RICHARD E. FEHLING, Bankruptcy Judge.
After a day of hearing testimony and receiving exhibits and upon the filing by the parties of numerous pages of briefs with attachments, I will now decide this dispute. This case is based on the firing of Roberta Ansel by Debtor in retaliation for her complaining to government agencies that Debtor was cheating on its compensation to its employees. Ansel sued Debtor in Massachusetts state court because it wrongfully and unlawfully fired her. Ansel obtained a substantial award and judgment in Massachusetts earlier this year. She had filed a claim in this case before final resolution of the suit in Massachusetts, seeking a bit more than $410,000, asserting that about $292,000 of her claim was entitled to priority treatment. Her initial claim proved to be higher than her actual award of damages, which is more than $294,000.
Debtor had objected to Ansel's initial claim, claiming nothing was actually owed to Ansel and, if something were owed, it was entitled to no priority. Debtor filed a Supplemental Objection to Ansel's claim after the state court judgment was rendered. Debtor's Supplemental Objection asserted two defenses: First, Ansel's recovery is limited by Section 502(b)(7) and second, certain components of Ansel's claim are barred by Section 15.1 of Debtor's confirmed plan of reorganization.
I find and conclude that (1) to the extent it is based on Section 502(b)(7) as a defense, Debtor's Supplemental Objection to Roberta Ansel's claim is barred by Debtor's two-year delay in raising its Supplemental Objection and (2) if I were to assume that Debtor is not time-barred from raising Section 502(b)(7), I also reject the Section 502(b)(7) defense in its Supplemental Objection on the equitable ground of laches. Finally, I conclude that Section 502(b)(7) is substantively inapplicable to reducing Ansel's claim in any way.
Disposing of the Supplemental Objection to Ansel's claim effectively disposes of Ansel's motion to determine objections to her claim as moot.
If and to the extent that some determination is made that I do not have the power to make a final decision of this matter involving an objection to a claim, the findings of fact and conclusions of law throughout my discussion in this Memorandum Opinion shall constitute my formal findings of fact and conclusions of law for any reviewing court.
Debtor filed its Chapter 11 petition on March 3, 2009. On June 22, 2009, Ansel filed her claim, in which she alleged that she held an unsecured claim against Debtor in the total amount of $410,886, $292,036 of which she claimed was entitled to priority status as wages under Section 507(a)(4) of the Bankruptcy Code, 11 U.S.C. § 507(a)(4). Ansel's claim was based on her wrongful discharge/statutory retaliation complaint that she had filed against Debtor in Massachusetts state court in 2005, before Debtor's bankruptcy filing.
Debtor timely filed its original objection to Ansel's claim on January 26, 2011. Debtor's initial objection raised two issues: (1) Under Massachusetts law, Ansel had no valid claim to the relief sought in the Massachusetts state court action; and (2) if Ansel had a claim, no portion of her claim was entitled to priority as wages under 11 U.S.C. § 507(a)(4). In its original objection. Debtor purported to reserve its right to file additional objections at a later date.
On July 5, 2011, I entered an Order through which I discretionarily abstained from hearing Debtor's original objection to Ansel's claim under Massachusetts law. I directed that the parties return to the Massachusetts state court to resolve the merits of her claim. I further noted that I could decide any alleged priority of Ansel's claim under Section 507(a)(4) after the Massachusetts court ruled on the merits. Debtor mentioned nothing about holding or asserting an objection to Ansel's claim based on the alternative grounds of Bankruptcy
The jury in the Massachusetts court decided the underlying, substantive merits of Ansel's claim by deciding in Ansel's favor and awarding her damages for her wrongful discharge/statutory retaliation claim. Ansel then petitioned the Massachusetts judge for attorneys' fees and costs as the prevailing plaintiff under Massachusetts statute, M.G.L. c. 149, § 150. The court entered judgment in Ansel's favor on September 25, 2012 in the aggregate amount of $294,523.11, comprised of: (1) $60,000 damages; (2) interest from May 5, 2005 to September 25, 2012, in the amount of $53,260.74; (3) attorneys' fees in the amount of $179,039; and (4) court costs in the amount of $2,223.37. Debtor elected not to appeal the judgment, which is therefore final.
Ansel has agreed to withdraw her request for priority status of any of her claim under Section 507(a)(4).
On February 14, 2013, Debtor filed its Supplemental Objection to Ansel's claim. Debtor raised the following two issues: (1) Ansel's claim must be capped at the equivalent of one years' wages (approximately $35,000) pursuant to Section 502(b)(7) of the Bankruptcy Code, 11 U.S.C. § 502(b)(7); and (2) Ansel is entitled to no post-petition interest, no attorneys' fees, and no court costs by virtue of Section 15.1 of the Plan.
First, Debtor's reliance on Section 502(b)(7) in its Supplemental Objection is time-barred because it was filed after the bar date for filing objections to claims. Debtor's own Plan fixed February 12, 2011, as the bar date for filing objections to claims,
Second, Debtor's reliance on Section 502(b)(7) in its Supplemental Objection is denied on equitable grounds, specifically laches.
Third, assuming that Debtor's attempt to raise Section 502(b)(7) in its Supplemental Objection is not time-barred and should not be denied on the basis of laches, I reject Debtor's substantive argument that Ansel's claim must be reduced pursuant to Section 502(b)(7). Ansel had no employment contract with Debtor and her claim against Debtor was not based on any breach of an employment contract that provided damages upon its termination. Instead, Ansel's claim is a wrongful discharge/statutory retaliation claim based upon protections afforded to her solely by Massachusetts statute. I agree with Ansel that the substance of Section 502(b)(7) does not apply to claims such as hers.
Fourth, I conclude that Debtor may object to the post-petition interest, attorneys' fees, and court costs components of Ansel's damage claim because these items are (and were at the time I considered Debtor's original objection to Ansel's claim) expressly barred by Section 15.1 of the Plan. My order confirming the Plan constitutes a final judgment on the merits with respect to all issues addressed in the Plan. The terms of the Plan are therefore binding on all parties, Debtor and its creditors alike. Debtor may contest the post-petition interest, attorneys' fees, and court costs portions of Ansel's claim as being barred by the Plan despite having filed the Supplemental Objection after the objection bar date.
Fifth, turning to the merits of Section 15.1, I reject Ansel's argument that Section 15.1 does not apply to her claim. I also reject Debtor's interpretation of Section 15.1 as barring unsecured creditors from recovering both pre- and post-petition attorneys' fees and pre- and post-petition court costs in addition to post-petition interest. To the contrary. Section 15.1 prohibits Ansel from collecting that portion of her interest, attorneys' fees, and court costs that were incurred post-petition.
Sixth, I cannot determine from the record before me, however, what portions of Ansel's claim for interest, attorneys' fees, and court costs are pre-petition and what portions are post-petition. I will therefore require that the parties calculate, negotiate, prepare, and file a stipulation identifying both the pre-petition and the post-petition components of each component of Ansel's claim. I anticipate (unfortunately) that the parties might not be able to reach a stipulation, so I will also schedule a hearing for the parties to present evidence to establish the pre- and post-petition interest, pre- and post-petition attorneys' fees, and pre- and post-petition court costs awarded to Ansel by the Massachusetts court.
Debtor's Plan established February 12, 2011, as the bar date for filing objections to proofs of claim. Debtor filed its Supplemental Objection to Ansel's claim on February 14, 2013, two years later. Debtor's Supplemental Objection is therefore barred as untimely filed. See In re Enron Corp., No. 01-16034(AJG), 2006 WL 897842, *3-4 (Bankr.S.D.N.Y. March 24, 2006); Holly's, Inc. v. City of Kentwood (In re Holly's, Inc.), 172 B.R. 545, 564-65 (Bankr.W.D.Mich.1994). As in Holly's, Inc., Debtor established a post-confirmation deadline in its Plan for objections to claims. Debtor failed to include any reference at all to Section 502(b)(7) in its original objection to Ansel's claim even though Debtor was required to include all of the legal and factual grounds to support its objection when its original objection was filed.
In re Catron, 198 B.R. 908, 909 (Bankr. M.D.N.C.1996).
I agree that Ansel should not be subjected to such a tactic. Because Debtor failed to raise its defense based on Section 502(b)(7) in its original objection to Ansel's claim. Debtor's Supplemental Objection on that basis is time-barred and must be rejected. In re Nazu, Inc., 350 B.R. 304, 311 (Bankr.S.D.Tex.2006). See also In re Greater SE Community Hospital Foundation, No. 99-1159, 2001 WL 1173496, *4-6 (Bankr.D.D.C. Sept. 28, 2001); Catron, 198 B.R. at 909; In re Mall at One Assocs., L.P., 185 B.R. 1009, 1015 (Bankr.E.D.Pa. 1995).
Debtor argues that I should consider the merits of its Section 502(b)(7) defense, even though Debtor filed it after the bar date, because courts generally favor determining matters on their merits. Although I generally agree with that judicial philosophy, I disagree that it should be applied to this dispute. When an objection is filed by a debtor after a bar date set by the debtor, I will not overlook its tardy nature to create an opportunity to rule on the merits. Enron Corp., 2006 WL 897842, at *4. Although it plays no part in my decision, I cannot avoid mentioning in the face of Debtor's plea for my equitable consideration that the Massachusetts court determined that Debtor had wrongfully fired Ansel in retaliation for her complaining about Debtor's allegedly improper compensation policies and practice.
Debtor also argues that the issues raised in its Supplemental Objection are not time-barred because its original objection contained a reservation of rights clause that
A similar approach was followed by the court in Burtch v. Dent (In re Circle Y of Yoakum, Texas), 354 B.R. 349, 357 (Bankr.D.Del.2006). The Circle Y court found that a reservation of right to amend clause in a complaint was ineffective. To rule otherwise, the court warned, might encourage a party to insert similar language in every pleading and declare later that the opposing party had sufficient notice of any amendment made to the pleading. Burtch, 354 B.R. at 357. Debtor followed a similar approach in this case, attempting to use similar "reservation of rights" clauses in every objection it filed to proofs of claim in this case.
Finally on this issue, had Debtor provided timely notice of its new objection, perhaps Ansel could have addressed it through proposed findings in the Massachusetts litigation. We cannot know whether that would have occurred, however, because Debtor failed to provide any such notice.
Ansel raises this equitable issue, so I will address it. To support its argument that Section 502(b)(7) limits Ansel's claim. Debtor alleges that an employment contract existed between itself and Ansel. Ansel argues that judicial estoppel precludes Debtor from taking this position because she says it is inconsistent with the position Debtor advanced before the Massachusetts court. Ansel claims that Debtor argued in Massachusetts that no employment contract existed between the parties. I cannot conclude that judicial estoppel is in effect in this dispute because Ansel failed to provide me with a citation or reference to any record in which Debtor did what Ansel suggests. The absence of support for the foundation of her argument leads me to reject her argument.
It is true that judicial estoppel bars a party from asserting a position that is "irreconcilably inconsistent" with a position previously advanced before a court.
Feldman v. Chase Home Finance (In re Image Masters, Inc.), 421 B.R. 164, 191 (Bankr.E.D.Pa.2009), quoting Montrose Medical Group Participating Savings Plan v. Bulger, 243 F.3d 773, 779-80 (3d Cir.2001). The Feldman decision was reversed and remanded on other issues.
But Ansel failed to substantiate the factual predicate of this argument and I cannot therefore accept it. I conclude that judicial estoppel does not bar Debtor from arguing in this Court that an employment contract existed between Debtor and Ansel.
To establish her second alleged equitable bar, laches, Ansel must show an unexcused or unreasonable delay by Debtor that resulted in prejudice to Ansel from Debtor's sandbagging. After Six, Inc. v. Abraham Zion Corp. (In re After Six, Inc.), 167 B.R. 35, 44 (E.D.Pa.1994). When the applicable limitations period expired, as it has in this case, the burden shifts from the party asserting laches, Ansel, to the dilatory party, Debtor, to prove both that Debtor's delay was excusable and that Debtor's delay did not prejudice Ansel. Santana Products, Inc. v. Bobrick Washroom Equipment, Inc., 401 F.3d 123, 139 (3d Cir.2005).
Debtor offered no excuse whatsoever for its two-year delay in raising Section 502(b)(7) in its Supplemental Objection to Ansel's claim. In addition, Debtor failed to establish that Ansel suffered no prejudice from Debtor's late raising of this defense. Debtor might have been able to change her litigation approach in the Massachusetts court had she known that Debtor would eventually advance Section 502(b)(7) to reduce her claim. Again, we cannot know if the Massachusetts litigation would have proceeded differently, perhaps with specific findings by the jury or the court or both on the employment contract issue. Laches therefore constitutes an equitable bar that prevents Debtor from relying on Section 502(b)(7) to reduce Ansel's claim.
Normally in claim disputes, I determine the amount owed pursuant to the filed claim and then simply allow the claim in such amount. Section 502(b)(7), however, provides an exception and an extra step to that procedure. A claim subject to Section 502(b)(7) is allowed:
11 U.S.C. § 502(b)(7).
Ansel correctly notes that the widely recognized purpose of Section
Ansel also argues that Section 502(b)(7) is inapplicable to her claim because the parties had no employment contract. Debtor introduced four documents in its attempt to establish some employment contract between the parties: (1) Debtor's letter to Ansel, dated January 24, 1995, and signed only by a representative of Debtor, which letter offered employment to Ansel (Exhibit D-1); (2) a so-called "Agreement," dated February 11, 1995, signed only by Ansel,
This latter document is amazing in its destruction of Debtor's Section 502(b)(7) argument. Debtor presented a document in which Ansel was told to acknowledge that no contract existed between Debtor and herself. This fact alone destroys any effort of Debtor to attack the amount of Ansel's claim on the basis of Section 502(b)(7).
These documents, taken individually or together, fail to constitute an employment contract between Debtor and Ansel. Obviously, documents signed only by a representative of Debtor or by Ansel (but not both) do not form any employment contract. As emphasized above, the Employee Acknowledgment,
In addition, Section 502(b)(7) limits an employee's claim for damages resulting from termination of an employment contract to the compensation provided under
Finally, and equally important, if an employment contract existed between Debtor and Ansel, I agree with Ansel (and those courts that have ruled) that Section 502(b)(7) does not apply to an employee's claim for damages based on the employer's breach of a statute or public policy. For the purposes of determining whether Section 502(b)(7) caps an employee's claim, I distinguish between a claim brought for breach or termination of an employment contract and a claim of wrongful discharge. In the former claim, the damages are awarded based on the termination or breach of the contract. In a wrongful discharge action, the claim arises and damages are awarded based upon the employer's violation of a statute or public policy.
Section 502(b)(7) caps only those claims that are based on the employer's breach or termination of an employment contract with an employee. Furthermore, Section 502(b)(7) can be applied only when the contract specifically enumerates the compensation to be paid to the employee for performance of her duties. It does not apply to an employee's claim for wrongful discharge based on the employer's violation of some statute or public policy. See In re Ajay Sports, Inc., 370 B.R. 703, 710-13 (Bankr.E.D.Mich.2007); In re Visiting Nurse Association, 176 B.R. 748, 751-52 (Bankr.E.D.Pa.1995). The legislative history of Section 502(b)(7) and the concerns that Congress sought to address when it enacted Section 502(b)(7) both point to this analysis.
As the court stated in Ajay Sports:
Ajay Sports, 370 B.R. at 712-13.
The circumstances surrounding Ansel's discharge from her employment are very similar to the circumstances of the claimants in both Ajay Sports and Visiting Nurse. The sole basis of the Massachusetts litigation was whether Ansel was discharged in retaliation for blowing the whistle on Debtor's violation of a state employment wage statute. The damages awarded by the Massachusetts court "were not on account of, nor did they result from, breach or termination of any employment contract, but rather were awarded based upon the ... duty not to retaliate against an employee [that] arises independently from the employment contract" under public policy. Ajay Sports, 370 B.R. at 712.
Debtor urges me to follow the approach of the courts in Belson v. Olson Rug Co., 483 B.R. 660 (N.D.Ill.2012) and In re Fair-Point Communications, Inc., 445 B.R. 271 (Bankr.S.D.N.Y.2011). I disagree with the analysis of those courts, however, and find that the reasoning and analysis of the courts in Ajay Sports, 370 B.R. at 712, and Visiting Nurse, 176 B.R. at 751-52, to be more persuasive. The courts in Ajay Sports and Visiting Nurse strictly construe Section 502(b)(7) to avoid an unfortunate result to an innocent employee. For all of the above reasons. Section 502(b)(7) does not limit or reduce Ansel's claim.
Debtor's Supplemental Objection also takes issue with that portion of Ansel's claim that seeks post-petition interest, all attorneys' fees, and all court costs because Debtor maintains that these portions of Ansel's claim are barred by Section 15.1 of the Plan. Ansel protests that Debtor waived this defense to her claim, similar to the waiver of Section 502(b)(7). She maintains that the Supplemental Objection is time-barred because it was filed after the deadline for filing objections to claims.
A confirmation order constitutes a final judgment on the merits with respect to all issues addressed in a plan of reorganization. Eastern Minerals & Chemicals Co. v. Mahan, 225 F.3d 330, 336, n. 11 (3d Cir.2000); Donaldson v. Bernstein, 104 F.3d 547, 554 (3d Cir.1997). As a final judgment on the merits, a confirmation order bars a party from relitigating
Section 12.1 of the Plan provides that "On the Effective Date, all provisions of this Plan shall be binding upon the Reorganized Debtor, all Creditors [which includes Ansel], and all other Entities who are affected in any manner by the Plan." Ansel and her counsel were properly served with Debtor's Plan, disclosure statement, voting ballot, and all related documents. Not only did Ansel fail to object to confirmation, she actually voted to accept the Plan. As such, Ansel is bound by the terms of Debtor's Plan, including Section 15.1, which prohibits unsecured creditors from recovering "post-petition interest,... attorneys' fees, or court costs on account of their Claims."
Ansel suggests that Section 15.1 of the Plan does not apply to her claim for interest, attorneys' fees, and court costs because the interest, attorneys' fees, and court costs awarded to her by the Massachusetts state court are "part of her claim" and are not "on account of her claim." I cannot distinguish a difference between interest, attorneys' fees, and court costs that are "part of a creditor's claim and interest, attorneys' fees, and court costs that are "on account of a creditor's claim. Ansel has not eased my difficulty with guidance from other courts. In both of the two phrases, interest accrued on the damages awarded by the court and, in both of the two, a claimant incurred attorneys' fees and court costs to establish a claim against Debtor. Ansel failed to cite any authority that supports her argument that some distinction exists under either Massachusetts or bankruptcy law between (A) interest, attorneys' fees, and court costs that are "part of a claim and (B) interest, attorneys' fees, and court costs that are "on account of a claim. Her argument relies heavily on semantics and she is attempting to elevate form over substance. I see no meaningful difference between the two phrases. I conclude that Section 15.1 of Debtor's Plan applies to that portion of Ansel's claim that seeks interest, attorneys' fees, and court costs.
Having determined that Section 15.1 of Debtor's Plan applies to interest, attorneys' fees, and court costs contained in Ansel's claim, I next address the parties' divergent interpretations of Section 15.1, which provides, in pertinent part, as follows:
Debtor's Plan, Section 15.1.
Debtor maintains that the term "post-petition" found in Section 15.1 modifies only the first term, "interest," in the list of five terms. Debtor therefore posits that Section 15.1 prohibits an unsecured creditor from collecting any post-petition interest, any attorneys' fees, and any court costs (and any late charges and penalties), whether incurred pre- or post-petition, as part of its claim. Pursuant to Debtor's reading of Section 15.1, a claim may consist of only the principal debt and pre-petition interest.
Section 15.1 appears to me to be unambiguous. In my initial reading of the language in question, I had no doubt that "post-petition" modified, described, and limited all of the following five components of a claim. The alternative application of grammar would be awkward and would require that the adjective "post-petition" be inserted into the list five times,
If and to the extent Section 15.1 might be deemed ambiguous, however, any ambiguity must be construed against Debtor as the drafter of the offending language. Stuart, 402 B.R. at 132. I therefore find and conclude that Section 15.1 bars unsecured creditors, including Ansel, from collecting post-petition interest, post-petition attorneys' fees, and post-petition court costs on account of their claims. It does not prohibit Ansel from collecting pre-petition interest, pre-petition attorneys' fees, or pre-petition court costs on account of her claim.
I cannot determine on the record that exists before me what portions of Ansel's claim for interest, attorneys' fees, and court costs are pre- or post-petition. I will therefore require that the parties calculate, prepare, and file a stipulation identifying these amounts. If the parties cannot agree to a stipulation by the deadline set forth in the accompanying Order, I will conduct a hearing so the parties can present evidence to establish the amount of pre-petition interest, pre-petition attorneys' fees, and pre-petition court costs that will be included and allowed in Ansel's claim.
Debtor attempts, through its Supplemental Objection, to use Section 502(b)(7) of the Bankruptcy Code to limit Ansel's claim. Debtor is barred, however, by its own limitation in Section 14.1 of Debtor's Plan requiring that all objections to claims must have been filed before February 12, 2011. Debtor did not raise its Section 502(b)(7) defense until its Supplemental Objection was filed on February 14, 2011, and so it was time-barred. If Debtor's attempt to raise the Section 502(b)(7) argument is not time-barred, I reject Debtor's Section 502(b)(7) argument by the application of the equitable remedy of laches. Finally, I also reject Debtor's argument on the substance and inapplicability of Section 502(b)(7). I find and conclude that Section 502(b)(7) does not limit Ansel's claim.
Debtor, in its Supplemental Objection, also takes issue with that portion of Ansel's claim that seeks interest, attorneys' fees, and court costs. Debtor maintains that those portions of her claim seeking post-petition interest, all attorneys' fees, and all court costs are not permitted pursuant to Section 15.1 of the Plan. Ansel counters that Debtor cannot raise this defense because it was late in filing the Supplemental Objection. Debtor's limitation
The Massachusetts judgment that serves as the foundation of Ansel's claim is not helpful in differentiating between pre- and post-petition, interest, attorneys' fees, and court costs. I will direct that the parties calculate, prepare, and file a stipulation that details the pre- and post-petition amounts of each portion of Ansel's claim. If the parties are unable to stipulate to these amounts, I will conduct a hearing to determine their amounts.
My resolution of Debtor's Supplemental Objection also resolves all issues related to Ansel's Motion for Determination of Any Remaining Issues on Debtor's Objection to Claim of Ansel, which will therefore be denied and dismissed as moot.
An appropriate Order follows.
AND NOW, this 24 day of July, 2013, upon my consideration of Debtor's Supplemental Objection to Claim No. 41 Roberta Ansel (the "Supplemental Objection") and Roberta Ansel's Motion for Determination of Any Remaining Issues on Debtor's Objection to Claim of Roberta Ansel, and for the reasons explained in the accompanying Memorandum Opinion of even date herewith,
IT IS HEREBY ORDERED that Debtor's Supplemental Objection is OVERRULED IN PART AND SUSTAINED IN PART, as follows:
IT IS FURTHER ORDERED that Ansel's Motion for Determination of Any Remaining Issues on Debtor's Objection to Claim of Ansel is HEREBY DENIED AND DISMISSED AS MOOT.
IT IS FURTHER ORDERED that the parties shall file a stipulation on or before August 16, 2013, which stipulation shall set forth the amount of pre-petition interest, pre-petition attorneys' fees, and pre-petition court costs that were awarded to Ansel by the Massachusetts court, which amounts shall be allowed as part of Debtor's claim in the bankruptcy proceeding.
IT IS FURTHER ORDERED that, if the parties fail to file the Stipulation set
In Section 12.2 of the Plan, Debtor again uses the same grammatical structure as in Section 15.1, except that the modifier follows the list, rather than preceding it. Describing the re-vesting of assets, Section 12.2 refers to "all Claims, Liens, charges and other interests of creditors arising prior to the Petition Date...." If Debtor's present attempted reading of Section 15.1 were applied to Section 12.2 of its Plan, all post-petition Claims, Liens, and charges would be divested from Debtor's assets, which would surprise those who received a post-petition lien to secure Debtor's obligations to them.
These two examples from Debtor's Plan are only two of possibly others, but I point to them simply to show that Debtor's structure of having a single adjective modify, describe, and limit a series of nouns is not uncommon and constitutes the intention of the Plan language in Section 15.1.