Court Opinion

ID: 194660
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:22:14+00
Date Added: 2024-06-11T13:04:16.374945
License: Public Domain

April 5, 1993
                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 92-2149

        PAYLESS WHOLESALE DISTRIBUTORS, INC., ET AL.,

                   Plaintiffs, Appellants,

                              v.

             ALBERTO CULVER (P.R.) INC., ET AL.,

                    Defendants, Appellees.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF PUERTO RICO

       [Hon. Gilberto Gierbolini, U.S. District Judge]
                                                     

                                         

                            Before

                     Stahl, Circuit Judge,
                                         

          Aldrich and Coffin, Senior Circuit Judges.
                                                   

                                         

Fernando L.  Gallardo with  whom Woods  & Woods  was on brief  for
                                               
appellants.
Victor  E. Grimm  with whom  Michael  J.  Abernathy, Bell,  Boyd &
                                                                  
Lloyd, Ana Matilde  Nin, Ramon Coto-Ojeda and McConnell  Valdes Kelley
                                                                  
Sifre Griggs & Ruiz-Suria were on brief for appellees.
                     

                                         

                        April 5, 1993
                                         

          ALDRICH, Senior  Circuit Judge.   On July  17, 1990
                                        

plaintiffs  Payless  Wholesale Distributors,  Inc. (Payless);

L.A.  Formulations, Inc.  (LAF);  and Leonel  M. Lima  (Lima)

filed a  110 page first amended  complaint, containing twenty

causes  of action  against Alberto  Culver (P.R.),  Inc.; LSE

Sales Corp.; LSE Advertising Company; Alberto-Culver Company;

and Leonard S.  Etten.  Monetary  damages were specified  for

each cause, varying between $5 million and $150 million.  Out

of abundance of caution, plaintiffs requested "any additional

relief that this Honorable Court deem (sic) just and proper."

The  district court, quite properly, criticized the complaint

for not  being "a  short and  plain statement"  in accordance

with  Fed. R.  Civ. P. 8(a)(2).   Even more  justly, it could

have  complained of the flagrant violation of Fed. R. Civ. P.

11.1   The  amount of  damages sought  is a  relevant matter.

See Mestayer v. Wisconsin  Physicians Service Ins. Corp., 905
                                                        

F.2d 1077, 1080  (7th Cir. 1990).   Cf.  Thorpe v. Mutual  of
                                                             

Omaha Ins. Co.,  984 F.2d 541,     (1st  Cir. 1993).  Coupled
              

with the extended complaint it would be difficult to think of

clearer indifference to counsel's elementary obligations.

          In  a  comprehensive   opinion  the  court  granted

defendants'  motion  to dismiss  nineteen  of  the causes  of

action, and  then granted a  motion for summary  judgment for

                    

1.  ". . . The signature of  an attorney or party constitutes
a  certificate  [of] belief  . . .  it  is  well grounded  in
fact. . . ."

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defendants as to the  twentieth.  Happily, we need  not reach

the  correctness  of these  individual  rulings.   The  court

should have  recognized the defense of  judicial estoppel and

dismissed  the complaint  at the  outset.   On that  basis we

affirm.

          According to the  complaint defendants were guilty,

inter  alia,  of  violating  the  antitrust  and  RICO  laws,
           

tortious  interference with  contractual relations,  mail and

wire   fraud,  conspiracy,  breach   of  contract,  fault  or

negligence, and damage to reputation, all  for the purpose of

driving  plaintiffs out  of business.2    By reason  of these

alleged  wrongs Payless,  soon after  commencing  business in

February, 1986,  found itself having to  take various actions

that it  would not have  chosen.  Business  was unsuccessful,

and in July, 1988  it filed for bankruptcy under  Chapter 11.

In  re  Payless  Wholesale  Distributors,  Inc., No.  88-0951
                                               

(Bankr. D.P.R. filed July 14, 1988).  In connection therewith

there were  requirements to give  reasons for filing,  and to

list  all debtor's  assets,  including claims  and causes  of

action.3  In no filing did Payless even  vaguely refer to the

                    

2.  Strictly,  Payless  is  the one  business  entity  having
claims.  LAF was a manufacturer of products Payless  proposed
to  sell,  and  Lima   a  mere  stockholder.    Neither   had
independent  rights.   Warth  v. Seldin,  422  U.S. 490,  499
                                       
(1975);  Jones v.  Niagara Frontier  Transp. Auth.,  836 F.2d
                                                  
731, 736 (2d Cir. 1987), cert. denied, 488 U.S. 825 (1988).
                                     

3.  11 U.S.C.    521(1), 1125(a).

                             -3-

present claims, or  distinguish the  one defendant  mentioned

from its other creditors,  yet Payless now alleges bankruptcy

was  "a   direct  result   of  the  conspiratorial   acts  of

defendants."    First Am.  Complaint    98.   Even  a cursory

examination of  the claims shows that  defendants should have

figured in  both aspects of  the Chapter 11  proceedings, and

that  Payless   could  not  have  thought   otherwise.    The

brazenness of  its ambivalence is illustrated  by its present

assertion that the statute of limitations had not run because

it had been tolled by the pendency of Chapter 11.

          The basic  principle of  bankruptcy is to  obtain a

discharge  from  one's  creditors  in return  for  all  one's

assets, except  those exempt, as a result  of which creditors

release their  own claims and  the bankrupt can  start fresh.

Assuming there is validity in Payless's present suit,  it has

a  better plan.    Conceal  your  claims;  get  rid  of  your

creditors  on  the cheap,  and start  over  with a  bundle of

rights.   This is  a palpable fraud  that the court  will not

tolerate,  even  passively.   See,  e.g., In  re  H.R.P. Auto
                                                             

Center,  Inc., 130 B.R.  247, 253-54 (Bankr.  N.D. Ohio 1991)
             

(collecting cases).  Payless, having obtained judicial relief

on  the representation  that no claims  existed, can  not now

resurrect them and obtain relief on the opposite basis.  This

may  not  be  strictly   equitable  estoppel,  as  the  court

                             -4-

observed.  Indeed, defendants may have  a windfall.  However,

it is an unacceptable abuse of judicial proceedings.

          It is  a generally recognized  proposition that one

cannot  play "fast  and  loose  with  the courts."    Patriot
                                                             

Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208, 212 (1st
                                     

Cir.  1987).  The language  in Oneida Motor  Freight, Inc. v.
                                                          

United Jersey Bank, 848 F.2d 414 (3d Cir.), cert. denied, 488
                                                        

U.S. 967 (1988) is singularly on point.

               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.
          In  Re  Hannan, 127  F.2d  894  (7th Cir.
                        
          1942).

848 F.2d at 416.

               Disclosure  is  important,  in  this
          case,  not  only   to  the  bank   as  an
          adversary and as  a creditor, but to  the
          other  creditors  and  to the  bankruptcy
          court.  Here, "the silence" in the Oneida
          bankruptcy record concerning this present
          claim, as they say in the vernacular, "is
          deafening."

Id. at 417.
  

               In 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, we hold that
          under  the  facts  here present  Oneida's
          failure to announce  this claim against a
          creditor precludes it from litigating the
          cause of action at this time.

Id. at 418.
  

                             -5-

          By  noting,  and  then  disregarding  Oneida  Motor
                                                             

Freight, and  stating  that Payless's  "disclosure  statement
       

does  not constitute the adoption of a position by Payless in

one  judicial proceeding  that is  intentionally inconsistent

with  its claims in this case" the court failed to appreciate

the  long accepted  nature  of Payless's  obligations in  the

Chapter 11 proceeding.  Nothing more need be said.

          Affirmed.
                  

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