Hunton Employment & Labor Perspectives

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 bankruptcy, debtors must disclose all of their assets through standardized forms known as asset schedules and statements of financial affairs.  A debtor’s duty includes disclosing legal rights and interests in any pending litigation and causes of action that accrued prior to the bankruptcy filing.  Debtors must amend their schedules if circumstances change.  Established precedent in the D.C. Circuit, as in most other circuits, holds that a debtor’s failure to disclose claims can bar the debtor from filing a subsequent lawsuit for any such undisclosed claims.

A related question that courts consider is whether a debtor has adequately disclosed a potential cause of action.  For example, one court has held that listing “song rights in … [s]ongs written while in the band known as ‘KISS’” was sufficient to encompass claims for copyrights and royalties for songs written for the band KISS prior to the bankruptcy filing.  Another court held that a debtor’s listing of “Auto Accident Claim” on his bankruptcy schedule was a sufficient description to include a personal injury claim arising out of an auto accident.   On the other hand, courts have held that descriptions such as “Potential Personal Injury Award” did not sufficiently capture a claim against the defendant insurance company for denial and delay in processing a claim for workers’ compensation benefits.  Similarly, disclosure of a “worker’s compensation claim” was held not to encompass an ADA claim.

In this case, the debtor initially did not list the claims asserted against Bravo! on her bankruptcy schedules or statement of financial affairs.  After her case was closed, she moved to reopen her case and amended her schedules to include a “Pending Employment Discrimination Claim.”  The chapter 7 trustee responsible for administering her bankruptcy case then filed a “no asset” report, effectively abandoning any interest in the claims.  Approximately one year later, the debtor filed the lawsuit against Bravo!

Bravo! asserted two defenses under the doctrine of judicial estoppel—that plaintiff’s description of the claims on her bankruptcy schedules was insufficient to include the FMLA claim and that her failure to disclose the claims on her initial schedules barred the claims.  The district court rejected both arguments.  The court believed the description was sufficient for the chapter 7 trustee to conduct an investigation into the claims and determine whether to pursue them on behalf of the debtor’s creditors or abandon them, which the trustee did.  The court also noted that the doctrine of judicial estoppel functions as a defense to claims by debtors who attempt to hide assets from their creditors.  Here, the plaintiff amended her schedules about a year before filing suit against Bravo! on her own volition, and the chapter 7 trustee had the opportunity to consider whether to pursue the claims on behalf of creditors.  Therefore, the district court reasoned that the plaintiff did not attempt to conceal the claims from her creditors.

Despite the court’s holding, the decision highlights the importance of researching for any prior bankruptcy filings by a plaintiff pursuing employment claims.  Employers should review the plaintiff’s bankruptcy schedules to see whether the asserted claims were adequately disclosed, if at all.  If not disclosed, employers should immediately call this to the attention of the presiding court in order to maximize the likelihood that the court will apply the doctrine of judicial estoppel and dismiss the claims.