Page 34 - John Hundley 2013

The reference to inconsistent positions was an apparent reference to the requirement in the law of
malpractice that a plaintiff generally has to prove “the case within the case” – in the case at bar, that
resistance to the first suit would have prevented a judgment from being obtained against the company.
See generally Sharp Thinking No. 35 (July 2010).

The court rejected an argument that judicial estoppel should not be applied because it would bar
innocent third-party creditors from sharing in the recovery. Noting that there were some additional
creditors who would share in a recovery by the bankruptcy trustee, the court countered that that trustee
was prepared to terminate the bankruptcy as a no-asset estate until the default judgment creditor had
stepped forward and financed the malpractice suit, so the additional creditors would not be prejudiced.

The Seventh Circuit expressly treated as only “guidelines” the traditional tests of judicial
estoppel – whether the party's later position is clearly inconsistent with its earlier position; whether the
party succeeded in persuading a court to accept its position, so that an inconsistent position in the later
proceeding would create a perception that one of the courts was misled; and whether the party seeking to
assert the inconsistent position would derive an unfair advantage or impose an unfair detriment on the
opponent. The court appeared to apply only federal law, and whether its approach would impact the
arguably more stringent requirements when Illinois state law applies is unclear.

The significance of this last point was brought into sharp relief recently by Holland v.
Schwan's Home Serv., Inc., 2013 IL App (5th) 110560. There the defendant attempted to invoke
judicial estoppel because the plaintiff had not disclosed his wrongful discharge claim in his Chapter 13
bankruptcy. However, that claim had not arisen when the bankruptcy had been filed, and the debtor had
not filed any amended schedules or other papers failing to disclose it after it did arise.

“Holland's failure to schedule his post-petition claim against Schwan's as an asset of the bankruptcy
estate does not constitute an inconsistent position given under oath,” the court said. “[A]lthough he did
not properly disclose the retaliatory discharge claim, he did not take two inconsistent positions under oath.
. . . '[T]he doctrine of judicial estoppel is ground[ed] in the sanctity of the oath.'”

In addition, the court said it would not apply judicial estoppel because the failure to disclose in the
bankruptcy court was “inadvertent” and because the debtor had not gained an advantage by the non-
disclosure (the bankruptcy had been dismissed for failure to make required payments under the confirmed
plan). The court treated the application of judicial estoppel as one of discretion and distinguished Berge v.
Mader, 2011 IL App (1st) 103778 (see Sharp Thinking No. 57 (Feb. 2012)) on the
grounds that that case involved the failure to disclose in the initial bankruptcy petition
and a discretionary application of the judicial estoppel doctrine, while Holland involved
review of a trial court's discretionary non-application of that doctrine.

Not all courts would agree with Holland. As there is a duty to disclose the post-
petition asset, some would hold that the failure to do so was the functional equivalent of
a false filing. The distinction between applying and refusing to apply the doctrine seems
suspect, as does the attempt to limit Berge to initial schedules.
John\Sharp Thinking\#97.doc

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