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Best Ohio Employment Discrimination Attorney Answer: What do I have to disclose to the bankruptcy court when I have a pending employment lawsuit? What if I don’t disclose the lawsuit when I file for bankruptcy? What kind of lawyer do I need to sue my employer for wrongful termination?

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While it is true that lawyers disagree quite often, one thing that all lawyers in the legal community agree on is this: the bankruptcy laws in this country are long, convoluted and difficult to decipher for attorneys who do not specifically specialize in bankruptcy. However, even though The Spitz Law Firm deals strictly with employment law, there is a particular bankruptcy issue that has crept into the employment litigation field. Our employment lawyers have blogged about some bankruptcy related issues before. (See I Sued My Employer For Discrimination And It Filed For Bankruptcy. Best Lawyer Help!; and Can My Employer Fire Me Because I Filed For Bankruptcy? I Need A Lawyer!). But, what happens when someone has a new or pending bankruptcy and an employment lawsuit at the same time?

This particular issue was just recently dealt with by the United States District Court for the District of Colorado. In Tracy L. Zubrod v. Burris Company, Inc., a former employee of Burris, Kellee Wertz, filed a lawsuit claiming she was retaliated against, including wrongful termination, when she reported to her company numerous incidents of discrimination against employees on the basis of their age, gender, race/color, and pregnancy. However, the most recent issue decided by the court on this particular case has nothing to do with the facts of Ms. Wertz retaliation claims.

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Ms. Wertz ran into a big issue when she failed to let the bankruptcy court know about her lawsuit against Burris. Ms. Wertz filed for Chapter 7 bankruptcy on March 16, 2011 and filed a charge with the Equal Employment Opportunity Commission (“EEOC“) against Burris about two months later on May 6, 2011. Ms. Wertz’s bankruptcy was closed, after discharging almost $200,000 of debt on August 2, 2012.

If you have read our employment lawyer blogs regarding the EEOC, this next fact will come as no shock to you: The EEOC completed its review of Ms. Wertz case and issued a right to sue over three years later on February 26, 2014. (See Should I File With The EEOC Or Should I Get My Own Lawyer? Best Employment Discrimination Law Reply!; and Top Employment Law Attorney: Do Not File With The EEOC Without Doing This First.) Ms. Wertz then filed her lawsuit against Burris on May 23, 2014, nearly 2 years after her bankruptcy was closed.

Burris, in turn, asked the court to dismiss Ms. Wertz lawsuit because she didn’t disclose that she had a pending EEOC claim to the bankruptcy court when her bankruptcy was being open. Burris argued that bankruptcy law requires that all claims or lawsuits, including those with the EEOC, must be disclosed to the bankruptcy court. The idea behind this rule is that a claim or lawsuit has value, even if that value is not guaranteed or exactly quantifiable, and should be disclosed to the debtor’s creditors.

In a move that can safely describe why bankruptcy law is difficult to understand, Ms. Wertz decided to reopen her bankruptcy from over two years prior and have the bankruptcy trustee assume her retaliation case against Burris. The trustee is appointed by the government and is responsible for collecting assets to pay off the debtor’s creditors. The trustee and Ms. Wertz agreed that she would get 75 percent of the any recovery with 25 percent

The Court was faced with the issue of either allowing the trustee to assume the suit on behalf of Ms. Wertz as she requested, or dismiss the suit altogether for the failure to disclose when the bankruptcy was originally open as the employer requested. The Court gave itself a third option. The Court held that Ms. Wertz was not allowed to collect any funds from the outcome of the lawsuit because her excuse that she “inadvertently” failed to disclose the EEOC claim to the bankruptcy court was not valid. The Court pointed to the fact that the EEOC claim was filed just two months after the bankruptcy as the main reason why Ms. Wertz’s excuse was not well founded. Nevertheless, the Court still allowed the bankruptcy trustee to pursue Ms. Wertz’ case, as long as all the money received as a result of the lawsuit went to Ms. Wertz’ creditors:

The Court agrees with the trustee that, under the circumstances here, it would be inappropriate to estop her from pursuing Ms. Wertz’s discrimination and retaliation claims. Such claims, if successful, will help pay Ms. Wertz’s creditors. Eastman, 493 F.3d at 1155 n.3 (reasoning that estoppel against a trustee is inappropriate “at least to the extent [the debtor’s] . . . claims were necessary to satisfy his debts”). However, the same is not true of the trustee’s decision to allow Ms. Wertz to participate in any recovery in the event of a judgment in the trustee’s favor. The Supreme Court noted in New Hampshire that judicial estoppel is an equitable doctrine. New Hampshire, 532 U.S. at 750. The Court also noted that “the circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation or principle.” Id. Here, the fact that the trustee is allowing Ms. Wertz to keep 75% of any judgment or settlement after the payment of attorney’s fees has the effect of undermining the integrity of the bankruptcy process. Queen, 734 F.3d at 1087 (noting that the purpose of judicial estoppel is “to protect the integrity of the judicial process” and to “prevent improper use of judicial machinery”) (quoting New Hampshire, 532 U.S. at 749-50). Such an arrangement allows Ms. Wertz to gain the benefit of a discharge in the bankruptcy case and then, after her non-disclosure was discovered by Burris, to suffer a diminution of her potential recovery (assuming her arrangement with her attorneys contained the same 40% contingency fee as the trustee’s agreement) of only 25%. In Anderson v. Seven Falls Co., No. 12-cv-01490-RM-CBS, 2014 WL 553486, at *8 (D. Colo. Feb. 12, 2014), the court applied judicial estoppel ag ainst a bankruptcy trustee to the extent the trustee intended to or agreed to pay any portion of the recovery to the debtor. The court held that, while the trustee and the debtor’s creditors could be made whole, a debtor who concealed her claim from the bankruptcy court should not be allowed any portion of the recovery. Id. The Court adopts this approach. The trustee may pursue this action on behalf of the bankruptcy estate, but the trustee is estopped from paying any portion of the amount recovered to Ms. Wertz

This case is a cautionary tale on why it is important to (1) let your employment attorney know if you have a pending bankruptcy or are planning to file bankruptcy while your employment claim or suit is pending and (2) to make sure the bankruptcy court is aware of all claims or lawsuits that may exist. Ms. Wertz lost out on her chance to be compensated as a result of what appears to be a very strong retaliation lawsuit because she didn’t follow a bankruptcy rule that is actually surprisingly simple. Make sure you are represented by an experienced employment attorney so the same outcome doesn’t happen to you.

If you are searching “I need a lawyer because I have been wrongfully fired or terminated;” or “I have been discriminated against based on my …” race, national origin, gender, age, religion or disability; or even think that you might need an employment lawyer, then it would be best to call the right attorney to schedule a free and confidential consultation at 866-797-6040. The Spitz Law Firm and its attorneys are experienced and dedicated to protecting employees’ rights and solving employment disputes.

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This employment law website is an advertisement. The materials available at the top of this page and at this employment law website are for informational purposes only and not for the purpose of providing legal advice. If you are still asking, “How do I …”, “What should I do …,” “My boss discriminated against me because …” or “I was fired for …”, it would be best for to contact an Ohio attorney to obtain advice with respect to any particular employment law issue or problem. Use and access to this employment law website or any of the links contained within the site do not create an attorney-client relationship. The legal opinions expressed at or through this site are the opinions of the individual lawyer and may not reflect the opinions of The Spitz Law Firm, Brian Spitz, or any individual attorney.