Stephenson v. Malloy

Summarized by Robert Miller , University of South Dakota, Knudson School of Law
13 years 4 months ago

Citation:

Stephenson v. Malloy, Case No. 11-1671 (6th Cir. Oct. 30, 2012)

Tag(s):

Ruling:

The Court joined a number of other Circuits in holding that a debtor's alleged wrongdoing cannot be the basis for judicial estoppel of a trustee who is the real party in interest and did not perpetrate any wrongdoing. The Court also reaffirmed the expanded standard for judicial estoppel on the basis of a failure to dislose in a bankruptcy petition.

Procedural context:

Appeal from the United States District Court for the Eastern District of Michigan granting summary judgment for the defendants on judicial estoppel grounds, reviewed de novo.

Facts:

The debtor failed to disclose a state court negligence action against the defendants in his chapter 7 bankruptcy petition. The debtor subsequently received a discharge without sufficiently amending his schedules. The defendants removed the negligence action from state court to federal district court and moved for summary judgement on the basis of the debtor's failure to disclose the action in his petition. The district court granted summary judgement for the defendants. The Court of Appeals for the Sixth Circuit (the "Court") held that judicial estoppel based upon the conduct of a debtor does apply to the trustee. The Court noted that the Courts of Appeal for the Tenth, Eleventh, and Fifth Circuits have all adopted this rule. Here, the trustee was the real party in interest and was not judicially estopped. The Court also reaffirmed the expanded judicial estoppel test of White v. Wyndham Vacation Ownership, 617 F.3d 472 (6th Cir. 2010). White introduced a consideration of the bad faith of the plaintiff into the analysis of whether the omission was mistaken or inadvertent. Here, the district court wrongly failed to consider the debtor's supplemental filings which evidenced a lack of bad faith. Having failed to meet the summary judgment standard for the required third prong of proving a lack of the mistake or inadvertence, the district court was reversed on both grounds.

Judge(s):

Opinion authored by District Judge Reeves who was joined by Circuit Judges White and Siler.t

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