Gowin v. Autos, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
August 9, 2007
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
AUTOS, IN C.,
Defendant-Appellant, No. 05-3415
v. (D . of Kan.)
K RISTIN K A E G O WIN , (D.C. No. 03-CV-4116-SAC)
Plaintiff-Appellee.
OR D ER AND JUDGM ENT *
Before TA CH A, Chief Judge, T YM KOVICH, and HO LM ES, Circuit Judges.
The question presented in this appeal is whether K ristin Kae Gowin, a
debtor in Chapter 13 bankruptcy, may pursue legal claims against a car
dealership, Autos, Inc. (“Autos”), despite her knowing failure to schedule the
claims in her bankruptcy plan. Autos contends that Gowin cannot assert the legal
claims under several statutory and equitable theories. W e conclude that, although
a Chapter 13 debtor has standing to litigate claims on behalf of the bankruptcy
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
estate, the principles of judicial estoppel militate against allowing Gowin to
proceed in this case.
Exercising jurisdiction pursuant to 28 U.S.C. §§ 158(a) and (d), we affirm
the district court’s finding of judicial estoppel, and remand for dismissal of the
case.
I. Standard of Review
In reviewing a bankruptcy court decision under 28 U.S.C. §§ 158(a) and
(d), we apply the same standards of review that govern appellate review in other
cases. Thus, we review the bankruptcy court’s legal determinations de novo and
its factual findings for clear error. Jenkins v. Hodes (In re Hodes), 402 F.3d
1005, 1008 (10th Cir. 2005).
II. Background
A. Factual Background
On December 11, 1998, Gowin bought a used 1985 Toyota Camry from
Autos on credit for $2,995 plus Kansas sales tax of $184.19 and a finance charge
of $290.81. The transaction was completed with three documents— a sales
contract, a financing agreement, and a promissory note. According to the
financing agreement, Gowin was required to make a $600 down payment on the
car. Instead, Gowin paid $200 down and signed a promissory note for the
outstanding balance of $400. The note required Gowin to pay $200 on December
17, 1998 and $200 on December 24, 1998. In addition, the note provided a space
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for an interest rate, which was left blank. Gowin never made these payments, nor
any other beyond the $200 she paid on the date of purchase.
On the date of sale, Autos did not have title documents for the car but
appears to have received them on or around December 22, 1998. At that time,
Autos completed the reassignment portion of the title documents indicating the
car had been sold to Gowin. Autos did not, however, physically deliver these title
documents to Gowin.
According to an Autos’s salesman, he telephoned Gowin after she missed
the first or second payment on the promissory note. H e claimed that Gowin told
him she could not pay for the car, wanted out of the contract, and would return
the car to Autos. The salesman said that he verbally agreed to this arrangement,
but there are no written notes corroborating the conversation.
The salesman further testified that when Gowin did not return the car,
Autos sent out agents to look for it. On or around January 2, 1999, an Autos’s
agent found the car parked a few blocks from Gowin’s home address. According
to the agent, the car was unlocked, had a flat tire, and the windows were rolled
down despite the winter weather. The agent said the car appeared to have been
abandoned. Gowin did not dispute any of the testimony regarding the appearance
or location of the car. After finding the car, the agent repossessed it and
delivered it back to Autos. Autos admits that it did not give Gowin notice of its
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intent to repossess the car or apprise her of her potential rights to cure her default
under state law.
Gowin’s version of events was slightly different. She denied ever offering
to surrender the car to Autos, alleging that the only conversation she had with
Autos after the sale w as to seek some minor repairs for the car. Gowin did
testify, however, that she was dissatisfied with the car and had no desire to keep it
by the time she filed for bankruptcy several weeks later. She claims to have last
seen the car on January 1, 1999, parked with a flat tire near her boyfriend’s home
(located near the address she provided Autos). Gowin admitted she noticed the
car missing from that location at some point before she filed for bankruptcy but
did not report it to authorities.
On January 5, 1999, three weeks after she purchased the car from Autos,
Gowin filed for relief under Chapter 13 of the Bankruptcy Code. Her plan stated
an intent to surrender the car to Autos upon confirmation. The plan did not
disclose any potential claims against Autos as assets of the bankruptcy estate.
Several weeks later, Autos sold the car to a third-party. Autos admits it
neither provided notice of the sale to Gowin nor accounted to her for its proceeds.
B. The Bankruptcy Proceedings
The bankruptcy court confirmed Gowin’s Chapter 13 plan on April 9, 1999.
Eight months later, in December 1999, Gowin filed suit against Autos.
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W hile her complaint alleged both state and federal causes of action, Gowin
ultimately proceeded only on her state law claims, seeking relief under the Kansas
Uniform Consumer Credit Code (U3C), the Kansas Uniform Commercial Code
(UCC), and the Kansas Consumer Protection Act. She also raised one claim of
common law conversion.
The bankruptcy court found for Gowin on all claims except one under the
Kansas Consumer Protection Act. It also rejected A utos’s affirmative defense
that Gowin’s claims should be barred by her failure to disclose them in her
bankruptcy filings, concluding that Gowin did not know her car had been
repossessed by Autos when she filed for bankruptcy and, thus, she had no claims
to report. The court ordered Autos to pay a judgment consisting of the following:
(1) $300 plus costs and attorney fees for the U3C violations surrounding the
promissory note; (2) $581.62 plus costs and attorney fees for the failure to send
notice of the right to cure before repossessing the car; and (3) $590.31 for
violations of the UCC.
Both parties cross-appealed to the district court. Gowin appealed the lack
of damages for her notice and common law conversion claims, while Autos
appealed each of the individual determinations of liability against it and also
reasserted the affirmative defense that Gowin could not litigate claims she failed
to disclose in her confirmation plan.
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After de novo review , the district court concluded that Gowin’s failure to
disclose the claim against Autos was intentional and undercut the operation of her
bankruptcy proceedings. The district court found all of the elements of the
equitable doctrine of judicial estoppel were met, but instead of dismissing the
case, ordered the entirety of the judgment to be awarded to the bankruptcy estate. 1
Accordingly, the case was remanded to the bankruptcy court for distribution of
damages.
The district court subsequently denied Autos’s motion to alter or amend
the judgment. Autos timely appealed to this court. 2
1
The court finds that the better remedy in this case is to require Gowin
to distribute any and all damages recovered in the adversary action
among the creditors of her estate, denying her a personal recovery.
This w ill preclude Autos from reaping a windfall and will keep Gowin
from profiting from her failure to disclose her claim to creditors.
Dist. Ct. Op. at 15.
2
In light of the remand provision, Gowin contends that the district court’s
order was not a final appealable order for purposes of our jurisdiction. W e
conclude jurisdiction is proper pursuant to the rule announced in M asunaga v.
Stoltenberg (In re Rex M ontis Silver Co.), 87 F.3d 435 (10th Cir. 1996): A
district court order that remands for “significant further proceedings” requiring
the “exercise of considerable judicial discretion” is not a final, appealable order.
In contrast, a remand order that requires the bankruptcy court to “perform . . . a
mere ministerial duty” is considered final for purposes of our jurisdiction. Id. at
438.
In this case, the bankruptcy court had already issued detailed findings of
fact and conclusions of law. The district court remanded for the limited issue of
administering the damage award, already calculated by the bankruptcy court,
among the creditors. W e conclude that the task of distributing damages already
(continued...)
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III. Discussion
Our disposition of this appeal requires us to consider two issues: (1)
whether G owin had standing in the first place to pursue claims against A utos in
the bankruptcy court and (2) whether the doctrine of judicial estoppel applies to
the unique facts of this case.
A. Chapter 13 Debtor M ay Pursue Claims on Behalf of the Estate
As a threshold matter, Autos urges us to reverse the bankruptcy court on
the ground that Gowin lacked standing to pursue her claim in the first instance. 3
In support of its argument, Autos relies on a district court case from M issouri as
authority that only the bankruptcy trustee is authorized to pursue claims on behalf
of the estate:
Causes of action which belong to the debtor . . . are estate property.
Accordingly, the bankruptcy trustee steps into the shoes of the debtor
for purposes of asserting or maintaining the debtor’s causes of action.
Therefore, unless the trustee abandons the property, only the trustee is
authorized to pursue a cause of action.
Richardson v. United Parcel Service, 195 B.R. 737, 739 (E.D. M o. 1996)
(emphasis added) (internal citations omitted).
2
(...continued)
calculated is a mere “ministerial task” rather than one requiring “considerable
judicial discretion.”
3
W hile G owin originally filed the adversarial action for her own benefit,
she has abandoned this position on appeal, claiming only that she seeks damages
on behalf of the bankruptcy estate.
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W e find this authority unpersuasive. A number of circuit cases have
concluded that a Chapter 13 debtor may pursue claims on behalf of the estate,
finding the debtor can step into the shoes of the trustee for purposes of the
litigation. See, e.g., Crosby v. M onroe County, 394 F.3d 1328, 1331 n.2 (11th
Cir. 2004) (“In Chapter 13 cases w here the debtor is the party plaintiff, courts
recognize that the Chapter 13 debtor may sue and be sued.”) (internal citation
omitted); Cable v. Ivy Tech State College, 200 F.3d 467, 472–73 (7th Cir. 1999)
(standing exists because Chapter 13 grants debtor possession of all estate
property, including legal claims, and “[i]t would frustrate the essential purpose of
[the Chapter] to grant the debtor possession of the chose in action yet prohibit
him from pursuing it for the benefit [of] the estate”); Olick v. Parker & Parsley
Petroleum Co., 145 F.3d 513, 515–516 (2d Cir. 1998) (interpreting legislative
history to conclude Chapter 13 debtor has standing); M aritime Electric Co. v.
United Jersey Bank, 959 F.2d 1194, 1210 n.2 (3d Cir. 1991) (same).
The case for standing is particularly compelling here, where Gowin is
pursuing a claim ostensibly for the benefit of the estate with the knowledge and
consent of the trustee. The Bankruptcy Code allows a Chapter 13 debtor to step
into the shoes of the trustee with respect to a number of functions. See 11 U.S.C.
§ 1303 (“Subject to any limitations on a trustee under this chapter, the debtor
shall have, exclusive of the trustee, the rights and powers of a trustee under
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[certain sections] of this title.”). In addition, Rule 6009 of the Federal Rules of
Bankruptcy Procedure provides:
W ith or without court approval, the trustee or debtor in possession may
prosecute or may enter an appearance and defend any pending action or
proceeding by or against the debtor, or commence and prosecute any
action or proceeding in behalf of the estate before any tribunal.
(emphasis added). Since a Chapter 13 debtor is a debtor in possession, see 11
U.S.C. § 1306, Rule 6009 confirms our view that Gowin has standing to pursue
the legal claims asserted here.
B. Judicial Estoppel
The district court held that all of the elements of judicial estoppel were met
in this case, but declined to dismiss the appeal. It concluded that the small
judgment against Autos could benefit creditors notwithstanding the large
resources expended to date in litigating the claims and administering the
previously confirmed plan. The court also believed that a contrary result would
result in a “windfall” to Autos.
“Judicial estoppel bars a party from adopting inconsistent positions in the
same or related litigation.” Rascon v. U.S. West Commc’ns, Inc., 143 F.3d 1324,
1330 (10th Cir. 1998) (internal quotation and citation omitted). It is a
discretionary remedy courts use in order “to prevent improper use of judicial
machinery.” New Hampshire v. M aine, 532 U.S. 742, 750 (2001) (internal
quotation and citation omitted).
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W e recently recognized the vitality of the doctrine in the specific context of
bankruptcy proceedings. In Eastman v. Union Pacific Railroad Co., No. 05-8106,
2007 W L 1954031 (10th Cir. July 6, 2007), we denied discharge to a Chapter 7
debtor who swept his personal injury suit “under the rug” before the bankruptcy
court only to assert it later in the district court. Id. at *7. W e concluded the
debtor could not attain discharge, “the ultimate benefit of bankruptcy,” in the face
of such deliberate nondisclosure. Id. Numerous courts have agreed that the
omission of a cause of action as an asset in bankruptcy provides an appropriate
basis for imposing judicial estoppel. See, e.g., Cannon-Stokes v. Potter, 453 F.3d
446 (7th Cir. 2006); Jethroe v. Omnova Solutions, Inc., 412 F.3d 598 (5th Cir.
2005); Barger v. City of Cartersville, 348 F.3d 1289 (11th Cir. 2003); Hamilton v.
State Farm Fire & Cas. Co., 270 F.3d 778 (9th Cir. 2001); Payless W holesale
Distribs., Inc. v. Alberto Culver, Inc., 989 F.2d 570 (1st Cir. 1993); Oneida M otor
Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir. 1988).
To determine w hether judicial estoppel applies to this case, we must
consider the factors articulated by our circuit in Johnson v. Lindon City Corp.,
405 F.3d 1065, 1069 (10th Cir. 2005). Recognizing the doctrine is “probably not
reducible to any general formulation of principle,” id. (quoting New Ham pshire,
532 U.S. at 750), we identified at least three factors that should inform the
analysis:
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(1) The party against whom judicial estoppel is to be invoked seeks
to rely on a position that is clearly inconsistent with its earlier
position;
(2) The party has succeeded in persuading a court to accept its earlier
position, such that judicial acceptance of an inconsistent position
would create the impression that either the first or the second court
was misled; and
(3) The party seeking to assert the inconsistent position would derive
an unfair advantage or impose an unfair detriment on the opposing
party if not estopped.
Id.; see also Eastman, 2007 W L 1954031 at *4. All three criteria are satisfied in
this case.
First, Gowin seeks to rely on a position, that she has legal claims against
Autos, that is inconsistent with the position she took before her bankruptcy plan
was confirmed, that she lacked any such claims. As mentioned above, a debtor’s
assertion of legal claims not disclosed in earlier bankruptcy proceedings
constitutes an assumption of inconsistent positions. See Eastman, 2007 W L
1954031 at *6. And while Gowin’s nondisclosure might have been mitigated by
evidence that she discovered her claims against Autos after plan confirmation, the
district court found to the contrary. 4 Gowin does not challenge that conclusion on
4
The most significant fact evidencing Gowin’s knowledge that Autos had
repossessed her car well before her plan was confirmed is the conflict arising out
of her stated intent to surrender the car to Autos, her knowledge that it was
missing, and her failure to report the car missing at any time in the intervening
months.
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appeal. It is undisputed she knew her car w as repossessed by Autos w ell before
her plan was confirmed, yet she never moved to amend her schedules.
The second element of judicial estoppel is also met. Gowin convinced the
bankruptcy court to confirm her Chapter 13 plan without disclosing her claims
against A utos, yet she now seeks to litigate those same claims. By failing to
disclose her claims as an asset on her schedules, Gowin actively deceived her
creditors and misled the bankruptcy court about the scope of the estate. The
integrity of bankruptcy proceedings is compromised if the bankruptcy court
cannot rely on the information disclosed by a debtor, or if substantial known
assets come to light after the court has confirmed a plan of distribution. See, e.g.,
Payless, 989 F.2d at 571 (holding that failure to disclose a pending legal claim is
“a palpable fraud that the court will not tolerate, even passively”); Oneida, 848
F.2d at 417 (“The importance of full disclosure is underlaid by the reliance placed
upon the disclosure statement by the creditors and the court.”).
The final factor of judicial estoppel is met also. Gowin’s tactic w ould both
derive an unfair benefit and impose an unfair detriment. Had it succeeded,
Gowin’s side deal with the trustee (although apparently abandoned on appeal to
us but actively asserted at the bankruptcy court and district court levels) w ould
have effectively shielded fifty percent of any potential recovery against Autos
from her creditors, bestowing an unfair benefit on Gowin at their expense. See,
e.g., USinternetworking, Inc. v. Gen. Growth M gmt. (In re Usinternetworking,
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Inc.), 310 B.R. at 284 (concluding that prejudice to be considered includes that to
creditors and the courts, not just the opposing party). In any event, Autos was
surely prejudiced by Gowin’s obfuscation. Had it received prompt notice of
Gowin’s claims by virtue of their inclusion in her bankruptcy petition, Autos
could have proposed any number of compromise solutions to bypass this multi-
year morass in the federal courts. 5
C. Remedy
W e thus agree with the district court that the elements of judicial estoppel
have been met in this case. W e disagree, however, with the court’s proposed
remedy. Gowin’s nondisclosure prevented the prompt evaluation of her claims
against Autos by the trustee and other creditors. Any chance of a timely and cost
effective resolution of those claims was compromised as a result. Autos,
moreover, was denied an opportunity to settle the claims or to chart a different
course with knowledge of Gowin’s legal theory. For her part, Gowin abandoned
the car to the neighborhood and the weather, and even disclosed in her bankruptcy
filings her intention to surrender the car to Autos.
5
W hile there is some question as to the nature of prejudice suffered by
Autos, such a showing will usually be apparent, although not necessarily required.
“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.” Browning Mfg. v. M im s
(In re Coastal Plains, Inc.), 179 F.3d 197, 205 (5th Cir. 1999). Here, the case for
judicial estoppel is fortified by the tripartite prejudice Gowin’s conduct
engendered— to Autos, her creditors, and the judicial system generally.
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In light of these facts, and given the disproportionate expenditure of
resources in litigation— an adversary proceeding in bankruptcy court, magistrate
judge review, district court proceedings, and an appeal to this court— compared
with the amount awarded by the district court— less than $1,500 exclusive of
costs and fees— we conclude that dismissal is the appropriate outcome.
Accordingly, we reverse that part of the district court’s decision.
IV. Conclusion
Because we agree that the equitable concerns underlying judicial estoppel
have been satisfied, we affirm the order of the district court. But we reverse the
remedy proposed by the district court. The case is remanded for further
proceedings consistent with this order and judgment.
Entered for the Court,
Timothy M . Tymkovich
Circuit Judge
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