Opinion ID: 223014
Heading Depth: 2
Heading Rank: 1

Heading: Our Result Follows from Bankruptcy Law

Text: Judicial estoppel, as an equitable remedy, must be consistent with the law. See I.N.S. v. Pangilinan, 486 U.S. 875, 883, 108 S.Ct. 2210, 100 L.Ed.2d 882 (1988) (citations omitted). In this case, the relevant law is the Bankruptcy Code, which distinguishes between the debtor and the debtor's estate immediately upon the filing of a Chapter 7 bankruptcy. Therefore, while Lubke himself was properly estopped for his dishonesty, his post-petition misconduct does not adhere to the Trustee, who received the judgment asset free and clear of a defense that arose exclusively from Lubke's post-petition actions. At the moment Lubke filed his petition, the judgment against the City became the property of Lubke's bankruptcy estate. See 11 U.S.C. § 541(a)(1) (property of the estate includes all legal or equitable interests of the debtor in property as of the commencement of the case); 5 Collier on Bankruptcy ¶ 541.07[4] at 41 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.2011) (hereinafter Collier) (Where a cause of action belonging to the debtor has been merged into judgment prior to bankruptcy, the estate succeeds to all rights under such judgment.). The Trustee became the real party in interest upon filing, vested with the authority and duty to pursue the judgment against the City as an asset of the bankruptcy estate. See 11 U.S.C. § 323(a) and (b) (the trustee is the representative of the estate with the capacity to sue and be sued); id. § 704(a)(1) (requiring the trustee to collect and reduce to money the property of the estate for which such trustee serves); Kane v. Nat'l Union Fire Ins. Co., 535 F.3d 380, 385 (5th Cir.2008) (per curiam). This duty was not affected by Lubke's failure to disclose the asset, and it was not extinguished by the conclusion of the bankruptcy case. See 11 U.S.C. § 554(d); Kane, 535 F.3d at 385; Parker v. Wendy's Int'l, Inc., 365 F.3d 1268, 1272 (11th Cir.2004); 5 Collier ¶ 554.03 at 14 (Even after the case is closed, the estate continues to retain its interest in unscheduled property.). Finally, the Bankruptcy Code allows a bankruptcy case to be reopened in order to administer assets of the estate. See 11 U.S.C. § 350(b). All of these provisions reflect Congress's clear preference for the preservation of the bankruptcy estate and for its equitable distribution to creditors through the bankruptcy process. See H.R.Rep. No. 103-835, at 33 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3341. Furthermore, the general principle that a trustee receives causes of action subject to defenses that could have been raised against the debtor has been properly limited to pre-petition defenses to a cause of action that would have been applicable to a debtor if no bankruptcy case had been filed. Riazuddin v. Schindler Elevator Corp. (In re Riazuddin), 363 B.R. 177, 188 (10th Cir. BAP 2007). That is, courts are to evaluate these defenses as they existed at the commencement of the bankruptcy. See Parker, 365 F.3d at 1272 n. 3 (characterizing Bank of Marin v. England, 385 U.S. 99, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966), as approving the application of  pre-petition defenses and counterclaims to a cause of action that would have been applicable to the debtor had no bankruptcy case been filed); Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 355-57 (3d Cir.2001) (citing Bank of Marin and the legislative history of 11 U.S.C. § 541 in support of the proposition that defenses must be evaluated as they existed at the commencement of the bankruptcy); cf. 11 U.S.C. § 541(a)(1) (stating that the bankruptcy estate consists of all legal or equitable interests of the debtor in property as of the commencement of the case  (emphasis added)). The case is commenced, and the estate created, when the bankruptcy petition is filed. Burgess v. Sikes (In re Burgess), 438 F.3d 493, 496 (5th Cir.2006) (en banc). After filing his bankruptcy petitionand hence after the creation of the estateLubke represented to the bankruptcy court that he did not own a judgment asset by purposefully omitting it from his bankruptcy schedules. By pursuing the judgment post-petition, however, Lubke represented to the district court and to this court that he did own such an asset. The bankruptcy court effectively accepted Lubke's first position that no judgment existed and that he had no assets for distribution by issuing what is known colloquially as a no asset discharge. This chain of events makes clear that the elements giving rise to judicial estoppel did not exist until after the bankruptcy petition was filed and the judgment had passed into the bankruptcy estate. Because the City could not have asserted judicial estoppel against Lubke based on the facts as they existed before the commencement of the bankruptcy, the Trustee received the judgment asset free of this affirmative defense. Cf. Cheng v. K & S Diversified Invs., Inc. (In re Cheng ), 308 B.R. 448, 455 (9th Cir. BAP 2004), affirmed, 160 Fed.Appx. 644 (9th Cir.2005) ([I]t would be extraordinary for the trustee in the garden-variety bankruptcy to be estopped on account of something the debtor did for its own account during the case.).