by Finding its decision “odd” and “not the route we would have taken,” the Fifth Circuit affirmed the bankruptcy court’s order declining to apply judicial estoppel to put an end to the debtor’s personal injury litigation against Wal-Mart, but ordering the debtor to turn over any recovery he made through the lawsuit for distribution to creditors. Wal-Mart Stores v. Parker, No. 18-30378 (5th Cir. Jan. 8, 2020) (unpublished).
While Mr. Parker’s chapter 13 case was pending, he suffered a work-related injury during a delivery to Wal-Mart. He filed a civil lawsuit in state court against the company. He failed to notify the bankruptcy trustee or court of the lawsuit. He completed his plan, received discharge, and his case was closed. Wal-Mart moved to reopen to seek dismissal of Mr. Parker’s personal injury case on the basis of judicial estoppel. The bankruptcy court found that the elements of judicial estoppel were met, but declined to apply the doctrine. Instead, the court ordered Mr. Parker to turn over any proceeds from the lawsuit to the bankruptcy trustee for distribution to creditors. Wal-Mart sought and obtained leave to appeal directly to the Fifth Circuit.
Citing Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011) (en banc), and In re Flugence, 738 F.3d 126 (5th Cir. 2013), the circuit court noted that in circumstances in which a debtor fails to disclose litigation, courts will typically apply judicial estopped to prevent the debtor from pursuing that litigation. Where the debtor is estopped from pursuing his claim, however, the bankruptcy trustee may pursue the litigation on behalf of the bankruptcy estate. Moreover, because judicial estoppel is an equitable doctrine, there is no per se rule that judicial estoppel must be applied in cases of non-disclosure of civil litigation.
The circuit court concluded that, while the bankruptcy court’s approach was unorthodox, it ultimately led to the same result that would have been reached had the court followed the more standard route. In both cases, any recovery in the civil litigation would go to the debtor’s creditors. The court concluded, therefore, that the bankruptcy court did not abuse its discretion and affirmed.