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Litton Loan Servicing, L.P. v. Dennis Schubert

Summarizing by Amir Shachmurove

Stephen Stanley v. FCA US, LLC

Case Type:
Case Status:
21-4238; (6th Circuit, October 18, 2022) (6th Circuit, Oct 18,2022) Published
Sixth Circuit affirmed U.S. District Court for the Northern District of Ohio grant of summary judgment in favor of Chapter 13 debtor’s former employer in civil lawsuit alleging violation of the Family and Medical Leave Act (“FMLA”) where debtor did not disclose claim on his bankruptcy schedules until three years post-petition.
Procedural context:
The Sixth Circuit concluded that debtor’s omission of his claim against his former employer did not result from mistake or inadvertence. First, debtor had knowledge of the facts underlying the undisclosed claim on the petition date, as evidenced by the union’s pre-petition grievance filed on his behalf. Second, the Sixth Circuit considered “the novel question of whether a Chapter 13 petitioner has anything to gain from omitting a claim in the rare case in which their bankruptcy plan provides for 100% repayment to their creditors.” In answering the question in the affirmative, the Sixth Circuit pointed out that debtor admitted he benefited from his plan by consolidating and delaying payment of debts and avoiding foreclosure. Moreover, the omission resulted in neither creditors nor the bankruptcy court having a full picture of debtor’s assets in determining whether to object to the plan or making a good-faith determination, respectively. Ultimately, “[b]ecause one stands to benefit from omitting claims during their Chapter 13 bankruptcy proceedings – even if they don’t have their debts discharged – motive generally exists to conceal the claims.” Third, debtor did not meet his burden to provide evidence showing an absence of bad faith. Debtor’s deficient schedule amendment (it failed to list the lawsuit’s estimated value) came only after questioning by and receipt of a demand letter from his former employer’s counsel – “allowing a bankruptcy petitioner to avoid judicial estoppel by correcting omissions after an opposing party notifies them of the same ‘would encourage gamesmanship’ and defeat the purpose of the doctrine.” The Sixth Circuit also rejected debtor’s arguments that he did not know he needed to disclose the claim and that application of judicial estoppel allows his former employer to violate FMLA without punishment.
Union filed a pre-petition grievance on Chapter 13 debtor’s behalf with his employer. One week after the filing of his petition, debtor was terminated, resulting in the filing of a second union grievance. Although debtor did not disclose his pre-petition claim against his employer on his original schedules, the bankruptcy court confirmed a 100% plan. Approximately ten months post-petition, following withdrawal of the union grievances, debtor file a lawsuit against his former employer. Debtor admitted during his deposition that he did not disclose his claim or the lawsuit within his bankruptcy case; two months after receipt of a settlement letter from his former employer, and almost three years post-petition, debtor filed an amended schedule disclosing his claim in an unknown amount
McKeague (opinion author), Thapar and Readler

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