Judicial Estoppel Won't Automatically Preclude a Lawsuit Omitted from Bankruptcy Schedules

Legal Alert

September 25, 2017

Courts regularly apply the equitable doctrine of judicial estoppel to justify the dismissal of a lawsuit brought by a person that had filed for bankruptcy. The doctrine generally has worked as follows. A party files for bankruptcy. As a part of that process, the debtor must identify his assets. Those assets could include a potential lawsuit (an automobile accident claim, a discrimination claim). However, the bankrupt party fails to include that potential claim on his list of assets. The party completes the bankruptcy process. The party then files a lawsuit asserting the claim that he failed to identify in his bankruptcy schedules. The court dismisses the case, invoking the doctrine of judicial estoppel. In effect, the court holds that having told the bankruptcy court he has no claim, he cannot now come into court and contradict his prior representation.

In Slater v. United States Steel Corp., Case No. 12-15548 (decided September 18, 2017), the United States Court of Appeals for the Eleventh Circuit sitting en banc took a fresh look at the doctrine of judicial estoppel.

Applying the doctrine of judicial estoppel required a finding that the plaintiff’s taking of inconsistent positions was “calculated to make a mockery of the judicial system.” Opinion, p. 13. In several cases, the Court found that the mere fact that a claim had been omitted from the debtor’s bankruptcy schedules was itself sufficient to justify an inference that the debtor intended to deceive the court. Opinion, pp. 16-22.

In Slater, the en banc Court retreated from its position that the application of the doctrine of judicial estoppel was almost automatic. The Eleventh Circuit concluded that in finding whether inconsistent statements were calculated to make a mockery of the judicial system, a court should look at a variety of facts and circumstances that reflected the debtor’s intent and state of mind. The Court held that it was not permitted to infer that the plaintiff had intended to make a mockery of the judicial system simply because he failed to disclose his civil claim in bankruptcy. Opinion, p. 24.

The Court’s approach makes the application of the doctrine of judicial estoppel more fact-intensive. This potentially makes more difficult the application of the doctrine of judicial estoppel and likely will lead to many more cases surviving the application of the doctrine.

The opinion is available at http://media.ca11.uscourts.gov/opinions/pub/files/201215548.enb.pdf