ADA complaint against debtor is barred

A bankrupt airline could not be held liable to a former employee for handicap discrimination, the 1st U.S. Circuit Court of Appeals has found.
The airline argued that a U.S. Bankruptcy Court order disallowing the discrimination claim resulted in the employee being forever barred from suing the airline under the Americans with Disabilities Act.

The 1st Circuit agreed, rejecting the employee’s assertion that she could seek equitable relief in the form of reinstatement.

“[A] right to an equitable remedy, whether or not fixed, disputed, or reduced to judgment, is a ‘claim’ within the meaning of the Bankruptcy Code, and subject to bankruptcy proceedings, if ‘a monetary payment is an alternative for the equitable remedy,’” Chief Judge Sandra L. Lynch wrote for a unanimous three-judge panel.
“Because money damages are an alternative remedy for reinstatement following wrongful termination, [the employee]’s claim was within the jurisdiction of the bankruptcy court and so disallowed and discharged,” she added.

The 17-page decision is Rederford v. US Airways, Inc.

California attorney Howard Moore Jr. represented the plaintiff employee. Maryland attorney Daniel E. Farrington was counsel for the defendant employer.
Termination and bankruptcy

The suit was brought by plaintiff Janelle Rederford. Throughout most of her 24-year employment as a customer service representative at defendant US Airways, she suffered from lupus, which was diagnosed in 1979.

During the month before the termination of her employment, the plaintiff was absent from work from Jan. 2 to Jan. 5, 2002, due to a lupus-related illness.

Her supervisor required that she submit a certification from a health care provider regarding her medical condition. The supervisor was not satisfied with the initial certification and requested an amended one by Jan. 26.

After the supervisor did not receive the amended certification by the extended deadline of Jan. 28, US Airways terminated the plaintiff’s employment on Jan. 31 at T.F. Green Airport in Warwick, R.I.

The plaintiff later that year filed an administrative charge against the defendant. Shortly thereafter, the defendant filed a voluntary petition for relief under Chapter 11 in U.S. Bankruptcy Court.

The plaintiff was notified of the bankruptcy proceeding and was provided a proof-of-claim form. The notice informed her that if she did not submit a proof of claim by the Nov. 4, 2002, bar date, she would be “forever barred, estopped and enjoined from” asserting her claims against US Airways.

The plaintiff returned her proof-of-claim form in a timely fashion and stated her belief that she had been discriminated against on the basis of disability and been denied a reasonable accommodation. The defendant responded with an “omnibus objection” to a number of different classes of claims, including the plaintiff’s.

Though the plaintiff was informed that her claim would be disallowed unless she filed a request for a hearing by Feb. 28, 2003, she did not file such a request.
The bankruptcy judge then entered an order sustaining the objection, thereby disallowing the plaintiff‘s claim.

The following day, the judge confirmed the defendant’s reorganization plan. The confirmation order discharged all claims arising before the plan’s effective date, March 31, 2003, and permanently enjoined suit pursuant to those claims.

The plaintiff eventually brought her ADA suit in federal court in 2008, seeking reinstatement, compensatory, special, and punitive damages and counsel fees.
U.S. District Court Judge William E. Smith in Providence, R.I., ordered the complaint dismissed.

Recovery barred

On appeal, the plaintiff conceded that, to the extent that her ADA claim would obligate the defendant to pay money damages, the claim was barred by the Bankruptcy Court’s injunction in the confirmation order.

She argued instead that, because she could seek relief in the form of reinstatement should she prevail under the ADA, the equitable remedy removed her reinstatement claim from the class of barred “claims” under the Bankruptcy Code.

In addressing that argument, Lynch noted that, in the U.S. Bankruptcy Code, “Congress gave the term ‘claim’ the ‘broadest available definition.’” That definition encompasses “an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or
unsecured,” she said.

“The inclusion of equitable remedies that may be reduced to payment … ensures that even the most ‘uncertain and difficult to estimate’ claims can be adjudicated in the bankruptcy proceedings,” Lynch wrote. “Rederford cannot preserve her right to reinstatement by limiting her recovery to equitable relief.”

Allowing her to do so “would grant her the equivalent of a preference over other creditors, who only had claims for monetary damages or who agreed to accept liquidated damages for their equitable claims, by allowing her to avoid the prioritization of claims established in the bankruptcy proceeding,” Lynch said. “It would also thwart the finality of that proceeding and US Airways’ reorganization plan by enabling her to pursue a suit arising before the discharge from bankruptcy.”

The judge emphasized that the plaintiff had proper notice of her opportunity to pursue her employment discrimination claim through the bankruptcy proceeding.
“Having failed to do so, her claims are disallowed and discharged, and the injunction is effective to bar her claims,” she concluded.