Court Opinion

ID: 4115363
Source: CourtListenerOpinion
Date Created: 2017-01-12 17:01:43.741147+00
Date Added: 2024-06-11T07:45:45.323313
License: Public Domain

FILED
                                                                     United States Court of Appeals
                      UNITED STATES COURT OF APPEALS                         Tenth Circuit

                             FOR THE TENTH CIRCUIT                         January 12, 2017
                         _________________________________
                                                                         Elisabeth A. Shumaker
                                                                             Clerk of Court
JOHN HERMANN,

      Plaintiff - Appellant,

v.                                                          No. 16-1145
                                               (D.C. No. 1:11-CV-03188-REB-MEH)
HARTFORD CASUALTY INSURANCE                                  (D. Colo.)
COMPANY,

      Defendant - Appellee.
                      _________________________________

                             ORDER AND JUDGMENT*
                         _________________________________

Before HOLMES, BALDOCK, and BACHARACH, Circuit Judges.
                  _________________________________

      John Hermann filed suit against Hartford Casualty Insurance Company, alleging

that Hartford unreasonably denied and delayed payment on his claim under a workers’

compensation insurance policy. Hartford moved for summary judgment, arguing that

Mr. Hermann’s action should be barred under the doctrine of judicial estoppel because

Mr. Hermann did not disclose his claim against Hartford in his bankruptcy petition. The

district court granted the motion and entered judgment in Hartford’s favor. Proceeding

      *
        After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
pro se, Mr. Hermann appeals from that ruling. Exercising jurisdiction under 28 U.S.C.

§ 1291, we affirm.

I.    Background

      Mr. Hermann was injured in an auto accident in December 2009. Because the

other driver was uninsured, he sought recovery for his injuries from his own auto

insurance carrier, under his uninsured motorist coverage. He also submitted a claim for

workers’ compensation benefits under a Hartford policy. Hartford initially denied

Mr. Hermann’s claim in January 2010, but after further investigation, Hartford accepted

the claim in May 2010.

      A month later, Mr. Hermann and his wife (“Debtors”) filed a joint Chapter 7

voluntary bankruptcy petition. There is no dispute that, at that time, Mr. Hermann

believed that Hartford had wrongly denied his claim for workers’ compensation benefits.

See Supp. App., Vol. I at 107-09. Debtors submitted a Statement of Financial Affairs in

the bankruptcy proceeding, including schedules listing their assets and their claimed

exemptions. In their list of personal property on Schedule B, Debtors disclosed

“Potential Personal Injury Award” under the category of “contingent and unliquidated

claims of every nature.” Id. at 60. They did not list any other claim on Schedule B. On

Schedule C, Debtors claimed that “Potential Personal Injury Award” was exempt under a

Virginia statute. Id. at 63. Mr. Hermann signed declarations under penalty of perjury

that Debtors’ Statement of Financial Affairs, including the information in the various

schedules, was true and correct.

                                            2
       At a creditors’ meeting in August 2010, the bankruptcy Trustee inquired about the

status of two businesses that Debtors had listed in their bankruptcy schedules.1

Mr. Hermann responded that the businesses were defunct as a result of his auto accident

in December 2009. The following colloquy between the Trustee and Mr. Hermann

followed:

              Trustee: . . . . And you are looking at a personal injury award from
       that car accident?
              Mr. Hermann: Well, there will be something. I have no earthly idea
       what it’s going to be.
              Trustee: Or when?
       ....
             Mr. Hermann: I have not reached [maximum medical
       improvement]. They’re talking about a permanent disability.
              Trustee: So you’re still in medical treatment for the --
              Mr. Hermann: Yes, ma’am.
              Trustee: -- car accident? How are you paying for living expenses, at
       present?
               Mr. Hermann: Workman’s Comp has finally admitted some
       liability. So I’ve received a [temporary partial disability] payment.
       Hopefully weekly, sometimes it’s every two weeks. There’s a copy of the
       most recent check. There’s a --
              Trustee: Temporary partial, until they finalize their evaluation?
              Mr. Hermann: Right.
Id., Vol. II at 246-47.

       1
        Mr. Hermann filed a transcript of the creditors’ meeting in the district court.
See Supp. App., Vol. II at 241-48. Although the transcript reflects questions being
posed by “the Court,” id., Mr. Hermann indicates that the bankruptcy Trustee
presided at the meeting, see id. at 236.
                                             3
      At the creditors’ meeting, the Trustee also directed Debtors to amend their

Schedule C to claim exemptions under federal rather than Virginia law. Debtors

subsequently filed an amended Schedule C, claiming that “Potential Personal Injury

Award” was exempt under 11 U.S.C. §§ 522(d)(11)(D). See Suppl. App., Vol. I at

154; see also Amended Schedule C, In re Hermann, No. 10-26229 (Bankr. D. Colo.

Aug. 5, 2010), ECF No. 15.2 The bankruptcy court entered an order discharging

Debtors in November 2010.

      Mr. Hermann filed this action against Hartford in October 2011, alleging that

Hartford had unreasonably denied and delayed coverage under the workers’

compensation policy. Hartford moved for summary judgment, arguing that

Mr. Hermann should be judicially estopped from asserting this claim because he did

not list it as an asset in his bankruptcy schedules. Mr. Hermann did not file a

response to Hartford’s motion; instead, he moved to reopen his bankruptcy case “to

amend his Schedules to specifically identify as an asset of the Estate a bad-faith

insurance lawsuit that [was] pending in the [district court].” Supp. App., Vol. I at

148. The district court administratively closed this case while Mr. Hermann pursued

reopening of his bankruptcy case.

      2
         Some of the relevant filings in Debtors’ bankruptcy case, including their
amended Schedule C, are not included in the record on appeal. But like the district
court, see Supp. App., Vol. II at 336, we take judicial notice of the record in Debtors’
bankruptcy case, see United States v. Ahidley, 486 F.3d 1184, 1192 n.5 (10th Cir.
2007) (“Although we are not obliged to do so, we may exercise our discretion to take
judicial notice of publicly-filed records in our court and certain other courts
concerning matters that bear directly upon the disposition of the case at hand.”).
                                           4
      The bankruptcy court granted Mr. Hermann’s motion to reopen, and Debtors

ultimately filed an amended Schedule B listing a potential claim against Hartford,

and a further amended Schedule C asserting that the claim against Hartford was

exempt under 11 U.S.C. §§ 522(d)(10)(C) and (d)(11)(E). See Amended Schedules B

and C at 2, 4, In re Hermann, No. 10-26229 (Bankr. D. Colo. Jul. 15, 2013), ECF

No. 51. The bankruptcy court also approved an agreement between the Trustee and

Debtors assigning the bankruptcy estate’s interest in his claim against Hartford to

Mr. Hermann.

      When the district court reopened this case, Hartford renewed its summary

judgment motion and Mr. Hermann moved for leave to file an affidavit from his

former bankruptcy counsel, as a supplement to the summary judgment record. The

district court granted Mr. Hermann’s motion, “but without any implication that the

court finds the material tendered with the motion to be evidence properly considered

in resolving a motion for summary judgment.” Supp. Appl., Vol. II at 342. In

granting Hartford summary judgment, the court held that Mr. Hermann’s listing of

“Potential Personal Injury Award” in his bankruptcy schedules was insufficient to

disclose his potential claim against Hartford for unreasonable denial of and delay in

processing his workers’ compensation insurance claim. Finding that Mr. Hermann

had taken clearly inconsistent positions in the bankruptcy court and in the district

court regarding the existence of his claim against Hartford, the court granted Hartford

summary judgment on the basis of judicial estoppel.

                                           5
II.   Discussion

      In reviewing a district court’s grant of summary judgment, we view the facts

and reasonable inferences in the light most favorable to Mr. Hermann, the nonmoving

party. See Eastman v. Union Pac. R.R. Co., 493 F.3d 1151, 1155-56 (10th Cir.

2007). If the district court has properly applied this standard to the facts, we review

its decision to judicially estop Mr. Hermann from pursing his claim against Hartford

for an abuse of discretion. See id. at 1156. “A court abuses its discretion only when

it makes a clear error of judgment, exceeds the bounds of permissible choice, or

when its decision is arbitrary, capricious or whimsical, or results in a manifestly

unreasonable judgment.” Id. (internal quotation marks omitted). In addition, an error

of law is presumptively an abuse of discretion. See S. Utah Wilderness All. v. Bureau

of Land Mgmt., 425 F.3d 735, 750 (10th Cir. 2005).

      “The purpose of judicial estoppel is to protect the integrity of the judicial

process by prohibiting parties from deliberately changing positions according to the

exigencies of the moment and to prevent improper use of judicial machinery.” Queen

v. TA Operating, LLC, 734 F.3d 1081, 1087 (10th Cir. 2013) (internal quotation

marks, ellipsis, and brackets omitted). Courts typically consider three non-exclusive

factors in determining whether to apply judicial estoppel:

      First, a party’s subsequent position must be clearly inconsistent with its
      former position. Next, a court should inquire whether the suspect party
      succeeded in persuading a court to accept that party’s former position, so
      that judicial acceptance of an inconsistent position in a later proceeding
      would create the perception that either the first or the second court was
      misled. Finally, the court should inquire whether the party seeking to assert

                                           6
      an inconsistent position would gain an unfair advantage in the litigation if
      not estopped.
Id. (internal quotation marks and brackets omitted). “Judicial estoppel is particularly

appropriate where . . . a party fails to disclose an asset to a bankruptcy court, but then

pursues a claim in a separate tribunal based on that undisclosed asset.” Eastman,
493 F.3d at 1158 (internal quotation marks omitted).

      The district court concluded that the relevant factors weighed in favor of

judicial estoppel in this case. First, it held that Mr. Hermann’s listing of “Potential

Personal Injury Award” in his bankruptcy schedules did not disclose his claim

against Hartford. The court reasoned, “Mr. Hermann asserts in this case a claim for

delay and denial of insurance benefits. It is not accurate to call this case a personal

injury case and those words are inadequate to reasonably alert a bankruptcy court and

trustee to the existence of a claim of this type.” Supp. App., Vol. II at 339.

Therefore, the court held that Mr. Hermann had taken inconsistent positions in the

bankruptcy court and the district court on whether he had a claim against Hartford.

Second, Mr. Hermann had succeeded in persuading the bankruptcy court to accept his

former and inconsistent position by obtaining a discharge of his debts based upon his

sworn Statement of Financial Affairs. Lastly, the district court held that judicial

estoppel was appropriate in this case to protect the integrity of the judicial system.

      Mr. Hermann argues on appeal that his listing of “Potential Personal Injury

Award” in his bankruptcy schedules was sufficient as a matter of law to disclose his

claim against Hartford for unreasonable delay and denial of insurance benefits; that

                                            7
even if he failed to disclose his claim against Hartford, judicial estoppel was not

warranted because the mistake was inadvertent; and that the district court erred by

failing to consider other, lesser remedies before imposing judicial estoppel.

        A.    Sufficiency of Disclosure

        “[A] debtor who voluntarily submits him or herself to the jurisdiction of the

bankruptcy court to obtain the benefit of a discharge of debts, must fulfill certain

duties to insure that estate assets are administered in accordance with applicable

law.” Midkiff v. Stewart (In re Midkiff), 342 F.3d 1194, 1201 (10th Cir. 2003)

(internal quotation marks omitted). “The operation of the bankruptcy system depends

on honest reporting.” Payne v. Wood, 775 F.2d 202, 205 (7th Cir. 1985). Upon

filing for bankruptcy, Mr. Hermann was required to list all the assets of his estate.

11 U.S.C. § 521(a)(1)(B)(i). Those assets included “all legal claims and causes of

action, pending or potential, which a debtor might have.” Eastman, 493 F.3d at

1159.

        Although the duty of disclosure is clear, the statute does not address the degree

of detail required. See Donarumo v. Furlong (In re Furlong), 660 F.3d 81, 87

(1st Cir. 2011); In re Mohring, 142 B.R. 389, 395 (Bankr. E.D. Cal. 1992) (noting

there are “no bright-line rules for how much itemization and specificity is required”).

Addressing whether a particular disclosure is sufficiently specific, courts have

consistently held that “[t]he debtor must furnish enough information to put the trustee

on notice of the wisdom of further inquiry.” Payne, 775 F.2d at 206; accord

Furlong, 660 F.3d at 87; Cusano v. Klein, 264 F.3d 936, 946-47 (9th Cir. 2001)

                                            8
(noting that debtor’s listing of an asset “was not so defective that it would forestall a

proper investigation” and that the disclosure “provided inquiry notice”). As another

court has put it, the requirement is “reasonable particularization under the

circumstances.” Mohring, 142 B.R. at 395.

      Mr. Hermann argues that, under this standard, his listing of “Potential Personal

Injury Award” on Schedule B was sufficient to disclose both his claim for damages

related to the auto accident and his claim against Hartford for unreasonable denial of

and delay in processing his claim for worker’s compensation benefits. For this

proposition, Mr. Hermann relies on an unsigned, unsworn statement by his

bankruptcy counsel. Although the district court permitted him to file his counsel’s

statement, the court held that it was not evidence properly considered on summary

judgment. Indeed, Mr. Hermann’s counsel’s statement presents a legal argument

rather than attesting to relevant facts. See Supp. App., Vol. II at 282-83. Our review

of decisions applying the relevant legal standard indicates that Mr. Hermann’s

disclosure of “Potential Personal Injury Award” was not sufficient to provide inquiry

notice regarding his claim against Hartford.

      Mr. Hermann cites Bonner v. Sicherman (In re Bonner), 330 B.R. 880,

2005 WL 2136204, at *4-5 (B.A.P. 6th Cir. Sept. 6, 2005) (unpublished), in which

the court held that the debtors’ listing of “Auto Accident Claim” in their bankruptcy

schedules was sufficient to disclose a claim for personal injury as a result of the auto

accident. The court rejected the trustee’s contention that this disclosure referred

solely to a personal property claim, stating that “it is common knowledge that an

                                            9
automobile accident may, and often does, result in personal injury.” Id. at *4.

Noting various types of injury that could arise out of such an accident—“pain and

suffering, loss of income, medical expenses, loss of consortium, property damage and

any other expenses incurred as a result of the accident”—the court declined to hold

that each of these claims must be listed separately. Id. The court in Bonner also

considered the exemption the debtors claimed for the asset: “In the event there was

any doubt that the auto accident claim listed by debtors involved a personal injury,

that doubt would and should have been removed by the debtors’ claimed . . .

exemption for ‘personal bodily injury’ resulting from the automobile accident.” Id.

      Bonner is distinguishable from this case. First, Mr. Hermann’s listing of

“Potential Personal Injury Award” was insufficient to put the Trustee on notice of a

possible claim for unreasonable delay and denial of workers’ compensation benefits

under the Hartford insurance policy. In Bonner, the court reasoned that the debtors’

disclosure of “Auto Accident Claim” was sufficient to provide inquiry notice of

claims regarding all of the various injuries commonly resulting from an auto

accident. Id. Here, in contrast, a bad-faith insurance claim is not similarly related to

a “Potential Personal Injury Award.” Indeed, the record shows that Mr. Hermann’s

disclosure did not alert the Trustee to inquire about his claim against Hartford. At

the creditors’ meeting, the Trustee queried Mr. Hermann about the status of his

businesses, “a personal injury award from [the] car accident,” and the source of his

current income. Supp. App., Vol. II at 245-46. As to the latter, he responded that he

was receiving workers’ compensation payments. The trustee did not ask him about

                                           10
any bad-faith insurance claim. Nor did Mr. Hermann mention that he had any such

claim. See id. at 246-47.

      Second, unlike in Bonner, Mr. Hermann’s asserted basis for exempting

“Potential Personal Injury Award” did not confirm that the asset disclosed included

his claim against Hartford. He cited 11 U.S.C. § 522(d)(11)(D), which exempts “a

payment . . . on account of personal bodily injury, not including pain and suffering or

compensation for actual pecuniary loss, of the debtor.” Mr. Hermann does not cite,

nor have we found, a case holding that this exemption for payments for “personal

bodily injury” applies to a claim alleging unreasonable delay or denial of workers’

compensation insurance benefits. Neither did Mr. Hermann rely on this same

provision, § 522(d)(11)(D), when he amended his schedules after reopening his

bankruptcy case. Rather, in asserting an exemption for his claim against Hartford, he

cited § 522(d)(10)(C), which exempts “[t]he debtor’s right to receive . . . a disability,

illness, or unemployment benefit.”

      The circumstances of this case are most similar to Tilley v. Anixter Inc.,

332 B.R. 501, 511 (D. Conn. 2005), in which the court held that the plaintiff failed to

disclose in her bankruptcy schedules a claim alleging intentional infliction of

emotional distress relating to her ex-husband’s concealment of income in connection

with his child support obligation. See id. In her personal property schedule, the

plaintiff had listed a claim “for back child support” against her ex-husband and his

employer. Id. at 510 (internal quotation marks omitted). She used the same language

when scheduling her exempt assets, citing 11 U.S.C. § 522(d)(10)(D), which exempts

                                           11
“[t]he debtor’s right to receive . . . alimony, support, or separate maintenance.”

See Tilley, 332 B.R. at 510.

      The Tilley court concluded that the language the plaintiff used to describe her

claim in the bankruptcy proceeding, read in light of her asserted basis for an

exemption, showed that she disclosed only a claim for unpaid child support. Id. It

held that she had a duty to separately schedule her claims for back child support and

intentional infliction of emotional distress, even though she alleged that the latter

claim arose out of her ex-husband’s failure to pay adequate child support. Id. at

510-11. In reaching this holding, the court distinguished Bonner’s conclusion, based

on “common knowledge,” that an auto accident is likely to result in a personal injury

claim, noting that “a claim ‘for back child support’ does not similarly inform a

trustee of the need to investigate whether the plaintiff had a claim for intentional

infliction of emotional distress arising out of fraud in connection with the reporting

of [her ex-husband’s] income.” Id. at 511.

      We agree with the reasoning in Tilley and reach a similar conclusion here:

Mr. Hermann’s disclosure of “Potential Personal Injury Award,” combined with his

claimed basis for exemption, was insufficient as a matter of law to put the Trustee on

inquiry notice regarding his claim against Hartford. Mr. Hermann therefore failed to

disclose that claim in his bankruptcy proceeding.

      B.     Inadvertence of Failure to Disclose

      Mr. Hermann argues that, even if he failed to disclose his claim against

Hartford in his bankruptcy case, judicial estoppel was not warranted because the

                                           12
mistake was inadvertent. But “courts addressing a debtor’s failure to satisfy the legal

duty of full disclosure to the bankruptcy court have deemed such failure inadvertent

or mistaken only when, in general, the debtor either lacks knowledge of the

undisclosed claims or has no motive for their concealment.” Eastman, 493 F.3d at

1157 (internal quotation marks omitted). Here, there is no dispute that Mr. Hermann

was aware of his claim against Hartford when he filed his bankruptcy schedules.

And like the debtor in Eastman, he had a motive to conceal his claim against

Hartford so that he could obtain a discharge of his debts free and clear of his

creditors. See id. at 1159 (“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.”). Mr. Hermann offers no basis for application of a different analysis in

this case.

       C.    District Court’s Failure to Consider a Lesser Sanction

       Lastly, Mr. Hermann argues that the district court erred in failing to consider

whether a lesser sanction would have been sufficient to protect the integrity of the

judicial system, contrary to Vehicle Market Research, Inc. v. Mitchell International,

767 F.3d 987 (10th Cir. 2014). In Vehicle Market Research, we endorsed a cautious

application of the judicial estoppel doctrine because it “is a powerful weapon to

employ against a party seeking to vindicate its rights, and there are often lesser

weapons that can keep alleged inconsistent statements in check while preserving a

party’s option to have its day in court.” Id. at 993. In that case we reversed a district

                                           13
court’s application of judicial estoppel because the moving party failed to

demonstrate that the debtor had made clearly inconsistent statements. Id. at 989.

      Although there may be circumstances where a district court abuses its

discretion by failing to consider and apply a lesser sanction, this is not such a case.

The “most obvious” lesser remedy we noted in Vehicle Market Research—allowing

one party to impeach the other party at trial with his inconsistent statements, id. at

993—would not sufficiently address Mr. Hermann’s inconsistent positions on the

very existence of his claim against Hartford. And we reject his suggestion that the

integrity of the judicial system was sufficiently protected because he promptly

reopened his bankruptcy proceeding and amended his schedules to disclose his claim

against Hartford. As we said in Eastman,

      [a]llowing [a debtor] to ‘back up’ and benefit from the reopening of his
      bankruptcy only after his omission ha[s] been exposed would suggest 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 to provide the bankruptcy court with truthful disclosure of the
      debtor’s assets.
493 F.3d at 1160 (internal quotation marks and brackets omitted).

      We hold that the district court did not abuse its discretion in applying the

doctrine of judicial estoppel to bar Mr. Hermann from pursuing his action against

Hartford alleging unreasonable delay and denial of his claim for workers’

compensation benefits under a Hartford policy.

                                           14
       D.     Pending Motions

       We grant Hartford’s motion to strike the affidavit attached to Mr. Hermann’s

reply brief. We also grant Mr. Hermann’s application to proceed on appeal without

prepayment of the appeal fee. But in light of the income and assets listed in his

application, we order Mr. Hermann to begin remitting partial payments of $50 per

month to the district court until the filing fee for this matter is paid in full.

III.   Conclusion

       The judgment of the district court is affirmed.

                                              Entered for the Court

                                              Jerome A. Holmes
                                              Circuit Judge

                                             15