11th Cir: When Applying Doctrine of Judicial Estoppel, Courts Must Consider All the Facts in Determining Whether Debtor was Making a Mockery of the System by Failing to Disclose Civil Claim in her Bankruptcy

11th Cir: When Applying Doctrine of Judicial Estoppel, Courts Must Consider All the Facts in Determining Whether Debtor was Making a Mockery of the System by Failing to Disclose Civil Claim in her Bankruptcy

When an individual files for bankruptcy, he must file sworn disclosures listing his debts and his assets, including any pending civil claims, and identifying any lawsuits he has filed against others. Occasionally, a plaintiff who has a pending civil lawsuit fails to list the claims or lawsuit in these disclosures. In omitting this information, the plaintiff effectively takes inconsistent positions in the two judicial proceedings by asserting in the civil lawsuit that he has a claim against the defendant while denying under oath in the bankruptcy proceeding that the claim exists.

The equitable doctrine of judicial estoppel is intended to protect courts against parties who seek to manipulate the judicial process by changing their legal positions to suit the exigencies of the moment. Today, we address how this doctrine should be applied when a plaintiff takes inconsistent positions by pursuing in district court a civil claim that he failed to disclose as an asset in his bankruptcy proceedings. We reaffirm our precedent that when presented with this scenario, a district court may apply judicial estoppel to bar the plaintiff’s civil claim if it finds that the plaintiff intended to make a mockery of the judicial system.

But what suffices for a district court to find that a plaintiff who did not disclose a civil lawsuit in bankruptcy filings intended to make a mockery of the judicial system? Our Court has endorsed a rule that the mere fact of the plaintiff’s nondisclosure is sufficient, even if the plaintiff corrected his bankruptcy disclosures after the omission was called to his attention and the bankruptcy court allowed the correction without penalty.See Barger v. City of Cartersville, 348 F.3d 1289 (11th Cir. 2003); Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002). We granted en banc review to reconsider this precedent.

The Debtor, a high school graduate, worked for Employer for more than 10 years performing general manual labor. Debtor sued Employer for discrimination based on race and sex in violation of Title VII, 42 U.S.C. § 2000e et seq, and 42 U.S.C. § 1981, and for retaliating against her after she complained of race and sex discrimination, in violation of Title VII and § 1981. Employer moved for summary judgment on all of Slater’s claims. The district court granted the motion in part and denied it in part. The court denied summary judgment on Debtor’s claims that she suffered discrimination in job assignments based on her sex and was fired in retaliation for complaining about racial discrimination. Despite withstanding summary judgment, the Debtor never had an opportunity to present these claims to a jury.

About a month after the district court’s summary judgment ruling, Debtor— represented by different counsel than in her discrimination case—filed a petition for Chapter 7 bankruptcy. She did not disclose her lawsuit against Employer in her bankruptcy petition or the schedules filed with her petition. When asked under penalty of perjury in Schedule B-Personal Property to identify any “contingent and unliquidated claims,” she answered “none.”  And when asked under penalty of perjury in her Statement of Financial Affairs to identify any “suits and administrative proceedings to which the debtor is or was a party within one year immediately preceding the filing of this bankruptcy case,” she again answered “none.” Id. at 29 (emphasis omitted).

After the Debtor filed her disclosures, the bankruptcy trustee issued a Report of No Distribution, finding there was no property available for distribution from the estate over and above that exempted by law. In the absence of any objections to the report, 30 days later the estate became presumptively fully administered. See Fed. R. Bankr. P. 5009(a).

The next day, Employer again moved for summary judgment in the employment discrimination case, this time on the ground that because the Debtor failed to disclose her civil claims in the bankruptcy proceeding, the doctrine of judicial estoppel should bar her from pursuing those claims. In response, the Debtor testified by declaration that she did not intentionally misrepresent facts to the bankruptcy court. She further explained that she misunderstood the question in the Statement of Financial Affairs regarding “suits and administrative proceedings to which the debtor is or was a party” as asking only about suits filed against her.

The next business day after Employer filed the motion, the Debtor amended her Statement of Financial Affairs and Schedule B to her bankruptcy petition to disclose her claims against Employer. The bankruptcy trustee then filed with the bankruptcy court a request to employ the lawyers who were representing the Debtor in her employment action to continue to pursue the claims against Employer on behalf of the estate. The bankruptcy court granted the motion.

The bankruptcy case proceeded: upon the Debtor’s petition, the court converted the case from a Chapter 7 to a Chapter 13 proceeding, and she filed a proposed Chapter 13 plan, which the bankruptcy court confirmed. Later, though, when she failed to pay the trustee under the terms of the confirmed plan, the bankruptcy court dismissed her case, meaning her debts never were discharged in bankruptcy.

The Debtor’s civil action fared no better. The district court granted Employer’s motion for summary judgment, applying the doctrine of judicial estoppel to bar her claims. The court rejected her arguments that her omission of the civil claims in the bankruptcy proceeding was inadvertent and that she never intended to thwart the judicial process. The court explained that under our circuit precedent, a failure to disclose is “‘inadvertent’ only when . . . the debtor either lacks knowledge of the undisclosed claims or has no motive for their concealment.”

The district court found that the Debtor knew about her civil claims, filed in 2009, when she completed the bankruptcy disclosures in 2011 and that she had a motive to conceal the claims “to defraud creditors into accepting her [bankruptcy] case as one involving no assets for distribution despite the real possibility with the impending trial of the discrimination case that she could soon be receiving a money settlement or a money judgment in her favor.” Id. at 12. Although Slater corrected her disclosures immediately after Employer brought the omissions to light, the district court found this fact irrelevant because “waiting until after being caught to rectify the omission is too little, too late.”

The Debtor appealed. After oral argument, a panel of this Court affirmed the district court’s grant of summary judgment to Employer. In a concurring opinion, one judge urged the Court to review en banc our precedent permitting the inference on which the district court relied, that a plaintiff who omitted a civil claim as an asset in bankruptcy filings necessarily intended to make a mockery of the judicial system.

Please note, in order to view NACBA Member Content, you must sign in and then visit NEWS. If you are not a NACBA member, you may Become a NACBA Member 

No Comments

Post a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.