Reed v. City of Arlington
- Summarized by Leslie Hyman , Pulman, Cappuccio, Pullen & Benson
- 13 years 5 months ago
- Citation:
- No. 08-11098 (5th Cir. Aug. 11, 2011) (en banc)
- Tag(s):
-
- Ruling:
- “[A]bsent unusual circumstances, an innocent trustee can pursue for the benefit of creditors a judgment or cause of action that the debtor fails to disclose in bankruptcy." The Court held that “[J]udicial estoppel must be applied in such a way as to deter dishonest debtors, whose failure to fully and honestly disclose all their assets undermines the integrity of the bankruptcy system, while protecting the rights of creditors to an equitable distribution of the assets of the debtor’s estate.” The Court concluded that allowing an innocent trustee to pursue claims that the debtor had failed to disclose met this goal.
- Procedural context:
- Rehearing en banc of appeal from district court order declining to apply judicial estoppel to bar an innocent trustee from pursuing a cause of action.
- Facts:
- Kim Lubke obtained judgment against the City of Arlington on a Family Medical Leave Act (“FMLA”) claim. While the judgment was on appeal, Lubke and his wife filed a Chapter 7 petition, but failed to disclose either the judgment or associated legal fees on their bankruptcy schedules. The Lubkes received a no-asset discharge and their bankruptcy case was closed.
After the Fifth Circuit affirmed the FMLA judgment, but remanded to the district court to recalculate damages, the City offered Lubke a Rule 68 judgment. Lubke’s FLMA lawyer then learned of the bankruptcy and notified the bankruptcy Trustee about the judgment. The Trustee had the bankruptcy case reopened and the discharge revoked, and then substituted in the FMLA litigation as the real party in interest. The Trustee also attempted to accept the City’s offer of judgment.
The City had filed a petition for rehearing with the Fifth Circuit two days before receiving the Trustee’s acceptance. When it learned of the Lubkes’ bankruptcy, the City sought leave from the panel to argue that Lubke should be judicially estopped from collecting the judgment due to his failure to disclose the judgment in the bankruptcy proceedings. The panel denied the City’s petition for rehearing on the FMLA judgment, but issued a mandate directing the district court to determine whether judicial estoppel applied. The district court concluded that judicial estoppel did not apply and a panel of the Fifth Circuit reversed.
The Fifth Circuit then took the case en banc court to determine “whether judicial estoppel bars a blameless bankruptcy trustee from pursuing a judgment that the debtor—having concealed the judgment during bankruptcy—is himself estopped from pursuing.”
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!
