Metrou v. M.A. Mortenson Co. and Schuff Steel Co.

Metrou v. M.A. Morteson Co., No. 14-8030, --- WL --- (7th Cir. Mar. 23, 2015)
In a matter of first impression at the appellate level and reversing the decision below, the Seventh Circuit declined to utilize judicial estoppel to cap a Chapter 7 trustee's potential recovery in an action at an amount equal to that due the debtor's creditors. The Court reasoned that capping recovery could impact a trustee's ability to retain counsel to pursue an action or create any meaningful recovery for creditors and, thus, declined to create a barrier to payment of creditors that had no part in the nondisclosure. The Court left the issue of the proper disposition of any surplus above the amount necessary to pay creditors for determination by the applicable bankruptcy court, but noted that if the Debtor truly did not know of the claim at issue until informed by counsel post-discharge, then his affirmative action to remedy any omission by informing the trustee should permit him to receive that surplus.
Procedural context:
Interlocutory appeal after certification from decision of the District Court for the Northern District of Illinois; legal issue at bar presumably reviewed de novo.
Debtor sustained pre-petition injury and filed a workers' compensation claim. Debtor disclosed the workers' compensation claim in his Chapter 7 schedules and valued it at $7,500; the case closed with discharge. Post-discharge, the Debtor filed a tort action for damages against two companies that he believed had contributed to his injury. Those companies sought summary judgment on judicial estoppel grounds, alleging that the Debtor's failure to disclose the tort action in his Chapter 7 case, as opposed to the workers' compensation claim, barred him from recovery. The Trustee then had the Chapter 7 case reopened and requested to be substituted for the Debtor as plaintiff in the pending tort case. The District Court granted that motion, but then held that any recovery in that action would be capped by the amount of the debts in the Chapter 7 case.
Easterbrook, Flaum, Williams

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