Royal American Construction, Inc. v. Roofing Designs by JR, L.L.C. (In re Roofing Designs by JR, L.L.C.)

Summarized by David Treacy , U.S. Bankruptcy Court, Eastern District of Kentucky
1 month 6 days ago

Case Type:

Business

Case Status:

Affirmed

Citation:

25-20048 (5th Circuit, Jan 13,2026) Not Published

Tag(s):

Ruling:

The U.S. Court of Appeals for the Fifth Circuit affirmed a district court's summary judgment decision dismissing a bankruptcy debtor's counterclaims and third party claims in a non-adversary proceeding based on judicial estoppel. Because the debtor failed to identify the claims in its bankruptcy schedules--even though the claims already were pending when it filed its petition--the debtor was barred from pursuing them.

Procedural context:

The Fifth Circuit reviewed the district court's summary judgment decision de novo and applied its test used to determine whether to invoke judicial estoppel: "whether '(1) the party against whom judicial estoppel is sought has asserted a legal position which is plainly inconsistent with a prior position; (2) a court accepted the prior position; and (3) the party did not act inadvertently.'" "Because 'the Bankruptcy Code and Rules impose upon bankruptcy debtors an express, affirmative duty to disclose all assets, including contingent and unliquidated claims,” [ ] we have consistently held that when a party omits claims that must be disclosed from the schedules and stipulations filed in its bankruptcy proceedings, it represents that no such claims exist[.]" Here, the debtor omitted certain claims in its schedules and provided no value or information about other claims even though those claims already had been filed. The debtor thus made inconsistent representations to the district court and the bankruptcy court. Moreover, the bankruptcy court accepted the debtor's representations about its claims as it confirmed the debtor's chapter 11 plan, which contained minimal or no information on those claims. Finally, there was "no indication that [the debtor] acted inadvertently in failing to adequately disclose the value of its claims" in its bankruptcy schedules and it had a potential motivation to conceal the existence and value of its claims.

Facts:

Plaintiff/Appellee Royal American Construction, Inc. contracted with Defendant/Third Party Plaintiff/Debtor/Appellant Roofing Designs by JR, L.L.C. to provide roofing services for a large apartment project. Defendant did not complete the work, and there was a dispute over performance and payment. Plaintiff filed a complaint against Defendant in the U.S. District Court for the Southern District of Texas, asserting claims for breach of contract, breach of warranty, and conversion. Defendant filed counterclaims against Plaintiff for breach of contract, quantum meruit, and negligence, and third party claims against Third Party Defendant/Appellee Hartford Fire Insurance Co. under two bonds covering Plaintiff's payment obligations. Defendant's initial disclosures in the district court case stated it sought $227,756.43 in damages. Defendant's owner later testified it sought more than $600,000 in damages and fees. After this testimony, Defendant filed a chapter 11 petition in the U.S. Bankruptcy Court for the Northern District of Texas. Defendant filed "a schedule listing assets and liabilities that stated that it had a cause of action against [Plaintiff], but, despite the above information [about the value of its claims], it listed the nature of the claim as '[u]nknown' and said the amount requested was $0.00. This $0.00 was included in the computation of the total value of [Defendant's] assets. [Defendant] made no mention of a cause of action against Hartford in its initial filings." Defendant later filed a reorganization plan in its bankruptcy case that stated "it 'believes it has numerous litigation claims, however, at the present time these claims are speculative and cannot be counted on to provide funds to the estate.' The proposed plan also stated that [Defendant] was 'unaware of any litigation which could be brought for the benefit of the creditors of the estate,' that it was 'current[ly] involved in litigation with [Plaintiff],' and that it 'fully believes in the litigation however [Plaintiff] has denied any liability[.]'" After the bankruptcy court confirmed Defendant's plan, the parties filed a joint report with the district court in which Hartford stated its intent to seek dismissal of the third party claims against it owing to Defendant's omission of the claims in its plan. Defendant then amended its bankruptcy schedules to add its claims against Hartford, but listed their value as $0 and the nature of the claims as unknown. Plaintiff and Hartford then jointly moved the district court for a summary judgment on Defendant's claims against them, contending the claims "should be barred by judicial estoppel because [Defendant] did not adequately disclose the nature or value of its claims in its bankruptcy proceeding." The district court granted the motion and dismissed Defendant's claims, with prejudice. Defendant appealed this ruling to the Fifth Circuit.

Judge(s):

Smith, Stewart, and Haynes

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