SALEM, Ore. (Legal Newsline) - A woman who waited until after she went through personal bankruptcy to sue her employer properly had her case dismissed, an Oregon appeals court ruled, rejecting her explanation it was an “honest and understandable mistake.”
The trial judge was justified in deciding PattyAnn Larsen wanted to clear some $110,000 in debts before proceeding with her lawsuit seeking $450,000 for workplace exposure to latex, the Oregon Court of Appeals ruled.
Larsen’s delay was “not either an excusable mistake or inadvertent,” the appeals court said but rather, “a calculation to discharge her debts prior to going forward with the lawsuit, and to allow herself to reap the benefits of the lawsuit while at the same time discharging her debts.” The appeals court described its Oct. 5 decision as a ruling of first impression on the power of Oregon judges to reject the substitution of a federal bankruptcy trustee as the true plaintiff in interest in a lawsuit.
Larsen left her job as a darkroom attendant with Selmet Inc. in February, 2019 and hired a lawyer in March with the idea of suing Selmet for failing to accommodate her allergy to latex. In April, she filed for Chapter 7 bankruptcy liquidation, using a different lawyer, without disclosing the planned lawsuit against Selmet. Federal bankruptcy rules require disclosure of all assets, including actual or intended legal claims.
Her employment lawyer sent a demand letter to Selmet five days after she filed for bankruptcy and her debts were discharged on July 15, 2019. Less than a month later, she sued Selmet. Six months after that, the bankruptcy trustee learned of the lawsuit and moved to reopen her case. A trustee was appointed and in August 2021 Selmet moved to dismiss her case, arguing Larsen should have proceeded with the trustee as named plaintiff.
The trial judge dismissed the case in November 2020 with leave to try and substitute the trustee. Selmet objected, however, and the judge rejected substitution under Oregon Rule of Civil Procedure 26, which gives judges discretion over whether to allow substitute plaintiffs.
Larsen appealed, arguing the judge used the wrong legal standard. But the appeals court affirmed, saying there was some confusion about how the court justified its action but it was authorized under Rule 26. That rule, and a similar federal rule, has been interpreted by most courts to allow plaintiffs to substitute bankruptcy trustees if they made an “honest and understandable mistake,” but to deny substitution if they suspect it was requested in bad faith.
In this case, the appeals court ruled, the trial judge was justified in being skeptical about why Larsen had waited until after her debts were cleared to sue her employer seeking $450,000 in damages.
“It is certainly true that someone may be more skeptical that a person made an honest mistake if the person’s claimed state of mind seems unreasonable,” the court concluded. “However, ultimately, we understand the trial court to have relied on the specific evidence in this record and reasonable inferences from the timing of particular events to find that plaintiff’s attestations of good faith and ignorance were not credible.”