The 11th Circuit missed the boat in the per curiam Slater decision. The doctrine of judicial estoppel should not apply in a bankruptcy case until a discharge has occurred. You may be asking yourself, “What the heck is judicial estoppel and why should I care?”
Judicial Estoppel Defined
The equitable doctrine of judicial estoppel, also known as the doctrine of preclusion of inconsistent positions, “precludes a party from asserting a . . . position that contradicts or is inconsistent with a prior position taken by the same party.” 18 James Wm. Moore et al., Moore’s Federal Practice ¶ 131.13[a] (3d ed. 2015). The doctrine differs from the doctrines of issue and claim preclusion in that the policy animating it “is not [primarily] concerned with preserving the finality of judgments” but is concerned, instead, with “the orderly administration of justice and regard for the dignity of court proceedings.” Id. ¶ 131.13[c]. See Slater vs. United States Steel Corporation.
Sandra Slater had an employment discrimination case against United States Steel. After she filed Chapter 7, she failed to list her lawsuit against United States Steel Corporation as an asset in the case. Before her chapter 7 case was discharged, United States Steel Corporation raised the failure to disclose issue and had the employment discrimination lawsuit thrown out under the doctrine of judicial estoppel. Sandra Slater amended her chapter 7 case before the discharge and added the employment discrimination claim as an asset. Also, she converted her case from Chapter 7 to Chapter 13. Even with these adjustments, the 11 Circuit ruled that judicial estoppel still applied.
The application of judicial estoppel in the Slater case is extremely rigid. The ruling from this case basically says that if you forget to list a potential lawsuit in your bankruptcy case and the other side points it out to the court, your right to recover any money from that lawsuit is gone with the wind. Can you hear Scarlett screaming?
The court stated:
Because Slater amended her Chapter 7 petition “only after U.S. Steel caught and exposed her omission,” the District Court concluded that “allowing her to do so without penalty would encourage rather than discourage debtors like her to conceal their assets unless or until they are caught.” To avoid this consequence, and because it inferred that Slater’s concealment of her claims against U.S. Steel when she filed her Chapter 7 petition was intentional and not inadvertent, the District Court concluded that she intended “to make a mockery of the judicial system” and granted U.S. Steel a final judgment dismissing her case.
Slater’s bankruptcy case was not discharged before she fell under the judicial estoppel guillotine. If her bankruptcy case was dismissed, she would have been in exactly the same economic position she was in prior to filing. I think the 11th Circuit failed to take this into consideration. I think the rule should be that if you amend before discharge, judicial estoppel should not bar your claim.
Why should you care?
This awful decision is not going to play out well for debtors or creditors of debtors.
This is the future I predict.
Someone is going to file chapter 13 bankruptcy. Three years after the bankruptcy case is filed but before the case is discharged, a drunk driver is going to crash into this innocent debtor and cause millions of dollars in damages. Since debtor has not seen their bankruptcy attorney in years, she does not even consider calling him to tell him about the awful car accident. A personal injury attorney files a lawsuit on behalf of innocent debtor against the drunk driver. Drunk Driver has aggressive insurance lawyers defend him. They file a motion to dismiss the potential lawsuit under the doctrine of judicial estoppel because innocent debtor forgot to amend her Chapter 13 to add the case as an asset on schedule B. Debtor loses millions and creditors potentially lose out as well because the proceeds from the lawsuit could have been used to satisfy all claims.
The only hope for debtors is for the Georgia Code to be changed to specially state that a debtor can amend their bankruptcy cases before discharge to add any claim. The likelihood of this ever happening is pretty close to zero.
If you are in an active bankruptcy case and you even suspect that you might have a claim against someone, call your bankruptcy attorney ASAP so that they can amend your schedules and get you protected ASAP.