Arrieta v. Smith (In re Smith)

Summarized by David Treacy , U.S. Bankruptcy Court, Eastern District of Kentucky
4 months 1 week ago

Case Type:

Consumer

Case Status:

Reversed and Remanded

Citation:

No. 24-6011 (8th Circuit, Oct 17,2025) Published

Tag(s):

Ruling:

The U.S. Bankruptcy Appellate Panel for the Eighth Circuit held a bankruptcy court erred as a matter of law in finding that a creditor's claim for damages was not a "personal injury tort" claim for purposes of 28 U.S.C. § 157(b)(5), which would have required a district court try the claim. The BAP declined to consider the creditor's other bases for appeal, concluding they should be addressed in the bankruptcy court--with the benefit of additional briefing, argument, and evidence--in light of the reversal.

Procedural context:

In reversing and remanding, the BAP commented that "Creditor’s arguments on appeal [pertaining to issues other than bankruptcy jurisdiction] are not without merit." Those other issues included (a) the bankruptcy court's decision to invoke res judicata sua sponte (without notice and without taking evidence), and the doctrine's application to the filing of a proof of claim; (b) the bankruptcy court's conflation of "the equitable defense of estoppel with the common law doctrine of res judicata[;]" and (c) the role of a bankruptcy court when a personal injury claim (involving a jury trial request) is asserted but before the district court tries the matter, including "whether the bankruptcy court’s authority is limited to ruling on bankruptcy-related defenses (e.g., the timeliness of the filing of the claim) – as opposed to nonbankruptcy law defenses (e.g., a state law statute of limitations)."

Facts:

Prepetition, Appellee/Debtor Shannon Smith cohabited with Appellant/Creditor Roy Arrieta. The relationship was "fraught;" both claimedit involved abuse by the other, and Minnesota state courts had issued no-contact orders. Debtor filed a chapter 7 petition in the U.S. Bankruptcy Court for the District of Minnesota and, after the trustee filed a notice of probable assets, Creditor filed (and amended) a proof of claim for nearly $60,000 covering property Creditor purchased on Defendant's behalf and other amounts for reimbursement of funds. The parties engaged in motion practice concerning the claim, which initially implicated Minnesota anti-palimony laws but was amended to sound in tort (i.e., based on claims for conversion or unjust enrichment). The parties resolved the dispute--Creditor filed an amended claim for $9,000 and Debtor agreed not to object--but the parties did not sign a formal settlement agreement. Shortly thereafter, however, Creditor filed a new proof of claim for $400,000 for "personal injury," attaching a "draft complaint seeking damages for assault, battery, intentional infliction of emotional distress, negligent infliction of emotional distress, and domestic abuse." The complaint bore a caption for the U.S. District Court for the District of Minnesota, asserted the proceeding was non-core, and sought a trial by jury--but it was unsigned, undated, and had not been filed. Debtor objected to the new proof of claim, denied its factual allegations, argued it was untimely, and contended "the claim should be denied under the affirmative state law defenses of the statute of limitations, estoppel, and laches. Debtor did not argue that [the new claim] was barred by the previous settlement." In response, in addition to disputing Debtor's affirmative defenses, Creditor primarily contended "the bankruptcy court lacked jurisdiction to hear and determine Creditor’s unliquidated personal injury tort claim pursuant to 28 U.S.C. § 157(b)(5)." The bankruptcy court conducted telephonic hearings, took the matter under advisement, and entered a written opinion sustaining Debtor's objection and disallowing the new claim. The opinion cited 28 U.S.C. § 157(b)(2)(B) (stating the claims allowance process is a core proceeding, with the exception of "the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate"), observed "personal injury tort" is not defined in the Code, and construed the term narrowly, holding Creditor's claims as stated in the draft complaint were "injuries from a 'mental health condition'" and "did not involve an 'unliquidated personal injury tort.'" Accordingly, the bankruptcy court concluded, it had jurisdiction to hear and determine allowance of Creditor's claim. The court then held (a) the doctrine of res judicata applied to the first (settled) proof of claim to "bar[] Creditor from relitigating his claim for injuries sounding in tort[,]" and (b) judicial estoppel prevented Creditor from asserting a claim against Debtor that is inconsistent with positions he had taken in the state court domestic dispute proceedings. Creditor timely appealed to the BAP.

Judge(s):

SURRATT-STATES, NORTON, and JONES

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