RENDERED: APRIL 22, 2022; 10:00 A.M.
NOT TO BE PUBLISHED
OPINION OF FEBRUARY 4, 2022, WITHDRAWN
Commonwealth of Kentucky
Court of Appeals
NO. 2020-CA-0922-MR
ELIZABETH HARAC, INDIVIDUALLY APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
v. HONORABLE ANNIE O’CONNELL, JUDGE
ACTION NO. 14-CI-006247
NORTON HOSPITALS, INC. D/B/A NORTON
HOSPITAL; JORGE L. RODRIGUEZ, M.D.;
UNIVERSITY SURGICAL ASSOCIATES, P.S.C.;
UNIVERSITY OF LOUISVILLE PHYSICIANS, INC.;
COMMUNITY MEDICAL ASSOCIATES, INC. D/B/A
NORTON MEDICAL GROUP D/B/A NORTON SURGICAL
SPECIALISTS; KATHRYN L. PRY, ESQ., AS TRUSTEE
FOR THE BANKRUPTCY ESTATE OF ELIZABETH
HARAC; AND UNIVERSITY OF LOUISVILLE
SCHOOL OF MEDICINE APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: GOODWINE, K. THOMPSON, AND L. THOMPSON, JUDGES.
THOMPSON, L., JUDGE: Elizabeth Harac appeals from orders of the Jefferson
Circuit Court which granted summary judgment in favor of Norton Hospitals, Inc.
(hereinafter referred to as Norton); Jorge Rodriguez, M.D.; and University Surgical
Associates, P.S.C. in a medical malpractice action. Appellant argues the trial court
erred in granting summary judgment on the basis of judicial estoppel. We believe
that summary judgment is inappropriate at this time; therefore, we reverse and
remand.
FACTS AND PROCEDURAL HISTORY
Appellant underwent a lap band surgical procedure on December 20,
2013. The procedure was performed by Dr. Rodriguez at Norton Hospital. During
the procedure, Appellant alleges Dr. Rodriguez perforated her bowel, but failed to
realize this mistake. Appellant felt unwell after her surgery, but she was eventually
discharged on December 21, 2013. The next day, she returned to the hospital with
issues that resembled possible complications from the surgery. She was examined,
but eventually went into cardiac arrest. She went nearly nine minutes without a
heartbeat but was revived. Exploratory surgery revealed a gastric leak. Appellant
remained hospitalized until the end of March of 2014. According to her deposition
testimony, she recalls very little of her time in the hospital and has been diagnosed
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with an anoxic brain injury1 with permanent neurocognitive brain deficits and
speech issues.
During Appellant’s hospitalization, Appellant’s husband, Ian Harac,
contacted an attorney to begin bankruptcy proceedings for debts unrelated to the
hospitalization. Those debts totaled around $40,000. In addition, Mr. Harac began
speaking to attorneys about a possible medical malpractice suit. In March of 2014,
before Appellant was released from the hospital, Ronald Wilt, Esq. was hired for
the civil claims and began investigating the potential cause of action. In
September of 2014, a petition for Chapter 7 bankruptcy was filed. None of the
documents filed with the bankruptcy petition listed a potential medical malpractice
claim as an asset of the Haracs.
On November 5, 2014, during a meeting of the creditors, the
bankruptcy trustee asked the Haracs, under oath, if they were parties to a lawsuit or
expected to be parties to a lawsuit where they could recover money or property.
They both responded in the negative. On November 20, 2014, Mr. Wilt informed
the Haracs that he believed they had a viable medical malpractice case and that he
would file the cause of action. On December 5, 2014, the underlying medical
malpractice lawsuit was filed. In January of 2015, the debts of the Haracs were
discharged by the bankruptcy court. At no time between the filing of the medical
1
A brain injury caused by lack of oxygen.
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malpractice lawsuit and the discharge of the debts did the Haracs inform the
bankruptcy court or trustee about the medical malpractice lawsuit being filed.
On October 4, 2016, during Appellant’s deposition, counsel for
Norton asked Appellant if she had ever filed for bankruptcy. She replied in the
affirmative. On November 16, 2016, Norton filed a motion for summary judgment
arguing that Appellant should be judicially estopped from pursuing her malpractice
action because she did not inform the bankruptcy court of the lawsuit. On January
3, 2017, Appellant moved to reopen her bankruptcy action in order to list the
lawsuit as an asset. The bankruptcy court granted the motion to reopen.
On July 25, 2017, oral argument was had on the motion for summary
judgment. On July 31, 2017, the trial court granted Norton’s motion. The trial
court held that because Appellant had made a sworn statement before the
bankruptcy trustee that she was not a party to any potential lawsuits, judicial
estoppel was appropriate. The trial court also held that the bankruptcy trustee
should be added to the cause of action and could pursue the medical malpractice
action on behalf of the creditors. The court held that any amount won above that
needed to satisfy Appellant’s creditors would then be returned to Appellees. Soon
after this order was entered, Dr. Rodriguez and University Surgical Associates
moved to join in Norton’s summary judgment. That motion was granted, and Dr.
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Rodriguez and University Surgical Associates were granted summary judgment
based on judicial estoppel.
Appellant then sought to remove this case to the bankruptcy court.
Appellant believed the bankruptcy court would be the more appropriate venue to
decide the judicial estoppel issue. The attempt to do this failed. Appellant then
moved for a trial date. Norton objected and moved to make the summary judgment
order final and appealable. On June 24, 2020, the Jefferson Circuit Court entered
an order making the summary judgment order final and appealable. This appeal
followed.
ANALYSIS
Appellant’s first argument on appeal is that the judicial estoppel issue
should be heard by the bankruptcy court. We disagree. Non-bankruptcy courts
routinely deal with this issue and the Jefferson Circuit Court was the appropriate
venue. See Mefford v. Norton Hosps., Inc., 507 S.W.3d 580 (Ky. App. 2016);
Stephenson v. Malloy, 700 F.3d 265 (6th Cir. 2012); White v. Wyndham Vacation
Ownership, Inc., 617 F.3d 472 (6th Cir. 2010); Slater v. United States Steel
Corporation, 871 F.3d 1174 (11th Cir. 2017); Ledesma v. AT & T Corporation,
No. 2016-CA-000695-MR, 2018 WL 480764 (Ky. App. Jan. 19, 2018).
Appellant’s next argument on appeal is that the trial court erred in
granting summary judgment because there are still genuine issues of material fact
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regarding judicial estoppel. We will first set forth the summary judgment standard
of review and then we will discuss the general tenets of judicial estoppel.
The standard of review on appeal of a summary
judgment is whether the trial court correctly found that
there were no genuine issues as to any material fact and
that the moving party was entitled to judgment as a
matter of law. . . . “The record must be viewed in a light
most favorable to the party opposing the motion for
summary judgment and all doubts are to be resolved in
his favor.” Summary “judgment is only proper where the
movant shows that the adverse party could not prevail
under any circumstances.” Consequently, summary
judgment must be granted “[o]nly when it appears
impossible for the nonmoving party to produce evidence
at trial warranting a judgment in his favor[.]”
Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996) (citations omitted).
“Because summary judgment involves only legal questions and the existence of
any disputed material issues of fact, an appellate court need not defer to the trial
court’s decision and will review the issue de novo.” Lewis v. B & R Corporation,
56 S.W.3d 432, 436 (Ky. App. 2001).
The doctrine of judicial estoppel evolved as an
equitable principle intended to protect the integrity of the
judicial process by prohibiting a party from taking
inconsistent positions in judicial proceedings. Colston
Investment Co. v. Home Supply Co., 74 S.W.3d 759, 763
(Ky. App. 2001). However, its consequences are harsh
and may bind a party to a position without regard to the
“truth-seeking function of the court.” Eubanks v. CBSK
Financial Group Inc., 385 F.3d 894, 897 (6th Cir. 2004).
Consequently, it should be cautiously applied and only
when the integrity of the judicial process will be
protected. Id.
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Generally, several factors are considered when
determining whether to apply the doctrine: “(1) whether
the party’s later position is clearly inconsistent with its
earlier position; (2) whether the party succeeded in
persuading a court to accept the 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.”
Hisle v. Lexington-Fayette Urban Cty. Gov’t, 258
S.W.3d 422, 434-35 (Ky. App. 2008). These same
factors have been applied on a modified basis in the
bankruptcy context where a debtor fails to disclose an
asset either in the original bankruptcy petition or by
subsequent amendment.
Quoting Teledyne Indus. v. N.L.R.B., 911 F.2d
1214, 1218 (6th Cir. 1990), Browning v. Levy, 283 F.3d
761, 775-76 (6th Cir. 2002), stated the rule: A debtor
may be precluded “from (1) asserting a position that is
contrary to one that the party has asserted under oath in a
prior proceeding, where (2) the prior court adopted the
contrary position ‘either as a preliminary matter or as part
of a final disposition.’” The Court in Browning
emphasized that “judicial estoppel is inappropriate in
cases of conduct amounting to nothing more than mistake
or inadvertence.” Id. at 776. Two circumstances in
which a debtor’s failure to disclose might be deemed
inadvertent are “where the debtor lacks knowledge of the
factual basis of the undisclosed claims,” and the other
where “the debtor has no motive for concealment.” Id.
Mefford, 507 S.W.3d at 584-85. Additionally, the case of White, 617 F.3d 480,
added a bad faith element when determining whether judicial estoppel is
appropriate. This bad faith element was cited with approval by this Court in
Ledesma, 2018 WL 480764. In Ledesma, this Court stated that
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the absence of bad faith prevents the application of
judicial estoppel. White, 617 F.3d at 480; Stephenson v.
Malloy, 700 F.3d 265, 268 (6th Cir. 2012) (“White added
a bad-faith inquiry to the inadvertence prong of the
judicial-estoppel test[.]”). A debtor can demonstrate the
lack of bad faith by “showing her attempts to correct
her initial omission.” Id. Thus, “even if the debtor has
knowledge of a potential cause of action and a motive to
conceal it, if the plaintiff does not actually conceal it and
instead takes affirmative steps to fully inform the trustee
and the bankruptcy court of the action, it is highly
unlikely that the omission in the bankruptcy petition was
intentional.” Lewis [v. Weyerhaeuser Co., 141 Fed.
App’x 420, 436 (6th Cir. 2005)]. “Furthermore, since
judicial estoppel seeks to prevent parties from
abusing the judicial process through cynical
gamesmanship, the timing of [the debtor’s] effort is
also significant.” White, 617 F.3d at 480.
Id. at *5 (emphasis added).
Moreover, bad faith is not simply bad judgment or
negligence. “[I]t implies the conscious doing of a wrong
because of dishonest purpose or moral obliquity; . . . it
contemplates a state of mind affirmatively operating with
furtive design or ill will.” U.S. v. True, 250 F.3d 410,
423 (6th Cir. 2001).
Because bad faith necessarily operates to benefit
the actor, whether there was evidence of a ‘“motive or
intention’ to conceal the potential claim [is] critical to a
finding of bad faith[.]” White, 617 F.3d at 477.
Mefford, 507 S.W.3d at 588. All of the above-mentioned factors are not
“inflexible prerequisites or an exhaustive formula for determining the applicability
of judicial estoppel. Additional considerations may inform the doctrine’s
application in specific factual contexts.” New Hampshire v. Maine, 532 U.S. 742,
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751, 121 S. Ct. 1808, 1815, 149 L. Ed. 2d 968 (2001).
To reiterate, the primary factors to consider when determining
whether to apply the judicial estoppel doctrine in the bankruptcy context are as
follows: (1) whether a party’s later position is inconsistent with an earlier position;
(2) whether the party was successful in persuading a court to accept the earlier
position; and (3) this conduct was not simply due to mistake or inadvertence.
Mefford, 507 S.W.3d at 584-85. Courts should also consider whether there was an
element of bad faith involved when examining the third factor. White, 617 F.3d at
480.
In the case at hand, we agree with Appellees that the first two factors
have been met. Appellant did not inform the bankruptcy court about her intention
to file the medical malpractice lawsuit even though it was filed before the
bankruptcy case was completed. These are inconsistent positions. In addition, she
successfully persuaded the bankruptcy court that she had no assets, even though
contingent lawsuits should be included as an asset in bankruptcy proceedings, id. at
479 n.5, which resulted in her debts being discharged.
We believe the third factor, however, precludes summary judgment at
this stage because there are still genuine issues of material fact. The trial court
held that because Appellant did not inform the bankruptcy court of her potential
medical malpractice lawsuit, she should be estopped from moving forward with the
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case. In our judgment, Appellant has raised enough genuine issues of material fact
to question whether her failure to inform the bankruptcy court was done in bad
faith. “Because direct evidence of motive is difficult to produce, claims involving
proof of a defendant’s intent seldom lend themselves to summary disposition[.]”
Kennedy v. City of Villa Hills, Ky., 635 F.3d 210, 218 (6th Cir. 2011) (internal
quotation marks and citation omitted). Appellant introduced evidence that while
she was hospitalized, her husband and mother controlled the bankruptcy process.
In addition, when the bankruptcy petition was filed, the potential medical
malpractice claims were still being investigated by counsel and no definitive
decision had been made about whether a complaint would be filed. The same goes
for when Appellant was questioned by the bankruptcy trustee. At that time, no
decision had been made regarding the filing of a medical malpractice claim. Also
relevant is the fact that evidence in the record indicates that Appellant has suffered
from memory issues and cognitive decline since her anoxic brain injury. Also,
during Appellant’s deposition, when trial counsel for Norton asked her if she had
ever filed for bankruptcy, she honestly informed counsel that she had. Finally,
bankruptcy courts allow petitioners to reopen cases to administer assets left out of
the proceedings the first time. 11 U.S.C.2 § 350(b). This suggests that not all
omissions are done in bad faith.
2
United States Code.
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In summary, Appellant provided evidence to the court that suggests
she did not know that a potential medical malpractice claim was subject to the
bankruptcy proceedings and that she was hardly involved with the bankruptcy
proceedings due to her injuries. When reviewing an order granting summary
judgment, we must view the record in a light most favorable to the opposing party,
which in this case is Appellant. Appellant has raised enough issues regarding her
mental state and her limited involvement with the bankruptcy proceedings to make
summary judgment premature at this time.
We also considered relevant to this Opinion the fact that the trial court
did not hold an evidentiary hearing where Appellant and her husband could be
questioned and the court could gauge their credibility. We believe a finding of bad
faith requires a judgment of a person’s intent. Additionally, the summary
judgment order being appealed was short and did not include a great amount of
detail regarding the trial court’s reasoning for finding judicial estoppel was
applicable.
While we have examined this issue using the de novo standard of
review of an order granting summary judgment, we acknowledge that there is
conflicting case law regarding the standard of review for judicial estoppel. The
published case of Mefford, supra, reviewed judicial estoppel de novo, as we have
done; however, the unpublished case of Ledesma, supra, reviewed judicial estoppel
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under an abuse of discretion standard. In Ledesma, the Court stated that “judicial
estoppel is an equitable doctrine invoked by the court at its discretion. In
Kentucky, matters committed to the circuit court’s sound discretion are reviewed
by an appellate court for an abuse of discretion.” Ledesma, 2018 WL 480764, at
*2 (citations omitted). Out of an abundance of caution, we will also review this
issue pursuant to an abuse of discretion standard. “The test for abuse of discretion
is whether the trial judge’s decision was arbitrary, unreasonable, unfair, or
unsupported by sound legal principles.” Commonwealth v. English, 993 S.W.2d
941, 945 (Ky. 1999).
We believe that it was an abuse of discretion for the trial court to
apply judicial estoppel at this stage. As previously discussed, we believe that
Appellant has raised enough issues of material fact regarding her involvement with
the bankruptcy proceedings to make a finding of judicial estoppel unreasonable at
this time. In addition, we also find as relevant the fact that Appellant’s medical
malpractice claim was still being investigated when the bankruptcy petition was
filed. Had she filed her medical malpractice claim, then filed for bankruptcy and
not informed the bankruptcy trustee of her claim, then this case would turn out
differently. While Appellant may have suspected she was a victim of medical
malpractice, she was still in the preliminary phase of gathering information when
her bankruptcy petition was filed. Appellant has provided enough evidence to
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indicate she may not have known she had a potential medical malpractice claim;
therefore, the failure to disclose the potential claim could be due to mistake or
inadvertence.
Appellant’s final argument is that the trial court erred when it held
that the bankruptcy trustee could pursue the medical malpractice case and pay the
creditors with any proceeds won. Then, any funds left over would be returned to
Appellees so as to preclude Appellant from benefiting from her alleged bad faith
actions. The trial court cited to Reed v. City of Arlington, 650 F.3d 571 (5th Cir.
2011), which crafted a similar remedy. We believe this is appropriate. It would
protect the innocent creditors and punish Appellant if she acted in bad faith.
CONCLUSION
Based on the foregoing, we reverse and remand. Appellant has shown
that there are still genuine issues of material fact regarding whether she omitted the
potential medical malpractice lawsuit from her bankruptcy proceedings in bad
faith. Applying judicial estoppel is unreasonable at this time.
ALL CONCUR.
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BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE NORTON
HOSPITALS, INC.:
T.J. Smith
Louisville, Kentucky Patricia C. Le Meur
Joseph M. Effinger
ORAL ARGUMENT FOR Ryan D. Nafziger
APPELLANT: Louisville, Kentucky
Ronald Wilt ORAL ARGUMENT FOR
Louisville, Kentucky APPELLEE NORTON HOSPITALS,
INC.:
Joseph M. Effinger
Louisville, Kentucky
BRIEF FOR APPELLEES JORGE L.
RODRIGUEZ, M.D. AND
UNIVERSITY SURGICAL
ASSOCIATES, P.S.C.:
Beth H. McMasters
Ashley J. Butler
Amy L. Cooper
Louisville, Kentucky
ORAL ARGUMENT FOR
APPELLEES JORGE L.
RODRIGUEZ, M.D. AND
UNIVERSITY SURGICAL
ASSOCIATES, P.S.C.:
Ashley J. Butler
Louisville, Kentucky
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