Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-14-08030/USCOURTS-ca7-14-08030-0/pdf.json

Parties Involved:
M.A. Mortenson Company
Respondent
Peter Metrou
Petitioner
Schuff Steel Company
Respondent

Document Text:

In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 14-8030

PETER METROU, Trustee of the Bankruptcy Estate of David 

Matichak,

Plaintiff-Appellant,

v.

M.A. MORTENSON COMPANY and SCHUFF STEEL COMPANY,

Defendants-Appellees.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 11 C 9187 — George M. Marovich, Judge.

____________________

SUBMITTED MARCH 2, 2015 — DECIDED MARCH 23, 2015

____________________

Before FLAUM, EASTERBROOK, and WILLIAMS, Circuit Judges.

EASTERBROOK, Circuit Judge. David Matichak was injured 

at work in August 2009 and filed a workers’ compensation 

claim. Matichak and his wife filed a bankruptcy petition under Chapter 7 in September 2010; he disclosed the workers’ 

compensation claim on his schedule of assets and valued it 

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at $7,500. The bankruptcy court discharged the Matichaks’ 

debts that December.

About a year after the discharge, Matichak filed a tort 

suit against two firms that, he maintained, had contributed 

to his injury. The suit sought substantial damages. Defendants asked the district judge for summary judgment, observing that Matichak had not listed any tort claim on his schedule of assets in the bankruptcy. That omission bars Matichak 

from prosecuting the suit, for the claim belongs to the Trustee while the bankruptcy case is open. See, e.g., Biesek v. Soo 

Line R.R., 440 F.3d 410 (7th Cir. 2006). We added in CannonStokes v. Potter, 453 F.3d 446 (7th Cir. 2006), that a debtor is 

judicially estopped from litigating after the bankruptcy ends; 

having told the bankruptcy court implicitly that any tort 

claim had no value, and having received a discharge in response, the debtor is estopped from contending in a later 

suit that the claim is valuable. See also, e.g., Spaine v. Community Contacts, Inc., 756 F.3d 542 (7th Cir. 2014).

In response to the defense motion, Matichak notified the 

Trustee, who reopened the bankruptcy and moved to replace Matichak as the plaintiff in the tort suit. This is the approach we had contemplated in Biesek as the appropriate

way to deal with a legal asset omitted from bankruptcy 

schedules. The district court allowed the substitution but 

then ruled, in response to a further motion by the defendants, that the Trustee’s recovery could not exceed the value 

of the debts that had not been paid in 2010. In other words, 

the district judge concluded that, although Matichak’s creditors may benefit from the tort suit, Matichak himself cannot.

The Trustee asked the district judge to certify that ruling 

for an interlocutory appeal under 28 U.S.C. §1292(b). The 

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No. 14-8030 3

judge did so, but the initial order omitted the findings required by that statute. (Section 1292(b) permits an appeal only if the district judge finds, “in writing”, that the “order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation”.) In response to a reminder, the judge entered a proper certification. Within ten 

days the Trustee filed a motion asking for our permission to 

appeal. Defendants maintain that the request is jurisdictionally late, but Fed. R. App. P. 5(a)(3) provides that, when a 

district judge’s initial order lacks essential findings, the time 

runs from entry of a revised order containing them. See also 

Weir v. Propst, 915 F.2d 283, 287 (7th Cir. 1990).

The application for our permission to appeal therefore is 

timely, and we grant permission. The district court’s ruling 

reduces the stakes to a level at which it would not be

worthwhile financially for the Trustee to pursue the claim. 

On the assumption (which we must indulge) that the tort

claim is valid, cutting the maximum recovery to the amount 

of Matichak’s unpaid debts in 2010 would injure the creditors even though the district judge’s target was Matichak 

himself. Moreover, the question the district judge identified 

as appropriate for review is one on which there is no appellate precedent in any circuit.

The district judge did not find that Matichak deliberately 

hid the tort claim from his creditors in 2010. True, he did not 

list a tort claim among his assets, but he maintains that this

was because he thought that the workers’ compensation 

claim (which he did list) was his only potential source of 

compensation. Not until after the bankruptcy had ended did 

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his lawyers tell him that he might be able to recover in tort 

from someone other than his employer. Or so he says. The 

district judge did not hold an evidentiary hearing on the 

subject, and we therefore must assume that Matichak is telling the truth.

The district judge devised a categorical rule that made it 

unnecessary to decide whether Matichak was trying to deceive his creditors. According to the judge, a debtor’s ability

to reopen the bankruptcy and turn the claim over to the 

Trustee expires the moment defendants in a later suit discover its omission from the bankruptcy schedules and assert 

judicial estoppel. Otherwise, the judge wrote, debtors would 

be encouraged to conceal their assets from creditors, because 

sometimes (when the defendants missed the problem) they 

would cut out the creditors, and if the defendants did see the 

problem the debtors would be no worse off than if they had 

made a timely disclosure during the bankruptcy. The question the judge certified under §1292(b) is whether the right to 

turn the whole tort claim over to the Trustee in bankruptcy 

expires as soon as defendants in the tort suit discover the 

omission from the bankruptcy schedules. (Although we 

speak here, and throughout, of a tort claim, the legal issue is 

the same for all kinds of claims, be they tort, contract, employment discrimination, or anything else.)

Debtors could gain from hiding choses in action only if 

defendants in later suits rarely inquire whether the plaintiff 

passed through bankruptcy between the time the claim arose 

and the litigation about that claim. If defendants ask routinely about bankruptcy, as they have a powerful incentive to 

do, then the omission will come to light. Some omissions 

will be culpable and should be punished, if that can be done 

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No. 14-8030 5

without injuring the creditors too. But other omissions will 

be innocent—based on poor communication between bankruptcy counsel and tort counsel, or based on a belief that the 

tort claim will not be valuable—and should not be punished. 

Matichak contends that his omission is among the innocent 

ones, and the district court did not find otherwise. Instead 

the district court adopted an approach that throws out all

claims omitted from bankruptcy forms, whether or not the 

omission was culpable—and even if that will injure the creditors too, by reducing the stakes to the point where the suit

must be abandoned as having a negative value (net of legal 

expenses).

Biesek concludes that principles of judicial estoppel must 

not be applied in a way that injures innocent creditors as 

well as culpable debtors. We now add, what should have 

been apparent, that debtors who make innocent errors 

should not be punished by loss of their choses in action

when they turn the claims over to the Trustees. When as in

Cannon-Stokes a debtor stubbornly tries to cut out the creditors, then the claim is gone forever. But a debtor who errs in 

good faith, and tries to set things right by surrendering the 

asset to the Trustee, remains entitled to any surplus after 

creditors have been paid, just as would have occurred had 

the claim been disclosed on the bankruptcy schedules.

The Trustee is entitled to pursue this litigation as an asset 

of the estate in bankruptcy. Whether or not Matichak should 

have disclosed the claim in the bankruptcy does not matter 

to a suit maintained by the Trustee, who is not even arguably culpable for any misconduct. Reducing the stakes in the 

tort suit could injure the creditors along with the debtor.

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Whether Matichak tried to hide the claim in the bankruptcy is a question more appropriately addressed to the 

bankruptcy judge, who can decide (if the Trustee prevails in 

this tort suit) what disposition to make of any proceeds that 

remain after paying counsel and the creditors. Allowing the 

tort suit to proceed without a damages cap will ensure that 

the creditors receive their due—for the full stakes will allow 

the Trustee to hire counsel to take the suit on a contingent 

fee. If it turns out that Matichak was trying to deceive his 

creditors, the bankruptcy judge may decide to give the creditors a bonus, or perhaps to return any excess to the defendants in this tort suit. Either way, the creditors will escape injury at Matichak’s hands because it will remain economically 

feasible to prosecute the tort suit.

The application for leave to appeal is granted, and the 

district court’s decision is reversed. (The papers filed in connection with the application, supplemented at our request by 

memoranda addressing two additional questions, make further briefs unnecessary.) The case is remanded for proceedings consistent with this opinion.

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