05.17.2012 Bankruptcy Order Terminates Complainant’s Whistleblower Complaint

In Mothershead v. Delphi Corp., ARB No. 10-120, ALJ No. 2007-SOX-084, (ARB Apr. 26, 2012), the Administrative Review Board (“ARB”) held that the bankruptcy discharge of an individually owned company’s claim also barred the individuals owner’s whistleblower complaint.


Respondent hired complainant, who was self-employed through his company, to perform confidential consulting work.  Sometime after the end of the contractual relationship, respondent filed a Chapter 11 Bankruptcy petition.  Prior to filing his whistleblower claim, complainant, as sole owner of his company, filed a proof of claim in the bankruptcy proceeding.  The bankruptcy court entered an order (the “Order”) that disallowed and expunged that claim with prejudice.


Prior to the evidentiary hearing before the Administrative Law Judge (“ALJ”), respondent informed the ALJ that it had a filed a Chapter 11 Bankruptcy petition.  The ALJ cancelled the hearing, stayed the administrative proceedings, and ordered that respondent provide semi-annual reports on the status of its reorganization.  Thereafter, the bankruptcy court entered an order (the “Order”) confirming respondent’s reorganization plan.  The Order discharged respondent’s debts and enjoined any person from “commencing or continuing any action that was otherwise discharged.”  Based on the Order, the ALJ dismissed complainant’s whistleblower claim as having been discharged in bankruptcy.


The ARB affirmed the ALJ’s dismissal of the complaint.  In doing so, the ARB rejected complainant’s argument that his whistleblower claim, which he brought as an individual, was distinct from his company’s claim, which was discharged in bankruptcy.  Relying on its previous holding in Hafer v. United Airlines, ARB No. 06-132, ALJ No. 2006-CAA-006 (ARB Aug. 29, 2008), the ARB reasoned that the complainant’s individual claim as well as his company’s claim arose from the same set of facts.  Thus, both claims were discharged in bankruptcy.  The ARB also rejected the argument that complainant’s claim fell within the “government exception” of the Bankruptcy Code.  That exception provides for the “continuation of an action or proceeding by a governmental unit” to “enforce such governmental unit’s or organization’s police and regulatory power.”  Because complainant brought the claim in question as an individual, the government exception was inapplicable.