REVISED AUGUST 4, 2008
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 07-30611 July 14, 2008
Charles R. Fulbruge III
STUART KANE; LISA PHILLIPS KANE Clerk
Plaintiffs - Appellants
v.
NATIONAL UNION FIRE INSURANCE COMPANY; QWEST
COMMUNICATIONS INC; DAVID A COMSTOCK
Defendants - Appellees
v.
AARON CAILLOUET
Trustee - Appellant
Appeal from the United States District Court
for the Eastern District of Louisiana
Before KING, WIENER, and ELROD, Circuit Judges.
PER CURIAM:
Plaintiffs-appellants Stuart and Lisa Phillips Kane and trustee-appellant
Aaron Caillouet appeal the district court’s grant of summary judgment for
defendants-appellees on the grounds that the Kanes were judicially estopped
from pursuing their personal injury action after failing to include it in their
Chapter 7 bankruptcy schedules, and consequently that the trustee’s motion to
be substituted for the Kanes in that action was moot, relying entirely on our
No. 07-30611
decision in Superior Crewboats, Inc. v. Primary P & I Underwriters (In re
Superior Crewboats, Inc.), 374 F.3d 330 (5th Cir. 2004). We REVERSE and
REMAND.
I. FACTUAL AND PROCEDURAL BACKGROUND
On April 18, 2002, Stuart Kane was involved in a car accident with a
vehicle driven by Daniel Comstock while Comstock allegedly was acting in the
course and scope of his employment with Qwest Communications (“Qwest”). On
July 19, 2002, Stuart and Lisa Kane (the “Kanes”) filed this lawsuit in Louisiana
state court seeking damages from Comstock and Qwest (collectively,
“Defendants”), and Qwest’s insurer, National Union Fire Insurance Company,1
arising out of the car accident. On October 13, 2005, while their lawsuit was
pending in state court, the Kanes filed a Chapter 7 bankruptcy. They failed to
list their personal injury claim on the relevant bankruptcy schedules as is
required. The Kanes’ bankruptcy trustee, Aaron Caillouet (the “Trustee”), was
never informed of the claim during the pendency of the bankruptcy proceedings.
On March 13, 2006, the Kanes’ bankruptcy resulted in a no-asset discharge.
On July 10, 2006, Defendants filed a motion for summary judgment in
state court arguing that the Kanes should be judicially estopped from pursuing
their lawsuit due to their failure to list it as an asset in their bankruptcy
proceedings. Subsequently, the Kanes filed a motion in the bankruptcy court to
reopen their bankruptcy proceedings so that the Trustee could administer this
previously undisclosed lawsuit and other undisclosed debts on behalf of the
estate and the creditors, which Defendants opposed. The bankruptcy court
granted the Kanes’ motion to reopen on September 28, 2006.
Defendants removed the case to federal court on October 20, 2006,
invoking the federal district court’s “related to” bankruptcy jurisdiction under
1
National Union Fire Insurance Company was dismissed from the Kanes’ personal
injury action on January 6, 2005, prior to Qwest’s removal of this case to federal court.
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No. 07-30611
28 U.S.C. §§ 1334(c)(2) and 1452. On November 22, 2006, Defendants moved for
summary judgment in federal district court, again arguing that the Kanes
should be judicially estopped from pursuing their claim as a matter of law, citing
this court’s decision in In re Superior Crewboats, Inc., 374 F.3d 330. On January
30, 2007, the Trustee moved to substitute himself for the Kanes as the real party
in interest in the lawsuit. On May 29, 2007, the district court granted
Defendants’ motion for summary judgment, applying judicial estoppel to bar the
Kanes from pursuing their claim and summarily dismissing as moot the
Trustee’s motion to be substituted as the real party in interest, a result the
district court perceived In re Superior Crewboats, Inc. prescribed. This timely
appeal followed.
II. STANDARD OF REVIEW
“We review a grant of summary judgment de novo, viewing all evidence in
the light most favorable to the nonmoving party and drawing all reasonable
inferences in that party’s favor.” In re Katrina Canal Breaches Litig., 495 F.3d
191, 205–06 (5th Cir. 2007) (citing Crawford v. Formosa Plastics Corp., 234 F.3d
899, 902 (5th Cir. 2000)), cert. denied, Xavier Univ. of La. v. Travelers Cas. Prop.
Co. of Am., 128 S. Ct. 1230 (2008) and Chehardy v. Allstate Indem. Co., 128 S.Ct.
1231 (2008). Summary judgment is proper when “the pleadings, the discovery
and disclosure materials on file, and any affidavits show that there is no genuine
issue as to any material fact and that the movant is entitled to judgment as a
matter of law.” FED. R. CIV. P. 56(c). But, because “judicial estoppel is an
equitable doctrine, and the decision whether to invoke it [is] within the court’s
discretion, we review for abuse of discretion” the lower court’s decision to invoke
it. Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197, 205 (5th
Cir. 1999). “However, an abuse of discretion standard does not mean a mistake
of law is beyond appellate correction, because [a] district court by definition
abuses its discretion when it makes an error of law.” In re Superior Crewboats,
Inc., 374 F.3d at 334 (internal citations and quotation marks omitted).
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No. 07-30611
“Accordingly, the abuse of discretion standard includes review to determine that
the discretion was not guided by erroneous legal conclusions.” In re Coastal
Plains, Inc., 179 F.3d at 205 (internal quotation marks omitted).
We also review for abuse of discretion a district court’s denial of a motion
to substitute the trustee for the debtor as the party plaintiff. Wieburg v. GTE
Sw. Inc., 272 F.3d 302, 308 (5th Cir. 2001) (addressing a motion to substitute as
the proper party in interest under Rule 17(a) of the Federal Rules of Civil
Procedure) (citing Collateral Control Corp. v. Deal (In re Covington Grain Co.),
638 F.2d 1357, 1360 (5th Cir. 1981) (holding that a Rule 25 motion to substitute
the real party in interest following a transfer of interest while the litigation is
pending is reviewed for abuse of discretion)). Questions of law, including
interpretation and application of the Bankruptcy Code, are reviewed de novo.
State Farm Life Ins. Co. v. Swift (In re Swift), 129 F.3d 792, 795 (5th Cir. 1997).
III. DISCUSSION
The district court relied on this court’s decision in In re Superior
Crewboats, Inc., 374 F.3d 330, to conclude as a matter of law that the equitable
doctrine of judicial estoppel should apply to bar the Kanes from pursuing their
claim, and as a result, that the Trustee’s motion to substitute himself as the real
party in interest is moot. Also, Defendants argue for the first time on appeal
that even if the Trustee’s motion to substitute himself as the real party in
interest was improperly denied as moot, relying on our decision in Wieburg, 272
F.3d 302, it should be denied as untimely under Rule 17(a). Because we
conclude that the district court asked too much of our decision in In re Superior
Crewboats, Inc., we reverse and remand. Defendants’ Rule 17(a) argument
should be presented first to the district court.
A. Background Legal Principles
Pursuant to the Bankruptcy Code, debtors are under a continuing duty to
disclose all pending and potential claims. 11 U.S.C. § 521(1); In re Coastal
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No. 07-30611
Plains, Inc., 179 F.3d at 207–08. Generally, if a debtor fails to schedule an asset,
and the trustee later discovers it, the trustee may reopen the bankruptcy case
to administer the asset on behalf of the creditors. 11 U.S.C. § 350(b); 3 COLLIER
ON BANKRUPTCY § 350.03[1] (Alan N. Resnick & Henry J. Sommer eds., 15th ed.
rev. 2008). As one of our bankruptcy courts has observed:
It is not serendipitous that the Bankruptcy Code
has an explicit provision that prevents the loss of assets
that a debtor fails to disclose in [b]ankruptcy
[s]chedules. It happens all the time, especially with
claims. And when it does, cases are routinely reopened,
in accordance with the statute, to administer those
assets.
In re Miller, 347 B.R. 48, 53 (Bankr. S.D. Tex. 2006) (citations omitted).
Section 541 of the Bankruptcy Code provides that virtually all of a debtor’s
assets, including causes of action belonging to the debtor at the commencement
of the bankruptcy case, vest in the bankruptcy estate upon the filing of a
bankruptcy petition. 11 U.S.C. § 541(a)(1); In re Swift, 129 F.3d at 795; 5
COLLIER ON BANKRUPTCY § 541.08. Thus, a trustee, as the representative of the
bankruptcy estate, is the real party in interest, and is the only party with
standing to prosecute causes of action belonging to the estate once the
bankruptcy petition has been filed. 11 U.S.C. §§ 323, 541(a)(1); Wieburg, 272
F.3d at 306.
“Once an asset becomes part of the bankruptcy estate, all rights held by
the debtor in the asset are extinguished unless the asset is abandoned” by the
trustee to the debtor pursuant to § 554.2 Parker v. Wendy’s Int’l, Inc., 365 F.3d
1268, 1272 (11th Cir. 2004); see 11 U.S.C. § 554; 5 COLLIER ON BANKRUPTCY
§§ 541.04, 541.08. In a Chapter 7 case, “[a]t the close of the bankruptcy case,
property of the estate that is not abandoned under § 554 and that is not
2
Property may also be exempted from the bankruptcy estate notwithstanding § 541,
see § 522(b), but the exemption provisions are not at issue in this case.
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No. 07-30611
administered in the bankruptcy proceedings”—including property that was
never scheduled—“remains the property of the estate.” Parker, 365 F.3d at
1272; 11 U.S.C. § 554(d); 5 COLLIER ON BANKRUPTCY § 541.08. But, “upon
abandonment . . . the trustee is . . . divested of control of the property because
it is no longer part of the estate . . . . Property abandoned under [§] 554 reverts
to the debtor, and the debtor’s rights to the property are treated as if no
bankruptcy petition was filed.” 5 COLLIER ON BANKRUPTCY § 554.02[3]; 11 U.S.C.
§ 554; see In re Lair, 235 B.R. 1, 22 (Bankr. M.D. La. 1999).
“Judicial estoppel is a common law doctrine that prevents a party from
assuming inconsistent positions in litigation.” In re Superior Crewboats, Inc.,
374 F.3d at 334 (citing Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir.
1988)). “‘The purpose of the doctrine is to protect the integrity of the judicial
process by preventing parties from playing fast and loose with the courts to suit
the exigencies of self interest.’” Id. (quoting In re Coastal Plains, Inc., 179 F.3d
at 205). As an equitable doctrine, “[g]enerally, judicial estoppel is invoked where
‘intentional self-contradiction is being used as a means of obtaining unfair
advantage in a forum provided for suitors seeking justice.’” Id. at 334–35
(quoting Scarano v. Cent. R.R. Co., 203 F.2d 510, 513 (3d Cir. 1953)).
We have recognized three particular requirements that must be met in
order for judicial estoppel to operate: “(1) the party is judicially estopped only
if its position is clearly inconsistent with the previous one; (2) the court must
have accepted the previous position; and (3) the non-disclosure must not have
been inadvertent.” Id. at 335 (citations omitted). In the context of judicial
estoppel, “inadvertence” requires either that “the debtor . . . lacks knowledge of
the undisclosed claim[ ] or has no motive for [its] concealment.” Id. (emphasis
in original). In this circuit, we have applied judicial estoppel to bar an
unscheduled claim when others, the debtors or other insiders, would benefit to
the detriment of creditors if the claim were permitted to proceed. See id.; In re
Coastal Plains, Inc., 179 F.3d 197.
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No. 07-30611
B. Application to the Case at Bar
The district court held as a matter of law that our decision in In re
Superior Crewboats, Inc., 374 F.3d 330, controls the outcome of the case before
us. We disagree.
In In re Superior Crewboats, Inc., we were asked only to consider whether
debtors could pursue claims for their own benefit that they failed to disclose in
their bankruptcy schedules. Id. at 334. In that case, one of the debtors was
allegedly injured disembarking a ship owned and operated by the defendant. Id.
at 333. Subsequently, he and his wife filed for Chapter 13 bankruptcy and failed
to disclose their potential claim. Id. While their bankruptcy case was pending,
the debtors sued the defendant in state court without amending their
bankruptcy schedules to include the claim. Id. The debtors’ bankruptcy was
converted from Chapter 13 to Chapter 7. Id. And, at the creditors’ meeting
required under 11 U.S.C. § 341, the debtors told the bankruptcy trustee about
their claim against the defendant, but represented that it was proscribed by the
statute of limitations. Id.
Shortly after the meeting, the trustee formally abandoned the claim
pursuant to 11 U.S.C. § 554, id., and the interest in the claim reverted to the
debtors as though the bankruptcy had never been filed, see § 554; 5 COLLIER ON
BANKRUPTCY § 554.02[3]; see also In re Lair, 235 B.R. at 22; In re CVA Gen.
Contractors, Inc., 267 B.R. 773, 780 n.7 (Bankr. W.D. Tex. 2001). A few months
after the debtors received their discharge, they responded to an admiralty
limitation of liability proceeding filed by the defendant with a complaint to
recover damages for the one debtor’s alleged injury. In re Superior Crewboats,
Inc., 374 F.3d at 333. The defendant in that case informed the trustee that the
debtors were continuing to pursue their prepetition claim, and the trustee moved
to reopen the bankruptcy. Id. The defendant filed a motion to dismiss arguing
that the debtors’ “claim was barred by judicial estoppel and Federal Rule of Civil
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No. 07-30611
Procedure 17(a), which requires a suit to be brought by the real party in
interest.” Id. at 334. In response to the defendant’s motion for summary
judgment, the trustee filed a motion to substitute himself as the proper party in
interest under Rule 17(a). Id. at 333–34. We concluded, on those facts, that the
debtors were barred from pursuing their claim by the equitable doctrine of
judicial estoppel, and that the trustee’s Rule 17(a) motion was moot after we
granted summary judgment for defendants. Id. at 336.
There, because the trustee had abandoned the claim, he was not the real
party in interest and was not entitled to be substituted as such. Rather,
following the trustee’s abandonment, the interest in the claim had reverted to
the debtors, who then stood to collect a windfall from their failure to schedule
the asset at the expense of their creditors. In the case before us, the Kanes’
personal injury claim became an asset of their bankruptcy estate when they filed
their Chapter 7 petition. The Trustee became the real party in interest in the
Kanes’ lawsuit at that point and never abandoned his interest therein. Thus,
unlike in In re Superior Crewboats, Inc.—where the debtors stood to benefit
directly from pursuing their claim at the expense of their creditors, and the
district court’s dismissal of the claim against the debtors mooted the trustee’s
motion to substitute as a matter of law—here, the Trustee is the real party in
interest and has reopened the Kanes’ Chapter 7 bankruptcy to pursue the Kanes’
claim for the benefit of the estate’s creditors.
Moreover, the Kanes stand to benefit only in the event that there is a
surplus after all debts and fees have been paid. As the bankruptcy court aptly
observed in In re Miller, “There is a statutorily explicit difference between cases
in which property is not listed in the [b]ankruptcy [s]chedules but is disclosed
and administered (as in the Superior Crewboats case . . .) and the instant case
in which property was not disclosed and was not administered.” 347 B.R. at 53.
Consequently, In re Superior Crewboats, Inc. does not require the application of
the equitable doctrine of judicial estoppel in this case as a matter of law.
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No. 07-30611
Similarly, neither does it follow from our decision in In re Coastal Plains,
Inc., 179 F.3d 197, that judicial estoppel should apply in this case. Key to our
decision in that case was the fact that an insider—the CEO of the debtor
corporation who formed a new corporation and purchased the assets of the
debtor corporation at a fraction of their value due to his own failure to disclose
claims at issue in the case—would benefit in great disproportion to the estate.
Id. at 202–03, 212. In deciding that the equitable doctrine of judicial estoppel
should apply in that case, we observed:
Coastal [Plains, Inc.] avoided paying its debts by
filing bankruptcy. Yet [Industrial Clearinghouse, Inc.],
formed by Coastal’s CEO, purchased Coastal’s assets,
including the undisclosed $10 million claim against [the
defendant], for only $1.24 million, and continued to sell
[the defendant’s] former inventory at discounted prices,
then obtained a net judgment of $3.6 million against
[the defendant] on the undisclosed claims. For facts
similar to those at hand, the bankruptcy court’s
interpretation of the “inadvertence” exception for
judicial estoppel [(accepting reliance on the advice of
counsel as an excuse for failing to schedule the claim in
bankruptcy)] would encourage bankruptcy debtors to
conceal claims, write off debts, purchase debtor assets
at bargain prices, and then sue on undisclosed claims
and possibly recover windfalls . . . .
Needless to say, judicial estoppel is intended to
prevent just such a process.
Id. at 213.
In this case, no such equitable concerns inhere. Rather, the only way the
Kanes’ creditors would be harmed is if judicial estoppel were applied to bar the
Trustee from pursuing the claim against Defendants on behalf of the estate. In
this case, equity favors the Trustee. For as Judge Easterbrook noted in a
Seventh Circuit case suggesting that a bankruptcy trustee should be able to
pursue a claim on behalf of the creditors that the debtor himself would be
judicially estopped from pursuing:
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No. 07-30611
[The debtor’s] nondisclosure in bankruptcy harmed his
creditors by hiding assets from them. Using this same
nondisclosure to wipe out [the debtor’s claim against
the defendant] would complete the job by denying
creditors even the right to seek some share of the
recovery. Yet the creditors have not contradicted
themselves in court. They were not aware of what [the
debtor] has been doing behind their backs. Creditors
gypped by [the debtor’s] maneuver are hurt a second
time by the district judge’s decision. Judicial estoppel
is an equitable doctrine, and using it to land another
blow on the victims of bankruptcy fraud is not an
equitable application.
Biesek v. Soo Line R.R. Co., 440 F.3d 410, 413 (7th Cir. 2006).
With respect to Defendants’ argument that even if the Kanes’ claim is not
barred by judicial estoppel, our decision in Wieburg, 272 F.3d 302, requires that
the Trustee’s motion to substitute as party plaintiff must be denied under Rule
17(a) of the Federal Rules of Civil Procedure, we are initially unpersuaded. But
Defendants did not raise this issue in the district court. The district court
should have the first crack at it. See Jethroe v. Omnova Solutions, Inc., 412 F.3d
598, 601 (5th Cir. 2005). Also unpersuasive, and raised for the first time on
appeal, is Defendants’ argument that the Trustee’s motion to substitute was
untimely because it was not filed until after Defendants moved for summary
judgment on judicial estoppel grounds. The district court should address this
first.
IV. CONCLUSION
For the reasons stated above, we hold that In re Superior Crewboats, Inc.,
374 F.3d 330, does not control the outcome of this case, and that the district
court abused its discretion by concluding as a matter of law that it does.
Consequently, we REVERSE and REMAND for further proceedings consistent
with this opinion.
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