Bankruptcy

N.D. Ga. - Judicial Estoppel Not Applied To Claim Not Disclosed In Debtor's Chapter 13 Schedules

By Scott Riddle

Evans v. Potter, Slip Copy, 2009 WL 529599 (N.D.Ga. Feb 27, 2009) (NO. CIVA 1:08CV1687TWT).  The issue was whether the plaintiff was judicially estopped from pursuing harassment claims not disclosed on her bankruptcy petition.

Facts:

Plaintiff was employed by the United States Postal Service ('USPS'). On March 22, 2007, Plaintiff filed a bankruptcy petition in the United States Bankruptcy Court for the Northern District of Georgia pursuant to Chapter 13 of the Bankruptcy Code. In that petition, Plaintiff did not indicate that she had any contingent or unliquidated claims against the USPS. On August 17, 2007, Plaintiff made a USPS internal complaint alleging sexual harassment and unlawful retaliation arising out of conduct that began in 2004. The USPS issued a final decision on February 12, 2008, finding that Plaintiff's complaint had no merit.

Plaintiff filed the instant lawsuit on May 9, 2008. On May 15, 2008, the bankruptcy court dismissed the bankruptcy case because Plaintiff failed to make proper payments to the Trustee as previously agreed. The bankruptcy court did not discharge Plaintiff's debts. Plaintiff served the instant lawsuit on Defendants in July 2008.

Defendant sought dismissal of Plaintiff's claims pursuant to the doctrine of judicial estoppel.  The Motion to Dismiss was denied.

Generally, a finding of bad faith is required before a court may exercise its inherent sanctioning powers such as judicial estoppel… Although the Eleventh Circuit has not explicitly stated that bad faith is a requirement for application of judicial estoppel, the language used by the Court to describe the doctrine implies as much. See Strauss v. Rent-A-Center, Inc., 192 Fed. Appx. 821, 823 (11th Cir.2006) (declining to apply judicial estoppel in part due to absence of finding that 'the debtor intentionally misled the bankruptcy court as to the existence and then character of her employment lawsuit')…

The evidence in this case does not support a finding that Plaintiff acted in bad faith or that she intended to manipulate the court system to her advantage. Plaintiff denies any such intent, and the facts of this case do not imply otherwise... Additionally, Defendant may have hampered Plaintiff's knowledge of a potential claim by issuing an internal administrative decision finding that Plaintiff had no claim.

This, of course, does not explain Plaintiff's failure to amend her bankruptcy petition once she became aware of a potential claim. However, Plaintiff gained no advantage from her oversight because the bankruptcy court dismissed her bankruptcy case without discharging her debts. ..As explained by the Court of Appeals for the Third Circuit, judicial estoppel should be invoked only when a miscarriage of justice or damage to the integrity of the judicial system would otherwise result:

[J]udicial estoppel is an 'extraordinary remed[y] to be invoked when a party's inconsistent behavior will otherwise result in a miscarriage of justice.' It is not meant to be a technical defense for litigants seeking to derail potentially meritorious claims, especially when the alleged inconsistency is insignificant at best and there is no evidence of intent to manipulate or mislead the courts. Judicial estoppel is not a sword to be wielded by adversaries unless such tactics are necessary to 'secure substantial equity.'

Ryan, 81 F.3d at 365 (citations omitted). In this case, particularly in light of the dismissal of Plaintiff's bankruptcy lawsuit without discharge of her debts, application of judicial estoppel would be unduly harsh and inequitable. I therefore RECOMMEND that Defendant's motion with respect to judicial estoppel be DENIED.

Full post as published by Georgia Bankruptcy Blog on March 06, 2009 (boomark / email).