Nov. 12 (Westlaw Journals) – A Tennessee woman who filed a Chapter 7 petition four days after being fired from her job at a women’s clothing store lacks standing to sue her former employer for age discrimination, a federal appeals court has ruled.

Auday v. Wet Seal Retail Inc., No. 12-5057, 2012 WL 5259002 (6th Cir. Oct. 25, 2012).

A three-judge panel of the 6th U.S. Circuit Court of Appeals said the claim, which became the property of the woman’s bankruptcy estate when she filed her petition, must be brought by her trustee.

The ruling reverses a federal court’s finding that it need not reach the issue of standing because it found the claim had been lost when the plaintiff failed to disclose it as a possible asset on her bankruptcy filings.

The 6th Circuit said the lower court should have addressed the “threshold” standing issue first.

Karen Auday claims in court papers that she began working at a Chattanooga, Tenn., store run by Wet Seal Retail Inc. in December 2008.  The company markets clothing to young women.

Auday, who was 47 at the time, says she was subjected to comments from co-workers about her age, including that she should look for a more “age appropriate” job, according to the 6th Circuit’s opinion.

When Auday was fired Sept. 17, 2009, she wrote the company to complain about age discrimination and unlawful labor practices.

Four days later, she filed a Chapter 7 petition with her husband.  In re Auday, No. 09-16044 (Bankr. E.D. Tenn. Sept. 21, 2009).  The filing did not list the possible age-discrimination claim as an asset as required by 11 U.S.C. § 521(a)(1)(B)(i), the opinion said.

Three months later, an attorney retained by Auday wrote to the bankruptcy trustee, informing him about a possible age discrimination claim.  The information was not passed along to the Bankruptcy Court, which issued Auday a discharge of her debts in January 2010, the opinion said.

A month later, the trustee applied to the Bankruptcy Court for permission to hire Auday’s private attorney to pursue a claim against Wet Seal.  The court granted the application in March 2010 and appointed the attorney as “special counsel for the trustee,” the opinion said.

Auday, through her personal counsel, subsequently sued Wet Seal in state court for age discrimination, seeking $500,000 in damages.

Wet Seal removed the case to U.S. District Court for the Eastern District of Tennessee and moved for judgment on the pleadings.

The District Court granted the motion, finding that Auday’s failure to list the potential claim in her bankruptcy papers barred her from bringing it later.

On appeal, the 6th Circuit took a different route to bar the suit.

The panel said the District Court should have addressed the “threshold” issue of standing.

“When Auday filed for bankruptcy, her estate became the owner of all of her property, including tort claims that accrued before she filed her bankruptcy petition,” the panel said.

Because the trustee did not abandon the claim against Wet Seal, which would have returned it to Auday, she lacks standing to sue, the opinion said.

The panel therefore vacated the District Court’s decision and remanded with instructions to dismiss the case without prejudice or allow Auday to amend the complaint to substitute the trustee as plaintiff.

Attorneys:

Plaintiff: Frank P. Pinchak, Burnette Dobson & Pinchak, Chattanooga, Tenn.

Defendant: Jonathan O. Harris, Ogletree Deakins Nash Smoak & Stewart, Nashville, Tenn.

This article originally appeared in Westlaw Journal Bankruptcy, Vol. 9, Iss. 15.