Your employment law claim is an asset that you must disclose if you file for bankruptcy.

Royal v. R&L Carriers Shared Services, LLC, 2013 U.S. Dist. LEXIS 57416; 118 Fair Empl. Prac. Cas. (BNA) 112 (E.D. Va., April 22, 2013) The plaintiff, Andre Royal, was an employee of the defendant, R&L Carriers Shared Services, L.L.C., until R&L terminated him on April 15, 2008. By January of 2009, Royal had filed a charge of discrimination with the Equal Employment Opportunity Commission, alleging that R&L fired him because of his race and in retaliation for his opposition to R&L’s unfavorable treatment of its African-American employees.

The EEOC issued a right to sue letter to Royal in August 2012, more than three years after he had filed his charge. Royal filed his suit against R&L on September 18, 2012.

In late 2009, however, Royal filed his petition in bankruptcy seeking relief under Chapter 13 of the bankruptcy code. The bankruptcy court soon confirmed Royal’s plan, and it again confirmed his plan in early 2011 when Royal sought amendment. At no point during these proceedings did Royal notify the bankruptcy court that he had filed a charge of discrimination with the EEOC, even though applicable law required him to list any contingent and unliquidated claims on his personal property schedule.

On January 22, 2013, in response to R&L’s production requests, Royal informed his attorney of the proceedings in the bankruptcy court. On January 31, 2013, Royal filed an amended personal property schedule with the bankruptcy court, listing his lawsuit against R&L as a contingent, unliquidated claim of unknown value. The bankruptcy trustee did not object to the amended schedule. As of the opinion date, no new plan of reorganization had been confirmed.

R&L filed a motion with the district court to dismiss Royal’s claim on the grounds that Royal lacked standing to bring a lawsuit on his own. R&L’s argument in support of this motion was that, because the basis of Royal’s claims arose prior to his filing a bankruptcy petition, and because Royal did not, until recently, disclose these claims to the bankruptcy court, they remain the property of the bankruptcy estate, on whose behalf only the bankruptcy trustee has the right to sue. At the time of this opinion, the court noted that the Fourth Circuit had not yet addressed this issue, but three weeks later, the Fourth Circuit issued its opinion in Wilson v. Dollar General Corporation (which we analyze here), holding that a Chapter 13 bankruptcy debtor has standing to pursue a lawsuit based on a pre-petition, non-bankruptcy claim. The district court, in this case, accurately predicted the Fourth Circuit’s decision on this standing issue and ruled against R&L.

R&L also asked the district court to dismiss Royal’s claim on the grounds that that Royal was “judicially estopped” from asserting his employment claims because he had not listed those claims in his bankruptcy case. This argument requires some explanation. “Judicial estoppel” is a legal doctrine the purpose of which is to allow courts to keep a party from playing fast and loose with the court system. There are no clear requirements for the application of judicial estoppel, but federal courts have discretion to use it in the following circumstances:

  • the party to be estopped must be advancing an assertion that is inconsistent with a position taken during previous litigation;
  • the position must be one of fact instead of law;
  • the prior position must have been accepted by the court in the first proceeding; and
  • the party to be estopped must have acted intentionally, not inadvertently.

The court had no problem finding that Royal had advanced an inconsistent position in the bankruptcy case – clearly, Royal failed to list his employment claims as an asset in his bankruptcy schedules. Likewise, the court had no problem finding that that the position was one of fact, and not law. The court, however, held that the bankruptcy court had not yet accepted Royal’s position that he had no employment claims, and therefore refused to apply judicial estoppel.

The reason for this decision takes some explanation of bankruptcy law and procedure. The goal of every debtor in bankruptcy is to obtain a discharge – an order from the bankruptcy court which states that the unpaid portion of the debtor’s remaining debts are forgiven and which enjoins creditors from ever seeking to recover on those debts. In a Chapter 13 bankruptcy, the debtor receives a discharge at the very end of the process, once the debtor has completed making all payments under the debtor’s court-approved plan of reorganization. Until the plan of reorganization is completed, the debtor may ask the court for leave to amend the plan to include an omitted asset. With respect to the concept of estoppel, most (but not all) bankruptcy courts have concluded that, because the opportunity to amend a petition remains until discharge, they have not “accepted” a position of the debtor unless and until the discharge has been granted and the opportunity to amend has ended.

The district court found that the great weight of authority supported Royal’s contention that no other court had “accepted” the position that Royal had not employment claims. Because of this, the district court did not advance to the fourth part of the test (regarding intentional, as opposed to inadvertent, conduct) and declined to apply the doctrine.

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