Court Opinion

ID: 4356042
Source: CourtListenerOpinion
Date Created: 2019-01-04 10:06:37.08903+00
Date Added: 2024-06-11T14:46:24.906266
License: Public Domain

STATE OF MICHIGAN

                           COURT OF APPEALS

CARLA MCDONALD,                                                    UNPUBLISHED
                                                                   January 3, 2019
               Plaintiff-Appellee,

v                                                                  No. 339309
                                                                   Wayne Circuit Court
PATRICIA ANN YELDON and FIRST                                      LC No. 16-000940-NI
STUDENT, INC.,

               Defendants-Appellants.

Before: GLEICHER, P.J., and BORRELLO and BECKERING, JJ.

PER CURIAM.

        Defendants, Patricia Ann Yeldon and First Student, Inc., appeal by leave granted1 the
trial court’s order denying their motion for summary disposition under MCR 2.116(C)(7) (prior
disposition of claim) and (C)(10) (no genuine issue of material fact, movant entitled to summary
disposition as a matter of law) in this third-party action arising from an automobile accident. We
conclude that plaintiff, Carla McDonald, is judicially estopped from pursuing her accident claims
because she failed to disclose the claims in a prior bankruptcy proceeding. Accordingly, we
reverse the trial court’s order denying defendants’ motion for summary disposition.

        This action arises from an automobile accident that occurred on October 2, 2013.
Plaintiff alleges that she was injured when her automobile was struck by an automobile driven by
Yeldon and owned by First Student, Inc. Before the accident, plaintiff had filed a petition for
bankruptcy protection under Chapter 13. The bankruptcy proceeding was pending at the time of
the accident. In January 2014, plaintiff converted her bankruptcy filing to Chapter 7 and
amended her bankruptcy schedules under oath. Plaintiff did not list any claim related to her
automobile accident in her amended bankruptcy schedules. At her deposition, plaintiff admitted
that by February 14, 2014, she had hired an attorney to file an action against defendants related
to her October 2013 automobile accident. On April 15, 2014, the bankruptcy court discharged
plaintiff’s debts, and the bankruptcy case was closed on May 14, 2014. Plaintiff never disclosed
her accident claims as a potential asset in the bankruptcy case.

1
  McDonald v Yeldon, unpublished order of the Court of Appeals, entered December 8, 2017
(Docket 339309).

                                               -1-
       After plaintiff filed this action against defendants in January 2016, defendants filed a
motion for summary disposition under MCR 2.116(C)(7) and (C)(10), arguing that plaintiff’s
claims were barred by judicial estoppel because she failed to disclose the claims in her prior
bankruptcy case. The trial court denied defendants’ motion. Thereafter, this Court granted
defendants’ application for leave to appeal.

        This Court reviews de novo a trial court’s decision whether to grant summary disposition.
Spiek v Dep't of Transp, 456 Mich. 331, 337; 572 NW2d 201 (1998). Summary disposition may
be granted under MCR 2.116(C)(7) when an action is barred due to the disposition of the claim
before commencement of the action. See Alcona Co v Wolverine Environmental Prod, Inc, 233
Mich. App. 238, 246; 590 NW2d 586 (1998). A motion under MCR 2.116(C)(7) is governed by
the following standards:

              A defendant who files a motion for summary disposition under MCR
       2.116(C)(7) may (but is not required to) file supportive material such as affidavits,
       depositions, admissions, or other documentary evidence. MCR 2.116(G)(3);
       Patterson v Kleiman, 447 Mich. 429, 432; 526 NW2d 879 (1994). If such
       documentation is submitted, the court must consider it. MCR 2.116(G)(5). If no
       such documentation is submitted, the court must review the plaintiff ’s complaint,
       accepting its well-pleaded allegations as true and construing them in a light most
       favorable to the plaintiff. [Turner v Mercy Hosps & Health Servs of Detroit, 210
Mich. App. 345, 348; 533 NW2d 365 (1995).]

A motion under MCR 2.116(C)(10) tests the factual support for a claim. The court must
consider the pleadings, affidavits, depositions, admissions, and any other documentary evidence
submitted by the parties, and view that evidence in the light most favorable to the nonmoving
party to determine whether a genuine issue of material fact exists. MCR 2.116(G)(5); Maiden v
Rozwood, 461 Mich. 109, 118-120; 597 NW2d 817 (1999). Summary disposition should be
granted if, except as to the amount of damages, there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. Babula v Robertson, 212 Mich. App. 45,
48; 536 NW2d 834 (1995). “Judicial estoppel is an equitable doctrine.” Spohn v Van Dyke Pub
Sch, 296 Mich. App. 470, 479; 822 NW2d 239 (2012). “When reviewing equitable actions, this
Court reviews the trial court’s decision de novo.” Id.

       The Bankruptcy Code requires a debtor to file “a schedule of assets and liabilities,”
among other documents. 11 USC 521(a)(1)(B)(i). A cause of action is an asset that must be
scheduled under § 521. See Eubanks v CBSK Fin Group, Inc, 385 F3d 894, 897 (CA 6, 2004).2
Moreover, the duty to disclose is a continuing one and extends to all potential causes of action.
Browning Mfg v Mims, 179 F3d 197, 208 (CA 5, 1999); In re McMellon, 448 B.R. 887, 891-892
(SD W Va, 2011).

2
  Although state courts are not bound by the decisions of federal circuit courts of appeal on
questions of federal law, the Court may find them to be persuasive. See Abela v General Motors
Corp, 469 Mich. 603, 606-607; 677 NW2d 325 (2004).

                                               -2-
       In Spohn, 296 Mich. App. at 479-481, this Court discussed the application of judicial
estoppel in the context of a bankruptcy proceeding, stating:

              Judicial estoppel is an equitable doctrine, which “generally prevents a
      party from prevailing in one phase of a case on an argument and then relying on a
      contradictory argument to prevail in another phase.”

                     This doctrine is “utilized in order to preserve ‘the integrity
             of the courts by preventing a party from abusing the judicial
             process through cynical gamesmanship.’ ” Browning v. Levy, 283
F.3d 761, 775 (6th Cir. 2002); see also Eubanks [v. CBSK Fin
             Group, Inc, 385 F3d 894, 897 (CA 6, 2004)] (“Judicial estoppel,
             however, should be applied with caution to ‘avoid impinging on
             the truth-seeking function of the court, because the doctrine
             precludes a contradictory position without examining the truth of
             either statement.’ ”).

              Under the “prior success model” of judicial estoppel, “a party who has
      successfully and unequivocally asserted a position in a prior proceeding is
      estopped from asserting an inconsistent position in a subsequent proceeding.” In
      accordance with this model of judicial estoppel, “the mere assertion of
      inconsistent positions is not sufficient to invoke estoppel; rather, there must be
      some indication that the court in the earlier proceeding accepted that party’s
      position as true. Further, in order for the doctrine of judicial estoppel to apply, the
      claims must be wholly inconsistent.” The prior success model, however, “does
      not mean that the party against whom the judicial estoppel doctrine is to be
      invoked must have prevailed on the merits.”

              More specifically, in the context of bankruptcy proceedings, the federal
      courts have indicated that

             to support a finding of judicial estoppel, [a reviewing court] must
             find that: (1) [the plaintiff] assumed a position that was contrary to
             the one that she asserted under oath in the bankruptcy proceedings;
             (2) the bankruptcy court adopted the contrary position either as a
             preliminary matter or as part of a final disposition; and (3) [the
             plaintiff’s] omission did not result from mistake or inadvertence.
             In determining whether [the plaintiff’s] conduct resulted from
             mistake or inadvertence, [the reviewing] court considers whether:
             (1) [the plaintiff] lacked knowledge of the factual basis of the
             undisclosed claims; (2) [the plaintiff] had a motive for
             concealment; and (3) the evidence indicates an absence of bad
             faith. In determining whether there was an absence of bad faith,
             [the reviewing court] will look, in particular, at [the plaintiff’s]
             “attempts” to advise the bankruptcy court of [the plaintiff’s]
             omitted claim. [Footnotes omitted.]

                                               -3-
We conclude that Spohn governs this case and demonstrates that the trial court erred by denying
defendants’ motion for summary disposition.

        The first requirement, that plaintiff assumed a position in this case that was contrary to
what she assumed under oath in the bankruptcy court, is satisfied. “[P]ursuing a cause of action
that was not disclosed as an asset in a previous bankruptcy filing creates an inconsistency
sufficient to support judicial estoppel.” Lewis v Weyerhaeuser Co, 141 Fed Appx 420, 425 (CA
6, 2005). Plaintiff filed this action for recovery of economic and noneconomic damages arising
from her automobile accident, but she never disclosed her potential accident claims to the
bankruptcy court or trustee, even though the accident occurred in October 2013, while the
bankruptcy case was still pending. In fact, plaintiff amended her bankruptcy petition in January
2014, to convert it to a Chapter 7 proceeding, at which time she filed amended bankruptcy
schedules listing all of her assets, but again, she never disclosed her potential claims against
defendants in the amended schedules, and she did not otherwise notify the bankruptcy court of
her potential claims before her debts were discharged in April 2014, or before the bankruptcy
case was closed in May 2014. Plaintiff conceded that she had retained counsel and planned to
file suit against defendants in February 2014, before her bankruptcy case was closed. Even
though a lawsuit had not actually been filed, the duty to disclose assets under bankruptcy law
includes all potential or possible causes of action. In re McMellon, 448 B.R. at 891-892.
Accordingly, there was no genuine issue of material fact that plaintiff assumed a contrary
position in this proceeding from her position in the bankruptcy case.

       The second requirement is whether the bankruptcy court adopted or followed plaintiff’s
contrary position. Plaintiff does not dispute that the bankruptcy court discharged her debts
without consideration of her potential claims against defendants arising from the motor vehicle
accident. Accordingly, there also was no genuine issue of material fact regarding this
requirement.

        Plaintiff argues, however, that her failure to disclose her potential claims related to the
motor vehicle accident was due to inadvertence or mistake. We disagree. First, the record does
not show that plaintiff lacked a factual basis for the undisclosed claims. The accident occurred
in October 2013. By February 2014, while the bankruptcy case was still pending, plaintiff had
retained counsel and knew that she intended to pursue a claim related to the accident. Further,
based on the bankruptcy petition that plaintiff submitted, which included a workers’
compensation claim, plaintiff knew or should have known that any lawsuits she intended to file
should have been disclosed to the bankruptcy court.

        Plaintiff argues that she relied on her bankruptcy attorney to make the necessary
disclosures. However, plaintiff did not present any evidence that she discussed her impending
lawsuit with her bankruptcy attorney, or that he advised her that it was not necessary to disclose
the lawsuit in her bankruptcy petition or schedules. At her deposition, plaintiff stated that she
relied on her attorney to file the proper forms, but she never testified that she advised him of her
accident claims or her intent to file this lawsuit.

       Plaintiff had knowledge of the factual basis for her claims against defendants while her
bankruptcy petition was still pending, and she has not shown that she advised her bankruptcy
attorney of her possible claims, despite having retained an attorney with the intention of filing a

                                                -4-
lawsuit while the bankruptcy case was still pending. Therefore, plaintiff should not be permitted
to shift the blame for not disclosing the claims to her bankruptcy lawyer. Furthermore, even if
plaintiff’s counsel knew about the possible claim, plaintiff still is responsible for the errors and
actions of her attorney. See Lewis, 141 Fed Appx at 427-428 (CA 6, 2005) (noting that although
judicial estoppel may not always apply to positions taken on the advice of an attorney, the
plaintiff’s failure to list an employer on her bankruptcy schedules despite a clear requirement that
she do so under penalty of perjury, the heightened importance of full asset disclosure to the
bankruptcy court, and the questionable timing of events in the case supported the application of
judicial estoppel).

        Second, there is evidence of a motive for concealment. If plaintiff had disclosed her
accident claims, any damages she recovered could have been subject to her creditors’ claims, or
she might have been prevented from discharging her debts. Thus, there was a clear motive to
conceal this lawsuit. See Hermann v Hartford Cas Ins Co, 675 Fed Appx 856, 862 (CA 10,
2017), quoting Eastman v Union Pacific RR Co, 493 F3d 1151, 1159 (CA 10, 2007) (“The ever
present motive to conceal legal claims and reap the financial rewards undoubtedly is why so
many of the cases applying judicial estoppel involve debtors-turned-plaintiffs who have failed to
disclose such claims in bankruptcy.”); see also DeLeon v Comcar Indus, Inc, 321 F3d 1289,
1291 (CA 11, 2003) (recognizing that a financial motive to secret assets exists under Chapter 13,
as well as under Chapter 7, and the type of bankruptcy filing does not affect the application of
judicial estoppel); Bone v Taco Bell of America, LLC, 956 F Supp 2d 872, 883 (WD Tenn, 2013)
(a person petitioning for protection under Chapter 7 presumably has a motive to conceal civil
claims in order to keep the proceeds to himself because if the proceeds were part of the
bankruptcy estate, they would go towards paying the debtor’s creditors).

        The trial court distinguished this case from Spohn because this case involved a Chapter 7
bankruptcy, whereas in Spohn, 296 Mich. App. at 485, this Court noted that a presumption
regarding a motive to conceal exists in Chapter 13 proceedings, when one’s debts can be
minimized for failing to disclose other assets. However, this is a distinction without a difference.
Even though plaintiff converted her case from one under Chapter 13, where she would still be
liable for some of her debts, to one under Chapter 7, where all of her debts would be discharged,
plaintiff still had a motive to shield this lawsuit from the bankruptcy court to gain a financial
advantage by having all of her debts discharged without risking objections from creditors if this
lawsuit were disclosed, or by having some or all of her recovery in this lawsuit going to
creditors.

         Third, the evidence does not establish an absence of bad faith on plaintiff’s part. There is
simply no evidence that plaintiff attempted to advise the bankruptcy court or trustee of her
possible cause of action against defendants at any point while her bankruptcy petition was
pending, and no evidence that she informed her bankruptcy attorney of her possible claims.
Moreover, the evidence clearly showed that plaintiff had retained an attorney and intended to file
this action against defendants while the bankruptcy case was still pending.

        Plaintiff argues that this action should not be dismissed based on judicial estoppel
because she can reopen her bankruptcy case and disclose this lawsuit as an asset. However, the
purpose of judicial estoppel is to enforce the need for litigants in any court proceeding to be
truthful and to protect the integrity of judicial proceedings. Spohn, 296 Mich. App. at 479-480.

                                                 -5-
That purpose would not be furthered by allowing plaintiff to proceed with the instant action,
despite her lack of disclosure in the bankruptcy court. See also Hermann 675 Fed Appx at 863
(rejecting application of lesser remedies, including allowing the plaintiff to reopen and amend his
bankruptcy filing, because that would not encourage debtors to disclose potential assets, but
rather would diminish the incentive to provide truthful disclosure to the bankruptcy court unless
the debtor is caught concealing assets).

        For the foregoing reasons, plaintiff should be judicially estopped from now pursuing this
action against defendant. The trial court erred by denying defendants’ motion for summary
disposition.

       Reversed.

                                                            /s/ Elizabeth L. Gleicher
                                                            /s/ Stephen L. Borrello
                                                            /s/ Jane M. Beckering

                                                -6-