Recently, we discussed a decision from the U.S. District Court for the District Columbia that considered whether a former employee’s failure to initially list an employment discrimination claim on her bankruptcy schedules barred her from pursuing the claim against her former employer under the doctrine of judicial estoppel.
In an April 24, 2017 decision, the U.S. District Court for the District of Columbia denied a motion to dismiss filed by Bravo! Facility Services, Inc. (“Bravo!”) against a former employee who brought claims under the ADA, District of Columbia Human Rights Act, and the FMLA. Bravo! asserted that the plaintiff should be barred under the doctrine of judicial estoppel from asserting her claims because she initially failed to disclose her employment discrimination claims in her chapter 7 bankruptcy case filed after her employment terminated. The plaintiff had moved to reopen her bankruptcy case and amended her asset schedules to disclose the claims before filing suit against Bravo! In denying Bravo!’s motion, the court distinguished these facts from other situations where a plaintiff fails to disclose a claim prior to filing suit or only after challenged by an adversary.
In a prior post, we set forth the potential liability of employers for collection of debts owed by employees in violation of the bankruptcy stay. To protect themselves from such liability, employers that accrue claims against their employees in the ordinary course of business should implement written protocols designed in consultation with bankruptcy counsel.
However, even employers that do not ordinarily accrue claims against employees must be careful to avoid violating the automatic stay – most notably when complying with creditor garnishment demands under state law.
Businesses need to have written protocols in place to deal with bankruptcy filings by their employees and independent contractors, or they risk serious sanctions and, potentially, punitive damages for violations of the bankruptcy laws. Consider two examples.
In a recent Tenth Circuit case, Queen v. TA Operating, LLC, the Court held that judicial estoppel barred the lawsuit of debtors who sought to recover damages that exceeded the amount disclosed in bankruptcy proceedings. This decision would likely apply to employment litigation as well. In light of the Court’s holding, defendants who are sued by plaintiffs who have filed for bankruptcy should determine whether the plaintiff failed to disclose the existence of the lawsuit or represented in bankruptcy proceedings that the lawsuit’s value was lower than that claimed in the litigation. If so, there may be a basis to move for dismissal of the case based on the doctrine of judicial estoppel.
Read more in our recent Client Alert.