In a nonprecedential opinion, the majority on a Ninth Circuit panel held that disclosure to a bankruptcy judge is not enough. A lawsuit by a chapter 13 debtor against a third party must be disclosed in amended schedules to avoid invocation of the doctrine of judicial estoppel.
The dissenter would have held that disclosure to the bankruptcy judge made judicial estoppel inapplicable. She said that the “majority elevates form over substance.”
A couple filed a chapter 13 petition in 2010 and got their discharges in 2016. In 2012, they sued in bankruptcy court, contending that a nonjudicial foreclosure violated state laws. After a bench trial, the bankruptcy judge gave judgment to the debtors.
The district court reversed and was upheld by the majority in an unsigned Ninth Circuit opinion on Aug. 29.
In a two-page opinion, the majority said that a debtor’s inadvertence or mistake can be remedied by amending schedules and thereby avoiding judicial estoppel.
Saying that “bankruptcy is a form-driven process,” the majority upheld dismissal on the basis of judicial estoppel because the debtors “‘deceived the bankruptcy court,’ which confirmed a plan that did not account for those assets.” The majority do not say whether the plan was confirmed before or after the debtors sued in bankruptcy court.
Circuit Judge Jacqueline Nguyen dissented, even though the majority said its opinion was “not precedent” and “not appropriate for publication.”
Once “their claims became cognizable,” Judge Nguyen said, in her dissenting opinion of slightly more than two pages, that the debtors “disclosed them in the most conspicuous way possible — by actually litigating the claims in a bench trial before the bankruptcy court.” She went on to say, “No one suggests that the bankruptcy court was misled.”
Judge Nguyen said that the “only winner” was the “alleged bad actor in the estopped lawsuit.”
By saying that the debtors should have amended their schedules, Judge Nguyen said that “the majority literally elevates form over substance. Yet, bankruptcy law is driven not by forms but by equitable principles.”
Given the elevation of amended schedules to such importance in the pantheon of judicial estoppel, the case should be reheard en banc or before the panel.
Doubtless, the chapter 13 trustee was aware of the suit and was therefore in a position to require amending the plan, if relief was of a type that might help general creditors. In contrast, amending the schedules would have been a formalistic gesture since the two most important players, the judge and the chapter 13 trustee, were aware of the suit and its implications for the chapter 13 plan, if any.
In a nonprecedential opinion, the majority on a Ninth Circuit panel held that disclosure to a bankruptcy judge is not enough. A lawsuit by a chapter 13 debtor against a third party must be disclosed in amended schedules to avoid invocation of the doctrine of judicial estoppel.