Oct 24, 2018
68 Views

Judicial Estoppel: Failing to Disclose MDL Lawsuit as Asset in Bankruptcy Prevents Plaintiff From Pursuing Case

Written by


Happy birthday, Aubrey Drake Graham.  Most people know Mr. Graham strictly by his middle name.  The Canadian rapper Drake has carved out a hugely successful career for himself.  He sells lots and lots of records – or whatever it is that they sell in the music business these days.  Surprise: Drake’s music isn’t exactly our thing.  We still play the Beatles more than anything else, we sing along with Crosby, Stills, & Nash in the car, and we have difficulty naming songs post-dating Nirvana.  (Seinfeld once famously asked, “How could you not like the Drake?”  He was talking about somebody else.  Still, it’s a question we hear frequently from friends and family, chiding us for our retrograde taste in music.) Nevertheless, it’s impossible to swim in this culture without getting at least a little wet from Drake’s songs.  With “Worst Behavior,” for example, we got doused with language that you won’t hear in “Hello/Goodbye,” “Suite: Judy Blue Eyes,” or even “Come as You Are.” The main lyrics in “Worst Behavior” are about remembering how some bad, um, person, didn’t love Drake enough.  Anyway, thinking about that song made us review instances of the worst behavior by plaintiffs we have known and not loved.  There’s outright lying, cheating, and stealing.  And that’s looking only at the Plaintiff’s Fact Sheet.  Sometimes it goes beyond that.  Way beyond that.  Sometimes there’s hiding assets, including one’s pending tort claims, in bankruptcy.  It’s a swell way to stiff creditors.

 

This is not the first time we’ve encountered a case where a plaintiff neglected to list a mass tort claim as an asset in a bankruptcy proceeding.  See our blogposts here and here, for example.  Such neglect can have serious consequences, including staying or even dismissing the tort claim.  In today’s case, Kinderline v. Accord Healthcare, Inc., (In re Taxotere Prod. Liab. litigation), 2018 WL 5016219 (E.D. Louisiana Oct. 16, 2018), the plaintiff declared bankruptcy first, and two months later brought the mass tort action.  The plaintiff did not amend the bankruptcy papers to identify the claim.  The mass tort being an MDL, it dragged on, and the plaintiff’s bankruptcy closed with the trustee not hearing about the pending mass tort claim.  The plaintiff received a “no asset” discharge from bankruptcy. A fresh start! The plaintiff’s failure to include the tort claim in the bankruptcy proceeding was caught only after she was deposed by the defendant in the MDL.  (See – there’s a reason why that bankruptcy question shows up in your depo outlines.). The plaintiff then belatedly reopened the bankruptcy proceeding to list the tort claim.  The issue was whether the plaintiff was collaterally estopped from pursuing the tort claim in the MDL.

 

First things first.  Which law governed the estoppel issue? The plaintiff wanted to apply the law of her home jurisdiction, Ohio.   But the application of judicial estoppel is a matter of federal common law, and the case had been transferred to the MDL court in Louisiana, which is part of the Fifth Circuit.    There is precedent, though not by the Fifth Circuit, holding that application of federal (Constitutional, statutory, or common) law is governed by the law of the transferee court.  Judge Fallon in E.D. Louisiana went that route in the Vioxx MDL.  It certainly makes administration of the MDL easier.  (That’s not the same thing as saying it is right.) Even without Fifth Circuit precedent squarely on point, the Taxotere MDL court was convinced that the circuit law of the transferee court held sway, and therefore applied Fifth Circuit, not Sixth Circuit, law.  We’re not sure there is any difference in terms of application of judicial estoppel.  That is usually the threshold issue in a choice of law analysis.  Not so here.

 

This choice of law rule might be important to you when you are deciding what court you will argue for when it comes to creating an MDL.  Most lawyers tend to focus on the particular judge and district court they like better (or which particular judge and district court most terrifies them), but we should also think about the circuit court.   For instance, we recently argued for sending an MDL to the district of New Jersey.   The judge there seemed quite good.   But we were not blind to the fact that Third Circuit Law on preemption, in the form of the dreaded Fosamax decision, was bad bad bad.  We ended up concluding that Fosamax was so obviously bad that SCOTUS would reverse it.  That’s a heck of a gamble.  Right now, as we mentioned recently when we reviewed the Solicitor General’s amicus brief in Fosamax, it looks like a good gamble.  To quote a musician much more likely to be found in our playlist (and much more likely to be found in the Third Circuit), Fosamax is “going down, down, down, down.”

 

Back to Kinderline.  The court held that the plaintiff was, indeed, estopped.  Fifth Circuit law on estoppel, like the law in most places, looks at three elements: (1) the party against whom estoppel is sought has asserted a position plainly inconsistent with a prior position; (2) a court accepted the prior position; and (3) the party did not act inadvertently.  The first element was met here because the plaintiff failed to amend her bankruptcy petition to disclose a claim pursued after filing the petition.  The duty to disclose claims/assets in bankruptcy is an ongoing obligation. The second element is straightforward and obviously satisfied, because the court accepted the prior position – hence the no-asset discharge.  Now comes the third element, inadvertence.  To establish a defense of inadvertence, a party must prove (1) that she did not know about the inconsistency, or (2) that she lacked a motive for concealment.  There is no help for the plaintiff in Kinderline there, as there is no evidence she was oblivious to the inconsistency between the filing of the lawsuit and the failure to list it in bankruptcy, and the motive for concealment, keeping creditors away from any proceeds of the lawsuit, is undeniable and has, in fact, been recognized by the Fifth Circuit in another judicial estoppel case.  The plaintiff “would have reaped a windfall if she had been able to pursue this claim and collect a judgment from Accord without having to share the judgment with her creditors.”

 

The best fact the KInderline plaintiff had going for her was that she reopened the bankruptcy proceeding before the defendant managed to move for estoppel.  She won the race to the courthouse.  Whoopee.  Not good enough.  The plaintiff did not seek to correct the record until being caught at her deposition and until almost a year after she knew of the lawsuit as asset.  Borrowing from Fifth Circuit precedent, it is clear that to bless the plaintiff’s gamesmanship by allowing the debtor to “back-up, reopen the bankruptcy case, and amend [her] bankruptcy filings, only after [her] omission has been challenged by an adversary, suggests that a debtor should consider disclosing personal assets only if [she] is caught concealing them.”   In other words, there must be consequences for the plaintiff’s bad behavior.  The plaintiff claimed that her delay was caused by her decision to wait to confirm product identification to ensure she was suing the correct party.  Hmmm. Such carefulness on the part of the plaintiff and her attorneys!  Yet it did not stop her from filing the tort lawsuit.  Nor did it account for all of the year-long delay. The plaintiff is not innocent.  For that reason, judicial estoppel means that she cannot pursue her lawsuit in the MDL.

 

But the Chapter 7 trustee is innocent and is the real party in interest.  The Trustee did not hide assets.  For that reason, the bankruptcy trustee could pursue the plaintiff’s claim.   But here’s an odd wrinkle:  the rejection of the plaintiff’s right to claim on her own behalf meant that her husband’s consortium claim was extinguished, as it was purely derivative of his wife’s claim.  To allude to the title of another Drake song, the husband’s claim was “Over.”

 

 

 



Source link

Article Categories:
bankruptcy · Judicial Estoppel · Other

Leave a Comment

Your email address will not be published. Required fields are marked *