Disclosure in Bankruptcy: When Too Little and Too Late Bar a Lawsuit
By A case decided within the last few weeks in the Western District of Tennessee reaffirmed the importance of debtors disclosing causes of action that belong to the estate early and often or risk dismissal on grounds of judicial estoppel. Judicial estoppel in essence bars a party from taking inconsistent positions in different courts regarding the same subject matter. The idea is to discourage gamesmanship by litigants.
In the Western District case, a Plaintiff in a discrimination suit had failed in three prior bankruptcy filings to disclose that she had a pending discrimination lawsuit, and judicial estoppel barred her from proceeding on the discrimination claim. The Plaintiff had amended her asset disclosure statement with the bankruptcy court to reflect the pending discrimination suit, but only after the Defendant had already filed a Motion to Dismiss based on judicial estoppel. Yates v. Cash America, Inc., 2010 WL 1009960 (W.D. Tenn. Mar. 15, 2010). The Court ruled this was too little, too late.
This is not an unusual finding in the Sixth Circuit. The rationale is that sworn statements in a bankruptcy that omit a cause of action or answer “none” to the question of “list all suits and administrative proceedings to which the debtor is or was a party within one year immediately preceding the filing of the bankruptcy case” acts as judicial estoppel on the later pursuit of that claim. A debtor cannot in effect “hide” this asset from creditors and then later pursue it for herself. It is interesting to note that the debtor in the Yates case had actually disclosed the existence of the suit in testimony at a meeting of creditors, but it was her failure to include it in bankruptcy pleadings listing her assets that proved fatal.
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