NACBA Takes On 11th Circuit Judicial Estoppel Doctrine

Posted by NCBRC - December 1, 2016

NCBRC has filed an amicus brief in the Eleventh Circuit on behalf of the NACBA membership to address the issue of that circuit’s approach to judicial estoppel. Slater v. U.S. Steel, No. 12-15568 (filed October 24, 2016).

Twenty one months after filing an employment discrimination suit in federal district court against her former employer, U.S. Steel, Sandra Slater filed for bankruptcy. (The original case was filed under chapter 7 and later converted to chapter 13). She failed to list the pending federal case in her bankruptcy schedules. U.S. Steel then moved the district court to bar the discrimination suit based on the doctrine of judicial estoppel. The district court granted the motion and Ms. Slater appealed.

The Eleventh Circuit affirmed with a concurring opinion by Judge Tjoflat in which he agreed that the holding was compelled by the Eleventh Circuit decisions in Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002), and Barger v. City of Cartersville, 348 F.3d 1289 (11th Cir. 2003), but argued that those cases were wrongly decided. He maintained that application of Eleventh Circuit judicial estoppel precedent led to the resulted that: “U.S. Steel is granted a windfall, Slater’s creditors are deprived of an asset, and the Bankruptcy Court is stripped of its discretion.” Slater v. U.S. Steel Corp., 820 F.3d 1193, 1235 (11th Cir. 2016).

The court then vacated that decision and granted Ms. Slater’s motion for reconsideration en banc.

In its brief, NACBA argues that, as interpreted by Burnes and Barger and their progeny, the doctrine of judicial estoppel has strayed from its original purpose of protecting the integrity of the judicial process and become an inappropriate remedy for debtor error or misconduct.

The Eleventh Circuit applies a two-prong test for application of judicial estoppel under which: 1) there must be an inconsistent position taken under oath and in a prior proceeding, and 2) there must be a motive to conceal the claim.

In its brief, NACBA argues that the way these prongs are applied in the Eleventh Circuit renders the application of judicial estoppel non-discretionary. Under the holdings in Burnes and Barger, when a debtor omits a legal claim from her bankruptcy, even if that omission is inadvertent, she has taken an inconsistent position that may not be corrected once that position is challenged. Also, so long as the debtor knows of the claim or has a motive to conceal it, “intentional manipulation” of the bankruptcy process is likewise inferred as a matter of law. This lack of judicial discretion is counter to the Supreme Court’s admonition in New Hampshire v. Maine, 532 U.S. 742 (2001), that judicial estoppel not be rigidly applied.

Generally, the brief argues that it is usually the district court in the prior legal action that makes the decision as to the application of the doctrine even though the non-disclosure takes place in the bankruptcy court. By putting judicial estoppel in the hands of the district court, the procedures available in bankruptcy, such as amendments to schedules and reopening of closed cases under flexible circumstances, are rendered useless.

Moreover, expansion of the Burnes/Barger doctrine in Robinson v. Tyson Foods, Inc., 595 F.3d 1269, 1274 (11th Cir. 2010), has made judicial estoppel even more burdensome to chapter 13 debtors by requiring them to amend their schedules to reflect post-petition legal claims notwithstanding that neither the Code nor Bankruptcy Rules impose such a requirement. This judicially-imposed obligation punishes the unwary or innocent debtor and creates a windfall opportunity for savvy defendants.

Finally, the brief makes the case that the Burnes/Barger doctrine has evolved away from its ostensible purpose of preventing inconsistent legal positions, and is instead used to punish fraud which should more appropriately be dealt with by other provisions in the bankruptcy code and rules. A better approach to cases such as Slater, the brief contends, would be a challenge to the debtor’s standing. In chapter 7, unless the asset is abandoned, the trustee would be the party with standing to pursue a pre-petition legal claim, and in chapter 13, the debtor’s standing to pursue the claim would continue with any recovery benefitting the estate.

In the event of actual fraud on the part of the bankruptcy debtor, there are ways to address that conduct without resort to inappropriate judicial estoppel. Such remedies may include denial of discharge and/or sanctions within the bankruptcy proceeding, or even criminal charges in particularly egregious cases.

The brief proposes that if judicial estoppel continues to apply in these cases, the court should temper its application to eliminate automatic inferences with respect to inconsistencies and malicious intent. At minimum, judicial estoppel should not prevent a chapter 7 trustee from pursuing the debtor’s legal action. In short, discretion as to the application of judicial estoppel should be restored to the bankruptcy court.

NACBA is grateful to J. Erik Heath for authoring the brief.



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