Opinion
Case No. 02-16450-JKC-7A.
September 10, 2008
ORDER GRANTING TRUSTEE'S AMENDED MOTION TO COMPROMISE AND SETTLE
This matter came before the Court on the Trustee's Motion to Compromise and Settle, Debtor's Objection thereto, and the Trustee's Amended Motion to Compromise and Settle (the "Amended Motion"). The Court conducted a hearing on August 27, 2008, and took the matter under advisement. Having reviewed the parties' submissions and evidence, the Court grants the Amended Motion.
Procedural History
1. Debtor Eugene Smith ("Debtor") filed a voluntary Chapter 7 bankruptcy petition on September 20, 2002.
2. John J. Petr was duly appointed as the Chapter 7 Trustee (the "Trustee") and, following the first meeting of creditors, deemed the case to be a "no asset" case.
3. On January 1, 2003, Debtor received a discharge, and the case was subsequently closed.
4. On December 3, 2007, the case was reopened to administer Debtor's discrimination claim against Citizens Gas and Coke Utility ("Citizens Gas"), pending in the United States District Court for the Southern District of Indiana (the "District Court Action"). In that lawsuit, Debtor-along with numerous co-plaintiffs-alleges, inter alia, that Citizens Gas's use of a written test known as the work competency assessment ("WCA") to screen employees for inter-division transfers and promotions violated Title VII of the Civil Rights Act of 1964 ("Title VII").
5. Debtor's bankruptcy Schedules did not disclose his claim against Citizens Gas as an asset of the estate, nor did he list it in his Statement of Financial Affairs. The claim only came to the Trustee's attention after counsel for Citizens Gas revealed Debtor's bankruptcy case to the district court on or about November 20, 2007. Debtor filed his Charge of Discrimination with the United States Equal Employment Opportunities Commission (the "EEOC"), however, on August 28, 2002, and the District Court Action was initiated on December 5, 2003.
6. In a summary judgment order dated January 11, 2007 (the "Summary Judgment Order"), the district court ruled that the plaintiffs had established, as a matter of law, that the WCA had a disparate impact on Citizens Gas's African American employees in violation of Title VII. The court reserved the issue of damages for trial.
In disparate impact cases such as the District Court Action, punitive and compensatory damages are not available. Rather, the court is limited to equitable remedies, including injunctive relief, back pay and front pay. According to its Summary Judgment Order, the district court has reserved for trial the issue of which equitable remedies-in particular, back pay-are appropriate for each plaintiff. It should be noted in this regard that Citizens Gas ceased administering the WCA in 2004 and, thus, injunctive relief to prohibit further administration of the test is unnecessary.
7. Beginning on November 26, 2007, the district court conducted a three-day bench trial on all but Debtor and co-plaintiff Todd Davidson's claims. Like Debtor, Davidson filed a Chapter 7 bankruptcy petition that did not list his discrimination claim against Citizens Gas as an asset. It appears that the district court was first apprised of these bankruptcy cases on or about November 20, 2007. Thereafter, the district court bifurcated Smith and Davidson's claims "to be tried another day pending notice to the . . . bankruptcy trustee of their claims. . . ." A trial on Smith and Davidson's claims is currently scheduled for October 14, 2008, and the district court's decision on the remaining plaintiffs' claims remains forthcoming.
8. On April 9, 2008, the Trustee was substituted for Debtor as the real party-in-interest in the District Court Action with respect to Debtor's claims.
Gregory K. Silver, as Chapter 7 trustee, has been substituted as the real party-in-interest with respect to Davidson's claims. As explained in more detail below, Davidson's case against Citizens Gas is factually different from Debtor's case in several significant respects.
9. On June 19, 2008, the Trustee and Citizens Gas entered into a settlement agreement resolving the District Court Action (the "First Settlement Agreement") with respect to Debtor's claims. The Trustee then filed his Motion to Compromise and Settle, to which Debtor objected. The Court set the matter for hearing on August 27, 2008.
10. On August 4, 2008, the Trustee and Citizens Gas revoked the First Settlement Agreement" and entered into a new settlement agreement (the "Second Settlement Agreement").
11. The Second Settlement Agreement provides, inter alia, for Citizen Gas to pay $27,700.00 to the bankruptcy estate. That amount represents the aggregate amount of the allowable claims filed in the case, together with the Trustee's approximate statutory fee. It would pay nothing to Debtor.
12. The only substantive difference between the First Settlement Agreement and the Second Agreement is that, unlike the First Settlement Agreement, the Second Settlement Agreement does not apply to any claim for attorneys' fees arising out of the District Court Action. In an effort to address one of Debtor's objections to the First Settlement Agreement, the Second Settlement Agreement specifies that Debtor's attorneys in the District Court Action may petition the district court for an award of fees and costs.
13. Because all of Debtor's remaining objections apply with equal force to the Second Settlement Agreement, the Court proceeded-with the parties' consent-with the August 27, 2008 hearing on the Amended Motion.
Discussion and Decision
14. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).
15. Under Bankruptcy Rule 9019(a), the bankruptcy court may approve a compromise or settlement "[o]n motion by the trustee and after a hearing on notice to creditors, the debtor and indenture trustee. . . ." In reviewing such a motion, the bankruptcy court is to determine whether the proposed compromise is fair and equitable, Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968), and in the best interests of the bankruptcy estate, In re American Reserve Corp., 841 F.2d 159, 161 (7th Cir. 1987). In making this determination, a bankruptcy judge is required to apprise himself "of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated." TMT Trailer Ferry, Inc., 390 U.S. at 424, 88 S.Ct. at 1163; see also American Reserve Corp., 841 F.2d at 161. To this end, the bankruptcy judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise. Basic to this process in every instance, of course, is the need to compare the terms of the compromise with the likely rewards of the litigation. TMT Trailer Ferry, Inc., 390 U.S. at 424-25, 88 S.Ct. at 1163.
16. In his objection to the Amended Motion, Debtor insists that the settlement proposed by the Trustee in the amount of $27,700.00 is far less than his claim against Citizens Gas is worth. According to Debtor's calculations, he is entitled to back pay, additional 401k distributions, and prejudgment interest totaling $185,386.23. The Trustee, however, insists that there are significant weaknesses to Debtor's case against Citizens Gas and that there is a substantial risk that he will recover nothing-to the detriment of the bankruptcy estate-if the case proceeds to trial.
17. The first of the weaknesses highlighted by the Trustee relates to whether Debtor's claim is timely. As previously stated, Debtor originally filed his Charge against Citizens Gas on August 28, 2002. The Charge complained that the WCA adversely impacted his opportunity for a promotion that he applied for on June 27, 2002. The Charge satisfies the EEOC's "300-day rule" in that it was filed within 300 days of the alleged act of discrimination.
18. However, all of the plaintiffs' claims in the District Court Action, including Debtor's, are based on numerous vacancies filled by Citizens Gas in September and October of 2001, a time frame that is outside the 300-day window of Smith's August 28, 2002 Charge. Consequently, Debtor and several of his co-plaintiffs have invoked what is commonly known as the "piggy back" exception to the EEOC's 300-day rule. As explained by the district court in its Summary Judgment Order:
Debtor's claim for back pay in the District Court Action is based on various Gas Service Specialist ("GSS") positions that were first posted in the August of 2001.
The "piggy back" rule references a court-made exception to the requirement that an individual claimant must timely exhaust his administrative remedies before being allowed to file suit. This exception is based on the theory that, if the claim implicates the same conduct complained of by one person who did raise the alleged discrimination in his charge, that should suffice as to all such potential claimants because the purpose of the charge-filing requirement — namely, to provide an opportunity for the agency to facilitate a resolution — has been satisfied.
(internal citations omitted).
19. Both the Trustee and Citizens Gas insist that the district court already rejected application of the "piggy back" exception per its Summary Judgment Order, which states in relevant part:
We are prepared to apply that exception to the general rule with respect to claims arising out of the test requirement itself, since there the claim and the remedy are one and the same. All employees seeking inter-division transfers who were made to take a test which disproportionately favored non-African Americans suffered the same wrong and, clearly, the best remedy to that wrong would be to enjoin the employer from relying on the test for selection purposes in the future. Additionally, where a single Plaintiff continues to have his job bids denied because of the effect of his test score(s), so long as he filed a charge complaining of the employer's reliance on the test in connection with a job denial, no legitimate purpose would be served by requiring that person to file additional charges with each successive denial. However, where multiple Plaintiffs are claiming to be qualified for and entitled to the same position, a need arises for each individual to assert that specific claim in order to permit a resolution to be reached at the agency level, if possible. Consequently, it is our judgment that the "piggy back" rule does not apply to a claim by an individual Plaintiff . . . who was denied a transfer or promotion to a job more than 300 days prior to his filing a charge with the EEOC.
(Emphasis added).
20. Debtor insists, however, that the district court has not fully disposed of its "piggy back" argument and that the above statement is factually distinguishable from his claim. Various pleadings in the District Court Action, e.g., the plaintiffs' August 27, 2008 Motion in Limine, express the plaintiffs' specific arguments in this regard, and this Court need not set them forth fully here. Suffice to say that the issue appears to remain unresolved before the district court. While the district court had an opportunity to offer a more definitive ruling prior to trial, it chose instead to deal with the issue at trial as an evidentiary matter. Thus, there remains at least some possibility that Debtor and his co-plaintiffs will prevail on this issue, opening the door to sizeable awards for back pay and other monetary damages, including the $185,000 that Debtor seeks. Of course, there is also some risk that Debtor will lose and recover nothing.
21. In support of his Amended Motion, the Trustee also highlights Citizens Gas's defense that Debtor was not qualified for the GSS positions because of his disciplinary record.
22. The evidence shows that on May 4, 2001, Debtor was issued a Corrective Action Statement for smoking in a prohibited area. According to the relevant Collective Bargaining Agreement,"[a]n employee can be disqualified as a bidder [for a job vacancy] for the sole reason of having a current disciplinary report in their file that is less than twelve (12) months old." Debtor insists that his offense was minor and that management retained the discretion to consider him qualified for bidding purposes. Citizens Gas counters that the offense was a serious violation of safety policy and that management has historically rejected as unqualified any employee with a disciplinary constraint.
23. In its Summary Judgment Order, the district court set forth its "intended methodology" for resolving each plaintiffs' entitlement to monetary relief:
[I]f the only injury proven by an individual Plaintiff is the denial of the chance to compete fairly with others for particular positions, his remedy would likely be limited to a non-monetary recovery because, we repeat, compensatory and punitive damages are only available where intentional discrimination is present. Only if a Plaintiff is able to prove that "but for" his failing score on the WCA, he would have received a specific position in the gas division, would he be entitled to something more than an order ensuring that in the future he will compete on a level playing field.
24. According to this standard, Debtor will have to demonstrate in the very least that he would have received a GSS position despite the Corrective Action Statement and the terms of the Collective Bargaining Agreement. Otherwise, his claim for back pay will presumably fail. It is not clear, however, how Debtor will counter Citizen Gas's defense under the Collective Bargaining Agreement.
It should be noted in this regard that Debtor did not actually apply for any of the GSS positions. While this is not necessarily fatal to his claim-if he can prove that applying for the job in light of his failing WCA score was futile-it is yet another hurdle that he will presumably have to overcome in order to prevail on a claim for back pay.
25. Finally, the Trustee highlights Citizens Gas's defense that Debtor's failure to disclose his discrimination claim against Citizens Gas may affect his ability to obtain equitable relief.
26. At the hearing on the Amended Motion, the Court heard testimony from Debtor that he received minimal assistance and instruction from his bankruptcy counsel in completing his Schedules and Statement of Affairs. From that testimony, the Court cannot conclude that his failure to include his claims against Citizens Gas was intentional. Thus, while the district court may factor his failure to disclose the asset in fashioning an equitable remedy, the Court finds Citizens Gas's argument on this point to be less than compelling.
27. In the hearing on the Amended Motion, Debtor directed the Court to the different path that the Chapter 7 trustee has taken with respect to Davidson's claim against Citizens Gas as proof that the Second Settlement Agreement is unreasonable. The Court finds such argument to be unpersuasive. Davidson's claim for back pay does not suffer from the same weaknesses as Debtor's claim in that Davidson does not rely on the piggy back exception, nor is there any allegation that he was under a disciplinary constraint. Citizens Gas's only defense against Davidson relates to his failure to disclose his discrimination claim in his bankruptcy case.
28. Finally, the Court must draw some attention-although the Trustee did not raise this argument himself — to evidence indicating that Debtor executed a Release Agreement when he accepted a retirement offer from Citizens Gas in March of 2007 (the "Release"). According to the Release, in exchange for three months' severance pay, Debtor agreed to release and discharge Citizens Gas "from any claims, known or unknown, directly or indirectly related to or in any way connected" to his employment with Citizens Gas, including "all claims of discrimination and/or harassment on the basis of race . . . under Title VII." While the Release may be unenforceable as to Debtor's bankruptcy estate in that Debtor could not release what was not his, there is at least some argument to be made that Citizens Gas's financial exposure is limited to the amount of claims and administrative expenses allowed in Debtor's bankruptcy case. Certainly, it presents another significant defect to Debtor's claim against Citizens Gas.
It is not clear why the Trustee did not argue, in support of the Amended Motion, that the Release bars or limits Citizens Gas's exposure or liability. The Release, however, is discussed in Trustee's Exhibit 6-Defendant's Brief in Support of Motion for Summary Judgment with Respect to Damages. The district court summarily denied that motion in the days immediately prior to trial before it was revealed that Debtor had filed for bankruptcy. The Court presumes that if Debtor's claim proceeds to trial, Citizens Gas will again raise the Release as a defense.
29. Based on the foregoing, the Court concludes that the Second Settlement Agreement is both fair and equitable and in the best interests of the estate. As set forth above, Debtor's claim against Citizens Gas for back pay and other monetary relief suffers from several defects. Debtor's disciplinary record and the Release are particularly problematic. In the Court's opinion, there is a substantial risk that Debtor will recover nothing in the way of monetary relief, notwithstanding Citizen Gas's liability under Title VII for its use of the WCA. While there is also some chance, albeit slight, that Debtor could recover in excess of $185,000, the Court must bear in mind that Debtor's creditors bear the ultimate risk of proceeding to trial. In determining whether the proposed settlement in this case should be approved, the interests of Debtor's creditors are paramount. See Drexel Burnham Lambert, Inc. v. Flight Transp. Corp. (In re Flight Transp. Corp Sec. Litig.), 730 F.2d 1128, 1135 (8th Cir. 1984) (citations omitted).
30. Accordingly, the Court grants the Trustee's Amended Motion and approves the Second Settlement Agreement. Notice Recipients Recipients of Notice of Electronic Filing: Recipients submitted to the BNC (Bankruptcy Noticing Center):
District/Off: 0756-1 User: cathy Date Created: 9/10/2008 Case: 02-16450-JKC-7A Form ID: pdfOrder Total: 5 tr John J. Petr petrtrustee@kgrlaw.com aty John J. Petr petrtrustee@kgrlaw.com aty R. Davy Eaglesfield, III deaglesfield@price-law.com aty Ronald J Waicukauski rwaicukauski@price-law.com TOTAL: 4 db Eugene Smith 3619 Payton Avenue Indianapolis, IN 46226 TOTAL: 1