Anderson v. Seven Falls Company

FILED
United States Court of Appeals
Tenth Circuit

June 12, 2017
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court

KARL T. ANDERSON, solely in his
capacity as Chapter 7 Trustee for the
bankruptcy estate of Robert Leone
Davies and Amber Tracy Davies,

Plaintiff-Appellant,

v. No. 16-1377
(D.C. No. 1:12-CV-01490-RM-CBS)
SEVEN FALLS COMPANY, a (D. Colo.)
Delaware corporation, d/b/a The New
Seven Falls Company, d/b/a The
Cottage Company, d/b/a Seven Falls
Pipeline & Reservoir,

Defendant-Appellee.

ORDER AND JUDGMENT *

Before BRISCOE, EBEL, and MATHESON, Circuit Judges.

In this personal injury action, the district court ruled that Amber Davies

was judicially estopped from recovering the full value of her claim against Seven

*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
Falls Company (Seven Falls). The district court based its judicial estoppel ruling

on Davies’ failure to disclose this claim in their Chapter 7 bankruptcy petition.

The bankruptcy trustee, Karl Anderson, who is now the real party in interest,

appeals. Exercising jurisdiction pursuant to 28 U.S.C. §§ 1291, 1332, we affirm.

I

What follows is a description of the evidence in the light most favorable to

Anderson:

On June 18, 2010, California residents Amber Davies and her now husband

visited a creek and waterfalls observation point in Colorado Springs operated by

Seven Falls. While traversing a paved walkway, Davies caught her foot in a

pavement gap, twisting her ankle.

On August 27, 2010, two months after the injury, Davies retained an

attorney to find a possible “basis to have my medical bills paid,” as she then

lacked health insurance. Aplt. App. at 231–32, 355. That attorney stated that

Davies hired him “to represent her in a personal injury lawsuit,” id. at 165, and

the notice of claim he filed with Seven Falls in August, 2010, refers to her as a

“Plaintiff.” Id. at 265. He also hired a private investigator to interview former

Seven Falls employees. In March 2011, Davies was diagnosed for the first time

with Complex Regional Pain Syndrome (CRPS)—a lifelong, debilitating

condition—in the region around her injured ankle. On June 3, 2011, one day

before Davies’ marriage, her counsel filed a settlement demand with Seven Falls’

2
insurer.

The Davies then initiated Chapter 7 bankruptcy proceedings. In early July

2011, Davies met with Los Angeles bankruptcy firm Genesis Law Group

(Genesis). The firm’s internal disclosure questionnaire asked about accidents

occurring in the previous year, and Davies asked if she needed to list her injury

from thirteen months prior. Paralegal Chris Kim asked if she planned to sue;

Davies said she had hired an attorney to pursue medical bill coverage, but was

otherwise unsure. Kim asked if she had already sued; she said no. Davies’

affidavit explained: “In response, [Kim] did not tell me that I needed to include

this information about the Seven Falls incident . . . I understood from our

conversation that the Seven Falls incident was not required to be listed.” Id. at

356. Additionally, Davies answered “no” to the questions: “In the near future, do

you expect to settle, win or begin a case for personal injury?” and “Even if you

never expect to collect, does anyone owe you any money for any reason

whatsoever?” Id. Nevertheless, Anderson’s appellate brief asserts that “[a]t no

time during the bankruptcy proceedings did she believe she had a potential claim

that was an asset required to be disclosed to the bankruptcy Trustee or court.”

Aplt. Br. at 8.

On July 15, 2011, the Davies jointly filed for Chapter 7 bankruptcy in

California. Genesis represented them. Their petition listed debts of $316,463.90.

Though Schedule F to the bankruptcy petition included medical expenses from her

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June 2010, accident, her Statement of Financial Affairs (SOFA), signed under

penalty of perjury, does not list any lawsuit as an asset. In August 2011, at the

Section 341 creditors’ meeting, the Davies never mentioned anything about a

potential lawsuit. Based on the Davies’ disclosures, the bankruptcy court

classified their case a “No Asset Case” before discharging their debts on October

26, 2011.

In June 2012, a second doctor confirmed Davies’ CRPS diagnosis. On June

8, 2012, nearly eight months after discharge, she filed this diversity action against

Seven Falls, claiming over $5 million in damages.

Only after filing her complaint against Seven Falls did Davies disclose her

then pending personal injury action to the bankruptcy court. On March 18, 2013,

Davies’ new personal injury attorney and now appellate counsel, John

Gehlhausen, advised Davies to disclose the suit against Seven Falls in the

bankruptcy action, and she agreed. Gehlhausen had only recently learned of the

bankruptcy proceeding. On March 28, 2013, a year and a half after discharge, the

bankruptcy court reopened the case. Ten creditors filed claims totaling

$17,011.46, far below the originally listed claims of $316,463.90. Anderson

filed, and the district court granted, a Motion for Substitution of Party in the

personal injury action as the real party in interest under Federal Rule of Civil

4
Procedure 17. 1 Anderson does not contest the district court’s finding that Davies’

personal injury claim had accrued as a personal asset at the time she filed for

bankruptcy. See Aplt. App. at 362.

Seven Falls moved for summary judgment in the personal injury action,

arguing judicial estoppel barred Anderson from any recovery. “[A]t least to the

extent [the plaintiff’s] personal injury claims were necessary to satisfy [the

trustee’s] debts,” judicial estoppel does not apply to a compliant bankruptcy

trustee. Eastman v. Union Pac. R.R. Co., 493 F.3d 1151, 1155 n.3 (10th Cir.

2007). Thus, the district court limited the potential damages recoverable by

Anderson to the amounts owed creditors, plus his attorneys’ fees and trustee’s

fee. Anderson appealed, but we dismissed that appeal (No. 14–1515) because the

uncalculated fees posed an unresolved merits question. Anderson v. Seven Falls

Co., 633 F. App’x 691, 695 (10th Cir. 2015). On remand, the district court found

Seven Falls’ maximum potential liability to be $45,662.04, and entered final

judgment in that amount in Anderson’s favor. That same day Anderson again

appealed, contesting the district court’s application of judicial estoppel to limit

the personal injury recovery.

1
Once a lawsuit accrues as a bankruptcy estate asset, “[t]he trustee of the
bankruptcy estate has the sole capacity to sue and be sued over assets of the
estate.” Brumfiel v. United States Bank, 618 F. App’x 933, 937 (10th Cir. 2015)
(quoting Mauerhan v. Wagner Corp., 649 F.3d 1180, 1184 n.3 (10th Cir. 2011));
see also 11 U.S.C. § 323.

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 II

A

Summary judgment is granted “if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter

of law.” Fed. R. Civ. P. 56(a). “[W]e view the facts and all reasonable

inferences to be drawn therefrom in a light most favorable to the nonmoving

party.” Eastman, 493 F.3d at 1155–56. We review a district court’s judicial

estoppel analysis under an abuse of discretion standard, even at summary

judgment. Queen v. TA Operating, LLC, 734 F.3d 1081, 1086 (10th Cir. 2013).

“A court abuses its discretion only when it makes a clear error of judgment,

exceeds the bounds of permissible choice, []when its decision is arbitrary,

capricious or whimsical[] or results in a manifestly unreasonable judgment,”

Eastman, 493 F.3d at 1156 (quotation omitted), or when it commits legal error.

See S. Utah Wilderness All. v. Bureau of Land Mgmt., 425 F.3d 735, 750 (10th

Cir. 2005). Whether the reviewing court would have reached a different result is

irrelevant. See NHL v. Metro. Hockey Club, Inc., 427 U.S. 639, 642 (1976).

B

Judicial estoppel “prevent[s] improper use of judicial machinery.” New

Hampshire v. Maine, 532 U.S. 742, 750 (2001) (quotation omitted). As an

equitable doctrine, judicial estoppel applies in varied circumstances, but we

generally apply it when three factors are present.

6
 First, a party’s subsequent position must be ‘clearly inconsistent’ with its
former position. Next, a court should inquire whether the suspect party
succeeded in persuading a court to accept that party’s former position, ‘so
that judicial acceptance of an inconsistent position in a later proceeding
would create the perception that either the first or the second court was
misled[.]’ Finally, the court should inquire whether the party seeking to
assert an inconsistent position would gain an unfair advantage in the
litigation if not estopped.

Eastman, 493 F.3d at 1156 (quotations omitted) (quoting New Hampshire, 532

U.S. at 750–51). Courts may also consider whether the debtor’s failure to

disclose was due to mistake or inadvertence. New Hampshire, 532 U.S. at 753.

We first address Anderson’s evidentiary challenge. Anderson argues the

district court misapplied the summary judgment standard by failing to view three

statements Davies made in her two affidavits in the light most favorable to her.

We disagree.

One of the three disputed affidavit statements is hearsay that the district

court properly discounted. Davies’ statement that Genesis’ paralegal, Dahlia

Smith, told her she need not report her filed claim after discharge is an out-of-

court statement offered for its truth and does not fall within any hearsay

exception. See Fed. R. Evid. 801(c).

The district court also disregarded the remaining two disputed affidavit

statements as unsubstantiated. It was reasonable for the district court to conclude

that Davies’ affidavits alone were insufficient to create a genuine factual issue.

We have said that, at summary judgment, “[w]e do not consider conclusory and

7
self-serving affidavits.” Ellis, 779 F.3d at 1201 (quoting Garrett v.

Hewlett-Packard Co., 305 F.3d 1210, 1213 (10th Cir. 2002)). “Unsubstantiated

allegations carry no probative weight in summary judgment proceedings[; they]

must be based on more than mere speculation, conjecture, or surmise.” Id.

(quoting Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004)). In

fact, we cited approvingly Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir. 2006)

for the proposition that a debtor’s affidavit claiming ignorance of a disclosure

duty based on bad legal advice was insufficiently probative to create a genuine

issue of material fact. Eastman, 493 F.3d at 1157; see also Ellis, 779 F.3d at

1203 (reaching the same result in an employment dispute). Here, Davies stated in

her affidavits that she believed she had no duty to disclose her injury and

potential claim because Kim never affirmatively told her to disclose it and that

she first learned she had a duty to report the claim after Gehlhausen encouraged

her to do so. Just like the affiant’s statements in Ellis, Davies’ statements are

bare assertions unsupported by other record facts. The district court did not abuse

its discretion in concluding that these two statements were insufficiently

probative to create a genuine issue of material fact.

1. Clearly inconsistent positions before the district and bankruptcy courts

Davies adopted inconsistent positions by failing to disclose her potential

claim against Seven Falls. In order for judicial estoppel to be appropriate, “a

party’s subsequent position must be ‘clearly inconsistent’ with its former

8
position.” Eastman, 493 F.3d at 1156 (one set of quotations omitted) (quoting

New Hampshire, 532 U.S. at 750). We have previously explained that failing to

disclose a potential claim as an asset is clearly inconsistent with then prosecuting

an action in pursuit of that claim. See Queen, 734 F.3d at 1090; Eastman, 493

F.3d at 1158; Paup v. Gear Prods., 327 F. App’x 100, 106–07 (10th Cir. 2009).

Anderson argues the district court should have considered Davies’ most

recent bankruptcy filings, which corrected the omission of the personal injury

claim. We disagree. We explained in Queen that when assessing inconsistency in

bankruptcy cases, we compare the debtor’s filing upon which the bankruptcy

court based the discharge to the debtor’s position taken in the omitted civil

proceeding excluded from the schedule of assets. 734 F.3d at 1091. Queen does

not require us to consider the Davies’ most recent filing in the bankruptcy

proceeding, as Anderson suggests. In Queen, the trustee allowed the debtors to

amend their petition after their previously undisclosed personal injury suit became

known; because the bankruptcy court relied upon the amended petition when

discharging the debtors, we held statements in the amended petition should be

used to determine whether the debtor’s positions were inconsistent. Id. at

1090–91. Here, the bankruptcy court relied upon the Davies’ original petition

when entering the bankruptcy discharge, and the district court thus properly

looked to the Davies’ initial bankruptcy filings when determining whether judicial

estoppel applied. Because Davies’ position in her original petition (that she had

9
no pending claims) was inconsistent with her position in the district court

(actively pursuing a potential claim), the district court properly found this first

factor was satisfied.

2. Perception the court was misled

Did the Davies’ actions create even the perception that they successfully

misled a tribunal? We look to “whether the party has succeeded in persuading a

court to accept that party’s earlier position, so that judicial acceptance of an

inconsistent position in a later proceeding would create the perception that either

the first or the second court was misled.” New Hampshire, 532 U.S. at 750

(quotation omitted). A court accepts a position if the record in the prior case

shows the court made a specific finding or holding on that point. See id. at 752.

A bankruptcy court accepts a debtor’s position as to the value of her estate when

it grants a discharge based on that debtor’s disclosures. Eastman, 493 F.3d at

1160. The party must have “success” in the prior proceeding, or this element is

not satisfied. New Hampshire, 532 U.S. at 750–51. Thus, the question here is

whether the Davies’ failure to disclose Amber’s potential personal injury claim to

the bankruptcy court persuaded the bankruptcy court to adopt the Davies’ position

that theirs was a no asset case, a position we have concluded was inconsistent

with her efforts to pursue her personal injury action. We conclude the bankruptcy

court did adopt her position when it granted the Davies a no asset discharge,

which relieved them of $316,463.90 of debt.

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 The Davies’ reopening of their bankruptcy case does not correct the fact

that the bankruptcy court was misled. Although In re Riazuddin, 363 B.R. 177

(2007) suggests otherwise, id. at 186, Eastman, which follows Riazuddin by a few

months, overrules it on that point. Eastman applied judicial estoppel even though

the debtor reopened the case, 493 F.3d at 1154, because “[t]hat [the debtor]’s

bankruptcy was reopened and his creditors were made whole once his omission

became known is inconsequential. A discharge in bankruptcy is sufficient to

establish a basis for judicial estoppel, ‘even if the discharge is later vacated.’” Id.

at 1160 (quoting Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 784 (9th

Cir. 2001)). Thus, the fact that Davies reopened the bankruptcy proceeding does

not cure the perception that she misled the bankruptcy court.

3. Unfair advantage

Davies does not contest this factor in her brief, and rightfully so. We ask

only if the party that changed positions acquired any sort of advantage by the

position initially taken, and that test is clearly satisfied by Davies receiving a

discharge in bankruptcy. Eastman, 493 F.3d at 1159–60.

Other considerations: mistake or inadvertence

While the three factors we have addressed are key, they are not exhaustive.

See New Hampshire, 532 U.S. at 751. We may credit the civil plaintiff’s

argument that a failure to disclose an asset was the consequence of mistake or

inadvertence “‘only when, in general, the debtor either lacks knowledge of the

11
undisclosed claims or has no motive for their concealment.’” Eastman, 493 F.3d

at 1157 (quoting In re Coastal Plains, Inc., 179 F.3d 197, 210 (5th Cir. 1999)). If

a debtor both knows about a claim and has “a motive to conceal them,” courts

often “infer deliberate manipulation” of the judicial process. Id.; see Queen, 734

F.3d at 1094.

Anderson argues the district court incorrectly applied the “fourth” factor.

Specifically, he argues the district court found deliberate manipulation and treated

that finding as an irrebuttable presumption foreclosing any finding of

inadvertence based on Davies’ subjective knowledge. We disagree for two

reasons.

First, the district court did not actually find deliberate manipulation, much

less apply an irrebuttable presumption; it merely found that this was not a case of

inadvertence. Its order states: “I find and conclude that Ms. Davies’ omission

with respect to the Seven Falls claim was not inadvertent.” Aplt. App. at 362.

The court also explained that even “consider[ing] inadvertence outside of the

narrow constructs suggested by the case law,” it would still conclude “there was

no inadvertence here.” Id. at 361. Even if we were to read the district court’s

concluding statements referring to “manipulation and deceit,” id. at 364–65, as an

implied finding of deliberate manipulation, nothing in the district court’s order

suggests that it thought it was precluded from considering Davies’ subjective

beliefs. Indeed, it expressly considered Davies’ affidavits, which claimed

12
ignorance of a duty to disclose, and found the affidavits insufficient to create a

genuine factual issue. Id. at 364.

Second, the district court did not abuse its discretion in determining that

the mistake or inadvertence exception did not apply. “Inadvertence can be

established by showing, among other things, either (1) the debtor had no

knowledge of the undisclosed asset, or (2) the debtor had no motive to conceal

it.” Gillman v. Ford, 492 F.3d 1148, 1156 (10th Cir. 2007). Courts may infer

that a debtor knows about a claim if she has filed it and the claim is pending

before another court while the bankruptcy proceeding is also pending. Eastman,

493 F.3d at 1159. The same inference applies here, where the debtor’s actions

were fully consistent with preparing to file a claim. And courts may readily infer

that debtors have a motive to conceal assets in bankruptcy proceedings. See

Queen, 734 F.3d at 1094; Eastman, 493 F.3d at 1159. Here, Davies’ actions

triggered both adverse inferences. Her claim accrued before she and her husband

filed for bankruptcy, and she took multiple actions consistent with filing a claim.

Thus, the district court did not abuse its discretion when inferring that Davies

knew about her potential claim. Because Davies had invoked the jurisdiction of

the bankruptcy court and was seeking a discharge, the district court could readily

infer a motive to conceal any potential asset that would result in the denial of a

discharge.

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 Anderson invites us to adopt the subjective intent standard applied in Ah

Quin v. County of Kauai DOT, 733 F.3d 267 (9th Cir. 2013). In that case, our

sister circuit found that judicial estoppel is inappropriate where the debtor-

plaintiff reopens a bankruptcy and fully reports previously undisclosed assets. Id.

at 272–73. Anderson argues that failing to consider what the debtor-plaintiff

subjectively believed is a rigid approach inconsistent with New Hampshire. We

disagree. New Hampshire gives courts flexibility to apply this equitable doctrine

as needed to protect the courts from fraud. 532 U.S. at 751. Courts are certainly

free to consider, or not to consider, the debtor’s subjective intent under the

flexible factors analysis. See Marshall v. Honeywell Tech. Sys., 828 F.3d 923,

932 (D.C. Cir. 2016) (quoting Ah Quin, 733 F.3d at 277) (explaining that this

alleged circuit split is artificial because “[i]n practice, even those courts of

appeals that have followed the Fifth Circuit’s lead[, like the Tenth Circuit,] have

not been ‘as rigid as one would expect’ in practice”). Going further and requiring

courts to consider a debtor-plaintiff’s subjective beliefs solidifies an otherwise

flexible analysis, which cuts against the Supreme Court’s description of the

doctrine: “In enumerating these factors, we do not establish inflexible

prerequisites or an exhaustive formula for determining the applicability of judicial

estoppel.” New Hampshire, 532 U.S. at 751. Thus, we decline to adopt this rule.

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 III

We AFFIRM the district court’s grant of summary judgment on judicial

estoppel grounds.

Entered for the Court

Mary Beck Briscoe
Circuit Judge

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