Rederford v. US Airways, Inc.

United States Court of Appeals
For the First Circuit

No. 09-1005

JANELLE REDERFORD,

Plaintiff, Appellant,

v.

US AIRWAYS, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND

[Hon. William E. Smith, U.S. District Judge]

Before

Lynch, Chief Judge,
Boudin, Circuit Judge, and Saylor,* District Judge.

Howard Moore, Jr. with whom Moore & Moore was on brief for
the appellant.
Daniel E. Farrington with whom The Farrington Law Firm, LLC
was on brief for the appellee.

December 14, 2009

*
Of the District of Massachusetts, sitting by designation.
 LYNCH, Chief Judge. In 2008, Janelle Rederford brought

suit under the Americans with Disabilities Act ("ADA") for events

occurring in 2002 in federal district court against US Airways,

Inc. The court dismissed the suit on the grounds that the ADA

claims had been disallowed and also had been discharged as "claims"

under the Bankruptcy Code in the airline's 2003 bankruptcy. The

federal court also rejected Rederford's arguments that she was

nonetheless entitled to relief based on the equitable doctrines of

judicial estoppel and unclean hands. Rederford v. US Airways,

Inc., 586 F. Supp. 2d 47, 51-54 (D.R.I. 2008). Rederford, who had

worked for US Airways for approximately twenty-four years as a

Customer Service Representative and suffered from Systemic Lupus

Erythematosus ("lupus"), claimed that US Airways' January 31, 2002,

termination of her employment violated her rights under the ADA.

The issues, involving the interplay between the Bankruptcy Code's

definition of "claims" and causes asserted under federal employment

discrimination law, are novel for us. We affirm the dismissal.

I.

Because Rederford's claim was dismissed under Fed. R.

Civ. P. 12(b)(6), we accept the well-pleaded facts in her complaint

as true, drawing all reasonable inferences in her favor. Sutliffe

v. Epping Sch. Dist., 584 F.3d 314, 325 (1st Cir. 2009).

Rederford's claims raise pure questions of law. The underlying

facts are not disputed.

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 Throughout most of Rederford's twenty-four-year

employment as a Customer Service Representative at US Airways she

suffered from lupus, which was diagnosed in 1979. Lupus is an

inflammatory connective tissue disease with variable and often

disabling features. During the month before the termination of her

employment, Rederford was absent from work from January 2 to

January 5, 2002, due to a lupus-related illness. Rederford's

supervisor required that she submit a certification from a health

care provider regarding her medical condition. The supervisor was

not satisfied with the initial certification and requested an

amended one by January 26. After the supervisor did not receive

the amended certification by the extended deadline of January 28,

US Airways terminated Rederford's employment on January 31, 2002,

at T.F. Green Airport in Warwick, Rhode Island.1

On April 25, 2002, Rederford filed a charge of

discrimination with the Equal Employment Opportunity Commission

("EEOC"), which was also cross-filed with the Rhode Island Human

Rights Commission ("RIHRC"). On May 10, 2002, she also filed a

charge of discrimination against US Airways with the RIHRC.

In the meantime, US Airways was itself suffering

financial difficulties. On August 11, 2002, US Airways filed a

Voluntary Petition for Relief under Chapter 11 in the Bankruptcy

1
Rederford asserts that the loss of her job forced her to
file for bankruptcy.

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Court for the Eastern District of Virginia. Around October 1,

2002, Rederford was notified of the bankruptcy proceeding and was

provided a proof of claim form. The notice informed Rederford that

if she did not submit a proof of claim by the November 4, 2002 bar

date she would be "forever barred, estopped and enjoined from"

asserting her claims against US Airways.

Rederford returned her proof of claim form on October 31,

2002. In it, Rederford stated her belief that she had been

discriminated against on the basis of disability and been denied

reasonable accommodation. She estimated her claim to be valued at

one million dollars, including punitive damages.

On January 24, 2003, US Airways filed its Second Omnibus

Objection to a number of different classes of claims, including

"contingent and unliquidated claims for which [US Airways] den[ied]

any liability." Rederford's discrimination claim was listed within

this class.

US Airways' Objection also contained language stating

that "to the extent any such litigation claims are completely

covered by any of the Debtors' applicable insurance policies as

described in paragraph 4 above, the Debtors object to such

claimants receiving any distribution under the Plan since such

claimants will recover the full amount of their claims, if they are

so entitled, from available insurance proceeds." Paragraph four of

the Objection described US Airways' insurance policies as covering

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"personal injury tort claims" and stated that nearly all of them

provide "first dollar" coverage, meaning that US Airways would not

have to pay a deductible. It also stated that, under an "Insurance

Stipulation Order," US Airways could grant relief from the

automatic stay of claims to "personal injury tort claimants" who,

"subject to certain notice and filing procedures," released and

waived claims against US Airways and agreed to limit recovery to

insurance proceeds.

Rederford was served notice of the Objection on January

28, 2003, and was informed that her claim would be disallowed

unless she filed a request for a hearing by February 28, 2003. She

did not file such a request. Rederford alleged at oral argument

that she did not believe she needed to file the request, because

she thought her claims were covered by US Airways' insurance

policies. On March 17, 2003, the bankruptcy court entered an order

sustaining the Objection, thereby disallowing Rederford's claim.

The following day, the bankruptcy court issued an order

confirming US Airways' reorganization plan. This order discharged

all claims arising before the plan's effective date, March 31,

2003, and permanently enjoined suit pursuant to those claims. This

injunction applied to any claims Rederford had against US Airways,

whether or not she had filed a proof of claim.

Over a year later, and two years after Rederford filed

her initial complaint with the RIHRC, the RIHRC, on May 7, 2004,

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issued a Complaint and Notice of Hearing regarding Rederford's

charges of employment discrimination. On July 29, 2004, the RIHRC

found that there was probable cause to believe that US Airways had

discriminated against Rederford. US Airways subsequently filed a

motion to dismiss with the RIHRC, asserting that Rederford's claims

had been discharged in bankruptcy.2 The RIHRC conditionally

granted US Airways' motion to dismiss. Rederford then filed a late

appeal to the State of Rhode Island Superior Court, which was

dismissed as untimely.3

On May 1, 2008, after the EEOC had earlier issued a

Notice-of-Right to Sue, Rederford filed a federal complaint

alleging her January 31, 2002 termination violated Title I of the

ADA, 42 U.S.C. §§ 12111-12117, and seeking reinstatement,

2
Rederford responded with similar arguments to those
raised here, asserting that because her complaint sought the
equitable remedy of reinstatement, it did not involve a claim for
payment and thus was not a dischargeable "claim" within the meaning
of the Bankruptcy Code. She also argued that US Airways was
estopped from raising the bankruptcy discharge because it had taken
a contrary position regarding her claim before the bankruptcy court
and because of the doctrine of unclean hands.
The RIHRC found that Rederford's estoppel arguments could have
been raised before the bankruptcy court and so were barred by res
judicata. The RIHRC further concluded that it did not have
jurisdiction to consider whether equitable relief is properly
considered a claim within the meaning of the Bankruptcy Code. It
ordered Rederford to commence litigation on that question at the
bankruptcy court within thirty days and informed her that if she
failed to do so, the dismissal of her complaint would become
unconditional.
3
US Airways has raised no issues under either Rooker-
Feldman or preclusion doctrine based on the state court dismissal,
nor has it argued that res judicata bars this suit.

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compensatory, special, and punitive damages, and attorney's fees.

Specifically, the complaint alleged that US Airways failed to grant

Rederford reasonable accommodation for her disability, made

prohibited inquiries--which where not job-related or consistent

with business necessity--regarding the nature and severity of

Rederford's disability, failed to interact in good faith with

Rederford to reach a reasonable accommodation instead of

terminating her employment, and engaged in acts of retaliation and

coercion.

In early July 2008, US Airways filed a motion to dismiss,

asserting that Rederford's suit was barred by the bankruptcy

court's permanent injunction. The district court granted the

motion in November 2008. Rederford, 586 F. Supp. 2d at 49. The

court first concluded that Rederford's claim, even if it sought the

equitable relief of reinstatement, was barred by the bankruptcy

court injunction because it was a claim reducible to a payment.

Id. at 52-53. The court then rejected Rederford's argument that US

Airways was judicially estopped from invoking the bankruptcy

court's injunction, finding that US Airways had not taken any

positions in the bankruptcy court that contradicted its positions

in this litigation. Id. at 53-54. Finally, the court found that

Rederford's attempt to use the doctrine of unclean hands failed

because US Airways had not engaged in misconduct. Id. at 54. This

appeal followed.

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 II.

We review an order granting a motion to dismiss under

Fed. R. Civ. P. 12(b)(6) de novo. Sutliffe, 584 F.3d at 325. In

doing so, we accept the well-pleaded facts as true, viewing factual

allegations in the light most favorable to the plaintiff. Id. "To

survive a motion to dismiss, a complaint must contain sufficient

factual matter, accepted as true, to 'state a claim to relief that

is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937,

1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

(2007)); Sutliffe, 584 F.3d at 325. We may consider not only the

complaint but also "facts extractable from documentation annexed to

or incorporated by reference in the complaint and matters

susceptible to judicial notice." Jorge v. Rumsfeld, 404 F.3d 556,

559 (1st Cir. 2005). Rederford pursues pure issues of law, which

require interpretation of provisions of the Bankruptcy Code.

We note at the outset that the ADA claims Rederford

raises in this case were disallowed by the bankruptcy court and

that her appeal to this court amounts to a collateral attack on the

bankruptcy court's order. Nonetheless, US Airways has not defended

on these grounds, perhaps because it wants to resolve the larger

statutory interpretation issues that the claims raise.

A. Whether Rederford's ADA Cause of Action is a "Claim" for
Purposes of the Discharge Provisions of the Bankruptcy
Code

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 Rederford concedes that, to the extent her initial claims

would obligate US Airways to pay money damages, they are barred by

the bankruptcy court's injunction in the Confirmation Order. She

argues instead that because she could seek relief in the form of

reinstatement should she prevail in her ADA claims, this equitable

remedy removes her reinstatement claim from the definition of

"claims" under the Bankruptcy Code.4 At the very least, she

argues, her suit may not be dismissed unless she fails to establish

liability or unless she fails to obtain reinstatement if she

establishes liability.

Section 101(5) of the Bankruptcy Code defines the term

"claim" as a:

(A) right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy

4
Rederford also asserts that she is entitled to monetary
damages paid by US Airways' insurance company and that this does
not constitute a "claim" to payment from the debtor under
§ 101(5)(A). The document Rederford relies on for this assertion
directly contradicts it. See Iqbal, 129 S. Ct. at 1949; see also
Chongris v. Bd. of Appeals, 811 F.2d 36, 37 (1st Cir. 1987)(stating
that courts need not accept "'facts' which have since been
conclusively contradicted by plaintiffs' concessions or
otherwise"). Rederford alleges that the Second Omnibus Objection
represented that insurance could cover her claim. Yet the language
of the Objection clearly does not state that all claims objected
to, much less employment discrimination claims, are covered by
insurance, and expressly says that the relevant insurance policies
cover "personal injury tort claims."

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 is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured.

11 U.S.C. § 101(5). The definition of claim serves a number of

purposes; we outline the two relevant ones here. It defines what

interests must be asserted in the Bankruptcy Court, and it defines

what is discharged by the proceeding.

In enacting this language, Congress gave the term "claim"

the "broadest available definition." F.C.C. v. NextWave Pers.

Commc'ns, 537 U.S. 293, 302 (2003) (quoting Johnson v. Home State

Bank, 501 U.S. 78, 83 (1991)) (internal quotation marks omitted).

Under § 101(5)(B), a right to an equitable remedy,

whether or not fixed, disputed, or reduced to judgment, is a

"claim" within the meaning of the Bankruptcy Code, and subject to

bankruptcy proceedings, if "a monetary payment is an alternative

for the equitable remedy." Air Line Pilots Ass'n v. Cont'l

Airlines, 125 F.3d 120, 133 (3d Cir. 1997); Matter of Udell, 18

F.3d 403, 407 (7th Cir. 1994); see also Ohio v. Kovacs, 469 U.S.

274, 283 (1985); In re the Ground Round, Inc., 482 F.3d 15, 19-20

(1st Cir. 2007). The inclusion of equitable remedies that may be

reduced to payment, similar to the inclusion of contingent claims

in § 101(5)(A), ensures that even the most "uncertain and difficult

to estimate" claims can be adjudicated in the bankruptcy

proceedings. See Colonial Sur. Co. v. Weizman, 564 F.3d 526, 529

(1st Cir. 2009). This serves several obvious purposes that

underlie the Bankruptcy Code and Chapter 11 reorganization.

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 One purpose is to avoid distinctions among creditors

depending on whether the right to payment stems from an equitable

source, a legal source, or an equitable remedy that can be reduced

to payment. See Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356,

363-64 (2006); 1 Alan N. Resnick et al., Collier on Bankruptcy

¶ 1.01[1], at 1-4 (16th ed. 2009). Thus, the Code evenhandedly

grants access to the bankruptcy court for creditors to assert

claims against a debtor based on both law and equity.

It also treats creditors evenhandedly as to the

distribution of assets of the estate. This evenhanded treatment

makes sense: in the end, whether the source is law or an equitable

remedy that can be reduced to payment, it is the payment that the

bankruptcy court will adjust, disallow, or discharge. Allowing

claims for equitable relief that could be reduced to payment to be

raised after the discharge from bankruptcy would defeat the goal of

evenhanded treatment by essentially granting creditors raising such

claims what amounts to priority over all other creditors.

Another purpose, especially in Chapter 11 proceedings, is

to provide finality at the end of the bankruptcy proceeding for the

debtor. Chapter 11 reorganization provides debtors with a fresh

start by adjudicating, disallowing, or discharging all claims

arising before the debtor is discharged from bankruptcy. See Katz,

546 U.S. at 363-64; Mason v. Official Comm. of Unsecured Creditors,

330 F.3d 36, 41 (1st Cir. 2003); 1 Alan N. Resnick et al., supra,

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¶ 1.01[1], at 1-4. If equitable claims that are reduceable to

payment arising before the debtor's discharge from bankruptcy could

be raised later, debtors would be less certain about the effect of

their bankruptcy discharge and this would hamper their efforts to

reorganize into profitable businesses.

When the equitable relief sought cannot give rise to a

payment, but requires non-monetary action by a debtor, different

considerations come into play. If no monetary alternative exists

for an equitable remedy, the bankruptcy court will not be able to

liquidate it and so cannot readily prioritize it relative to other

claims. See, e.g., In re Ben Franklin Hotel Assoc., 186 F.3d 301,

306-07 (3d Cir. 1999) (finding a right to enforcement of a

partnership interest in a "unique business opportunity" to not be

a claim within the meaning of the code because no monetary

alternative existed); In re Udell, 18 F.3d at 409 (holding that

enforcement of a covenant not to compete was not a claim).

Further, if the equitable remedy involves the abatement

of ongoing conduct that is causing harm, rather than the

remediation of past harms, the remedy is not a "repackaged claim

for damages" and does not threaten the finality of the proceedings.

See, e.g., In re Torwico Elec., Inc., 8 F.3d 146, 150 (3d Cir.

1993) (finding an order to abate ongoing pollution not to be a

claim within the code).

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 Title I of the ADA explicitly provides for the same

remedies available for employment discrimination suits in Title VII

of the Civil Rights Act of 1964. 42 U.S.C. § 12117. In that

context, front pay is an alternative remedy to reinstatement.

Pollard v. E. I. du Pont de Nemours & Co., 532 U.S. 843, 846 (2001)

("[F]ront pay is simply money awarded for lost compensation during

the period between judgment and reinstatement or in lieu of

reinstatement."). Within our circuit, we have held that money

damages are a disfavored, yet nonetheless alternative, remedy to

reinstatement in employment discrimination cases, including those

under the ADA. Arrieta-Colon v. Walmart P.R., Inc., 434 F.3d 75,

91 (1st Cir. 2006) (ADA employment discrimination case); Johnson v.

Spencer Press of Me., Inc., 364 F.3d 368, 379-80 (1st Cir. 2004)

(Civil Rights Act employment discrimination case).

We have not been cited any circuit case directly on

point, but have been cited to an analogous case. The Third Circuit

faced a similar question, balancing the policy interests of labor

and bankruptcy law, in Air Line Pilots Association. 125 F.3d at

131-36. The court held that a right to seniority integration for

airline pilots in the event of a merger, pursuant to a collective

bargaining agreement, was a "claim" within the meaning of the

Bankruptcy Code and thus within the bankruptcy court's

jurisdiction. Id. at 136. Comparing a right to reinstatement to

a particular level of seniority to a right to reinstatement

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following wrongful employment termination, the court concluded that

seniority integration was a contractual provision, intended to

confer a benefit on a group of people, and that breach of the

provision would result in "liquidated damages." Id. at 134-36.

For this reason, the court found it was a "claim" within the

meaning of the Code. Id.

Because money damages are an alternative remedy for

reinstatement following wrongful termination, Rederford's claim was

within the jurisdiction of the bankruptcy court and so disallowed

and discharged. Rederford cannot preserve her right to

reinstatement by limiting her recovery to equitable relief.

Allowing her to do so would grant her the equivalent of a

preference over other creditors, who only had claims for monetary

damages or who agreed to accept liquidated damages for their

equitable claims, by allowing her to avoid the prioritization of

claims established in the bankruptcy proceeding. It would also

thwart the finality of that proceeding and US Airways'

reorganization plan by enabling her to pursue a suit arising before

the discharge from bankruptcy.

Rederford had proper notice of her opportunity to pursue

her employment discrimination claims through the bankruptcy

proceeding. Having failed to do so, her claims are disallowed and

discharged, and the injunction is effective to bar her claims.

B. Remaining Arguments

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 The district court did not err in rejecting Rederford's

contention that she nonetheless should be able to litigate her

claims based on the doctrines of judicial estoppel and unclean

hands.

We will assume dubitante that these two doctrines can be

applied to seek relief from a discharge in bankruptcy, and also

dubitante that they can be raised after the bar date. But the

premises of the two doctrines are simply not met here. "The

doctrine of judicial estoppel 'generally prevents a party from

prevailing in one phase of a case on an argument and then relying

on a contradictory argument to prevail in another phase.'"

Beaudette v. Louisville Ladder, Inc., 462 F.3d 22, 26 (1st Cir.

2006) (quoting New Hampshire v. Maine, 532 U.S. 742, 749 (2001)).

The doctrine's purpose is "to protect the integrity of the judicial

process." New Hampshire, 532 U.S. at 749.

Rederford argues that US Airways has adopted inconsistent

positions regarding the availability of insurance to cover her

claim. She asserts that in the Second Omnibus Objection in the

bankruptcy court, US Airways said, or at least that Rederford

understood US Airways to have said, that her claim would be covered

by the airline's insurance. This, Rederford alleges, led her not

to file a request for a new hearing, allowing US Airways to prevail

and her claim to be disallowed.

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 Her real claim is that she was misled by statements in

the Objection. The question here is not whether a party to the

proceeding relied on the position, but rather whether the court did

so in reaching its decision. Cf. New Hampshire, 532 U.S. at 749;

Fleet Nat'l Bank v. Gray, 375 F.3d 51, 60 (1st Cir. 2004)

(rejecting a judicial estoppel claim because "[a]t no time did the

bankruptcy court accept the legal or factual assertions of the

complaint"). Here, the bankruptcy court sustained the Objection

based on US Airways' contention that it had no liability for the

claims--a contention that was not opposed by plaintiff--and also

that the subset of those claims covered by insurance, personal

injury tort claims, were not entitled to a distribution from the

reorganization plan. That ends the argument.

Unclean hands is a doctrine requiring that parties

seeking equitable relief be honest and fair with the court. Texaco

P.R., Inc. v. Dep't of Consumer Affairs, 60 F.3d 867, 880 (1st Cir.

1995). We review a district court's finding of unclean hands for

abuse of discretion. Dr. José S. Belaval, Inc. v. Pérez-Perdomo,

488 F.3d 11, 15 (1st Cir. 2007). The doctrine of unclean hands

"only applies when the claimant's misconduct is directly related to

the merits of the controversy between the parties [, i.e.] . . .

'affect[s] the equitable relations between the parties in respect

of something brought before the court for adjudication.'" Texaco

P.R., Inc., 60 F.3d at 80 (quoting Keystone Driller Co. v. Gen.

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Excavator Co., 290 U.S. 240, 245 (1933)). Here, there was no

misconduct. US Airways' statements about insurance were not

inaccurate or misleading.

The district court's order granting dismissal is

affirmed.

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