Reed v. City of Arlington

Summarized by Kelly McDonald , Shearman & Sterling LLP
15 years 6 months ago

Citation:

U.S. Court of Appeals for the Fifth Circuit, 08-11098, Opinion, Sept. 16, 2010

Tag(s):

5th Circuit

Ruling:

In applying the doctrine of judicial estoppel in the bankruptcy context, the doctrine must be considered from a fact-specific perspective concerning all parties involved. It is not sufficient to distinguish the debtor’s conduct from that of the trustee. Even though the chapter 7 trustee did not take any inconsistent legal positions, she succeeded to the debtor’s claim with all its attributes, including the potential for judicial estoppel.

Procedural context:

Appeal of the district court's order finding the elements of the doctrine of judicial estoppel were satisfied to preclude the debtor from collecting on a judgment, but finding that the elements of the doctrine were not satisfied as to the chapter 7 trustee, and thus permitting the chapter 7 trustee to pursue collection of the judgment for the benefit of creditors of the estate.

Facts:

Kim Lubke (“Lubke”), formerly an Arlington, Texas firefighter, obtained a large judgment against the City of Arlington (the “City”) under the Family Medical Leave Act (“FMLA”) in 2006 from the district court. During the City’s appeal of the judgment to the Fifth Circuit Court of Appeals (the “Fifth Circuit”), Lubke and his wife filed a chapter 7 bankruptcy case, but failed to disclose the judgment in his bankruptcy case. Lubke obtained a discharge of $300,000 in mostly credit card debt during his “no asset” chapter 7 case. Lubke did not inform his attorney in the FMLA case, Roger Hurlbut (“Hurlbut”), of the filing of his chapter 7 petition. The Fifth Circuit affirmed the verdict against the City, but remanded to recalculate damages. The City offered Lubke a Rule 68 judgment for $580,000. Lubke apparently then informed Hurlbut for the first time about the bankruptcy case. Soon thereafter, Hurlbut informed counsel to the chapter 7 trustee of the judgment. The bankruptcy court reopened the chapter 7 case and later revoked Lubke’s discharge. The chapter 7 trustee then attempted to accept the City’s Rule 68 offer, and filed a motion to substitute herself for Lubke in the district court, which the district court granted, notwithstanding a pending appeal of the FMLA judgment in the Fifth Circuit. The City supplemented a request for rehearing of the FMLA judgment in the Fifth Circuit with a request for a take-nothing judgment against Lubke for his failure to schedule, or otherwise disclose, the judgment. The Fifth Circuit held a special hearing on September 6, 2006 to consider the request for rehearing and take-nothing judgment. On December 19, 2006, the Fifth Circuit denied the City’s petition for rehearing the FMLA judgment, but remanded the case to the district court for determination of the City’s judicial estoppel claim and the request for take-nothing judgment. On remand, the district court found the elements of the doctrine of judicial estoppel were satisfied to preclude the debtor from collecting on the judgment, but found that the elements of the doctrine were not satisfied as to the chapter 7 trustee, and thus permitting her to pursue collection of the judgment. The district court ordered the City to pay the entire FMLA judgment to the chapter 7 trustee, and any funds not disbursed to creditors be returned to the City. Reversing the district court, the Fifth Circuit ruled that the doctrine of judicial estoppel barred both the debtor and the chapter 7 trustee from collecting the judgment the debtor failed to disclose in his chapter 7 bankruptcy case. The Court held the district court abused its discretion by failing to consider the doctrine from a fact-specific perspective concerning all parties involved.

Judge(s):

Jones, DeMoss, Clement

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