Bankruptcy Filing To Escape Sexual Harassment Awards Stands

Northern District of New York Bankruptcy Judge Robert Littlefield Jr said since the bankruptcy filer, David Busch, did not intended to cause psychological or economic harm with his alleged sexual harassment, he can file for bankruptcy as a legal means to avoid paying out a $430,232 judgment against him.   Even though Judge Littlefield ruled in favor of Busch, he still said the determination results in a “grave injustice” that seemingly will “add insult to injury,” according to a New York Law Journal report.

To arrive at this decision, Littlefield turned to the US Supreme Court decision Kawaauhau v. Geiger .   In that case, the high court applied §523(a)(6) of the Bankruptcy Code to a medical malpractice case, which states debts arising from “willful and malicious injury by the debtor” are not dischargeable in bankruptcy.   Thus, a medical malpractice award predicated on negligent or reckless conduct does not meet the standard for denying discharge, allowing a doctor facing such a medical malpractice judgment to eliminate that debt in bankruptcy.

Following this ruling, Busch filed for Chapter 7 bankruptcy in an apparent attempt to escape a default judgment in a sexual harassment matter.    The default judgment came after Jacqueline Sanger, a former employee of Busch at Albany Air Systems Inc, accused him of subjecting her to persistent propositions, lewd comments and offensive physical contact.   Sanger filed a lawsuit claiming sexual harassment by Busch, which Busch ignored.   Subsequently, US District Judge David Hurd entered a default judgment on liability.

Bankruptcy Hearing

In lieu of an appeal of the award, Busch filed for bankruptcy.   At the bankruptcy proceeding, Busch denied sexually harassing Sanger. She did not testify, relying on a transcript of her testimony from the previous case.

With this evidence, Littlefield found “Even if the acts of sexual harassment occurred exactly as alleged … there is no evidence that the Debtor ever intended to cause any of the injuries recounted by the Plaintiff in the District Court Action.”

Thus, “Title VII claimants who seek to except their liquidated sexual harassment judgments from debtors’ discharges will inevitably face the difficult challenge of proving that their harassers intended to cause their actual injuries.”