Daycare Owners Can’t Escape Possible Abuse Damages in Bankruptcy

Owners of a Delaware daycare center whose workers pushed three-year-old boys into a fistfight and then captured the event on a cell phone video can’t use bankruptcy to get out from under a possible damage award, a judge said this week.

The ruling, from U.S. Bankruptcy Judge Brendan Shannon, came in the Chapter 13 cases of daycare owners Colleen M. Grosso and Teresa Perez, who filed for bankruptcy last year after being sued for damages by families of the two little boys in the video.

Workers responsible for the March 6, 2012, forced fight between the toddlers have pleaded guilty to felonious second-degree assault and second-degree conspiracy charges. They have received probation, the Associated Press reported in June 2013.

The video itself has never been officially released, but, according to the Associated Press, police alleged that one child is shown screaming, crying and holding his face while being punched by the other, who is also punched.

Ms. Grosso and Ms. Perez weren’t charged but face a civil lawsuit that alleges they “were aware of prior and subsequent instances or neglect and abuse” and should be held accountable. The civil lawsuit alleges that one of the toddlers tried to escape the fight and sought refuge with a worker, but that the worker allegedly “physically restrained the fleeing child, and forced him to continue to fight.”  It alleges that two of the three workers “laughed at this chain of events.”

Attorneys for the daycare owners couldn’t be reached for comment Friday.

In court papers, Ms. Grosso and Ms. Perez said they individually didn’t employ the workers responsible for the boys’ harm and therefore shouldn’t be held liable. The workers are employed by Hands of Future LLC, of which court papers identify the women as members. Additionally, they contend the children’s families wrongly accused them of willful wrongdoing, when their alleged behavior would support only an accusation of negligence. The owners weren’t present at the fight.

After the bankruptcy filing stopped action in the civil suit against them, Ms. Gross and Ms. Perez argued that, since the lawsuit had not yet resulted in a judgment, they could win a discharge of their potential liability from bankruptcy court.

Judge Shannon said, no, they could not, not on that basis anyway. He declined to dismiss an action in which the suing families asked for a ruling on whether their damages claim would be erased in bankruptcy court.

One of the types of debts that can’t be discharged in bankruptcy are damages awarded “as a result of a willful or malicious injury.” Courts have clashed on whether the exemption is available if the alleged “willful or malicious” conduct hasn’t yet resulted in an actual damage award, which reduces the alleged injury to a dollars-and-cents claim.

The Delaware bankruptcy judge said allowing Ms. Gross and Ms. Perez to escape accountability by filing for bankruptcy protection before the civil lawsuit had gone to trial and resulted in a judgment would create a “perverse incentive,” It would, Judge Shannon said, encourage those accused of intentional wrongs “to race to the courthouse after behaving badly” and file for bankruptcy protection to ward off any damage claims.

James Meehan, attorney for the families who sued, said in an email Friday that Judge Shannon’s “ruling is a positive step in ensuring that the appropriate parties will have to answer for their actions.”

 Write to Peg Brickley at [email protected].