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Slater v. United States Steel Corp.

United States Court of Appeals, Eleventh Circuit

September 18, 2017

SANDRA SLATER, Plaintiff-Appellant,

         Appeal from the United States District Court for the Northern District of Alabama D.C. Docket No. 2:09-cv-01732-KOB




         When an individual files for bankruptcy, he must file sworn disclosures listing his debts and his assets, including any pending civil claims, and identifying any lawsuits he has filed against others. Occasionally, a plaintiff who has a pending civil lawsuit fails to list the claims or lawsuit in these disclosures. In omitting this information, the plaintiff effectively takes inconsistent positions in the two judicial proceedings by asserting in the civil lawsuit that he has a claim against the defendant while denying under oath in the bankruptcy proceeding that the claim exists.

         The equitable doctrine of judicial estoppel is intended to protect courts against parties who seek to manipulate the judicial process by changing their legal positions to suit the exigencies of the moment. Today, we address how this doctrine should be applied when a plaintiff takes inconsistent positions by pursuing in district court a civil claim that he failed to disclose as an asset in his bankruptcy proceedings. We reaffirm our precedent that when presented with this scenario, a district court may apply judicial estoppel to bar the plaintiff's civil claim if it finds that the plaintiff intended to make a mockery of the judicial system.

         But what suffices for a district court to find that a plaintiff who did not disclose a civil lawsuit in bankruptcy filings intended to make a mockery of the judicial system? Our Court has endorsed a rule that the mere fact of the plaintiff's nondisclosure is sufficient, even if the plaintiff corrected his bankruptcy disclosures after the omission was called to his attention and the bankruptcy court allowed the correction without penalty. See Barger v. City of Cartersville, 348 F.3d 1289 (11th Cir. 2003); Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002). We granted en banc review to reconsider this precedent.

         We hold today that when determining whether a plaintiff who failed to disclose a civil lawsuit in bankruptcy filings intended to make a mockery of the judicial system, a district court should consider all the facts and circumstances of the case. The court should look to factors such as the plaintiff's level of sophistication, his explanation for the omission, whether he subsequently corrected the disclosures, and any action taken by the bankruptcy court concerning the nondisclosure. We acknowledge that in this scenario the plaintiff acted voluntarily, in the sense that he knew of his civil claim when completing the disclosure forms. But voluntariness alone does not necessarily establish a calculated attempt to undermine the judicial process. We therefore overrule the portions of Burnes and Barger that permit a district court to infer intent to misuse the courts without considering the individual plaintiff and the circumstances surrounding the nondisclosure.

         Here, the district court applied judicial estoppel to bar plaintiff Sandra Slater's discrimination and retaliation claims in a lawsuit against her employer, U.S. Steel Corporation, because Slater failed to disclose these civil claims as assets in her bankruptcy. Relying on our precedent in Burnes and Barger, the district court inferred from Slater's nondisclosure alone that she intended to manipulate the judicial process. A panel of our Court affirmed, concluding that the district court did not abuse its discretion in applying judicial estoppel. Because we announce a new inquiry for evaluating intent to make a mockery of the judicial system, we remand to the panel so that it may decide whether the district court abused its discretion in light of this new standard.

         I. Factual Background and Proceedings Below

         Slater, a high school graduate, worked for U.S. Steel for more than 10 years performing general manual labor. Slater sued U.S. Steel for discrimination based on race and sex in violation of Title VII, 42 U.S.C. § 2000e et seq, and 42 U.S.C. § 1981, and for retaliating against her after she complained of race and sex discrimination, in violation of Title VII and § 1981. U.S. Steel moved for summary judgment on all of Slater's claims. The district court granted the motion in part and denied it in part. The court denied summary judgment on Slater's claims that she suffered discrimination in job assignments based on her sex and was fired in retaliation for complaining about racial discrimination. Despite withstanding summary judgment, Slater never had an opportunity to present these claims to a jury.

         About a month after the district court's summary judgment ruling, Slater- represented by different counsel than in her discrimination case-filed a petition for Chapter 7 bankruptcy. She did not disclose her lawsuit against U.S. Steel in her bankruptcy petition or the schedules filed with her petition. When asked under penalty of perjury in Schedule B-Personal Property to identify any "contingent and unliquidated claims, " she answered "none." Voluntary Pet. at 10, In re Slater, No. 11-02865 (Bankr. N.D. Ala. June 2, 2011), ECF No. 1. And when asked under penalty of perjury in her Statement of Financial Affairs to identify any "suits and administrative proceedings to which the debtor is or was a party within one year immediately preceding the filing of this bankruptcy case, " she again answered "none." Id. at 29 (emphasis omitted).

         After Slater filed her disclosures, the bankruptcy trustee issued a Report of No Distribution, finding there was no property available for distribution from the estate over and above that exempted by law. In the absence of any objections to the report, 30 days later the estate became presumptively fully administered. See Fed. R. Bankr. P. 5009(a).

         The next day, U.S. Steel again moved for summary judgment in the employment discrimination case, this time on the ground that because Slater failed to disclose her civil claims in the bankruptcy proceeding, the doctrine of judicial estoppel should bar her from pursuing those claims. In response, Slater testified by declaration that she did not intentionally misrepresent facts to the bankruptcy court. She further explained that she misunderstood the question in the Statement of Financial Affairs regarding "suits and administrative proceedings to which the debtor is or was a party" as asking only about suits filed against her.

         The next business day after U.S. Steel filed the motion, Slater amended her Statement of Financial Affairs and Schedule B to her bankruptcy petition to disclose her claims against U.S. Steel. The bankruptcy trustee then filed with the bankruptcy court a request to employ the lawyers who were representing Slater in her employment action to continue to pursue the claims against U.S. Steel on behalf of the estate. The bankruptcy court granted the motion.

         The bankruptcy case proceeded: upon Slater's petition, the court converted the case from a Chapter 7 to a Chapter 13 proceeding, and Slater filed a proposed Chapter 13 plan, which the bankruptcy court confirmed. Later, though, when Slater failed to pay the trustee under the terms of the confirmed plan, the bankruptcy court dismissed her case, meaning her debts never were discharged in bankruptcy.

         Slater's civil action fared no better. The district court granted U.S. Steel's motion for summary judgment, applying the doctrine of judicial estoppel to bar her claims. The court rejected Slater's arguments that her omission of the civil claims in the bankruptcy proceeding was inadvertent and that she never intended to thwart the judicial process. The court explained that under our circuit precedent, a failure to disclose is "'inadvertent' only when . . . the debtor either lacks knowledge of the undisclosed claims or has no motive for their concealment." Order at 11 (emphasis added) (Doc. 89)[1] (quoting Barger, 348 F.3d at 1295-96).

         The district court found that Slater knew about her civil claims, filed in 2009, when she completed the bankruptcy disclosures in 2011 and that she had a motive to conceal the claims "to defraud creditors into accepting her [bankruptcy] case as one involving no assets for distribution despite the real possibility with the impending trial of the discrimination case that she could soon be receiving a money settlement or a money judgment in her favor." Id. at 12. Although Slater corrected her disclosures immediately after U.S. Steel brought the omissions to light, the district court found this fact irrelevant because "waiting until after being caught to rectify the omission is too little, too late." Id. Following Burnes, Barger, and their progeny, the court drew an inference that Slater intended to make a mockery of the judicial system based on its finding that she had knowledge of the undisclosed claims and a motive to conceal them.

         Slater appealed. After oral argument, a panel of this Court affirmed the district court's grant of summary judgment to U.S. Steel. In a concurring opinion, Judge Tjoflat urged the Court to review en banc our precedent permitting the inference on which the district court relied, that a plaintiff who omitted a civil claim as an asset in bankruptcy filings necessarily intended to make a mockery of the judicial system. See Slater v. U.S. Steel Corp., 820 F.3d 1193, 1235 (11th Cir.) (Tjoflat, J., concurring) (explaining that our precedent validating such an inference "guarantees the very mockery of justice the doctrine of judicial estoppel was designed to avoid"), reh'g en banc granted, op. vacated, No. 12-15548 (11th Cir. Aug. 30, 2016). We agreed to rehear the case en banc and vacated the panel opinion.

         II. Overview of Bankruptcy Principles

         Before turning to judicial estoppel, we pause for an overview of the Chapter 7 and Chapter 13 bankruptcy procedures that allow debtors to discharge their financial obligations and receive a fresh start to explain how a debtor's pending civil claim is treated in bankruptcy. See Grogan v. Garner, 498 U.S. 279, 286-87 (1991) (explaining that bankruptcy is designed to give "honest but unfortunate debtor[s]" the opportunity to "reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt" (internal quotation marks omitted)). For our purposes here, the main difference between a Chapter 7 and a Chapter 13 proceeding is that creditors are paid primarily with the debtor's prepetition assets in Chapter 7 and with his postpetition earnings in Chapter 13.

         "Chapter 7 allows a debtor to make a clean break from his financial past, but at a steep price: prompt liquidation of the debtor's assets." Harris v. Viegelahn, 135 S.Ct. 1829, 1835 (2015). When a debtor files a Chapter 7 petition, his assets, subject to certain exemptions, are immediately transferred to a bankruptcy estate. 11 U.S.C. § 541(a)(1). The Chapter 7 trustee is responsible for selling the property in the estate and distributing the proceeds to creditors.[2] Id. §§ 704(a)(1), 726. Although a Chapter 7 debtor "must forfeit virtually all his prepetition property, " the bankruptcy laws give the debtor an immediate fresh start and a break from the financial past "by shielding from creditors his postpetition earnings and acquisitions." Harris, 135 S.Ct. at 1835. The debtor may keep any wages earned or assets acquired after the bankruptcy filing. Id. (citing 11 U.S.C. § 541(a)(1)).

         In contrast, a debtor who proceeds under Chapter 13 may keep his prepetition property but must repay his creditors over time, generally from what he earns after filing bankruptcy. The Chapter 13 debtor proposes a plan to repay his debts over a three- or five-year period; the plan must be confirmed by the bankruptcy court. Payments under the plan "are usually made from a debtor's 'future earnings or other future income.'" Id. (quoting 11 U.S.C. 1322(a)(1)). In determining the sufficiency of the proposed plan payments, the bankruptcy court must consider the value of the debtor's assets because the court may confirm the plan only if the present value of the proposed repayments is "not less than the amount that would be paid" to creditors if the debtor's assets were liquidated under Chapter 7. See 11 U.S.C. § 1325(a)(4). If the bankruptcy court confirms the plan, the trustee generally collects a portion of the debtor's wages through payroll deduction and then distributes the withheld wages to the creditors at the plan's conclusion. See Harris, 135 S.Ct. at 1835. If the debtor completes his payments under the plan, his debts are discharged.[3] See id.

         When a debtor files for bankruptcy under Chapter 13, his assets are transferred to the bankruptcy estate. See 11 U.S.C. § 1306(a). But after the bankruptcy plan is confirmed, the property of the estate returns to the debtor except as provided in the plan or order confirming the plan. See id. § 1327(b). A Chapter 13 debtor generally is permitted to retain his assets, such as his home or car. See Harris, 135 S.Ct. at 1835.

         Given these differences, when a debtor's assets include a civil claim, the claim will be treated differently depending upon whether the bankruptcy is a Chapter 7 or a Chapter 13 proceeding. Because a Chapter 7 debtor forfeits his prepetition assets to the estate, only the Chapter 7 trustee, not the debtor, has standing to pursue a civil legal claim unless the trustee abandons the asset, which then returns the claim to the possession and control of the debtor. See Parker v. Wendy's Int'l, Inc., 365 F.3d 1268, 1272 (11th Cir. 2004). But a Chapter 13 debtor retains standing to continue to pursue the civil claim. See 11 U.S.C. § 1303; Fed.R.Bankr.P. 6009 ("With or without court approval, the . . . debtor in possession may prosecute . . . any pending action or proceeding by . . . the debtor, or commence and prosecute any action or proceeding in behalf of the estate before any tribunal."). Thus, a Chapter 13 debtor may continue to control the lawsuit and the terms of any settlement. See Crosby v. Monroe Cty., 394 F.3d 1328, 1331 n.2 (11th Cir. 2004). With these bankruptcy principles and distinctions in mind, we now turn to the doctrine of judicial estoppel.

         III. Judicial Estoppel Analysis

         The precise issue before us is how the doctrine of judicial estoppel should be applied when a plaintiff fails to identify a pending civil claim as an asset in a bankruptcy proceeding. To address this issue, we begin by reaffirming that a district court may apply judicial estoppel when a two-part test is satisfied: the plaintiff (1) took a position under oath in the bankruptcy proceeding that was inconsistent with the plaintiff's pursuit of the civil lawsuit and (2) intended to make a mockery of the judicial system.[4]

         We then discuss how a district court should apply the second prong. Our precedent has, in effect, treated the fact of the plaintiff's omission as establishing the requisite intent. Today we clarify that the district court must consider all the facts and circumstances in determining whether the plaintiff acted with the intent to make a mockery of the judicial system.

         A. To Invoke Judicial Estoppel in the Bankruptcy Scenario, District Courts Should ...

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