BANKRUPTCY BULLETIN
In Bell v. Arneson, 2022 WL 2835068 (D. Minn. July 20, 2022), the United States District Court for the District of Minnesota applied judicial estoppel to prevent a plaintiff from litigating a claim he had intentionally withheld from his bankruptcy case, to his benefit.
The plaintiff in Bell filed a civil lawsuit against two police officers who he alleged used excessive force while arresting him in violation of his Fourth Amendment rights. About one year before the civil lawsuit, the plaintiff filed for bankruptcy. At the time of his bankruptcy filing, the plaintiff declared to the bankruptcy court that he had no lawsuits nor claims against third parties. The bankruptcy case closed in four months. Several months later, and only two months before filing the civil lawsuit, the plaintiff applied to reopen the bankruptcy case to add two personal injury claims that arose before his bankruptcy filing but were not disclosed in the bankruptcy proceedings when the case was open. The bankruptcy case was reopened and remained open for approximately three months beyond the commencement of the civil lawsuit. During that time, the plaintiff never amended his bankruptcy schedules to include the claims in the civil lawsuit. The bankruptcy case, again, closed, and since that time the plaintiff never applied to reopen the bankruptcy case to include the claims asserted in the civil lawsuit.
The defendant police officers moved to dismiss the civil lawsuit, arguing that the plaintiff should be estopped from pursuing his claims against the defendants because he failed to amend his bankruptcy schedules to include those claims. The plaintiff did not oppose the defendants’ motion.
Outlining the judicial estoppel framework, the court in Bell noted that courts consider three factors when determining whether to apply judicial estoppel: (1) whether the party’s later position is clearly inconsistent with a prior position; (2) whether the court in the previous case was persuaded by the party’s prior position; and (3) whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. Courts may find judicial estoppel inappropriate in instances where a party’s prior position was based on inadvertence or mistake.
In Bell, the court agreed with defendants, finding the facts supported all three judicial estoppel factors. First, the court found the plaintiff’s position in the civil lawsuit was clearly inconsistent with his prior position in the bankruptcy court as evidenced by his failure to amend his bankruptcy schedules to include the claims in the civil lawsuit. Second, the court found the bankruptcy court adopted the plaintiff’s representation that he had no claim against the defendants. Third, the court found the plaintiff could have received an unfair advantage because, had he disclosed the civil lawsuit claims to the bankruptcy court, the trustee could have asked the bankruptcy court to order any potential settlement proceeds stemming from the civil lawsuit available to the plaintiff’s unsecured creditors. Finally, the court found the plaintiff’s actions were clearly not inadvertent based on his knowledge regarding amending schedules to disclose claims.
The court concluded the plaintiff was estopped from pursuing the civil lawsuit against the defendants and dismissed the plaintiff’s claims against the defendants with prejudice.
Bell serves as a reminder of the importance of full disclosure in bankruptcy schedules (and, of course, all other court filings), and that, sometimes, nondisclosure itself is a position against which litigants cannot contradict in future legal proceedings.
Co-Editors in Chief
Karl J. Johnson, Taft Stettinius & Hollister LLP
David M. Tanabe, Winthrop & Weinstine, P.A.