Judicial Estoppel

Judicial estoppel is an equitable doctrine created by the courts which precludes a party from asserting a position in a legal proceeding that is inconsistent or contrary to a position taken by that party in the same or some earlier legal proceeding. The purpose of the doctrine is to protect the integrity of the judicial process by prohibiting parties from deliberately changing position according to the exigencies of the moment. Barger v. City of Cartersville, Georgia, 348 F.3d 1289 (11^th Cir. 2003) (quoting New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808 (2001)). Judicial estoppel is applied to the calculated assertion of divergent sworn positions, and is designed to prevent parties from making a mockery of justice by inconsistent pleadings. Burnes v Pemco Aeroplex, Inc., 291 F.3d 1282 (11^th Cir. 2002). Judicial estoppel applies in situations involving intentional contradictions, not simple error or inadvertence. Id.

Bankruptcy practitioners should be particularly aware of judicial estoppel’s potential preclusive effect on a debtor’s asset. If a bankruptcy debtor fails to disclose a claim or cause of action as an asset in the debtor’s bankruptcy case, that failure may create a basis for the dismissal of the debtor’s or former debtor’s non bankruptcy claim or causes of action. Judicial estoppel applications, either during or after the closing of a bankruptcy case, typically have been based on the bankruptcy debtor’s failure to satisfy the disclosure requirements of the Bankruptcy Code and Rules. Section 541(a)(1) of the Bankruptcy Code defines “property of the [bankruptcy] estate” to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” This broadly encompasses any claims or causes of action existing at the time the bankruptcy case is filed. The debtor’s failure to disclose the claim in the bankruptcy schedules may be deemed to be an admission by the debtor that no claim exists; thus, the debtor’s pursuit or assertion of a claim in a post bankruptcy proceeding can be construed as a position inconsistent with that taken by the debtor in the bankruptcy court. The debtor’s “silence” in the bankruptcy petition in these instances has been said to be “deafening.” Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir. 1988); Louden v. Fed. Land Bank of Louisville (In re Louden), 106 B.R. 109 (Bankr. E.D. Ky. 1989).

The Eleventh Circuit has addressed judicial estoppel’s preclusive effect on a debtor who fails to disclose a claim or cause of action on the debtor’s bankruptcy schedules. In Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11^th Cir. 2002) the court dealt with the applicability of judicial estoppel in an employment discrimination case. In Burnes, a Chapter 13 debtor failed to amend his bankruptcy schedules to include an employment discrimination lawsuit which he filed after he filed his bankruptcy petition. Subsequently, upon converting his Chapter 13 case to a Chapter 7 case, the court ordered the debtor to file updated bankruptcy schedules. In the amended bankruptcy schedules, the debtor failed to include the discrimination lawsuit. The court found that the debtor intentionally manipulated the system by filing and pursuing his employment discrimination lawsuit during the pendency of his bankruptcy without ever disclosing the lawsuit. The court also found that the debtor stood to gain an advantage by concealing the claim from the bankruptcy court, i.e., it is unlikely the debtor would have received the benefit of a conversion to Chapter 7 followed by a no asset, complete discharge had his creditors, the trustee, or the bankruptcy court known of a lawsuit claiming millions of dollars in damages. Accordingly, the court ruled that the doctrine of judicial estoppel barred the debtor’s employment discrimination claim. See also, DeLeon v. Comcar Industries, Inc., 321 F.3d 1289 (11^th Cir. 2003); (Barger v. City or Cartersville, Georgia, 348 F.3d 1289 (11^th Cir. 2003).

Debtors and bankruptcy practitioners must be aware that a debtor who seeks the shelter of the bankruptcy laws must disclose all the debtor’s assets, or potential assets, to the bankruptcy court. The duty to disclose is a continuing one that does not end once the forms are submitted to the bankruptcy court; rather, a debtor must amend his financial statements if circumstances change. The debtor or practitioner who fails to heed this advice may become more intimately familiar with judicial estoppel than they ever hoped.