Sixth Circuit Case Summaries

Tagnetics, Inc. v. Kayser, No. 20-3556 (January 14, 2021).

Kayser and two other former employees of Tagnetics filed an involuntary chapter 7 bankruptcy against Tagnetics seeking to be paid their wages.  The parties came to an agreement through email correspondence in which they agreed that Tagnetics would pay the three employees a certain sum and the employees would agree to “full mutual releases (no carve outs).”  But when it came time to reduce that agreement to a formal writing, Tagnetics wanted to include Compass Marketing, an affiliated company of Tagnetics, as a party to be released.  The employees refused and Tagnetics moved to enforce the agreement.

The bankruptcy court declined to enforce the agreement to the extent that Tagnetics sought.  The bankruptcy court reasoned, after reviewing all of the communication between the parties, that the agreement was between the employees and Tagnetics, not their affiliates, parent corporations, officers, directors or other third parties.  The district court agreed on appeal and so did the Sixth Circuit.

The Sixth Circuit, construing Ohio’s laws on the subject, reasoned that the “full mutual release” language was limited only to the parties to the agreement.  If the parties wanted to release third parties, they could have easily stated that in their agreement.  The language of this agreement was clear and unambiguous in that regard.

In re: Bush, No. 19-2131 (January 12, 2021). 

            A pro se debtor failed to disclose that she had a pending wrongful termination claim in her schedules or at any other time.  When the employer’s counsel informed the trustee, the debtor sought to convert her chapter 7 case to a chapter 13.  The bankruptcy court denied her request for conversion, denied her claim of an exemption in the claim, and approved a settlement between the employer and the trustee.

The debtor appealed, but only the approval of the compromise was properly before the Court.  So the Sixth Circuit reviewed the bankruptcy court’s determination of whether the settlement should be approved.  It stated, “Bankruptcy courts must look to the following four factors to determine whether a compromise is fair and equitable:

(a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.

The Court affirmed the bankruptcy court’s approval of the settlement, finding no abuse of discretion.  Weighing the four factors, the Court recognized that the settlement amount represented a reasonable compromise of what the claim was maximally worth; that possible appeals would affect the collection of a judgment and would delay a distribution to creditors; that the cost of a trial outweighed the benefit; and that the creditors were guaranteed a distribution with a settlement whereas a trial offered no such guarantee.