Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-02308/USCOURTS-caed-2_06-cv-02308-0/pdf.json

Nature of Suit Code: 790
Nature of Suit: Other Labor Litigation
Cause of Action: 28:1441 Petition for Removal

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

ROBERT ARRUDA, 2:06-cv-2308-MCE-EFB

Plaintiff,

v. MEMORANDUM AND ORDER

C&H SUGAR COMPANY, INC.; 

KYLE STRADLEIGH; and DOES 

1 through 100, inclusive, 

Defendants.

----oo0oo----

In this action, Plaintiff Robert Arruda (“Plaintiff”) seeks

to maintain discrimination claims against Defendants C&H Sugar

Company, Inc. and Kyle Stradleigh (“Defendants”). 

///

///

///

///

///

///

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 1 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

On September 22, 2006, Plaintiff filed claims in Sacramento

Superior Court alleging that the Defendants discriminated against

him based on his mental disability in violation of the California

Fair Employment and Housing Act, California Government Code

sections 12900 et seq. (“FEHA”); that Defendants violated the

California Family Rights Act, Government Code section 12945.2

(“CFRA”); and that Defendants wrongfully terminated Plaintiff in

violation of public policy. In addition, Plaintiff asserted that

Defendants violated the Family Medical Leave Act, 29 U.S.C.

sections 2601 et seq, (“FMLA”). Defendants removed the matter to

this Court on October 17, 2006. 

Defendants now move to dismiss Plaintiff’s entire action for

failure to state a claim upon which relief can be granted,

pursuant to Federal Rule of Civil Procedure 12(b)(6), on grounds

that Plaintiff is judicially estopped from bringing the present

action because of his failure to properly disclose the underlying

claim in earlier bankruptcy proceedings. 

For the reasons set forth below, Defendants’ Motion is

granted. 

BACKGROUND

Defendants allegedly fired Plaintiff in late 2004 after

Plaintiff’s mental condition made it impossible to work from July

2004 to October 2004. On January 19, 2005, Plaintiff filed a

Complaint with the California Department of Fair Employment and

Housing (“DFEH”) alleging that Defendant had wrongfully fired him

due to a mental disability. 

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 2 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Defendants have requested that the Court take judicial 1

notice of documents filed in the course of those bankruptcy 

proceedings pursuant to Federal Rule of Evidence 201(b). That

request is unopposed and is granted. 

3

Plaintiff received a right to sue notice for that complaint on

January 27, 2005. 

Plaintiff thereafter instituted bankruptcy proceedings,

retained bankruptcy counsel, and prepared his bankruptcy

schedules on September 20, 2005. 

1

Plaintiff indicated in his schedules that he had not been a party

to any suit or administrative proceeding within a year prior to

filing. Plaintiff also indicated that he had no contingent and

no non-liquidated claims of any nature. 

Plaintiff filed a First Amended Complaint with the DFEH on

September 30, 2005 in which he named C&H Sugar and Kyle

Stradleigh as Defendants. Plaintiff received a right to sue

notice as to that complaint on October 3, 2005.

On October 4, 2005, one day after receiving the right to sue

notice on the First Amended Complaint filed with DFEH, Plaintiff

filed for Chapter 7 bankruptcy. 

On November 1, 2005, Plaintiff and bankruptcy counsel

appeared before the bankruptcy trustee at a Meeting of the

Creditors hearing pursuant to 11 U.S.C.S. Section 341(a). No

creditors attended the meeting. During the hearing, Plaintiff

informed the trustee of his potential wrongful termination claim,

but no other claims. Plaintiff did not inform the trustee of his

disability discrimination claim, his claim under the Family

Medical Leave Act (“FMLA”), or his claim for a violation under

California Family Rights Act (“CFRA”). 

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 3 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

The trustee and Plaintiff’s bankruptcy counsel discussed

receiving a right to sue letter, however there was no mention

that Plaintiff had a potential discrimination claim. Plaintiff’s

bankruptcy counsel indicated to the trustee that the wrongful

termination claim was for six to seven months of lost wages, but

as an offset, Plaintiff had a recoupment claim for unemployment

benefits he received in the amount of approximately $10,000.00.

On January 4, 2006, the Bankruptcy Court discharged

Plaintiff’s debts, and on January 12, 2006, Plaintiff’s

bankruptcy proceedings ended. On January 27, 2006, Plaintiff

commenced this action. 

 

STANDARD

On a motion to dismiss for failure to state a claim under

Rule 12(b)(6), all allegations of material fact must be accepted

as true and construed in the light most favorable to the

nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336,

337-38 (9th Cir. 1996). A complaint will not be dismissed for

failure to state a claim “‘unless it appears beyond doubt that

plaintiff can prove no set of facts in support of [his or] her

claim that would entitle [him or] her to relief.’” Yamaguchi v.

Dep’t of the Air Force, 109 F.3d 1475, 1480 (9th Cir. 1997)

(quoting Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545

(9th Cir. 1996)). A court may take judicial notice of facts

outside the pleadings and doing so does not convert a Rule

12(b)(6) motion to one for summary judgement. 

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 4 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

Mack v. S. Bay Beer Distrib., 798 F.2d 1279, (9th Cir. 1986),

(abrogated on other grounds by Astoria Fed. Sav. and Loan Ass’n

v. Solimino, 501 U.S. 104, (1991); Phillips v. Bureau of Prisons,

591 F.2d 966, 969 (D.C. Cir. 1979). 

If the court grants a motion to dismiss a complaint, it must

then decide whether to grant leave to amend. The court should

"freely give[]" leave to amend when there is no "undue delay, bad

faith[,] dilatory motive on the part of the movant, . . . undue

prejudice to the opposing party by virtue of . . . the amendment,

[or] futility of the amendment. . . ." Fed. R. Civ. P. 15(a);

Foman v. Davis, 371 U.S. 178, 182 (1962). Generally, leave to

amend is only denied when it is clear that the deficiencies of

the complaint cannot be cured by amendment. DeSoto v. Yellow

Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).

ANALYSIS

1. Plaintiff is judicially estopped from bringing his action

against Defendants for alleged violations of the FEHA, CAFRA,

FMLA, and for wrongful termination because Plaintiff failed to

include these claims on his bankruptcy schedules. 

The Ninth Circuit addressed the question of judicial

estoppel in the bankruptcy context in Hamilton v. State Farm Fire

and Casualty Co. 270 F.3d 778 (9th Cir. 2001). In Hamilton, the

plaintiff, Hamilton, made a claim with his insurance company,

State Farm, for a loss to his house which he alleged occurred

immediately after tenants vacated the property. Hamilton, 270

F.3d at 780-82. Subsequent to the claim, Hamilton was unable to

make the mortgage payments on the property. Id. 

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 5 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

Hamilton’s lawyers sent letters on August 4 and October 16, 1997

to State Farm indicating his need for the insurance money to

maintain the mortgage payments. Id. In the letters, Hamilton

threatened litigation and suggested that State Farm might be

handling the claim in bad faith. Id. On October 31, 1997,

Hamilton filed for Chapter 7 bankruptcy and failed to list the

potential claim against State Farm on the bankruptcy schedules. 

Id. The bankruptcy court discharged Hamilton’s debts in April

1998. Hamilton, 270 F.3d 778 at 780-782. Hamilton filed suit

against State Farm in October 1998 alleging breach of covenant of

good faith and fair dealing and breach of contract. Id. 

In affirming the district court’s grant of dismissal to

State Farm, the Ninth Circuit relied on United States Supreme

Court precedent and identified three factors to be considered in

deciding whether judicial estoppel is warranted: (1) whether the

party’s later position in the judicial proceeding is clearly

inconsistent with an earlier position before another court; (2)

whether the party has succeeded in persuading the first court to

accept the party’s earlier position so that accepting an

inconsistent position in the later proceeding would create the

perception that one of the two courts had been misled; and (3)

whether the party seeking to assert the inconsistent position

would derive an unfair advantage or impose and unfair detriment

if not estopped. Hamilton, 270 F.3d at 783, (citing N.H. v. Me.,

532 U.S. 742, 121 S.Ct. 1808, 1815 (2001)). 

///

///

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 6 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

This Court finds that Plaintiff’s actions fall within the three

factors identified by Hamilton, and that Plaintiff should

accordingly be estopped from bringing this claim in its entirety. 

Each of these factors will now be separately addressed.

 

A. Plaintiff’s later position is clearly inconsistent

with his earlier position.

In Hamilton, the Ninth Circuit found that Hamilton asserted

clearly inconsistent positions by failing to list his claims

against State Farm on his bankruptcy schedules and then later

suing State Farm on the same claims. Hamilton, 270 F.3d at 784. 

In the present case, Plaintiff failed to list the potential claim

against Defendants on his bankruptcy schedules when he prepared

them on September 20, 2005. In Hamilton, the Ninth Circuit held

that “the debtor's duty to disclose potential claims as assets

does not end when the debtor files schedules, but instead

continues for the duration of the bankruptcy proceeding.” 

Hamilton, F.3d at 785, citing Browning Mfg. v. Mims (In re

Coastal Plains, 179 F.3d at 208; Youngblood Group v. Lufkin Fed.

Sav. & Loan Ass'n, 932 F. Supp. at 867; Fed. R. Bankr. P. 1009(a)

(schedules may be amended as a matter of course before the case

is closed). Plaintiff failed to amend his schedules throughout

the course of his bankruptcy, and then later commenced this

action on January 27, 2005, two weeks following the completion of

his bankruptcy proceedings. 

///

///

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 7 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

Plaintiff in the present case had a continuing duty to

disclose the claim as a potential asset, and failed to do so. 

That shortcoming is clearly inconsistent with the instant

lawsuit, where Plaintiff asserts claims not properly disclosed in

his bankruptcy proceedings. 

 

B. The bankruptcy court sufficiently accepted 

Plaintiff’s earlier position.

In Hamilton, the Ninth Circuit held that the bankruptcy

court sufficiently accepted Hamilton’s position that he had no

potential claim against State Farm by granting a discharge of

Hamilton’s debts. Hamilton, 270 F.3d at 784. Furthermore, the

court held that judicial estoppel will be imposed when the debtor

“has knowledge of enough facts to know that a potential cause of

action exists during the pendency of the bankruptcy, but fails to

amend his [or her] schedules or disclose statements to identify

the cause of action as a contingent asset.” Id. The court held

that Hamilton had sufficient knowledge of enough facts to know

that a potential claim existed because of the two letters he sent

to State Farm threatening litigation. 

In this case, Plaintiff was similarly aware of the potential

claim against Defendants because of the two complaints he filed

with DFEH and the two right to sue letters he received prior to

filing for bankruptcy. As indicated above, Hamilton clearly

found that “the duty to disclose potential claims as assets does

not end when the debtor files his [or her] schedules, but instead

continues for the duration of the bankruptcy proceeding.”

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 8 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

Hamilton, 270 F.3d at 785, citing In Re Coastal Plains, 179 F.3d

197, 207-208 (5th Cir. 1999). Plaintiff failed to amend his

bankruptcy schedules during the course of and prior to the

completion of his bankruptcy. The fact that Plaintiff was

granted a no-asset discharge by the bankruptcy court suggests

that the court was unaware of the potential value of Plaintiff’s

claim and accepted his representations (or lack thereof) in that

regard. 

 

C. Plaintiff would derive an unfair advantage if not

estopped from bringing this action.

The Bankruptcy Code and Rules impose upon debtors “an

express, affirmative duty to disclose all assets, including

contingent and unliquidated claims.” Hamilton, 270 F.3d at 785,

quoting In Re Coastal Plains, 179 F.3d 197, 207-208 (5th Cir.

1999). This requirement protects the interest of the creditors

by requiring debtors to be completely candid in regard to their

asset disclosures in return for debt relief that may be given. 

Absent this requirement, the incentive created would be for

debtors to conceal their assets and receive debt relief from the

court based on false or misleading information. 

Judicial estoppel in this case is necessary to protect the

interest of the creditors. The creditors could not have known of

this potential claim because Plaintiff failed to include it in

his schedules. If Plaintiff is permitted to maintain this

action, he will have unfairly received the debt relief benefit

from the bankruptcy court at the expense of the creditors. 

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 9 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

In Hamilton, the Ninth Circuit stated it agreed with the Fifth

Circuit’s analysis in Browning Mfg. v. Mims (In Re Coastal

Plains), 179 F.3d 197 (5th Cir. 1999). Hamilton, 270 F.3d at

785. In Coastal Plains, the Fifth Circuit judicially estopped a

bankrupt individual from bringing all claims against defendant

not included in the plaintiff’s schedules. According to the

Fifth Circuit, “it is very important that a debtor’s bankruptcy

schedules and state of affairs be as accurate as possible,

because that is the initial information upon which all creditors

rely.” Browning Mfg. v. Mims (In Re Coastal Plains), 179 F.3d

197, 208 (5th Cir. 1999). 

In the bankruptcy at issue herein, no creditor appeared at

the Meeting of the Creditors. Plaintiff’s failure to disclose

his discrimination claim in his bankruptcy schedules prevented

his creditors from assessing that information in deciding whether

to attend the Meeting of the Creditors. The creditors’ interest

were therefore impaired because they were unaware of the

Plaintiff’s potential discrimination claim. Plaintiff gained an

unfair advantage by withholding the existence of that claim from

his creditors and from subsequently receiving bankruptcy

protection in the face of that non-disclosure. 

///

///

///

///

///

///

/// 

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 10 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Pursuant to Rule 201(b) of the Federal Rules of Evidence, 2

this Court takes judicial notice of; the transcript of that

hearing (is attached to the Declaration of Rosemary Morris in

Support of Defendants’ Reply), Exhibit A as well as the audio

recording itself (attached as Exhibit B to the Declaration of

Kathleen Mastagni) in Support of Plaintiff’s Opposition to

Defendant’s Motion to Dismiss, Exhibit B (audio recording of

meeting of creditors). 

11

2. The disclosure of the Plaintiff’s potential claim to the

bankruptcy trustee at the Section 341(a) meeting is insufficient 

to overcome judicial estoppel. 

Plaintiff’s sole contention in arguing that judicial

estoppel should not apply rests with the argument that the claims

asserted in the action were in fact disclosed during the course

of the Meeting of Creditors pursuant to 11 U.S.C. Section 341(a). 

Plaintiff argues that his bankruptcy attorney did disclose the

existence of a potential claim for lost wages against Defendants

to the bankruptcy trustee during that meeting. That argument 2

fails. The Ninth Circuit has expressly found that “notifying the

trustee by mail or otherwise is insufficient to escape judicial

estoppel. 11 U.S.C. Section 521(1) provides that ‘the debtor

shall file a list of creditors, and unless the court orders

otherwise, a schedule of assets and liabilities.’” Hamilton, 270

F.3d 788, 784. Accordingly, Plaintiff is estopped from

maintaining the present claim despite having informed the trustee

of his potential claim for lost wages. 

Other courts have addressed this issue and have held that

judicial estoppel applies when disclosure of an asset is made to

the trustee but not included in the schedules. 

///

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 11 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

The Fifth Circuit has held that the debtor must truthfully list

the claim on his schedule of assets, and ... [a] failure to do so

is not excused by disclosing the claim in the creditors’

meeting.” Superior Crewboats, Inc. v. Primary P & I

Underwriters, 374 F.3d 330 (5th Cir. 2004). The Arizona District

Court similarly held that a disclosure to the bankruptcy trustee

of a potential claim not listed in the schedules was not

sufficient to overcome the judicial estoppel of the claims in

district court. Wietecha v. Dollarhide Fin. Group, Inc., 2006

U.S. Dist. LEXIS 44562, 3, 7-8 (D. Ariz. 2006). 

3. The omission of the claim on the schedule was not a mistake. 

In Hamilton, the Ninth Circuit determined that Hamilton’s

omission was not a mistake because he had “knowledge of enough

facts to know that a potential cause of action [existed] during

the pendency of his bankruptcy.” Hamilton, 270 F.3d at 784. In

Hamilton, the plaintiff was aware of his pending claim against

his insurance company during his bankruptcy, as evidenced by his

letters from his lawyers to State Farm. In the present case,

Plaintiff cannot claim he was unaware of his pending claim

against Defendants because of the two complaints he filed with

DFEH and the two right to sue notices he received. Therefore,

Plaintiff cannot claim he was unaware know of the potential claim

because he possessed two right to sue letters prior to filing for

bankruptcy. 

///

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 12 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13

In Hamilton, the district court determined that Hamilton’s

omission was intentional. Hamilton v. State Farm Fire &

Casuality Ins. Co., 2000 U.S. Dist. LEXIS 2564 (D. Cal. 2000),

aff’d, 270 F.3d 788 (Ninth Cir. 2001). The court stated that the

“circumstances of the instant case do not indicate ... that his

non-disclosures were mere oversights; to the contrary, he

endeavors throughout his opposition to justify them or minimize

their materiality.” Hamilton, 2000 U.S. Dist. LEXIS 2564 at 28. 

In the present case, not only was Plaintiff well aware of his

pending discrimination claim as stated above, his bankruptcy

attorney also downplayed the value of the potential claim to the

trustee during the Section 341(a) hearing by stating that it was

for lost wages only. There was no mention of any other cause of

action to the trustee. 

In both Hamilton and the present case, Plaintiffs clearly

had knowledge of undisclosed facts concerning their potential

claims, and the possibility of receiving bankruptcy protection

while at the same time asserting those claims supplied a motive

to conceal them. The omission of the present claim during

Plaintiff’s bankruptcy was intentional because he had knowledge

of the underlying facts giving rise to the potential claim and

failed to disclose the claim. Also, there was motive to conceal

the claim from the bankruptcy court as evidenced by Plantiff’s

attorney downplaying the value of potential claim in attempt to

preserve it in the form Plaintiff now seeks to litigate in this

Court.

///

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 13 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14

While it may appear that the application of judicial

estoppel is harsh or unfair, the integrity of the bankruptcy

system and judicial comity is more important than any single

case, including this one. However, Plaintiff is not without a

remedy. To the extent the Plaintiff alleges that his attorney

advised him not to provide any of the information in the

bankruptcy proceedings, the attorney may be subject to

malpractice liability. The Eastern District of Texas addressed

this in Estel v. Bigelow Mgmt. Inc. et al., 323 B.R. 918 (E.D.

Tex. 2005). In Estel, the court estopped the plaintiff from

bringing a claim he had specifically told his bankruptcy attorney

about, however had not been included on the plaintiff’s

bankruptcy schedules. Estel, 323 B.R. 918 at 923-24. 

Furthermore, the court found that the remedy for the plaintiff

was a suit for malpractice. Estel, 323 B.R. at 923, (citing Link

v. Wabash R.R. Co., 370 U.S. 626, 633-34 (1962). 

CONCLUSION

Plaintiff failed to adequately disclose his potential

discrimination claim in his bankruptcy proceedings. The

integrity of the bankruptcy system relies on full disclosure of

all assets, including potential but unlitigated claims. 

Plaintiff is therefore judicially estopped from maintaining the

discrimination claim in this Court because of his failure to

properly inform the bankruptcy court of the claims now asserted

in this action. 

///

///

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 14 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Because oral argument will not be of material assistance, 3

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h). 

15

Based on the foregoing, Defendant’s Rule 12(b)(6) Motion to

Dismiss is granted. No leave to amend will be permitted since 3

the omission in which dismissed is based cannot be rectified

through amendment. 

IT IS SO ORDERED.

Dated: March 8, 2007

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

Case 2:06-cv-02308-MCE -EFB Document 14 Filed 03/08/07 Page 15 of 15