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Standing and Judicial Estoppel in Litigation Collateral to Chapter 13 case Determined by Debtor’s Intent and Whether Bankruptcy Estate Stands to Benefit

By Karl Johnson posted 02-18-2022 21:33


In Hughes v. Wisconsin Central Ltd et al., 2021 WL 5042101 (D. Minn. Oct. 29, 2021), U.S. District Court Judge Donovan W. Frank denied defendants Wisconsin Central Ltd., Portaco, Inc. and Racine Railroad Products, Inc.’s motion for summary judgment and held that it was premature to determine whether plaintiff had standing to pursue claims or should be judicially estopped.

The plaintiff filed a voluntary petition under chapter 13 in 2012. In 2018, the bankruptcy court closed the plaintiff’s chapter 13 bankruptcy case. A year after receiving a chapter 13 discharge, the plaintiff brought various federal and state-law claims against defendants for injuries that resulted from accidents that occurred in 2016 and 2017 while he was employed at Wisconsin Central Ltd. Before the case was closed, plaintiff did not amend his schedules to disclose his claims against defendants. The plaintiff reopened his Chapter 13 case in August 2020 and amended his Schedule B to disclose the claims against defendants.

In their motions for summary judgment, defendants argued that plaintiff lacked standing to pursue a claim that belongs to the bankruptcy estate and that he should be judicially estopped from taking a position that is inconsistent with the position in his bankruptcy case.

The court noted that although the trustee generally is the only one with authority to pursue claims that belong to the bankruptcy estate, a chapter 13 debtor may have standing to bring a suit on behalf of the bankruptcy estate. The court rejected the defendants’ argument that the bankruptcy estate could not benefit after the chapter 13 plan was completed because it might be possible for the plan to be modified. Therefore, it was too early to know if the claim was being pursued for the benefit of the estate.

While not citing Stallings v. Hussman, 447 F.3d 1041, 1047 (8th Cir. 2006), the court implicitly applied its three factor test to determine whether to apply judicial estoppel. Because the case had been reopened and the schedules were amended, it was not clear that the party took inconsistent positions. Second, the court held that the record did not indicate that the plaintiff acted with intent to mislead or manipulate the judicial system (possibly because the bankruptcy estate might benefit). Third, because the interests of creditors may still be implicated, it was not clear that there would be unfair detriment to the defendants if not estopped.

Based on the foregoing, the Court denied defendants’ motions for summary judgment without prejudice, stayed the case so the parties could seek clarification on whether the plaintiff’s claims against defendants would benefit his bankruptcy estate, and instructed the parties to update the Court on said issue.

Co-Editors in Chief
Karl J. JohnsonTaft Stettinius & Hollister LLP
David M. TanabeWinthrop & Weinstine, P.A.