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Sixth Circuit BAP Upholds Trustee's Settlement Deal for Employment Law Suit - In re Peoples

January 7, 2013

Vincent Howard and our Rubidoux consumer bankruptcy attorneys were interested to see an appeals court decision about a bankruptcy that should have included a potential legal judgment in the filer's favor. Many people don't realize that they must include any potential legal claims--claims they might make in a lawsuit for money damages--in their bankruptcy filings. Many filers are surprised to find out about this requirement because a potential or actual lawsuit may not seem like much of an asset, but failure to list it can nonetheless have serious consequences. The court may reopen the case to deal with the new information, or at worst, it may decide the filer was being deceitful and impose criminal or bankruptcy-law sanctions. In In re Peoples, the Sixth U.S. Circuit Court of Appeals BAP upheld a court's decision to allow the trustee to settle the lawsuit for a small amount.

Daniel Peoples Jr. of Ohio worked for Veolia Water North America Operating Service form 20087 to 2010, when he was fired. In late 2010, he hired a lawyer and contacted the U.S. EEOC about an employment discrimination claim. Fifteen days after signing an amended EEOC charge, Peoples filed for Chapter 7 bankruptcy. His papers did not disclose the potential Veolia lawsuit. While the bankruptcy was pending, Peoples did file suit and was cleared to sue by the EEOC. However, he never informed his trustee, who reopened the bankruptcy about two months after discharge when he found out about the case. The trustee then assumed control of the lawsuit, failed to find a contingency-fee attorney for the case, and obtained a settlement offer of $8,000. Peoples filed an objection to the amount, but the bankruptcy court approved it.

Peoples timely appealed, arguing that the trustee had a conflict of interests; the motion should have been stayed pending a decision in a similar case; and the settlement was too small. The Sixth Circuit's Bankruptcy Appellate Panel rejected all of these arguments. Because the trustee couldn't find an attorney to take the case, the panel said, the value of the claim was likely zero. Veolia's summary judgment motion raised an issue of law that was, at the time, undecided and thus too expensive for the estate to litigate on its own (or for a contingency-fee attorney to litigate). After this case was decided, the Sixth Circuit decided that a trustee is not estopped from pursuing a case even if the bankruptcy filer is, but the uncertainty at the time made it reasonable to approve the settlement. Peoples's other arguments are waived on appeal due to not being raised below, the court said.

Vincent Howard and our Tustin personal bankruptcy lawyers regret that this case was decided on the basis of market forces--whether a contingency-fee lawyer was willing to take the risks in the case--rather than its merits. Peoples appeared to have a reasonable case prior to the bankruptcy filing, but his failure to dispose the case during bankruptcy not only got the bankruptcy reopened and his settlement distributed to creditors. It also essentially killed the discrimination case, resulting in a quick and cheap settlement with no litigation of the issue. If there was discrimination, this was a fantastic stroke of luck for the employer, which has avoided negative publicity and a much larger judgment. All of these negative consequences are why our Rancho Cucamonga individual bankruptcy attorneys urge clients to be as thorough and honest as possible about their financial lives, including potential windfalls as well as their current circumstances.

If you don't believe you can ever pay your way out of deep, deep debts, you should call Vincent Howard and the team at Howard Law, P.C., to discuss whether bankruptcy is the right choice for you. You can reach us through our website or call 1-800-872-5925.

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