* The Honorabl e Jon Phi pps McCall a, Uni ted St ates Dist ric t Ju dge f

or th e Western Dist

ric t of Tenness ee, s it ti ng by designation.

1 RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Six

th Circuit Rul e 206 File Name: 04a03 38p.06 

### UNITED STATES COURTS OF APPEALS

FOR THE SIXT H CIR CUIT

_________________

M ARK A. E UBANKS ; T ERI L YNN E UBANKS , Plaintiffs- Appellant s,

v.
CBSK F INANCIAL G ROUP , I NC ., d/b/a A M

. H OME L OANS , Defendant-Appellee. X

- - - -> , - - N No. 02-5902

Appeal from the United States District Court for the Western District of Kentucky at Louisville. No. 02-00186—Thomas B. Russell, District Judge.

Argued: April 23, 2004 Decided and Filed: October 1, 2004 Before: DAUGHTREY and CL AY, Circuit Judges; McCALL A, District Judge. *

_________________ COUNSEL ARGUED: Julia B. Barry , Louisville, Kentucky , for Appellants. Richard B. Warne, WYATT, TARRANT & COMB S, Lexington, Kentucky, for Appellee. ON BRI EF: Julia B. Barry , Louisville, Kentuck y, fo r Appellants. Palmer G. Vance II, STOL L, KEENON & PARK, Lexington, Kentucky, for Appellee. CLAY, J., delivered

the opinion of the court, in which DAUGHTREY, J., joined. McCALL A, D. J. (pp. 6-7), delivered a separate dissenting opinion.

_________________ OPINION

_________________ CLAY, Circuit Judge. Plaintiffs, Mark A. Eubanks and TeriLy nn Eubanks, appeal from

the district court’s judgmen

t grant ing Def endant, C BSK Fina

ncial Gr oup, I nc.’s, mo tion to dismiss, by way of judicial estoppel , against Plaintiff

s’ lende r-liabil ity c laim alle ging a breach of contr act, contractual bad faith, tortious interferencewith contract, negligent misreprese ntation, constructive fraud, negligent supervision, brea ch of fiduciary duty, and intentional infliction of emotional distress. The district cour t held P laintiffs were judiciall y estopped from purs ui ng a clai m whi ch the y failed t o dis close in a pr ior ba nkrup tcy procee ding. Becau se this Court c onsi de rs reas ons of mista ke and ina

dverten ce, as w ell as an

absence of bad fa ith, inNo. 02-5902 Eubanks, et al. v. CBSK Financial Group Page 2

determiningjudicial estoppel, we REVERSE the district court’s decision and REMAND for further procee dings. I. BACKGROUND OnJanuary

9, 1998, Pla

intif fs applied for a consolidation loan in the amount of $50,000 from Defend ant, intended to be used to settle Plaintiffs’ outstanding debt. The loan document contained

langua ge stati ng: “[t] he lender, its agent, successors and a ssigns will rely on the infor mation contained in the applicationand I/We have a continuing obligation t o a mend and/or supplement the information provided inthe appli cation if

any of the ma terial f acts whichI/We represented he rein should change prior to closing.” Mark Eubanks subsequently cha nged jobs on February

2, 1998, taking a position providing

a smaller base sa la ry, but added bonus incentives

. After Plaintiff s’ loan was approved, Defendant re- produced for Plaintiffs copies of checks made outto Plaintiffs’ various creditors and then mailed those checks to the cre ditors on February 14, 1998. On February

16, 1998, Plaintiffs were notified that Defendant would place a stop on all checks it had issue d to Plaintiff s’ creditors and ca

ncel the loan, bec ause of Pl aintiffs ’ chang ed employ ment. Plaintiff s’ attorney ther

eafter began correspondence

with Defendant demanding that the loan be reinstated, and thre atening

a potenti al suit. The loan cancellation forced Plaintiffs into b ankru ptcy proce edings , resu ltin g in th em fil ing a Chapter 7 petition on July 17, 1998. The initial bankruptcy filing omitted Defendant from the schedule as a credi tor or pot ential cl aimant. On August 18, 1998, a

t a meeting of

creditors, Plaintiffs orally infor med the Trustee, J. Baxter Schilling, of the lende r-liabil ity c laim Plaint

iffs wer e in the pr ocess of filing a gainst Defend ant. The Trustee orally

instructed Plaintiffs’ counsel to forward to him all documents regar ding the claim. The same day , the Trustee forwarded a letter to Plaintiffsmemorial izing his r equest f or all doc uments regarding the claim, which Plaintiffs for warded to the Trustee two day s later. OnOctober

20, 19 98, t he ban krupt cy court en tered a “Disc harge of Debtor” on Plaintiffs’ Chapter 7 claim. Plaintiffs claim they contac ted the Trustee several times over the next several months to inquire as to the status of t

heir cla im agai nst Defe ndant, an d as to whe

ther the Trustee intended to pursue the claim on behalf of the estate; however, they received no definitive answer. OnMarch 5, 1999, Plaintiffs amended their schedules in the bankruptcy matter to include Defendant as a credi tor on schedule F ; they

claim that Plaintiffs’ counsel inadvertently failed to amend their schedules to include Defendant as a claim of potential assets on their schedule B. On September 23, 1999, Plaintiffs moved the court to set a sta

tus confe rence d ate reg arding

Plaintiff s’ lende r-liabil ity c laim ag ainst Def endant, whichwas then set for November 18, 1999. On Novem ber 2, 1999, however, Trustee Schilling filed a “Report of No Distribution” that stated there was no property available for creditor distribution and the debtor’s estate was fully a dministered. Therefore, on November 19, 1999, the court remanded as moot “the status hearing relative to the Trustee’s de cision whether to pursue a potential lawsuit against [Defendant],” since the Trustee’s statement and Report of No Distribution was filed. The Plaintiffs’ Final Decree for their Chapter 7 action was issued on December 2, 1999. Four days later, on December 6, 1999, Plaintiffs moved to reopen the bankruptcy action to resolve a previous disability

claim Plaintiff Mark Eubanks had against a former e mployer. On Marc

h 15, 2000, the bankruptcy

court issu

ed a “No tice of Last Day

to Fil e Claims” form, which indicate d that “a ssets exist in this case from which unsecured creditors may receive a dividend.” OnAugust 1 4, 2000, Pla

intiffs f iled a co mplaint in

the Circuit Court of

Jefferson County, Kentucky againstDefendant. Defendant removed the action to the district court under 28 U.S.C. § 1452(a) pursuant to the cou rt’s ban kruptcy jurisdict ion under 28 U.S.C. §1 334, and p

ursuant t o 28 U.S.C. § 1441 (a) based onthe diversity of citizenship of the parties under 28 U.S.C. §1332. Subsequent to removal, Defendant filedNo. 02-5902 Eubanks, et al. v. CBSK Financial Group Page 3

a motion to dismiss on September 13, 2000. A hearing regarding the motion occurred on October 13, 2000, after whichthe bankruptcy c ourt issued an order on October 17, 2000, directing the Trustee to file a Motion to Abandon, stating that when the motion was received, the bankr uptcy court wo uld rema nd Plaintif

fs’ civil claim back to state court. Plaintiffs’ counse l filed another motion for a status conference, c iting the Trustee’s unwilling

ness to file the Motion to Abandon. On December 4, 2000, the court ordered the Trustee to file the Motion to Abandon. Nevertheless, on December 22, 2000, the Trustee filed an Application by Trustee to Employ

Julia Bar

ry [Plaintiffs ’ atto rney] to Litigate Lende r Liability

Claim, along with her affida vit. On December 27, 2000, the court issued a Notice for Objections rega rding the employ of B arry as litigant in the Plaintiffs’ civil action against Defendant, and mailed a copy to all scheduled c

reditors and parties in interest. OnApril 27, 2 001, Plaint iffs move d to allow t

he Truste e to be sub stituted a s Plaintiff in th e leg al liability civil actionand to re

mand the matter ba

ck to state court, which the court allowed on May 1, 2001. Defendant

then moved to alter, amend and vacate the May 1, 2001 Order of Substitution and Remand. After a hearing on Defendant’s motion, the court on December 3, 2001 issued an order whic h vacated the Order of Substitution and Remand, and continued to consider Defendant’s motion to dismiss. Plaintiffs filed an amendment to their original bankruptcy petition, on November 20, 2001, to add the claim against Defendant to their bankruptcy sche dule B, and, D efenda nt respon ded with a

motion to strike. On Januar

y 29 , 2002, the

bankrup tcy

court entere d the Trustee’s Final Report, which declare d Plaintiff s’ lender-liability claim fully administered and fully a

bandoned. On June 10, 2002, the district court granted Defendant’s motion to dismiss, on grounds of judicial estoppel. Plaintiffs then fi led this t imely appeal. II. DISCUSSION This Court rev

iews de novo a moti on to dismiss under F ED

. R. C IV

. P ROC . 12(b)(6). U.S. ex r el. Bledsoe v . Community Hea lth Systems, Inc ., 342 F.3 d 634, 643 ( 6th Cir. 200 3); see also Grindstaff v. Green , 133 F.3d 416, 421 (6th Cir. 1998). The Court is require d to constr

ue the complaint in t

he light most favora ble to the plaintiff, accept all of the complaint’s factual alleg ations as true, and determine whether the plaintiff undoubtedly can prove

no set of facts in s upport of the claim s that woul d entitle plaintiff to relief. Meador v. Cabinet for Human Resources , 902 F.2d 474, 475 (6th Cir. 1990), cert. denied, 498 U.S. 867 (1990). The Court, however, need not acce pt as true legal conclusions or unwarr anted fa ctual inf erence s. Morgan v. Church’s Fried Chicken , 829 F.2d 10, 12 (6th Cir. 1987); see also B lackburnv. Fisk U niversity , 443 F.2d 1 21, 124 (6 th Cir. 1971 ) (the c ourt is “r equired to accept only

well-pleaded

facts as true, not the legal conclusions that may be a lleged or that may

be dra wn from the pleaded facts”). Additionally, we review a district court’s applica

tion of jud

icial est oppel de novo

. Browning v. Levy , 283 F.3d 761, 775 (6th Cir. 2002). The doctrine of judicial estoppel bars a party fro m asserting a position that is contrary to one the party has asse rted unde r oath in a prior proceeding, where the prior court adopted the contrary position “either as a preliminary ma tter or as part of a

final disposition.” Teledyne Indus., Inc. v. NLRB , 911 F.2d 1214, 1218 (6th

Cir. 1990). Judicial estoppel is an “equitable doctrine meant to preserve the integ rity of the courts by preventing

a part y from abus ing the judicial process through cy nical gamesmanship, achieving success on one position, then arguing the opposite to suit an exigency of the moment.” Id

. Judicial es toppel, however, should be a

pplied wit

h caution to “avoid

impingin g on the truth-se eking f

unction of

the cour t, because the doctr ine prec ludes a c ontradictory posi tion w ithout examining the truth of either statement.” Id

. Defendant

argued in its Motion to Dismiss be fore the di strict court that Plaintiffs should be precluded frompursuing

this litig ation ag ainst Def endant be cause

of Plaintiffs’ failure to include the potentia l claimNo. 02-5902 Eubanks, et al. v. CBSK Financial Group Page 4

1 There is evide nce he re that P laintiffs did n ot co ncea l this claim a gainst D efend ant up until the filing of the civil suit, although D efendant argue s that the m ere m ention of the p ossib le claim to the T rustee in a mee ting is not su fficie nt to ov erco me th e protections of j udici al e stoppe l. Nevert hele ss, vari ou s courts in other j urisdicti ons have held that a t rustee’s knowledge of the claim precludes the applicati on of judicial est oppel since the plain tif f was obviousl y not t

ryi ng to def

raud the court i f th ey place d the trustee o n notic e. Period Homes, Ltd. v. Wallick , 569 S.E. 2d 502 (Ga. 2002 ) (where debtor did not mislead bankruptcy court about exist ence of cl aim si nce debtor i nformed trust ee of cl aim, debtor ’s position with respect t o claim was not clearl y inconsist ent with his pos iti on during the pendency of bankru

ptcy an d judici al est oppel should not apply); see als o Sports Page, Inc., v. First Union Management, I

nc ., 438 N.W .2d 428 (M inn. Ct. App. 198 9) (because trustee i n athleti c store bank rup tcy had not ice of againstDefend

ant as a p otential a sset in its previo us bankrup tcy adjudication, thus war ranting judicial estoppel. Since a

debtor has an affirmative duty to disclose all of its assets to the bankruptcy c ourt, under 11 U.S.C. §521 (1), De fendant argue s Plaintiff

s’ failur e to inclu de Defe ndant in their bank

ruptcy schedule constitutes Plaintiff

s’ intenti on to benefit from this contrary argument in the curren

t litigat ion. Plaint

iffs, however, have evidenced no motive or intention to conceal the potential claim since Plaintiffs actually made numerous attempts t

hrough their co unsel to a dvise the court an d the Trustee of th eir clai m. This C ourt has previousl

y de alt with the

issue as to

whether one’s fa ilure to di sclose a

n ass et in a previous bankr uptcy pro ceedin g is su ffici ent en ough to justify asserting tha t such an omission was the “position” of the party in the previ ous pr oceedi ng. Browning , 283 F.3d at 775. In Browning , we looke d to our sister ci rcuits, in cluding the Third Circuit’s Oneida Motor Fre ight, Inc. v. United Jersey Bank , 848 F.2d 414 (3d Cir. 1988), for guidance. Id . There , the Thir d Circuit held, and Defendant in the instant action would agree , that the

debtor’ s post-pe

titio n bankru

ptc y claim ag ainst a bank was precluded by judicial estoppel because the debtor failed to disclose the claim in the prior bankruptcy pr

oceeding. Id . at 419. T

his Courtalso looke d to Oneida in our ana lys is in Reynolds v. Comm’r of Internal Revenue , 861 F.2d 469, 474 (6th Cir. 1988), where we agreed that “statements of omissions by a debtor in a disclosure statement [are] sufficient for a finding of judicial estoppel.” Nevertheless, in Browning we found the very limiting lang uage in Reynolds , whichwould allow an “omission” by a

debtor to

support a

finding of judicia

l est oppe l, to be merely dicta a nd, therefore, not bind ing. 283 F.3d at 775. Before Browning , this Court had not de alt with

the issue of whether bad faith or anattempt to mislead the court was necessary to apply the doctrine of

judicial estoppel; however, our sister circuits have he ld the app lication o f judicia l estoppe l to be inappropriate when such omissions are the result of mere mistakes or inadvertent conduct. Id. (citing United States v. Hussein , 178 F.3d 125, 130 (2d Cir. 1999); King v. Herbert J. Thomas Me m’l Hosp ., 159 F.3d

192, 196-97 (4th Cir. 1998); Helfand v. Gerson , 105 F.3d 5 30, 536 (9 th Cir. 1997 )); see also Ryan Operations v. Santiam -Midwest , 81 F.3d 3 55, 362 (6 th Cir. 1996) (holding the application of judicial estoppel would be inappropriate be c aus e there was no evidence Plaintiff acted in bad faith). There is record

evidence in the instant case that Plaintiffs made the court, and the Trustee, awa re of the potential civil claim against Defendant be for e the bankruptcy action closed, although the claim was omittedfrom Plain

tiffs’ bankruptcy

schedule form. Pla

intiffs’ counsel a

nd the Tru stee wer

e in conta ct, with respect to the documentation regarding the c laim against Defendant, prior to the filing of the Trustee’s Final Report. When Plaintiffs’ counsel could not confirm whether or not the Trustee intended to rec on cile th e ci vil claim through the bankruptcy proceeding, Plaintiffs attempted to resolve the issue thr ough a cour

t conference, which was eve ntually cance lled due to the filing of the Trustee’s Final Report. The facts before this Court are more closely analogous to cases which have held the application of judicial estoppel

to be an inappropr

iate res olution, r

ather th an a nec essary

judicial measure to pr otect the court’s interest . As we he ld in Browning , by adopting the Fifth Circuit’s analysis in In re Coastal Plains, Inc. , 179 F.3d 1 97 (5th Cir . 1999), r egard ing whe n a debtor ’s omission

might be inadver tent – suchas where a debtor lacks the knowledge of the factual basis of the undisclosed claim or where the debtor has no motive for concealment – finding Plaintiffs’ actions as cause for judicial estoppel would beequally as inappr opriate. 283 F.3d at 775. 1No. 02-5902 Eubanks, et al. v. CBSK Financial Group Page 5

store’s cla im ag ains t i ts mall lan dlord, the court held judicial estoppel did not prevent the st ore from subsequently li tigati ng the case).
2 Th e disse nt’s po sition, in an alyzing the facts set for th in this case w ith the test set fo rth in Browningto discern whether a plaintiff’s omissi on was in fact inadvertent, relies on an as sumpt ion t hat ther e was a conce aled or unk nown con tra ry pos it ion prev iously tak en by Plai nti ff s. 283 F.3d at 775. Her e, the m ajor ity has set for th in deta il the steps P laintiffs took to ap prise b oth the Tru stee an d the c ourt o f th e anticip ate d civi l act ion agai nst Def endant, so as t o not conceal the cl aim even t hough it was inadv ertently omitted on the bankruptc y schedul e. Not only did Plaintif fs’ const ant affirmative acti ons clearly es tablish a desi re to appr is e t he c ourt

of t he pe ndi ng c lai m, but s uch a s equenc e of a cti on actually runs contrary to the co nduct need ed to estab lish a mo tive to co ncea l. The record

established that Pla

intiffs a mended the bankru

ptcy schedule s once, a

nd attemp t ed to amend it a second time, to finally place Defendant on the schedule as a cre ditor and poten tial asse t. Defend ant, however, provides no additional evidence that Plaintiffs demons trat ed fraudulent intentions towards th e c ou rt . A dd it io na ll y, the record establishes that Plaintiffs put the court and the Trustee on notice throu gh corres

pondenc e, motions , and stat us confe rence r equests, thus supporti ng the argument that the claim’s omission on

the sche dules wa s merely inadver tent, particularly since

Plaintiffs’ desire to pursue a liability claim aga

inst Defendant was a fact known by all parties involved. 2
Becau se this Court ha s previously held that evidenc e of an inadvertent omission of a claim in a previous bankrup tcy

procee ding is a

reasona ble and appr

opriate factor to consider when analy zing judicial estoppel’s applicability, the Court REVERSES the district court’s decision barring Plaintiff s’ civil cla

im as judicially estopped, and REMANDS for further proceedings c onsistent with this opinion.No. 02-5902 Eubanks, et al. v. CBSK Financial Group Page 6

1 During oral argum ent, Plaintiffs’ coun sel vigo rously re prese nted to the pa nel that he r repe ated fa ilures to includ e the cla im agains t Defe nda nt in the ap pro priate bank ruptc y sched ule wer e all inad verten t. ______________ DISSENT

______________ JON P. McCALL

A, District Judg e, dissenting. I respe ctfully disag ree with the majority’ s conc lusion

. Based on the fr amework articula ted by this court in Browning v. Levy , 283 F.3d 761, 776 ( 6th

Cir. 2002), I be lieve the

district c ourt cor

rectly dismissed Pl aintiffs ’ claim. “The doctrine

of judicia

l estoppe l bars a p arty

from (1)asse rting a position that is contrary to one that the p arty

has asse rted unde r oath in a prior proceeding, where (2) the prior

court adopted the contrary position either as a preliminary matter or as part of a final disposition.” Id. (citi ng Teledyne Indus., Inc. v. NLRB , 911 F.2d 1114, 1218 (6th Cir. 1990)) (internal citations omitted). In Browning, this court adopted the approach employ

ed by the Fifth Circuit in In re Coastal Plains, Inc. , 179 F.3d 197 (5th Cir. 1999) , to identify those “c ircumsta

nces und er which a debtor ’s failur

e to disclo se a cause of action in a bankruptcy proceeding

might be inadvertent,” such that judicial estoppel would be inapplicable. Browning , 283 F.3d at 776

. Specifically, this Court reasone d that situations where the debtor either (1) lacks knowle dge of the factual basis for

the undisc losed cla

ims, or (2) has no motive for concealment ought to fa ll outside the scope of the judicial estoppel doctrine. Id. Similar to the plaintiffs in Browning , Plaintiffs in this case were well-aware of the factual basis for the undisclos ed claims ; theref ore, the only manner in which Plaintiffs can avoid judicial estoppel is to show that they had no moti

ve for c oncealment. One factor courts wi

thin this Circuit have considered when ascertaining

a debtor’s motive to conceal is to inquire whether the debtor would enj oy a

windfall as a res ult of the belated filing. See, e.g., id. (“[Plaintiff] will thus receive no wi ndfall a s a result o f its failu re to disclose its claims, because only Na tionwide’s creditors will receive the distribution of any recovery
. . . This lack of motive for concealment leads to the conclu sion that [Pla intiff’s ] failure

to disclose

was, without any evidence to the contrary , inadvertent.”); McClain v. Coverdell & Co., 272 F.Supp.2d 631, 641-4 2 ( E.D. Mich. 2003) (findingjudicial e stoppel inapplica ble because

the failu re to disc lose the a

ccount di d not resu

lt ina windfall given that the amount in question was small enough that it would have qualified as a personal exemption)

. Contrary to the situation in Browning—where the creditors would have rec eived the distributi o n of any recovery

—the record in this case indicates that Plaintiffs would enjoy a windfall if allowe d to pursue their cla im agai nst Defe ndants af ter the d ismissal of

their Cha pter 7 cl aim. Indeed, Plaintiffs themselves confirme d their intention to retain the claim against Defendant as par t of their personal property. I

n a brief filed with the Bankruptcy Court, Plaintiffs asserted that should the court reopen the case and allow the amendment to be filed, the result would be that the claim would become the propert y of the debtors, rather t

han t he estate, because the Trustee had a bandoned the claim. (Pls.’ Brief March 25, 2002 at 4.) Thi s stateme nt unquest

ionably belies Pla

intiffs’ claim of inadvertence. 1 This type of blatant attempt to shield an award from the creditors is precisely the type of conduc

t that judicial estoppel was designed to prevent. As the Fifth Circuit explained: [T]he rationale for . . . decisions [invoking judicial estoppelto prevent a party who faile d to disclo se a claim in bankruptcy proc eedings from asserting that claim after emerging f rom bankruptcy] is that the integrity of the bankruptcy system depends on full and honest disclosure by debtors of all of their assets

. The cour

ts willnot permit a debtor to obtain relief from the bankruptcy court by re

presenting that no claims

exist and then subseque

ntly to asser t those cla

ims for his

own bene fit in a se

parate proceeding.No. 02-5902 Eubanks, et al. v. CBSK Financial Group Page 7

In re Coastal Plains, Inc. , 179 F .3d at 208 (c itin g Rosenshein v. Kleban , 918 F .Supp. 98, 104 (S.D.N.Y. 1996) (emphasis in original).
Inthis case, not only did Plaintiffs attempt to benefit from their a lleged omission by d

epriving their creditors of the be

nefit of a ny c laim ag ainst Def

endant, but also they allowed the B ankruptcy Court to re ly onthe representation of the Trustee that no property wa s available for distribution. Plaintiffs never appealed the final decree of the Bankruptc y Court deny

ing their request for a hearing as moot or attempted to reopen the case

— as they did with the claims against Mr. Eubanks’ employ er. Instead, they

silently waited

on the sidelines for the Bankruptcy Court to discharge their debt, before pursuing their claim in state court. Contrary to the majority, I

believe that Plaintiffs’ actions indicate tha t the failure to include the claims against Defendants in the bankruptcy schedule was no t mere inadvertence or mistake as re quired under Browning . There fore, I would af firm the d

istrict c ourt’s de cision dism issing Pla i ntiffs’ claim as barred by j udicial e stoppel.