Jottings By An Employer's Lawyer

Monday, March 06, 2006

The Employment Claim As a Missing Asset in Bankruptcy - A Judicial Solution

Although not a pure employment law case, the fact pattern faced by the 7th Circuit in Bisek v. Soo Line Railroad (7th Cir. 3/6/06) [pdf], comes up on a recurring basis. Bisek had a FELA claim against his former employer. The employer had offered to settle for $62,000, but that settlement had not occurred. Before settling, Bisek filed a Chapter 7 bankruptcy, but failed to list the FELA claim as an asset.

Although the legal maneuvers are somewhat more complicated, the bottom line question presented to the Court was what should happen to Bisek's cause of action. The district court found Bisek was estopped from pursuing the claim against the employer. Judge Easterbrook was not unsympathetic to what the trial court was attempting to do -- bar the plaintiff from taking advantage of his misrepresentation. Unfortunately, that penalizes the creditors as well as the employee, a result that can be avoided by having the claim pursued by the bankruptcy estate.

To accomplish the lower court's purpose of preventing bankruptcy fraud, Judge Easterbrook's recommended course is much more direct and, I would wager, more likely to assure compliance:
Instead of vaporizing assets that could be used for the creditors’ benefit, district judges should discourage bankruptcy fraud by revoking the debtors’ discharges and referring them to the United States Attorney for potential criminal prosecution. [emphasis added]
If I were in the 7th Circuit, I would consider myself warned.

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