Picture it: (1) Miami, Florida, 2014. A practitioner is defending a case of disability discrimination under the ADA. In preparing for the deposition of the plaintiff, the practitioner completes a routine public records check on the plaintiff when she discovers that shortly after the lawsuit was filed, the plaintiff filed for bankruptcy protection. Upon review of the bankruptcy petition, the practitioner finds that the plaintiff did not disclose the discrimination lawsuit on his petition. At first, our practitioner thinks "Jackpot!" But wait, she ponders. Is the doctrine of judicial estoppel even recognized anymore? The realization quickly sets in that she is about to delve into the world of bankruptcy practice. Like most employment practitioners, the mere mention of the word "bankruptcy" usually causes her to run in the other direction. It seems all too "inside baseball"--a highly specialized area with its own jargon and rules where only specialists dare to go.
This perception of bankruptcy law and practice is common, but it is one that must be corrected, especially for employment practitioners. Indeed, with 75,141 bankruptcy cases filed in Florida in 2014, (2) this area certainly cannot be ignored. This article attempts to provide some guidance in this area through a discussion of the doctrine of judicial estoppel. It discusses the doctrine in two parts. In the first part, it discusses the current status of the doctrine of judicial estoppel, particularly in the bankruptcy context, along with the defenses to the application of the doctrine. In the second part, this article addresses some of the basic principles of bankruptcy law and practice encountered in litigating the issue of judicial estoppel.
A Review of the Doctrine of Judicial Estoppel
The doctrine of judicial estoppel protects the integrity of the judicial system. (3) It is a well-settled doctrine that has been recognized by the courts for more than a century. (4) The U.S. Supreme Court generally has explained the doctrine as follows: "'[W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he [or she] may not thereafter, simply because his [or her] interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him [or her].'" (5) In other words, it "'generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.'" (6) The 11th Circuit has further explained that "[t]he doctrine is designed to prevent the parties from making a mockery of justice by inconsistent pleadings." (7) It noted that this doctrine prevents the "'parties from playing fast and loose with the courts to suit the exigencies of self-interest.'" (8) Thus, this doctrine protects the judicial system from a party deliberately changing his or her position to serve its needs of the moment and perverting the judicial process to serve his or her own self-interest. (9)
Since the doctrine is one based on equity, and for the purpose of protecting the judicial system and preventing the "'improper use of judicial machinery,'" it is invoked at the court's discretion and there is no strict formulation or required elements. (10) The Supreme Court has recognized that the following three factors can guide the analysis in determining whether equity warrants the application of the doctrine (11): 1) A party's subsequent position "must be clearly inconsistent with its earlier position" (12); 2) whether the party succeeded in persuading a court to accept the earlier position "so that judicial acceptance of an inconsistent position in a later proceeding would create 'the perception that either the first or the second court was misled'" (13); 3) whether the party making the inconsistent statement would obtain an unfair advantage or whether the opposing party would suffer an unfair detriment if the party were not estopped. (14)
The Supreme Court, however, emphasized that these factors are not inflexible prerequisites or an exhaustive formula, noting there may be other considerations that guide this decision based on the facts presented. (15)
In 2002, the 11th Circuit considered, for the first time, the application of the doctrine of judicial estoppel in an employment discrimination action. In observing it was addressing an issue of first impression, the court in Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1285-88 (11th Cir. 2002), concluded that the plaintiff was estopped from seeking monetary damages for his discrimination claim because he failed to disclose the claim in a concurrent bankruptcy proceeding. Consistent with the Supreme Court's direction, the 11th Circuit in Burnes indicated that the following two factors will govern the analysis in determining whether to apply the doctrine: 1) "[I]t must be shown that the allegedly inconsistent positions were made under oath in a prior proceeding"; and 2) "such inconsistencies must be shown to have been calculated to make a mockery of the judicial system." (16) Yet, it noted that these factors are not inflexible or exhaustive and that the court "must always give due consideration to all of the circumstances of a particular case when considering the applicability of this doctrine." (17) The doctrine of judicial estoppel has been applied in a variety of different factual contexts, including bankruptcy proceedings. Indeed, a heightened duty of candor exists in a bankruptcy action. The Bankruptcy Code requires "[a] debtor seeking shelter under the bankruptcy laws [to] disclose all assets, or potential assets, to the bankruptcy court." (18) This requirement includes the duty to disclose any lawsuits. (19) The duty of candor is so critical to the administration of the bankruptcy proceedings that it does not end with the submission of the filings; the debtor has a duty to amend his or her disclosures if circumstances change. (20) Thus, as recognized by the 11th Circuit, "[f]ull and honest disclosure in a bankruptcy case is 'crucial to the effective functioning of the federal bankruptcy system.'" (21) As a result, the doctrine of judicial estoppel serves a unique and important purpose regarding representations to the bankruptcy court because the need for full disclosure by the debtor is indispensible and the motive of self-interest is great. (22)
Indeed, the 11th Circuit opined that "'the importance of full and honest disclosure cannot be overstated.'" (23) For example, the purpose of the Ch. 7 (24) petition is to allow the debtor to obtain a discharge of debts in exchange for authorizing the trustee to collect and liquidate the assets. (25) This function cannot be served without complete honesty by the debtors regarding their assets. In addition, both the creditors and the bankruptcy court rely on the accuracy and completeness of these disclosures in determining whether a discharge is appropriate. (26) These same principles of candor apply even if protection is sought under Ch. 13 of the Bankruptcy Code. (27)
As a result of the unique aspects involved in a bankruptcy case, including the fundamental requirement of honesty and full disclosure to operation of the bankruptcy system, the 11th Circuit "repeatedly has recognized that, when a debtor fails to disclose a pending lawsuit to the bankruptcy court, while having knowledge of the lawsuit and a motive to conceal it, the doctrine of judicial estoppel bars the undisclosed action from proceeding." (28)
* First Factor: Inconsistent Statements Under Oath--The first factor in the analysis typically is easy to establish. The 11th Circuit has found it can be satisfied when the debtor has failed to disclose the lawsuit, either initially or through the failure to amend the disclosures after the lawsuit has been filed, in any type of bankruptcy proceeding and he or she simultaneously prosecutes the omitted action. (29)
* Second Factor: Calculated to Make a Mockery of the Judicial System--Most of the analysis in these cases is devoted to the second factor. This factor cannot be established by simple error or inadvertence. (30) However, the 11th Circuit has held that, in the context of an omission of assets in a bankruptcy proceeding, "deliberate or intentional manipulation can be inferred from the record." (31) This inference can be made even if the debtor claims the omission is the result of error or inadvertence. (32) Indeed, "'[i]n considering judicial estoppel for bankruptcy cases, the debtor's failure to satisfy its statutory disclosure duty is "inadvertent" only when, in general, the debtor either lacks knowledge of the undisclosed claims or has no motive for their concealment.'" (33) Thus, despite the debtor's claim of inadvertence, this factor can be satisfied by establishing that the debtor had knowledge of the lawsuit and a motive to conceal it. (34)
For example, in Burnes, the discrimination lawsuit was not yet pending at the time that the employee filed for bankruptcy protection. (35) Nonetheless, the 11th Circuit affirmed the application of the doctrine of judicial estoppel to bar the monetary claim because the employee later filed a discrimination lawsuit, did not include the lawsuit on his updated or amended schedules when he converted the action from Ch. 13 to Ch. 7, and received a...