- Case Type:
- Case Status:
- Reversed and Remanded
- 18-2294 (4th Circuit, Aug 12,2019) Published
- 4th Circuit remanded district court’s (D.S.C.) ruling that plaintiff’s claims were barred by lack of standing and judicial estoppel. Article III standing established by distinct injury suffered by plaintiff, and plaintiff was “real party in interest” after trustee abandoned claims. District court improperly applied presumption of bad faith in invoking judicial estoppel – an approach favored by 5th and 10th Circuits. The 4th Circuit remanded, finding judicial estoppel applies only when a party acted with a sufficiently culpable mental state in failing to disclose a legal claim in bankruptcy.
- Procedural context:
- Plaintiff entered into settlement agreement with defendants, but later learned the representations inducing her to sign the agreement were false. Plaintiff then filed chapter 7 bankruptcy case, did not disclose the potential claims, obtained a discharge, and then proceeded to bring tort-based claims against defendants in district court. Although plaintiff reopened her bankruptcy case, and the appointed trustee abandoned any interest in the claims, the district court found plaintiff lacked standing to pursue her claims at the time of filing. The district court also held judicial estoppel barred plaintiff’s claims, as she had knowledge of the defendants’ false representations, and the potential claims against defendants, at the time she filed her chapter 7 case. The district court found her failure to schedule the claims in her bankruptcy case was not an inadvertent, good faith mistake, which would otherwise form an exception to judicial estoppel. The district court denied reconsideration, and the plaintiff appealed to the 4th Circuit.
- Plaintiff entered into settlement agreement to release potential claims against defendants relating to the violent assault committed against the plaintiff. Plaintiff entered into the settlement agreement based on defendants’ representations she later learned to be false. Eighteen months after that discovery, plaintiff filed for chapter 7 bankruptcy, but did not mention any potential future claims against the defendants. The chapter 7 trustee abandoned any interest in plaintiff’s assets, the plaintiff received a discharge and the case was closed. Nearly a year later, plaintiff filed suit in district court to rescind the settlement agreement and asserted tort-based claims against defendants. Upon defendants’ motion to dismiss, arguing plaintiff lacked standing to pursue claims belonging to her bankruptcy estate, plaintiff reopened her bankruptcy case, the bankruptcy court appointed a trustee to administer the claims against defendants, and the trustee subsequently abandoned any interest in the claims. The magistrate judge, whose report and recommendation was adopted by the district court, granted summary judgment to defendants, finding plaintiff still did not have standing because standing was measured at the time the complaint was filed and thus before the trustee abandoned plaintiff’s claims for the second time. The magistrate judge also found judicial estoppel precluded plaintiff’s claims, rejecting plaintiff’s argument that her failure to schedule her as-yet-unfiled claims against defendants was a good faith mistake. The magistrate judge, and the district court, reasoned that plaintiff’s knowledge of the undisclosed claims, and of the defendants’ false representations to induce the settlement agreement, established that her non-disclosure of the claims in her bankruptcy filing were not inadvertent.
- Harris, Niemeyer, Hollander
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