In Sandra Slater v. United States Steel Corporation, the Eleventh Circuit Court of Appeals recently overturned its own precedent in regard to the standard for determining when judicial estoppel may be applied when a bankruptcy debtor fails to disclose a civil claim in their bankruptcy petition. (No. 12-15548 (11th Cir. 2017))
Slater Case Facts
Saundra Slater (“Slater”) filed for bankruptcy protection twenty-one months after filing an employment discrimination suit in federal district court against her previous employer, U.S. Steel Corporation (“U.S. Steel”). (Id. 2) Slater failed to list the pending federal civil action in her bankruptcy schedules.
A debtor has a duty to disclose any pending civil claims in their bankruptcy petition because a civil claim is an asset as it may lead to the recovery of money. In a bankruptcy proceeding this recovery, if not otherwise exempt, may be distributed to creditors.
U.S. Steel moved for summary judgment in Steel’s employment discrimination case on the ground that she failed to disclose her civil claim in her bankruptcy proceeding. (Id. 6) The district court granted U.S. Steel’s motion.
Judicial Estoppel Defined
Judicial estoppel is an equitable doctrine that “precludes a party from asserting a … position that contradicts or is inconsistent with a prior position taken by the same party.” 18 James Wm. Moore et al., Moore’s Federal Practice ¶ 131.13[a] (3d ed. 2015), see Slater vs. the United States Steel Corporation, 2) When judicial estoppel is applied it bars the legal claim with the inconsistency from continuing forward.
The doctrine is “intended to protect courts against parties who seek to manipulate the judicial process by changing their legal positions to suit the exigencies of the moment.” (Slater, 2) In omitting the civil case from her bankruptcy schedules, Slater “effectively takes inconsistent positions in the two judicial proceedings by asserting in the civil lawsuit that [s]he has a claim against the defendant while denying under oath in the bankruptcy proceeding that the claim exists.” (Id.)
Eleventh Circuit Precedent
In the case at bar, the Eleventh Circuit granted an en banc review to consider its precedent.
Previous cases endorsed a rule that when a debtor fails to disclose a legal claim from her bankruptcy, even if the omission is inadvertent, she has taken an “inconsistent position” and judicial estoppel is appropriate. The mere fact of the nondisclosure was considered sufficient for the district court to apply judicial estoppel to bar the plaintiff’s (debtor’s) claim, “even if the plaintiff corrected his bankruptcy disclosures after the omission was called to his attention and the bankruptcy court allowed the correction without penalty. (Id.)
The Court overruled its “prior precedent approving the inference that a plaintiff intended to make a mockery of the judicial system solely because he failed to disclose his civil claim in his bankruptcy.” (Id. 33) (overruling portions of Barger v. The city of Cartersville, 348 F.3d 1289 (11th Cir. 2003) and Burnes v. Pemco Aeroplex, Inc., 290 F.3d 1282 (11th Cir. 2002)) In Slater, the Court proffered the proper standard for when judicial estoppel may be applied.
The Court held that “when determining whether a plaintiff who failed to disclose a civil lawsuit in bankruptcy filings intended to make a mockery of the judicial system, a district court should consider all the facts and circumstances of the case.” (Id. 3). Factors the district courts should consider include the plaintiff’s level of sophistication, her explanation for the omission, whether the disclosures were later corrected, and any action taken by the bankruptcy court concerning the nondisclosure. (Id.)
The Court remanded the appeal to the Eleventh Circuit panel to consider whether the district court abused its discretion in granting U.S. Steel’s motion for summary judgment in light of this new standard for determining when judicial estoppel may be applied. (Id. 33)
There is a split among the circuit courts on this issue. The Eleventh Circuit ruled in favor of the analysis and approach of the Sixth, Seventh, and Ninth Circuits. Given the circuit split, this issue on when it is proper for a district court to apply Judicial Estoppel in a civil case when a bankruptcy debtor failed to disclose the case in her bankruptcy petition is perhaps ripe for review by the U.S. Supreme Court.
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