Employee’s Failure to Include Discrimination Lawsuit Against Employer in Bankruptcy Schedules Results in Dismissal of Action

An employee of the United States Army alleged that certain adverse employment actions by the Secretary of the Army resulted from discrimination. She filed for Chapter 7 bankruptcy protection, but failed to list the discrimination action as an asset on her bankruptcy schedules. Only when the employer moved to dismiss the action on the ground of judicial estoppel did the employee amend her bankruptcy schedules to add this potential asset. The district court found that judicial estoppel barred her action in that there was no evidence to suggest that her original failure to list the discrimination case as an asset was inadvertent or mistaken. Her case was accordingly dismissed.

The employee appealed, and the Ninth Circuit Court of Appeals affirmed, finding that, in light of the timing of the employee's amendment of her bankruptcy schedules and her choice not to file a declaration explaining her initial error, no reasonable fact-finder could conclude that the omission was inadvertent or mistaken.

An employee of the United States Army alleged that certain adverse employment actions by the Secretary of the Army resulted from discrimination. She filed for Chapter 7 bankruptcy protection, but failed to list the discrimination action as an asset on her bankruptcy schedules. Only when the employer moved to dismiss the action on the ground of judicial estoppel did the employee amend her bankruptcy schedules to add this potential asset. The district court found that judicial estoppel barred her action in that there was no evidence to suggest that her original failure to list the discrimination case as an asset was inadvertent or mistaken. Her case was accordingly dismissed.

The employee appealed, and the Ninth Circuit Court of Appeals affirmed, finding that, in light of the timing of the employee's amendment of her bankruptcy schedules and her choice not to file a declaration explaining her initial error, no reasonable fact-finder could conclude that the omission was inadvertent or mistaken.

The court also rejected the employee's argument that the district court had abused its discretion in assessing the three main factors articulated in New Hampshire v. Maine, 532 U.S. 742, 750–51 (2001). First, by failing to list the claim in bankruptcy while at the same time, pursuing the claim in a separate court, the employee had “clearly asserted inconsistent positions.” Second, the bankruptcy court, having granted the employee a discharge of her debts, was misled by the employee’s omission. Finally, on the third factor, the employee had derived an unfair advantage in bankruptcy court by failing to list the claim.

In contrast to the plaintiff in Ah Quin v. County of Kauai Department of Transportation, 733 F.3d 267 (9th Cir. 2013), a case which was decided while this matter was pending, the employee here did not seek reconsideration of the district court's ruling or make any attempt to supplement the record with a declaration or other evidence explaining the original omission in bankruptcy court.

This case serves as a reminder of the need to determine at the outset of every case whether the employee has filed for bankruptcy and, if so, to consider the potential for early dismissal if the employee failed to disclose the employment action in the bankruptcy case.  If you would like more information read about Dzakula v. John McHugh, No. 11-16404 (9th Cir. December 11, 2013).