Willie Love v. Tyson Foods, Inc. ( 2012 )

REVISED APRIL 12, 2012
IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT Fifth Circuit
FILED
April 4, 2012
No. 10-60106 Lyle W. Cayce
Clerk
WILLIE E. LOVE,
Plaintiff – Appellant
v.
TYSON FOODS, INC.,
Defendant – Appellee
Appeal from the United States District Court
for the Southern District of Mississippi
Before KING, WIENER, and HAYNES, Circuit Judges.
KING, Circuit Judge:
The district court granted summary judgment dismissing Willie E. Love’s
lawsuit against Tyson Foods, Inc. It held that Love was judicially estopped from
bringing his claims against Tyson because he had failed to disclose them in his
Chapter 13 bankruptcy proceeding. We AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
Tyson Foods, Inc. (“Tyson”) hired Willie E. Love (“Love”) as a truck driver
on July 23, 2007, but fired Love three days into his orientation after he disclosed
that he had tested positive for drug use in 2001. Tyson cited safety concerns as
the reason for dismissing Love. However, Love asserted that, because Tyson’s
No. 10-60106
employment application only required applicants to disclose positive drug tests
within three years of applying for employment, Tyson had discriminated against
him on the basis of his race by terminating him for drug use that occurred prior
to the time frame listed in his employment application. Tyson subsequently
rehired Love but required him to take monthly drug tests. Tyson terminated
Love again on April 2, 2008, when Love tested positive for drug use. Love
contended that an antibiotic he was taking caused a false positive result on the
drug test, but Tyson declined to consider the results of any subsequent testing.
On May 30, 2008, Love filed a charge of discrimination with the Equal
Employment Opportunity Commission (“EEOC”), asserting that Tyson subjected
him to racial discrimination and that his second termination was in retaliation
for his prior complaints of racial discrimination related to his first termination.
The EEOC issued a notice of right to sue on December 16, 2008, and Love filed
the present action on March 12, 2009. He asserted federal claims under Title
VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and under 42 U.S.C.
§ 1981, as well as a state-law claim for intentional infliction of emotional
distress.
At the time Love filed both his EEOC charge and his complaint initiating
the instant case, Love was a debtor in a Chapter 13 proceeding, having filed a
petition for bankruptcy on May 1, 2008. “[T]he Bankruptcy Code and Rules
impose upon bankruptcy debtors an express, affirmative duty to disclose all
assets, including contingent and unliquidated claims.” Browning Mfg. v. Mims
(In re Coastal Plains, Inc.), 179 F.3d 197, 207–08 (5th Cir. 1999) (emphasis
omitted) (citing 11 U.S.C. § 521(1)). “The obligation to disclose pending and
unliquidated claims in bankruptcy proceedings is an ongoing one.” Jethroe v.
Omnova Solutions, Inc., 412 F.3d 598, 600 (5th Cir. 2005) (citation omitted). The
disclosure requirement pertains to potential causes of action as well. See In re
Coastal Plains, Inc., 179 F.3d at 208. Nonetheless, Love did not disclose his
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No. 10-60106
claims against Tyson and affirmatively stated “NONE” on Schedule B, item 21,
which required the identification of “[o]ther contingent and unliquidated claims
of every nature.” On September 22, 2008, the bankruptcy court confirmed Love’s
Chapter 13 plan, which did not mention the then-pending EEOC matter and
provided that Love’s unsecured creditors would receive no payment.
On July 16, 2009, Tyson moved for summary judgment, arguing that Love
should be judicially estopped from pursuing his claims against Tyson because he
failed to disclose those claims to the bankruptcy court. On July 22, 2009, Love
filed an amended schedule in his bankruptcy case listing his claims against
Tyson. On January 7, 2010, the district court granted Tyson’s motion for
summary judgment and dismissed Love’s case. Love timely appealed.1
II. DISCUSSION
A. The Doctrine of Judicial Estoppel
The doctrine of judicial estoppel is equitable in nature and can be invoked
by a court to prevent a party from asserting a position in a legal proceeding that
is inconsistent with a position taken in a previous proceeding. See Reed v. City
of Arlington, 650 F.3d 571, 573–74 (5th Cir. 2011) (en banc). The aim of the
doctrine is to “protect the integrity of the judicial process.” New Hampshire v.
Maine, 532 U.S. 742, 749–50 (2001) (citation and internal quotation marks
omitted). “Because the doctrine [of judicial estoppel] is intended to protect the
judicial system, rather than the litigants, detrimental reliance by the opponent
of the party against whom the doctrine is applied is not necessary.” In re
Coastal Plains, Inc., 179 F.3d at 205 (citation omitted). Moreover, “‘the integrity
of the bankruptcy system depends on full and honest disclosure by debtors of all
1
The record reflects that Love was represented by counsel in the proceedings before the
district court and by different counsel in his Chapter 13 bankruptcy case. Love proceeds pro
se on appeal.
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of their assets.’” Id. at 208 (emphasis omitted) (quoting Rosenshein v. Kleban,
918 F. Supp. 98, 104 (S.D.N.Y. 1996)).
In determining whether to apply judicial estoppel, we primarily look for
the presence of the following criteria: “(1) the party against whom judicial
estoppel is sought has asserted a legal position which is plainly inconsistent with
a prior position; (2) a court accepted the prior position; and (3) the party did not
act inadvertently.” Reed, 650 F.3d at 574 (citations omitted). However, judicial
estoppel is not governed by “inflexible prerequisites or an exhaustive formula for
determining [its] applicability,” and numerous considerations “may inform the
doctrine’s application in specific factual contexts.” New Hampshire, 532 U.S. at
751. This court has noted that “[j]udicial estoppel is particularly appropriate
where . . . a party fails to disclose an asset to a bankruptcy court, but then
pursues a claim in a separate tribunal based on that undisclosed asset.” Jethroe,
412 F.3d at 600.
B. Standard of Review
“We review a judicial estoppel determination for abuse of discretion.” Id.at 599–600; see also Kane v. Nat’l Union Fire Ins. Co., 535 F.3d 380, 384 (5th Cir.
2008) (explaining that a district court’s application of judicial estoppel is
reviewed for abuse of discretion, even when the district court granted summary
judgment on that basis). “[D]eference . . . is the hallmark of abuse-of-discretion
review.” Gen. Elec. Co. v. Joiner, 522 U.S. 136, 143 (1997). Nonetheless, “[a]
district court abuses its discretion if it: (1) relies on clearly erroneous factual
findings; (2) relies on erroneous conclusions of law; or (3) misapplies the law to
the facts.” McClure v. Ashcroft, 335 F.3d 404, 408 (5th Cir. 2003). Whether a
debtor’s failure to disclose claims was inadvertent presents a question of fact.
See Robinson v. Tyson Foods, Inc., 595 F.3d 1269, 1275 (11th Cir. 2010); cf.
Cont’l Cas. Co. v. McAllen Indep. Sch. Dist., 850 F.2d 1044, 1046 (5th Cir. 1988).
As discussed above, the district court granted summary judgment in Tyson’s
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favor, finding that Love had made no effort to demonstrate inadvertence.
Reversal of this finding is proper if we find that there is a genuine factual
dispute regarding whether Love failed to disclose his claims inadvertently. See
FED. R. CIV. P. 56(a) (“The court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.”); Buffalo Marine Servs. Inc. v. United
States, 663 F.3d 750, 753 (5th Cir. 2011) (“We review a grant of summary
judgment de novo, applying the same standard as the district court.”).
C. There is No Fact Issue Regarding Love’s Inadvertence
Love’s sole argument on appeal is that his failure to disclose his claims
was inadvertent. “[I]n considering judicial estoppel for bankruptcy cases, the
debtor’s failure to satisfy its statutory disclosure duty is ‘inadvertent’ only when,
in general, the debtor either lacks knowledge of the undisclosed claims or has no
motive for their concealment.” In re Coastal Plains, Inc., 179 F.3d at 210(emphases omitted). Love concedes that he knew about the undisclosed claims
against Tyson, but he argues that he had no motive to conceal his claims.
In its motion for summary judgment, Tyson set forth a motivation for Love
to keep his claims concealed—the prospect that Love could keep any recovery for
himself. As one court has stated, “the motivation sub-element is almost always
met if a debtor fails to disclose a claim or possible claim to the bankruptcy court.
Motivation in this context is self-evident because of potential financial benefit
resulting from the nondisclosure.” Thompson v. Sanderson Farms, Inc., No.
3:04CV837-WHB-JCS, 2006 U.S. Dist. LEXIS 48409, at *12–13 (S.D. Miss. May
31, 2006) (citation omitted). Similarly, this court has found that debtors had a
motivation to conceal where they stood to “reap a windfall had they been able to
recover on the undisclosed claim without having disclosed it to the creditors.”
Superior Crewboats, Inc. v. Primary P & I Underwriters (In re Superior
Crewboats, Inc.), 374 F.3d 330, 336 (5th Cir. 2004). After Tyson set out this
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No. 10-60106
motivation to conceal, it fell to Love to show that the omission of his claims from
his schedule of assets was inadvertent. See Jethroe, 412 F.3d at 600–01.
In response to Tyson’s motion for summary judgment, Love failed to set
forth any argument or otherwise create a fact issue regarding whether he acted
inadvertently. Love’s five-page brief discussed only two of the three criteria that
are central to this court’s judicial estoppel analysis and conspicuously omitted
any discussion of inadvertence. The response even failed to mention the words
“inadvertent,” “motive,” or “intent,” or to suggest that inadvertence had any
bearing on the court’s determination of whether judicial estoppel should apply.
Love instead contended that: (1) “Plaintiff’s positions are no longer inconsistent
as [Love] supplemented his Schedule to list the current case as an asset in his
bankruptcy”; (2) “the Defendant has failed to show the bankruptcy court has
accepted the Plaintiff’s prior position that he had no contingent claims”; (3)
“Plaintiff will not derive any unfair advantage or impose any unfair detriment
on any opposing party if not estopped”; and (4) “Plaintiff’s bankruptcy is still
pending and any monies paid by Defendant through settlement or judgment in
this case would go into the bankruptcy to pay Plaintiff’s creditors first.”
Critically, Love’s arguments before the district court did nothing to refute
Tyson’s allegations or explain why Love did not disclose his claims when his
disclosure obligations first arose. His first two arguments clearly do not speak
to his motive to conceal his claims against Tyson. With respect to Love’s third
argument, whether Tyson or Love would accrue an unfair detriment or benefit
if the lawsuit were allowed to go forward after Tyson forced Love to disclose his
claims is an entirely different issue than whether Love had a financial motive
to conceal his claims against Tyson at the time Love failed to meet his disclosure
obligations, which is the relevant time frame for the judicial estoppel analysis.
See In re Superior Crewboats, Inc., 374 F.3d at 336; Robinson, 595 F.3d at 1276(“When reviewing potential motive, the relevant inquiry is intent at the time of
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non-disclosure.” (citing Casanova v. Pre Solutions, Inc., 228 F. App’x 837, 841
(11th Cir. 2007))). Regarding Love’s fourth argument, Love did state that he
would pay his creditors before collecting any money from his claims against
Tyson, but he made this assertion only after Tyson brought his nondisclosure to
light. Love’s disclosure obligations arose long beforehand, and his statement
about his post-disclosure conduct again fails to speak to his motivations while
he was obligated to disclose his claims but had not yet done so. Consequently,
we agree with the district court’s conclusion that Love ultimately provided “no
basis for concluding that [the] failure to disclose th[e] litigation [against Tyson]
to the bankruptcy court was ‘inadvertent.’” Thus, the district court did not abuse
its discretion by applying judicial estoppel to Love’s claims.
D. The Dissent
The dissent would hold that the district court should not have estopped
Love from asserting his claims because Tyson failed to carry its burden to
establish that judicial estoppel should apply. According to the dissent, Tyson’s
assertion that Love stood to gain personally by concealing his claims was
incorrect as a matter of law, and thus Love could not have been motivated by a
desire to conceal his claims. As a consequence, the dissent contends that the
summary judgment burden never shifted to Love to explain his nondisclosure.2
The dissent further asserts that, even if the burden was properly shifted to Love,
his arguments before the district court were sufficient to create a fact issue
regarding inadvertence, making summary judgment improper.
2
As we discuss below, Love could have enjoyed personal gains from concealing his
claims had they remained undisclosed. Thus, Tyson did set out a valid motivation for Love to
keep his claims concealed. This motivation and the fact that Love did not timely disclose his
claims caused the burden to shift to Love to provide some explanation for his failure to meet
his disclosure obligations. See Bayle v. Allstate Ins. Co., 615 F.3d 350, 355 (5th Cir. 2010)
(“Once a party meets the initial burden of demonstrating that there exists no genuine issue of
material fact for trial, the burden shifts to the non-movant to produce evidence of the existence
of such an issue for trial.”).
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There are several key problems with the dissent’s analysis. Despite
precedent calling for consideration of a debtor’s inadvertence or lack thereof, the
dissent essentially eliminates consideration of a debtor’s motives from the
calculus. See Reed, 650 F.3d at 574. The dissent concludes that, because Love’s
claims against Tyson were the property of his bankruptcy estate and Love was
obligated to pursue these claims on his creditors’ behalf, Love was necessarily
acting for the benefit of his creditors from the inception of his lawsuit against
Tyson and thus had no motive to conceal his claims. However, the dissent fails
to acknowledge that Love did have a strong incentive to keep his claims
concealed. If Tyson had not brought Love’s claims to light, Love could have kept
any recovery for himself, even though the claims belonged to the bankruptcy
estate. Thus, the dissent’s assumption that Love was discharging his duties
under the law supplants the inadvertence analysis and automatically attributes
good motives to Love despite very real incentives for Love to conceal his claims
and Love’s utter failure to explain why he failed to meet his disclosure
obligations.
Moreover, even after Love disclosed his claims, it is unclear whether his
creditors would ultimately share in any recovery. Although Love amended his
schedule of assets to list his claims against Tyson, his plan was not amended to
provide that his creditors would be paid out of any recovery. Thus, there is
nothing of record that presently requires Love to pay his creditors.
Consequently, if Love were to recover any money from Tyson after his discharge
(currently scheduled for late 2013) without any amendment to his plan, the
recovery would go to Love to the exclusion of his creditors. See 11 U.S.C.
§§ 554(c), 1329. In fact, Love’s failure to disclose his claims when he was
required to do so has caused considerable delay, increasing the likelihood that
his lawsuit against Tyson would continue past the date his discharge is
scheduled to occur. The possibility that Love’s creditors might not benefit from
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No. 10-60106
any recovery again demonstrates that the dissent is incorrect to assume that
Love would be acting in the interest of his creditors if allowed to continue
pursuing his claims against Tyson.
Further, the dissent curiously limits its examination of Love’s motivations
to conceal his claims to those that existed after Tyson had forced disclosure.
This examination, however, assesses Love’s motives from the wrong point in
time and completely overlooks the relevant inquiry, which analyzes Love’s
motives as he was potentially concealing his claims (i.e., failing to disclose his
claims despite a legal obligation to list them in his schedule of assets). See In re
Superior Crewboats, Inc., 374 F.3d at 336; Robinson, 595 F.3d at 1276. The
proper analysis would give heed to the potential windfall Love could have reaped
if his claims had remained undisclosed. Moreover, the key advantage of
concealment—the debtor’s ability to collect any recovery on claims without his
creditors’ knowledge—will be removed in every instance that the debtor is forced
to disclose his claims. Thus, the dissent’s analysis again improperly excludes all
consideration of the debtor’s relevant motivations.
The dissent further contends that Love created a fact issue regarding
inadvertence by asserting that he would “not derive any unfair advantage or
impose any unfair detriment on any opposing party if not estopped.” The
dissent’s analysis, however, improperly conflates the issues of whether a debtor
acted inadvertently when concealing his claims and whether a party would enjoy
an unfair advantage or suffer an unfair detriment if judicial estoppel were not
applied. The dissent cites New Hampshire v. Maine, 532 U.S. 742 (2001), and
Hall v. GE Plastic Pacific PTE Ltd., 327 F.3d 391 (5th Cir. 2003), for the
proposition that the inadvertence analysis turns on the advantages or
disadvantages judicial estoppel would cause the litigants. However, these are
distinct issues, and the New Hampshire and Hall courts treat them as such. See
New Hampshire, 532 U.S. at 751, 753–54; Hall, 327 F.3d at 399–400. Thus,
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No. 10-60106
Love’s assertion that he would not gain an unfair advantage if not estopped does
not speak to the issue of inadvertence and, as a consequence, does not create a
fact issue regarding Love’s motive to conceal.
What appears to drive the dissent is a desire to change the law in a way
that would prevent nearly every application of judicial estoppel in the
bankruptcy context. Time and time again, however, judicial estoppel has been
applied by this court and others far more broadly than the dissent’s reasoning
would allow. See, e.g., In re Superior Crewboats, Inc., 374 F.3d 330; In re Coastal
Plains, Inc., 179 F.3d 197; Kamont v. West, 83 F. App’x 1 (5th Cir. 2003).
Although the dissent attempts to distinguish our precedent applying judicial
estoppel in the bankruptcy context, the distinctions do not hold up when the
dissent’s rationale is followed to its logical end. Under the dissent’s analysis, if
it is theoretically possible that a non-disclosing debtor is pursuing claims for the
benefit of his creditors (because the claims are property of the estate), then a
court must assume that the debtor is, in fact, acting on his creditors’ behalf and
that any nondisclosure of those claims was inadvertent. However, under this
rationale, a dishonest debtor could, in almost every case, conceal his claims from
his creditors and assert them without his creditors’ knowledge unless an
opponent forced disclosure. Upon being forced to disclose his claims, a debtor
could then amend his schedules to include the claims, as Love did here, or take
other corrective action, and his nondisclosure would be considered inadvertent.3
3
There are several ways a dishonest debtor could “cure” his nondisclosure and be
considered blameless under the dissent’s rationale. For instance, if a debtor had been granted
a discharge, he could, in most cases, reopen his bankruptcy case under 11 U.S.C. § 350(b) and
then continue to assert his claims in the interest of his creditors. Also, in the case of a
concealed claim that no longer belonged to the estate because it had been abandoned by the
trustee, the abandonment could be revoked, and the debtor could then pursue the claim on
behalf of the estate. See Killebrew v. Brewer (In re Killebrew), 888 F.2d 1516, 1521 n.10 (5th
Cir. 1989). Only in rare situations, such as the one in Jethroe where the debtor could not have
reopened her bankruptcy case, could a debtor be found to have a motive to conceal under the
dissent’s reasoning. See 412 F.3d at 599.
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No. 10-60106
However, this court has observed that “‘[a]llowing [the debtor] to back-up,
re-open the bankruptcy case, and amend his bankruptcy filings, only after his
omission has been challenged by an adversary, suggests that a debtor should
consider disclosing personal assets only if he is caught concealing them.’” In re
Superior Crewboats, Inc., 374 F.3d at 336 (second alteration in original) (quoting
Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1288 (11th Cir. 2002)); see also
Thompson, 2006 U.S. Dist. LEXIS 48409, at *23 (stating that “[a] plaintiff/debtor
should not be allowed to amend a bankruptcy petition only after his omission has
been challenged by an adversary”) (citation and internal quotation marks
omitted). We decline to invite such abuses here.
Despite the dissent’s assertions to the contrary, our decisions in Reed and
Kane do not require us to reach a different result. Most glaringly, the equities
in Reed were very different than those in the instant case. In Reed, the debtor
was prevented from realizing any gains at all on claims he had not timely
disclosed to his creditors. 650 F.3d at 573. Thus, unlike the instant case where
Love could potentially share in the gains from his lawsuit, only the creditors
stood to benefit in Reed.4 Moreover, the claims at issue in both Reed and Kane
were ultimately pursued by innocent Chapter 7 trustees, and not by the debtors
themselves. See id. at 574–75; Kane, 535 F.3d at 383–84. According to the
dissent, throughout his lawsuit against Tyson, Love was in an “analogous
position to a trustee” because he “stood in a fiduciary capacity to act on behalf
of the estate the moment he filed for bankruptcy.” However, although it is true
4
The dissent suggests that the district court should have fashioned a remedy that
would only punish the debtor, as the district court had done in Reed. First, no such argument
was made to the district court or to this court. Second, in Reed, the debtor had already won
a judgment when his nondisclosure was brought to light. 650 F.3d at 572–73. Here, by
contrast, Love is a Title VII plaintiff whose claims against Tyson are likely far from judgment,
and the success of those claims would almost certainly require his participation. A district
court ruling on a judicial estoppel defense could conclude that prohibiting Love from sharing
in any recovery would remove most, if not all, of his incentives to participate in the lawsuit and
could prove fatal to his claims.
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No. 10-60106
that Love, like a trustee, did owe fiduciary duties to his creditors, he is still also
a debtor—one who did not meet his disclosure obligations and subsequently
failed to provide any basis for the district court to conclude that his
nondisclosure was inadvertent. In this situation, we decline to consider Love to
be an innocent trustee. Further, if, as the dissent suggests, a debtor who is
caught concealing his claims by an opponent could then disclose his claims and
automatically be deemed an innocent trustee, there would be virtually no
incentive for a debtor to disclose his claims until forced to do so by an opponent.
Finally, the dissent correctly notes that the effect of judicial estoppel on
creditors is a consideration that could discourage courts from applying the
doctrine. See Reed, 650 F.3d at 576; Kane, 535 F.3d at 387–88. We do not mean
to diminish the weight that courts should give to creditors’ interests when
determining whether judicial estoppel should apply. We merely hold that the
district court did not abuse its discretion in applying judicial estoppel to Love’s
claims after finding that Love failed to create a fact issue regarding his
purported inadvertence.
III. CONCLUSION
For the reasons stated above, we AFFIRM the judgment of the district
court. Costs shall be borne by Love.
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No. 10-60106
HAYNES, Circuit Judge, dissenting:
I respectfully dissent. The majority opinion improperly places the
summary judgment burden of this affirmative defense on Love. To the extent
we need to reach the merits, the law supports Love, not Tyson. Finally, even if
Love is estopped from benefitting personally, the district court should have
considered relief that would have allowed Love’s estate to recover on a potential
judgment. Indeed, despite our recent en banc opinion reining in the automatic
application of judicial estoppel when it harms creditors, the majority opinion
affirms a district court that did just that. I would thus reverse and remand for
further proceedings.
I. Summary Judgment Standards
Judicial estoppel is an affirmative defense. See, e.g., Reed v. City of
Arlington, 650 F.3d 571, 576 (5th Cir. 2011) (en banc) (citations omitted). When
a party moves for summary judgment on an affirmative defense, it “bear[s] the
burden of proof at trial and therefore must show that it has produced enough
evidence to support the findings of fact necessary to win.” El v. Se. Pa. Transp.
Auth., 479 F.3d 232, 237 (3d Cir. 2007). Therefore, even to reach the question
of whether Love has shown that judicial estoppel does not apply, Tyson must
have proven that it does. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986) (stating that summary judgment is proper “against a party who fails to
make a showing sufficient to establish the existence of an element essential to
that party’s case, and on which that party will bear the burden of proof at
trial”).1
1
The majority opinion correctly notes that application of judicial estoppel is reviewed
under the abuse of discretion standard. We have used that standard even in summary
judgment cases without much analysis of the rationale for doing so. See, e.g., Jethroe v.
Omnova Solutions, Inc., 412 F.3d 598, 600 (5th Cir. 2005). We are certainly bound by those
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We have required that a party asserting judicial estoppel must show that:
“(1) the party against whom judicial estoppel is sought has asserted a legal
position which is plainly inconsistent with a prior position; (2) a court accepted
the prior position; and (3) the party did not act inadvertently.” Reed, 650 F.3d
at 574. It is important to note, however, that these three elements only limit
judicial estoppel’s application; they are necessary but not always sufficient. See,
e.g., Kane v. Nat’l Union Fire Ins. Co., 535 F.3d 380, 385-86 (5th Cir. 2008);
Browning Mfg. v. Mims (In re Coastal), 179 F.3d 197, 206 (5th Cir. 1999).2
A. Tyson’s Proof
Love does not take issue with the first two estoppel factors on appeal,
focusing instead on the inadvertence prong. A “debtor’s failure to satisfy its
statutory disclosure duty is ‘inadvertent’ only when, in general, the debtor either
lacks knowledge of the undisclosed claims or has no motive for their
concealment.” In re Coastal, 179 F.3d at 210. As the party invoking judicial
estoppel on summary judgment, Tyson thus bore the burden of proof and had to
prove, not just hypothesize, that Love had knowledge and a motive for
concealment. Tyson failed to do so.
cases, and I do not contend otherwise here. I simply note that the reasons for abuse of
discretion as the standard make little sense here where summary judgment was granted on
the papers and the judicial estoppel concerns a proceeding with which this district judge was
not involved. Cf. Alternative Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 30-31 (1st Cir.
2004) (giving reasons for application of abuse of discretion to judicial estoppel that include the
idea that “determining whether a litigant is playing fast and loose with the courts has a
subjective element. Its resolution draws upon the trier’s intimate knowledge of the case at bar
and his or her first-hand observations of the lawyers and their litigation strategies” and that
abuse of discretion is a “flexible standard.”). The district judge here had no “intimate
knowledge” of the case at bar or any “first-hand observations” to guide the decision. Indeed,
this case was filed in state court on March 12, 2009, removed in April of 2009 and the
summary judgment in question was filed in July of the same year before anything else had
happened in the case; the case was stayed pending determination of the motion, which
occurred without an oral hearing.
2
Indeed, in Reed, 650 F.3d at 575-79, and Kane, 535 F.3d at 386-89, we did not even
address the elements, but rather found judicial estoppel would not apply based on, inter alia,
principles of equity and the particular circumstances of each case.
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No. 10-60106
Love’s knowledge3 of the claim during the time of the bankruptcy cannot
be disputed as he filed the EEOC claim during the pendency of the bankruptcy.
Tyson failed, however, to show as a matter of law that Love had a motive to
conceal his claim.
On this third prong, Tyson’s sole “proof” was its summary judgment
contention that “Love had a motive to conceal [his claim] because any recovery
he might receive from this litigation would go to him free and clear of any claims
of his creditors, particularly his unsecured creditors who receive nothing under
his confirmed plan.” This statement is untrue as a matter of law and, thus, did
not shift the summary judgment burden to Love to do anything.
Unlike the procedural posture of other cases we have had on this subject,
any recovery from Love’s cause of action would not be “free and clear of his
creditors.” Rather, it belongs to the bankruptcy estate. At the time he filed his
original schedules, he had a not-yet filed EEOC claim. That “claim” became part
of the bankruptcy estate the moment Love filed his petition for bankruptcy by
operation of 11 U.S.C. § 541(a)(1).4 When he subsequently failed to amend his
schedules to reveal the EEOC filing, it nonetheless was part of his estate. The
bankruptcy court’s order confirming Love’s plan did nothing to change that.
While the typical Chapter 13 plan “vests all of the property of the estate in the
debtor,” “free and clear of any claim or interest of any creditor,” 11 U.S.C. §
1327(b)-(c), Love’s plan provided that: “All property [of the estate] shall remain
3
Our case law treats as irrelevant the question of whether the debtor knew of his
disclosure or supplementation obligations or otherwise understood that an inchoate claim was
a disclosable asset. See, e.g., In re Coastal, 179 F.3d at 212.
4
That section provides, with limited exceptions not applicable here, that “all legal or
equitable interest of the debtor in property as of the commencement of the case” are property
of the estate. § 541(a)(1). “The term ‘all legal or equitable interests’ has been defined broadly
to include causes of action.” Schertz-Cibolo-Universal City Indep. Sch. Dist. v. Wright (In re
Educators Grp. Health Trust), 25 F.3d 1281, 1283 (5th Cir. 1984). It is immaterial to
§ 541(a)(1) whether a particular asset—such as a cause of action—is scheduled. See Wieburg
v. GTE Sw. Inc., 272 F.3d 302, 306 (5th Cir. 2001).
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No. 10-60106
property of the estate and shall vest in the debtor only upon dismissal,
discharge, or conversion. The debtor shall be responsible for the preservation
and protection of all property of the estate not transferred to the Trustee.” This
order provision is apparently standard in the Northern District of Mississippi.5
Thus, at the time Love filed the instant case, he was a Chapter 13 debtor with
a confirmed plan that did not give him the right to file the lawsuit on his own
behalf. Since we ascribe “knowledge” of the bankruptcy laws to the detriment
of debtors, In re Coastal, 179 F.3d at 212, we should also assess the debtor’s
“motive” in light of the “knowledge” that he would not take “free and clear” if he
lied in his schedules.
By operation of the bankruptcy order and applicable law, Love initiated
this claim against Tyson on behalf of the estate. While the property—including
the cause of action—remained in the estate, Love was authorized to “remain in
possession of all property of the estate,” 11 U.S.C. § 1306(b), and, as a Chapter
13 debtor, to exercise certain “rights and powers of [the] trustee” with respect to
the estate’s property, 11 U.S.C. § 1303.6Finally, because Love is obliged to recover on behalf of the estate, any
judgment does not belong to him. Even if Love had not disclosed the claim, that
asset would belong to the estate under 11 U.S.C. § 554(c)-(d)—at least unless his
recovery is greater than all his debts. See COLLIER ON BANKRUPTCY ¶ 554.03
5
See Harris v. Wash. Mut. Home Loans, Inc. (In re Harris), 297 B.R. 61, 72 (Bankr.
N.D. Miss. 2003).
6
Every circuit to have considered the question has held that the “rights and powers”
that the Chapter 13 debtor enjoys under § 1303 include the power to sue on claims that are
property of the estate on behalf of the estate. See, e.g., Smith v. Rockett, 522 F.3d 1080, 1081
(10th Cir. 2008) (collecting cases).
As the Seventh Circuit explained, “[t]he chose in action, here a discrimination case,
belongs to the estate and was being prosecuted for the benefit of its creditors. It would
frustrate the essential purpose of [§] 1306 to grant the debtor possession of the chose in action
yet prohibit him from pursuing it for the benefit [of] the estate.” Cable v. Ivy Tech State Coll.,
200 F.3d 467, 473 (7th Cir. 1999). That is precisely the case here.
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No. 10-60106
(Matthew Bender, 16th ed. 2011) (“[I]f property was not properly scheduled by
the debtor, it is not automatically abandoned at the end of the case. . . . Even
after the case is closed, the estate continues to retain its interest in unscheduled
property.”); see also Kane, 535 F.3d at 387 (citing In re Miller, 347 B.R. 48, 53
(Bankr. S.D. Tex. 2006), for the proposition that unscheduled claims that belong
to the estate may be administered through a reopened bankruptcy case).
The majority opinion faults this analysis, stating that it improperly
assumes that Love was “acting for the benefit of his creditors from the inception
of his lawsuit . . . and automatically attributes good motives to Love despite very
real incentives for Love to conceal his claims.” I do not make this attribution,
however. Rather, I approach the analysis from the viewpoint of the movant’s
burden: a movant who raised an affirmative defense and appropriately bears the
burden at trial. I do not reason that Love “necessarily” had good motives, only
that Tyson has not shown as a matter of law that he “necessarily” had “bad”
ones.
Accordingly, Tyson cannot discharge its affirmative summary judgment
burden merely by arguing—incorrectly as a matter of law—that Love stood to
recover on his claim “free and clear of any claims of his creditors” at the time he
failed to amend his bankruptcy schedules. Tyson thus failed to establish an
element essential to its affirmative defense in the district court, and summary
judgment should have been denied. In response to the majority opinion’s
argument that this dissenting opinion removes judicial estoppel as an option, I
reply that to hold that summary judgment in Tyson’s favor is inappropriate is
not tantamount to saying that summary judgment should be granted to Love.
B. Love’s Response
We should stop here, as I have shown that no summary judgment burden
“shifted” to Love. However, even if it did, I disagree that Love failed to respond
in kind, creating a material factual dispute on whether he had motive to conceal.
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No. 10-60106
Love’s summary judgment response set forth the Supreme Court’s judicial
estoppel standard from New Hampshire v. Maine, 532 U.S. 742, 751 (2001). See
also Hall v. GE Plastic Pac., 327 F.3d 391, 399 (5th Cir. 2003). There, he
disclaimed the third prong of that standard.7 Indeed, he expressly responded to
Tyson’s claim that his “motive” was to gain money “free and clear” by arguing in
response that any recovery would not be paid to him but to the estate. He
stated:
Plaintiff will not derive any unfair advantage or impose any unfair
detriment on any opposing party if not estopped. Plaintiff’s
bankruptcy is still pending, and any monies paid by Defendant
through settlement or judgment in this case would go into the
bankruptcy to pay Plaintiff’s creditors first. To the contrary, if
Plaintiff is judicially estopped his creditors would be injured, and
would be prevented from receiving any monies from the current case.
Thus, if Tyson’s mere allegation that Love’s motive was to gain an unfair
personal advantage by taking money “free and clear of creditors” is enough to
satisfy its summary judgment burden on “motive,” then Love’s statement that
any monies paid “would go into the bankruptcy to pay Plaintiff’s creditors first”
should similarly discharge his non-movant’s burden.8 The majority opinion
7
The majority opinion condemns Love for framing his argument based on the Supreme
Court’s three-prong test, which differs slightly from that set out by our precedent. See New
Hampshire, 532 U.S. at 751. The majority opinion states that New Hampshire’s third
prong—“whether the party seeking to assert an inconsistent position would derive an unfair
advantage or impose an unfair detriment on the opposing party if not estopped”—is an entirely
different issue than Love’s motive at the time of nondisclosure. I agree that motive must be
viewed at the time of nondisclosure, rather than after a defendant asserts its judicial estoppel
defense. I cannot agree, however, that these issues are entirely distinct.
Indeed, other circuits have introduced the theory of inadvertence into New Hampshire’s
third prong, indicating that the two ideas are not entirely separate. See, e.g., Stallings v.
Hussmann Corp., 447 F.3d 1041, 1048 (8th Cir. 2006); Ryan Operations G.P. v. Santiam-
Midwest Lumber Co., 81 F.3d 355, 362 (3d Cir. 1996). Moreover, in propounding the third
consideration, the Court in New Hampshire cited language indicating that judicial estoppel
forbids use of “intentional self-contradiction . . . as a means of obtaining unfair advantage.” 532
U.S. at 751 (emphasis added).
8
I disagree with the majority opinion’s reasoning that Love provided no basis for
concluding that the nondisclosure was inadvertent. The majority opinion discounts Love’s
18
No. 10-60106
discounts Love’s argument because it does not use the “magic words” of “motive”
or “inadvertence.” We have not so exalted form over substance, particularly in
the face of a Supreme Court opinion using the exact language Love used.
The majority opinion contends that whether the claim is “free and clear”
or not, a potentially deviant debtor may always attempt to “collect any recovery
on claims without his creditors’ knowledge.” I agree that there is something
problematic about a debtor who conceals assets that do not belong to him in an
effort to forever keep his creditors in the dark. This hypothetical deviant,
however, does not, as a matter of law, establish Love’s intent to conceal where
his only action was an omission and the claim remains property of the
bankruptcy estate.
The Sixth Circuit’s reasoning in Browning v. Levy supports my conclusion.
283 F.3d 761, 775-76 (6th Cir. 2002). After citing our decision in In re Coastal,
179 F.3d at 210, on the issue of inadvertence, the court considered whether a
debtor (NW) had motive to conceal where it failed to disclose its legal claim, but
was acting as a debtor-in-possession, similar to a trustee:
NW had no motive for concealment in light of its role as a
debtor-in-possession, having all the rights and duties of a trustee.
11 U.S.C. § 1107. Under [NW’s] Plan of Reorganization, all of the
estate’s assets are to be reduced to cash by NW and distributed to
creditors in accordance with the terms of the plan and the priority
argument because he made it only after Tyson brought the nondisclosure to light. This will
be the case every time a debtor inadvertently fails to disclose until notified of his obligation at
summary judgment.
If Love’s explained lack of motive is insufficient to create a fact issue as to inadvertence,
I am concerned as to what would be required. Setting aside the unfairness in crediting the
defendant’s blanket allegation while discounting the plaintiff’s blanket denial, the majority
opinion’s approach effectively creates a presumption in favor of the defendant asserting the
affirmative defense. A defendant would simply need to allege knowledge and motive, while the
plaintiff needs to prove the negative—that he lacked motive. How would he do so? By filing
an affidavit that says “I didn’t mean it” or “I had a pure heart”? Would the majority opinion
find that type of affidavit useful or appropriate? Moreover, to the extent that the majority
opinion contends that this case should be about subjective intent, Tyson put on no evidence
about Love’s mental state and, therefore, did not satisfy its summary judgment burden.
19
No. 10-60106
provisions of the Bankruptcy Code. NW will thus receive no
windfall as a result of its failure to disclose its claims, because only
[NW’s] creditors will receive the distribution of any recovery from
SSD. This lack of motive for concealment leads to the conclusion
that NW’s failure to disclose was, without any evidence to the
contrary, inadvertent.
283 F.3d at 775-76 (emphasis added). Importantly, the court also pointed out
that the Defendant “provide[d] no evidence that NW intended to ‘have its cake
and eat it too.’” Id. at 776. Similarly, the Defendant “presented no proof to show
that NW intended to convince the bankruptcy court that it had no claims against
SSD. NW’s omission [was] as consistent with inadvertence as it [was] with an
affirmative assertion.” Id. at 775.
The effect of the majority opinion is to make judicial estoppel virtually
mandatory in all cases of non-disclosure where a party could be said to “know
the facts of” his claim, In re Coastal, 179 F.3d at 212, and essentially concludes
that any debtor who fails to disclose a claim has a nefarious motive to do so.
This reasoning, however improperly presumes fraudulent intent from the
outset.9 However, as the majority opinion correctly noted, “[w]hether a debtor’s
failure to disclose claims was inadvertent presents a question of fact.” Love’s
9
Indeed, a debtor like Love would be presumed to have fraudulent intent simply from
nondisclosure itself—where “knowledge” is a given, and “motive,” according to the majority
opinion is “self-evident.” The Third Circuit confronted this issue in Ryan Operations, where
the court stated:
[P]olicy considerations militate against adopting a rule that the requisite intent
for judicial estoppel can be inferred from the mere fact of nondisclosure in a
bankruptcy proceeding. Such a rule would unduly expand the reach of judicial
estoppel in post-bankruptcy proceedings and would inevitably result in the
preclusion of viable claims on the basis of inadvertent or good-faith
inconsistencies. While we by no means denigrate the importance of full disclosure
or condone nondisclosure in bankruptcy proceedings, we are unwilling to treat
careless or inadvertent nondisclosures as equivalent to deliberate manipulation
when administering the strong medicine of judicial estoppel.
81 F.3d at 364-65 (citations and internal quotation marks omitted).
20
No. 10-60106
argument substantively addressed his lack of motive to conceal and directly
responded to Tyson’s conclusory allegation to the contrary. These circumstances
indicate that there is at least a reasonable question as to whether Love had the
necessary motive, and thus intent, to conceal his claim against Tyson. Love’s
conduct was at least as consistent with inadvertence as it was with intentional
concealment, and all inferences must be resolved in favor of the nonmovant. The
district court failed to take these considerations into account; therefore,
summary judgment in favor of Tyson was improper.
II. Abuse of Discretion
We should reverse and remand for further proceedings based upon the
summary judgment posture outlined above. Because the majority opinion
reaches the question of whether the district court abused its discretion, however,
I will address it as well.
Though “we have applied judicial estoppel to bar an unscheduled claim
when others, the debtors or other insiders, would benefit to the detriment of
creditors if the claim were permitted to proceed,” Kane, 535 F.3d at 387 (citing
Superior Crewboats, Inc. v. Primary P & I Underwriters (In re Superior
Crewboats), 374 F.3d 330, 333 (5th Cir. 2004); In re Coastal, 179 F.3d at 203),
those are not the circumstances we have before us. That Love was a Chapter 13
debtor obligated to act on behalf of the estate distinguishes this case from In re
Superior Crewboats, 374 F.3d at 333, and In re Coastal, 179 F.3d at 203. Indeed,
both were Chapter 7 liquidation cases in which the debtor had already obtained
a complete discharge of its debts before seeking to recover on undisclosed claims
purely for its own benefit.10
10
In re Coastal can be further distinguished based on the extensive evidence of
intentional concealment. 179 F.3d at 213 (“[The debtor] avoided paying its debts by filing
bankruptcy. Yet [a company], formed by [the debtor’s] CEO, purchased [the debtor’s] assets,
including the undisclosed $10 million claim . . . for only $1.24 million . . . then obtained a net
judgment of $3.6 million.”); see also Kane, 535 F.3d at 387 (highlighting this distinction).
21
No. 10-60106
The court in Kane distinguished In re Superior Crewboats, 374 F.3d at 333,
on facts much like these, where the Chapter 7 bankruptcy was reopened to
pursue the Kanes’ claim for the benefit of the estate’s creditors. 535 F.3d at 387.
In contrast to In re Superior Crewboats, where the estate had “reverted to the
debtors as though the bankruptcy had never been filed” and the debtors stood
to benefit directly from pursuing their claim, we stated:
[T]he Kanes stand to benefit only in the event that there is a
surplus after all debts and fees have been paid. As the bankruptcy
court aptly observed in In re Miller, ‘There is a statutorily explicit
difference between cases in which property is not listed in the
[b]ankruptcy [s]chedules but is disclosed and administered (as in
the Superior Crewboats case . . . ) and the instant case in which
property was not disclosed and was not administered.’
Consequently, In re Superior Crewboats, Inc. does not require the
application of the equitable doctrine of judicial estoppel in this case
as a mater of law.
Id. (quoting In re Miller, 347 B.R. at 53). Jethroe is similarly distinguishable.
412 at 599 (5th Cir. 2005). There, the bankruptcy court had confirmed the
debtor’s Chapter 13 plan, but dismissed the bankruptcy proceeding before the
plan was completed. Id. Therefore, it would have been impossible for the
creditors in Jethroe to benefit from the claim because there was no longer a
bankruptcy estate.
This case, though different in kind, is controlled by our decisions in Reed
and Kane. Both concerned whether a Chapter 7 trustee is estopped from
pursuing unscheduled claims on behalf of the estate where the debtor had
wrongly concealed claims during the bankruptcy proceeding. Reed, 650 F.3d at
578; Kane, 535 F.3d at 387. We held in both cases that the claims originally
brought by the debtors were unabandoned assets of the estate and that “the only
way the creditors would be harmed is if judicial estoppel were applied to bar the
trustee from pursuing the claim on behalf of the estate.” Reed, 650 F.3d at 578;
22
No. 10-60106
see Kane, 535 F.3d at 388 (finding that judicial estoppel, as an equitable
doctrine, should not be used if its application would “land another blow on the
victims of bankruptcy fraud,” that is, the creditors (quoting Biesek v. Soo Line
R.R. Co., 440 F.3d 410, 413 (7th Cir. 2006))).
It makes no difference under the circumstances of this case that Love is
not a trustee as were the parties seeking to avoid estoppel in Reed and Kane.
For our purposes, his role as essentially a debtor in possession puts him in an
analogous position to a trustee.11 It follows that because the claim is the
property of the estate, and the estate has not been administered, judicial
estoppel should not apply to bar relief that would benefit creditors. See Kane,
535 F.3d at 387. The debtors in Kane were virtually indistinguishable from Love
in his position as debtor. While the Kanes’ lawsuit was pending in state court,
they filed a Chapter 7 bankruptcy. 535 F.3d at 383. That bankruptcy resulted
in a no-asset discharge. Id. It was not until a summary judgment motion was
offered, arguing that judicial estoppel should apply, that the Kanes filed a
motion to reopen the bankruptcy so the Trustee could administer the previously
undisclosed lawsuit. Id. We reversed the district court’s summary judgment
application of judicial estoppel, holding that equity did not compel barring the
trustee from acting on behalf of the estate. Id. at 387-88. Indeed, we even
highlighted the possibility that the debtors may recover in the event of surplus.
Id. at 387.
11
“The debtor in possession performing the duties of the trustee is the representative
of the estate and is saddled with the same fiduciary duty as a trustee to maximize the value
of the estate available to pay creditors.” Cheng v. K & S Diversified Invs., Inc. (In re Cheng),
308 B.R. 448, 455 (B.A.P. 9th Cir. 2004), aff’d, 160 F. App’x 644 (9th Cir. 2005) (unpublished).
Though “debtor in possession” is a Chapter 11 term of art, “‘the Chapter 13 debtor has been
considered analogous to Chapter 11, which grants the debtor full authority as representative
of the estate typical of a trustee.’” Rockett, 522 F.3d at 1082 n.2 (quoting Cable, 200 F.3d at
472).
23
No. 10-60106
It is true, as the majority opinion points out, that the claims in Reed and
Kane were pursued by “innocent Chapter 7 trustees, and not by the debtors
themselves.” But Love’s role as both debtor and protector does not make the
analogy any less apt. The only real implication of the majority opinion’s
distinction is that the trustees in Reed and Kane were “innocent.” This
distinction is irrelevant, however, because the debtors in those cases were in the
same position as Love, and the characterization of the trustee’s role as
“innocent” has nothing to do with the imposition of judicial estoppel where that
trustee’s duty, imposed post-disclosure, is to act on behalf of the estate.
Reed and Kane—where creditors stand to be harmed in the event judicial
estoppel is imposed—bind us here. In contrast, the cases relied upon by the
district court and the majority opinion—In re Coastal, Jethroe, and In re
Superior Crewboats—do not involve application of judicial estoppel to the
detriment of the estate’s creditors, and should not have been the basis for the
district court’s application of judicial estoppel as an equitable remedy.12
The majority opinion further attempts to distinguish Reed because there
the district judge expressly held that the debtor would not share in any recovery.
Nothing, however, prevents the judge in this case from doing the same.13 In the
similar context of sanctions for abusive litigation conduct, also evaluated under
12
Judicial estoppel is an “extraordinary remedy” to be invoked in order to stop a
“miscarriage of justice”; it is not a “technical defense for litigants seeking to derail potentially
meritorious claims.” Ryan Operations, 81 F.3d at 356. The bankruptcy panel in In re Cheng
highlighted that regardless of the application of the judicial estoppel factors to a particular
litigant, judicial estoppel remains an equitable remedy and must be applied so as to avoid
inequity. 308 B.R. at 458-49 (“This is a different matter that has generally been ignored in
reported decisions.”). “Thus, regardless of whether technical equitable rules and distinctions
are controlling, the rich lore of equitable principles cannot be ignored.” Id. at 459.
13
The majority opinion’s point that Love’s plan was not amended to provide that his
creditors would be paid out of any recovery is a red herring. There is nothing to prevent a
court in equity from requiring Love to pursue plan modification, or simply precluding Love
from any personal recovery on a potential judgment.
24
No. 10-60106
an “abuse of discretion” standard, we have cautioned courts not to use “death
penalty” sanctions if less severe sanctions can be fashioned. See, e.g, United
States v. $49,000 Currency, 330 F.3d 371, 376 (5th Cir. 2003) (“[This] drastic
measure is only to be employed where a lesser sanction would not substantially
achieve the desired deterrent effect.”); Smith v. Smith, 145 F.3d 335, 344 (5th
Cir. 1998). Unlike the district court in Reed, the district court here did not
attempt to tailor the sanctions to make sure “only the guilty are punished” or
otherwise determine if less severe sanctions were appropriate.14
Finally, Reed highlighted the equitable nature of this analysis in light of
the bankruptcy forum in which we find ourselves. Therefore, we must
apply judicial estoppel ‘against the backdrop of the bankruptcy
system and the ends it seeks to achieve.’ These ends are to ‘bring
about an equitable distribution of the bankrupt’s estate among
creditors holding just demands. . . . Therefore, judicial estoppel must
be applied in such a way as to deter dishonest debtors, whose failure
to fully and honestly disclose all their assets undermines the integrity
of the bankruptcy system, while protecting the rights of creditors to
an equitable distribution of the assets of the debtor’s estate.
Reed, 650 F.3d at 574 (citations omitted).
In this case there were (and are) other avenues for discouraging
potentially deviant bankruptcy litigants. We noted two of them in Reed:
“revoking [or denying, as the case would be here] the debtors’ discharges and
14
In footnote 4, the majority opinion posits that the district court could have concluded
that such tailoring would be unhelpful here. However, there is no indication here that the
district court did any such analysis. The majority opinion says that no such argument was
made to the district court or here. That is unsurprising since Reed was not decided until well
after the briefing to the district court and this court. My point here is simply that the district
court decided something that should be a matter of equity and nuance on summary judgment
without a full consideration of equity or nuance. In response, the majority opinion has
imagined a line of thinking not engaged in by any of the other participants – the district court
or the litigants. Rather than having the appellate court substitute its own judgment for the
district court, the proper approach would be to remand for consideration in the first instance
by the district court of whether tailoring of some kind could be done here to achieve a more
equitable result.
25
No. 10-60106
referring them . . . for criminal prosecution.” Id. at 576 (quoting Biesek, 440 F.3d
at 413). Perhaps more importantly, the resolution here has no deterrent effect.
Judicial estoppel would not prevent a future litigant under like circumstances
from defrauding the court because it penalizes the litigant’s creditors—not the
litigant.
To whatever extent Love may have intended to make illicit use of funds
that belong to the estate, judicial estoppel is an inappropriate remedy where it
will inhere to the detriment of Love’s creditors. In Reed, we highlighted Judge
Easterbrook’s eloquent analysis of this problem:
[The debtor’s] nondisclosure in bankruptcy harmed his creditors by
hiding assets from them. Using this same nondisclosure to wipe out
his [tort] claim would complete the job by denying creditors even the
right to seek some share of the recovery. Yet the creditors have not
contradicted themselves in court. They were not aware of what [the
debtor] has been doing behind their backs. Creditors gypped by [the
debtor’s] maneuver are hurt a second time by the district judge’s
decision. Judicial estoppel is an equitable doctrine, and using it to
land another blow on the victims of bankruptcy fraud is not an
equitable application.
Reed, 650 F.3d at 576 (quoting Biesek, 440 F.3d at 413).
Exercising discretion in granting judicial estoppel must be done only when
the remedy does not do “inequity in the name of equity.” 27A AM. JUR. 2D
EQUITY § 84 (2012); see also Krystal Cadillac-Oldsmobile GMC Truck, Inc., 337
F.3d 314, 319 (3d Cir. 2003) (“[A] district court may not employ judicial estoppel
unless it is tailored to address the harm identified and no lesser sanction would
adequately remedy the damage done by the litigant’s misconduct.” (citation and
internal quotation marks omitted)). A judicial estoppel remedy here that allows
Tyson to win based upon “bad conduct” in a case to which it was not even a party
would merely transform an alleged windfall for Love into an inevitable windfall
for the alleged wrongdoer Tyson—at the expense of Love’s creditors.
26
No. 10-60106
III. Conclusion
Unlike the litigants in our prior decisions concerning judicial estoppel,
Love gains no potential legal advantage from his failure to disclose the claim
against Tyson to the bankruptcy court. As Love explained to the district
court—albeit somewhat ineloquently—the recovery sought against Tyson would
aid his creditors, not defraud them. In this vein, Tyson has not established
Love’s motive to conceal. Our precedent counsels against judicial estoppel in
these circumstances.
Moreover, the court’s equitable discretion must be used against the
backdrop of the bankruptcy system and the goals it espouses. The outcome
affirmed by the majority opinion does not further those goals—either in
dissuading future deviant bankruptcy litigants or in protecting third party
creditors’ rights. At the very least, the remedy espoused in Reed could be
utilized here in preventing unnecessary harm to creditors while preventing an
allegedly deviant debtor from “playing fast and loose” with the courts.
None of the above represents some effort to “change the law.” Rather it
seeks to hold alleged tortfeasors who would reap an admitted windfall to their
summary judgment burden of proof. Further, while judicial estoppel certainly
should be available in some circumstances, it should not be mechanically
applied. It is an equitable doctrine, demanding nuance, not absolutes.
The majority opinion discusses a very real concern, that debtors may
defraud the bankruptcy system by failing to schedule their claims. Using
judicial estoppel to curtail this potential problem, however, is not the answer
under all circumstances. There are other legal avenues to punish, and obtain
relief from, fraudulent debtors without imposing a windfall on an alleged
tortfeasor to the detriment of innocent creditors.
Accordingly, I respectfully dissent.
27