Plaintiff’s Failure to List Claims in Bankruptcy Petition Not Enough to Warrant Judicial Estoppel of Such Claims

Posted by

In 2000, the plaintiff brought claims for non-malignant asbestos-related diseases, including ship owners represented by Thompson Hine LLP. In 2004, the plaintiff filed for bankruptcy, without listing his asbestos claims as assets. Three months later the bankruptcy case was closed. In 2007, the plaintiff brought claims for a malignant asbestos-related disease; in 2011 the MDL reinstated asbestos actions, of which this case was a part.  The defendant ship owners moved for summary judgment, arguing that (1) the non-malignancy claims were barred by judicial estoppel because the plaintiff failed to disclose them as assets in his bankruptcy filing, and (2) the plaintiff cannot pursue either asbestos claim because both are owned by the bankruptcy estate. The court denied this motion.

The court applied law of the Third Circuit in deciding both issues. In applying judicial estoppel, the test applied in the Third Circuit was: (1) the party to be estopped must have taken two positions that are irreconcilably inconsistent, and (2) estoppel was unwarranted unless the position was changed in bad faith, and (3) the court must not apply estoppel unless it was tailored to address the harm identified, and no lesser sanction would remedy the damage done by the litigant’s misconduct. While the plaintiff’s two positions were irreconcilably inconsistent, the failure to disclose was not done in bad faith, because the plaintiff could not have known the MDL would reinstate his dismissed asbestos claims.

However, regarding who owned these claims: “these claims are nonetheless part of the bankruptcy estate as they were not only potential claims, but were realized claims technically held in abeyance by the Court, and thus needed to be disclosed. Under these circumstances, the claims remain part of the bankruptcy estate and the trustee remains the real party in interest for such claims, even after the bankruptcy was closed.” Even though summary judgment was denied, the court allowed time for the bankruptcy trustee to be substituted as the proper party. Regarding the malignancy claim, which was diagnosed after the plaintiff’s bankruptcy, none of the cases cited by the defendants supported the argument that this claim was property of the bankruptcy estate, and summary judgment was denied on this issue as well.

Read the full decision here.