2008 Chapter 11 Open Forum: Year In Review

• In re Sheehan Memorial Hosp., 377 B.R. 63 (Bankr. W.D.N.Y. Oct. 2007) (Bucki, J.) Section 502(b)(7) did not place a statutory cap on an employee's claim. A former employee filed a proof of claim against the chapter 11 debtor arising from the debtor's wrongful termination of the claimant without giving her notice as required by a pre-petition employment agreement. The claimant requested the salary she would have received during the would-be notice period and further requested administrative priority on her claim. The debtor objected, arguing that the claimant received all that she could under section 502(b)(7) because that provision places a statutory cap on some employees' claims. Dismissing this argument, the court allowed the proof of claim as a general unsecured claim. Said the court, section 502(b)(7) does not limit employees' claims based on a claimant's receipt of payment for services already rendered. The limit imposed by that provision only applies to damages for services not performed by way of the debtor's termination of the employee. Because the claimed damages did not exceed the statutory formula, the court allowed her claim as a general unsecured claim.³⁰
• As to the claimant's additional state law cause of action for employment discrimination based on race, the court declined to abstain. Said the court, race discrimination did not constitute a personal injury under the "narrower view" as espoused by the Second Circuit.³¹ Nor did the claim involve matters of unsettled state law. Instead, the matter was a core proceeding, noted the court, because it was a matter of allowance or disallowance of a proof of claim. Also, a quick resolution of the entire matter was necessary, because the debtor could not determine the proper distributions to be made under the confirmed plan until this matter was resolved. Thus, the court held that discretionary abstention was not warranted under the circumstances.
• In re Suncruz Casinos, LLC, 377 B.R. 741 (Bankr. S.D. Fla. Oct. 2007) (Olson, J.)

Claimant demonstrated excusable neglect in not filing a proof of claim before the deadline, based on the latency of his injury. The claimant suffered a personal injury on the debtor's sea vessel before the claims bar date. However, despite receiving notice of the claims bar date, the claimant opted not to file a proof of claim because the pain had subsided and a physician had determined that the injuries were not permanent. After the claims bar date, the claimant suffered another personal injury, potentially frustrating the initial injury. The claimant commenced an action against a non-debtor for his subsequent injury and sought to join the debtor to determine the debtor's liability for the claimant's prior injuries. After initially denying relief, the court reconsidered and held that the claimant's reasons for not filing a proof of claim before the bar date constituted excusable neglect. Additionally, despite the debtor's contention that the claimant was acting in bad faith by asserting a claim against the estate for new injuries, the court held that the debtor was not prejudiced by the delay, and that the latency of the claimant's injury demonstrated his good faith. The court, therefore, allowed the late-filed claim and granted relief from stay so that the claimant could liquidate its claim against the debtor.

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The court, however, denied the claimant's request for administrative priority. See Part III.A.

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Claims for personal injury must be tried in the district court in which the bankruptcy case sits. See 28 U.S.C. S 157(b)(5).