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Can an Individual Pursue a Discrimination Lawsuit While He Is In Bankruptcy Proceedings?

On Behalf of | Sep 1, 2011 | Disability Discrimination

The case of Johnny Lee, Sr. v. University Hospitals Health System, Inc. (N.D. Ohio March 27, 2009) Case NO. 1:07CV3555 exemplifies risks some people take when they file a discrimination lawsuit during their bankruptcy proceedings.  An individual could potentially face monetary sanctions and a dismissal of his lawsuit if he fails to notify the bankruptcy court and the assigned trustee of his pending charge.

In this case, Mr. Lee filed a charge of handicap discrimination against his former employer with the EEOC.  After filing his charge, Mr. Lee filed for bankruptcy.  In filing his bankruptcy petition, Mr. Lee did not disclose his EEOC charge on his bankruptcy list of assets.  After the EEOC completed its investigation, Mr. Lee filed a lawsuit for handicap discrimination and FMLA retaliation.  However, at that time, Mr. Lee did not amend his list of assets on his bankruptcy petition by reporting his federal lawsuit in the bankruptcy court.

When the employer learned of the bankruptcy petition, it moved for summary judgment of Mr. Lee’s federal lawsuit.  The employer argued that Mr. Lee should not be permitted to “abuse the judicial process” by taking inconsistent positions when he represented in the bankruptcy court that he had no assets, and then pursued his federal court lawusit seeking a monetary recovery for himself without pauing any funds to his creditors.  Mr. Lee argued that as soon as he became aware of his obligation to report his lawsuit as an asset, his bankruptcy attorney contacted the bankruptcy trustee and moved to amend his petition to list the lawsuit.  Further, the bankruptcy trustee moved to substitute himself as the plaintiff in the federal lawsuit.  Based on these actions, Mr. Lee requested that the federal court deny his employer’s motion to dismiss his lawsuit.

The Federal Court compared this case with another where an employer moved to dismiss a similiar action because the plaintiff failed to report his lawsuit to the bankruptcy court.  In that case, the court granted the employer’s motion to dismiss by concluding that the plaintiff was judicially estopped from taking inconsistent positions in two different courts.  According to the court, the plaintiff cannot avoid the consequences of his decision not to report his lawsuit as an asset because his inaction would unfairly disadvantage his creditors in bankruptcy court by allowing him to pursue a claim for monetary damages for himself.  The court found that his damages properly belonged to his creditors.

Although the court found similiarities between the cases, it denied the employer’s motion for summary judgment.  The court found that Mr. Lee took immediate action to amend his list of assets once he became aware of his obligation to do so.  The court further recognied that the bankruptcy trustee filed a motion to represent Mr. Lee’s lawsuit on behalf of the bankruptcy creditors.  Since the trustee became the new Plaintiff, and the creditors were now protected, the court concluded that judicial estoppel should not operate to bar Mr. Lee’s federal lawsuit.

By: Merl H. Wayman