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Court Says Worker's Bankruptcy Not Fatal To Discrimination Claims Against Employer

Wednesday, May 1, 2013
By Chris Opfer

A black warehouse worker who did not originally list discrimination claims against his employer as property when filing for Chapter 13 protection can proceed with a lawsuit against the company, the U.S. District Court for the Eastern District of Virginia ruled April 22 (Royal v. R&L Carriers Shared Servs. LLC, E.D. Va., No. 3:12-cv-00714, 4/22/13).

Although Andre Royal's claims against R&L Carriers Shared Services were considered property of his estate in a Chapter 13 proceeding, the court rejected the company's assertion that the estate's trustee had exclusive standing to pursue them.

“In short, as a Chapter 13 debtor, Royal maintains standing to sue R&L for employment discrimination, even without the bankruptcy trustee's direct involvement in the civil suit,” Judge John A. Gibney explained.

The court denied R&L's motion to dismiss Royal's claims under Title VII of the 1964 Civil Rights Act and the Civil Rights Act of 1866 (42 U.S.C. § 1981).

The court further held that Royal should not be estopped from pursuing the claims simply because he did not disclose them in the personal bankruptcy proceedings until long after the bankruptcy judge had approved his reorganization plans.

Observing that the bankruptcy matter remained open and that the bankruptcy court had not ordered any relief relying on Royal's inaccurate disclosures, the court said it was in the interest of equity to allow him to amend the estate property listing to include his claims against the company.


Fired Before Chapter 13 Filing
Royal worked as a clerk in R&L's trucking terminal in Chesterfield, Va., for approximately six years before he was fired in April 2008.

Prior to his termination, Royal claimed that he witnessed several incidents of race discrimination and harassment, including regular use of the word “nigger” and unequal treatment among black and white workers.

Royal was fired after an incident in which Mark Behrn, a white supervisor, ordered him to pick up water bottles that had been knocked over on the terminal floor. He considered this a “menial” task that Behrn assigned to him because of his race. Behrn, on the other hand, accused Royal of threatening him during the argument that followed.

Royal filed a charge of discrimination against R&L with the Equal Employment Opportunity Commission in January 2009, alleging that the company fired him because of his race and in retaliation for opposing discrimination at the terminal. He filed for Chapter 13 protection later that year.

After receiving a right-to-sue letter in 2012, Royal sued R&L for hostile work environment, discriminatory discharge, and retaliation in violation of Title VII and Section 1981.

Although he was required to list any contingent and unliquidated claims on a personal property schedule, Royal did not notify the bankruptcy court of the EEOC charge when the court approved his reorganization plans in 2009 and 2011. Later, on Jan. 31, 2013, he filed an amended personal property schedule listing the lawsuit against R&L.


Standing as 'Debtor in Possession.'
The court acknowledged that Royal's claims were part of the bankruptcy estate, but said that he retained standing to sue as a “debtor in possession” of the estate's property.

“Although the U.S. Court of Appeals for the Fourth Circuit has not taken a position on the issue, every federal appeals court to rule on it--not to mention a large number of bankruptcy courts--has held that Chapter 13 debtors have standing to sue on their own, even though their pre-petition causes of action belong to the bankruptcy,” Gibney explained.

The court distinguished the matter from a Chapter 7 bankruptcy, in which a trustee holds the assets and has the exclusive right to bring suit on behalf of the estate. In Chapter 13 bankruptcy, according to the court, the debtor remains in possession of the estate's assets.

Rule 6009 of the Federal Rules of Bankruptcy Procedure allows either the trustee or a debtor in possession to bring an action on behalf of the estate.

The court rejected R&L's argument that Royal nevertheless lacked standing to sue because he had not made the bankruptcy court aware of the claims when he originally initiated the action against the company.

“Royal's status as a debtor in possession does not hinge on the accuracy of his prior disclosures on his personal property schedule,” Gibney explained.


Estoppel Not Equitable
Nor did the delayed disclosure warrant judicial estoppel, according to the court.

Royal took inconsistent positions in the two proceedings, failing to acknowledge the claims in the bankruptcy matter, while actively pursuing them in the litigation against R&L. As the bankruptcy proceedings remained open, however, the district court found that the bankruptcy court had not yet relied on the inconsistency by granting him relief in the form of discharge or repayment of the debt.

“Royal and R&L have focused largely on whether Royal acted intentionally or inadvertently, but the lack of prior acceptance [by the bankruptcy court] actually proves dispositive,” Gibney wrote.

Indeed, the court said that “the greater interest of equity” required that Royal be permitted to amend his bankruptcy petition--and pursue his claims against R&L--so as to give an accurate depiction of the estate's property and “allow additional recovery by the plaintiff's deserving creditors.”

David R. Simonsen Jr. and Vickey A. Verwey of Richmond represented Royal. R&L was represented by Zachary S. Stinson and John B. Flood of Ogletree Deakins Nash Smoak & Stewart in Washington, D.C.

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