PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 09-4254
____________
IN RE: THOMAS KANE
Thomas Kane,
Appellant
____________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civil No. 08-cv-05633)
District Judge: Honorable Freda L. Wolfson
____________
Submitted Under Third Circuit LAR 34.1(a)
November 16, 2010
____________
Before: BARRY, CHAGARES and VANASKIE, Circuit Judges
(Opinion Filed: December 21, 2010)
____________
Thomas Kane, Esq., Pro se
44 Magnolia Court
Lawrenceville, NJ 08648-0000
Shannon Kane, Pro se
14 Hazel Place
Lynbrook, NY 11563
____________
OPINION OF THE COURT
1
____________
BARRY, Circuit Judge
Thomas Kane appeals the judgment of the District Court
affirming the Bankruptcy Court‟s decision not to apply judicial
estoppel to the entirety of a proof of claim filed by his estranged
wife in his bankruptcy proceeding, and its conclusion that Ms.
Kane has standing to pursue equitable distribution as a post-
petition claim in that proceeding. We will affirm.
I. Background
Shannon and Thomas Kane were married in August of
2004. Two years later, Ms. Kane filed for divorce in Mercer
County, New Jersey, and moved to New York. In September of
2007, she presented her husband with a written settlement
proposal requesting, inter alia, equitable distribution, and
informing him that she intended to file for bankruptcy. On
September 20, 2007, she filed a Chapter 7 petition in the Eastern
District of New York. Her filing disclosed her estrangement
from Mr. Kane, and the pending divorce litigation:
1. Schedule A of her petition included details about the
couple‟s house and specified that “Debtor and her
husband are separated”;
2. Schedule F of her petition listed Mr. Kane as an
unsecured creditor, specifying “[p]ossible obligations
arising out of matrimonial proceeding” with a stated
amount of claim listed as “unknown”;
3. Ms. Kane‟s “Statement of Financial Affairs” listed the
couple‟s divorce proceeding by docket number, and
indicated its status as “Pending.”
App. at A111, A120, A128.
2
On November 8, 2007, the Trustee in Ms. Kane‟s
bankruptcy proceeding reviewed her petition at a 341 Meeting,
see 11 U.S.C. § 341, at which she was present with counsel. Mr.
Kane also attended in his capacity as a creditor listed on her
petition. He argued, as he argues now, that his wife‟s sworn
averments were “false and misleading because [they] failed to
disclose that she was simultaneously litigating her entitlement to
alimony, equitable distribution, and attorney‟s fees in another
court[.]” Appellant‟s Br. at 10.1 Nevertheless, after extensive
colloquy, the Trustee concluded: “For the record, I‟m satisfied
that the Debtor‟s disclosure was sufficient, that there are certain
omissions that she might have made, they‟re negligible.” Id. at
A174. The Trustee also confirmed that a “distributive award is
an asset of the Estate[.]” Id. at A176. Thereafter, on November
15, 2007, Ms. Kane filed an amended petition which disclosed a
claim for alimony and a pending lawsuit that did not appear in
her first petition. On November 20, 2007, the Trustee filed a
“Trustee‟s Letter of Assets” with the Bankruptcy Court in New
York, which in early 2008 granted Ms. Kane a discharge.
On April 8, 2008, Mr. Kane filed a Chapter 13
bankruptcy petition in the District of New Jersey, and his wife
1
Among the various matters that Mr. Kane alleges that Ms.
Kane failed to disclose, or misrepresented, are the following:
1. She “falsely responded” that “the value of any „alimony,
maintenance, support, and property settlements‟ in which
she „is or may be entitled . . .‟” was “„0.00.‟” Appellant‟s
Reply Br. at 3 (citing Schedule B, Question 17 of the
Chapter 7 petition, asking for “current value of debtor‟s
interest in property without deducting any secured claim
or exemption”).
2. At Ms. Kane‟s 341 Meeting, “[w]ithout any further
elaboration, she falsely responded[] „No‟” to the question
whether she had “„any lawsuits, insurance claims pending
where you may collect some money?‟” Id.
3. Ms. Kane‟s amended bankruptcy petition “once again
falsely” set forth the error alleged in number one, above.
Id.
3
filed a proof of claim in the amount of $398,950.39. The
Bankruptcy Court in New Jersey held a hearing on Mr. Kane‟s
motion to expunge Ms. Kane‟s claim with prejudice because it
was premised on claims that she failed to include in her own
bankruptcy petition. The Court expunged her proof of claim
without prejudice to her right to refile it. The Court concluded
that such refiling would constitute a post-petition claim in Mr.
Kane‟s bankruptcy action. And, the Court indicated that such a
claim is dependent on the Mercer County Family Court entering
an equitable distribution award in her favor, with that court
responsible for determining its parameters. However, the Court
ruled that Ms. Kane was judicially estopped from filing “claims
for loans to debtor‟s sisters, debtor‟s premarital car loan,
wedding expenses and lost social security benefits … to the
extent that the matrimonial court determines such claims do not
fall within the ambit of equitable distribution … as a result of
her failure to disclose such claims in her bankruptcy
proceeding.” Id. at A36. The Court then vacated the automatic
stay imposed under 11 U.S.C. § 362, permitting Ms. Kane to
pursue equitable distribution in the state court.
The Bankruptcy Court‟s decision relied on two
conclusions, affirmed by the District Court, that are the crux of
Mr. Kane‟s arguments on appeal. First, the Court concluded
that, pursuant to Section 541(a)(5) of the Bankruptcy Code,
entitlement to equitable distribution “is not an asset of [a
bankruptcy] estate[,]” and therefore Ms. Kane had “no obligation
to list the equitable distribution right as an asset in her
[petition‟s] Schedule B[.]” Id. at A33. The Court thus
distinguished Ms. Kane‟s pursuit of equitable distribution in
state court litigation, from entitlement to equitable distribution
arising from an award entered on her behalf within 180 days of a
bankruptcy filing, concluding that only the latter becomes
property of a bankruptcy estate pursuant to 11 U.S.C. §
541(a)(5).
Second, the Bankruptcy Court concluded that because
Ms. Kane‟s equitable distribution claim was sufficiently before
4
the Bankruptcy Court in New York, via her 341 Meeting, she
was not estopped from pursuing it in her husband‟s proceeding.
The Court noted that the transcript from Ms. Kane‟s 341
Meeting addressed equitable distribution and her divorce
litigation, which she had “reference[d] . . . in [her] statement of
financial affairs,” and concluded that “no one can suggest to this
Court that the Chapter 7 trustee was not aware of the right for an
equitable distribution, that there was litigation out there in which
Shannon Kane was seeking equitable distribution[, but that the] .
. . trustee made a conscious decision not to pursue it[.]” Id. at
A33-34.
Mr. Kane appealed the Bankruptcy Court‟s order to the
District Court, and Ms. Kane cross-appealed. The District Court
affirmed the Bankruptcy Court in all respects, and Mr. Kane now
appeals.
II. Jurisdiction and Standard of Review
The District Court‟s jurisdiction to consider an appeal
from a final order of the Bankruptcy Court arises under 28
U.S.C. § 158(a)(1). We have jurisdiction under 28 U.S.C. §§
158(d)(1) and 1291.
We employ “the same standard of review [that] the
District Court employed in reviewing the Bankruptcy Court‟s
decision. We review factual findings for clear error, and we
exercise plenary review over any legal conclusions.” Krystal
Cadillac-Oldsmobile GMC Truck, Inc. v. Gen. Motors Corp.,
337 F.3d 314, 316 (3d Cir. 2003) (citation omitted). We review
a district court‟s decision whether to invoke judicial estoppel
“only for abuse of discretion, . . . [asking whether] its ruling is
founded on an error of law or a misapplication of law to the
facts.” Montrose Med. Grp. Participating Sav. Plan v. Bulger,
243 F.3d 773, 780 (3d Cir. 2001) (internal quotation marks and
citations omitted). With respect to an issue of standing, our
review is plenary. Hutchins v. IRS, 67 F.3d 40, 42 (3d Cir. 1995)
(citation omitted). “We may affirm the rulings of the District
5
Court for any proper reason that appears on the record even
where not relied on by it.” United States v. Perez, 280 F.3d 318,
337 (3d Cir. 2002) (citation omitted).
III. Discussion
A. Introduction
The Bankruptcy Code requires that a debtor file necessary
declarations adequately, honestly, and in good faith. See, e.g.,
11 U.S.C. § 521(a)(1) (defining a debtor‟s filing duties); Fed. R.
Bankr. P. 9011(b) (outlining requirements of proper purpose and
evidentiary support in representations to bankruptcy court).
In Ryan Operations G.P. v. Santiam-Midwest Lumber
Co., we set forth the Code‟s disclosure requirements, and sought
to place a party‟s “alleged prior inconsistent statement in
context.” 81 F.3d 355, 362 (3d Cir. 1996). Citing 11 U.S.C. §§
521(1) and 1125(a)-(b), as well as applicable official disclosure
forms, we proceeded to note:
The Code imposes on debtors an
affirmative duty of full disclosure.
Section 521 requires the debtor to
file with the court “a schedule of
assets and liabilities . . . and a
statement of the debtor‟s financial
affairs.” The schedule must disclose,
inter alia, “contingent and
unliquidated claims of every nature”
and provide an estimated value for
each one.
...
These disclosure requirements are
crucial to the effective functioning of
the federal bankruptcy system.
Because creditors and the bankruptcy
court rely heavily on the debtor‟s
6
disclosure statement in determining
whether to approve a proposed
reorganization plan, the importance
of full and honest disclosure cannot
be overstated.
Id. (internal citations omitted).
As indicated above, a debtor‟s disclosure obligation
extends to “contingent assets” such as causes of action pursued
against another party, Krystal Cadillac, 337 F.3d at 321, because
such disclosure “allows the trustee and the creditors to determine
whether” to pursue these assets “on the creditors‟ behalf.” In re
Costello, 255 B.R. 110, 113 (Bankr. E.D.N.Y. 2000). While a
bankruptcy case is pending, “it [i]s the trustee, and not [the
debtor], who ha[s] the capacity to pursue [the debtor‟s] claims.”
Id. (citations omitted). Indeed, it would be inconsistent with the
Bankruptcy Code to apply a rule requiring “the debtor . . . [to]
have to supervise and double check the actions of the trustee, . . .
[who is] accountable for all property received.” Hutchins, 67
F.3d at 44 (citing In re R.E. Lee & Sons, Inc., 95 B.R. 316
(Bankr. M.D. Pa. 1989) (limiting debtor‟s burden to reasonable
diligence in completing schedules)).
The Bankruptcy Code defines the property of a
bankruptcy estate as including, inter alia, (1) “all legal or
equitable interests of the debtor in property as of the
commencement of the case,” 11 U.S.C. § 541(a)(1) (with certain
exceptions, inapplicable here), and (2) “[a]ny interest in property
that would have been property of the estate if such interest had
been an interest of the debtor on the date of the filing of the
petition, and that the debtor acquires or becomes entitled to
acquire within 180 days after such date . . . as a result of a
property settlement agreement with the debtor‟s spouse, or of an
interlocutory or final divorce decree[.]” Id. § 541(a)(5)(B).
Section 554 then provides:
(a) After notice and a hearing, the
7
trustee may abandon any property of
the estate that is burdensome to the
estate or that is of inconsequential
value and benefit to the estate.
...
(c) Unless the court orders
otherwise, any property scheduled
under section 521(1) of this title not
otherwise administered at the time of
the closing of a case is abandoned to
the debtor and administered for
purposes of section 350 of this title.
(d) Unless the court orders
otherwise, property of the estate that
is not abandoned under this section
and that is not administered in the
case remains property of the estate.
In light of the foregoing, we have emphasized that Section
541(a) “was intended to sweep broadly to include „all kinds of
property, including tangible or intangible property, [and] causes
of action[,]‟” Westmoreland Human Opportunities, Inc. v.
Walsh, 246 F.3d 233, 241 (3d Cir. 2001) (quoting United States
v. Whiting Pools, Inc., 462 U.S. 198, 205 n.9 (1983)), and that
“an asset must be properly scheduled in order to pass to the
debtor through abandonment under 11 U.S.C. § 554.” Hutchins,
67 F.3d at 43 (citing cases).
Mr. Kane correctly cites various of these obligations that
the Bankruptcy Code and case law impose on debtors. However,
his arguments that the District Court erred—(1) by refusing to
apply judicial estoppel to the entirety of Ms. Kane‟s proof of
claim, and (2) by concluding that she has standing to pursue
equitable distribution—fail because he elides two other
considerations that necessarily govern our decision. First, courts
have discretion in applying the fact-specific, equitable remedy of
judicial estoppel. Second, jurisdictional considerations caution
us against, if not prevent us from, essentially second-guessing
8
the basis for a discharge in bankruptcy by a court not subject to
our review.
Underlying Mr. Kane‟s appeal is his fundamental
contention that Ms. Kane‟s Chapter 7 proceeding worked a fraud
upon the three courts that have considered this matter and her
creditors. That contention belonged, in the first instance, before
the court responsible for overseeing her petition: the Bankruptcy
Court in New York.2 In any event, in light of the record that is
before us, we conclude that the District Court, and before it the
Bankruptcy Court in New Jersey, had ample reason to assume
that Ms. Kane‟s disclosures, and Mr. Kane‟s own actions (as
well as his opportunity to take additional action), fairly set forth
before the Bankruptcy Court in New York what needed to be set
forth. We address each of Mr. Kane‟s arguments in turn.
B. Judicial Estoppel
Judicial estoppel is a fact-specific, equitable doctrine,
applied at courts‟ discretion. Mr. Kane insufficiently accounts
for this, and for the corollary that a given set of circumstances
does not, as he suggests, necessarily compel its application.
Accordingly, his judicial estoppel argument fails.
We summarized the doctrine of judicial estoppel, and
applied it in a bankruptcy case, in Krystal Cadillac. Our
summary bears quoting at some length:
2
Given the facts that he alleges, one would assume that Mr.
Kane would have formally objected to the Bankruptcy Court‟s
granting of a discharge in Ms. Kane‟s proceeding, as he was
permitted to do pursuant to 11 U.S.C. § 727(c)(1)-(2) (outlining
parties‟ rights to object to the granting of a discharge). The
record does not indicate whether Mr. Kane did so, though Ms.
Kane‟s counsel at the hearing on the motion to expunge her
proof of claim noted that “[i]f there‟s a question as to whether
Ms. Kane was truthful or entirely truthful in the bankruptcy court
in New York, there‟s still an open bankruptcy in New York
within which to adjudicate that.” App. at A30.
9
We first articulated the doctrine of
judicial estoppel in Scarano v.
Central R. Co. of N.J.. There, we . . .
recognized the intrinsic ability of
courts to dismiss an offending
litigant‟s complaint without
considering the merits of the
underlying claims when such
dismissal is necessary to prevent a
litigant from playing fast and loose
with the courts.
Since Scarano, we have
consistently stated that the doctrine
should only be applied to avoid a
miscarriage of justice. Thus, in Ryan
Operations G.P. v. Santiam-Midwest
Lumber Co., we stated[ that t]he
basic principle of judicial estoppel . .
. is that absent any good explanation,
a party should not be allowed to gain
an advantage by litigation on one
theory, and then seek an inconsistent
advantage by pursuing an
incompatible theory.
Judicial estoppel is therefore not
intended to eliminate all
inconsistencies no matter how slight
or inadvertent they may be. In
Montrose Medical Group
[Participating Savings Plan v.
Bulger], we identified certain criteria
for determining when seemingly
inconsistent litigation stances justify
application of the doctrine. We
concluded:
First, the party to be
estopped must have
10
taken two positions
that are irreconcilably
inconsistent. Second,
judicial estoppel is
unwarranted unless the
party changed his or
her position in bad
faith—i.e., with intent
to play fast and loose
with the court. Finally,
a district court may not
employ judicial
estoppel unless it is
tailored to address the
harm identified and no
lesser sanction would
adequately remedy the
damage done by the
litigant‟s misconduct.
We also noted that equity requires
that the presiding court give the party
to be estopped a meaningful
opportunity to provide an
explanation for its changed position.
Krystal Cadillac, 337 F.3d at 319-20 (emphasis in original;
internal quotation marks, citations, and references omitted).
More generally, and citing various circuit court decisions,
including our own in Scarano, the Supreme Court has described
judicial estoppel as imposing not “inflexible prerequisites[,]” but
rather as encompassing “[a]dditional considerations [that] may
inform the doctrine‟s application in specific factual contexts.”
New Hampshire v. Maine, 532 U.S. 742, 751 (2001) (citations
omitted). The Court observed that, “[b]ecause the rule is
intended to prevent improper use of judicial machinery, judicial
estoppel is an equitable doctrine invoked by a court at its
discretion[.]” Id. at 749 (internal quotation marks and citations
11
omitted). As we recently observed, “[t]he applicability vel non
of judicial estoppel is fact-specific.” Howard Hess Dental Labs.
Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 253 n.6 (3d Cir. 2010)
(citation omitted).3
The crux of Mr. Kane‟s judicial estoppel argument is that
his wife‟s averments and omissions in her bankruptcy
proceeding were inconsistent with (if not concealed) terms of a
settlement proposal in the couple‟s divorce proceeding, and/or
claims to equitable distribution that she began litigating against
Mr. Kane approximately one year prior to the filing of her
Chapter 7 petition. These alleged misrepresentations and
omissions, the argument goes, underlie her proof of claim filed
in his bankruptcy proceeding.
However, irreconcilable inconsistency is but the first of
three prongs in a judicial estoppel analysis, and all three must be
satisfied before a court opts to apply the doctrine. In Ryan, it
was “undisputed” that the debtor had violated disclosure duties,
but we declined to apply estoppel because the bad faith prong
had not been satisfied. 81 F.3d at 362. We also noted that we
have “expressly left open [whether] … nondisclosure, standing
alone, can support a finding [of irreconcilable inconsistency] …
within the meaning of the judicial-estoppel doctrine.” Id.
(citation omitted). Here, in rejecting Mr. Kane‟s plea to apply
estoppel, the District Court relied on the fact that the Bankruptcy
Court in New Jersey both noted and deferred to the New York
Trustee‟s finding that Ms. Kane‟s disclosures were “sufficient”
and any omissions “negligible.” App. at A174. This was not
error.
To be sure, there would be no issue here if Ms. Kane‟s
Chapter 7 petition had included the specific amount that she
3
While judicial estoppel is fact-specific, its application is not
tribunal-specific. See, e.g., Oneida Motor Freight, Inc. v. United
Jersey Bank, 848 F.2d 414, 419-20 (3d Cir. 1988) (applying
judicial estoppel analysis to Chapter 11 debtor pursuing claims
in non-bankruptcy forum).
12
sought in equitable distribution, rather than referencing her
divorce litigation in various sections of the petition, and
presumably relying on the extensive discussion of her claims at
her 341 Meeting to fill in any gaps. However, her disclosures
must be placed “in context.” See Ryan, 81 F.3d at 362. That
context is this: one bankruptcy court may well have examined
her petition and concluded that her disclosures were insufficient
because references to her marital status and pending divorce
litigation on Schedules A and F and in the Statement of
Financial Affairs did not excuse her from providing a specific,
estimated value of equitable distribution sought on Schedule B.
Or, another bankruptcy court might have concluded, as the
Bankruptcy Court in New York apparently did, that her
disclosures were sufficient because the Trustee, “who had the
capacity to pursue her claims[,]” see Costello, 255 B.R. at 113,
became aware of them in both fact and substance before he
proclaimed them sufficient. See Hutchins, 67 F.3d at 44
(questioning propriety of requiring a debtor “to supervise and
double check the actions of the trustee”) (citing Lee, 95 B.R. at
318 (debtor‟s burden completing schedules is one of “reasonable
diligence”)).
Accordingly, for purposes of the fact-specific doctrine of
judicial estoppel, we have no reason to conclude that the District
Court erred in finding that Ms. Kane‟s proof of claim in her
husband‟s bankruptcy proceeding was not irreconcilably
inconsistent with her disclosures in her bankruptcy proceeding,
or a bad faith change in position manifesting an intent to play
fast and loose with the courts.4 That the Bankruptcy Court
4
There is no evidence that Ms. Kane effectively “limited the
reference to . . . [her equitable distribution] claim in order to
conceal the claim[] from creditors in the hope of retaining any
recovery for [her]self.” See Krystal Cadillac, 337 F.3d at 320
(emphasis added). That her petition disclosed divorce litigation,
and was discussed at length at her 341 Meeting, also
distinguishes this case from Oneida, where we noted Oneida‟s
“failure to mention [its] potential claim either within the
confines of its disclosure statement or at any stage of the
13
applied estoppel to claims that she had not referenced on her
petition in any manner at all, reinforces this conclusion.5
C. Standing
Mr. Kane next argues that the District Court erred when it
reasoned that because equitable distribution was not part of his
wife‟s bankruptcy estate, she has standing to pursue it as a basis
of her proof of claim in his bankruptcy. Although we affirm the
Court‟s conclusion, we do so for a somewhat different reason:
Ms. Kane‟s equitable distribution claim was abandoned to her
when the Bankruptcy Court in New York granted a discharge,
and it is not for us to review that court‟s decision.
Here the threshold questions are (1) whether Ms. Kane‟s
equitable distribution claim was a “legal or equitable interest”
pursuant to Section 541(a)(1), and (2) whether the fact that her
claim was not specifically scheduled by dollar amount on her
petition‟s Schedule B—even though her divorce action was
disclosed on her financial statement and equitable distribution
was discussed at length at her 341 Meeting—means that the
claim was never abandoned to her and, accordingly, deprives her
of standing to pursue it in her husband‟s bankruptcy. We answer
the first question in the affirmative, and the second in the
bankruptcy court’s resolution.” 848 F.2d at 419 (emphasis
added). Rather, the circumstances here seem more akin to In re
Teleglobe Communications Corp., where an inconsistency
“look[ed] more like a legitimate disagreement … (mixed with a
dose of sloppiness) than … a bad faith attempt to mislead the
courts.” 493 F.3d 345, 377 (3d Cir. 2007).
5
Mr. Kane also argues that the District Court erred in holding
that the informal disclosure of Ms. Kane‟s divorce claims to the
Trustee “cured [her] omissions and misrepresentations … and
defeated judicial estoppel.” Appellant‟s Br. at 28. While we
take a somewhat different route in reaching the District Court‟s
ultimate conclusion as to judicial estoppel, we note that the
Court carefully stated that it was not holding that informal
disclosure is sufficient. Nor, we note, do we.
14
negative.
“Analysis under § 541‟s property definition must begin by
focusing directly on the specific interests claimed to constitute
the debtor‟s property.” Westmoreland, 246 F.3d at 242. The
extent to which divorce claims are an asset of a bankruptcy
estate turns on both the Bankruptcy Code and New Jersey law
defining the equitable distribution of marital property. See In re
Berlingeri, 246 B.R. 196, 199 (Bankr. D.N.J. 2000) (citing
Butner v. United States, 440 U.S. 48, 55 (1979)).6 Particularly
pertinent here is our treatment of standing, as it relates to
disclosure and scheduling of assets in bankruptcy, in Hutchins v.
IRS, 67 F.3d at 40.
New Jersey law provides that, “in all actions where a
judgment of divorce … is entered the court may make such
award or awards to the parties … to effectuate an equitable
distribution of [marital] property[.]” N.J.S.A. 2A:34-23(h).
Accordingly, “the New Jersey Supreme Court has held that „[b]y
the plain terms of the statute,‟ the right to equitable distribution
of marital property arises upon entry of the judgment of
divorce.” Berlingeri, 246 B.R. at 199 (quoting Carr v. Carr, 576
A.2d 872, 875 (N.J. 1990)).
The upshot of this definition is that when Ms. Kane filed
for bankruptcy, she had an interest in an equitable distribution of
marital property—namely, by virtue of being married to Mr.
Kane, and by virtue of having initiated a divorce action in which
she was seeking equitable distribution—but she did not have a
right to it. Her claim qualified as a contingent, equitable interest
in (marital) property that could not ripen into a vested property
interest—i.e., a tangible asset—until entry of a judgment of
6
We recently have redefined “claim” most liberally for purposes
of bankruptcy law, overruling a decision on which the District
Court partially relied. See In re Grossman’s, 607 F.3d 114, 121
(3d Cir. 2010), overruling Avellino & Bienes v. M. Frenville Co.,
744 F.2d 332 (3d Cir. 1984).
15
divorce.7 The District Court blurred this distinction, assuming
that only the latter interest is at issue in the instant case,
accordingly (and erroneously) concluding that Ms. Kane had no
duty to disclose her equitable distribution claim because no
divorce judgment had been entered.
Returning to Section 541(a)(1), Ms. Kane‟s bankruptcy
estate included as an “equitable interest in property,” the
possibility that the Family Court would, at some point in the
future, award her equitable distribution of marital assets, or that
she and Mr. Kane would arrive at a property settlement that
transferred the legal title of marital assets to her. Ms. Kane
disclosed such a contingency by disclosing the divorce action,
listed by docket number and described as “pending,” on her
financial statement. What is important for our purposes is
whether this disclosure, together with the discussion of its
ramifications for equitable distribution by a Trustee who found
that it was sufficient and confirmed that equitable distribution is
an asset of the estate—but where that cause of action was absent
from Schedule B (i.e., it was both “disclosed” and
“unscheduled”)—means that the cause of action was never
abandoned to Ms. Kane at the time of discharge.
Mr. Kane correctly notes that courts have held that where
a debtor conceals an asset or fails to schedule it, the asset
remains the property of the bankruptcy estate and, accordingly,
the debtor can be found to lack standing to pursue its further
disposition. See, e.g., Vreugdenhill v. Navistar Int’l Transp.
Corp., 950 F.2d 524 (8th Cir. 1991); In re DiGeronimo, 354
B.R. 625 (Bankr. E.D.N.Y. 2006); Yates v. Yates, 148 P.3d 304
(Colo. App. 2006). However, none of these cases are on all
fours with the precise situation before us, nor does any one take
7
Herein lies the distinction between Section 541(a)(1),
encompassing contingent property interests such as causes of
action, and Section 541(a)(5), encompassing, e.g., a property
settlement reached during a bankruptcy proceeding, which
accordingly vests property in a debtor such that, if this occurs
within 180 days of filing, it becomes part of the estate.
16
into account principles enunciated in Hutchins, which provides
guidance for resolution of the “disclosed but unscheduled”—i.e.,
not concealed and, according to the Trustee, in fact
“sufficient”—quandary here.
In Hutchins, the debtor instituted an antitrust suit and
amended his bankruptcy petition to reflect the cause of action.
After his discharge in bankruptcy, a dispute arose over an IRS
tax refund discrepancy. The IRS argued that because Hutchins
had not scheduled the refund in his bankruptcy petition, it was
never abandoned to him but rather remained part of the
bankruptcy estate, and Hutchins accordingly did not have
standing to pursue it. We rejected that argument, concluding
rather that Hutchins had standing to pursue the claim because the
refund “existed during the bankruptcy as an integral part of the
antitrust claim—or if separately as a still inchoate right—[such
that ]the tax claim was properly scheduled through the
scheduling of the antitrust action and descended to Hutchins
through abandonment.” Hutchins, 67 F.3d at 40, 42-43.
Hutchins obviously did not address the situation before
us—a disclosed divorce action / unscheduled equitable
distribution claim—but it helps us to resolve it. Distinguishing
Hutchins from a “standard case” where a debtor does not
schedule a tax refund to which he is legally entitled (and, thus,
possesses a vested asset), we ascribed the nebulous character of
Hutchins‟s putatively unscheduled asset—the tax refund—to
“the result of action by the bankruptcy trustee[,]” who was
responsible for filing the tax return (i.e., of the estate) from
which the refund stemmed. Id. at 43. Thus, we observed,
at the time of the bankruptcy, the
crucial asset . . . was the antitrust
settlement. During the bankruptcy,
no “tax refund” asset existed. It was
at best an inchoate right. Creating
the legal fiction that this asset arose
at the time of [an] erroneous filing
17
[by the trustee] and existed
independently, albeit covertly, would
require every debtor to list as an
additional asset a potential tax refund
due to the possibly erroneous filings
of the trustee. Alternatively, the
debtor would have to supervise and
double check the actions of the
trustee, contrary to the intention of
11 U.S.C. § 704, which makes the
bankruptcy trustee accountable for
all property received. See In re R.E.
Lee & Sons, Inc., 95 B.R. 316
(Bankr. M.D. Pa. 1989) (limiting
debtor‟s burden to reasonable
diligence in completing schedules).
There seems little to recommend
either course as an innovation in
bankruptcy procedure.
Hutchins, 67 F.3d at 44.
The facts of Hutchins do not map precisely onto those
here, but its logic does. “At the time of [Ms. Kane‟s]
bankruptcy, the crucial asset” was not a vested right to marital
property—e.g., in the form of a property settlement that pegged
the value of assets that would come to her upon entry of a
judgment of divorce—but rather was her (contingent) claim to
equitable distribution, on the assumption that the marriage in fact
will end in a judgment of divorce. See id. “[N]o „[equitable
distribution]‟ asset existed” as a freestanding property right;
rather “[i]t was at best an inchoate right.” See id.8 And the
8
The fact that no property settlement had been stipulated to, and
thus no settlement was part of Ms. Kane‟s bankruptcy estate,
distinguishes this case from Reid v. Reid, 708 A.2d 74 (N.J.
Super. App. Div. 1998), on which Mr. Kane relies in arguing
that New Jersey law governing equitable distribution, in tandem
18
Trustee, who was “accountable for all property received[,]” id.—
including the inchoate property interest that Ms. Kane had to
equitable distribution—declared her disclosures concerning that
property sufficient, acknowledged that the interest was an asset
of the estate, filed an asset statement with the Bankruptcy Court,
and presumably, the record not manifesting anything to the
contrary, allowed her case to proceed to discharge.
The discharge in bankruptcy granted Ms. Kane by the
Bankruptcy Court in New York is not subject to our appellate
review. However, the record before us permits the conclusion
that the Trustee abandoned Ms. Kane‟s equitable distribution
interest to her, either having determined its relative “value and
benefit” to the estate, or having considered it scheduled and not
otherwise administering it prior to discharge. See 11 U.S.C. §
554(a) and (c). To say, in the face of the Trustee‟s acquiescence
in light of all of the facts that were presented to him, that the
interest was never abandoned to Ms. Kane because she failed to
assign a dollar amount to the claim on Schedule B raises the
specter that we have stated would be inconsistent with the
Bankruptcy Code in letter, and intolerable in practice: “the
debtor would have to supervise and double check the actions of
the trustee, [even though] … the bankruptcy trustee [is]
accountable for all property received … [and a] debtor‟s burden
[is limited] to reasonable diligence in completing schedules[.]”
Hutchins, 67 F.3d at 44 (internal citation omitted).
with bankruptcy law, directs the conclusion that his wife does
not have standing to pursue equitable distribution.
We also note that in concurrent bankruptcy and divorce
cases, courts have described spouses‟ interests in marital
property subject to equitable distribution as “inchoate” because
these interests do not become property rights—i.e., do not
vest—until entry of a judgment of divorce. See, e.g.,
DiGeronimo, 354 B.R. at 637 (citing cases). Although
DiGeronimo addressed New York law, New Jersey law also
states that a “right” to equitable distribution only arises upon
entry of a judgment of divorce.
19
IV. Conclusion
Having found that judicial estoppel is unwarranted in
light of the totality of facts relevant to Ms. Kane‟s disclosures in
bankruptcy, and that application of Hutchins to those same facts
yields the conclusion that her equitable distribution claim was
abandoned to her upon discharge and that, accordingly, she has
standing to pursue equitable distribution according to the terms
set forth in the Bankruptcy Court‟s order, we will affirm the
judgment of the District Court.9
9
We reject Mr. Kane‟s remaining arguments without further
discussion.
20