Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
A credit union didn’t act unlawfully when it fired a woman even though she was in bankruptcy at the time, the U.S. Bankruptcy Court for the Northern District of West Virginia held ( Davis v. Long Reach Fed. Credit Union (In re Davis) , 2017 BL 268019, Bankr. N.D. W.Va., Case No. 16-bk-00273, 8/1/17 ).
Long Beach Federal Credit Union had non-bankruptcy reasons to terminate Tabatha Davis, and passes the test for bankruptcy neutrality under Bankruptcy Code Section 525, Judge Patrick M. Flatley wrote Aug. 1.
Under Section 525(b), private employers are prohibited from discriminating against their employees based “solely on an employee’s bankruptcy, insolvency, or failure to pay a debt that is dischargeable or that was discharged in a case under the Bankruptcy Code,” the court said. A discharge in bankruptcy wipes out debt.
Courts agree that the statute’s “solely because” language should be read narrowly based on its plain meaning, the court said.
Long Beach Federal Credit Union said it terminated Davis based on allegations of suspicious activity and check kiting discovered by Bayer Heritage Federal Credit Union.
“Check kiting” is a fraud scheme using checks that are issued against funds credited in an account as deposited but not yet cleared. It’s like an interest-fee loan, and the careful timing of deposits and withdrawals can be turned into a large amount of money.
Davis argued that the allegations were merely a “convenient and fortuitous pretext” for Long Beach to terminate her after she and her husband filed for Chapter 7 bankruptcy. For the eight years that she was employed with Long Beach, Davis had received favorable performance evaluations.
After Long Beach learned of the bankruptcy, however, she was directed to teach other employees her job, Davis said.
Long Beach put Davis on unpaid leave and hired a company to perform an audit of Davis’s activity, which showed banking transactions resembling check kiting.
The “accuracy of an employer’s non-bankruptcy reason to terminate an employee is immaterial,” the court said.
Long Beach’s reason for terminating Davis wasn’t merely a pretext, the court said. But even if the bankruptcy filing was a factor in her discharge, it wasn’t “solely” because of that fact, the court said.
Clagett Law Office, Bridgeport, W.Va., represented Tabatha and Kenneth Davis; Litchfield Cavo, Pittsburgh, represented Long Reach Federal Credit Union; Chapter 7 Trustee Martin P. Sheehan, Sheehan and Nugent PLLC, Wheeling, W.Va., represented himself.
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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