Paige Martineau v. Joel Wier

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-2294
PAIGE MARTINEAU,
Plaintiff - Appellant,
v.
JOEL WIER; DIANE WIER; RICHARD GUEST,
Defendants - Appellees.
Appeal from the United States District Court for the District of South Carolina, at
Columbia. Margaret B. Seymour, Senior District Judge. (3:16-cv-02650-MBS)
Argued: May 8, 2019 Decided: August 12, 2019
Before NIEMEYER and HARRIS, Circuit Judges, and Ellen L. HOLLANDER, United
States District Judge for the District of Maryland, sitting by designation.
Vacated and remanded by published opinion. Judge Harris wrote the opinion, in which
Judge Niemeyer and Judge Hollander joined.
ARGUED: Matthew James Greer, WILLIAMS & CONNOLLY, LLP, Washington,
D.C., for Appellant. Bess J. DuRant, SOWELL & DURANT, LLC, Columbia, South
Carolina, for Appellees. ON BRIEF: Thornwell F. Sowell, SOWELL & DURANT,
LLC, Columbia, South Carolina, for Appellees.
PAMELA HARRIS, Circuit Judge:
Years after entering into a settlement that released certain tort claims, Paige
Martineau filed for Chapter 7 bankruptcy. After her debts were discharged and the
bankruptcy proceedings closed, Martineau brought this case in federal district court,
seeking to rescind her settlement agreement as fraudulently induced and to pursue a tort
action.
The district court rejected that effort and entered judgment in favor of the
defendants. First, the district court held, Martineau lacked standing because her tort
claims were the property of her bankruptcy estate when she filed this action. And in any
event, the court found, judicial estoppel precluded Martineau’s suit: Because Martineau
had not disclosed her future legal claims when she filed for bankruptcy, the court
reasoned, she had effectively disavowed them, and could not now take a contrary
position.
We come to a different conclusion. The district court’s “standing” determination
conflates Article III requirements with the distinct real-party-in-interest analysis; when
the two are untangled, it becomes clear that Martineau has both Article III standing and
the legal entitlement to pursue these tort claims on her own behalf. With respect to
judicial estoppel, the district court relied on an improper presumption of bad faith, short-
circuiting the necessary inquiry. Accordingly, we remand so that the district court may
evaluate the appropriateness of judicial estoppel in light of all facts and circumstances
without recourse to a presumption of bad faith.
2
I.
A.
Martineau’s underlying tort claims stem from a grisly attack on her by defendant
Richard Guest on October 13, 2009. Martineau encountered Guest outside of Guest’s
apartment, while visiting her boyfriend in the same building. According to the police
report, Guest stabbed Martineau repeatedly with an eight-to-ten-inch kitchen knife in an
unprovoked assault. The police arrested Guest, who was charged with assault and battery
with intent to kill and kidnapping. Guest was found incompetent to stand trial, however,
and civilly committed to a mental health facility.
In the years that followed, Martineau retained counsel to investigate potential
claims against Guest and co-defendants Diane and Joel Wier, Guest’s sister and brother-
in-law and the owners of the apartment building in question. According to Martineau, the
Wiers assured her that the only relationship they had with Guest was as landlords, and
that they had no reason to know of his severe mental illness or potential dangerousness.
Relying on those representations, Martineau alleges, she concluded that the Wiers could
not be held liable for negligence in connection with Guest’s attack on her. As a result,
Martineau, still represented by counsel, agreed in October of 2012 to release all claims
against the Wiers and Guest in exchange for $20,000 – a sum that she contends represents
only a fraction of her damages.
Roughly a year later, in December of 2013, prosecutors in Guest’s criminal case
gave Martineau access to Guest’s criminal file for the first time. It was at that point,
Martineau alleges, that she learned that the Wiers in fact had ample knowledge of Guest’s
3
long history of mental illness and propensity for violence. According to Martineau,
Diane had attempted to have Guest involuntarily committed years earlier; she was the
trustee of a long-standing mental health trust established because Guest was incompetent
to manage funds; and the Wiers had discovered poems by Guest describing bloody
stabbings. Despite these revelations, Martineau took no legal action, believing that her
settlement agreement barred her from proceeding against the Wiers or Guest.
B.
In June of 2015, eighteen months after reviewing Guest’s criminal file, Martineau,
now proceeding without counsel, filed for Chapter 7 bankruptcy. When a debtor files for
Chapter 7 bankruptcy, her assets immediately are transferred to the bankruptcy estate.
See 11 U.S.C. § 541(a). A Chapter 7 bankruptcy trustee liquidates that property and
distributes the proceeds to the debtor’s creditors. Id. §§ 704(a)(1), 726. The estate does
not include, however, wages earned or assets acquired after the debtor files for
bankruptcy. See id. § 541(a)(1). A Chapter 7 debtor thus gains a “clean break” from her
financial struggles, “but at a steep price: prompt liquidation of the debtor’s assets.”
Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015).
To facilitate this process, a Chapter 7 debtor must disclose to the bankruptcy court
those assets which now belong to the estate, 11 U.S.C. § 521(a), including “all legal [and]
equitable interests of the debtor,” id. § 541(a). Courts “uniformly” interpret this statutory
language to include causes of action. In re Bogdan, 414 F.3d 507, 512 (4th Cir. 2005)
(internal quotation marks omitted). And indeed, Martineau’s disclosures listed a pending
4
suit she had against her then-landlord. Those disclosures did not, however, mention any
potential future claims against Guest and the Wiers.
The bankruptcy court appointed a trustee to oversee the distribution of assets
within Martineau’s estate. In carrying out that responsibility, a trustee need not pursue all
claims, and instead may “abandon any property of the estate that is burdensome to the
estate or that is of inconsequential value and benefit to the estate.” 11 U.S.C. § 554(a).
That includes legal claims deemed to be “worthless or low value.” Biesek v. Soo Line R.
Co., 440 F.3d 410, 413 (7th Cir. 2006). Here, the trustee abandoned any interest in
Martineau’s assets, including her lawsuit against her landlord. In October of 2015, the
bankruptcy court discharged Martineau’s debt and closed her case.
C.
1.
Martineau filed this suit in federal district court in July of 2016, almost a year after
her bankruptcy proceedings concluded. In her complaint, Martineau sought to rescind
her 2009 settlement agreement as fraudulently induced. She also asserted a series of tort-
based claims against Guest and the Wiers, arising from Guest’s assault on her and the
Wiers’ alleged negligence in allowing Guest to live unsupervised in their apartment
complex.
The defendants moved to dismiss Martineau’s case on numerous grounds. As
relevant here, they contended that Martineau lacked “standing” to pursue the tort claims
against them because those claims belonged to her bankruptcy estate and could be
asserted only by the bankruptcy trustee. In response, Martineau petitioned the
5
bankruptcy court to reopen her proceedings and filed amended bankruptcy schedules that
listed her claims against Guest and the Wiers. The bankruptcy court granted Martineau’s
motion and appointed a trustee to administer the newly disclosed claims. In February of
2017, that trustee abandoned any interest in Martineau’s legal claims. The bankruptcy
court closed Martineau’s case for the second time without taking further action.
While Martineau was before the bankruptcy court, the defendants raised an
additional defense related to the bankruptcy proceedings: Because Martineau had failed
to disclose her tort claims against them in her initial bankruptcy filings, the defendants
argued, judicial estoppel barred her from asserting them now. Judicial estoppel, the
defendants explained, is an equitable principle that precludes a party from taking
inconsistent positions in judicial proceedings. Martineau’s original filings amounted to a
declaration that she had no claims against them, the defendants contended, and that
position necessarily was inconsistent with the pursuit of her claims in this action.
2.
The magistrate judge assigned to the case converted the defendants’ motion to
dismiss into a motion for summary judgment, and recommended finding for the
defendants on both standing and judicial estoppel grounds.
On standing, the magistrate judge agreed with the defendants that Martineau’s
claims against them became the property of the estate when Martineau filed for
bankruptcy, giving the bankruptcy trustee “exclusive standing” to pursue them. J.A. 241.
The magistrate judge acknowledged that Martineau regained the right to pursue her
claims on her own behalf when the second bankruptcy trustee abandoned them in
6
February of 2017. 1 But that did not matter, the magistrate judge reasoned, because
“standing is measured at the time the complaint is filed” – here, in July of 2016, when
Martineau filed this action and before the claims were abandoned. J.A. 243.
The magistrate judge also agreed with the defendants that the doctrine of judicial
estoppel independently precluded Martineau’s suit. Judicial estoppel, the magistrate
judge explained, “prevent[s] litigants from taking contrary positions in court filings” and
thus “protect[s] the essential integrity of the judicial process.” J.A. 242 (internal
quotation marks omitted). The magistrate judge recognized that judicial estoppel does
not apply when inconsistent positions are the result of inadvertence or a “good faith
mistake.” J.A. 243. And Martineau was arguing just that: According to Martineau, she
inadvertently omitted her as-yet-unfiled legal claims against the defendants from her June
2015 bankruptcy disclosures because she believed at the time that her settlement
agreement would bar any legal action.
To resolve this issue, the magistrate judge applied a bankruptcy-specific
presumption first suggested by the Fifth Circuit in In re Coastal Plains, Inc., 179 F.3d
197 (5th Cir. 1999). Under that presumption, as the magistrate judge explained, “a
debtor’s failure to satisfy her statutory disclosure duty is inadvertent ‘only when, in
general, the debtor either lacks knowledge of the undisclosed claims or has no motive for
1
The magistrate’s report indicated that Martineau’s claims were exempted –
meaning that they were shielded from creditors – when in fact they were abandoned. See
Sheehan v. Ash, 889 F.3d 171, 173 (4th Cir. 2018). For purposes of this case, exemption
and abandonment have the same legal effect – both returning the claims to Martineau –
and so this point has no bearing on the appeal.
7
their concealment.’” J.A. 243 (quoting In re Coastal Plains, 179 F.3d at 210); see also
Eastman v. Union Pac. R.R. Co., 493 F.3d 1151, 1157–58 (10th Cir. 2007) (collecting
cases applying this rule). A motive for concealment, in turn, may be “inferred,” because
nondisclosure benefits a debtor by “den[ying] creditors potential assets.” J.A. 244; see
also 11 U.S.C. §§ 704, 726. That narrowed the magistrate judge’s judicial estoppel
analysis to just one question: Did Martineau have knowledge of her tort claims against
the defendants at the time of her bankruptcy filing in June of 2015? The answer, the
magistrate concluded, was yes, because “all that is required is a showing that [Martineau]
knew of the factual basis of the undisclosed claim,” and Martineau was allowed access to
Guest’s criminal record – the documents giving rise to her action – in December of 2013.
J.A. 243. And even on Martineau’s account, the magistrate judge finished, she knew of
her legal claims by no later than the summer of 2016, when she filed suit, and still failed
to amend her bankruptcy filings until November of that year, after the defendants moved
to dismiss her action.
The district court adopted the magistrate judge’s report and recommendation over
Martineau’s objections, awarding summary judgment to the defendants. On standing, the
district court summarized and incorporated the magistrate judge’s reasoning, concluding
that “the bankruptcy trustee alone had exclusive standing to pursue this action at the time
[Martineau] filed her complaint.” J.A. 299. The court likewise endorsed the magistrate’s
reasoning with respect to judicial estoppel: To establish that Martineau’s 2015
nondisclosure of her tort claims was not inadvertent, it was enough that Martineau at that
time had “knowledge of the undisclosed claims” – in the form of access to the relevant
8
documents in December of 2013 – and “motive for concealment of the claims” –
consistent with the presumption identified by the magistrate judge. J.A. 302.
Martineau filed a motion for reconsideration, which the district court denied. This
timely appeal followed.
II.
On appeal, we review de novo the district court’s determination that Martineau
lacks standing to bring this action. Wilson v. Dollar Gen. Corp., 717 F.3d 337, 342 (4th
Cir. 2013). The district court’s reliance on judicial estoppel is reviewed for abuse of
discretion, Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk
Assurance Co., 867 F.3d 449, 457 (4th Cir. 2017), which “by definition” includes an
error of law, Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 150 (4th Cir. 2002).
Martineau argues that the district court erred in holding that she lacks standing to
bring her claims, and that the court improperly applied a presumption of bad faith – and
thus made an error of law – when it found that judicial estoppel precluded her from
proceeding. We agree on both counts.
A.
We begin with the district court’s finding that Martineau lacked standing to bring
the current action. 2 As noted above, the district court reached this conclusion by
2
Although the district court styled its standing-based holding as a grant of
summary judgment to the defendants, ordinarily courts who find no Article III standing
dismiss under Rule 12(b)(1) for lack of subject-matter jurisdiction. See Abbott v.
9
adopting the magistrate’s recommendation that “the bankruptcy trustee alone had
exclusive standing to pursue this action at the time [Martineau] filed her complaint.” J.A.
299. This was so, the magistrate judge reasoned, because when Martineau filed for
bankruptcy in June of 2015, her potential claims against the Wiers and Guest became
assets that belonged to the bankruptcy estate. Although those claims later were
abandoned by the bankruptcy trustee and reverted to Martineau, that did not happen until
2017, well after Martineau filed this action, and courts “have an obligation to assure
[themselves] . . . [of] Article III standing at the outset of the litigation.” J.A. 241 (quoting
Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180
(2000)).
The problem with this analysis is that it conflates Article III standing with the
distinct issue of whether Martineau or her bankruptcy trustee was the “real party in
interest,” legally entitled to pursue these claims. There is no question in this case that
Martineau’s allegations satisfy the Article III requirements for standing: Martineau’s
complaint alleges a distinct injury at the hands of Guest and the Wiers, traceable to their
conduct, and redressable by a favorable decision on her tort claims. See Spokeo, Inc. v.
Robins, 136 S. Ct. 1540, 1547 (2016) (describing “‘irreducible constitutional minimum’
Pastides, 900 F.3d 160, 175 n.8 (4th Cir. 2018). Accordingly, we assume that the district
court intended to dismiss the case under Rule 12(b)(1) for lack of standing, and that its
grant of summary judgment captured its alternative judicial estoppel holding. See id.
(“Because we are not bound by the label placed on the district court’s disposition of the
case, we may treat the district court’s summary judgment ruling as a dismissal under Rule
12(b)(1).” (internal quotation marks and alterations omitted)).
10
of standing” (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992))). Indeed,
neither the magistrate judge nor the district court applied that familiar three-part standard
to Martineau’s allegations and found them wanting.
Instead, the question in this case – on which the magistrate judge and district court
did focus – is whether Martineau was legally entitled to pursue these tort claims on her
own behalf, or whether the claims belonged solely to her estate. That question implicates
not Article III standing doctrine, but rather the “real-party-in-interest” requirement. See
Wilson, 717 F.3d at 342–43 (treating question of whether debtor or bankruptcy trustee is
entitled to maintain action for tax refund as one of real party in interest). Under Rule 17
of the Federal Rules of Civil Procedure, “an action must be prosecuted in the name of the
real party in interest.” Fed. R. Civ. P. 17(a). And in the context of a Chapter 7
bankruptcy, it is the bankruptcy trustee and not the debtor who is the real party in interest
with respect to property of the estate, with the right to bring any legal claims that belong
to the estate. Wilson, 717 F.3d at 343. 3
3
We have on occasion referred to this real-party-in-interest question as one of
“standing.” See J.A. 240 (quoting Nat’l Am. Ins. Co. v. Ruppert Landscaping Co., 187
F.3d 439, 441 (4th Cir. 1999)). But in that context, the reference is not to Article III
standing – the basis for the district court’s jurisdictional holding – but to prudential
standing, reflecting courts’ tendency to use the terms prudential standing and real party in
interest interchangeably when discussing a bankruptcy trustee’s sole authority to take
action on legal claims that belong to the estate. See Wilson, 717 F.3d at 342–43
(collecting cases). Our opinion in Wilson clarified that in this circuit, we address the
issue under the real-party-in-interest framework. See id. In any event, treating it as one
of prudential standing would make no difference here; issues of prudential standing are
non-jurisdictional and may be cured after an action is filed. See United States v. Day,
700 F.3d 713, 721 (4th Cir. 2012). And as we explain below, the bankruptcy trustee’s
11
Martineau concedes that when she filed this suit in July of 2016, her tort claims
against the defendants belonged to the bankruptcy estate, 4 making the bankruptcy trustee
the real party in interest. The district court and magistrate judge deemed that fact
dispositive: Because courts must assure themselves of “Article III standing at the outset
of the litigation,” J.A. 241 (internal quotation marks omitted), all that mattered was that
on the date suit was filed, the bankruptcy trustee and not Martineau had the right to
pursue these tort claims. But there is no analogous rule for the real-party-in-interest
requirement. To the contrary, Rule 17 makes clear that circumstances on the date of
filing do not control, prohibiting courts from dismissing a complaint on real-party-in-
interest grounds without first providing the real party in interest with the opportunity to
abandonment of Martineau’s claims against the defendants did just that, curing any defect
in Martineau’s right to bring this suit.
4
We note that the case law on this point is not as clear as the parties’ litigating
positions suggest. For its conclusion that Martineau’s as-yet-unfiled legal claims against
the defendants belonged to the estate (and thus were subject to disclosure), the district
court relied principally on an unpublished district court decision. See J.A. 301 (quoting
Vanderheyden v. Peninsula Airport Comm’n, No. 4:12CV46, 2013 WL 30065, at *8
(E.D. Va. Jan. 2, 2013)). But that decision – like others relied on by the magistrate judge
and district court – involved circumstances in which a debtor already had taken
substantial steps toward legal action when he filed for bankruptcy. See Vanderheyden,
2013 WL 30065, at *2 (debtor failed to disclose charges filed with EEOC); see also
Robertson v. Flowers Baking Co. of Lynchburg, No. 6:11-CV-00013, 2012 WL 830097,
at *2 (W.D. Va. Mar. 6, 2012) (same); Thomas v. Palmetto Mgmt. Servs., No. CA 305-
17-CMC-BM, 2006 WL 2623917, at *4 (D.S.C. Sept. 11, 2006) (same). This case is
different; at the time Martineau filed for bankruptcy, she had taken no steps preparatory
to filing suit and, on her own account at least, believed that she was precluded by her
settlement agreement from doing so. We have found no authority requiring a debtor to
disclose, as an asset of the estate, a hypothetical legal claim that she does not believe
exists. But the parties agree that Martineau’s tort claims against the defendants belonged
to the bankruptcy estate when she filed suit, so we need not resolve that issue here.
12
“ratify, join, or be substituted into the action.” Fed. R. Civ. P. 17(a)(3). Because the
district court miscategorized this question as one of constitutional standing, it improperly
limited its focus to whether Martineau had the right to sue at the time of filing.
And this was a critical error, because events that transpired after the date of
Martineau’s filing made Martineau, and not the bankruptcy trustee, the real party in
interest under Rule 17, legally entitled to pursue her tort claims on her own behalf. In
February of 2017 – after Martineau filed suit but before the rulings in this case – the
bankruptcy trustee in Martineau’s reopened bankruptcy proceedings abandoned
Martineau’s legal claims against the defendants, bringing them outside the bankruptcy
estate. See Biesek, 440 F.3d at 413 (bankruptcy trustee “may abandon worthless or low
value assets, including legal claims”). That made Martineau the real party in interest,
with the right to bring the claims on her own. See id. (if trustee abandons legal claim,
debtor may “prosecute[] the suit in his own name”); Steyr-Daimler-Puch of Am. Corp. v.
Pappas, 852 F.2d 132, 136 (4th Cir. 1988) (“[B]efore the debtor or a creditor may pursue
a claim, there must be a judicial determination that the trustee in bankruptcy has
abandoned the claim.”). Indeed, once the trustee abandoned the claims against the
defendants, bankruptcy law treats Martineau as “having owned [the claims]
continuously” – not only as of February 2017, but at all points prior, as well – “free to
seek redress as if no bankruptcy petition had been filed” at all. Moses v. Howard Univ.
Hosp., 606 F.3d 789, 791 (D.C. Cir. 2010) (quoting Morlan v. Universal Guar. Life Ins.
Co., 298 F.3d 609, 617 (7th Cir. 2002)); see also Biesek, 440 F.3d at 413.
13
Accordingly, we reverse the district court’s determination that Martineau lacked
standing to pursue her tort claims against the defendants. Under the correct analytical
framework, Martineau is now – and has been from the start – the real party in interest,
legally entitled to bring this action.
B.
We turn now to the district court’s alternative holding: that judicial estoppel bars
Martineau from proceeding on her claims. Because the district court reached that
conclusion without fully engaging in the necessary inquiry, we vacate the district court’s
grant of summary judgment and remand for further analysis.
1.
As the Supreme Court has explained, judicial estoppel is an equitable doctrine,
designed to “protect the integrity of the judicial process by prohibiting parties from
deliberately changing positions according to the exigencies of the moment.” New
Hampshire v. Maine, 532 U.S. 742, 749–50 (2001) (internal quotation marks omitted).
Typically, judicial estoppel is reserved for cases where the party to be estopped – here,
Martineau – has taken a later position that is “clearly inconsistent” with her earlier one;
has persuaded a court to adopt the earlier position, creating a perception that “either the
first or the second court was misled”; and would “derive an unfair advantage or impose
an unfair detriment on the opposing party if not estopped.” Id. at 750–51 (internal
quotation marks omitted). Finally, and central to this case, there is the longstanding
principle that judicial estoppel applies only when “the party who is alleged to be estopped
intentionally misled the court to gain unfair advantage,” and not when “a party’s prior
14
position was based on inadvertence or mistake.” John S. Clark Co. v. Faggert &
Frieden, P.C., 65 F.3d 26, 29 (4th Cir. 1995) (emphasis added) (internal quotation marks
omitted); accord New Hampshire, 532 U.S. at 753 (quoting John S. Clark, 65 F.3d at 29).
The dispute between the parties here focuses primarily on this final factor.
Martineau contends that she did not intentionally or deliberately change positions.
Instead, she argues, her initial failure to list her legal claims against the defendants in her
bankruptcy filings – at a time when she had done nothing to pursue those claims,
believing them to be barred by her settlement agreement – was a matter of “inadvertence
or mistake,” John S. Clark, 65 F.3d at 29. The district court found to the contrary,
according to Martineau, only by relying on a presumption of bad faith that this court
never has endorsed. We agree, and find that the district court improperly applied a
presumption of bad faith that is at odds with our case law and with the very nature of
judicial estoppel.
Under the presumption in question, as the magistrate judge explained, a debtor
who fails to disclose a legal claim in bankruptcy proceedings (as Martineau concedes she
did here) is presumed to have acted in bad faith unless she “either lacks knowledge of the
undisclosed claims or has no motive for their concealment.” J.A. 243 (internal quotation
marks omitted). Because debtors always have a motive to conceal – disclosure shifts
assets from the debtor to her creditors – the inquiry effectively reduces to the question of
knowledge. See J.A. 297 (Martineau “had motive to conceal the claims because
disclosure would provide her creditors with a potential asset”). As applied here, that
means that so long as a debtor has knowledge of the facts that someday will underlie a
15
future legal claim, it may be inferred that she failed to disclose that claim in a deliberate
and bad-faith effort to mislead the courts.
But the nature of the judicial estoppel inquiry does not lend itself to this kind of
blanket presumption. Whether the equitable doctrine of judicial estoppel should be
invoked depends on the “specific factual context[]” of a case, rather than “any general
formulation” or “inflexible” rule or standard. New Hampshire, 532 U.S. at 750–51
(quoting Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (4th Cir. 1982)). For that reason,
it has long been the law of this circuit that a court must consider each case’s “specific
facts and circumstances” before holding a claim barred by judicial estoppel. King v.
Herbert J. Thomas Mem’l Hosp., 159 F.3d 192, 196 (4th Cir. 1988).
We do not think this understanding of judicial estoppel can be reconciled with the
broad presumption of bad faith applied by the district court here. The district court, of
course, did not invent the presumption it applied; instead, it relied on the Fifth Circuit’s
decision in In re Coastal Plains for the presumption, see J.A. 243 (quoting In re Coastal
Plains, 179 F.3d at 210), and it appears that the Tenth Circuit has adopted a similar rule,
see Eastman, 493 F.3d at 1157–59. But this court never has endorsed such a
presumption. And we note that the last two circuit courts to consider the presumption
both have rejected it in thoroughly reasoned opinions. See Slater v. United States Steel
Corp., 871 F.3d 1174 (11th Cir. 2017) (en banc); Ah Quin v. Cty. of Kauai Dep’t of
16
Transp., 733 F.3d 267 (9th Cir. 2013) (rejecting presumption where debtor reopened
bankruptcy proceedings and corrected initial nondisclosure). 5
As the en banc Eleventh Circuit held, the “equitable principles that undergird”
judicial estoppel require that it be invoked only after a court has considered “all the facts
and circumstances of the particular case” – an inquiry that is incompatible with a “one-
size-fits-all” presumption. Slater, 871 F.3d at 1185–86. A full and fact-specific analysis,
the court reasoned, ensures that judicial estoppel applies “only when a party acted with a
sufficiently culpable mental state” in failing to disclose a legal claim in bankruptcy
proceedings. Id. Likewise, it permits courts to consider any subsequent bankruptcy
proceedings, “arguably a better way to ensure that the integrity of the bankruptcy court is
protected.” Id. at 1186. Finally, “limiting judicial estoppel to those cases in which the
facts and circumstances warrant it” helps to “reduce the risk that [its] application . . . will
give the civil defendant a windfall.” Id.
The district court’s approach in this case bears out each of those concerns. First,
by focusing exclusively on whether Martineau knew of the factual basis for her legal
claims when she filed for bankruptcy, the district court failed to give full effect to the
principle that “[w]ithout bad faith, there can be no judicial estoppel,” Zinkland v. Brown,
478 F.3d 634, 638 (4th Cir. 2007). It is true, as the district court emphasized, that
5
Indeed, in a footnote to a recent unpublished opinion, the Fifth Circuit itself
suggested a more limited role for the In re Coastal Plains presumption, contending that
other courts applying or describing it have overstated its effects. See United States ex rel.
Bias v. Tangipahoa Par. Sch. Bd., 766 F. App’x 38, 44 n.3 (5th Cir. 2019).
17
Martineau gained access to Guest’s criminal file – and with it, the information on which
she bases her current suit – in 2013, before she filed for bankruptcy in 2015. But whether
Martineau had access to the facts underlying her legal claims is a “separate question”
from whether she “actually intended to manipulate the judicial system to [her]
advantage.” Slater, 871 F.3d at 1186. Failure to disclose still might have been
inadvertent, in that Martineau, as she alleges, may have had no plans ever to file suit at
the time she declared bankruptcy. And even if she did plan to sue, or at least had not
ruled out the possibility, she still may have failed to disclose not deliberately but
“because [she] did not understand the disclosure obligations.” Id. As the Eleventh
Circuit explained in Slater, “[i]t is not difficult to imagine that some debtors, particularly
those proceeding pro se” – as Martineau was here – “may not realize that a pending
lawsuit qualifies as a . . . claim that must be disclosed on a schedule of assets.” Id.
(internal quotation marks omitted).
Indeed, presuming bad faith from failure to disclose a legal claim is particularly
unwarranted in a case like this one, in which there was no “pending lawsuit” to disclose
when the debtor filed for bankruptcy. We have discussed already the authority that, at
least arguably, might make Martineau’s as-yet-unfiled lawsuit the property of her estate,
requiring its disclosure. But we can see no reason to presume that Martineau was
familiar with the relevant case law, and nothing about the bankruptcy forms themselves
would have made clear to her the need to disclose a legal claim that she had neither filed
18
nor taken any steps toward pursuing. 6 The possibility of good-faith mistake, that is, is
especially high with respect to a failure to disclose an as-yet purely hypothetical legal
claim.
Second, the district court’s reliance on a presumption of bad faith meant that it
never considered the course of subsequent bankruptcy proceedings – specifically, that
when Martineau reopened her bankruptcy proceedings and amended her disclosures to
include the legal claims in question, the bankruptcy trustee abandoned the claims and the
bankruptcy court closed her case without further action. Bankruptcy courts have multiple
ways of protecting their own integrity against fraudulent nondisclosures. See Ah Quin,
733 F.3d at 275 (rejecting presumption of bad faith in part because “the bankruptcy
system already provides plenty of protections” to bankruptcy courts to guard against
threats to their integrity). Such courts may revoke a discharge and reopen long-closed
bankruptcy proceedings if they suspect fraud, see 11 U.S.C. § 350(b); impose sanctions,
see Fed. Bankr. R. P. 9011(c); or even refer debtors for criminal prosecution, see 18
U.S.C. § 152. Here, however, the bankruptcy court exercised none of these powers, a
6
The “Statement of Financial Affairs” in Martineau’s bankruptcy filing does call
for information about “suits and administrative proceedings,” but clearly contemplates
only past or existing, and not future, suits: It specifies that the debtor “[l]ist all suits and
administrative proceedings to which the debtor is or was a party within one year
immediately preceding the filing of this bankruptcy case,” and requests a caption and case
number for each. J.A. 92 (emphasis added). And as the Eleventh Circuit held in Slater,
the “Schedule B” reference to “contingent and unliquidated claims of every nature,
including tax refunds, counterclaims of the debtor, and rights to setoff claims,” J.A. 169,
cannot be conclusively presumed to put a pro se debtor like Martineau on notice of her
duty to disclose even pending legal claims, let alone as-yet-unfiled legal claims. 871
F.3d at 1186.
19
strong indication that it did not believe Martineau acted in bad faith. Like the Eleventh
Circuit, we “see no good reason why, when determining whether a debtor intended to
manipulate the judicial system, a district court should not consider” a bankruptcy court’s
decision “to allow the debtor to amend his disclosures or reopen his bankruptcy case”
without imposing any sanction. Slater, 871 F.3d at 1187.
Finally, the district court’s reliance on a presumption of bad faith runs the risk of
producing a decidedly non-equitable result, counter to the very underpinnings of judicial
estoppel. See id. at 1186. The main beneficiaries of the district court’s holding are Wiers
and Guest, “civil defendant[s]” who stand to gain a potential “windfall,” id., if judicial
estoppel precludes any recovery by Martineau. Martineau’s creditors, on the other hand,
are unaffected; after reviewing Martineau’s complaint on their behalf, the bankruptcy
trustee abandoned any interest they otherwise might have had in the proceedings. We
discern little in the way of equities to recommend an outcome in which judicial estoppel
“operates . . . to the benefit of only an alleged bad actor,” Ah Quin, 733 F.3d at 275.
The defendants do not argue otherwise. Instead of defending the presumption of
bad faith, they insist that the district court in fact did not apply such a presumption. We
disagree. The magistrate judge spelled out the details of the presumption in question,
quoting from the Fifth Circuit case in which it seems to have originated, In re Coastal
Plains, and citing other cases applying the presumption. The district court, adopting the
magistrate judge’s recommendation, applied precisely the same presumption, limiting its
bad-faith inquiry to Martineau’s “knowledge of the undisclosed claims and . . . motive for
concealment of the claims.” J.A. 302. Because that presumption improperly excluded
20
from consideration other factors that might bear on whether Martineau’s nondisclosure
was intended to deceive or a good-faith error, we vacate the district court’s judgment and
remand for a full analysis of all the “specific facts and circumstances,” King, 159 F.3d at
196, of Martineau’s case.
2.
On remand, the district court will have the opportunity to consider in the first
instance all the facts shedding light on whether Martineau “intentionally misled the court
to gain [an] unfair advantage,” John S. Clark, 65 F.3d at 29 (internal quotation marks
omitted), when she failed to disclose her legal claims against the defendants. We
recognize that there are two distinct nondisclosures at issue here. The first is Martineau’s
initial failure to list her not-yet-pending claims when she filed for bankruptcy in 2015, the
primary focus of the district court and of our analysis above. But even after she filed this
action in 2016, Martineau did not immediately move to reopen her bankruptcy
proceedings and disclose her cause of action, notwithstanding her continuing disclosure
obligations to the bankruptcy court. See In re Coastal Plains, 179 F.3d at 208 (debtor’s
duty of disclosure is a “continuing one”). Instead, as the district court noted, Martineau
returned to the bankruptcy court and amended her filings only after the defendants called
attention to her bankruptcy proceedings in their motion to dismiss, several months later.
Whether that sequence of events is evidence of a deliberate effort to hide these claims
from the bankruptcy court, as the defendants urge, or entirely consistent with Martineau’s
account – that the defendants’ motion to dismiss apprised her that she mistakenly had
omitted these claims from her bankruptcy schedules, at which point she promptly moved
21
to correct her oversight – is for the district court to determine, after consideration of all
relevant facts and circumstances.
The district court also should consider on remand whether judicial estoppel is
warranted under the other factors laid out by the Supreme Court in New Hampshire. The
inquiry into bad faith is central to the judicial estoppel question, but it is not the only
consideration. As the Court explained in New Hampshire, judicial estoppel typically
would apply only if Martineau has taken “clearly inconsistent” positions, with the first –
the implicit disavowal, through nondisclosure, of any legal claim against the defendants –
accepted by the bankruptcy court as true, so that there is a “risk of inconsistent court
determinations” if she is not estopped in the district court. 532 U.S. at 750–51. But once
Martineau reopened her bankruptcy proceedings and corrected her disclosures, it is at
least arguable that she was taking the same position – that she had valid legal claims
against the defendants – before both courts, and that the bankruptcy court, by accepting
the amended disclosures and granting a new discharge, was no longer crediting the initial
position. At least one court has determined that under these circumstances, “two of the
three primary New Hampshire factors are no longer met”: “Although the plaintiff-debtor
initially took inconsistent positions, the bankruptcy court ultimately did not accept the
initial position,” and there is “no risk of inconsistent court determinations.” Ah Quin, 733
F.3d at 274. Similarly, under New Hampshire’s third factor, it is not clear that Martineau
“derive[d] an unfair advantage or impose[d] an unfair detriment,” 532 U.S. at 751, on the
defendants through her initial nondisclosure; at the end of the day, it was the second
bankruptcy trustee’s independent decision to abandon any interest in Martineau’s legal
22
claims rather than pursue them on behalf of Martineau’s creditors. See Ah Quin, 733
F.3d at 274 (plaintiff-debtor who amended her bankruptcy filings to disclose a pending
legal claim “did not obtain an unfair advantage”).
We leave these questions to the district court in the first instance. Consistent with
the Supreme Court’s guidance in New Hampshire and our circuit precedent, the district
court should consider all relevant factors and take account of all facts and circumstances
in determining whether it is appropriate to invoke judicial estoppel against Martineau,
without reliance on a presumption of bad faith. 7
III.
For the foregoing reasons, we vacate the district court’s grant of summary
judgment to the defendants and remand the case for further proceedings consistent with
this opinion.
VACATED AND REMANDED
7
As noted above, the defendants moved to dismiss Martineau’s complaint on
multiple grounds unrelated to Martineau’s bankruptcy, including statute-of-limitations
grounds. The district court did not rule on those defenses in granting judgment to the
defendants, and we take no position on them here. On remand, of course, the district
court is free to address any of these additional defenses.
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