Page 3 - John Hundley 2013

Bankruptcy Law Roundup

Sharp Thinking

No. 81 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. January 2013

Judicial Estoppel Doctrine Continues To Evolve

The doctrine of judicial estoppel, which has become one of the most potent weapons against
bankruptcy fraud (see Sharp Thinking No. 57 (February 2012), continues to evolve in the nation's federal
courts. In some ways, the evolution is inconsistent with the per se approach seemingly taken in Berge v.
Mader, 2011 IL App (1st) 103778, discussed in No. 57.

Trustees Generally Not Estopped: A consensus appears to be emerging that the doctrine
generally does not apply to bankruptcy trustees. See Stephenson v. Malloy, 700 F.3d 265 (6th Cir. 2012);
see also No. 57. This issue arises when the debtor fails to disclose a cause of action as an asset in the
bankruptcy case, but the trustee somehow learns of it and pursues the action on behalf of the creditors. A
majority of courts are refusing to impute the debtor's omission to the bankruptcy trustee.

Continuing Disclosure Duty Held: Most invokings of the doctrine occur after the debtor files
schedules which were inaccurate when filed, but one recent case holds the doctrine can apply, at least in
the Chapter 13 context, when the initial disclosures are accurate. See In re Adams, 481 B.R. 854 (Bankr.
N.D. Miss. 2012). The issue arose in the Chapter 13 context because in Chapter 13 property of the estate
includes property which the debtor acquires after the commencement of the case.
11 U.S.C. § 1306(a)(1). In Adams the personal injury/wrongful death at issue
occurred after the bankruptcy was filed, and hence the original schedules were
correct in not disclosing the claim. The court, however, held that there was a
“continuing duty throughout the pendency of her bankruptcy case to disclose the
state law cause of action.” Based upon the failure to make disclosure in
accordance with the continuing duty, the court held judicial estoppel to apply and
refused to allow the debtor to reopen the case to disclose the asset after the
bankruptcy had been dismissed. (As to reopenings in general, see also Sharp
Thinking No. 57). For an arguably similar case in the Chapter 11 context, see Guay v. Burack, 677 F.3d
10 (1st Cir. 2012).

Also invoking the “continuing duty” doctrine was Love v. Tyson Foods, Inc., 677 F.3d 258 (5th Cir.
2012), albeit in arguable dicta. (In Love, the alleged civil rights violation occurred prior to the Chapter 13
filing, but the right-to-sue letter wasn’t received until after.)

Estoppel From Disclosure: However, the doctrine is not limited to the debtor's omissions from
her bankruptcy filings – it also can arise from her affirmative disclosures. In In re Rehman, 479 B.R. 238
(Bankr. D. Mass. 2012), the debtor had scheduled 13 creditors as creditors on her bankruptcy schedules,
but then sought to dispute that capacity after they filed proofs of claim to which she objected. Invoking
judicial estoppel based on her disclosures, the court rejected her objections to the claims.

Doctrine Flexibility Evolves: Continued evolution of the doctrine in federal courts also reveals
a flexibility in its application which is in some ways inconsistent with the approach taken in Berge and may
lead to further evolution in state courts as well. First, the 7th Circuit has reiterated its view that the

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
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