Opinion ID: 798283
Heading Depth: 3
Heading Rank: 3

Heading: Unfair Advantage and Equitable Considerations

Text: Having determined that the two requisite elements for application of judicial estoppel (inconsistent positions in two judicial proceedings, and success in relying on the position in the first proceeding) are present, we now turn to the equities of the district court's decision to apply judicial estoppel. Appellant notes that he stands to gain no unfair advantage in this proceeding on account of his failure to disclose the claims to the bankruptcy court. Furthermore, he argues that, because the Trustee was made aware of the claims at the August 2009 creditors' meeting, prior to his obtaining a discharge on October 27, 2009, and because he listed the claims on his Report of Unpaid Chapter 11 obligations in January 2010, he did not intend to conceal his claims from the bankruptcy court. Hence applying judicial estoppel in this case would be inequitable. As noted above, unfair advantage is not a formal element of a claim of judicial estoppel, Alternative Sys. Concepts, 374 F.3d at 33, but it is frequently considered as an important factor in whether to apply the doctrine, see New Hampshire, 532 U.S. at 751, 121 S.Ct. 1808. In this case, appellees admit that appellant stands to gain no unfair advantage in this proceeding because of his representations to the bankruptcy court. However, the doctrine is also intended to protect the integrity of other judicial proceedings. We addressed the application of judicial estoppel on the basis of bankruptcy schedules in Payless Wholesale Distributors. In that case, as here, the plaintiff sought to bring claims that it previously failed to disclose in its bankruptcy schedules. We observed that [a] long-standing tenet of bankruptcy law requires one seeking benefits under its terms to satisfy a companion duty to schedule, for the benefit of creditors, all his interests and property rights. 989 F.2d at 571 (quoting Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 (3d Cir.1988)). The accuracy and completeness of bankruptcy schedules is important [i]n order to preserve the requisite reliability of disclosure statements and to provide assurances to creditors regarding the finality of plans which they have voted to approve. Id. at 571-72 (quoting Oneida Motor Freight, 848 F.2d at 418); see also Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1286 (11th Cir.2002) (Full and honest disclosure in a bankruptcy case is crucial to the effective functioning of the federal bankruptcy system. (internal quotation marks omitted)). We determined in Payless that the integrity of the bankruptcy process is sufficiently important that we should not hesitate to apply judicial estoppel even where it creates a windfall for an undeserving defendant. [5] We concluded that [t]his may not be strictly equitable estoppel. . . . [i]ndeed, defendants may have a windfall. However, [the plaintiff's conduct] is an unacceptable abuse of judicial proceedings. 989 F.2d at 571; see also Cannon-Stokes, 453 F.3d at 448 (A doctrine that induces debtors to be truthful in their bankruptcy filings will assist creditors in the long run (though it will do them no good in the particular case)and it will assist most debtors too, for the few debtors who scam their creditors drive up interest rates and injure the more numerous honest borrowers.). Guay argues that the fact that the claims were discussed during the August 2009 meeting with the bankruptcy Trustee and creditors is proof that he did not attempt to conceal the claims. However, even if we were to accept that he attempted to disclose the existence of the claims at this meeting (and, for reasons discussed below, we do not), oral disclosure does not meet the requirements of the bankruptcy code. In Jeffrey v. Desmond, 70 F.3d 183 (1st Cir.1995), we explained the importance of formally scheduling claims and the insufficiency of oral notification. [6] We noted that [t]he law is abundantly clear that the burden is on the debtors to list the asset and/or amend their schedules, id. at 186, and explained that the fact that the debtors brought their claims to the Trustee's attention by means of oral notification still left open the possibility of judicial estoppel, id. at 186-87. While we were not called upon to decide whether judicial estoppel was appropriate in that case, we observed that appellants' argument that they brought the state court action to the Trustee's attention completely overlooks both the importance of the Bankruptcy Code's disclosure requirements and the fact that appellants signed the schedules under penalties of perjury. Id. at 187. Some circuits have held that parties who fail to identify a legal claim in bankruptcy schedules may escape the application of judicial estoppel if they can show that they either lack[ed] knowledge of the undisclosed claims or ha[d] no motive for their concealment. Eastman v. Union Pac. R.R. Co., 493 F.3d 1151, 1157 (10th Cir. 2007); see also Robinson v. Tyson Foods, Inc., 595 F.3d 1269, 1275 (11th Cir.2010) (same); Eubanks v. CBSK Fin. Group, Inc., 385 F.3d 894, 898 (6th Cir.2004) (same); Browning Mfg. v. Mims ( In re Coastal Plains, Inc. ), 179 F.3d 197, 210 (5th Cir.1999) (same). This case does not present facts that require consideration of that exception, and we leave that question open. [7] The appellant makes much of the fact that his claims were discussed at the August 2009 creditors' meeting. However, appellant's briefing scrupulously avoids stating that it was an attorney for the State of New Hampshire who brought the claims to the Trustee's attention. Hence, appellant's argument that he cannot be deemed to have intended to conceal his claims where the Trustee had knowledge of the claims appears disingenuous, and his repeated denial of the existence of the claims takes on added significance. In sum, because the oral notice provided to the Trustee came from another party, and not from the Guays, and the Guays repeatedly averred to the bankruptcy court that no such claims existed, the district court had an ample basis for concluding that there was a motive to conceal in the bankruptcy proceeding. [8] Finally, the fact that the claims were listed on the Guays' January 15, 2010 Report of Unpaid Chapter 11 Obligations does not prevent the application of judicial estoppel. This filing came more than two months after the bankruptcy court, in discharging the Guays from bankruptcy, had accepted the Guays' bankruptcy schedules as complete and accurate. Furthermore, it also came after the defendants raised the issue of judicial estoppel. Therefore, the Guays only made this disclosure (which did not satisfy their obligation to amend their bankruptcy schedules) after: 1) repeatedly denying the existence of the claims, 2) obtaining a discharge from the bankruptcy court, and 3) their adversary raised the issue of judicial estoppel. To allow the Guays to rely on their belated report of unpaid obligations under these circumstances would neither serve the equities of this case nor create the proper incentive for future debtors to disclose assets in a bankruptcy proceeding completely and accurately. As the D.C. Circuit has explained, allowing ... a debtor to back-up, reopen the bankruptcy case, and amend his bankruptcy filings, only after his omission has been challenged by an adversary, suggests that a debtor should consider disclosing potential assets only if he is caught concealing them. This so-called remedy would only diminish the necessary incentive for the debtor to provide the bankruptcy court with a truthful disclosure of his assets. Moses, 606 F.3d at 800 (quoting Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1288 (11th Cir.2002)). Furthermore, allowing such conduct would similarly diminish the doctrine's ability to deter the debtor from pursuing claims in the District Court to which he is not entitled. Id.