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Edward G. Phillips’ new employment law column will run quarterly Bankruptcy and employment law are not spheres that practitioners frequently view as closely intertwined, but recent case developments in the Sixth Circuit and district courts in Tennessee indicate otherwise. In the past year, four Unites States district judges in Tennessee applied the judicial estoppel doctrine and dismissed employment discrimination cases where plaintiffs failed to include their employment claims in bankruptcy filings. Let’s explore how judicial estoppel is being used against less than forthcoming employees to head their employment discrimination lawsuits off at the pass. Judicial estoppel in a nutshell means that “where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position.” Eubanks v. CBSK Fin. Group Inc., 385 F.3d 894, 897 (6th Cir. 2004). Parties should be prevented from abusing the bankruptcy process through “cynical gamesmanship” and “playing fast and loose with the courts.” Browning v. Levy, 283 F.3d 761, 776 (6th Cir. 2002). The Sixth Circuit has held that judicial estoppel bars a party from: (1) asserting a position contrary to one party asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position as a preliminary matter or as part of a final disposition. Id. The Bankruptcy Code requires a debtor to file “a schedule of assets and liabilities, a schedule of current income and current expenditures, and a statement of the debtor’s financial affairs.” 11 U.S.C. § 521(1). Legal claims, whether filed in an administrative forum such as the EEOC or in a court, are assets that must be listed under § 521(1). See Eubanks, 385 F.3d at 897. “The duty to disclose is a continuing one that does not end once the forms are submitted to the bankruptcy court; rather, a debtor must amend his statements if circumstances change. Full and honest disclosure in a bankruptcy case is crucial to the effective functioning of the federal bankruptcy system.” Tyler v. Federal Express Corp., 420 F. Supp. 2d 849, 856 (W.D. Tenn. 2005). J udicial estoppel thus bars a plaintiff’s unscheduled employment claim. The judicial estoppel defense will fail, however, where the plaintiff-employee can establish that the failure to list the employment claim was inadvertent. Inadvertence may be found (1) “where the debtor lacks knowledge of the factual basis of the undisclosed claims” and (2) “where the debtor has no motive for concealment.” Browning, 283 F.3d at 776. These principles played out to the employer’s advantage in Tyler v. Federal Express Corp., where Betty Tyler filed a pro se complaint in District Judge Daniel Breen’s court in February 2002. Six days later, and with assistance of counsel, she filed a Chapter 13 bankruptcy petition. She did not disclose her lawsuit as an asset, and did not amend her petition after obtaining employment counsel. Federal Express filed a motion for summary judgment in January 2005. Tyler filed a motion to amend her bankruptcy claim in April. She did not, however, file amended schedules until October 2005, six days after a “show cause” order was entered by the district court. Tyler claimed her omission was inadvertent and should be excused. Judge Breen was not impressed: “Because Tyler had knowledge of her claim against the defendant at the time she filed for bankruptcy; a motive to conceal the claim; and because she failed to offer any evidence from which the court could infer a lack of intent to conceal, the court finds that the plaintiff’s omission was intentional and not the result of inadvertence.” Tyler, 420 F. Supp. 2d at 859. In Scott v. Dress Barn Inc., No. 04-1298-T-An, 2006 U. S. Dist. LEXIS 19404 (W.D. Tenn. April 12, 2006), district Judge James D. Todd dismissed the race discrimination claim of a plaintiff who, less than a month after filing her complaint, filed for Chapter 13 bankruptcy. She included two other lawsuits on her schedule, but did not attempt to list the race claim until after the employer moved for summary judgment. Judge Todd found this tactic less than genuine, noting that, “Allowing [plaintiff] to back-up, re-open the bankruptcy case, and amend his bankruptcy filings, only after his omission has been challenged by an adversary, suggests that a debtor should consider disclosing potential assets only if he is caught concealing them.” 2006 U.S. Dist. LEXIS 19404 at *12-13. Likewise, in Pate v. United Parcel Service Inc., No. 3:05-cv-531, 2006 U. S. District LEXIS 50821 (E.D. Tenn. July 24, 2006), District Judge Leon Jordan dismissed the employment discrimination suit of a plaintiff who filed a bankruptcy petition and, while it was pending, filed an administrative charge and suit against his employer without amending the bankruptcy filings. Following the trend, on Aug. 25, 2006 District Judge Thomas Phillips dismissed a race discrimination complaint on the grounds of judicial estoppel where the plaintiff filed a bankruptcy petition while he had a pending EEOC charge. The plaintiff received a right-to-sue letter from the EEOC while his bankruptcy was pending, and the court discharged him from his debts one month before he sued his former employers. Judge Phillips had little trouble finding that the omission was not inadvertent. Duff v. Lockheed Martin Energy Systems Inc., No. 3:06-cv-41, 2006 U.S. Dist. LEXIS 60747 (E.D. Tenn., Aug. 25, 2006). Two clear lessons emerge from these cases:
• • • Edward G. Phillips is a lawyer with Kramer Rayson LLC in Knoxville, where his primary areas of practice are labor and employment law. He graduated with honors from East Tennessee State University and received his law degree from the University of Tennessee College of Law in 1978 with honors, and as a member of The Order of the Coif. He is a former chair of the Tennessee Bar Association’s Labor and Employment Law Section. Tennessee Bar Journal
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