The Eleventh Circuit is following in the footsteps of the Fifth Circuit by heading toward an en banc rehearing to overrule circuit precedent so trustees and creditors will not be punished for the misdeeds of debtors.
The case involved a woman who initiated an employment discrimination suit two years before filing a chapter 7. The employer learned that the plaintiff was in bankruptcy and in substance moved to dismiss. The debtor modified her schedules to list the claim as an asset, and the chapter 7 trustee retained the debtor’s litigation counsel as special counsel to pursue the suit on behalf of the estate. The debtor then converted her case to chapter 13 and confirmed a plan.
Invoking judicial estoppel, the district court dismissed the discrimination suit given the debtor’s initial failure to list the claim as an asset. Believing it was compelled by Eleventh Circuit precedent, the three-judge panel upheld dismissal on Feb. 24 in a 32-page unsigned per curiam opinion.
Circuit Judge Gerald B. Tjoflat, one of the three judges on the panel, wrote an encyclopedic, 78-page special concurrence that reads like a dissent. In it, he urges the circuit to rehear the case en banc and overrule two Eleventh Circuit precedents that, he believes, were “wrongly decided.” In scholarly fashion, Judge Tjoflat’s concurring opinion analyzes everything there is to know about judicial estoppel.
The Eleventh Circuit case, Slater v. U.S. Steel Corp., is similar to the Fifth Circuit’s 2011 opinion in Reed v. City of Arlington. In Reed, a fireman filed bankruptcy after obtaining a judgment in excess of $1 million against the city that had been his employer. He repeatedly failed to disclose the judgment in bankruptcy papers and was found out only after the appeals court affirmed the judgment. In the employment suit, the district judge allowed the trustee to collect enough to pay creditors fully while preventing the bankrupt from getting anything.
In the original three-judge opinion, the Fifth Circuit reversed the district court and, employing judicial estoppel, ruled that neither the trustee nor the bankrupt was entitled to collect anything.
In an opinion on en banc rehearing written by Circuit Judge Carolyn King, 13 of 16 judges reversed the panel and laid down a “general rule that, absent unusual circumstances, an innocent trustee can pursue for the benefit of creditors a judgment or cause of action that the debtor fails to disclose.” Judge King said the rule would deter a dishonest debtor while protecting the rights of creditors to a distribution from the bankrupt estate. She also said that judicial estoppel must be applied “flexibly” to achieve “substantial justice,” a principle that Judge Tjoflat advocated in his concurrence in Slater.
In the Eleventh Circuit, the result in Slater was compelled by two precedents: Burnes in 2002 and Barger from 2003. Curiously, a 2004 Eleventh Circuit opinion called Parker was precisely on point and would have allowed the employment suit to proceed. But as both Judge Tjoflat and the per curiam opinion pointed out, the panel could not follow Parker because that decision was contrary to the circuit’s previous Barger opinion.
Judge Tjoflat argues that Burnes and Barger were wrongly decided because they give the defendant a windfall, deprive creditors of an asset, and strip the bankruptcy court of discretion. He advocates en banc rehearing “to set straight the doctrine of judicial estoppel.”
Judge Tjoflat relies in part on the Supreme Court’s 2001 decision in New Hampshire v. Maine, in which the high court said that judicial estoppel is “probably not reducible to any general formulation.” The Court also said it was “not establishing inflexible prerequisites or an exhaustive formula.”
He criticized Burnes for shifting the focus from protecting the integrity of the judicial system to “punishing the debtor.” That decision, he said, led to Barger, which reflexively invokes judicial estoppel so long as the debtor, at the time, knew that a claim was not being disclosed.
Both Burnes and Barger were written by district judges sitting by designation.
We are typically not given to issuing predictions in this column. In this case, however, we will make an exception and predict that the panel opinion in Slater will (or should) be set aside in an en banc opinion to be written by Judge Tjoflat. If it is not, a certiorari petition would be in order because Slater is inconsistent with Reed. Moreover, granting certiorari would allow the Supreme Court to opine on the applicability of New Hampshire in the bankruptcy context.