Rederford v. U.S. Airways, Inc., No. 09-1005 (1st Cir. Dec. 14, 2009)

By Paul Mollica

Is an action for reinstatement under the ADA a “claim” dischargeable in bankruptcy as defined in 11 U.S.C. § 101(5)? Holds the First Circuit, yes it is — in an apparent case of first impression — because the monetary remedy of front pay is an alternative to reinstatement, and all monetary claims (whether legal or equitable) are dischargeable.

Rederford v. U.S. Airways, Inc., No. 09-1005 (1st Cir. Dec. 14, 2009): As summarized by the panel, “[i]n 2008, Janelle Rederford brought suit under the Americans with Disabilities Act (‘ADA’) for events occurring in 2002 in federal district court against US Airways, Inc. The court dismissed the suit [for failure to state a claim, under FRCP 12(b)(6)] on the grounds that the ADA claims had been disallowed and also had been discharged as ‘claims’ under the Bankruptcy Code in the airline’s 2003 bankruptcy.” 

The plaintiff had filed her proof of ADA claim in the bankruptcy proceedings in Virginia in 2003, the debtor objected, and the bankruptcy judge sustained the objection (the plaintiff having failed to request a hearing on the matter).  Thereafter, the bankruptcy judge approved the debtor’s reorganization and enjoined future lawsuits against it.  Plaintiff commenced her lawsuit five years later, and it was dismissed on the ground that it was discharged.

The panel affirms.  It observes in passing that because her suit was in substance a collateral attack on the bankruptcy court’s judgment, it was probably subject to dismissal on that ground alone, but the defendant had not raised that argument.  It then notes that the definition of “claim” in the bankruptcy code is the “broadest available,” to wit:

“(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to 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.”

The panel acknowledges that purely equitable remedies, such as for abatement, are not “claims” under this definition.  Obversely, the court holds that even an equitable remedy that would or might effect a transfer of money on a claimant is subject to discharge.  The ADA, the panel holds, falls into this category, for even if the employee forswears all legal and back pay relief in favor of reinstatement, even this limited claim could result in the alternative award of front pay:

“Because money damages are an alternative remedy for reinstatement following wrongful termination, Rederford’s claim was within the jurisdiction of the bankruptcy court and so disallowed and discharged. 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. 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 panel also rejects an alternative judicial estoppel and “unclean hands” argument against U.S. Airways, finding that the employer had not made misleading statement in the bankruptcy court.