Even if the company is liquidating in chapter 11, the Equal Employment Opportunity Commission is entitled to pursue a lawsuit seeking an injunction barring discrimination against people with disabilities, according to a magistrate judge in Atlanta.
Before the company’s bankruptcy, a woman sued her former employer in district court for violating the Americans with Disabilities Act. Separately, the EEOC sued to stop unlawful employment practices and give relief to the former employee. The EEOC sought injunctive relief, back pay, front pay and punitive damages for the employee. The two suits were consolidated, with the former employee as an intervenor in the EEOC suit.
Later, the company filed a chapter 11 petition and served notice of the automatic stay, suggesting that the consolidated suit was enjoined by Section 362. The EEOC responded by arguing that the suit fell under the exception to the automatic stay in Section 362(b)(4) allowing a governmental unit to proceed with the exercise of police and regulatory powers.
In an opinion on May 21, Magistrate Judge Christopher C. Bly allowed the EEOC to proceed but stayed the suit as to the employee.
The chapter 11 debtor made arguments based in large part on practical considerations: (1) The pursuit of an injunction would become moot because the company was selling its assets, and (2) allowing the employee to pursue a claim in the bankruptcy case for her damages would be most efficient and conserve the parties’ and the courts’ resources.
Judge Bly said that the Eleventh Circuit has not decided whether the regulatory power exception applies to suits by the EEOC. Nevertheless, he said, the Third, Fourth and Eighth Circuits have found the exception applicable to employment discrimination suits by the EEOC.
Judge Bly held that the exception to the stay applies to EEOC’s suit seeking injunctive relief. He rejected the debtor’s prospective mootness argument. The “proper focus,” he said, was the nature of the EEOC’s claims brought under the police and regulatory exception, “and not the operating status of the [chapter 11 debtor].”
With regard to the efficiency argument, Judge Bly declined to impose a discretionary stay where Section 362(a) “is a more specific staying mechanism provided for by statute.” The possibility that the claim for injunctive relief might become moot, he said, “is not sufficient reason to stay the claims now.”
The debtor argued that it should not be required to expend its limited financial resources while in bankruptcy. Judge Bly responded by saying that “Congress obviously anticipated some litigation expenses when it elected to create exceptions to the automatic stay.”
Judge Bly stayed the suit as to the employee but allowed the EEOC to proceed.
Even if the company is liquidating in chapter 11, the Equal Employment Opportunity Commission is entitled to pursue a lawsuit seeking an injunction barring discrimination against people with disabilities, according to a magistrate judge in Atlanta.
Before the company’s bankruptcy, a woman sued her former employer in district court for violating the Americans with Disabilities Act. Separately, the EEOC sued to stop unlawful employment practices and give relief to the former employee. The EEOC sought injunctive relief, back pay, front pay and punitive damages for the employee. The two suits were consolidated, with the former employee as an intervenor in the EEOC suit.
Later, the company filed a chapter 11 petition and served notice of the automatic stay, suggesting that the consolidated suit was enjoined by Section 362. The EEOC responded by arguing that the suit fell under the exception to the automatic stay in Section 362(b)(4) allowing a governmental unit to proceed with the exercise of police and regulatory powers.
In an opinion on May 21, Magistrate Judge Christopher C. Bly allowed the EEOC to proceed but stayed the suit as to the employee.
The chapter 11 debtor made arguments based in large part on practical considerations: (1) The pursuit of an injunction would become moot because the company was selling its assets, and (2) allowing the employee to pursue a claim in the bankruptcy case for her damages would be most efficient and conserve the parties’ and the courts’ resources.