“Close” Works for Horseshoes and Judicial Estoppel

Baldwin v. Silver, 196 P.3d 170 (Wash.App. Div. 3 Nov 18, 2008) (NO. 26793-8-III)

The debtors listed a potential claim in the statement of affairs section of bankruptcy schedules but did not list that potential claim in the assets section of the schedules.

Judicial estoppel is an equitable remedy designed to prevent “a party from gaining an advantage by asserting one position in a court proceeding and later seeking an advantage by taking a clearly inconsistent position.” Cunningham v. Reliable Concrete Pumping, Inc., 126 Wash.App. 222, 224-25, 108 P.3d 147 (2005). The doctrine aims to “ ‘preserve respect for judicial proceedings without the necessity of resort to the perjury statutes; to bar as evidence statements by a party which would be contrary to sworn testimony the party has given in prior judicial proceedings; and to avoid inconsistency, duplicity, and waste of time.’” Johnson v. Si-Cor, Inc., 107 Wash.App. 902, 906, 28 P.3d 832 (2001) (quoting Seattle-First Nat'l Bank v. Marshall, 31 Wash.App. 339, 343, 641 P.2d 1194 (1982)). A court may properly apply judicial estoppel when the following elements are shown: (1) a party asserts a position that is “clearly inconsistent” with an earlier position; (2) judicial acceptance of the inconsistent position would indicate that either the first or second court was misled; and (3) “‘the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party.’” McFarling v. Evaneski, 141 Wash.App. 400, 404, 171 P.3d 497 (2007); Arkison v. Ethan Allen, Inc., 160 Wash.2d 535, 538-39, 160 P.3d 13 (2007) (quoting New Hampshire v. Maine, 532 U.S. 742, 750-51, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)).

The federal bankruptcy code imposes an express, affirmative duty on bankruptcy petitioners to disclose prepetition claims in the bankruptcy reorganization plan or in the petitioner's schedules or disclosure statements. Bartley-Williams v. Kendall, 134 Wash.App. 95, 98, 138 P.3d 1103 (2006) (citing 11 U.S.C. § 521(a)). And while some cases refer specifically to the requirement that the claim be disclosed in the bankruptcy “schedules,” others refer simply to “bankruptcy proceedings.”

In Baldwin, Division III held that “proceedings” include the statement of affairs and the bankruptcy was close enough to full compliance that judicial estoppel does not apply.

Although not stated – the rule seems to be that if third parties who reasonably read the petition would have been aware of the claim then there is no inconsistent position taken later by the debtors when they bring the claim.