Brooks v. Beatty

May 27, 1994            [NOT FOR PUBLICATION]

                  UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT

                                           

No. 93-1891
                         MARLENE BROOKS,

                      Plaintiff, Appellant,

                                v.

                     JOHN J. BEATTY, ET AL.,

                      Defendants, Appellees.

                                           

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Edward F. Harrington, U.S. District Judge]
                                                        

                                           

                              Before

                    Torruella, Cyr and Boudin,

                         Circuit Judges.
                                       

                                           

   Francis  C. Newton, Jr., with  whom John R.  Dunnell and Russell,
                                                                    
Plummer & Rutherford, P.C. were on brief for appellant.
                        
   Peter  J. Kajko, with whom  Sidney Gorovitz and Dropkin, Perlman,
                                                                    
Leavitt & Rubin were on brief for appellee Resolution Trust.
             
   Jay L.  Seibert, with whom Hart and Lamond, P.C. was on brief for
                                                   
appellee Neil Tobin.
   George  W. Mykulak, with whom Mark A. Berthiaume, Janice O. Fahey
                                                                    
and Goldstein & Manello, P.C. were on brief for appellees Anderson and
                           
March.

                                           

                                           

          CYR, Circuit  Judge.  The present  appeal requires that
          CYR, Circuit  Judge
                             

we  revisit the doctrine of  judicial estoppel, this  time in the

context  of an  action by  a former  chapter 7  debtor who  later

failed to disclose the cause of action as an asset in her chapter

7 proceeding.   We conclude  that the  court below  improvidently

granted summary  judgment  for defendants-appellees  on  judicial

estoppel grounds but that  plaintiff-appellant in any event lacks

standing  to maintain the action.   We therefore  vacate the dis-

trict court judgment and remand for further proceedings.

                                I

                            BACKGROUND
                                      

          On  September  10,  1991,  plaintiff-appellant  Marlene

Brooks brought this action for declaratory relief and compensato-

ry damages against ComFed Mortgage Company ("ComFed") and various

individual defendants.  The Resolution Trust Corporation ("RTC"),

successor to  ComFed, was  substituted as  a  party defendant  on

November 6, 1991.  The thrust of the claim in  the present action

is  that the  former Brooks  residence was  wrongfully foreclosed

upon  as a  result  of the  fraudulent  or negligent  conduct  of

defendants-appellees.  

          On  May 6,  1992, Brooks  filed a  voluntary chapter  7

petition.  Although she promptly informed defendants-appellees of

her chapter 7 petition,  Brooks failed to list the  present cause

of action  (hereinafter  "the ComFed  action") on  her chapter  7

schedule of assets.   On June 19, 1992, RTC  notified Brooks that

the  failure to  schedule the ComFed  action as  an asset  of the

chapter 7 estate  was improper,  and that the  ComFed action  was

property of the chapter 7 estate subject to the exclusive control

of the chapter 7 trustee.  On August 27, 1992, before the chapter

7 trustee became aware of the ComFed action, Brooks was granted a

discharge in bankruptcy.

          RTC  moved for  summary judgment  in the  ComFed action

based on  Brooks' failure to schedule  the action as an  asset in

her chapter 7 case.  The motion was denied by the district court.

Shortly thereafter, Brooks moved to reopen the chapter 7 proceed-

ing to amend her schedule of assets to reflect the ComFed action.

The bankruptcy court summarily denied the motion, on the  inappo-

site authority of  In re Thibodeau, 136  B.R. 7 (Bankr.  D. Mass.
                                  

1992) (holding that a chapter 7 debtor  is not entitled to reopen

a no-asset  case to  list a creditor;  stating that  if and  when
                                    

assets become available, the bankruptcy case can be reopened, the

claim  listed, and  the  estate administered).    Brooks did  not

appeal the bankruptcy court decision. 

          Thereafter,  in light  of Payless  Wholesale Distribs.,
                                                                 

Inc.  v. Alberto  Culver, Inc.,  989 F.2d  570 (1st  Cir.), cert.
                                                                 

denied, 114 S. Ct.  344 (1993), RTC moved for  reconsideration of
      

its  motion for summary judgment.   In a  brief memorandum order,

unaccompanied  by findings of fact, the  district court held that

Payless  controlled, and  concluded  that  Brooks was  judicially
       

                                3

estopped from  prosecuting the  ComFed action.   Summary judgment

was entered for all defendants, and Brooks brought this appeal.

A.   Judicial Estoppel
                      

          We review  a grant of summary judgment de novo, employ-
                                                        

ing  the same criteria incumbent  upon the district  court in the

first instance.  Pedraza v.  Shell Oil Co., 942 F.2d 48,  50 (1st
                                          

Cir. 1991),  cert. denied, 112 S. Ct.  993 (1992).  Summary judg-
                         

ment  is appropriate where the  record, viewed in  the light most

favorable to the nonmoving party, reveals no trialworthy issue as

to any material  fact, and the moving party  is entitled to judg-

ment as a matter of law.  See Fed. R. Civ. P. 56(c); Vanhaaren v.
                                                              

State  Farm Mut. Auto  Ins. Co., 989  F.2d 1, 3  (1st Cir. 1993);
                               

Mesnick  v. General Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991),
                             

cert. denied, 112 S. Ct. 2965 (1992).
            

          We held  in Payless that judicial  estoppel precluded a
                             

former chapter 11 debtor from  maintaining a prepetition cause of

action not disclosed in its earlier chapter 11 proceeding:

          Even  a  cursory  examination  of  the claims
          shows  that defendants should have figured in
          both aspects  of Chapter 11  proceedings, and
          that  Payless could  not have  thought other-
          wise.
                              * * *
          The basic  principle of bankruptcy is  to ob-
          tain  a discharge  from  one's  creditors  in
          return  for all  one's  assets, except  those
          exempt, as  a result  of which creditors  re-
          lease  their own claims  and the bankrupt can
          start fresh.   Assuming there is  validity in
          Payless's present suit, it has a better plan.
          Conceal your  claims; get rid of  your credi-

                                4

          tors  on the  cheap,  and start  over with  a
          bundle of  rights.  This is  a palpable fraud
          that the court will  not tolerate, even  pas-
          sively.    Payless, having  obtained judicial
          relief on  the representation that  no claims
          existed, can  not now resurrect  them and ob-
          tain relief on the opposite basis.

Payless, 989 F.2d at 571  (footnotes & citations omitted) (citing
       

Patriot  Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208 (1st
                                              

Cir. 1987) (plaintiff in federal action estopped from contradict-

ing statement in related state  court action against same  defen-

dant);  and Oneida Motor Freight, Inc. v. United Jersey Bank, 848
                                                            

F.2d 414 (3d  Cir.), cert.  denied, 488 U.S.  967 (1988)  (former
                                  

chapter 11  debtor equitably  estopped from  pursuing prepetition

claims against defendant-creditor where causes of action were not

disclosed in chapter 11 proceeding).

          Brooks contends that the district court applied Payless
                                                                 

with  too  broad a  brush, and  protests that  she engaged  in no

willful  or iniquitous  conduct  but  instead  attempted  without

success  to amend her chapter 7 schedules.   She asserts that she

will attempt  to  do so  again  if and  when the  present  action

against ComFed proves  fruitful.   In essence,  although she  now

concedes "negligence" in failing to schedule the ComFed action as

an  asset,  Brooks insists  that she  was  not playing  "fast and

loose," and that the judicial estoppel ruling constituted revers-

ible  error.   We  agree that  summary  judgment on  the judicial

estoppel claim was inappropriate.

                                5

          Nothing in its decision suggests that the Payless court
                                                           

wrenched the  prudential doctrine  of judicial estoppel  from its

traditional moorings.  In  Patriot Cinemas this court emphasized,
                                          

as  a "guiding  principle," that  "[j]udicial estoppel  should be
                         

employed  when a  litigant is  'playing fast  and loose  with the

courts,'  and when 'intentional  self-contradiction is being used

as a means of obtaining unfair advantage in  a forum provided for

suitors seeking  justice.'"   Patriot  Cinemas, 834  F.2d at  212
                                              

(quoting Scarano  v. Central R. Co.,  203 F.2d 510, 513  (3d Cir.
                                   

1953));  accord  Payless,  989  F.2d at  571  (applying  judicial
                        

estoppel only after  concluding that appellants had engaged  in a

"palpable fraud that  the court will not  tolerate, even passive-
               

ly.") (emphasis added).  Judicial estoppel is an equitable device

which does not lend itself to reflexive application.

          The district  court made  no  findings explicating  its

application of judicial estoppel.  An examination of the evidence

adduced on  summary judgment  below indicates that  Brooks estab-

lished a genuine issue of material fact concerning her bona fides
                                                                 

in failing  to schedule  the ComFed  action  as an  asset in  her

chapter  7  case.   The record  includes  two relevant  pieces of

evidence:   (1) a letter  from the RTC  advising Brooks  that her

earlier failure to  schedule the  ComFed action as  an asset  had

been  improper; and (2) the  affidavit of John  R. Dunnell, Esq.,

Brooks' counsel  in  the  present  action, stating  that  he  had

contacted Brooks' bankruptcy counsel,  Jay P. Satin, Esq., before

                                6

receiving  the  RTC letter  (and again  afterward), and  had been

assured on both occasions  by Satin that Brooks was  not required

to schedule the ComFed action in her chapter 7 case.  Although it

is troubling that Brooks  waited approximately eight months after

the RTC warning    and until after she had received her chapter 7

discharge      before attempting  to  amend  her asset  schedule,

because  the issue arose on  summary judgment we  must credit the
                                             

Dunnell affidavit as a plausible basis for layman Brooks' assert-

ed  reliance  on her  bankruptcy  counsel's  misinformation as  a

possible defense against a finding of bad faith.  The conflicting

evidentiary signals simply illustrate  that the judicial estoppel

issue was inappropriate for summary disposition under Rule 56.

B.   Standing
             

          Brooks concedes that the cause of action against ComFed

should have been scheduled as an asset in her  chapter 7 proceed-

ing.   See 11 U.S.C.   541(a)(1).   It is equally  clear that the
          

ComFed action became property  of the chapter 7 estate.   Carlock
                                                                 

v. Pillsbury Co., 719 F. Supp. 791, 856 (D. Minn. 1989) ("A cause
                

of  action is  a property  right which  passes to the  trustee in

bankruptcy,  even  if such  cause of  action  is not  included in

schedules filed  with the bankruptcy court.").   Further, because

the ComFed action  was not  scheduled as an  asset, it was  never

abandoned  by the  chapter 7  trustee.   See 11  U.S.C.   554(d);
                                            

United States v. Grant, 971 F.2d 799, 803 n.4 (1st Cir. 1992) (en
                                                                 

                                7

banc) (holding  that abandonment by trustee  "does not relinquish
    

an  undisclosed  interest  in property")  (emphasis  in original,
               

citing  Dushane v.  Beall, 161  U.S. 513,  516 (1896));  see also
                                                                 

Krank v. Utica Mutual  Ins. Co., 109 B.R. 668 (E.D.  Pa.), aff'd,
                                                                

908 F.2d  962 (3d  Cir. 1990).   Thus, Brooks  lacks standing  to

prosecute the present action.

                               III

                            CONCLUSION
                                      

          We  therefore vacate  the  judgment and  remand to  the

district court with instructions  to stay further proceedings for

ninety days to permit plaintiff-appellant to reopen her chapter 7

proceeding and amend her schedule of assets to include the ComFed

action,  and  to permit  the  bankruptcy court  to  afford notice

thereof  to the  former  chapter 7  trustee, any  newly-appointed

chapter 7 trustee, and the United States Trustee for the District

of  Massachusetts, to  sell or  abandon the  ComFed action  or to

intervene in the pending district court action.  In the event the

ComFed action  is abandoned or  acquired by Brooks,  the district

court should resolve  the judicial estoppel  issue on the  merits

following an evidentiary hearing.  See Rivera-Gomez v. de Castro,
                                                                

900 F.2d 1,  2 (1st Cir. 1990) (advocating Fed.  R. Civ. P. 12(d)

procedure to  conserve  "scarce judicial  resources by  targeting

early  resolution of threshold issues").  In the event the ComFed

                                8

action is duly  transferred to  an entity other  than Brooks,  or

retained by the chapter 7 trustee, and such entity or the chapter

7  trustee intervenes,  the pending  district court  action shall

proceed  on the merits; otherwise, it shall be dismissed for lack

of standing.

          The district court judgment is vacated and the  case is
                                                                 

remanded for  further proceedings consistent  with this  opinion;
                                                                

costs to plaintiff-appellant.
                            

                                9