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Fired Employee's Discrimination Claim Belongs to Bankruptcy Estate

By Robyn Hagan Cain on October 29, 2012 | Last updated on March 21, 2019

There are bad weeks, and then there are lose-your-job-and-file-for-bankruptcy bad weeks. Karen Auday had the unfortunate distinction of enduring the latter.

To make matters worse, Auday alleges that she was a victim of age discrimination. While that may be true, the Sixth Circuit Court of Appeals ruled last week that Auday can't sue her former employer because the claim now belongs to her bankruptcy estate.

Seriously, this woman can't catch a break.

Auday started work at a Wet Seal store in Chattanooga in December 2008. Wet Seal markets clothing to young women. Auday was 47.

Before long, her 20-something supervisor began expressing "displeasure" about Auday's age and attire "in a store for young people." Other Wet Seal employees made similar comments. On September 17, 2009, Wet Seal fired Auday. Four days later, Auday and her husband filed for Chapter 7 bankruptcy. They did not list Auday's age-discrimination claim against Wet Seal among their assets in their petition.

Nearly three months after Auday filed her bankruptcy petition, her lawyer alerted the bankruptcy trustee that Auday had "a possible age discrimination case" and asked "what do we need to get to be hired?"

The bankruptcy court discharged Auday from her debts on in January 2010. In February, the trustee applied to the bankruptcy court for authority to hire Auday's lawyer to pursue the claim against Wet Seal. The bankruptcy court granted the application, appointing the lawyer as "special counsel for the trustee" to pursue the age discrimination claim. The trustee, however, didn't sue Wet Seal; five months later, Auday sued the company in state court, seeking $500,000 in damages and reinstatement.

Wet Seal removed the case based on diversity jurisdiction. The district court granted judgment on the pleadings to Wet Seal, holding that Auday's failure to list a potential claim on her bankruptcy petition barred her from bringing the claim later. Wet Seal also argued that Auday lacked standing because the claim belonged to the trustee. (The district court did not address the latter argument, holding that because the estoppel issue was clear, it did not need to address Auday's standing.)

According to the Sixth Circuit, the real issue in the case was whether Auday was capable of bringing her lawsuit.

When Auday filed for bankruptcy, her estate became the owner of all of her property, including tort claims that accrued before she filed her bankruptcy petition. Even though Audrey had not actually sued Wet Seal when she filed for bankruptcy, her age-discrimination claim accrued when the company fired her, and became the property of her estate when she filed her bankruptcy petition. Absent abandonment, only the trustee can bring that claim; therefore Auday lacked standing to pursue it alone.

Auday's case may have been plagued with misfortune, but her age discrimination claim could survive. The Sixth Circuit remanded the case to allow the district court to dismiss the case without prejudice or allow Auday to amend the complaint to substitute the trustee as plaintiff.

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