Karen Auday v. Wet Seal Retail, Inc.
698 F.3d 902
| 6th Cir. | 2012Background
- Auday, age 47, was fired by Wet Seal Retail on Sept 17, 2009 in Tennessee.
- Auday filed for Chapter 7 bankruptcy four days later with substantial liabilities.
- Auday did not list her age-discrimination claim against Wet Seal on her bankruptcy schedules.
- The bankruptcy trustee later sought authority to hire counsel to pursue the claim, appointing Pinchak as special counsel to the trustee.
- Auday sued Wet Seal in state court for age discrimination; Wet Seal removed to federal court and moved to bar litigation based on bankruptcy-related standing issues.
- The court vacated judgment and remanded to district court to allow dismissal without prejudice or substitution of the trustee as plaintiff.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who may sue for the pre-petition claim? | Auday asserts she has standing to pursue the claim. | Wet Seal contends the trustee owns the claim and Auday lacks standing. | Auday lacks standing; the trustee holds the estate’s claim. |
| Does the bankruptcy estate own the pre-petition tort claim? | Estate ownership allows pursuit of the claim by the estate. | Estate ownership vested in trustee, not debtor. | Estate owns the claim; trustee is proper plaintiff unless abandonment or substitution occurs. |
| Does trustee’s appointment confer standing on Auday to sue on behalf of the estate? | Auday claims trustee’s appointment allows her to proceed. | Appointment does not authorize Auday to sue personally or substitute automatically. | No automatic standing transfer; Auday may not pursue unless substituted or abandonment occurs. |
| What remedy is appropriate given standing and substitution issues? | Court should allow Auday to proceed with estate representation. | Court should dismiss or substitute to real party in interest. | Vacate judgment and remand to permit dismissal without prejudice or substitution of the trustee. |
| Is judicial estoppel applicable to a trustee pursuing the claim? | Reject estoppel to facilitate recovery for creditors. | Estoppel may bar assertion to protect integrity of bankruptcy process. | Courts may substitute or relate back; estoppel does not foreclose substitution in this context. |
Key Cases Cited
- Bauer v. Commerce Union Bank, 859 F.2d 438 (6th Cir. 1988) (estate ownership of pre-petition claims; who may sue)
- In re Cottrell, 876 F.2d 543 (6th Cir. 1989) (estate as owner of debtor’s legal interests)
- Wieburg v. GTE Southwest, Inc., 272 F.3d 302 (5th Cir. 2001) (real party in interest; substitution under Rule 17)
- White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472 (6th Cir. 2010) (equitable considerations in judicial estoppel)
- Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011) (judicial estoppel in bankruptcy context)
- Asher v. Unarco Material Handling, Inc., 596 F.3d 313 (6th Cir. 2010) (substitution and relation back under Rule 17/15)