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Failure to Disclose Employment Claims in Bankruptcy Proceedings May Bar Civil Action Against Employer

In the case of Cook v. Pitter Patter Learning Ctr., LLC, 2022-Ohio-961, the Ohio Second District Court of Appeals remanded an employee’s retaliatory termination claim, so the trial court could determine whether the employee’s failure to disclose the pending lawsuit when filing for bankruptcy was done in bad faith or was inadvertent.

Here, the trial court dismissed the employee’s claim based on the doctrine of judicial estoppel, which prohibits litigants “from taking a position inconsistent with one successfully and unequivocally asserted by the same party in a prior proceeding.” 2022-Ohio-961 at ¶ 36. Ohio courts have used judicial estoppel where litigants fail to disclose pending lawsuits in bankruptcy proceedings because debtors who file for bankruptcy have an affirmative duty to disclose all assets to the bankruptcy court, including an expected recovery in a lawsuit, which could be used to satisfy creditors’ claims.

The Court concluded that the doctrine of judicial estoppel may apply in this case because the employee filed for bankruptcy two months after filing the retaliatory termination claim and denied having any legal claims against third parties in the bankruptcy filings. However, the Court explained that judicial estoppel would be inapplicable if the employee’s failure to disclose the lawsuit resulted from mistake or inadvertence, as the employee argued was the case. To determine whether the failure to disclose was inadvertent, courts consider whether: “(1) [the litigant] lacked knowledge of the factual basis of the undisclosed claims; (2) [the litigant] had a motive for concealment; and (3) the evidence indicates an absence of bad faith.” 2022-Ohio-961 at ¶ 40. Although there was no question that the employee had knowledge of the factual basis of the termination claim and had a motive for concealment, the Court remanded the case for the trial court to determine whether the employee’s failure to disclose was done in bad faith.

The Court also remanded the case for the trial court to decide whether the bankruptcy trustee had become a real party in interest to the retaliatory termination case due to the fact that all the employee’s property belonged to the bankruptcy estate, thereby, depriving the employee of standing.

To read this case, click here.

Authors: Matthew John Markling and the McGown & Markling Team.

Note: This blog entry does not constitute – nor does it contain – legal advice. Legal jurisprudence is like the always-changing Midwestern weather. As a result, this single blog entry cannot substitute for consultation with a McGown & Markling attorney. If legal advice is needed with respect to a specific factual situation, please feel free to contact a McGown & Markling attorney.

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