Zwemer v. Production Credit Ass'n of Midlands

MACY, Justice.

Appellants Robert Zwemer and Sharia Zwemer appeal from a summary judgment denying their lender liability claim against Appellee Production Credit Association of Midlands (PCAM). The district court concluded that the Zwemers were judicially estopped from asserting their claim because they failed to properly disclose the claim in a previously filed bankruptcy case.

We affirm.

The Zwemers raise the following issues:

I. The District Court err[ ][ ]ed in granting summary judgment in that there were unresolved material issues of fact pertaining to the issue of judicial estoppel.

II. The District Court err[][]ed as a matter of law and fact that the Appellants were judicially estopped to pursue their counterclaim by failing to properly apply or consider all elements essential to estoppel.

PCAM filed a complaint alleging that the Zwemers had defaulted in the payment of loans made to them and praying, inter alia, for a judgment for the accelerated amount of the loans. The Zwemers filed an answer and a counterclaim, asserting that PCAM breached the parties’ loan agreement, breached its fiduciary duty to the Zwemers, and negligently processed the loans.

The Zwemers subsequently filed a chapter 11 bankruptcy petition. During the pendency of their bankruptcy case, the Zwemers listed their personal property on a B-2 schedule, but they failed to indicate on the schedule that they had filed a counterclaim against PCAM. The schedule specifically required the disclosure of “[cjontin-gent and unliquidated claims of every nature, including counterclaims of the debtor (give estimated value of each).” The Zwemers also failed to mention their eoun-terclaim against PCAM in their bankruptcy disclosure statement. The federal bankruptcy court modified the automatic stay, allowing PCAM to pursue its claim, and approved the Zwemers' reorganization plan.

PCAM filed an amended complaint alleging that the Zwemers had defaulted in the payment of their loans, that the Zwemers committed fraud during their bankruptcy reorganization,¹ and that the Zwemers were judicially and equitably estopped from asserting their counterclaim. The Zwem-ers answered PCAM’s amended complaint, generally denying its allegations, and asserted as affirmative defenses that PCAM failed to state a claim upon which relief could be granted, that PCAM was estopped from claiming that the Zwemers could not raise their counterclaim, and that the district court did not have jurisdiction over bankruptcy matters. The Zwemers based their estoppel’argument on the contention that PCAM knew of the Zwemers’ intention to pursue their counterclaim. PCAM filed a motion to dismiss the Zwemers’ counterclaim pursuant to W.R.C.P. 12(b)(6) and (c), claiming that the Zwemers were judicially estopped from asserting the claim because they failed to properly disclose its existence during the pendency of the bankruptcy case.

The district court converted PCAM’s motion to a motion for summary judgment and granted.a summary judgment in favor of PCAM. In its decision letter, the court stated that the Zwemers were judicially estopped from asserting their counterclaim because they maintained “(1) two positions contrary to each other (2) both of which [were] asserted by the same party (3) in different judicial proceedings.” This appeal followed.

A district court’s decision to grant a summary judgment is proper “if no genuine issue of material fact exists and if the prevailing party is entitled to a judgment as a matter of law.” Ware v. Converse County School District No. 2, 789 P.2d 872, 874 (Wyo.1990). See also St. Paul Fire and Marine Insurance Co. v. Albany County School District No. 1, 763 P.2d 1255 (Wyo.1988); and Teton Plumbing and Heating, Inc. v. Board of Trustees, Laramie County School District Number One, 763 P.2d 843 (Wyo.1988). The question in this case is whether the Zwemers were judicially estopped from asserting a counterclaim against PCAM because they did not adequately disclose their intent to pursue the claim during the pendency of their bankruptcy case.

This Court has previously applied the doctrine of judicial estoppel. Anderson v. Sno-King Village Association, Inc., 745 P.2d 540 (Wyo.1987), appeal dismissed and cert. denied — U.S. -, 109 S.Ct. 29, 102 L.Ed.2d 9 (1988); Texas West Oil and Gas Corporation v. First Interstate Bank of Casper, 743 P.2d 857 (Wyo.1987), reconfirmed 749 P.2d 278 (Wyo.1988); AM-FAC Mechanical Supply Co. v. Federer, 645 P.2d 73 (Wyo.1982); Allen v. Allen, 550 P.2d 1137 (Wyo.1976). Those cases established the principle that a party is judicially estopped from asserting inconsistent positions in different judicial proceedings. We stated in Allen, 550 P.2d at 1142:

[J]udicial estoppel[ ] is sometimes referred to as a doctrine which estops a party [from] play[ing] fast and loose with the courts or to trifle with judicial proceedings. It is an expression of the maxim that one cannot blow hot and cold in the same breath.

We must now determine whether the Zwemers maintained a position during the pendency of their bankruptcy case which was inconsistent with the counterclaim they asserted in the district court proceedings. The parties do not dispute that the Zwemers failed to mention their counterclaim in their asset schedule and disclosure statement. 11 U.S.C. § 521(1) (1988) requires a person² or municipality who has filed a bankruptcy petition to “file a list of creditors, and unless the court orders otherwise, a schedule of assets and liabilities, a schedule of current income and current expenditures, and a statement of the debt- or’s financial affairs.” (Emphasis added.) In addition, 11 U.S.C. § 1125(b) (1988) requires a debtor to file a disclosure statement containing adequate information. Adequate information is defined as

information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor’s books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan * * *.

11 U.S.C. § 1125(a)(1) (1988).

In two recent cases, the United States Court of Appeals for the Third Circuit and the United States District Court for the Northern District of Iowa addressed situations in which bankruptcy debtors failed to meet the disclosure requirements of 11 U.S.C. §§ 521 and 1125 (1988). In addition, both debtors in those cases failed to report potential claims in the proposed reorganization plans. Both courts held that the debtors were estopped from asserting lender liability claims after the bankruptcy court confirmed their reorganization plans because the debtors failed to adequately disclose the existence of those claims during the pendency of their bankruptcy cases.³ Hoffman v. First National Bank of Akron, Iowa, 99 B.R. 929 (N.D. Iowa 1989); Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir.), cert. denied — U.S. -, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988). The Hoffman court stated that the

Debtor had a duty to amend his schedules to reflect [the] claim and to disclose the existence of the potential cause of action to creditors in his plan and disclosure statement.

Hoffman, 99 B.R. at 933.

The Zwemers contend that statements in a stipulation and in the Zwemers’ proposed reorganization plan provided adequate disclosure of their intent to pursue a counterclaim. In its order modifying the automatic stay, the bankruptcy court incorporated a stipulation which had been signed by both parties. The stipulation said, “disputes between [PCAM] and [the Zwemers] regarding personal property described by the security agreement may be litigated in State District Court without violation of the automatic stay.” The Zwemers’ second amended reorganization plan stated that the district court would resolve all disputes between PCAM and the Zwemers. Those statements did not disclose the existence of the Zwemers’ counterclaim or their intent to pursue the claim. The Zwemers also argue that they should not be estopped from asserting their counterclaim because they filed it before they initiated bankruptcy proceedings and because their attorney conveyed their intent to pursue the claim during the bankruptcy proceedings.

Irrespective of the Zwemers’ contentions, the fact remains that the Zwemers did not meet the disclosure requirements of §§ 521(1) and 1125(b), and they did not mention the claim in their proposed reorganization plan. Disclosure was vital not only to PCAM but also to the Zwemers’ other creditors and the bankruptcy court. Oneida Motor Freight, Inc., 848 F.2d 414. Proper disclosure of the existence of the Zwemers’ counterclaim could have had a significant effect on the decision by the Zwemers’ creditors to accept or reject the reorganization plan.

The Zwemers’ failure to reveal the existence of their counterclaim in their schedule of assets, disclosure statement, or proposed reorganization plan established a position which was inconsistent with the position subsequently asserted in the district court. Consequently, we hold that the Zwemers are judicially estopped from asserting their counterclaim.

Affirmed.

1 . PCAM based its fraud claim on the allegation that the Zwemers represented they would not pursue their counterclaim after the stay was lifted.

2 . 11 U.S.C. § 101(35) (1988) defines a person as an "individual, partnership, and corporation, but does not include governmental unit.”

3 . Both courts also relied upon the doctrine of equitable estoppel. In Hoffman v. First National Bank of Akron, Iowa, 99 B.R. 929, 935 (N.D. Iowa 1989), the court stated:

The difference between judicial estoppel and equitable estoppel is the focus of the two doctrines. "Judicial estoppel looks to the connection between the litigant and the judicial system while equitable estoppel focuses on the relationship between the parties to prior litigation.” Oneida Motor Freight, [Inc. v. United Jersey Bank,] 848 F.2d 414, 419 (3rd Cir.) (citations omitted), cert. denied, — U.S. -, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988). “Judicial estoppel lies when a party, after assuming a certain position in a legal proceeding, attempts to assume a contrary position. It applies whether the position first assumed has been successful or not.” Galerie Des Monnaies [of Geneva, Ltd. v. Deutsche Bank, A.G., New York Branch], 55 B.R. [253,] 259 [ (Bkrtcy.S.D.N.Y.1985) ] (citations omitted). "Judicial estoppel is invoked in these circumstances to prevent the party [from] 'playing fast and loose' with the courts, and to protect the essential integrity of the judicial process.” Galerie Des Monnaies [of Geneva, Ltd. v. Deutsche Bank, A.G., New York Branch], 62 B.R. [224,] 226 [(S.D.N.Y.1986)] (citations omitted).