Davis v. Long Reach Federal Credit Union

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
In re: 	)
)
KENNETH GLENN DAVIS and 	) 	Case No. 16-bk-00273
TABATHA NICOLE DAVIS, 	)
)
Debtors. 	) 	Chapter 7
___________________________________ )
)
TABATHA NICOLE DAVIS, 	)
)
Plaintiff, 	)
)
v. 	) 	Adversary No. 16-ap-30
)
LONG REACH FEDERAL CREDIT 	)
UNION, 	)
)
Defendant. 	)
___________________________________ )
MEMORANDUM OPINION
Long Reach Federal Credit Union (the “Defendant”) seeks summary judgment on the
complaint filed against it by Tabatha Nicole Davis (the “Plaintiff”). The complaint alleges a cause
of action under § 525(b) of the Bankruptcy Code, which prohibits discrimination by private
employers against their employees based solely on an employee’s bankruptcy, insolvency, or
failure to pay a debt that is dischargeable or that was discharged in a case under the Bankruptcy
Code. The Defendant contends that summary judgment is appropriate because it terminated the
Plaintiff’s employment based upon allegations of check kiting and not her bankruptcy. 	The
Plaintiff asserts that the court should deny summary judgment because the check kiting allegations
are untrue.
For the reasons stated herein, the court will grant summary judgment to the Defendant.
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I. 	STANDARD OF REVIEW
Federal Rule of Civil Procedure (“Rule”) 56, made applicable to this proceeding by Federal
Rule of Bankruptcy Procedure 7056, provides that summary judgment is only appropriate if the
movant demonstrates “that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A party seeking summary judgment
must make a prima facie case by showing: first, the apparent absence of any genuine dispute of
material fact; and second, the movant’s entitlement to judgment as a matter of law on the basis of
undisputed facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The movant bears
the burden of proof to establish that there is no genuine dispute of material fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986). Demonstrating an absence of any genuine dispute as to any
material fact satisfies this burden. Id. at 323. Material facts are those necessary to establish the
elements of the cause of action. Anderson, 477 U.S. at 248. Thus, the existence of a factual dispute
is material—thereby precluding summary judgment—only if the disputed fact is determinative of
the outcome under applicable law. Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir. 1994). A movant
is entitled to judgment as a matter of law if “the record as a whole could not lead a rational trier of
fact to find for the non-movant.” Williams v. Griffin, 952 F.2d 820, 823 (4th Cir. 1991) (citation
omitted). See also Anderson, 477 U.S. at 248.
If the moving party shows that there is no genuine dispute of material fact, the nonmoving
party must set forth specific facts that demonstrate the existence of a genuine dispute of fact for
trial. 	Celotex Corp., 477 U.S. at 322-23. 	The court is required to view the facts and draw
reasonable inferences in the light most favorable to the nonmoving party. Shaw, 13 F.3d at 798.
However, the court’s role is not “to weigh the evidence and determine the truth of the matter [but
to] determine whether there is a need for a trial.” Anderson, 477 U.S. at 249-50. Nor should the
court make credibility determinations. Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir. 1986). If
no genuine issue of material fact exists, the court has a duty to prevent claims and defenses not
supported in fact from proceeding to trial. Celotex Corp., 477 U.S. at 317, 323-24.
II. 	BACKGROUND
From 2008 to 2016, the Plaintiff worked for the Defendant and reliably received positive
employee performance evaluations from 2009 to 2016. 	On February 5, 2016, however, Bayer
Heritage Federal Credit Union, a third party financial institution, informed the Defendant of
“suspicious activity” suggesting the Plaintiff was engaged in check kiting. 	According to the
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Defendant, it subsequently initiated an internal investigation based upon the communication from
Bayer Heritage. Notably, this assertion is uncorroborated by anything in the record on summary
judgment. For instance, there is no exhibit indicating when such investigation began, if at all, or
what the investigation entailed.
On March 28, 2016, the Plaintiff filed a Chapter 7 bankruptcy petition. As of that date, the
Plaintiff owed the Defendant a total of $208,000.00 for ten loans, both secured and unsecured.
According to the Plaintiff, the Defendant directed her to teach other employees her job upon
learning of her bankruptcy, but the Defendant disputes that uncorroborated fact. In any event, on
April 5, 2016, the Defendant placed the Plaintiff on unpaid leave and hired an entity known as the
West Virginia League Services Corporation to conduct an audit of the Plaintiff’s activity. 	The
West Virginia League Services Corporation provided the Defendant with a summary report on
April 30, 2016. 	The report noted numerous banking transactions that resembled check kiting
activity on the Plaintiff’s part. On May 5, 2016, the Defendant informed its insurer, CUNA Mutual
Group, of both its findings from its internal investigation and the findings of the West Virginia
League Services Corporation. On the following day, CUNA Mutual Group informed the Plaintiff
that her eligibility for insurance coverage for fraudulent acts was terminated, and the Defendant
subsequently terminated the Plaintiff’s employment based upon the allegations of check kiting,
which the Defendant found in violation of its written policy regarding employee fraud.
III. ANALYSIS
The Defendant claims that the court should grant it summary judgment because it ended
the Plaintiff’s employment after it received information suggesting the Plaintiff was engaged in
check kiting. 	In support of its assertion in that regard, the Defendant provides correspondence
from Bayer Heritage Federal Credit Union highlighting the Plaintiff’s banking transactions that it
believed were suspicious and indicative of check kiting. 	Notably, the Defendant received that
information prepetition. 	However, the Defendant did not terminate the Plaintiff’s employment
until after she filed her bankruptcy petition on March 28, 2016. Her firing followed on the heels
of the Defendant’s receipt of both the report of the West Virginia League Services Corporation on
April 30, 2016 and notification of the Plaintiff’s loss of insurance coverage on May 6, 2016.
The Plaintiff contends, however, that the allegations of check kiting were merely a
“convenient and fortuitous” pretext for the Defendant to terminate her employment after learning
of her bankruptcy. 	In support of her argument, she points out that she received favorable
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performance evaluations throughout her employment with the Defendant. 	Additionally, the
Plaintiff stresses the inaccuracy of the Defendant’s analysis and findings regarding the activity of
check kiting. More specifically, she argues that the Defendant’s definition of check kiting expands
its application here beyond its common meaning, and she asserts the traditional meaning of check
kiting—tricking banks into inflating balances—must apply to the case. Ultimately, the Plaintiff
argues that if the accusations of check kiting are false or overly broad, then the court should
disregard them; to do so otherwise would be to permit the Defendant to circumvent the protection
afforded to debtors pursuant to § 525 of the Bankruptcy Code.
Section 525(b) of the Bankruptcy Code prohibits an employer from terminating an
employee who is or has been a debtor in bankruptcy “solely because” the debtor is a debtor or
insolvent. 	11 U.S.C. § 525(b). 	It codifies the result of the Supreme Court case of Perez v.
Campbell. 	S. R EP . NO. 95-989, at 81 (1978). 	In Perez, the Supreme Court established anti-
discriminatory protections for debtors to support establishing a fresh start. Perez v. Campbell, 402
U.S. 637, 650-52 (1971) (holding that state legislation cannot conflict with the Congressional
policy of affording discharged debtors a new start). 	The Senate Report regarding § 525
demonstrates, however, that the statute does not prohibit consideration of other factors when
terminating an employee. 	S. R EP . NO. 95-989, at 81 (1978) (reasoning that future financial
responsibility and net capital rules can be valid considerations). Notably, courts tend to agree that
“solely because” should be read narrowly based upon the plain meaning of the statute. See White
v. Kentuckiana Livestock Mkt., Inc., 397 F.3d 420, 426 (6th Cir. 2005); Laracuente v. Chase
Manhattan Bank, 891 F.2d 17, 23 (1st Cir. 1989); In re Exquisito Servs., Inc., 823 F.2d 151, 153
(5th Cir. 1987); In re Goldrich, 771 F.2d 28, 29-30 (2d Cir. 1985).
For instance, at least one bankruptcy court employed a concept of bankruptcy neutrality to
determine whether a work place policy or its implementation violated § 525. Browning v. Tennsco
Corp. (In re Browning), 176 B.R. 805, 807 (Bankr. M.D. Tenn. 1995). In that regard, employer
policies or their enforcement are examined to determine if an “otherwise neutral policy is applied
in a discriminatory fashion toward debtors.” Id. In Browning, the court held that terminating an
employee for work absences—even absences due to a debtor-employee’s required attendance at
the § 341 meetings of creditors—was justified because under the employer’s policy regarding work
absences, § 341 meetings were treated no different than any other legal proceeding requiring an
employee’s participation. Id. Courts in the Fourth Circuit have similarly applied § 525 as narrowly
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as possible. In Fiorani v. CACI, for instance, the court reasoned that a violation of § 525 occurs
only if an employer’s policy unequally affects debtor-employees. Fiorani v. CACI, 192 B.R. 401,
410 (E.D. Va. 1996) (“When an employer applies a policy equally without regard to the employee's
bankrupt status, it cannot be liable under § 525(b).”). 	Likewise, another sister court within the
Fourth Circuit applied a similar framework by holding that an employer may terminate a debtor
employee without violating § 525 as long as the employer has cause to do so independent of the
bankruptcy filing. In re Terry, 7 B.R. 880, 881 (Bankr. E.D. Va. 1980).
Notably, the accuracy of an employer’s non-bankruptcy reason to terminate an employee
is immaterial. 	Myers v. City Nat'l Bank of W. Va., No. 2:10-cv-00853, 2012 U.S. Dist. LEXIS
40807, at *6 (S.D.W. Va. Mar. 26, 2012) (“Defendant’s belief, even if it might ultimately be shown
to be incorrect . . . is enough to defeat bankruptcy as the sole reason for his firing.”). Even if a
prima facie case of discrimination is established, § 525 is not violated upon the employer providing
a separate reason for the termination, unless the reason is shown to be pretextual, Laracuente, 891
F.2d at 23, and mere speculation by a plaintiff is not adequate to demonstrate pretext. Myers, 2012
U.S. Dist. LEXIS 40807 at *8.
Here, the court finds it appropriate to grant summary judgment to the Defendant.
Specifically, the court finds that the record shows that the Defendant had non-bankruptcy
reasons—the suspicious activity identified by Bayer Heritage and the allegations of check kiting—
for terminating the Plaintiff’s employment. The Defendant’s policies regarding fraudulent conduct
by its employees applied to all of its employees regardless of insolvency or bankruptcy. Nothing
in the record suggests a non-debtor employee engaged in check kiting would be treated differently
than a debtor employee engaged in the same behavior. Accordingly, the Defendant passes the test
for bankruptcy neutrality under § 525.
The Plaintiff asks the court to define check kiting and dwell on whether the check kiting
findings were accurate. 	However, no such analysis is needed because the accuracy of the
allegations is immaterial. Moreover, the Plaintiff has not shown contrary evidence supporting her
assertion that the allegations were merely pretextual. She has simply made a bald assertion in that
regard. 	Because 	the 	Defendant 	supplied 	direct 	evidence—including 	the 	Bayer 	Heritage
correspondence that it received prepetition and the findings of the West Virginia League Services
Corporation—the court concludes that the Defendant’s non-bankruptcy reason for terminating the
Plaintiff’s employment was not merely a pretext. Moreover, drawing reasonable inferences in the
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Plaintiff’s favor, it is clear that even if the filing of the Plaintiff’s bankruptcy petition was a factor
in her discharge, it was not “solely” because of that fact. The Defendant has shown an independent
reason for her discharge, and the court finds that there is no genuine issue of material fact in that
regard.
IV. CONCLUSION
Based upon the foregoing, the court finds that the Defendant terminated the Plaintiff for a
reason other than the Plaintiff’s bankruptcy or insolvency. The court will therefore enter a separate
order granting the Defendant’s Motion for Summary Judgment and dismissing the Plaintiff’s
complaint.
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