If your company is named in a new lawsuit or receives a EEOC charge, part of your review process should include checking to see if the filing complainant or plaintiff has a pending bankruptcy action. If so, the next step is to see if the claimant disclosed their lawsuit or administrative complaint in his or her bankruptcy petition. If not, you may have a successful estoppel argument.
Estoppel is a discretionary equitable doctrine that prevents a plaintiff from taking one position in one case or court, but then taking a contrary or inconsistent position in another case. In its simplest form, if a plaintiff files an employment complaint (or really any type of complaint) but does not disclose that fact in his or her bankruptcy petition, then you might have an estoppel argument to get the case dismissed. As part of a bankruptcy petition, a petitioner “must file sworn disclosures listing her debts and her assets, including any pending civil claims....” (see Smith v. Haynes & Haynes P.C., 940 F.3d 635, 643 (11th Cir. 2019) (citations omitted); 11 U.S.C. § 521(a)(1)(B)(i)).
Essentially, the doctrine is designed to protect the integrity of the judicial process by prohibiting parties from changing positions according to the exigencies of the moment (see New Hampshire v. Maine, 532 U.S. 742, 749 (2001)). The bankruptcy process depends on a debtor’s full disclosure of all assets or potential assets to the bankruptcy court. When a plaintiff or complainant has a civil case pending or an EEOC/administrative case pending, that is a potential asset to be disclosed to the bankruptcy court and creditors. But the particular legal elements vary somewhat among the different federal circuits, so it is important to know the precise legal standard for your case. What follows here is a brief survey of several federal circuits on the subject.
Fourth Circuit
Under Fourth Circuit precedent, judicial estoppel is reserved for cases where the party to be estopped has taken a later position that is “clearly inconsistent” with the earlier one; has persuaded a court to adopt the earlier position, creating a perception that “either the first or the second court was misled;” and would “derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped (Martineau v. Wier, 934 F.3d 385 (4th Cir. 2019)). Further, judicial estoppel should apply only when “the party who is alleged to be estopped intentionally misled the court to gain unfair advantage,” and not when “a party's prior position was based on inadvertence or mistake.” In the Martineau case, the district court spoke of a presumption of bad faith that the Fourth Circuit rejected.
Courts in the Fourth Circuit have found that failure to disclose a pending EEOC charge during bankruptcy proceedings may estop a plaintiff from asserting a Title VII claim against an employer (see Smith v. Bishop Gadsden Episcopal Retirement Cmty., 2017 WL 4923733 (D.S.C. Oct. 31, 2017)). But the Fourth Circuit has admonished against any presumption of bad faith to prevent giving a civil defendant a “windfall” (see Angelini v. Baltimore Police Dept., 464 F.Supp.3d 756, 785 (D. My. 2020) (applying Martineau and discussing bad faith element)).
Fifth Circuit
In the Fifth Circuit “judicial 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”(Reed v. City of Arlington, 650 F.3d 571, 573-74 (5th Cir. 2011)). The applicable elements are “(1) the party against whom judicial estoppel is sought has asserted a legal position which is plainly inconsistent with a prior position; (2) a court accepted the prior position; and (3) the party did not act inadvertently.” Other courts have explained that to show the failure to disclose was inadvertent, the plaintiff must demonstrate either that she did not know of the inconsistent position or that she had no motive to conceal it from the court (In re Coastal Plains, Inc., 179 F.3d 197, 210 (5th Cir. 1999)).
Courts in the Fifth Circuit have held that a plaintiff was barred from pursuing her Title VII claim because she failed to disclose the claim in her bankruptcy petition (Kennedy v. Weston, No. 3:21-03854, 2023 WL 3936684, at *4-5 (W.D. La. May 25, 2023)).
Sixth Circuit
The Sixth Circuit affirmed a dismissal of an employee who had sued his employer for an FMLA violation where it was revealed that the employee had not disclosed the lawsuit in his bankruptcy petition (Stanley v. FCA US, LLC, 51 F.4th 215 (6th Cir. 2022)). Under the Stanley precedent, judicial estoppel bars an undisclosed suit when (1) the debtor assumed a position contrary to one she asserted under oath while in bankruptcy; (2) the bankruptcy court adopted the contrary position either as a preliminary matter or as part of a final disposition; and (3) the debtor's omission did not result from a mistake or inadvertence. To determine whether the debtor's omission of claim from bankruptcy petition resulted from a mistake or inadvertence, courts consider whether (1) the debtor had knowledge of facts underlying undisclosed claims; (2) the debtor had motive to conceal undisclosed claims; and (3) an omission was made in bad faith.
In the Stanley case, the Chapter 13 debtor was well aware of his FMLA claim against his employer at the time of his bankruptcy petition, which lead the court to conclude that the omission was not the result of a mistake or inadvertence and that judicial estoppel barred his claim in the debtor's subsequent action against the employer, where, at the time the debtor signed the bankruptcy petition, he was already involved with the union's grievance process due to the alleged FMLA violation. The Sixth Circuit has also found an employee was judicially estopped where one month after the bankruptcy court confirmed her bankruptcy plan, she initiated the EEOC process (see Lewis v. Weyerhaeuser Co., 141 Fed.Appx. 420, 422 (6th Cir. 2005)).
Eleventh Circuit
Finally, the Eleventh Circuit has held that “[t]he equitable doctrine of judicial estoppel is intended to prevent the perversion of the judicial process and protect its integrity by prohibiting parties from deliberately changing positions according to the exigencies of the moment” (see Lucas v. Advantage Logistics, Inc., No. 1:20-CV-01033-LMM, 2020 WL 13442701, at *2 (N.D. Ga. Aug. 10, 2020) (citations omitted); see also New Hampshire v. Maine, 532 U.S. 742, 750, 121 S. Ct. 1808, 1814, 149 L. Ed. 2d 968 (2001) (noting judicial estoppel is a doctrine “intended to prevent the perversion of the judicial process.”)). In the Eleventh Circuit, a party asserting judicial estoppel must establish that the plaintiff (1) took an inconsistent position under oath in a separate proceeding, and (2) these inconsistent positions were calculated to make a mockery of the judicial system (Slater v. United States Steel Corp., 871 F.3d 1174, 1181 (11th Cir. 2017) (citations omitted)). In determining whether a plaintiff’s inconsistent statements were calculated to make a mockery of the judicial system, a court should “look to all the facts and circumstances of the particular case.”
The estoppel doctrine has been successfully invoked in the Eleventh Circuit to dismiss complaints or claims that were not disclosed in the bankruptcy filings (see Hennington v. JPMorgan Chase Bank, N.A., No. 1-17-cv-03853-MLB-CMS, 2018 WL 4474642, at *6 (N.D. Ga. Apr. 10, 2018) (applying judicial estoppel where bankruptcy petition was verified under penalty of perjury and plaintiff’s actions were intentional); Henderson v. U.S. Security Assoc., Inc., 2018 WL 5044634, at *3 (N.D. Ga. Oct. 17, 2018) (concluding that under all the facts the plaintiff intentionally misled the Bankruptcy Court); Leslie v. PNC Bank, N.A., No. 21-cv-1877-LMM-AJB, 2022 WL 1286549, at *4 (N.D. Ga. Mar. 18, 2022) adopting report and recommendation, 2021 WL 8268218 (N.D. Ga. Dec. 21, 2021) (concluding that judicial estoppel should apply)). But judicial estoppel has been applied only where the plaintiff received a discharge of his or her debts in bankruptcy, not if the plaintiff dismissed their bankruptcy before a discharge (see Burton v. SRM Group, Inc., No. 19-cv-740-SCJ-CCB, 2021 WL 2518241, at *7 (N.D. Ga. Jan. 29, 2021) (denying estoppel dismissal for ADA claim), adopted 2021 WL 2518238 (Mar. 9, 2021)).
Takeaways
With any lawsuit or administrative complaint, take a good look at whether your claimant filed bankruptcy and disclosed your claim/lawsuit in their bankruptcy filings. You need to be strategic on when you might file the appropriate motion or raise the issue, because if the bankruptcy case is still open, the plaintiff may just be able to amend the filings. But the bankruptcy estoppel argument can be a powerful arrow in a defendant’s quiver.
