Michigan District Court Applies Judicial Estoppel to Employment Discrimination Suit – Despite Debtor’s Disclosure of the Claim to the Bankruptcy Attorney

Michigan District Court Applies Judicial Estoppel to Employment Discrimination Suit – Despite Debtor’s Disclosure of the Claim to the Bankruptcy Attorney

On March 26, 2019, the United States District Court for the Eastern District of Michigan dismissed the Debtor/Plaintiff’s lawsuit against USF Holland, LLC based on judicial estoppel.

Prior to filing bankruptcy, the Debtor had been terminated from his employment from USF. The Debtor filed a charge with the Equal Employment Opportunity Commission claiming USF denied him reasonable accommodation for his disability and discharged him on account of his disability and in retaliation for seeking accommodation.

Debtor hired a bankruptcy attorney to prepare and file a chapter 13 bankruptcy. Debtor claimed that he informed the attorney about his claim against USF but that the attorney told him the claim didn’t need to be disclosed because no case had been filed with the court.

Two months later, on April 14, 2017, Debtor filed a chapter 13 bankruptcy and was represented by counsel. The claim against USF was not listed on the Debtor’s schedules. Within a few months Debtor filed amended schedules D, E/F, I and J.

On October 11, 2017 the Debtor filed a complaint with the District Court alleging failure to accommodate his disability and termination based on his disability and for requesting accommodation. Again a few months later Debtor amended schedules I and J.

In January 2018, the non-disclosure problem was identified by the Debtor’s ADA counsel. The Debtor had asked his ADA counsel if USF could be liable him file bankruptcy. ADA counsel inquired whether the ADA claim was listed in the bankruptcy as an asset. ADA counsel advise the debtor who immediately go who his bankruptcy attorney’s office and file an amendment disclosing the claim.

Later in January 2018, Debtor met with his bankruptcy attorney and requested an amendment. The bankruptcy attorney was unconvinced that this was necessary and discussed it with ADA counsel. ADA counsel believed he had convinced the bankruptcy attorney to disclose the asset. An amended schedule A/B was drafted but not filed. Two months later the Debtor’s plan was confirmed.

In June 2018 the problem became even more serious. USF notified the ADA counsel that Debtor had not disclosed the claim in his bankruptcy schedules. Upon notification, Debtor went to the bankruptcy attorney’s office. He signed an amended schedule A/B backdated to January 24, 2018. The amendment was eventually filed on July 3, 2018.

USF filed a motion for summary judgment in the ADA proceeding alleging judicial estoppel. The main issue argued was whether Debtor’s conduct resulted from mistake or inadvertence and in particular whether the evidence indicates an absence of bad faith on the part of the Debtor.

The Debtor blamed his bankruptcy attorney for the failure to disclose the asset. He told his attorney about it prior to filing, made an issue to disclose it the following January, and no amendment was filed until July.

The District Court examined that if a client’s disclosure of a claim to his bankruptcy counsel followed by his counsel’s failure to tell the bankruptcy court is sometimes a good reason not to apply judicial estoppel, the question becomes where to draw the line.

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