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Bankruptcy and Judicial Estoppel

Posted by attorney Dustin Marlowe

Judicial estoppel “protect[s] the integrity of the judicial process by prohibiting parties from changing positions according to the exigencies of the moment." New Hampshire v. Maine, 532 U.S. 742, 749 (2001). Specifically, the doctrine “prevent[s] a party from asserting a claim in a legal proceeding that is inconsistent with a claim taken by the party in a previous proceeding." 18 Moore’s Federal Practice 134.30 (3d ed. 2008). Very often, a defendant staring down a personal injury or employment discrimination claim will attempt to use judicial estoppel against a plaintiff who failed to identify the potential or actual claim in prior bankruptcy proceedings. Robinson v. Tyson Foods, Inc., — F.3d —, 2010 WL 396130 (11th Cir. 2010), demonstrates just how successful that tactic can be and, thus, just how important it is for debtors to fully disclose all assets and liabilities in the bankruptcy proceeding.

Brenda Robinson filed a Chapter 13 bankruptcy in April 2002, and in May 2002, a bankruptcy judge confirmed her plan, which called for a complete repayment of her creditors over a 60-month period. In October 2006, i.e., while in her repayment period, Robinson filed a lawsuit against Tyson Foods, alleging unlawful employment practices and race-based mistreatment. As part of her lawsuit, Robinson sought compensatory, punitive, and liquidated damages. Robinson never amended her bankruptcy filings to reflect her claim against Tyson. In July 2007, Robinson completed her bankruptcy plan; she repaid all creditors and received a full discharge from bankruptcy.

Tyson discovered Robinson’s bankruptcy filing while taking her deposition in September 2007 and filed a motion for summary judgment based on judicial estoppel, arguing that Robinson’s failure to disclose the litigation against Tyson in the bankruptcy proceeding “constituted inconsistent positions under oath that were calculated to make a mockery of the judicial system," despite the fact that Robinson repaid all creditors and received a full discharge from bankruptcy.

The 11th Circuit paid very little attention to this specific feature of Robinson’s plan, engaging, instead, in a mechanical analysis demanded by precedent. It concluded first that Robinson took inconsistent positions under oath in the bankruptcy and Title VII proceedings because, even though the Title VII claim was filed almost 5 years after her bankruptcy filing, she had a “continuing duty" to disclose changes in her assets in bankruptcy court. By not disclosing it, Robinson represented to the bankruptcy court that she had no legal claims while she was simultaneously pursuing a claim against Tyson. The Court next concluded that Robinson’s inconsistency was calculated to make a mockery of the judicial system because Robinson knew about the Title VII and had a motive to conceal it.

Robinson(and all of the cases upon which it stands) must be respected. Bankruptcy claimants cannot be cute or clever. If you have a claim, disclose it. Bankruptcy lawyers cannot be lazy. Yes, disclosing a claim will, at best, cause you to do a little more paperwork and, at worst, affect the Chapter 7 or 13 petition, but the consequences of secreting your client’s claim could not be more devastating. And personal injury and employment discrimination lawyers (and any other lawyer whose clients regularly sue others for money damages) cannot be ignorant. You have to know your client’s history, including whether there is a recent or ongoing bankruptcy. If client, bankruptcy lawyer, and litigation lawyer are not all on the same page and doing what they ought to be doing, then all will suffer. The client and litigation lawyer lose a potentially very valuable claim, and the bankruptcy lawyer could very well be staring down a very expensive legal malpractice claim.

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