Aug 19, · Judicial estoppel “will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset.”. Sep 20, · Judicial estoppel is an equitable defense that bars a plaintiff’s claim when she takes differing positions in subsequent court cases with an intent to make a mockery of the judicial system. Courts in the Eleventh Circuit have applied the defense when a plaintiff pursues a lawsuit in one court and files for bankruptcy without disclosing the claim as an asset that may be used to pay her creditors. Judicial estoppel is most often applied where in its schedules the debtor has failed to disclose assets or contingent assets to the bankruptcy court but then later pursues a known claim in state court. In re Knight-Celotex, LLC, F.3d (7th Cir. ); Guay v. Burack, F.3d 10 (1st Cir. ).
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If a court applies judicial estoppel based on a default presumption of deceit Ah Quin v. Outside of the bankruptcy context, courts limit the application of judicial estoppel through judicial discretion and contextual analysis of the facts of each case. Anesthesia Grp. Those courts only apply judicial estoppel to cases where the danger of inconsistent results would negatively impact judicial integrity.
Weeks Marine, Inc. Safelite Glass Corp. For example, in DeRosa v. National Envelope Corp. Policy Mgmt. The court emphasized that the plaintiff made one statement in response to a question about social activities, while the other statement referred to the work-effect of his disabilities.
Courts should take similar considerations into account in the bankruptcy context as compared to the non-bankruptcy context when deciding whether to invoke the doctrine of judicial estoppel. After a plaintiff-debtor excludes a potential or pending lawsuit from his schedules or statement of financial affairs, courts should similarly limit invoking the doctrine of judicial estoppel based on the facts of each specific case. More specifically, a plaintiff-debtor may not have acted with a motive to conceal if that plaintiff-debtor did not understand that she was required to disclose a pending cause of action.
Furthermore, when a plaintiff-debtor suffers an injury after her bankruptcy case has been confirmed, she may not have a reason to believe she is required to disclose that injury to the bankruptcy court. In fact, judicial integrity would be preserved as long as the plaintiff-debtor did not intentionally try to hide a potential or pending cause of action.
It is noteworthy that the Supreme Court cited bankruptcy-related cases when it discussed the creating of the factors a court should consider when deciding to invoke judicial estoppel, which suggests judicial discretion should be used in the bankruptcy context similarly to other cases. The Supreme Court did not qualify its decision on the viability of judicial estoppel based on the type of case at issue, and did not suggest that the possibility of an inadvertent or mistaken omission would be precluded in the bankruptcy context.
A uniform approach must be established to determine when to invoke judicial estoppel where a plaintiff-debtor excludes a pending or potential cause of action from the schedules or the statement of financial affairs. A clearer rule should be established so that judges can more consistently determine when to invoke judicial estoppel when a plaintiff-debtor has failed to list a cause of action in the bankruptcy case.
One possibility could be to engage in a five factor test to determine the state of mind of the debtor, or whether a plaintiff-debtor excluded a cause of action from his schedules because of inadvertence. Courts should look at all of these factors as part of an analysis of the totality of the circumstances of the case; no factor is meant to be dispositive and every factor will not be present in all cases.
A court can use these factors as a workable framework to decide whether to invoke the doctrine of judicial estoppel to bar a plaintiff-debtor from recovering from a cause of action. In deciding whether to invoke judicial estoppel, courts should consider the type of debtor who filed for bankruptcy, whether a corporate entity or an individual. This inquiry would provide an important insight for the court in determining whether a cause of action was inadvertently omitted from the bankruptcy case.
For example, a corporation that files for chapter 11 protection will likely retain experienced bankruptcy counsel to help them through the reorganization process.
As compared to individuals, courts should be less trusting of corporations that claim an omission during a bankruptcy filing was due to a mistake. This Part examines cases that have addressed three types of debtors: corporations, represented individuals, and pro se individuals. Some courts have suggested that corporations that have large legal teams working on chapter 11 reorganizations can be held to higher standards as compared to individual plaintiff-debtors in terms of what they are expected to disclose in their bankruptcy schedules.
Auto Ctr. In Payless Wholesale Distributors. The court found that Payless intentionally excluded its pending lawsuits from the statement of financial affairs and upheld summary judgment for the defendants by invoking judicial estoppel. Similarly, in Browning Manufacturing v. The courts in Payless and In re Coastal Plains barred corporations from pursuing potential claims as part of their fresh start. In Ryan Operations G.
The court stated that judicial estoppel should not apply when a plaintiff-debtor takes an earlier position because of a mistake that is in good faith, instead of as a deliberate plan to mislead the court. Chen, F. Unlike the debtors in Payless and In re Coastal Plains , in this case the record showed that the plaintiff-debtor disclosed its potential suit during the bankruptcy proceedings. The corporations in Payless and In re Coastal Plains omitted multi-million dollar claims from their bankruptcy schedules that they later tried to pursue.
In fact, one of the claims that Payless left off its schedules was a claim alleging millions of dollars in damages for attempting to drive Payless out of business. At the time that Payless declared bankruptcy, however, it failed to list any pending lawsuit on its bankruptcy schedules.
The facts of Payless thus suggest that it was unlikely that Payless inadvertently excluded the potential cause of action in its bankruptcy filings. The court acted reasonably to bar Payless from pursuing its claim as part of its fresh start because it had many corporate lawyers working on its case, there was substantial evidence that Payless knew it should have included the pending lawsuit on its schedules, and the lawsuit it had filed was against a firm that Payless claimed drove it into bankruptcy.
Based on all of these factors combined, the court in Payless acted reasonably to bar it from pursuing the pending cause of action as part of its fresh start.
Attorneys who represent individuals in bankruptcy proceedings should explain the bankruptcy process to their clients, as well as thoroughly describe the statement of financial affairs and the schedules. During this process, the bankruptcy attorney should inquire whether the plaintiff-debtor has any potential or pending causes of action that should be listed in the bankruptcy filing. However, an oversight by an attorney or a misunderstanding by a client could cause the plaintiff-debtor to inadvertently exclude a pending or potential lawsuit from the statement of financial affairs.
For example, a debtor who retains different representation in a bankruptcy case than in a pending lawsuit may not realize that the two proceedings are related. As discussed previously, even when a plaintiff-debtor informs her bankruptcy attorney of a potential or pending lawsuit but it is not listed on the bankruptcy schedules, some courts apply judicial estoppel to bar a plaintiff from pursuing a cause of action.
City of Cartersville, F. Rather, it was a malpractice claim against his attorney. Although it is important for an individual to be bound by the acts of his lawyer in a bankruptcy proceeding, Link v. Wabash R. Despite concerns about imputing the acts of an attorney to individual debtors in this context, possibly an even greater concern is the application of judicial estoppel against unrepresented debtors when there is convincing evidence that the omission was due to inadvertence or mistake.
The majority of debtors who file for bankruptcy obtain an attorney during bankruptcy proceedings. However, the number of pro se bankruptcy debtors has significantly increased over the past five years. Although appearing pro se should not be a blanket excuse for mistakes, bankruptcy proceedings can be complex and confusing when they include schedules and statements of financial affairs. Courts should be more receptive to evidence of inadvertence or mistake when the plaintiff-debtor filed his bankruptcy pro se.
Two factors should lead courts to this conclusion: 1 the special protections provided to pro se debtors in the Code and 2 the fact that bankruptcy forms provide little or no instruction for pro se filers. The Code provides certain protections for plaintiff-debtors and acknowledges that the process can be difficult when a plaintiff-debtor files for bankruptcy pro se.
For example, the Code requires that the court reviews any agreement in which a pro se debtor enters into a reaffirmation agreement during bankruptcy. The fact that some protections are built into the Code for pro se debtors suggests that it would be reasonable for a court to give a pro se debtor leeway in determining when to invoke judicial estoppel.
If a pro se plaintiff-debtor can provide evidence that she omitted a cause of action by an inadvertent mistake, the court could limit the application of judicial estoppel and allow the plaintiff-debtor to pursue the claim. An individual debtor who is unfamiliar with the bankruptcy process may not understand that a pending or yet-to-be-filed torts or breach of contract case should be disclosed on the statement of financial affairs.
While the instructions that accompany the statement of financial affairs are unclear, Schedule B, the personal property form, has no separate instructions at all. A plaintiff-debtor could inadvertently exclude a pending, or especially a potential, cause of action that has not yet been filed on the schedules or the statement of financial affairs because of the vagueness of the forms.
Ah Quin v. The plaintiff-debtor hired an attorney to represent her in her bankruptcy case, but the court still granted her some leniency in determining whether to apply judicial estoppel because she explained the forms were confusing.
Ah Quin , F. For example, the court in In re Arana noted that the couple filed for bankruptcy pro se and were unfamiliar with bankruptcy law. Furthermore, the couple spoke English as a second language and only had access to an interpreter during some of their bankruptcy proceedings. In summary, the court should first determine what type of plaintiff-debtor filed for bankruptcy. Courts may appropriately be skeptical of a corporation that tries to argue that it omitted a cause of action because of mistake or inadvertence.
However, if a plaintiff-debtor is unfamiliar with the bankruptcy system, or files for bankruptcy pro se, a court should use caution when deciding to invoke the doctrine of judicial estoppel and bar that plaintiff-debtor from pursuing a cause of action.
In determining whether a plaintiff-debtor inadvertently or mistakenly excluded a cause of action, courts should inquire whether the plaintiff-debtor made affirmative attempts to disclose the claim, particularly looking at attempts to amend the bankruptcy schedules and the timing of the disclosures.
Where a plaintiff-debtor makes a conscious effort to disclose a potential or pending claim, judicial estoppel may be improper. For example, in Eubanks v. For the facts of Barger, see supra text accompanying notes 19— To avoid such an inequitable result, courts should consider evidence such as whether the plaintiff-debtor attempted to amend her bankruptcy schedule and the timing of the disclosure.
A plaintiff-debtor can show the inadvertence of her omission through evidence that she attempted to amend the bankruptcy schedules to include a potential or pending cause of action. Any evidence that shows that the debtor took steps to inform the defendant or the courts of the pending claim before they found out about it through other means should serve as evidence of honest mistake.
If the plaintiff-debtor had not mentioned her bankruptcy filing during settlement conferences with the defendant, there is a possibility that the defendant would have settled instead of asserting a judicial estoppel defense. Judicial estoppel should not be applied in such a way that it punishes honesty. The fact that a plaintiff-debtor discloses her bankruptcy discharge to the defendant should be a key fact to determine whether her omission of her pending claim was inadvertent.
See Dzakula v. If the debtor has filed for chapter 13 bankruptcy, in addition to looking for evidence of whether the plaintiff-debtor took steps to disclose the claim, courts should inquire when the pending cause of action arose: prepetition or postpetition.
Courts have not developed a clear rule whether a chapter 13 debtor should add a postpetition cause of action to the bankruptcy schedules as property of the estate. First, 11 U. Thus any property that the debtor obtains after the commencement of the bankruptcy proceeding, such as wages or possibly claim for discrimination, would become property of the estate. However, 11 U. Section b raises the inference that, if a debtor incurs a cause of action after the confirmation of his plan, the debtor should be able to pursue that cause of action without amending the bankruptcy schedules since all property of the estate has been invested in the plaintiff-debtor.
Because of the uncertainty in the Code in terms of postpetition causes of action, courts should refrain from applying judicial estoppel when an individual plaintiff-debtor incurred a cause of action following the confirmation of his plan.
Surely the integrity of the judicial process would not be compromised where there is a lack of clarity in the law, and the plaintiff-debtor was allowed to pursue a cause of action as part of the fresh start. Weyerhaueser Co. If the plaintiff-debtor is filing for chapter 7 liquidation bankruptcy, courts could also consider whether a plaintiff-debtor could have exempted a potential or pending cause of action under state bankruptcy laws or under the Code. However, debtors must pick to use one set of exemptions and cannot mix and match exemptions from the state laws and federal bankruptcy laws.
As discussed earlier, when the debtor files for bankruptcy, all of her interest in any claims become property of the estate. Courts could refuse to invoke judicial estoppel when a plaintiff-debtor could have exempted the claim she excluded from her bankruptcy case.
The court in McClain v. Therefore, the plaintiff-debtor had no motive to conceal the claims that she excluded from her statement of financial of affairs and schedules as she would not have received a windfall.
Comcar Indus. In certain circumstances, where a plaintiff-debtor fails to list a contingent or potential cause of action as an asset and also fails to list any harm resulting from that cause of action as a liability, the consistent omission may be one fact to consider when determining whether the omission was inadvertent or mistaken.
On the other hand, if a plaintiff-debtor listed an injury incurred as a liability but fails to list a corresponding claim as an asset, the inconsistency could tend to show that the plaintiff-debtor knew she should have included the corresponding claim as an asset.
In Ryan Operations v. Consequently, the court refused to apply judicial estoppel. Conversely, in Hamilton v. The court applied judicial estoppel in part based on that inconsistency when the plaintiff-debtor later filed a lawsuit against State Farm.
The final factor must be considered in light of the other factors discussed above, as well as the totality of the circumstances of the specific situation of the plaintiff-debtor. Because full and accurate disclosure is key in the bankruptcy context, See Ryan Operations G.
Instead, the inconsistency of listing a harm resulting in a liability without listing a corresponding asset could be one factor a court may use to decide that an omission may have been intentional and not due to inadvertence or mistake. While certain courts have mentioned these individual factors in specific factual situations, See Eubanks v. These factors are consistent with the purpose of judicial estoppel: courts should invoke the doctrine to prevent an inequitable result.
New Hampshire v. Courts will not achieve an equitable result when an honest but mistaken debtor is prevented from pursuing a cause of action against an alleged wrongdoer.
Two of the primary arguments against the subjective approach are related to the increased judicial scrutiny that would be required for applying a new test. The bankruptcy court found that even though it was dealing with claims based upon conduct that occurred pre-petition, that fact alone did not make the claims the property of the estate. Instead, the relevant inquiry was whether the cause of action in question accrued pre- or post-petition.
Those decisions indicate that if the claim does not belong to the bankruptcy estate, non-disclosure is not per se inconsistent with later pursuit of the claim by the debtor. In re Mikkelsen , in particular, indicates that the deciding factor is claim ownership, which is to be determined based upon when the cause of action accrued. Kevin A. Intermountain Anesthesia, P. Chevron Pipe Line Co. Dixon , Idaho finding that undisclosed malpractice claim based upon medical procedure performed over a year before the bankruptcy was barred by the doctrine of judicial estoppel.
Gugino In re Wisdom , Case No. Idaho Bankr. Mikkelsen In re Mikkelsen , Case No. On her bankruptcy filings she stated she had no claims that might prompt a lawsuit.
On appeal, the Eleventh Circuit reversed summary judgment on judicial estoppel grounds, holding the district court did not have the benefit of Slater v. Steel Corp.