The doctrine of judicial estoppel is designed to prevent a
party from obtaining an unfair advantage by taking contradictory positions in
litigation. Thus, a party who has
assumed one position in litigation may be judicially estopped from assuming an
inconsistent position. Browning Mfg. v. Mims (In re Coastal Plains,
Inc.), 179 F.3d 197, 205 (5th Cir.1999). The doctrine of judicial estoppel is designed
to “protect the integrity of the judicial process by preventing parties from
playing fast and loose with the courts to suit the exigencies of self
interest.” Id. at 205 (citations and quotations omitted). The doctrine applies only if:
(1) the party’s position is
clearly inconsistent with its previous position;
(2) the court has accepted the party’s
previous position; and
(3) the party’s failure to
disclose the previous position was not inadvertent.
In re Superior
Crewboats, Inc., 374 F.3d 330, 334 (5th Cir. 2004).
In the bankruptcy context, the omission of personal injury and
other claims from a party’s bankruptcy schedules, which must be signed under
penalty of perjury, is tantamount to a representation that no such claim
existed. Superior Crewboats, 374
F.3d at 335; Lott v. Sally Beauty Co., 2002 WL 533651, *3 (M.D. Fla.
2002). Several courts have barred
plaintiffs and bankruptcy trustees from subsequently pursuing unscheduled
claims on grounds of judicial estoppel. See, e.g., Superior Crewboats, 374 F.3d at 336; Coastal Plains,
179 F.3d at 213; In re Bilstat, Inc., 314 B.R. 603, 608 (Bankr. S.D.
Tex. 2004); Lott, 2002 WL 533651 at *5.
Recently, in Kane v.
National Union Fire Ins. Co., 535 F.3d 380 (5th Cir. 2008), the Fifth
Circuit restricted the application of judicial estoppel in cases involving
claims omitted from a debtor’s bankruptcy schedules. In Kane,
Stuart and Lisa Kane had filed a personal injury lawsuit in Louisiana state
court (the “State Court Action”). The
Kanes subsequently filed for a petition for relief under Chapter 7 of the
Bankruptcy Code, but they did not list the State Court Action as an asset on
their bankruptcy schedules and they did not inform the bankruptcy trustee of
their personal injury claim. The
bankruptcy court discharged the Kanes’ debts.
Following the discharge, the defendants in the still-pending
State Court Action filed a motion for summary judgment arguing that the Kanes
should be judicially estopped from pursuing their claims against them. The Kanes then moved to reopen their
bankruptcy case so that the bankruptcy trustee could administer the
lawsuit. Once the bankruptcy court
reopened the case, the defendants removed the State Court Action to the federal
district court. The defendants reurged
their motion for summary judgment on grounds of judicial estoppel, and the
trustee sought leave to be substituted as party-plaintiff for the Kanes.
Relying on the Fifth Circuit’s opinion in Superior Crewboats, the district court
granted the defendants’ motion for summary judgment. The district court concluded that the Kanes
should be barred on grounds of judicial estoppel from pursuing their previously
undisclosed bankruptcy claim.
The Fifth Circuit reversed the district court, concluding
that Superior Crewboats was not
applicable. In Superior Crewboats, the bankruptcy trustee, relying on the debtors’
untruthful representations that the claim had prescribed under state law, had abandoned
the unscheduled personal injury claim.
Thus, the claim had reverted to the debtors, “who then stood to collect
a windfall from their failure to schedule the asset at the expense of their
creditors.” Kane, 535 F.3d at 386-87. In
contrast, the “Kanes’ personal injury claim became an asset of their bankruptcy
estate when they filed their Chapter 7 petition. The Trustee became the real party in interest
in the Kanes’ lawsuit at that point and never abandoned his interest
therein.” Id. at 387. The court
further noted that the Kanes did not stand to collect a windfall, as they would
only receive a distribution from the judgment, if any, after all of the Kanes’
Chapter 7 creditors were paid. Id.
In reaching this decision, the court emphasized that the Kanes’
creditors would be harmed if the Kanes were judicially estopped from pursuing
the unscheduled claim. See id.
The Louisiana Supreme Court recently addressed the judicial
estoppel doctrine in Miller v. ConAgra,
Inc., 911 So. 2d 445 (La. 2008). In
that case, Gary Miller filed a petition for relief under Chapter 7 of the
Bankruptcy Code, but did not list his potential lawsuit against ConAgra as a
claim on his bankruptcy schedules and did not alert the bankruptcy trustee to
the existence of the potential claim.
After Mr. Miller received a discharge of his debts, he filed suit against
ConAgra. A week before trial, ConAgra
moved to dismiss on grounds of judicial estoppel for Mr. Miller’s failure to
list the claim on his bankruptcy schedules.
Like the Kanes, Mr. Miller moved to reopen his bankruptcy case and the
bankruptcy trustee moved to have the claim deemed a part of the bankruptcy
estate. The bankruptcy court granted
both motions. The state trial court
ultimately found judicial estoppel inappropriate. The Louisiana Supreme Court affirmed the
trial court’s decision in this regard, finding Kane to be analogous and emphasizing that Mr. Miller’s creditors
would be harmed if judicial estoppel were applied. Id.
at 454.
Kane appears to be
a policy shift in favor of those potentially harmed by exercising judicial
estoppel. As noted above, prior to Kane, the Fifth Circuit had emphasized
that judicial estoppel was designed to protect the integrity of the judicial
process, regardless of whether any litigant was harmed. See
Superior, 374 F.3d at 334 (“judicial estoppel is designed to protect the
judicial system, not the litigants”); Coastal
Plains, 179 F.3d at 205 (same). If
the resulting harm to creditors must now be considered, Kane may signal the demise of the judicial estoppel defense to the
prosecution of claims not disclosed by debtors in bankruptcy.
For
more information, please contact Philip K. Jones, Jr. at pkjones@liskow.com or Carey L. Menasco
at clmenasco@liskow.com or go to www.liskow.com.
© 2009 Liskow & Lewis, All rights reserved.
