ASG’s offer as well as the

financial terms of Walsh’s employment and a start date of January 1, 2000. Walsh also

signed an employment agreement detailing the terms of his employment with ASG

including his salary.

       In early January 2000, after selling his home in California, leaving his job there,

and relocating to Philadelphia with his family, Walsh reported to work at ASG. He was

then informed for the first time that the office he was to head had not yet opened, and his

starting date had been postponed. ASG subsequently postponed Walsh’s start date again

until finally informing him in July 2000 that it never acquired sufficient business to open

the office he was to head.

       Walsh thereafter filed suit against ASG as well as Gaucher and Young asserting

causes of action based upon breach of contract, fraud, promissory estoppel, and

Pennsylvania’s Wage Payment and Collection Law (“WPCL”). The district court granted

summary judgment dismissing all claims against Gaucher and Young individually as well

as the claims premised upon promissory estoppel and negligent employment against ASG.

In doing so, the court explained:

              Given that there is absolutely no evidence whatsoever on this
              record that the individual defendants Donald Young and
              Robert Gaucher acted in their individual capacities at any time
              relevant to the plaintiff’s cause of action here, we shall grant

                                             3
              summary judgment in their favor with respect to the claims
              against them individually.

Walsh v. Alarm Security Group, Inc., 230 F. Supp. 2d 623, 629 n.2 (E.D. Pa. 2002).

       Following the ensuing bench trial, the court entered judgment in favor of Walsh

and against ASG in the amount of $796,890.2 This appeal followed.

                                              II.

                                 A. Summary Judgment3

       As noted above, the district court granted summary judgment in favor of Gaucher

and Young dismissing all claims against them in their individual capacities. Walsh

argues that this was error because Pennsylvania law allows for personal liability against

corporate officers for fraud committed in their corporate capacity, and for unpaid wages.

                                      1. Fraud claim

       We agree that the district court erred in dismissing Walsh’s claims against Young

and Gaucher individually. Under Pennsylvania law, corporate officers may be personally

liable for tortious acts, such as fraud, even when those acts are committed within the

scope of their employment. In Donsco Inc. v. Casper Corp., 587 F.2d 602, 606 (3d Cir.

1978), we stated that under Pennsylvania law:

              [a] corporate officer is individually liable for the torts he


   2
  ASG failed to appear at the bench trial on the remaining breach of contract, fraud and
WPCL claims.
   3
    We exercise plenary review over the court’s summary judgment decision. Sharrar v.
Felsing, 128 F.3d 810, 817 (3d Cir. 1997).

                                              4
                personally commits and cannot shield himself behind a
                corporation when he is an actual participant in the tort. . . .
                The fact that an officer is acting for a corporation also may
                make the corporation vicariously or secondarily liable under
                the doctrine of respondent superior; it does not however
                relieve the individual of his responsibility.

See also Wicks v. Milzoco Bldrs., 470 A.2d 86, 89 n.5 (Pa. 1983) (citing Donsco). The

district court therefore erred in concluding that Young and Gaucher could not be

personally liable for the fraud alleged by Walsh. Moreover, Walsh presented sufficient

evidence to raise a genuine issue of material fact as to whether either Gaucher or Young

committed fraud during the course of their negotiations with him. In fact, the district

court cited much of this evidence as grounds for denying summary judgment to ASG on

Walsh’s fraud claim.4

         Gaucher and Young do not attempt to defend the merits of the district court’s

ruling on their individual liability. Rather, they argue that the record does not support that

liability, and that the district court’s decision was proper because Walsh first asserted

individual liability under Wicks and Donsco in his motion for reconsideration. However,

Walsh correctly notes that he had no notice that he had to assert such authority because

the defendants had never argued that they could not be personally liable for the torts

Walsh alleged. Rather, the district court raised that defense sua sponte in its summary

judgment order.




   4
       Walsh v. Alarm Security Group, Inc., 230 F. Supp. 2d 623, 629-30 (E.D. Pa. 2002).

                                                5
       We have said that a judgment can usually only be based on grounds raised by the

parties. Scully v. U.S. WATS, Inc., 238 F.3d 497, 515-16 (3d Cir. 2001). Nothing in any

of defendants’ motions for summary judgment asserted that Gaucher and Young could

not be held personally liable for their actions on behalf of ASG. Walsh can not be faulted

for failing to refute a defense that neither Young nor Gaucher had raised that was not

even available under Pennsylvania law.5

       Although Walsh can survive summary judgment on his tort claim because of the

participation theory, that theory does not rescue his breach of contract claim against

Young and Gaucher individually. “Unless the corporate officer extends promises in his

individual capacity, the participation theory does not apply in the context of an action for

breach of contract.” A & F Corp. v. Brown, No. 94-CV-4709, 1996 WL 466909, at *5

(E.D. Pa. Aug. 15, 1996) (citing Bala Corp. v McGlinn, 144 A. 823 (Pa. 1929) and

Loeffler v. McShane, 539 A.2d 876 (Pa. Super. 1988)). “Whenever a corporation makes a

contract, it is the contract of the legal entity – of the artificial being created by the charter

– and not the contract of the individual members.” Bala Corp., 144 A. at 824 (internal

citation and quotation marks omitted). However, Bala Corporation limits individual

corporate liability only in the context of an action for breach of contract. Loeffler, 539



   5
     We need not belabor the defendants’ contention that the evidence was insufficient to
establish individual liability as a matter of law. As noted above, the district court properly
found sufficient evidence to deny summary judgment to ASG, and any suggestion that
that evidence does not at least raise an issue of fact as to the defendants’ individual
liability is specious.

                                                6
A.2d at 879-80.

               On the other hand, in a tort action, even if the plaintiff has
               entered into a contractual relationship with the corporation,
               the corporate officer is not insulated from liability. . . . This is
               because the basis for the tort liability is not the breach of the
               contract with the corporation but rather the breach of an
               independent legal obligation to avoid injury to the plaintiff. . .
               . [T]he law imposes special duties on parties who deal with
               one another in a business setting.

Id. (internal citations omitted).

       Walsh does not allege that Gaucher or Young made promises or mislead him while

acting in their individual capacity. Accordingly, we will affirm the district court’s grant

of summary judgment in favor of Gaucher and Young individually on Walsh’s breach of

contract claim.

                                        2. WPCL claim

       The WPCL holds “employers” liable for an employee’s unpaid wages, but defines

an “employer” as “every person, firm, partnership, association, corporation, receiver or

other officer of a court of this Commonwealth, any agent or officer of any of the above-

mentioned classes employing any person in this Commonwealth.” 43 P.S. §§ 260.1,

260.2a (1999) (emphasis added). We have held that this language imposes personal

liability on high-ranking corporate officers for employees’ unpaid wages. Carpenters

Health and Welfare v. Ambrose Inc., 727 F.2d 279, 283 (3d Cir. 1983). Although there

may remain some question as to the exact levels of management that can be reached

individually under Ambrose, “there is no question that the legislature intended to include

                                                7
at least the highest ranking corporate officers” in the group that is liable. Id. Gaucher and

Young, as the president/CEO and the chief operating officer of ASG, clearly appear to be

two of ASG’s highest ranking corporate officers and so meet Ambrose’s standard for

personal liability as “employers” under WPCL. At the very least, the level of their

corporate responsibility and management raises an issue of fact.

       However, Gaucher and Young were still entitled to summary judgment for back

pay under the W PCL because Walsh has no “wages” to recover. The law only extends to

wages earned by employees but not paid by employers. Here, it is undisputed that Walsh

never drew any salary. Walsh argues that he did earn “guaranteed pay,” however, and

that is defined as a “fringe benefit” included within the broader definition of “wages”

under the WPCL.

       Although the WPCL definition of “wages” and “fringe benefits” does include

guaranteed pay, see 43 P.S. § 260.2a (1999), the WPCL only allows recovery for wages

that “have actually vested by expenditure of time and effort.” Hirsch v. B&B, 90-CV-

1076, 1991 U.S. Dist. LEXIS 5993, at *7 (E.D. Pa. May 1, 1991). Walsh accepted a

salary of $100,000, but that was to be an annual salary and was not payable to him merely

because he showed up for the job. Moreover, unlike the employee who was awarded

guaranteed wages in Hirsch, Walsh never actually became an “employee.” Indeed, that is

precisely why he is suing. Thus, it can not now seriously be argued that he earned a full

year’s salary by expending time and effort for ASG for one full year. Accordingly, we



                                              8
will affirm the district court’s grant of summary judgment against Walsh on his claim for

wages under the WPCL.6

       This does not, however, suggest that Walsh can not recover a full year’s salary – as

well as other appropriate damages – against Gaucher and Young individually on his fraud

claims. Gaucher and Young can prevail on Walsh’s WPCL claims only because of the

statutory definition of “wages” set forth in that act. Walsh’s claim for actual damages

under his fraud theory is not limited by that definition. The evidence establishes that

Walsh resigned his job in California and relocated to Philadelphia pursuant to a contract

of employment for $100,000 per year. This evidence supports an award of damages in

the amount of that one year’s salary, minus any mitigation even though the contract was

to extend for a full five years, together with Walsh’s moving expenses.

                                 B. Damages Calculation

       Walsh’s final claim is that the district court incorrectly calculated the damages

against ASG. He argues that the court erred when it mitigated his damages sua sponte

and found that he was entitled to only one year’s salary in damages despite the five-year

term of his employment contract. We exercise plenary review over the legal conclusions

applied that the court when assessing damages. Scully v. U.S. WATS, Inc., 238 F.3d 497,




   6
     Inasmuch as we affirm the district court’s grant of summary judgment against Walsh
on his claim for wages under the WPCL, we need not address his argument that the
district court erred in failing to reconsider its grant of summary judgment to ASG on that
claim.

                                             9
507 (3d Cir. 2001).

       Mitigation is an affirmative defense that is waived if it is not asserted in a

responsive pleading. Koppers Co. v. Aetna Casualty & Surety Co., 98 F.3d 1440, 1448

(3d Cir. 1996) (stating that mitigation is an affirmative defense). ASG waived this

affirmative defense when it failed to appear at trial, and the district court should not have

asserted ASG’s defense sua sponte and mitigated the damages for it. On remand, the

district court will recalculate these damages.

                                             III.

       For the above reasons, we will remand to the district court for further proceedings

consistent with this opinion.7




   7
     Res judicata will not operate against the individual defendants based upon findings of
fact or law that the district court made at the first trial. The individual defendants had
been dismissed and were therefore not parties to that litigation. Accordingly, the doctrine
will not apply as to them. See Hopewell Estates v. Kent, 646 A.2d 1192, 1194 (Pa. Super.
1994).

                                              10
