Non-Malignant but Not Malignant Claims Part of Bankruptcy Estate U.S. District Court for the Eastern District of Pennsylvania, December 16, 2016

This case is part of the consolidated asbestos products liability multidistrict litigation (MDL 875), and is on the court’s maritime docket. The plaintiffs alleged the decedent William Lawrence was exposed to asbestos while working aboard various ships. Ship owners represented by Thomson Hine (the defendants) filed a motion for summary judgment, which the court denied.

In 1996, Mr. Lawrence brought claims for non-malignant asbestos-related disease against various defendants, including the defendant ship owners. Two months later, Mr. Lawrence filed for bankruptcy and did not list his asbestos claims. In 1997, the asbestos claims were administratively dismissed, and shortly after, Mr. Lawrence was discharged from bankruptcy. He filed for bankruptcy again in 2005, and again did not list his asbestos claims as an asset. He was discharged again from bankruptcy; in 2009, he was diagnosed with colon cancer, and in 2011, the MDL court reinstated his asbestos action.

The defendants argued that the plaintiffs’ claims were barred by judicial estoppel; Mr. Lawrence took inconsistent positions in this proceeding and the bankruptcy proceeding, in that he concealed the asbestos claims during both bankruptcy filings while simultaneously asserted the claims in this action. The defendants also asked for a finding of bad faith, and for the court to bar the non-malignancy asbestos claim. The plaintiffs argued their positions were not inconsistent because the asbestos claim was dismissed, the colon cancer was not diagnosed until after the bankruptcy was closed, and the failure to identify the claims was made in good faith. The defendants also argued the plaintiffs could not pursue either the non-malignancy or malignancy claims because these belonged to the bankruptcy trustee. The plaintiffs responded these claims were never assets of the bankruptcy estate because they were uncertain. Finally, the defendants argued that since these claims were property of the estate, the plaintiffs lacked standing.

Upon analysis, the court applied the law of the Third Circuit. The court reviewed the basic requirements of filing a claim under the bankruptcy code. Further, judicial estoppel was a doctrine that seeks to prevent a litigant from asserting a position inconsistent with one previously asserted in the same or previous proceeding. The court applied the following Third Circuit test: “First, the party to be estopped must have taken two positions that are irreconcilably inconsistent. Second, judicial estoppel is unwarranted unless the party changed his or her position ‘in bad faith – i.e., with intent to play fast and loose with the court.’ Finally, a district court may not employ judicial estoppel unless it is “tailored to address the harm identified” and no lesser sanction would adequately remedy the damage done by the litigant’s misconduct.”

Regarding the non-malignancy claims, Mr. Lawrence took two irreconcilably inconsistent positions in failing to include this claim in both bankruptcy filings. However in the absence of evidence that these omissions were deliberate, it was not made in bad faith. Regarding the malignancy claims, the cancer was not diagnosed until after the second bankruptcy was closed.

Next the court analyzed standing for the non-malignancy and malignancy claims. Here Mr. Lawrence erred by failing to disclose his claims, and are nonetheless part of the bankruptcy estate. Since the first and/or possibly the second bankruptcy trustees are the real parties in interest, the court determined the appropriate remedy. These trustees would be given the opportunity to decide whether the non-malignant claims would be prosecuted. In so ruling, the court acknowledged the practical difficulties involved and directed procedures on how to proceed with the trustee. Regarding the malignancy claims, since Mr. Lawrence did not know of his cancer until after the second bankruptcy case was closed, this claim was not property of the bankruptcy estate. The court then distinguished a number of cases holding the contrary.

Read the full decision here.

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