The First Circuit wrote a 47-page dissertation on the invocation of judicial estoppel in bankruptcy cases. Basically, the principle requires more than a demonstration that the party had advanced legal positions that were “clearly inconsistent” and had persuaded the court to accept the earlier position.
The February 22 opinion by Circuit Judge O. Rogeriee Thompson tells us that an effective demonstration of disputed facts, perhaps regarding inadvertence or mistake, will defeat a summary judgment motion based on judicial estoppel. In the case on appeal, rote allegations without supporting facts didn’t suffice.
Two Default Judgments
The debtor and the creditor were in business together. Both ended up in bankruptcy, but years apart.
The creditor went through her own chapter 7 bankruptcy first but did not list any claims against the debtor. After completion of her own bankruptcy, the creditor sued the debtor in state court, alleging that the debtor paid tuition with money the creditor had loaned for use in the business.
When the debtor did not respond, the state court entered a judgment against the debtor for more than $90,000, plus interest. Then, the debtor filed her own chapter 7 case.
The creditor filed an adversary proceeding, seeking a declaration that the $90,000 judgment was nondischargeable as a debt for fraud or defalcation while acting in a fiduciary capacity.
The debtor filed a motion for summary judgment to dismiss the adversary proceeding, contending that the creditor’s failure to schedule the claim in the creditor’s own prior bankruptcy precluded her from pursuing the claim and nondischargeability. Now-retired Bankruptcy Judge Frank J. Bailey of Boston denied the motion for summary judgment, identifying disputed facts.
Denial of summary judgment opened the door to discovery. The debtor began defaulting again, by refusing to abide by her obligations to provide discovery to the creditor. Eventually, Bankruptcy Judge Bailey entered a default judgment against the debtor, ruling that the $90,000 was nondischargeable.
The debtor appealed, but the First Circuit Bankruptcy Appellate Panel affirmed. The debtor appealed again.
Judicial Estoppel Isn’t Automatic
The debtor principally argued in the circuit that the bankruptcy court should have granted her summary judgment motion based on judicial estoppel. Judge Thompson disagreed.
Judge Thompson said that courts developed judicial estoppel to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions based on the “exigencies of the moment,” citing the Supreme Court and circuit court authority. She said there are two “baseline factors” that must be shown before a court may exercise discretion to impose judicial estoppel: (1) the old and new positions must be “clearly inconsistent, and (2) the party must have succeeded in persuading the court to adopt the prior position.
In other words, a party may take inconsistent positions before judgment, but not after.
When the two factors have been shown, “a court’s judicial estoppel inquiry does not end there,” Judge Thompson said. Additional considerations may inform the doctrine’s application.
In the instant case, the creditor contended that her failure to schedule the claim against the debtor was inadvertent and could be remedied. Judge Thompson said that the bankruptcy court did not abuse its discretion in denying the motion for summary judgment, because the debtor “failed to meet her burden of convincing the bankruptcy court that the undisputed facts here mandated application of judicial estoppel.”
Judge Thompson said that Bankruptcy Judge Bailey denied summary judgment and called for discovery to develop “further factual development that might factor into the judicial estoppel calculus.”
The Second Default Judgment
After losing on summary judgment, the debtor defaulted in performing her discovery obligations. Judge Thompson found no abuse of discretion in Judge Bailey’s imposition of a default judgment in favor of the creditor that made the $90,000 debt nondischargeable.
The debtor argued that the bankruptcy court had no jurisdiction to quantify the nondischargeable debt at $90,000.
Rejecting the argument on jurisdiction, Judge Thompson said that the bankruptcy court only recognized and accepted the state court’s judgment. Furthermore, the debtor had scheduled the judgment for the same amount. Therefore, the bankruptcy court did not exceed its jurisdiction.
Judge Thompson upheld the denial of summary judgment and the ensuing judgment of nondischargeability.
The First Circuit wrote a 47-page dissertation on the invocation of judicial estoppel in bankruptcy cases. Basically, the principle requires more than a demonstration that the party had advanced legal positions that were “clearly inconsistent” and had persuaded the court to accept the earlier position.
The February 22 opinion by Circuit Judge O. Rogeriee Thompson tells us that an effective demonstration of disputed facts, perhaps regarding inadvertence or mistake, will defeat a summary judgment motion based on judicial estoppel. In the case on appeal, rote allegations without supporting facts didn’t suffice.