This case presented a familiar situation of a plaintiff who failed to list her potential discrimination?? claim? ?as?? an?? asset? ?on?? her bankruptcy petition. ?The plaintiff filed a federal court ?gender ?discrimination ?case ?in ?November
- She filed for Chapter 7 bankruptcy in April 2009. She didn?t list the discrimination case as a pending lawsuit. ?The bankruptcy court issued an order of discharge in September 2009.
The plaintiff?s discrimination case lawyer learned of the bankruptcy case and informed the district court in December 2009. ?The defendant raised the issue of judicial estoppel because the plaintiff had failed to list the lawsuit in her bankruptcy?? petition.???? ?In? ?January?? 2010? ?the plaintiff moved? to? reopen? the bankruptcy case and ?set ?aside? the? discharge.?? ?The? bankruptcy court did so immediately. ?In February 2010 the employment ?case ?defendant? moved? to? dismiss the case on the grounds of judicial estoppel. ?The district court granted the motion in April 2010. In June 2010 the bankruptcy trustee abandoned the trustee?s interest in the discrimination case with no objection from the creditors.? ?In July 2010 the bankruptcy court closed the reopened Chapter 7 case.
The Ninth Circuit reversed 2-1 the district court?s ?dismissal ?of? the ?federal ?discrimination case on the basis of judicial estoppel.? ?The majority held where, as here, a plaintiff has reopened her bankruptcy case to list a previously omitted? ?legal? ?claim,? ?a? ?court? ?must? ?consider whether the original failure to list the claim was a mistake or inadvertent.?? ?In? this? situation,? courts should interpret those concepts broadly.?? It is not enough ?that ?the? plaintiff? knew ?about ?her? legal claim at the time she filed bankruptcy. ?The court noted that many people don?t have lawyers when they file for bankruptcy and don?t understand their obligations.
The majority carefully analyzed the typical arguments for applying judicial estoppel strictly where the plaintiff reopens the bankruptcy case, and found them all lacking. ?The bankruptcy courts have their own means of protecting themselves against fraud.? ?Strict application of the judicial estoppel rule operates to the detriment of innocent creditors. ?The only winner is the alleged bad actor who discriminated against the plaintiff. The majority held the evidence here could be interpreted as either mistake/inadvertence or deceit.? ?Therefore, the district court erred by granting summary judgment to the defendant and remanded. ?A district court must consider whether the plaintiff subjectively omitted the bankruptcy asset with or without intent to conceal.? ?The majority noted ?that? the ?plaintiff or the ?creditors could move to reopen the bankruptcy case if the discrimination claim isn?t dismissed, so the estate could benefit. Judge Bybee dissented. ?He disagreed with the majority?s legal standard. ?He also would have affirmed ?the district ?court? even ?under ?that? legal standard.?? He also argued that the majority?s new rule ?shouldn?t ?apply? here ?because ?the ?creditors may ?not ?have ?an ?opportunity? to ?benefit.?? ?The trustee abandoned the discrimination claim only after it had been dismissed by the district.?? Judge Bybee didn?t find the possibility of another reopening of the bankruptcy case a sufficient solution to the problem.
Ah Quin v. County of Kauai Dep?t of Transportation, — F.3d — (9th Cir. July 24, 2013) (Graber, Bybee, Christen)