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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
Hillsborough-southern judicial district
No. 2017-0080
NICOLE ALWARD
v.
EMERY JOHNSTON, M.D. & a.
Argued: January 25, 2018
Opinion Issued: December 21, 2018
Swartz & Swartz, P.C., of Boston, Massachusetts (David P. Angueira on
the brief and orally), for the plaintiff.
Wadleigh Starr & Peters P.L.L.C., of Manchester (Todd J. Hathaway on
the joint brief and orally), for defendants Emery Johnston, M.D., and Elliot
Hospital.
Sulloway & Hollis, P.L.L.C., of Concord (Peter A. Meyer and Jay
Surdukowski on the joint brief), for defendant Gary D. Fleischer, M.D.
Foster & Eldridge LLP, of Cambridge, Massachusetts (Stephen M. Fiore
and Martin C. Foster on the joint brief), for defendants Tung Thuy Nguyen,
M.D., and Southern New Hampshire Medical Center.
HANTZ MARCONI, J. This appeal arises from the dismissal of a medical
malpractice action filed by the plaintiff, Nicole Alward, against defendants
Emery Johnston, M.D., Gary Fleischer, M.D., Tung Thuy Nguyen, M.D., Elliot
Hospital, and Southern New Hampshire Medical Center.1 The plaintiff argues
that the Superior Court (Temple, J.) erred in granting the defendants’ motion to
dismiss based on the doctrine of judicial estoppel. We reverse and remand.
I
The following relevant facts are found either in the plaintiff’s allegations,
which we accept as true, or in the trial court’s orders, recited in the light most
favorable to the plaintiff. In July 2013, the plaintiff experienced persistent and
severe lower back pain as well as numbness and weakness in her right leg. In
July and August of 2013, she visited the emergency departments of the two
defendant hospitals, was evaluated by the defendant doctors, and underwent
two back surgeries. Throughout these attempts to treat her symptoms, the
plaintiff’s pain remained consistent and at times worsened. Thereafter, she
suffered from “severe pain, bilateral weakness, and numbness, and both bowel
and urinary incontinence,” and was unable to work.
Following her second back surgery, the plaintiff consulted with two
different attorneys about a potential medical malpractice claim. Ultimately,
both attorneys advised the plaintiff that they were unwilling to represent her in
a medical malpractice action against the treating physicians and hospitals. As
a result, the plaintiff believed that her potential claim had no value.
The plaintiff consulted with a bankruptcy attorney, Mark Cornell, in April
2015. She informed Attorney Cornell about her potential medical malpractice
claim and that other attorneys had declined to pursue it. When Cornell drafted
the plaintiff’s petition for chapter 7 bankruptcy, he did not list the potential
medical malpractice claim on the plaintiff’s schedule of assets. Cornell also
failed to advise the plaintiff that she needed to disclose this potential claim to
the bankruptcy trustee.
Using the documents prepared by Cornell, the plaintiff filed for chapter 7
bankruptcy on July 23, 2015. The United States Trustee appointed Steven
Notinger as the chapter 7 trustee. On December 22, 2015, the bankruptcy
court granted the plaintiff a discharge under 11 U.S.C. § 727 (2012).
At her ex-husband’s suggestion, in February 2016, the plaintiff consulted
with a third law firm, Swartz & Swartz, P.C., which agreed to represent her and
pursue the medical malpractice claim. The plaintiff filed the medical
malpractice action against the defendants in superior court on June 27, 2016.
The plaintiff “did not understand or know that she needed to advise” the
1 Other defendants named in the plaintiff’s complaint did not participate in this appeal.
2
bankruptcy court or the trustee “of the change of status of the [p]otential
[c]laim.” On June 13, Notinger had filed a “Report of No Distribution” with the
bankruptcy court, in which he certified that “there is no property available for
distribution from the estate over and above that exempted by law,” and
requesting to be discharged from further duties as trustee. On July 14, the
bankruptcy court issued an order closing the case and discharging the trustee.
On October 28, the defendants moved to dismiss, arguing that the
plaintiff should be judicially estopped from pursuing her medical malpractice
claim because she failed to disclose it on her schedule of assets. The plaintiff
immediately consulted with new bankruptcy counsel, who filed a motion to
reopen her bankruptcy case “to administer a potential asset” and requested the
appointment of a trustee “to protect the interests of creditors and the
[plaintiff].” The bankruptcy court granted the motion on November 14 and the
United States Trustee appointed Notinger as the trustee.
The plaintiff then filed an objection to the defendants’ motion to dismiss,
asserting that her failure to list the malpractice claim on her bankruptcy
schedule was the product of inadvertence or mistake, and citing federal cases
recognizing that judicial estoppel should not apply under those circumstances.
See, e.g., New Hampshire v. Maine, 532 U.S. 742, 753 (2001). The plaintiff also
asserted that the defendants’ judicial estoppel argument was “moot” in light of
the fact that the bankruptcy court had granted her motion to reopen and a
trustee had been appointed to administer the potential asset. She included, as
exhibits to her objection, a copy of her motion to reopen, the bankruptcy
court’s order granting the motion, and the notice from the United States
Trustee of Notinger’s appointment as trustee. The plaintiff also attached a
letter from Notinger to Swartz & Swartz, P.C., dated November 15, 2016, which
stated: “This letter confirms that I intend to engage your firm (subject to
bankruptcy court approval) to represent me in the Alward medical malpractice
litigation.”
The trial court granted the defendants’ motion to dismiss, concluding
that the plaintiff was judicially estopped from pursuing her medical
malpractice claim. The court ruled that the plaintiff’s failure to disclose her
malpractice claim to the bankruptcy court was not due to inadvertence or
mistake. The court also disagreed that “the issue of judicial estoppel was
rendered moot” by the reopening of the bankruptcy case, relying on Moses v.
Howard University Hospital, 606 F.3d 789 (D.C. Cir. 2010), and other federal
cases cited therein. See Moses, 606 F.3d at 800 (applying judicial estoppel to
the plaintiff-debtor and rejecting his argument that “he cured his failure to
disclose” his claims by reopening the bankruptcy and amending his
bankruptcy schedule). In ruling that the plaintiff was judicially estopped from
pursuing her medical malpractice claim, the trial court noted that, “[l]ike the
plaintiff in Moses, the plaintiff here only moved to reopen her bankruptcy
proceedings to amend her schedule of assets after the defendants filed their
3
motion to dismiss based on judicial estoppel.” The court stated that the timing
of these events “strongly suggests that the plaintiff’s motion . . . was prompted
entirely by the defendants’ motion to dismiss,” which “is exactly the type of
behavior that the court in Moses condemned.”
The plaintiff moved for reconsideration. She argued, inter alia, that
applying judicial estoppel to bar the malpractice claim would be inequitable, in
part because it would allow the defendants to escape responsibility for their
negligence at the expense of the plaintiff’s creditors, whose interests the court
must consider, given that the bankruptcy trustee had “taken control of the
instant lawsuit for the benefit of the estate.” Relying on Wood v. Household
Finance Corp., 341 B.R. 770, 774 (W.D. Wash. 2006), the plaintiff asserted that
judicial estoppel did not apply to the trustee.
In its order denying reconsideration, the court stated:
[T]he plaintiff claims that the Chapter 7 Trustee “has now taken
control of the instant lawsuit for the benefit of the estate, not for
the benefit of Plaintiff/debtor,” and thus the issue of judicial
estoppel is moot because the Trustee cannot be held accountable
for the plaintiff’s prior assertions. In support of her position, the
plaintiff cites [Wood], in which the court held that “there is a
difference between a debtor attempting to pursue an action for his
own benefit, and a trustee pursuing an action for the benefit of
creditors.” Wood, 341 B.R. at 774. However, in Wood, the trustee
had been “substituted as the real party of interest in the instant
action,” entirely replacing the original plaintiff. Id. at 771. There
has been no such replacement in the instant case. The Trustee
has not filed an appearance, a motion to be substituted as the real
party in interest, or a motion to intervene. Other than the
plaintiff’s bald assertion that her bankruptcy trustee has taken
over the instant case, there is nothing in the record to support this
contention.
(Citation omitted.) In light of this ruling, the court did not address whether
judicial estoppel applied to the trustee. This appeal followed.2
II
Although the plaintiff challenges the trial court’s dismissal of the medical
malpractice claim on a number of grounds, we need address only two. First,
she contends that the trial court failed to adhere to the standard of review
governing motions to dismiss by failing to construe the facts presented in the
2 The trustee authorized the plaintiff’s counsel to pursue the medical malpractice claim —
including this appeal — on behalf of the estate.
4
light most favorable to her. Second, she argues that the trial court erred in
applying judicial estoppel where the bankruptcy case has been reopened and
the trustee is pursuing the claim on behalf of the bankruptcy estate. The
defendants counter that the medical malpractice claim should be barred by
judicial estoppel “regardless of whether it is pursued by [the plaintiff] or the
bankruptcy trustee.”
We begin by addressing the standard that governs our review of the trial
court’s orders. The defendants correctly note that we have not yet determined
“the applicable standard of review for the dismissal of a complaint on the basis
of judicial estoppel.” Citing cases from the First Circuit, the defendants
contend that we should review the trial court’s decision regarding judicial
estoppel for an “abuse of discretion.” See Alternative System Concepts, Inc. v.
Synopsys, 374 F.3d 23, 30-32 (1st Cir. 2004) (adopting abuse of discretion
standard for reviewing trial court’s application of judicial estoppel). But see
Seymour v. Collins, 39 N.E.3d 961, 975-76 (Ill. 2015) (noting state and federal
courts are split regarding standard of review applicable to judicial estoppel).
Courts that apply an abuse of discretion standard do so in part because
judicial estoppel is an equitable doctrine. See, e.g., In re Coastal Plains, Inc.,
179 F.3d 197, 205 (5th Cir. 1999). In the summary judgment context, we have
explained that “we apply our traditional summary judgment standard of review
to the legal issues and to the determination of whether a genuine issue of
material fact exists,” but “we review the trial court’s decision to grant equitable
relief . . . for an unsustainable exercise of discretion.” Conant v. O’Meara, 167
N.H. 644, 648-49 (2015). We assume, for purposes of this appeal, that the trial
court’s dismissal of the complaint on the ground of judicial estoppel
constituted a decision to grant equitable relief. We still begin our inquiry by
applying our traditional standard of review for motions to dismiss to the legal
issues presented. Cf. id. Specifically, we review issues of law de novo. See
England v. Brianas, 166 N.H. 369, 371 (2014); Chatman v. Brady, 162 N.H.
362, 365 (2011); cf. Thore v. Howe, 466 F.3d 173, 182 (1st Cir. 2006) (noting
First Circuit reviews de novo questions of law concerning judicial estoppel).
The legal issues presented in this case include: (1) whether the trial court
reviewed the defendants’ motion to dismiss under the appropriate standard;
and (2) our law concerning judicial estoppel in the bankruptcy context, which
is an issue of first impression. We address these issues in turn.
III
In its order granting the defendants’ motion to dismiss, the trial court
identified the following as the applicable standard of review:
Generally, in ruling upon a motion to dismiss, the trial court
is required to determine whether the allegations contained in the
[plaintiff’s] pleadings are sufficient to state a basis upon which
5
relief may be granted. To make this determination, the court
would normally accept all facts pled by the [plaintiff] as true,
construing them most favorably to the [plaintiff]. When the motion
to dismiss does not challenge the sufficiency of the [plaintiff’s] legal
claim but, instead, raises certain defenses, the trial court must
look beyond the [plaintiff’s] unsubstantiated allegations and
determine, based on the facts, whether the [plaintiff] ha[s]
sufficiently demonstrated [his or her] right to claim relief.
K.L.N. Construction Co. v. Town of Pelham, 167 N.H. 180, 183 (2014)
(quotations and citations omitted).
We note that this standard of review is limited to “certain defenses.” Id.
(emphasis added). “A jurisdictional challenge based upon lack of standing is
such a defense.” Id. (quotation omitted). We have not, however, included
judicial estoppel among such defenses. Therefore, the trial court must assume
the truth of the plaintiff’s allegations and construe all reasonable inferences in
the light most favorable to the plaintiff as the nonmoving party. See, e.g.,
Surprenant v. Mulcrone, 163 N.H. 529, 530 (2012) (applying this standard to
motion to dismiss based on quasi-judicial immunity); Lamprey v. Britton
Constr., 163 N.H. 252, 256 (2012) (applying this standard to motions to
dismiss based on statutes of limitations and repose); Paul v. Sherburne, 153
N.H. 747, 749 (2006) (applying this standard to motion to dismiss for failure to
state a claim); Sutliffe v. Epping School Dist., 627 F. Supp. 2d 41, 44 (D.N.H.
2008) (explaining that a motion to dismiss based on an affirmative defense —
such as judicial estoppel — must be evaluated under the same standard as a
motion to dismiss for failure to state a claim, which requires the trial court to
“accept the well-pleaded factual allegations . . . as true, drawing all reasonable
inferences in the plaintiff’s favor”), aff’d, 584 F.3d 314 (1st Cir. 2009).
The trial court indicated that it was assuming the truth of the plaintiff’s
allegations in its order granting the defendants’ motion to dismiss. In denying
the plaintiff’s motion for reconsideration, however, the trial court stated: “Other
than the plaintiff’s bald assertion that her bankruptcy trustee has taken over
the instant case, there is nothing in the record to support this contention.” In
so ruling, the trial court erred in two respects. First, it failed to credit the
plaintiff’s allegation as true, instead imposing a requirement that the plaintiff
submit evidence supporting her contention. This is inconsistent with the
standard of review applicable at the motion to dismiss stage. See Surprenant,
163 N.H. at 530; Lamprey, 163 N.H. at 256; Paul, 153 N.H. at 749. Second,
the trial court overlooked that the plaintiff had attached supporting
documentation to her objection to the motion to dismiss. See Beane v. Dana S.
Beane & Co., 160 N.H. 708, 711 (2010) (holding that, in ruling on a motion to
dismiss, the trial court may consider, among other things, “documents
attached to the plaintiff’s pleadings”); DiFruscia v. N.H. Dept. of Pub. Works &
Highways, 136 N.H. 202, 204 (1992) (“[I]f additional evidence is submitted,
6
without objection, the trial court should consider it when making its ruling [on
a motion to dismiss].”). Specifically, the plaintiff attached (1) the bankruptcy
court’s order granting the motion to reopen to administer the potential asset of
the estate (i.e., the medical malpractice claim), (2) the notice of Notinger’s
appointment as trustee of the estate, and (3) a letter from Notinger stating his
intention to retain the plaintiff’s present counsel to represent him in the
pending malpractice action.
IV
Because the trial court rejected the factual premise that the bankruptcy
trustee is pursuing the medical malpractice claim on behalf of the estate, the
court did not address whether judicial estoppel should bar the trustee’s pursuit
of this claim. The application of judicial estoppel to a trustee pursuing a claim
on behalf of a bankruptcy estate presents an issue of first impression in this
jurisdiction. We will address this issue on appeal, instead of remanding for the
trial court to consider it in the first instance, because the parties have briefed
the issue and it presents a question of law in this context. See Lynn v.
Wentworth By The Sea Master Ass’n, 169 N.H. 77, 84 (2016) (addressing
question of law in the interest of judicial economy instead of remanding to the
trial court); cf. Thore, 466 F.3d at 182 (reviewing question of law concerning
judicial estoppel de novo).
A
Before discussing the law concerning judicial estoppel, we provide a brief
overview of the relevant bankruptcy principles that affect our analysis. The
trustee acts as the representative of the chapter 7 bankruptcy estate, which is
created when the debtor files a bankruptcy petition under chapter 7 of the
bankruptcy code, 11 U.S.C. §§ 701 et seq. See 11 U.S.C. §§ 323(a), 541(a)
(2012); Slater v. U.S. Steel Corp., 871 F.3d 1174, 1179 (11th Cir. 2017) (en
banc). Upon the filing of the petition, all of the debtor’s legal and equitable
interests in property — including tort claims that accrued before the debtor
filed her petition — are immediately transferred to a bankruptcy estate and
become property of that estate. Auday v. Wet Seal Retail, Inc., 698 F.3d 902,
904 (6th Cir. 2012); see Slater, 871 F.3d at 1179; 11 U.S.C. § 541(a)(1). This is
true even if the interest is not disclosed on the debtor’s bankruptcy schedule.
See Kane v. National Union Fire Ins. Co., 535 F.3d 380, 385 (5th Cir. 2008)
(per curiam).
Property that is not abandoned or administered remains property of the
bankruptcy estate. Id.; see 11 U.S.C. § 554(d) (2012). Therefore, “[e]ven after
the [bankruptcy] case is closed, the estate continues to retain its interest in
unscheduled property.” 5 Alan N. Resnick & Henry J. Sommer, Collier on
Bankruptcy ¶ 554.03, at 554-16 (16th ed. 2010); accord Philbrick v. Burbank,
101 N.H. 311, 313 (1958) (adopting the view that “the legal title to [an
7
unadministered] asset, while necessarily resting in the bankrupt for such
purpose as the bringing of a suit thereon, is in custodia legis in the bankruptcy
court if the property in question was never abandoned or disposed of”).
Because the bankruptcy court has not administered the medical
malpractice claim, and the trustee has not abandoned it, the claim is the
property of the bankruptcy estate. See 11 U.S.C. § 554(d); Kane, 535 F.3d at
385. The trustee, as the representative of the estate, is vested with the
authority to pursue that claim against the defendants as an asset of the estate.
See Reed v. City of Arlington, 650 F.3d 571, 575 (5th Cir. 2011) (en banc);
Moses, 606 F.3d at 793; see also Metrou v. M.A. Mortenson Co., 781 F.3d 357,
360 (7th Cir. 2015) (“The Trustee is entitled to pursue this litigation as an asset
of the estate in bankruptcy.”). Thus, by operation of law, the trustee is the real
party in interest. See Moses, 606 F.3d at 795-97; Kane, 535 F.3d at 385;
Parker v. Wendy’s Intern., Inc., 365 F.3d 1268, 1272 (11th Cir. 2004);
Stephenson v. Malloy, 700 F.3d 265, 272 (6th Cir. 2012); Hamm v. Norfolk
Southern Ry. Co., 52 So. 3d 484, 490 (Ala. 2010).
B
The defendants contend that judicial estoppel should apply in this case
because the trustee “did not affect any substitution or intervention” while the
case was in the trial court, and, they assert, “[t]he appeal has been brought by
[Alward], not the trustee.” In support of their position, the defendants rely on
an unpublished Eleventh Circuit decision, Pavlov v. Ingles Markets, Inc., 236 F.
App’x 549 (11th Cir. 2007) (per curiam). We agree with other courts that,
under similar circumstances, have found Pavlov inapposite. See Moses v.
Howard University Hosp., 601 F. Supp. 2d 1, 4 (D.D.C. 2009), aff’d 606 F.3d
789. In Pavlov, judicial estoppel was not “invoked to bar the claims of a
blameless bankruptcy trustee who had failed to formally intervene but
nevertheless clearly expressed [his] intent to prosecute a debtor’s claim on
behalf of the bankruptcy estate.” Id. “Rather, the doctrine was invoked to bar
the claims of [an] individual debtor[ ] notwithstanding the possibility that th[e]
debtor[’s] bankruptcy trustee[ ] — who had failed to inject [himself] into the
case ‘through intervention or otherwise’ — might have some interest in the
action.” Id. (citation omitted) (quoting Pavlov, 236 F. App’x at 550).
In this case, unlike in Pavlov, the bankruptcy trustee has clearly
expressed his intent to pursue the claim on behalf of the estate. See id.
Indeed, the trustee authorized the plaintiff’s counsel to pursue the medical
malpractice claim, including prosecuting this appeal, on behalf of the estate.
Cf. Slater, 871 F.3d at 1178 (noting the bankruptcy trustee filed, and the
bankruptcy court granted, a motion “request[ing] to employ the lawyers who
were representing Slater in her employment action to continue to pursue the
claims against U.S. Steel on behalf of the estate”); Auday, 698 F.3d at 904
(noting the trustee “applied to the bankruptcy court for authority to hire
8
Auday’s lawyer . . . to pursue the claim against Wet Seal,” and the bankruptcy
court granted the application). Furthermore, the trustee is the real party in
interest by operation of law. See Moses, 606 F.3d at 795-97; Kane, 535 F.3d at
385; Parker, 365 F.3d at 1272; Stephenson, 700 F.3d at 272; Hamm, 52 So. 3d
at 490. Under these circumstances, a motion to substitute would be “a mere
formality” that confirms, rather than initiates, the trustee’s status as the real
party in interest. Moses, 606 F.3d at 796-97. Therefore, we disagree with the
defendants that the absence of such a substitution is a basis for applying
judicial estoppel to the trustee.
C
We now turn to the law concerning judicial estoppel. New Hampshire
has adopted the doctrine of judicial estoppel as part of its common law. See
Kelleher v. Marvin Lumber & Cedar Co., 152 N.H. 813, 848 (2005). “The
doctrine of judicial estoppel 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.” Cohoon v. IDM Software, 153 N.H. 1, 4 (2005)
(quotation omitted); accord New Hampshire v. Maine, 532 U.S. at 749. “The
general function of judicial estoppel is to prevent abuse of the judicial process,
resulting in an affront to the integrity of the courts.” Pike v. Mullikin, 158 N.H.
267, 270 (2009) (quotation omitted).
While the circumstances under which judicial estoppel may be
invoked vary with each situation, the following three factors
typically inform the decision whether to apply the doctrine:
(1) whether the party’s later position is clearly inconsistent with its
earlier position; (2) whether the party has succeeded in persuading
a court to accept that party’s earlier position; and (3) whether the
party seeking to assert an inconsistent position would derive an
unfair advantage or impose an unfair detriment on the opposing
party if not estopped.
In the Matter of Carr & Edmunds, 156 N.H. 498, 502 (2007); see Kelleher, 152
N.H. at 848 (adopting these factors from New Hampshire v. Maine, 532 U.S. at
750-51). “‘Additional considerations may inform the doctrine’s application in
specific factual contexts.’” Cohoon, 153 N.H. at 6 (quoting New Hampshire v.
Maine, 532 U.S. at 751).
Because we have never addressed the application of judicial estoppel in
the bankruptcy context, we look to other jurisdictions for guidance. Several
courts, including the First Circuit, have held “that a failure to identify a claim
as an asset in a bankruptcy proceeding is a prior inconsistent position that
may serve as the basis for application of judicial estoppel, barring the debtor
from pursuing the claim in a later proceeding.” Guay v. Burack, 677 F.3d 10,
17 (1st Cir. 2012) (emphasis added); see, e.g., Moses, 606 F.3d at 799-800;
9
Eastman v. Union Pacific R. Co., 493 F.3d 1151, 1157-60 (10th Cir. 2007);
Jethroe v. Omnova Solutions, Inc., 412 F.3d 598, 600-01 (5th Cir. 2005). With
respect to whether the trustee should be barred from pursuing the claim,
federal courts that have considered the issue have held that “judicial estoppel
does not bar a bankruptcy trustee from pursuing claims that the debtor failed
to disclose.” Stephenson, 700 F.3d at 271; see Metrou, 781 F.3d at 360; Reed,
650 F.3d at 573; Parker, 365 F.3d at 1272; Eastman, 493 F.3d at 1155 n.3
(noting, in dicta, that the district court’s application of judicial estoppel against
the trustee was “[q]uite likely” “inappropriate”); In re Riazuddin, 363 B.R. 177,
187-88 (B.A.P. 10th Cir. 2007); see also Hamm, 52 So. 3d at 494.
Courts that have adopted this rule cite several justifications. One is
that, unlike the plaintiff-debtor, the bankruptcy trustee “never took an
inconsistent position . . . with regard to this claim.” Parker, 365 F.3d at 1272;
accord Stephenson, 700 F.3d at 272; Riazuddin, 363 B.R. at 188; Hamm, 52
So. 3d at 494; see also Cannon-Stokes v. Potter, 453 F.3d 446, 448 (7th Cir.
2006) (opining that “unless the estate itself engages in contradictory litigation
tactics the elements of judicial estoppel are not satisfied”). We agree with this
reasoning. The first judicial estoppel factor is not met with respect to the
trustee because the trustee did not assert inconsistent positions. See Parker,
365 F.3d at 1272; Stephenson, 700 F.3d at 272; Riazuddin, 363 B.R. at 188;
Hamm, 52 So. 3d at 494. We need not consider the remaining judicial estoppel
factors because we find the lack of inconsistent positions dispositive in this
case. See Pike, 158 N.H. at 271 (“Because we find no contradiction in the
positions taken, we do not consider the remaining factors which inform the
application of judicial estoppel.”); Porter v. City of Manchester, 155 N.H. 149,
157 (2007) (same).
The defendants recognize that courts have declined to apply judicial
estoppel to a bankruptcy trustee pursuing a claim not disclosed by the debtor,
but urge us to reject this view. According to the defendants, “the better rule for
the integrity of the judicial system as a whole is that [judicial] estoppel should
bind the trustee as well” as the debtor.
As an initial matter, we note that there is some debate over which court’s
integrity should be the focus of the doctrine. Compare Reed, 650 F.3d at 572
(“[T]he purpose of judicial estoppel . . . in this context is to protect the integrity
of the bankruptcy process.”), with Ah Quin v. County of Kauai Dept. of Transp.,
733 F.3d 267, 275 (9th Cir. 2013) (“[P]rotecting” and “promoting the efficient
operation of the bankruptcy system” “differs from the goal of judicial estoppel
— protecting the integrity of the courts”), and Eastman, 493 F.3d at 1156
(“[T]he court where the judicial estoppel defense arises . . . is the court
interested in protecting its process.”). For purposes of this appeal, we assume
that the bankruptcy system is part of the “judicial process” with which the
doctrine of judicial estoppel is concerned. Cf. Pike, 158 N.H. at 270 (“The
general function of judicial estoppel is to prevent abuse of the judicial process,
10
resulting in an affront to the integrity of the courts.” (emphasis added)
(quotation omitted)).
The defendants argue that judicial estoppel is necessary to protect the
integrity of the bankruptcy system because it incentivizes debtors to fully
disclose their assets. We agree with the Ninth Circuit that this justification
“do[es] not withstand scrutiny.” Ah Quin, 733 F.3d at 274. “[T]he bankruptcy
system already provides plenty of protections.” Id. at 275. For example, “the
[b]ankruptcy [c]ode allows a bankruptcy case to be reopened in order to
administer assets of the estate.” Reed, 650 F.3d at 575; see 11 U.S.C. § 350(b)
(2012). Additionally, “the bankruptcy court has tools of its own to punish a
debtor who it determines purposefully tried to hide assets.” Slater, 871 F.3d at
1187. “Punishment of dishonest debtors and deterrence of those who would
intentionally omit assets from their schedules is adequately addressed . . . in
the [bankruptcy code] provisions for denial or revocation of discharge, and in
the case law, which allows exemptions to be denied for a debtor’s bad faith.”
Riazuddin, 363 B.R. at 187. In sum, the bankruptcy court “is quite capable of
fashioning a punishment which will redress [the debtor’s] lack of timely
disclosure” if the omission was intentional. In re Lewis, 273 B.R. 739, 748
(Bankr. N.D. Ga. 2001). Thus, we agree that “alternative mechanisms exist to
more equitably protect the integrity of the bankruptcy system (and prevent
undue benefit to the debtor) than the harsh rule imposed” by applying judicial
estoppel to the bankruptcy trustee. Robinson v. District of Columbia, 10 F.
Supp. 3d 181, 190 n.9 (D.D.C. 2014).
We also agree with courts that have recognized how the application of
judicial estoppel under these circumstances would be inequitable and would
undermine, rather than promote, judicial integrity. “We recognize that all
courts have a strong interest in discouraging the misuse of the legal system
. . . . It makes little sense, however, to try to further this interest by punishing
those whom the truthful disclosure of assets is intended to benefit.”
Riazuddin, 363 B.R. at 187. Indeed, “[e]stopping the [t]rustee from pursuing
the [claim] against the [defendants] would thwart one of the core goals of the
bankruptcy system — obtaining a maximum and equitable distribution for
creditors — by unnecessarily vaporizing the assets effectively belonging to
innocent creditors.” Reed, 650 F.3d at 576 (quotation omitted). Furthermore,
it would be “an incongruent remedy” to allow the alleged tortfeasors to escape
liability while punishing the creditors of the estate. Thompson v. Quarles, 392
B.R. 517, 527 (S.D. Ga. 2008); see also In re Flugence, 738 F.3d 126, 132 (5th
Cir. 2013) (stating that this would “turn[ ] equity on its head”). In effect, this
would “cause the very result the doctrine is intended to prevent” — it would
“impair[ ] the integrity of the judicial system.” James D. Walker, Jr. & Amber
Nickell, Judicial Estoppel and the Eleventh Circuit Consumer Bankruptcy
Debtor, 56 Mercer L. Rev. 1115, 1128 (2005). Therefore, we conclude that
“[i]mposing the doctrine of judicial estoppel on an innocent bankruptcy trustee,
which, in turn, punishes innocent creditors for the mistakes of a debtor, does
11
not further the purpose of protecting the integrity of the judicial process.”
Hamm, 52 So. 3d at 497.
We are also not persuaded by the cases the defendants cite in support of
their position that the trustee should be judicially estopped from pursuing the
claim. For example, Guay, Moses, and In re Superior Crewboats, Inc., 374
F.3d 330 (5th Cir. 2004), are inapposite because the trustee had abandoned
the claims in each case, and thus the application of judicial estoppel to the
bankruptcy trustee was not at issue. See Guay, 677 F.3d at 15; Moses, 606
F.3d at 791, 795; Superior Crewboats, 374 F.3d at 333. Instead, the issue in
those cases was whether the debtors should be judicially estopped from
pursuing the claims. See Guay, 677 F.3d at 17; Moses, 606 F.3d at 792;
Superior Crewboats, 374 F.3d at 332, 334-36. Indeed, the Fifth Circuit
distinguished Superior Crewboats on this basis in Kane and Reed and held
that judicial estoppel did not bar the trustee from pursuing the claims. See
Kane, 535 F.3d at 386-87; Reed, 650 F.3d at 578. The Fifth Circuit reasoned,
and we agree, that it would be inequitable to bar the trustee from pursuing the
medical malpractice claim “for the benefit of the estate’s creditors.” Kane, 535
F.3d at 387; accord Reed, 650 F.3d at 576-77.
The Eleventh Circuit adopted the same rule in Parker, holding that
judicial estoppel does not bar the bankruptcy trustee from pursuing the claim.
See Parker, 365 F.3d at 1269, 1272. The Eleventh Circuit reasoned, and we
agree, “that because the trustee was the real party in interest in the civil
lawsuit, had never taken an inconsistent position . . . , and had not abandoned
the discrimination claim,” the trustee’s pursuit of that claim was not barred by
judicial estoppel. Slater, 871 F.3d at 1184; see Parker, 365 F.3d at 1272.
Accordingly, we conclude that the defendants’ reliance on a different Eleventh
Circuit case, Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002),
overruled in part by Slater, 871 F.3d 1174, is misplaced. “[U]nlike Parker,
Burnes did not address the application of judicial estoppel to the interests of a
bankruptcy trustee who seeks to prosecute claims connected to a bankruptcy
estate.” Thompson v. Earthlink Shared Services, LLC, 956 F. Supp. 2d 1317,
1319 (N.D. Ala. 2013); see Burnes, 291 F.3d at 1283 (applying judicial estoppel
to the plaintiff-debtor). Moreover, after the parties submitted their briefs, the
Eleventh Circuit overruled Burnes on the point for which the defendants cite it,
and reaffirmed Parker’s “continued viability.” Slater, 871 F.3d at 1185-86,
1188 n.16. Therefore, we disagree with the other cases cited by the defendants
that apply Burnes instead of Parker.
D
The defendants also argue that the trustee should be bound by the
plaintiff’s conduct for purposes of judicial estoppel. We are not persuaded by
the case the defendants rely on for this proposition. See In re Fineberg, 202
B.R. 206, 227-28 (Bankr. E.D. Pa. 1996) (raising the issue of judicial estoppel
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sua sponte and observing, in dicta, that the trustee’s claims “could
conceivably” be barred by judicial estoppel because the debtor and the trustee
were “in a relationship of privity with each other”). Instead, we think the better
rule is that followed by several federal appellate courts: “where the defense of
judicial estoppel arises from a debtor’s failure to disclose a claim in his
bankruptcy filings and his subsequent pursuit of that claim, the trustee
receives the asset free of this . . . defense.” Stephenson, 700 F.3d at 271 n.6
(quotation, brackets, and ellipsis omitted); accord Reed, 650 F.3d at 575-76;
Parker, 365 F.3d at 1272 n.3; Riazuddin, 363 B.R. at 188.
Courts that have adopted this rule reason that the bankruptcy code
“distinguishes between the debtor and the debtor’s estate immediately upon
the filing of a [c]hapter 7 bankruptcy.” Reed, 650 F.3d at 574. As the Fifth
Circuit explained, “the general principle that a trustee receives causes of action
subject to defenses that could have been raised against the debtor ‘has been
properly limited to pre-petition defenses to a cause of action that would have
been applicable to a debtor if no bankruptcy case had been filed.’” Id. at 575
(emphasis added) (quoting Riazuddin, 363 B.R. at 188). The debtor’s omission
of a claim from her bankruptcy schedule or failure to amend her schedule to
disclose an asset is considered post-petition conduct, which “does not adhere
to the [t]rustee.” Id. at 574-75; see Riazuddin, 363 B.R. at 188. Therefore,
because the plaintiff’s conduct giving rise to the defendants’ judicial estoppel
defense did not occur until after the bankruptcy petition was filed and the
potential claim had passed into the bankruptcy estate, the estate received the
asset free of this defense. See Reed, 650 F.3d at 576; Parker, 365 F.3d at 1272
n.3; Riazuddin, 363 B.R. at 188.
E
The defendants next argue that the trustee should be judicially estopped
from pursuing the medical malpractice claim in light of “the specific facts of
this case” — namely, an agreement between the trustee and the plaintiff to
split the proceeds of any recovery. For this point, the defendants rely on a
document that was never submitted to the trial court: a motion filed in the
bankruptcy case by the trustee on November 22, 2016, indicating that the
trustee and the plaintiff “have agreed to split the net proceeds” of the medical
malpractice action “50/50,” and requesting that the bankruptcy court approve
this “settlement” under Federal Rule of Bankruptcy Procedure 9019(a). See
Fed. R. Bankr. P. 9019(a) (“On motion by the trustee and after notice and a
hearing, the court may approve a compromise or settlement.”).
As a general matter, we will not consider documents that were not
submitted to the trial court because they are not part of the record. See Sup.
Ct. R. 13(1); Flaherty v. Dixey, 158 N.H. 385, 387 (2009). Nevertheless, we will
consider the trustee-plaintiff agreement in deciding this appeal in light of the
unusual circumstances presented, which include the fact that we are deciding
13
an issue not reached by the trial court, rather than remanding for the trial
court to consider it in the first instance, and we expect that this document
would be submitted to the trial court were we instead to remand the case for
the trial court to determine whether judicial estoppel applies to the trustee in
this case. Additionally, the plaintiff has not moved to strike this document
from the defendants’ appendix, her counsel acknowledged the existence of the
agreement at oral argument, and both counsel had an opportunity to address
it.
The trustee-plaintiff agreement has no effect on our conclusion that the
trustee is not judicially estopped from pursuing the medical malpractice claim
against the defendants. Any agreement between the bankruptcy trustee and
the plaintiff to split potential proceeds from the malpractice lawsuit is subject
to approval by the bankruptcy court, after a hearing and notice to the
creditors. See Fed. R. Bankr. P. 9019(a). The bankruptcy court is solely
responsible for deciding how best to administer the assets of an estate in a
manner that protects creditors. See Metrou, 781 F.3d at 360.
V
In sum, the trial court erred in dismissing the medical malpractice claim
against the defendants on the basis of judicial estoppel. That claim belongs to
the bankruptcy estate. See Parker, 365 F.3d at 1272-73. The representative of
that estate, the bankruptcy trustee, is vested with the authority to pursue that
claim and is the real party in interest. See Moses, 606 F.3d at 793, 795-97.
The trustee “did not make any inconsistent statements to the courts,” and the
trustee is “not tainted or burdened” by the plaintiff’s inconsistent statements.
Parker, 365 F.3d at 1269, 1273. Furthermore, it would be inequitable to apply
judicial estoppel to a trustee pursuing a claim on behalf of innocent creditors,
and doing so would undermine, rather than protect, the integrity of the judicial
process. For all of these reasons, we hold that the trustee is not judicially
estopped from pursuing the medical malpractice claim against the defendants.
In light of this holding, we need not address the parties’ remaining arguments,
which concern the application of judicial estoppel to the plaintiff. See
Thompson, 956 F. Supp. 2d at 1322 & n.6.
Reversed and remanded.
LYNN, C.J., and BASSETT, J., concurred.
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