When the Plaintiff Files Bankruptcy - Whose Claim and What Happens When It Is Not Disclosed

Posted 6:20 PM by Michael Fox

In the Northern District of Georgia, at least initially it depended on whether it was the bankruptcy court or the district court whose view prevailed. The facts were simple, an HR Director demoted from her position filed a lawsuit alleging discrimination. Months later when she filed Ch. 7 bankruptcy she did not disclose the lawsuit. When she signed the statement of affairs she did not mention the employment lawsuit, although a question asks for all legal proceedings. She did tell the Trustee at the creditor's meeting, but told him she was only seeking reinstatement, even though the complaint had been amended two days earlier to request compensatory and punitive damages. A discharge was granted in bankruptcy court, and for the first time the employer found out about it through the disclosure of documents in discovery.

Subsequent proceedings ensued with her requesting that the bankruptcy judge permit her to re-open the bankruptcy to now list the claim and the employer filing for summary judgment on the grounds that she was estopped from proceeding on the employment claim. The District Court granted the summary judgment. The bankruptcy court allowed the re-opening, but did not enter a written order until after the judge had granted the summary judgment against her. On appeal, the Court sorted it out by first finding that the claim was an asset of the Estate and that the Trustee was the real party in interest and should have been all along. It also found, after a lengthy analysis of the law that she was judicially estopped. Blaming it on her attorney did not work, although the court suggested a malpractice claim as her remedy, saying that it would not do to pass the burden of inappropriate conduct of her counsel to the defendant. Barger v. City of Cartersville, GA (11th Cir. 10/28/03) [pdf]. It was not a total victory for the employer however, as the Court held that she was not estopped from bringing a claim for injunctive relief, so her claim for reinstatement to her HR Director's position could proceed. No answer to the question what happens if the City now tries to settle the case monetarily.

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