Helen Allen v. C & H Distributors, L.L.C.

Case: 15-30330 Document: 00513320000 Page: 1 Date Filed: 12/23/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 15-30330 United States Court of Appeals
Fifth Circuit
FILED
HELEN C. ALLEN; ROBERT E. ALLEN, December 23, 2015
Lyle W. Cayce
Plaintiffs - Appellants Clerk
v.
C & H DISTRIBUTORS, L.L.C.; KK AMERICA CORPORATION;
TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA;
ERGOCRAFT CONTRACT SOLUTIONS; GREAT AMERICAN INSURANCE
COMPANY,
Defendants - Appellees
Appeal from the United States District Court
for the Western District of Louisiana
Before STEWART, Chief Judge, and KING and HIGGINSON, Circuit Judges.
KING, Circuit Judge:
Plaintiffs–Appellants Helen and Robert Allen filed a personal injury suit
against Defendants for alleged workplace injuries to Helen Allen. Defendants
moved for summary judgment, contending that the suit should be barred by
judicial estoppel because the Allens failed to disclose the personal injury claim
during their concurrent Chapter 13 bankruptcy proceeding. The district court
granted the motion for summary judgment, and the Allens appeal. As modified
herein, we AFFIRM the judgment of the district court.
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No. 15-30330
I. FACTUAL AND PROCEDURAL BACKGROUND
On July 14, 2009, Robert and Helen Allen filed for Chapter 13
bankruptcy. The bankruptcy court confirmed the original Chapter 13 Plan (the
Plan) on September 29, 2009. In the nearly five years that the bankruptcy
court administered the Allens’ bankruptcy, the Allens amended the Plan three
times, first on January 11, 2011, then on December 19, 2011, and finally on
January 17, 2013. On April 21, 2014, the bankruptcy court closed the Allens’
Chapter 13 bankruptcy case without discharge because the Allens failed to file
required documentation showing that they had completed an instructional
course on personal financial management.
On October 21, 2010, the Allens filed an unrelated personal injury suit
against C&H Distributors, K+K America Corporation, Ergocraft, Inc., and
Travelers Property Casualty Company of America (Defendants 1) in the United
States District Court for the Western District of Louisiana, invoking that
court’s diversity jurisdiction. The suit alleged that one year earlier, on October
21, 2009, Helen Allen was seriously and permanently injured at her work when
the stool she was sitting on broke apart. This incident occurred after the initial
confirmation of the Plan but before all three amendments to the Plan. Trial in
the personal injury suit was ultimately set for September 15, 2014.
On February 9, 2011, the State of Louisiana moved for leave to intervene
in the personal injury suit because it had made workers’ compensation
payments to Helen Allen. The district court denied the State’s motion to
intervene, noting that allowing the State to intervene as a party would destroy
the court’s diversity jurisdiction. 2 Because the case could not be remanded to
1 While the suit originally named Ergocraft, Inc. as a defendant, the Allens
subsequently filed an amended complaint naming Ergocraft Contract Solutions as a
defendant. Ergocraft, Inc. was subsequently dismissed as a defendant to the action.
2 “Ordinarily ‘[i]n an action where a state is a party, there can be no federal jurisdiction
on the basis of diversity of citizenship because a state is not a citizen for purposes of diversity
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state court and dismissal of the case would raise a timeliness issue, 3 the
district court suggested that the State and the Allens “reach an arrangement
by which the State’s worker[s’] compensation interest will be protected without
the need for the State to formally intervene in this case.” On November 15,
2011, the Allens and the State filed a joint stipulation with the district court,
detailing how the State would be reimbursed for its workers’ compensation
payments from any judgment or settlement the Allens’ received in the suit.
On September 2, 2014, Defendants moved for leave to file a late
supplemental motion for summary judgment in the personal injury suit.
Defendants contended that on August 29, 2014, they first learned of the Allens’
Chapter 13 bankruptcy proceeding. However, the Allens failed to disclose the
existence of the prior bankruptcy in response to interrogatories. The district
court granted Defendants leave to file, and Defendants subsequently moved
for summary judgment, contending that the Allens’ personal injury claim was
barred by judicial estoppel because the Allens had never disclosed the personal
injury suit to the bankruptcy court. On December 3, 2014, the Allens moved
to strike the supplemental motion for summary judgment, contending that
counsel for Ergocraft had acknowledged that he knew of the Allens’ bankruptcy
as early as March 28, 2012, even though Defendants alleged in their motion
that they had first learned of the bankruptcy case on August 29, 2014.
On March 26, 2015, the district court granted Defendants’ supplemental
motion for summary judgment, finding that judicial estoppel barred the Allens
from pursuing their personal injury claim. Accordingly, the court dismissed
jurisdiction.’” Louisiana v. Union Oil Co. of Cal., 458 F.3d 364, 366 (5th Cir. 2006) (quoting
Tex. Dep’t of Hous. & Cmty. Affairs v. Verez Assurance, Inc., 68 F.3d 922, 926 (5th Cir. 1995)).
3 Remand to a state court was not possible because this case was never filed in state
court. Dismissal would have resulted in a timeliness issue because the Allens originally filed
their case on the last day permitted under the relevant liberative prescription. See La. Civ.
Code Ann. art. 3492.
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the Allens’ claims with prejudice. The court noted, however, that the dismissal
was without prejudice “to the rights of a Chapter 7 trustee to pursue the claims
if the Allens’ bankruptcy case is reopened and converted to a Chapter 7
liquidation.” The district court also denied the Allens’ motion to strike. The
Allens timely appealed the district court’s final judgment and the denial of
their motion to strike. 4
II. STANDARD OF REVIEW
“We review a grant of summary judgment de novo, applying the same
standard as the district court.” Buffalo Marine Servs. Inc. v. United States,
663 F.3d 750, 753 (5th Cir. 2011). “But, because ‘judicial estoppel is an
equitable doctrine, and the decision whether to invoke it [is] within the court’s
discretion, we review for abuse of discretion’ the lower court’s decision to invoke
[this doctrine].” Kane v. Nat’l Union Fire Ins. Co., 535 F.3d 380, 384 (5th Cir.
2008) (quoting Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d
197, 205 (5th Cir. 1999)). “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); accord Love v. Tyson Foods, Inc., 677 F.3d 258, 262 (5th Cir.
2012).
III. JUDICIAL ESTOPPEL
“Judicial estoppel is a common law doctrine that prevents a party from
assuming inconsistent positions in litigation.” Superior Crewboats Inc. v.
4 The district court did not err in denying the motion to strike. The Allens argued that
the supplemental motion for summary judgment should have been struck because Ergocraft
had known of the Allens’ bankruptcy as early as March 28, 2012. However, the district court
“may invoke the [judicial estoppel] doctrine sua sponte” and therefore “the court is not bound
to accept a party’s apparent waiver of the doctrine.” 18 Moore’s Federal Practice § 134.34 (3d
ed. 2015). Thus, the district court did not abuse its discretion in denying the Allens’ motion
to strike. See United States v. Coney, 689 F.3d 365, 379 (5th Cir. 2012) (“We review a district
court's ruling on a motion to strike for abuse of discretion.”).
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Primary P & I Underwriters (In re Superior Crewboats, Inc.), 374 F.3d 330, 334
(5th Cir. 2004); accord 18 Moore’s Federal Practice § 134.30 (3d ed. 2015). The
doctrine’s purpose “is ‘to protect the integrity of the judicial process’, by
‘prevent[ing] parties from playing fast and loose with the courts to suit the
exigencies of self interest.’” In re Coastal Plains, Inc., 179 F.3d at 205 (quoting
Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir. 1988)). “Judicial
estoppel has three elements: (1) The party against whom it is sought has
asserted a legal position that is plainly inconsistent with a prior position; (2) a
court accepted the prior position; and (3) the party did not act inadvertently.”
Flugence v. Axis Surplus Ins. Co. (In re Flugence), 738 F.3d 126, 129 (5th Cir.
2013). We address each of those elements in turn and find that each element
is satisfied in this case.
A. Inconsistent Legal Position
The first element of judicial estoppel requires that a party “assert[] a
legal position that is plainly inconsistent with a prior position.” Id. As we have
previously recognized, “Chapter 13 debtors have a continuing obligation to
disclose post-petition causes of action.” Id. Moreover, “debtors have a duty to
disclose to the bankruptcy court” whether post-confirmation assets are treated
as property of the estate or vested in the debtor. See id. at 130 (noting that
this duty is “notwithstanding uncertainty”). This is because “[w]hether a
particular asset should be available to satisfy creditors is often a contested
issue, and the debtor’s duty to disclose assets—even where he has a colorable
theory for why those assets should be shielded from creditors—allows that
issue to be decided as part of the orderly bankruptcy process.” Id. Here, the
Allens never disclosed the existence of their personal injury suit to the
bankruptcy court, even though they amended the Plan three separate times
after filing the personal injury suit. “Because [the Allens] had an affirmative
duty to disclose [their] personal-injury claim to the bankruptcy court and did
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not do so, [they] impliedly represented that [they] had no such claim.” Id.; see
also In re Superior Crewboats, Inc., 374 F.3d at 335 (“[T]he [debtors’] omission
of the personal injury claim from their mandatory bankruptcy filings is
tantamount to a representation that no such claim existed.”). Thus, “[s]uch
blatant inconsistency readily satisfies the first prong of the judicial estoppel
inquiry.” In re Superior Crewboats, Inc., 374 F.3d at 335.
B. Judicial Acceptance
The second element of judicial estoppel, judicial acceptance, is also
satisfied in this case. The judicial acceptance element “ensures that judicial
estoppel is only applied in situations where the integrity of the judiciary is
jeopardized.” Wells Fargo Bank, N.A. v. Oparaji (In re Oparaji), 698 F.3d 231,
237 (5th Cir. 2012). “Absent judicial acceptance of the inconsistent position,
application of the rule is unwarranted because no risk of inconsistent results
exists.” Id. (quoting Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 599 (6th Cir.
1982)). 5 However, judicial acceptance “does not require a formal judgment;
rather, it only requires ‘that the first court has adopted the positon urged by
the party, either as a preliminary matter or as part of a final disposition.’” In
re Superior Crewboats, Inc., 374 F.3d at 335 (quoting In re Coastal Plains, 179
F.3d at 206)). Accordingly, the Allens’ failure to disclose their personal injury
claim led to the bankruptcy court accepting the inconsistent position that there
was no such claim. See In re Flugence, 738 F.3d at 130 (holding that the
judicial acceptance element was satisfied when “the bankruptcy court accepted
5 In dicta, this court has discussed whether dismissal of a bankruptcy without
discharge constitutes a revocation of acceptance. In re Oparaji, 698 F.3d at 238. However,
“[i]n bankruptcy, case closing is a concept distinct from case dismissal,” Geberegeorgis v.
Gammarino (In re Geberegeorgis), 310 B.R. 61, 65 (B.A.P. 6th Cir. 2004) (citing Armel
Laminates, Inc. v. The Lomas & Nettleton Co. (In re Income Property Builders, Inc.), 699 F.2d
963, 965 (9th Cir. 1982)), and the Allens have failed to raise any revocation of acceptance
argument on appeal, See Rana v. Holder, 654 F.3d 547, 549 n.3 (5th Cir. 2011) (“[The party]
has not raised that argument before this court, so it is waived.”).
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the prior position by omitting any reference to the personal-injury claim in the
modified plan” because “[h]ad the court been aware of the claim, it may well
have altered the plan”). The second element of judicial acceptance is therefore
satisfied.
C. Inadvertence
Finally, the third element of judicial estoppel is met in this case. Judicial
estoppel does not apply if the party acted inadvertently. Jethroe v. Omnova
Solutions, Inc., 412 F.3d 598, 600–01 (5th Cir. 2005). The Allens can establish
inadvertence by proving “either that [they] did not know of the inconsistent
position or that [they] had no motive to conceal it from the court.” Id. at 601.
To prove lack of knowledge, the Allens “must show not that [they were]
unaware that [they] had a duty to disclose [their] claims but that . . . [they
were] unaware of the facts giving rise to them.” In re Flugence, 738 F.3d at
130. Consequently, the “controlling inquiry . . . is the know[ledge] of facts
giving rise to inconsistent positions.” Id. (quoting Jethroe, 412 F.3d at 601 n.4).
The Allens contend that when they filed their original bankruptcy petition in
July 2009, they were unaware of the personal injury claim because the incident
underlying that claim occurred in October 2009. However, the Allens
subsequently amended the Plan several times post-confirmation when they
had “a continuing obligation to disclose post-petition causes of action.” Id. at
129. Moreover, that the Allens “did not know that bankruptcy law required
disclosure . . . is, according to our precedents, irrelevant.” Id. at 131. Because
the Allens knew of the facts underlying the personal injury claim during the
pendency of the bankruptcy proceedings, they cannot satisfy the “lack of
knowledge” element of inadvertence.
A debtor’s failure to disclose assets is also inadvertent if the debtor “has
no motive for their concealment.” In re Coastal Plains, 179 F.3d at 210. To
determine whether a motive existed, the inquiry focuses on whether the Allens
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had a “motive to conceal [their] claims” during the pendency of the bankruptcy
proceedings. See Love, 677 F.3d at 263 (clarifying that the “relevant time
frame for the judicial estoppel analysis” is “at the time [the debtor] failed to
meet his disclosure obligations”). A debtor possesses the requisite motivation
if concealing the claim allows the debtor to “reap a windfall had they been able
to recover on the undisclosed claim without having disclosed it to the creditors.”
In re Superior Crewboats, Inc., 374 F.3d at 336. We have previously noted that
“the motivation sub-element is almost always met if a debtor fails to disclose a
claim or possible claim to the bankruptcy court” because the “potential
financial benefit resulting from the nondisclosure” makes the motivation in
this context self-evident. Love, 677 F.3d at 262 (quoting Thompson v.
Sanderson Farms, Inc., No. 3:04-CV-837-WHB-JCS, 2006 U.S. Dist. LEXIS
48409, at *12–13 (S.D. Miss. May 31, 2006)). By not disclosing their personal
injury claim to the bankruptcy court, the Allens’ motivation for concealment is
self-evident because of the “potential financial benefit resulting from the
nondisclosure.” Id. Moreover, one of the amendments to the Allens’ Plan
expressly provides that the Allens were aware of the duty to disclose claims
that “become known to the debtor after the original schedules and statements
have been filed or . . . arise after such date.” The Allens contend that no
motivation can be inferred because: (1) the bankruptcy proceeding was closed
without a discharge, allowing creditors to continue to pursue their claims, and
(2) the debtors would not “intentionally attempt to defraud creditors of such a
relatively small sum of money.” 6 Both arguments are unpersuasive. As this
6 The Allens also contend that a different standard should apply to determine
indifference because they are not “legally sophisticated parties.” However, this court has not
modified its analysis of judicial estoppel when considering previous appeals involving
Chapter 13 debtors. See, e.g., United States ex rel. Long v. GSDMIdea City, L.L.C., 798 F.3d
265, 272–74 (5th Cir. 2015); In re Flugence, 738 F.3d at 130–31. The Allens have failed to
cite any authority from this court or another court of appeals adopting such an approach.
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circuit has previously explained, the relevant time frame for determining
whether a motivation exists is “at the time [the debtor] failed to meet his
disclosure obligations,” id. at 263, not after a bankruptcy has been closed or
discharged. And the Allens fail to provide any authority supporting their
contention that the size of the undisclosed claim affects our analysis regarding
the existence of a motive to conceal. Indeed, treating smaller claims differently
is contrary to the reasoning underlying the continuing obligation to disclose—
allowing the bankruptcy court to decide which assets should be available to
satisfy creditors “as part of the orderly bankruptcy process.” In re Flugence,
738 F.3d at 130. Thus, the Allens cannot show that their failure to disclose
their suit was inadvertent. See Love, 677 F.3d at 262–63; In re Flugence, 738
F.3d at 131.
D. Equitable Application
Although judicial estoppel can apply to the Allens’ personal injury suit,
the Allens and the State argue that the district court should not have applied
it here because that doctrine leads to an inequitable result. 7 “Because judicial
estoppel is an equitable doctrine, courts may apply it flexibly to achieve
substantial justice.” Reed v. City of Arlington, 650 F.3d 571, 576 (5th Cir.
2011). Indeed, we have recognized that “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.’” Love, 677 F.3d at 261 (alteration in
original) (quoting New Hampshire v. Maine, 532 U.S. 742, 751 (2001)).
Ultimately, “[t]he challenge is to fashion a remedy that does not do inequity by
punishing the innocent.” Reed, 650 F.3d at 576 (quoting An-Tze Cheng v. K&S
7 We generally do not consider arguments raised by the amicus curiae unless those
arguments were raised by a party on appeal. World Wide St. Preachers Fellowship v. Town
of Columbia, 591 F.3d 747, 752 n.3 (5th Cir. 2009).
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Diversified Invs., Inc. (In re An-Tze Cheng), 308 B.R. 448, 459 (B.A.P. 9th Cir.
2004)).
We have recognized that judicial estoppel is appropriate when “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.
However, “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. “Accordingly, where a debtor is judicially estopped from pursuing a
claim he failed to disclose to the bankruptcy court, the trustee, consistent with
Reed, may pursue the claim without any limitation not otherwise imposed by
law.” 8 In re Flugence, 738 F.3d at 132. Such an approach “protect[s] the
integrity of the bankruptcy system by deterring debtors from concealing
assets” while also being “consistent with the core bankruptcy goal of obtaining
a maximum and equitable distribution for creditors.” Reed, 650 F.3d at 577.
Here, the district court expressly dismissed the personal injury claim
without prejudice to the rights of a trustee to pursue the claim, permitting the
trustee to litigate the claim if the Allens’ bankruptcy case is reopened. The
Allens and the State are therefore incorrect insofar as they argue that judicial
estoppel is inequitable because the Allens’ creditors are harmed and that the
State’s “only remaining avenue to seek redress” for its reimbursement claim is
the stipulation entered into with the Allens. We are, of course, in no position
8 While both the Allens and the State focus on the closing of the Allens’ bankruptcy
case without a discharge in distinguishing other authority, this circuit has previously
affirmed a district court’s application of judicial estoppel when a previous bankruptcy case
was closed without discharge. See Jethroe, 412 F.3d at 599. Moreover, allowing the
bankruptcy trustee to pursue the personal injury claim in place of the Allens ensures that
“the rights of creditors to an equitable distribution” are protected. Reed, 650 F.3d at 574.
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to foretell the future outcome if a Chapter 7 trustee pursues the personal injury
claim. But as to the district court’s actions in the present matter, our precedent
clearly establishes that the district court did not abuse its discretion when it
dismissed the Allens’ claims based on judicial estoppel and provided a trustee
with the opportunity to “pursue for the benefit of creditors a judgment or cause
of action that the debtor fails to disclose in bankruptcy.” Reed, 650 F.3d at 573.
IV. CONCLUSION
One clarification to the district court’s judgment is in order. Pursuant to
Reed, the district court permitted a Chapter 7 trustee to pursue the personal
injury claim if the Allens’ bankruptcy case is reopened and converted to a
Chapter 7 liquidation. However, the trustee would likely not be able to pursue
the claims in a separate suit because of the same timeliness problems that
barred the State’s attempt to intervene in the district court. See La. Civ. Code
Ann. art. 3492 (requiring that “delictual actions,” i.e., personal injury actions,
generally be brought within one year from the day of injury). We therefore
modify the district court’s judgment to clarify that the district court may re-
open the present case and substitute a Chapter 7 trustee for the Allens if the
trustee decides to pursue the claim within a reasonable period of time. See
Long, 798 F.3d at 270, 276 (involving an instance where the district court gave
the trustee a week to decide whether to continue pursuing a claim on behalf of
the estate before eventually dismissing the lawsuit). As modified herein, we
AFFIRM the judgment of the district court.
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