John A. Urbick, V The Spencer Law Firm, Llc

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
JOHN A. URBICK, a single man,
No. 74132-2-1
Appellant,
DIVISION ONE
THE SPENCER LAW FIRM, LLC, a PUBLISHED OPINION
Washington limited liability company;
JOHN R. SPENCER and JANE DOE
CO
SPENCER, and the marital community en
composed thereof,
Respondents,
PAMELA P. FOLEY and JOHN DOE
FOLEY, and the marital community
thereof,
FILED: February 1,2016
Defendants.
Leach, J. — Courts apply the equitable doctrine of judicial estoppel to
protect the integrity of the judicial process by precluding a party from gaining an
advantage by asserting one position in a court proceeding and later seeking an
advantage by taking a clearly inconsistent position. Here, the appellant-debtor
knew all of the facts that gave rise to his potential claim of legal malpractice at
the time he filed for bankruptcy, yet he failed to disclose it until almost three
years after receiving a discharge from the bankruptcy court. While judicial
estoppel generally does not apply to the bankruptcy trustee, here no one asked
NO. 74132-2-1/2
the trial court to substitute the bankruptcy trustee as the real party in interest.
The trial court did not abuse its discretion by applying the doctrine of judicial
estoppel to bar this legal malpractice claim. We affirm the trial court.
FACTS
On January 8, 2013, John Urbick filed a complaint against the Spencer
Law Firm for professional negligence and violations of the Consumer Protection
Act, chapter 19.86 RCW. He claimed Spencer failed to provide adequate
representation in connection with his financial difficulties, particularly his
delinquencies in a loan with Prime Pacific Bank for an auto repair shop he
purchased in 2007. Urbick pledged various rental properties to secure this loan.
In May 2009, motivated by Prime Pacific's threat to lock him outofthe auto repair
shop, Urbick hired the Spencer Law Firm to help with his financial problems.
Shortly after hiring Spencer, Urbick learned that Spencer went to Alaska for
several months. Spencer's associate met with Urbick. Spencer's complaint
alleges that the associate lacked the experience and skill needed to handle his
financial problems.
On December 7, 2009, Prime Pacific Bank sent Urbick a notice of
foreclosure. Urbick's loan with Prime Pacific was $35,926 in arrears with costs
totaling an additional $9,000. In January 2010, Spencer told Urbick that he
wanted to refer him to another attorney.
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About three months later, on April 13, 2010, Urbick, represented by a
different law firm, filed bankruptcy. Urbick did not list his potential claim against
Spencer on his asset schedules or otherwise disclose it in his bankruptcy
pleadings. In May 2010, Urbick amended his bankruptcy schedules but again did
not include this potential claim. Urbick received a bankruptcy discharge on July
27, 2010.
In November 2012, Urbick reopened his bankruptcy to list the possible
claim. Urbick filed amendments to his bankruptcy schedules on December 13,
2012. In January 2013, he filed suit against Spencer in superiorcourt.
Urbick's complaint "reserve[d] the right to substitute the Trustee in
Bankruptcy as the real party in interest, as that issue has yet to be determined."
On July 30, 2014, an ex parte order in the bankruptcy case authorized the then
trustee, Kathryn Ellis, to employ Urbick's counsel.
On August 29, 2014, Spencer filed a motion for summary judgment
dismissal. Urbick did not move to substitute or join the trustee as a real party in
interest. Nor did the trustee ever move to intervene. The trial court determined
that judicial estoppel barred Urbick from bringing this action and dismissed his
complaint.
Urbick moved for reconsideration and submitted the bankruptcy trustee's
declaration. It described her as the real party in interest who should be
NO. 74132-2-1/4
substituted as the plaintiff. Neither Urbick nor the trustee filed any motion to
substitute the trustee. The trial court denied the motion for reconsideration.
Urbick appeals.
ANALYSIS
This court reviews summary judgment orders de novo, affirming only if the
record shows no genuine issues of material fact exist, viewing that record in the
light most favorable to the nonmoving party.1 But this court reviews a trial court's
decision applying the judicial estoppel doctrine for abuse of discretion.2 A trial
court abuses its discretion when it bases its decision on untenable or
unreasonable grounds.3
Judicial estoppel is an equitable doctrine intended to protect the integrity
of the judicial process by preventing a party from gaining an advantage by
asserting one position in a court proceeding and later seeking an advantage by
taking a clearly inconsistent position.4
On summary judgment, a party can ask the trial court to bar claims based
on an inconsistent position taken in an earlier proceeding under the doctrine of
judicial estoppel. The failure to disclose a cause of action in a bankruptcy
1 Cunningham v. Reliable Concrete Pumping. Inc., 126 Wash. App. 222,
226-27, 108 P.3d 147 (2005).
2 Arkison v. Ethan Allen. Inc., 160 Wash. 2d 535, 538, 160 P.3d 13 (2007);
Harris v. Fortin, 183 Wash. App. 522, 526-27, 333 P.3d 556 (2014).
3 Harris, 183 Wash. App. at 527.
4 Arkison, 160 Wash. 2d at 538.
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NO. 74132-2-1/5
schedule constitutes an inconsistent prior position if the debtor later seeks
recovery from that cause of action.5 Schedules, amendments, and the meeting
of the creditors all provide the debtor an opportunity to disclose assets and
liabilities. A debtor makes the statements in these pleadings and at this meeting
under penalty of perjury. If the court grants a discharge based on them, the court
accepts them as the debtor's position for purposes of judicial estoppel.6
To defeat summary judgment, the nonmoving party must present evidence
raising an issue of fact about one of the factors guiding a court's application of
judicial estoppel or show that the trial court abused its discretion when applying
the doctrine.
In Arkison v. Ethan Allen, Inc.,7 our Supreme Court set forth three
fundamental factors to guide a court's application of judicial estoppel:
(1) whether "a party's later position" is "clearly inconsistent with its
earlier position"; (2) whether "judicial acceptance of an inconsistent
position in a later proceeding would create the perception that
either the first or the second court was misled"; and (3) "whether
the party seeking to assert an inconsistent position would derive an
unfair advantage or impose an unfair detriment on the opposing
party if not estopped."
5 Bartlev-Williams v. Kendall, 134 Wash. App. 95, 98-99, 138 P.3d 1103
(2006).
6 Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 784 (9th Cir.
2001).
7 160 Wash. 2d 535, 538-39, 112 P.3d 13 (2007) (internal quotation marks
omitted) (quoting New Hampshire v. Maine, 532 U.S. 742, 750-51, 121 S. Ct.
1808, 149 L. Ed. 2d 968 (2001)).
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NO. 74132-2-1/6
Washington courts have consistently held that a debtor's failure to disclose a
potential claim or other asset in a bankruptcy proceeding bars the debtor from
later asserting the claim or seeking recovery of the asset after discharge. Even
when a debtor lists a claim but asserts that it has no value, the doctrine bars the
debtor from bringing a later suit to recover that claim.8
"A bankruptcy debtor has an affirmative duty under the bankruptcy code
'to disclose all assets, including contingent and unliquidated claims.'"9 The
debtor obtains an unfair advantage by obtaining a discharge without giving the
creditors a fair opportunity to lay claim to the hidden assets.10 The doctrine
protects the integrity of the bankruptcy courts11 and prevents parties from hiding
causes of actions during bankruptcy proceedings, obtaining a "valuable benefit in
the discharge of. . . debts," and then asserting a claim in a different forum to
win.12 Courts apply judicial estoppel at their own discretion, determining on a
case-by-case basis if applying the doctrine is appropriate.13
8 Harris, 183 Wash. App. at 529-30.
9 Arkison, 160 Wash. 2d at 539 n.1 (internal quotation marks omitted)
(quoting Cunningham, 126 Wash. App. at 229-30).
10 Ah Quin v. County of Kauai Dep't of Transp., 733 F.3d 267, 271 (9th Cir.
2013).
11 In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999).
™ Cannon-Stokes v. Potter, 453 F.3d 446, 447-48 (7th Cir. 2006) (citing
six appellate courts holding "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 Pavless Wholesale Distributors,
Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570 (1st Cir. 1993); Krvstal Cadillac-
Oldsmobile GMC Truck, Inc. v. General Motors Corp., 337 F.3d 314 (3d Cir.
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NO. 74132-2-1/7
Urbick argues that judicial estoppel should not bar his claim both because
he amended his bankruptcy schedules and the trustee employed his counsel to
pursue Urbick's claim. He further contends that he is the appropriate party in the
action because he would be entitled to any surplus over and above what he
owed his creditors.
Urbick cites several cases from other jurisdictions to support his position
that his reopening of the bankruptcy case overcomes judicial estoppel. But none
of those cases help him. In Jaeger v. Clear Wing Productions, Inc.,14 the federal
district court found genuine issues of material fact existed on whether Jaeger's
failure to disclose was calculated or inadvertent. But, as this court noted in
Cunningham v. Reliable Concrete Pumping, Inc.,15 failure to list an asset is
"'"inadvertent" only when, in general, the debtor either lacks knowledge of the
undisclosed claims or has no motive for their concealment.'" Here, Urbick knew
all the facts supporting the undisclosed claim.
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).").
13 Arp v. Rilev. No. 72613-7-1, 2015 WL 9461609, at *5 (Wash. Ct. App.
Dec. 28,2015).
14 465 F. Supp. 2d 879, 882 (S.D. III. 2006).
15 126 Wn. App 222, 234, 108 P.3d 147 (2005) (internal quotation marks
omitted) (quoting Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1287 (11th Cir.
2002)).
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NO. 74132-2-1/8
Nor does Old Republic Insurance Co. v. Farmer16 support Urbick's
position. Unlike here, the claim in Old Republic was not an asset of the
bankruptcy estate because it did not arise until after plan confirmation in a
chapter 13 bankruptcy proceeding.
Judicial estoppel usually does not apply when the bankruptcy trustee has
been substituted as the real party in interest.17 In this circumstance, the claim
belongs to the trustee, and therefore the "debtor has no interest left to pursue
once the bankruptcy trustee has been substituted."18 Thus, no party has
asserted an inconsistent position because the debtor has no position in the latter
lawsuit.19
Urbick asserts that the trustee's declarations sufficiently established her
as the real party in interest. But neither Urbick nor the trustee ever filed a motion
to make the trustee the real party in interest. Although the debtor's complaint
alluded to the trustee as a possible intervenor, no one ever did anything to
accomplish that. In fact, quite the opposite occurred. Urbick obtained an ex
parte order to reopen the bankruptcy case in November of 2012. Eight months
16 324 B.R. 918, 922 (M.D. Ga. 2005).
17 Miller v.Campbell, 164 Wash. 2d 529, 542, 192 P.3d 352 (2008).
18 Miller, 164 Wash. 2d at 542.
19 Miller, 164 Wash. 2d at 542.
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NO. 74132-2-1/9
later, the parties filed a confirmation of joinder in which they represented to the
court that no additional parties would be joined.20
A year later, Urbick obtained an ex parte order authorizing an appointment
of special counsel for the trustee. That order authorized the trustee to employ
Urbick's counsel "as special counsel for the Trustee with respect to the
prosecution of the debtor's malpractice claims."
In opposition to the summary judgment proceeding, Urbick submitted a
declaration of Kathryn Ellis, dated October 14, 2014. In that declaration, Ellis
stated that neither she nor any creditor objected to the amended schedules that
included "a potential malpractice action against former attorney." The declaration
also stated that Urbick would receive any surplus proceeds left after payment of
all costs of administration and creditor claims. Ellis also stated that the claim
might result in an amount in excess of the creditor claims and costs. Yet again,
no motion to substitute the trustee as real party in interest occurred. Indeed, at
oral argument, Urbick's counsel admitted that the trustee was not yet a party.
Only after the court dismissed the lawsuit did Urbick submit the second
declaration of Ellis supporting his motion for reconsideration. In that second
declaration, Ellis stated that she was the real party in interest and should be
20 Pierce County Local Rule 19(b) provides that no additional parties may
be joined and no additional claims or defenses may be raised after the date
designated in the case schedule.
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NO. 74132-2-1/10
substituted as the plaintiff. Yet no motion was ever filed. The trial court denied
the motion for reconsideration without argument or response from the defendant.
Conclusion
Here, because Urbick benefited from the asserted inconsistent claims
accepted by the bankruptcy court, the trial court did not abuse its discretion in
determining that judicial estoppel barred his claim. We affirm.
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WE CONCUR:
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