Debtor May Not Sue Former Employer Because He Failed to Disclose Claims in Bankruptcy - Love v. Tyson Foods

April 25, 2012

Vincent Howard and our Rancho Cucamonga consumer bankruptcy attorneys were interested to see a recent ruling reminding debtors that potential legal claims must be disclosed. Under the bankruptcy code, a potential legal claim has financial value just like a car or jewelry, and failing to disclose it may be punished as deceptive behavior in the same way that hiding another asset would be. However, debtors don't always realize this, which is why it's vital to fully disclose these issues to an experienced bankruptcy lawyer before filing. In Love v. Tyson Foods, Willie Love of Mississippi was attempting to sue his ex-employer for racial discrimination, after taking the matter to the EEOC. However, the Fifth U.S. Circuit Court of Appeals held that he was judicially estopped -- legally barred -- from bringing the claim because he had not disclosed it in a Chapter 13 bankruptcy that was pending at the same time as the EEOC action.

Love was hired as a truck driver for Tyson Foods in July of 2007, but fired three days later when Tyson discovered he had tested positive for drugs in 2001. Tyson's application asked only for positive drug tests within the last three years, so Love asserted that the company's safety concerns were a pretext for racial discrimination. He was rehired but required to take monthly drug tests, and eventually fired in April of 2008 when he tested positive. Tyson declined to consider the results of any subsequent tests. Love contends that the result was triggered by his use of antibiotics and that he was dismissed as retaliation for his previous complaints. He filed for bankruptcy in early May of 2008 and filed a charge of discrimination with the EEOC in late May of 2008. The EEOC issued a notice of right to sue in December of 2008, resulting in a lawsuit Love filed in 2009. However, Love did not disclose his discrimination claims when he filed for bankruptcy, or when the plan was confirmed, at which time the EEOC decision was pending.

In July of 2009, Tyson moved for summary judgment on Love's discrimination lawsuit, arguing that his failure to disclose them judicially estopped them. Love amended his claims to include the discrimination claims, but the district court ultimately dismissed his case. Love appealed pro se, despite having counsel in the lower court and in bankruptcy court.

On review, the Fifth U.S. Circuit Court of Appeals noted that judicial estoppel is appropriate when a party takes a position opposed to its own previous position, and this was not inadvertent. Love's argument on appeal was that he inadvertently failed to disclose his claims in the bankruptcy filing, but neither the district court nor the Fifth Circuit found enough evidence for that claim. It was not disputed that Love knew about the claims, but he argued that he had no motivation for keeping them a secret. However, Tyson countered that Love's motivation for keeping them a secret was to keep any recovery for himself. Indeed, the Fifth noted, Love's brief in opposition to summary judgment failed to even discuss the issue of inadvertence, relying instead on the fact that he had amended his claims. Moreover, the court said, his arguments failed to explain why he never disclosed his claims in the first place, or refuse Tyson's allegations that he had planned to keep any recovery. And arguments that Love would gain nothing going forward are irrelevant to the analysis, the Fifth said. Thus, it upheld the district court. Judge Haynes dissented, arguing that the summary judgment burden was on Tyson because judicial estoppel is an affirmative defense; that the law favored Love in any case; and that the judgment belongs to the bankruptcy estate, which should have been given ownership of the claim.

Vincent Howard and our Seal Beach personal bankruptcy lawyers would be interested to see the results of an en banc rehearing of this case. As the dissent notes, the theory that Love was trying to keep any recovery only works if Love is not in bankruptcy. Because he is, any money he might be able to recover in a lawsuit would automatically become part of the bankruptcy estate, and any competent counsel would have told him so. Unfortunately, the fact that Love appealed without a lawyer suggests that he didn't have the money for one, which would mean he likely doesn't have money for an appeal either. When large corporate creditors or potential creditors like Tyson stand to lose money, they often throw more legal firepower at the case than an individual can match. At Howard Law, P.C., our Murrieta individual bankruptcy attorneys help even the playing field.

If you're considering bankruptcy and you're looking for the advice of an experienced lawyer, call Vincent Howard and the team at Howard Law for a consultation. You can reach us through our website or at 1-800-872-5925.

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