John A. Urbick, V The Spencer Law Firm, Llc

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

JOHN A. URBICK, a single man,
No. 74132-2-1
Appellant,
DIVISION ONE

THE SPENCER LAW FIRM, LLC, a PUBLISHED OPINION
Washington limited liability company;
JOHN R. SPENCER and JANE DOE
CO
SPENCER, and the marital community en
composed thereof,

Respondents,

PAMELA P. FOLEY and JOHN DOE
FOLEY, and the marital community
thereof,
FILED: February 1,2016
Defendants.

Leach, J. — Courts apply the equitable doctrine of judicial estoppel to

protect the integrity of the judicial process by precluding a party from gaining an

advantage by asserting one position in a court proceeding and later seeking an

advantage by taking a clearly inconsistent position. Here, the appellant-debtor

knew all of the facts that gave rise to his potential claim of legal malpractice at

the time he filed for bankruptcy, yet he failed to disclose it until almost three

years after receiving a discharge from the bankruptcy court. While judicial

estoppel generally does not apply to the bankruptcy trustee, here no one asked
NO. 74132-2-1/2

the trial court to substitute the bankruptcy trustee as the real party in interest.

The trial court did not abuse its discretion by applying the doctrine of judicial

estoppel to bar this legal malpractice claim. We affirm the trial court.

FACTS

On January 8, 2013, John Urbick filed a complaint against the Spencer

Law Firm for professional negligence and violations of the Consumer Protection

Act, chapter 19.86 RCW. He claimed Spencer failed to provide adequate

representation in connection with his financial difficulties, particularly his

delinquencies in a loan with Prime Pacific Bank for an auto repair shop he
purchased in 2007. Urbick pledged various rental properties to secure this loan.
In May 2009, motivated by Prime Pacific's threat to lock him outofthe auto repair
shop, Urbick hired the Spencer Law Firm to help with his financial problems.
Shortly after hiring Spencer, Urbick learned that Spencer went to Alaska for
several months. Spencer's associate met with Urbick. Spencer's complaint

alleges that the associate lacked the experience and skill needed to handle his

financial problems.

On December 7, 2009, Prime Pacific Bank sent Urbick a notice of

foreclosure. Urbick's loan with Prime Pacific was $35,926 in arrears with costs

totaling an additional $9,000. In January 2010, Spencer told Urbick that he
wanted to refer him to another attorney.
NO. 74132-2-1/3

About three months later, on April 13, 2010, Urbick, represented by a

different law firm, filed bankruptcy. Urbick did not list his potential claim against

Spencer on his asset schedules or otherwise disclose it in his bankruptcy
pleadings. In May 2010, Urbick amended his bankruptcy schedules but again did
not include this potential claim. Urbick received a bankruptcy discharge on July

27, 2010.

In November 2012, Urbick reopened his bankruptcy to list the possible

claim. Urbick filed amendments to his bankruptcy schedules on December 13,

2012. In January 2013, he filed suit against Spencer in superiorcourt.

Urbick's complaint "reserve[d] the right to substitute the Trustee in

Bankruptcy as the real party in interest, as that issue has yet to be determined."
On July 30, 2014, an ex parte order in the bankruptcy case authorized the then
trustee, Kathryn Ellis, to employ Urbick's counsel.

On August 29, 2014, Spencer filed a motion for summary judgment
dismissal. Urbick did not move to substitute or join the trustee as a real party in

interest. Nor did the trustee ever move to intervene. The trial court determined

that judicial estoppel barred Urbick from bringing this action and dismissed his
complaint.

Urbick moved for reconsideration and submitted the bankruptcy trustee's

declaration. It described her as the real party in interest who should be
NO. 74132-2-1/4

substituted as the plaintiff. Neither Urbick nor the trustee filed any motion to

substitute the trustee. The trial court denied the motion for reconsideration.

Urbick appeals.

ANALYSIS

This court reviews summary judgment orders de novo, affirming only if the

record shows no genuine issues of material fact exist, viewing that record in the

light most favorable to the nonmoving party.1 But this court reviews a trial court's

decision applying the judicial estoppel doctrine for abuse of discretion.2 A trial

court abuses its discretion when it bases its decision on untenable or

unreasonable grounds.3

Judicial estoppel is an equitable doctrine intended to protect the integrity

of the judicial process by preventing a party from gaining an advantage by

asserting one position in a court proceeding and later seeking an advantage by

taking a clearly inconsistent position.4

On summary judgment, a party can ask the trial court to bar claims based

on an inconsistent position taken in an earlier proceeding under the doctrine of

judicial estoppel. The failure to disclose a cause of action in a bankruptcy

1 Cunningham v. Reliable Concrete Pumping. Inc., 126 Wn. App. 222,
226-27, 108 P.3d 147 (2005).
2 Arkison v. Ethan Allen. Inc., 160 Wn.2d 535, 538, 160 P.3d 13 (2007);
Harris v. Fortin, 183 Wn. App. 522, 526-27, 333 P.3d 556 (2014).
3 Harris, 183 Wn. App. at 527.
4 Arkison, 160 Wn.2d at 538.
-4-
NO. 74132-2-1/5

schedule constitutes an inconsistent prior position if the debtor later seeks

recovery from that cause of action.5 Schedules, amendments, and the meeting

of the creditors all provide the debtor an opportunity to disclose assets and

liabilities. A debtor makes the statements in these pleadings and at this meeting

under penalty of perjury. If the court grants a discharge based on them, the court

accepts them as the debtor's position for purposes of judicial estoppel.6

To defeat summary judgment, the nonmoving party must present evidence

raising an issue of fact about one of the factors guiding a court's application of

judicial estoppel or show that the trial court abused its discretion when applying

the doctrine.

In Arkison v. Ethan Allen, Inc.,7 our Supreme Court set forth three

fundamental factors to guide a court's application of judicial estoppel:

(1) whether "a party's later position" is "clearly inconsistent with its
earlier position"; (2) whether "judicial acceptance of an inconsistent
position in a later proceeding would create the perception that
either the first or the second court was misled"; 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."

5 Bartlev-Williams v. Kendall, 134 Wn. App. 95, 98-99, 138 P.3d 1103
(2006).
6 Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 784 (9th Cir.
2001).
7 160 Wn.2d 535, 538-39, 112 P.3d 13 (2007) (internal quotation marks
omitted) (quoting New Hampshire v. Maine, 532 U.S. 742, 750-51, 121 S. Ct.
1808, 149 L. Ed. 2d 968 (2001)).
-5-
NO. 74132-2-1/6

Washington courts have consistently held that a debtor's failure to disclose a

potential claim or other asset in a bankruptcy proceeding bars the debtor from

later asserting the claim or seeking recovery of the asset after discharge. Even

when a debtor lists a claim but asserts that it has no value, the doctrine bars the

debtor from bringing a later suit to recover that claim.8

"A bankruptcy debtor has an affirmative duty under the bankruptcy code

'to disclose all assets, including contingent and unliquidated claims.'"9 The

debtor obtains an unfair advantage by obtaining a discharge without giving the

creditors a fair opportunity to lay claim to the hidden assets.10 The doctrine

protects the integrity of the bankruptcy courts11 and prevents parties from hiding

causes of actions during bankruptcy proceedings, obtaining a "valuable benefit in

the discharge of. . . debts," and then asserting a claim in a different forum to

win.12 Courts apply judicial estoppel at their own discretion, determining on a

case-by-case basis if applying the doctrine is appropriate.13

8 Harris, 183 Wn. App. at 529-30.
9 Arkison, 160 Wn.2d at 539 n.1 (internal quotation marks omitted)
(quoting Cunningham, 126 Wn. App. at 229-30).
10 Ah Quin v. County of Kauai Dep't of Transp., 733 F.3d 267, 271 (9th Cir.
2013).
11 In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999).
™ Cannon-Stokes v. Potter, 453 F.3d 446, 447-48 (7th Cir. 2006) (citing
six appellate courts holding "that a debtor in bankruptcy who denies owning an
asset, including a chose in action or other legal claim, cannot realize on that
concealed asset after the bankruptcy ends. See Pavless Wholesale Distributors,
Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570 (1st Cir. 1993); Krvstal Cadillac-
Oldsmobile GMC Truck, Inc. v. General Motors Corp., 337 F.3d 314 (3d Cir.
-6-
NO. 74132-2-1/7

Urbick argues that judicial estoppel should not bar his claim both because

he amended his bankruptcy schedules and the trustee employed his counsel to

pursue Urbick's claim. He further contends that he is the appropriate party in the

action because he would be entitled to any surplus over and above what he

owed his creditors.

Urbick cites several cases from other jurisdictions to support his position

that his reopening of the bankruptcy case overcomes judicial estoppel. But none

of those cases help him. In Jaeger v. Clear Wing Productions, Inc.,14 the federal

district court found genuine issues of material fact existed on whether Jaeger's

failure to disclose was calculated or inadvertent. But, as this court noted in

Cunningham v. Reliable Concrete Pumping, Inc.,15 failure to list an asset is

"'"inadvertent" only when, in general, the debtor either lacks knowledge of the

undisclosed claims or has no motive for their concealment.'" Here, Urbick knew

all the facts supporting the undisclosed claim.

2003); Jethroe v. Omnova Solutions, Inc., 412 F.3d 598 (5th Cir. 2005); United
States ex rel. Gebert v. Transport Administrative Services, 260 F.3d 909, 917-19
(8th Cir. 2001); Hamilton v. State Farm Fire & Casualty Co., 270 F.3d 778 (9th
Cir. 2001); Barger v. Cartersville, 348 F.3d 1289, 1293-97 (11th Cir. 2003).").
13 Arp v. Rilev. No. 72613-7-1, 2015 WL 9461609, at *5 (Wash. Ct. App.
Dec. 28,2015).
14 465 F. Supp. 2d 879, 882 (S.D. III. 2006).
15 126 Wn. App 222, 234, 108 P.3d 147 (2005) (internal quotation marks
omitted) (quoting Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1287 (11th Cir.
2002)).
-7-
NO. 74132-2-1/8

Nor does Old Republic Insurance Co. v. Farmer16 support Urbick's

position. Unlike here, the claim in Old Republic was not an asset of the

bankruptcy estate because it did not arise until after plan confirmation in a

chapter 13 bankruptcy proceeding.

Judicial estoppel usually does not apply when the bankruptcy trustee has

been substituted as the real party in interest.17 In this circumstance, the claim

belongs to the trustee, and therefore the "debtor has no interest left to pursue

once the bankruptcy trustee has been substituted."18 Thus, no party has

asserted an inconsistent position because the debtor has no position in the latter

lawsuit.19

Urbick asserts that the trustee's declarations sufficiently established her

as the real party in interest. But neither Urbick nor the trustee ever filed a motion

to make the trustee the real party in interest. Although the debtor's complaint

alluded to the trustee as a possible intervenor, no one ever did anything to

accomplish that. In fact, quite the opposite occurred. Urbick obtained an ex

parte order to reopen the bankruptcy case in November of 2012. Eight months

16 324 B.R. 918, 922 (M.D. Ga. 2005).
17 Miller v.Campbell, 164 Wn.2d 529, 542, 192 P.3d 352 (2008).
18 Miller, 164 Wn.2d at 542.
19 Miller, 164 Wn.2d at 542.
-8-
NO. 74132-2-1/9

later, the parties filed a confirmation of joinder in which they represented to the

court that no additional parties would be joined.20

A year later, Urbick obtained an ex parte order authorizing an appointment

of special counsel for the trustee. That order authorized the trustee to employ

Urbick's counsel "as special counsel for the Trustee with respect to the

prosecution of the debtor's malpractice claims."

In opposition to the summary judgment proceeding, Urbick submitted a

declaration of Kathryn Ellis, dated October 14, 2014. In that declaration, Ellis

stated that neither she nor any creditor objected to the amended schedules that

included "a potential malpractice action against former attorney." The declaration

also stated that Urbick would receive any surplus proceeds left after payment of

all costs of administration and creditor claims. Ellis also stated that the claim

might result in an amount in excess of the creditor claims and costs. Yet again,

no motion to substitute the trustee as real party in interest occurred. Indeed, at

oral argument, Urbick's counsel admitted that the trustee was not yet a party.

Only after the court dismissed the lawsuit did Urbick submit the second

declaration of Ellis supporting his motion for reconsideration. In that second

declaration, Ellis stated that she was the real party in interest and should be

20 Pierce County Local Rule 19(b) provides that no additional parties may
be joined and no additional claims or defenses may be raised after the date
designated in the case schedule.
-9-
NO. 74132-2-1/10

substituted as the plaintiff. Yet no motion was ever filed. The trial court denied

the motion for reconsideration without argument or response from the defendant.

Conclusion

Here, because Urbick benefited from the asserted inconsistent claims

accepted by the bankruptcy court, the trial court did not abuse its discretion in

determining that judicial estoppel barred his claim. We affirm.

/**«*> jf.
WE CONCUR:

j|9lir^<*~;C'Q ,

•10-