Flugence v. Axis Surplus Insurance, et al. (In the Matter of Flugence)

Summarized by John Jones , J. R. Jones Law PLLC
12 years 4 months ago

Citation:

Case No. 13-30073 (5th Cir. Oct. 4, 2013)

Tag(s):

Ruling:

The Fifth Circuit reversed the district court and reinstated the bankruptcy court decision and held that there is a continuing duty for a debtor to disclose a potential cause of action in post-confirmation, Chapter 13 proceedings. The Fifth Circuit also held that the bankruptcy court did not abuse its discretion in declaring Debtor judicial estopped from pursuing the undisclosed claim and based on Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011) (en banc) the trustee was not similarly estopped and could pursue the claim for Debtor's creditors without strictly limiting recovery to the amount owed to creditors. In reaching the decision, the Fifth Circuit rejected argument that the trustee's recovery should be limited to the amount owed as that would favor tortfeasors over mere innocent creditors.

Procedural context:

Bankruptcy court held that while Debtor was judicial estopped from pursing undisclosed claim on her own behalf, the trustee was not similarly estopped and could pursue the claim for the benefit of creditors. On appeal, the district court reversed with respect to estopping Debtor and affirmed in all other respects. The district court found that the bankruptcy court abused its discretion and Debtor was not estopped because she did not have a potential cause of action prior to her initial application for bankruptcy.

Facts:

Debtor Cheryl Ann Flugence filed for Chapter 13 protection in 2004. In March 2007, Debtor was injured in a car accident. An amended plan was confirmed in July 2007 and Debtor did not disclose she had an accident and might prosecute a personal injury claim. The personal injury defendants learned of the non-disclosure and had the case reopened and asked the bankruptcy court to judicially estop Debtor from pursuing the undisclosed claim. The bankruptcy court held that while debtor was judicial estopped from pursing undisclosed claim on her own behalf, the trustee was not similarly estopped and could pursue the claim for the benefit of creditors. On appeal, the district court reversed with respect to estopping Debtor and affirmed in all other respects. The district court found that the bankruptcy court abused its discretion and Debtor was not estopped because she did not have a potential cause of action prior to her initial application for bankruptcy.

Judge(s):

Smith, Dennis and Higginson, Circuit Judges

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!