In Re Hardy
MEMORANDUM OPINION AND ORDER
This matter came before the Court on December 3, 1996 on a Motion To Reopen by
FINDINGS OF FACT
The debtor, a self-employed attorney on the Eastern Shore, filed for Chapter 13 protection in 1991. The debtor’s case was subsequently converted to a Chapter 7 liquidation, and her debts were discharged on July 1, 1992. The debtor recites two legal bases to support her Motion To Reopen. First, the debtor alleges that, after her bankruptcy filing, some of her clients were told by the Marine Bank (“the Bank”) not to utilize her legal services when closing real estate transactions between the Bank and its customers. This conduct is alleged by the debt- or to be unlawful discrimination pursuant to 11 U.S.C. § 525(b). The debtor’s second reason for her Motion To Reopen is that, one year after her debts were discharged, a prepetition judgment creditor recorded a judgment lien against certain real property belonging to the debtor. The debtor alleges that the recording of this lien was a malicious act done in violation of 11 U.S.C. § 727 because it “cast[s] a shadow” on the debtor’s real estate title by suggesting that there is a post-petition judgment against the debtor. As the parties appear to have reached a resolution with respect to the § 727 title claim, the Court limits its holding on the Motion to Reopen to the claim of alleged discrimination by the Bank under § 525(b).
CONCLUSIONS OF LAW
Notwithstanding the fact that Hardy’s bankruptcy case is closed and all scheduled debts have been discharged, the Court retains jurisdiction over the debtor’s case for certain purposes.
In re Winebrenner,
Under § 350(b) of the Bankruptcy Code, there are three conditions in which the Court can grant the reopening of a bankruptcy case: to administer assets, to accord relief to the debtor, and for other cause.
In re Dove,
I. Reopen The Bankruptcy Case To Accord Relief To The Debtor
Before the Court will reopen the bankruptcy ease to accord relief to the debt- or under § 350(b), the Court must determine if the underlying cause of action to the Motion To Reopen is “likely to be sustained when considered on its merits.”
In re Carter,
1. Is the matter sufficiently pleaded to enable the Court to determine the merits of the underlying cause of action?
The moving party, the debtor in this case, has the burden to demonstrate that there is a sufficient legal basis to reopen the ease*
In re Winburn,
2. Is the underlying cause of action likely to be sustained on its merits?
Having concluded that there is a sufficient amount of facts on the record, the Court must determine the merits of the underlying cause of action. Section 525(b) of the Bankruptcy Code states:
No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1)is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is discharge-able in a case under this title or that was discharged under the Bankruptcy Act.
11 U.S.C. § 525(b) (emphasis added).
At first blush, the Court believes that a key requirement of § 525(b) is that there must be an employee-employer relationship with the debtor as an employee of the private employer defendant. However, based on the pleadings and arguments made by counsel, it is stipulated that the debtor was not an “employee” employed by the Bank. As a result of this apparent dichotomy between the Court’s perception of the requirements § 525(b) and the facts in this case, the Court diligently attempted to locate a reported case involving a § 350 Motion to Reopen, § 525(b) discrimination, and a plaintiff debtor who is not a direct “employee” of the defendant employer.
Although no case directly square with the facts of this case could be located, the Court finds persuasive the holding in
In re Henry,
On the other hand, the Court notes that some bankruptcy courts have eviscerated the employee-employer requirement that was deemed integral in
In re Henry
and the other aforementioned cases. For example, the courts in
In re Patterson,
The debtor applies the expansive employer interpretation paradigm highlighted in
In re Patterson
and
In re Callender
to argue that the employer-employee requirement should be broadly interpreted to include non-employee-employer relationships. In other words, the debtor wants the Court to include independent contractor relationships within the umbrella of protection provided by the § 525(b) language. To support its position, the debtor cites
In re McNeely,
The Court, however, declines to apply the holding in In re McNeely as it applies to the facts of this case and, therefore, the debtor’s attempt to invoke its reasoning as well as the holdings in In re Patterson and In re Callender fails. For the following three reasons, the Court declines to follow the Georgia Bankruptcy Court’s lead in In re McNeely in extending § 525(b) protection to a non-employee of the defendant.
First, the Court disagrees with applying the
In re McNeely
holding to the current case because the court stated that the interpretation of “employment” for § 525(b) purposes is not limited to the more narrow common law or state law definition.
In re McNeely,
(1) the kind of occupation, with reference to whether the work usually is done under the direction of a supervisor or is done by a specialist without supervision; (2) the skill required in the particular occupation; (3) whether the “employer” or the individual in question furnishes the equipment used and the place of work; (4) the length of time during which the individual has worked; (5) the method of payment whether by time or by the job; (6) the manner in which the work relationship is terminated; i.e., by one or both parties, with or without notice and explanation; (7) whether annual leave is afforded; (8) whether the work is an integral part of the business of the “employer”; (9) whether the worker accumulates retirement benefits; (10) whether the “employer” pays social security taxes; and (11) the intention of the parties.
Haavistola,
In summary, the first reason that the Court disagrees with
In re McNeely
is that, in light of the Fourth Circuit’s holdings in
Haavistola
and
Garrett,
the Court is precluded from applying the holding in
In re McNeely
to determine the reach of § 525(b)
The Court’s second reason for declining to apply the holding in
In re McNeely
is that the facts integral to the court’s holding that the independent contractor logger is entitled to § 525(b) discrimination protection are not square with facts in the current case before the Court. One factual distinction is that the defendant in
In re McNeely
was an actual creditor of the debtor.
In re McNeely,
The other factual distinction is that, in In re McNeely, the debtor was “an independent contractor hired to cut and haul wood ... [who] worked exclusively for the defendant.” Id. at 630. In addition, the defendant went as far as recommending the type of equipment to buy and from where it can be purchased. Id. These factors were ostensibly persuasive to the court and led it to hold that the independent contractor relationship contractually created by the parties was merely a facade for an employee-employer relationship that is within the scope of § 525(b). Id. at 631-32. The debtor in this matter, however, was not in a relationship whereby she worked exclusively for the Bank. Furthermore, she did not receive advice or financing assistance for capital expenditures. Unlike In re McNeely where the debtor was in a direct financial relationship with the defendant, the debtor here is in a third party relationship with the Bank and the loan customers. Furthermore, as discussed supra, the Court believes that the facts in this case do not give rise to the legal conclusion that the debtor is an employee of the Bank within the protection of § 525(b). Thus, even if the Court agreed with the holding in In re McNeely, the facts in the present case are too attenuated to make that holding applicable.
The third, and most significant, reason that supports the Court’s disagreement with the holding in
In re McNeely
is that the Supreme Court in
United States v. Ron Pair Enterprises, Inc.,
The anti-discrimination provisions of Section 525 forbids [sic] private employers from taking discriminatory action against a debtor. Congress’ purpose in doing this is abundantly clear: Detors[sie] under the Bankruptcy Code are to be given a fresh start in their financial lives, and private employment practices which circumvent his policy are intolerable. With this national policy in place, it would be peculiar indeed if Congress intended that the word “employment” as used in Section 525(b) parallel the meaning of that legal term of art under state law. Shrewd employers, fearing possible liability, can easily structure their hiring practices to minimize the number of people in their hire who are “employees.” Since the success of any debtor’s fresh start depends in great measure upon his or her continued employment, it is difficult to believe that Congress gave the anti-discrimination protections only to those who are found to be part of an “employer-employee” relationship after an examination of the doctrine of respondent superior as used by the several states. A better view of Section 525(b) recognizes that Congress included all private employment relationships in the anti-discrimination provisions.
In re McNeely,
In addition to citing
In re McNeely
as supporting its position, the debt- or offers legislative history as evidence that the interpretation of § 525(b) is liberally broad so as to be consistent with sound bankruptcy policy.
7
However, because the Court concludes that § 525(b) is unambiguous, any references to legislative history are superfluous and only need to be made in rare and exceptional circumstances.
See Garcia v. U.S.,
This section amends Section 525 of Title 11 to extend the protection against discrimination to persons employed in the private sector. Under this section, no private employer may terminate employment or discriminate with respect to employment against any person on the basis that the person had been or will be a debtor in bankruptcy, or has suffered insolvency pending a discharge.
In re Tinker,
In summary, the Court refuses to expand the construction of § 525(b) by weakening the employee-employer relationship requirement. The correct reading of § 525(b) requires that the debtor be an employee of the employer-defendant. In the words of Judge Easterbrook, “too much ‘liberality’ will undermine the statute as surely as too literal an interpretation.”
Matter of Erickson,
II. Reopen The Bankruptcy Case For Cause
A bankruptcy case may also be reopened under the “for other cause” prong of § 350(b), and the decision to reopen is left to the sound discretion of the Court.
In re Shelton,
CONCLUSION
In conclusion, the Court holds that:
(1) the allegations made by the debtor are sufficiently pleaded and argued to provide the record with enough specific information to enable to the Court to adjudicate the underlying § 525(b) claim based on its merits;
(2) there is not a likelihood that the underlying § 525(b) cause of action will be sustained on its merits because the debtor is not in an employment relationship with the defendant; and
(3) the reopening of the case would be futile and a waste of judicial resources in light of the Court’s holding that the underlying § 525(b) action is not likely to be sustainable on its merits.
Based on the foregoing, the Court holds that the debtor’s Motion To Reopen is DENIED.
Notes
. With respect to according relief to the debtor, Judge Shelley in
In re Carter
concluded that a case can be reopened if the "debtor’s allegation of [a] violation of the automatic stay is likely to be sustained when considered on its merits.”
In re Carter,
. "The term 'employer' in the present [§ 525(b) ] context should be given a broad reading, not bound by conventional state law concepts.”
In re Callender,
. "The employment relationship of the Plaintiff and [the defendant] was carefully structured so as to create an independent contractor relationship."
In re McNeely,
. The Court notes the analysis undertaken by the Fourth Circuit in
Weber v. Comm'r of I.R.S.,
. The defendant would make deductions made from the debtor's weekly contract payment and transfer these amounts to the sister financing company as loan repayments.
In re McNeely,
.
The Court does not address the issue of whether the debtor would have the Court ignore the employment requirement of § 525(b) and consequently have the Bank liable under § 525(b) simply because the bank is a "private employer." This logic was considered by the court in
In re Briggs
and quickly dismissed as an implausible reading of § 525(b).
In re Briggs,
. The debtor cites Senate and House reports for the position that the courts are to expand the anti-discrimination provisions of § 525(b) to be consistent with national bankruptcy policy. S.Rep. No. 989 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5867; H.R.Rep. No. 595 . (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 6126.
. [0]ne of the primary purposes of the bankruptcy act is to give debtors "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt”.
Perez v. Campbell,
. This legislative history statement was from the Senate report accompanying § 445, Omnibus Bankruptcy Improvements Act of 1983, which was a forerunner to the Bankruptcy Act of 1984.
. A creditor lending institution moved to have the debtor’s case reopened so that the bankruptcy court could have jurisdiction over the debtor's lender liability action against the creditor.
In re Walker,
. After the case had been dismissed, the trustee had moved for a Motion To Reopen because it alleged that preferential transfers had occurred prior to the bankruptcy filing.
In re Dove,