Cannon-Stokes, Traci v. Potter, John E. ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-4605
TRACI CANNON-STOKES,
Plaintiff-Appellant,
v.
JOHN E. POTTER, Postmaster General
of the United States Postal Service,
Defendant-Appellee.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 03 C 1942—Joan Humphrey Lefkow, Judge.
____________
SUBMITTED JUNE 19, 2006—DECIDED JULY 5, 2006
____________
Before COFFEY, EASTERBROOK, and SYKES, Circuit Judges.
EASTERBROOK, Circuit Judge. Traci Cannon-Stokes
contends that the Postal Service, which hired her as a letter
carrier, violated the Rehabilitation Act, 29 U.S.C. §791, by
not accommodating her mental aversion to making residen-
tial deliveries and by retaliating against her for asserting
her statutory rights. At the same time as Cannon-Stokes
was pursuing an administrative claim for $300,000 from the
Postal Service, she filed a Chapter 7 bankruptcy petition
asserting that she had no assets; her petition expressly
denied that she had any valuable legal claims (“contingent
and unliquidated claims of every nature”, the schedule calls
them, leaving no room for quibbles). The bankruptcy court
2 No. 05-4605
believed that assertion and discharged all of her approxi-
mately $98,000 in unsecured debts.
After the bankruptcy was over, Cannon-Stokes filed this
suit. Naturally enough, the Postal Service contended that
judicial estoppel forecloses the action. Cannon-Stokes had
represented that she had no claim against the Postal
Service (or anyone else); that representation had prevailed;
she had obtained a valuable benefit in the discharge of her
debts. Now she wants to assert the opposite in order to win
a second time. That satisfies the requirements of judicial
estoppel. See, e.g., New Hampshire v. Maine, 532 U.S. 742,
749 (2001); Astor Chauffeured Limousine Co. v. Runnfeldt
Investment Corp., 910 F.2d 1540, 1547-48 (7th Cir. 1990).
Cannon-Stokes blamed the false statement on her bank-
ruptcy lawyer; accepting this explanation, the district court
declined to dismiss the proceeding but later granted
summary judgment to the Postal Service on the mer-
its—which on appeal defends its judgment by relying, once
again, on judicial estoppel.
All six appellate courts that have considered this question
hold that a debtor in bankruptcy who denies owning an
asset, including a chose in action or other legal claim,
cannot realize on that concealed asset after the bankruptcy
ends. See Payless Wholesale Distributors, Inc. v. Alberto
Culver (P.R.) Inc., 989 F.2d 570 (1st Cir. 1993); Krystal
Cadillac-Oldsmobile GMC Truck, Inc. v. General Motors
Corp., 337 F.3d 314 (3d Cir. 2003); Jethroe v. Omnova
Solutions, Inc., 412 F.3d 598 (5th Cir. 2005); United States
ex rel. Gebert v. Transport Administrative Services, 260 F.3d
909, 917-19 (8th Cir. 2001); Hamilton v. State Farm Fire &
Casualty Co., 270 F.3d 778 (9th Cir. 2001); Barger v.
Cartersville, 348 F.3d 1289, 1293-97 (11th Cir. 2003). We
reserved that question in Biesek v. Soo Line R.R., 440 F.3d
410 (7th Cir. 2006), while holding that judicial estoppel has
a proviso: bankruptcy fraud designed to hide an asset from
No. 05-4605 3
creditors does not prevent the creditors themselves from
realizing on the claim after its discovery.
Judicial estoppel is an equitable doctrine, and it is not
equitable to employ it to injure creditors who are them-
selves victims of the debtor’s deceit. Moreover, as a techni-
cal matter the estate in bankruptcy, not the debtor, owns all
pre-bankruptcy claims, and unless the estate itself engages
in contradictory litigation tactics the elements of judicial
estoppel are not satisfied. But if the estate (through the
trustee) abandons the claim, then the creditors no longer
have an interest, and with the claim in the debtor’s hands
the possibility of judicial estoppel comes to the fore. That is
what has happened here: the trustee abandoned any
interest in this litigation, so the creditors are out of the
picture and we must decide whether Cannon-Stokes may
pursue the claim for her personal benefit.
The answer is no, as the other circuits (cited above) have
concluded. “By making [litigants] choose one position
irrevocably, the doctrine of judicial estoppel raises the
cost of lying.” Chaveriat v. Williams Pipe Line Co., 11
F.3d 1420, 1428 (7th Cir. 1993). A doctrine that induces
debtors to be truthful in their bankruptcy filings will assist
creditors in the long run (though it will do them no good
in the particular case)—and it will assist most debtors too,
for the few debtors who scam their creditors drive up
interest rates and injure the more numerous honest
borrowers. Judicial estoppel is designed to “prevent the
perversion of the judicial process,” In re Cassidy, 892 F.2d
637, 641 (7th Cir. 1990), a fair description of the result if we
were to let Cannon-Stokes conceal, for her personal benefit,
an asset that by her reckoning is three times the value of
the debts she had discharged. It is impossible to believe
that such a sizeable claim—one central to her daily activi-
ties at work—could have been overlooked when Cannon-
Stokes was filling in the bankruptcy schedules. And if
Cannon-Stokes were really making an honest attempt to
4 No. 05-4605
pay her debts, then as soon as she realized that it had been
omitted, she would have filed amended schedules and
moved to reopen the bankruptcy, so that the creditors could
benefit from any recovery. Cannon-Stokes never did that;
she wants every penny of the judgment for herself.
In the district court Cannon-Stokes filed an affidavit
asserting that her false statement on the bankruptcy
schedules was the result of good-faith reliance on legal
advice. She maintained that in 2000 she told Erik Martin,
her bankruptcy lawyer, about her administrative claim
under the Rehabilitation Act and that he instructed her
to omit the information. Martin certainly was not above
shady dealings. In 2001 he was indicted on multiple
counts of perjury committed in the course of his bankruptcy
practice, and in 2003 he resolved that proceeding
by pleading guilty to contempt of court. Martin is not
currently authorized to practice law in either state or
federal court, and a bankruptcy court recently found him
complicit in tax fraud. See Claxton v. United States, 335
B.R. 680 (Bankr. N.D. Ill. 2006).
Yet bad legal advice does not relieve the client of the
consequences of her own acts. A lawyer is the client’s agent,
and the client is bound by the consequences of advice that
the client chooses to follow. Cannon-Stokes might as well
say that she is free to ignore any contract that a lawyer
advised her to sign with her fingers crossed behind her
back. The lawyer’s role as agent is why the Supreme Court
held in United States v. Boyle, 469 U.S. 241 (1985), that a
taxpayer could not avoid paying interest and penalties
occasioned by his lawyer’s mishandling of the return. Just
so here: a debtor in bankruptcy is bound by her own
representations, no matter why they were made, at least
until the debtor moves to amend the disclosures and pay
the creditors their due (a step that, to repeat, Cannon-
Stokes has not taken). The remedy for bad legal advice lies
in malpractice litigation against the offending lawyer.
No. 05-4605 5
What is more, Cannon-Stokes has repudiated the core
of her affidavit. Asked at her deposition about her dealings
with Martin, she replied that she could not remember
meeting or talking with him. Maybe with other lawyers in
his office, Cannon-Stokes said, but not Martin. Yet her
affidavit maintained that Martin personally had told her
not to list the Rehabilitation Act claim on her bankruptcy
schedules.
Whether the bankruptcy fraud was Martin’s suggestion,
some other lawyer’s, or Cannon-Stokes’s own bright idea
does not matter in the end. The signature on the bank-
ruptcy schedule is hers. The representation she made is
false; she obtained the benefit of a discharge; she has never
tried to make the creditors whole; now she wants
to contradict herself in order to win a second case. Judicial
estoppel blocks any attempt to realize on this claim for her
personal benefit.
AFFIRMED
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-5-06