Berk v. Brooks Fashion Stores, Inc. (In re Brooks Fashion Stores, Inc.)

In 1985, Berk (creditor) was hired by Brooks Fashion Stores, Inc. (Brooks) (debtor). Berk alleged that Brooks had orally agreed to pay her a guaranteed 25 percent bonus in addition to her salary. Berk also alleged that Brooks later orally agreed to give her a new position for the same salary and bonus, to begin in 1987. In 1986, however, Berk received extremely critical performance reviews, which she disputed. In January 1987, Berk was fired. Brooks filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code (code) in December 1987. In March 1989, the bankruptcy court confirmed Brooks’ reorganization plan. Berk had not received formal notice of the bankruptcy proceeding. In 1991, Berk sued Brooks in state court for libel and breach of contract arising from the nonpayment of salary and bonuses. The action was removed to bankruptcy court. The bankruptcy court ruled that Berk, as an unknown creditor, had not been entitled to formal notice of the bankruptcy proceeding. The court found that Berk had given Brooks no notice that she intended to sue. Berk argued that she had objected to the critical performance review when she received it and had demanded the unpaid bonus at the time she was fired. According to Berk, these communications meant that Brooks knew or should have known of her claim. The bankruptcy court rejected this argument and held that Berk’s claim had been discharged by the reorganization plan. Berk appealed.