Dismissal on Basis of Judicial Estoppel Overturned by Second Circuit U.S. Court of Appeals for the Second Circuit, March 30, 2018

NEW YORK — The Clarks entered into personal bankruptcy in 2010. Their proposed bankruptcy plan consisted of monthly payroll deductions. For five years, the Clarks made each payment. In July 2015, Edward Clark was diagnosed with mesothelioma. He believed he was exposed to asbestos while serving in the Air Force and during his subsequent private sector employment. The Clarks decided to file a personal injury action. They informed their bankruptcy attorney of that fact, as they were unsure whether the bankruptcy schedule needed to be updated. The bankruptcy attorney never advised the bankruptcy court of the lawsuit.

On July 26, 2016, the Clarks filed suit in New York state court against numerous defendants. Once the case was removed, defendants filed a Motion to Dismiss on the basis of judicial estoppel, which prevents a party from asserting a factual position in one legal proceeding which is contrary to a factual position taken in another legal proceeding. The defendants argued that the failure to disclosure the mesothelioma diagnosis in the bankruptcy proceeding estopped them from pursuing personal injury claims related to that diagnosis. There are two factors a party asserting the defense must show to demonstrate judicial estoppel: 1) the party against whom the estoppel is asserted took an inconsistent position in a prior proceeding; and 2) that position was adopted by the first tribunal in some manner. The District Court found both factors were met, and dismissed the case.

On appeal, the Second Circuit overturned. The court found that that while the factors were met, the doctrine is an equitable one. The court added that before a litigant is judicially estopped, a court must inquire whether the particular factual circumstances of a case tip the balance of equities in favor of doing so. Since the defendants admitted that the Clarks’ failure to disclose the personal injury lawsuit did not prejudice the defendants in any way, the court overturned the dismissal.

Read the full decision here.

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