Opinion ID: 809741
Heading Depth: 2
Heading Rank: 1

Heading: Clearly Inconsistent Legal Positions

Text: Debtor alleges, and the lower courts agree, that Wells Fargo has adopted a plainly inconsistent position in the Second Bankruptcy as compared to its claims for post-petition arrearages in the First Bankruptcy. In order to come to that conclusion, the District Court determined that creditors such as Wells Fargo are legally required to include all accrued post-petition arrearages in each amended claim they submit. In re Oparaji, 458 B.R. 881, 891-92 (S.D. Tex. 2011) (“[s]ince [Wells Fargo’s] amended proofs of claim asserted claims for post petition arrearages, the amendments should have accurately included all of the post petition arrearages, not only some of them.”). The course of events leading up to the filing of this case began in 2004, when Debtor filed the First Bankruptcy. Over the next five years, Wells Fargo filed multiple proofs of claim and did not include all of the post-petition arrearages owed to it by Debtor in each amended proof of claim. As a result, the District Court found that Wells Fargo’s claims in the First and Second Bankruptcies were inconsistent as a matter of law and invoked the doctrine of judicial estoppel to prevent Wells Fargo from proceeding with its increased claim. However, this interpretation of the relevant statute, 11 U.S.C. § 1305,2 is overly broad and constitutes an abuse of discretion subject to reversal by this Court. The District Court attempts to rationalize this holding by analogizing it to a situation in which a debtor fails to disclose an asset in bankruptcy court. Oparaji, 458 B.R. at 889-90. According to the District Court, both debtors and creditors are bound by the requirement of full disclosure in a bankruptcy. The 2 11 U.S.C. § 1305(a) instructs that “[a] proof of claim may be filed by any entity that holds a claim against the debtor . . .” (emphasis added). 7 Case: 11-20871 Document: 00512011723 Page: 8 Date Filed: 10/05/2012 No. 11-20871 District Court acknowledged that “judicial estoppel is typically applied to bar debtors from pursuing claims that they failed to disclose to their creditors,” but nonetheless applied this requirement to Wells Fargo on the ground that “the importance of full disclosure is not lessened in the case of a material nondisclosure of a creditor.” Id. at 890 (quoting Coastal Plains, 179 F.3d at 208 (internal quotations omitted) (emphasis added)). This argument fails to appreciate the difference between a debtor who has failed to disclose an asset and a creditor who has failed to include all accrued interest in each revised claim. In the first instance, the creditor has no way of knowing about the concealed asset except through the debtor’s disclosure. In the second instance, however, the debtor has the ability and responsibility to keep track of his outstanding debt. More importantly, the District Court has not identified any statute or judicial precedent that imposes a legal responsibility on Wells Fargo to seek the full amount to which it is entitled in each amended claim. While debtors are indisputably required to disclose all assets to the court, this requirement has not been applied to creditors. Although the District Court conceded that “[t]here is no dispute that Wells Fargo was not legally required to pursue its claims for post-petition arrearages in the First Bankruptcy,” it nonetheless determined that “if Wells Fargo chose to file [such] a claim . . . [it] was obligated to disclose all arrearages.” Id. at 892. The only case cited by the District Court in support of this novel theory is In re Burford, 231 B.R. 913 (N.D. Tex. 1999). Burford, however, is distinguishable. In Burford, the debtor claimed that the creditor was equitably estopped from filing a post-petition claim because the creditor had not sought to 8 Case: 11-20871 Document: 00512011723 Page: 9 Date Filed: 10/05/2012 No. 11-20871 collect that sum during the previous bankruptcy. Id. at 917. The debtor argued that he relied, to his detriment, on a clause in an earlier confirmation order that required the creditor to create a payment schedule that would “fully retire the debt.” Id. at 920. The court agreed with the debtor and found that the creditor was equitably estopped from claiming the increased amount since it had previously represented that the debtor did not owe additional interest. Id. at 922. The facts supporting the application of equitable estoppel in Burford cannot be analogized to the facts in this case since the court in Burford focused primarily on the creditor’s explicit commitment to “fully retire the [tax] debt.” Id. Furthermore, as Burford involved the application of equitable estoppel, the debtor’s reliance on the creditor’s statement became a dispositive issue.3 Id. at 921. In contrast, Debtor has neither sought relief under the doctrine of equitable estoppel nor identified any similar commitments made by Wells Fargo to fully retire Debtor’s debt. At best, Debtor has inferred a commitment by Wells Fargo to retire the debt in full – a far cry from the explicit commitment made by the creditor in Burford. The District Court’s holding thus runs counter to this circuit’s expressed reluctance to apply judicial estoppel in situations where a party’s alleged change of position is “merely implied rather than clear and express.” See In re Condere Corp., 226 F.3d 642, 2000 WL 1029098, at  (5th 3 As we have previously explained: “Judicial estoppel is distinct from equitable estoppel . . . which focuses on the relationship between the parties and applies where one of the parties detrimentally has relied upon the position taken by the other party in an earlier proceeding. In those circumstances, the party that induced reliance is estopped from subsequently arguing a contrary position.” Texaco, Inc. v. Duhe, 274 F.3d 911, 923 n.16 (5th Cir. 2001). 9 Case: 11-20871 Document: 00512011723 Page: 10 Date Filed: 10/05/2012 No. 11-20871 Cir. 2000) (“This circuit has never held that judicial estoppel is appropriate when a party’s change of position is merely implied rather than clear and express.”). In its opinion, the District Court essentially broadens the application of § 1305 by requiring creditors to claim the entirety of their accrued arrearages if they choose to submit a claim at all. This unprecedented interpretation of § 1305 rendered Wells Fargo’s claim legally inconsistent and triggered the application of judicial estoppel. However, as we find that Wells Fargo was not required to include all of its post-petition arrearages in the amended claims, those claims were not inconsistent as a matter of law. The District Court’s erroneous determination that Wells Fargo’s claims were “plainly inconsistent” constitutes an abuse of discretion and is therefore subject to reversal.