In re Dale

610 B.R. 524

IN RE: Wendy M. DALE, Debtor

CASE NO. 18-05448-5-SWH

United States Bankruptcy Court, E.D. North Carolina, Raleigh Division.

Signed December 9, 2019

Wendy M. Dale, Delco, NC, pro se.

Hunter E. Fritz, Butler & Butler, LLP, Wilmington, NC, for Trustee.

ORDER DENYING DEBTOR'S MOTION TO CONVERT AND ALLOWING TRUSTEE'S MOTION FOR APPROVAL OF COMPROMISE OF CONTROVERSY

Stephani W. Humrickhouse, United States Bankruptcy Judge

Pending before the court are two motions: The chapter 7 trustee's motion for approval of a compromise of controversy, wherein the trustee requests that the court enter an order approving the terms of a proposed compromise between the pro se chapter 7 debtor and Red Hat, Inc. ("Red Hat"), and the debtor's motion to convert her chapter 7 case to a case under chapter 13. The trustee's motion to approve compromise was filed on May 20, 2019 (D.E. 59), and the debtor filed a response in opposition on June 7, 2019. D.E. 66. On July 2, 2019, the debtor filed her motion to convert her chapter 7 case (D.E. 77), to which the trustee objected on July 22, 2019. D.E. 91. The trustee also filed, on July 11, 2019, a supplement to his motion to compromise. D.E. 85. A hearing was held in Wilmington, North Carolina on September 18, 2019, at which time the court took the matter under advisement. For the reasons that follow, the debtor's motion to convert her case will be denied, and the trustee's motion to enter into a compromise of the debtor's claim against Red Hat will be allowed.

BACKGROUND AND PROCEDURAL HISTORY

The debtor filed her chapter 7 bankruptcy petition on November 8, 2018,¹ and the bankruptcy court entered an order appointing Algernon L. Butler, III as the chapter 7 trustee on November 9, 2018. The order granting the debtor's bankruptcy discharge was entered on February 21, 2019.

The controversy that is at the heart of both the motion to convert and the motion to compromise is an employment-related dispute between the debtor and her former employer, Red Hat. The debtor was first employed by Red Hat as a contracts specialist in August of 2014. In this position, she was involved in the negotiation and review of commercial agreements in support of Red Hat's commercial legal group. After a series of workplace personnel-related incidents in the spring and summer of 2017, the debtor filed an EEOC charge against Red Hat on August 9, 2017 ("EEOC Action"), claiming workplace discrimination premised on Red Hat's failure to properly accommodate certain disabilities alleged by the debtor. Red Hat and the debtor attempted to resolve these issues but were unsuccessful, and Red Hat terminated the debtor's employment on September 5, 2017.

The debtor retained an attorney who negotiated with Red Hat on her behalf in connection with the EEOC claims, and secured an offer of settlement in the amount of $54,450.00. The debtor argues that while she may have considered accepting this offer, she ultimately did not do so because she believed the offered sum to be too low. The debtor thereafter dismissed her attorney and informed Red Hat that she was no longer represented by counsel.

On June 6, 2018, the debtor, proceeding pro se , filed a civil action in federal district court against Red Hat and Leah Moore (individually and in her official capacity as Red Hat's Senior People Risk Manager), and then amended her complaint on August 14, 2018. The amended complaint alleged that Red Hat violated her rights under the Americans with Disabilities Act ("ADA") by failing to accommodate certain disabilities, by subjecting her to disparate treatment, and by engaging in retaliation; in addition, the debtor alleged wrongful termination under North Carolina state law (collectively, the "Claims Against Red Hat"). Dale v. Red Hat, Inc. , Case No. 5:18-CV-262-BO, 2018 WL 6172516 (E.D.N.C. 2018) ("Employment Action"). On motion of defendants Red Hat and Moore, the district court entered an order dismissing Moore from all of the claims asserted against her, and denying Red Hat's partial motion to dismiss.²

The Employment Action was pending at the time the debtor filed her chapter 7 petition and is the property of the bankruptcy estate. In schedules filed with the bankruptcy petition on November 8, 2018, the debtor valued the Employment Action at $32,000,000.00, and claimed no exemption in it. D.E. 1 at 19. The debtor amended her schedules on December 27, 2018, to value the Employment Action at $0.00 and to claim an exemption in that asset pursuant to N.C. Gen. Stat. § 1C-1601(a)(2) of "100% of the fair market value, up to any statutory limit." The debtor likewise claimed the fair market value, up to any statutory limit, of certain cash deposits in the total amount of $70. D.E. 24 at 8, 12. The trustee filed an objection, stating:

As the debtor has claimed exemptions pursuant to N.C. Gen. Stat. § 1C-1601(a)(2) of "100% of the fair market value, up to any statutory limit" in both deposits of money listed with a value of $70, and in the Claims against Red Hat ... which she has valued at $0, the Trustee requests that the Court enter an order (i) allowing the Debtor's claim of exemptions in the deposits of money pursuant to N.C. Gen. Stat. § 1C-1601(a)(2) in the scheduled value of $70, and (ii) limiting the Debtor's claim of exemption in the Claims Against Red Hat ... to the statutory limit of N.C. Gen. Stat. § 1C-1601(a)(2) less $70 representing the claim of exemption in the deposits of money.

D.E. 27 at 2. Under N.C. Gen. Stat. § 1C-1601(a)(2), then, the debtor's exemption in the Employment Action would be limited to $4,930.00. Further, arguing that the debtor already had received adequate time in which to claim exemptions and that any further amendment would be prejudicial to administration of the estate, the trustee sought entry of an order providing that the debtor could not further amend or increase her claims of exemptions. Id. The debtor did not respond, and the motion was allowed by order entered on January 24, 2019. D.E. 37.

On February 22, 2019, the trustee filed an amended objection to exemptions in which he sought the same relief the court already had allowed, explaining that his original objection to exemptions had been returned to the trustee's office as "Undeliverable" notwithstanding that it had been correctly addressed. The trustee stated that his office had contacted the debtor via email and had confirmed with her the accuracy of that address, as well as the debtor's actual receipt of court notices and orders, and that the debtor had informed the trustee that she was temporarily living elsewhere. This amended motion was then served on the debtor via email, at her permanent address, and also at the temporary address she provided to the trustee.

Again, the debtor did not file a response. The court's order granting this amended objection to the debtor's claim of exemptions was entered on March 4, 2019. D.E. 51.

On May 20, 2019, the trustee filed a motion for approval of a compromise of the controversy between the debtor and Red Hat, seeking approval of a proposed settlement of the Employment Action and the Claims Against Red Hat for the total sum of $54,450.00. Of this amount, the trustee proposed that Red Hat pay $10,000.00 to the bankruptcy estate to compensate the estate for time and expense expended by the trustee, with the remaining $44,450.00 paid to the estate in full and final resolution of any claims the estate may have had against Red Hat (the "Settlement Agreement"). D.E. 59. On June 7, 2019, the debtor filed a response in opposition to the motion, wherein she argued that the trustee's proposed settlement was unreasonable, reflected a lack of due diligence, and was fundamentally unfair in that the proposed agreement grossly undervalued a claim she estimates to be worth $32 million dollars. In addition, the debtor argued that other assets of the bankruptcy estate, as well as expected disbursements in connection with her claim for social security disability benefits, would be sufficient to pay the valid claims against the estate without resort to the Employment Action. D.E. 66. On July 11, 2019, the trustee filed a supplement to his motion for approval of compromise in order to "summarize the legal framework and burden-shifting analysis relevant to the plaintiff's attempt to establish employment-related claims such as the Claims Against Red Hat, and to provide the court with additional background information and facts in support of the Motion including corrections to certain statements appearing in the Debtor's objection which are believed to be unfounded."³ D.E. 85 ("Trustee's Supplement") at 1-2.

The debtor filed an amended objection to the student loan claim of Ascendium Education Services, Inc. ("Ascendium") on June 7, 2019, contending that the claim should be denied because she had entered into a loan rehabilitation program with Ascendium pursuant to which she now makes direct payments of $5.00 per month. Ascendium's unsecured claim is in the amount of $61,657.76. A hearing on the objection was held on July 16, 2019, and an order denying the debtor's amended objection to Ascendium's claim was entered on July 24, 2019. D.E. 94.

On July 2, 2019, the debtor filed a motion to convert her chapter 7 case to a case under chapter 13. D.E. 77. The debtor stated that she had obtained employment, was in receipt of regular income sufficient to fund a chapter 13 plan, and could put forward a plan that would pay, in full, the claims of all of her non-secured, non-student loan creditors. The trustee objected, arguing that there was no proper basis upon which to exclude the Ascendium claim from any proposed chapter 13 repayment plan. The trustee contends that in the debtor's chapter 7 case, "a total of $70,014.00 in claims have been filed – $1,094.73 of which are secured claims, and $68,919.27 of which are unsecured claims." Trustee's Objection to Motion to Convert (D.E. 91) at 4 ("Trustee's Objection"). The unsecured claims include...