Failure to List Lawsuit As Asset in Bankruptcy Results in Dismissal

By Todd McMurtry | tmcmurtry@dbllaw.com

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In Auday v. Wet Seal Retail, Inc., Auday, a 47-year-old employee of Wet Seal, claimed age discrimination after Wet Seal fired her for not being age appropriate for a store catering to young women. No. 12-5057 (6th Cir. Oct. 25, 2012). Shortly after her termination, she and her husband filed bankruptcy. They did not list the potential claim as a scheduled asset on their bankruptcy.

Nevertheless, Auday’s counsel petitioned the bankruptcy court to bring suit, but did not amend Auday’s schedule of assets to include the claim. Once given permission to pursue the claim, counsel pursued the claim in Auday’s, not the Trustee’s, name. Reading between the lines, the Court intimates that this may have been a planned strategy by Auday and her counsel to keep the claim out of the bankruptcy.

Wet Seal sought dismissal for failure to schedule the asset and lack of standing. The district court dismissed Auday’s claim solely on Auday’s failure to schedule the asset. The Sixth Circuit affirmed, but focused on standing as the threshold issue. The Court held that only the Trustee had standing to bring the suit.

In its discussion, the Court also held that the equitable tenet of judicial estoppel prevented Auday from pursuing the claim in her own name. Referring to the risk to creditors of Auday’s efforts, the Court insisted that the Trustee be the party to bring the claims. To help that effort along, the Court offered that the lower court might have grounds to substitute the Trustee for Auday upon remand. This would preserve the value of the claim for Auday’s creditors and undo the presumed nefarious efforts of Auday and her attorney.

Todd McMurtry is a Northern Kentucky attorney practicing at Dressman Benzinger LaVelle psc.

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