DANNY C. REEVES, District Judge.
Senan Al-Mansoob filed this lawsuit in July 2009. When he instituted Chapter 7
The parties' dispute arises out of a traffic accident involving Al-Mansoob and Matthew Malloy. When the accident occurred, Malloy was driving a truck owned by Wilburn Archer Trucking, Inc. Al-Mansoob sued Malloy and Wilburn Archer Trucking for negligence, filing his first amended complaint in Wayne County Circuit Court on July 19, 2009.
Al-Mansoob sought Chapter 7 bankruptcy protection on September 30, 2009. In his bankruptcy filings, Al-Mansoob did not list this lawsuit among his assets or as an action to which he was a party, as required by the bankruptcy code.
In July 2010, Defendants moved for summary judgment, arguing that Al-Mansoob was judicially estopped from pursuing his claims because he had failed to disclose them in the bankruptcy proceeding. They cited the three-prong test adopted by this circuit in Browning v. Levy, 283 F.3d 761 (6th Cir.2002), for judicial estoppel in the bankruptcy context. Under that test, judicial estoppel bars a party from (1) asserting a position that is contrary to one he asserted under oath in a prior proceeding; (2) the prior court adopted the contrary position either as a preliminary matter or as part of a final disposition; and (3) the party's conduct was not inadvertent. Id. at 775-76. Browning identified "two circumstances under which a debtor's failure to disclose a cause of action in a bankruptcy proceeding might be deemed inadvertent": first, "where the debtor lacks knowledge of the factual basis of the undisclosed claims," and second, "where the debtor has no motive for concealment." Id. at 776. In their motion, Defendants asserted that Al-Mansoob's pursuit of this action was inconsistent with his failure to disclose it in the bankruptcy proceedings; that the bankruptcy court had adopted the contrary position by granting him a discharge; and that his omission of the instant claims was not inadvertent because he knew of them at the time he filed for bankruptcy and had a motive for concealing them, namely, "want[ing] to keep any settlement, verdict or judgment to himself."
Nor did Al-Mansoob's response address White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472 (6th Cir.2010), which had been decided five days earlier. White added a bad-faith inquiry to the inadvertence prong of the judicial-estoppel test set out in Browning. See id. at 478. In White, this bad-faith element was met because the plaintiff's "attempts to advise the bankruptcy court and the trustee of her [omitted] claim" were insufficient. Id. at 484.
At a motion hearing held on September 23, 2010, counsel for Defendants argued that White was "directly on point." With respect to the issue of inadvertence, he asserted:
Serafini responded, "as an officer [of] the court," that the trustee had been aware of the case since the previous fall. He stated that when the trustee became involved in the case against State Farm, they (Serafini and the trustee) discussed the instant action as well. In addition, according to Serafini, he and the trustee "discussed [this lawsuit] numerous times over the course of the negotiations that took place from that day forward." Nevertheless, his description of the trustee's affidavit — which was apparently presented to the district court at the conclusion of the hearing but does not appear in the record — suggested that it did not contain any information as to when the trustee learned of Al-Mansoob's claims against Malloy and Wilburn Archer Trucking.
Defendants' attorney replied:
Counsel for Defendants also urged the court to consider the timing of Al-Mansoob's eventual disclosure, asserting that he "never disclosed any existence of a bankruptcy filing until after [Defendants] filed a summary-judgment motion, and under White, that is a significant factor that the Court should take into consideration." During the hearing, the district judge indicated that he believed White was dispositive, commenting that he was "generally impressed with the strength of the White case as it affects the decision in this case" and "believe[d] White strongly suggests... how th[e] decision on Defendant[s'] motion should be resolved."
The day after the hearing, Al-Mansoob filed a supplemental response to the summary-judgment motion in which he addressed White and certain misrepresentations purportedly made by Defendants' attorney at the hearing. Attached to the supplemental response were several supporting documents, including an affidavit from the bankruptcy trustee. In it, the trustee acknowledged that he had "known about this lawsuit, as well as the claim against State Farm[,] since the fall of 2009," and that he had received correspondence from Al-Mansoob's counsel regarding both cases as early as October 19, 2009. He denied having any "evidence that Mr. Al-Mansoob has ever attempted to hide either of these liability assets from [his] discovery." Another affidavit, by Serafini, likewise averred that the trustee had been aware of this lawsuit since early in the bankruptcy proceedings.
The supplemental response included several documents corroborating these affidavits, such as the following letter, dated October 19, 2009, from an attorney at Serafini's firm to the trustee:
In an e-mail three days later, the same attorney forwarded a copy of the firm's retainer agreement to the trustee and asked that his e-mail be considered "the firm's request to be retained as special counsel to continue the lawsuits (1st and 3rd party cases) on behalf of the bankruptcy estate." The e-mail continued: "It is my understanding that the captions for the pending litigation should be amended to reflect the real party in interest is now [t]he bankruptcy trustee on behalf of the bankruptcy estate for M[r]. Almansoob [sic]."
Still other documents provided with the supplemental response reflect that Serafini sent copies of both complaints to the lawyer representing Al-Mansoob in his bankruptcy proceedings and to the trustee in mid-February 2010.
Defendants moved to strike Al-Mansoob's supplemental response, arguing that it was untimely and should not be considered. The court never ruled on the motion to strike, but subsequently granted Defendants' motion for summary judgment in a five-page opinion. The court's recitation of the test for judicial estoppel was taken from Browning and did not include bad faith as an element of the inadvertence prong. Nevertheless, the court agreed with Defendants that White was "directly on point." After briefly comparing the facts of the two cases, the court concluded: "Al-Mansoob made no effort to cure the omission before Defendants' motion for summary judgment was filed. Therefore, under the holding in White, Defendants are entitled to summary judgment based on judicial estoppel." The decision contained no mention of Al-Mansoob's supplemental response or the accompanying documents. In the same opinion and order, however, the court granted Al-Mansoob's motion to substitute the bankruptcy trustee as the real party in interest pursuant to 11 U.S.C. §§ 323 and 541(a)(1).
Twenty-eight days later, the trustee filed a motion for reconsideration pursuant to Rule 59 of the Federal Rules of Civil Procedure.
The court denied the motion for reconsideration, finding it to be time-barred under the local rules because it had not been filed within ten days of the entry of summary judgment.
The court then cited the standard for reconsideration under the local rules ("palpable defect") and concluded: "In this case the court finds no palpable defect. Plaintiff has merely presented the same issues previously ruled upon by the court." Again, the court gave no indication that it had considered the evidence regarding the trustee's knowledge of this litigation. Nor did it acknowledge his argument that judicial estoppel was inapplicable because he had demonstrated an absence of bad faith. Finally, despite the fact that the trustee had been substituted as the real party in interest, the court's decision on the motion to reconsider, like its summary-judgment opinion, was directed at Al-Mansoob, referring to the bankruptcy court's discharge of "Plaintiff" and authorization of "distributions of money to Plaintiff, his attorney, and the trustee."
The trustee timely appealed, seeking reversal of the summary judgment.
A district court's decision to grant summary judgment is reviewed de novo. White, 617 F.3d at 475. Summary judgment is required when the moving party shows, using evidence in the record, "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(a); see Fed.R.Civ.P. 56(c)(1). In deciding whether the movant has met this burden, the court views all the facts and inferences drawn from the evidence in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The trustee maintains that he should not be subject to judicial estoppel based on Al-Mansoob's failure to disclose this action. He further contends that judicial estoppel does not apply here because the omission was inadvertent. We examine these issues de novo. See White, 617 F.3d at 476.
As in his motion for reconsideration, the trustee's primary argument on appeal is that judicial estoppel cannot apply in this case because he became the real party in interest once the bankruptcy proceedings had begun. Several circuits have concluded that judicial estoppel does not bar a bankruptcy trustee from pursuing claims that the debtor failed to disclose. See Reed v. City of Arlington, 650 F.3d 571, 578-79 (5th Cir.2011) (en banc); Eastman v. Union Pac. R.R. Co., 493 F.3d 1151, 1155 n. 3 (10th Cir.2007); Parker v. Wendy's Int'l, Inc., 365 F.3d 1268, 1272 (11th Cir.2004); see also Kane v. Nat'l. Union Fire Ins. Co., 535 F.3d 380, 387 (5th Cir.2008) (per curiam). In Parker, for example, the Eleventh Circuit determined that judicial estoppel was inappropriate because the claim at issue "belong[ed] to the bankruptcy estate and its representative, the trustee," who had "made no false or inconsistent statement under oath in a prior proceeding and [was] not tainted or burdened by the debtor's misconduct." 365 F.3d at 1273. The Fifth Circuit has likewise refused to estop trustees based on debtors' misconduct, holding that "absent unusual circumstances, an innocent trustee can pursue for the benefit of creditors a judgment or cause of action that the debtor fails to disclose in bankruptcy."
Here, the trustee has been the real party in interest since September 30, 2009, when Al-Mansoob filed for bankruptcy. See 11 U.S.C. § 323 (bankruptcy trustee "is the representative of the estate" and may "sue and be sued"); 11 U.S.C. § 541(a)(1) (estate consists of "all legal or equitable interests of the debtor in property as of the commencement of the case"). Defendants allege no wrongdoing by the trustee; it was Al-Mansoob who omitted the lawsuit from the bankruptcy filings. The trustee's pursuit of this action is therefore not contrary to a position he previously asserted under oath. See White, 617 F.3d at 476. Accordingly, we adopt the reasoning of the Fifth, Tenth, and Eleventh Circuits and find that AlMansoob's failure to disclose his claims does not bar the trustee from pursuing them.
Even if the trustee were deemed to stand in Al-Mansoob's shoes for judicial-estoppel purposes, White would not dictate dismissal of this case. In White, the district court ruled that the plaintiff was judicially estopped from pursuing her sexual-harassment claim, which she had failed to disclose in her initial bankruptcy filings. Id. at 475. After examining Lewis and an earlier case, Eubanks v. CBSK Financial Group, Inc., 385 F.3d 894 (6th Cir.2004), the White court announced a slightly expanded version of the three-prong test:
617 F.3d at 478. With respect to bad faith, the court noted that "`under Eubanks, even if the debtor has knowledge of a potential cause of action and a motive to conceal it, if [he] does not actually conceal it and instead takes affirmative steps to fully inform the trustee and the bankruptcy court of the action, it is highly unlikely that the omission in the bankruptcy petition was intentional.'" Id. at 477 (quoting Lewis, 141 Fed.Appx. at 426).
The first two prongs were easily met. White's omission of her harassment claim from her bankruptcy filings was tantamount to a statement that the claim "did not exist" and thus "was contrary to [her] later assertion of the harassment claim before the district court," and the bankruptcy court, in ordering White to make payments to the trustee, had adopted that position. Id. at 479. Additionally, there was no question that White knew of the basis for her harassment claim when she filed for bankruptcy, because she had already filed a complaint with the EEOC and received notice of her right to sue. See id. at 474, 479. Her motive for concealment was likewise clear: "if the harassment claim became a part of her bankruptcy estate, then the proceeds from it could go towards paying White's creditors, rather than simply to paying White." Id. at 479. This court then turned to "the more difficult question" whether White had acted in bad faith. Id. at 480.
White offered three pieces of evidence to show that she had not: an affidavit by her bankruptcy attorney, an application to employ counsel that she had filed in the bankruptcy court, and an amendment to her bankruptcy filings to add the omitted claim. See id. The bankruptcy attorney's affidavit stated only that "`[w]hen [he] appeared in [c]ourt on Ms. White's bankruptcy,'" the harassment claim "`was discussed.'" Id. The affidavit thus "provided no evidence as to what, exactly, was discussed, whom it was discussed with, or whether the omission from the initial filings was discussed or emphasized." Id. Furthermore, the transcript of that court appearance did not reflect any discussion of White's harassment claim. Id. at 481. The panel was similarly unimpressed by the application to employ counsel:
Id. Nor would the panel "consider favorably the fact that White updated her initial filings after the motion to dismiss was filed," since "[t]o do so would encourage gamesmanship." Id.; see id. at 480. The timing of White's lawsuit was also suspect: she had waited to file her harassment claim until the day after the confirmation hearing on her bankruptcy plan.
In this case, as in White, the first two prongs of the judicial-estoppel test pose little difficulty. It is undisputed that Al-Mansoob's bankruptcy filings did not include any mention of his claims against Defendants until August 27, 2010. This omission was equivalent to a statement that there were no such claims and was therefore inconsistent with his pursuit of the instant action. See id. at 479. Furthermore, when the bankruptcy court granted Al-Mansoob's discharge on March 3, 2010, it acted in reliance on the representations he had made concerning his assets — including the representation that this lawsuit did not exist. The bankruptcy court's approval of the State Farm settlement and the resulting distribution of that settlement also represented adoption of the contrary position. See id. ("`[W]hen a bankruptcy court — which must protect the interests of all creditors — approves a payment from the bankruptcy estate on the basis of a party's assertion of a given position, that ... is sufficient judicial acceptance to estop the party from later advancing an inconsistent position.'" (quoting Lewis, 141 Fed.Appx. at 425) (other internal quotation marks omitted)).
Moreover, as the district court found, Al-Mansoob had knowledge of the instant claims when he filed for bankruptcy, because this action was already pending at that time. And he presumably had a motive to conceal the claims: "wanting to keep any settlement or judgment to himself." However, notwithstanding the district court's conclusion that he had "made no effort to cure the omission before Defendants' motion for summary judgment was filed," Al-Mansoob presented substantial evidence — albeit belatedly — that the bankruptcy trustee was told of this lawsuit long before Defendants sought summary judgment on judicial-estoppel grounds.
Although the district court had discretion to disregard Al-Mansoob's late submissions, it failed to even acknowledge them. See Hooks v. Hooks, 771 F.2d 935, 946 (6th Cir.1985) ("While it is within the discretion of the district courts whether to consider affidavits submitted in an untimely fashion, the court below never gave any indication that it was declining to consider plaintiff's affidavit on rehearing because it was untimely or for any other reason."). It is appropriate for this court to consider them, however. First, the affidavits and correspondence clearly establish an issue of material fact with respect to whether Al-Mansoob's omission was in bad faith. Furthermore, White was decided less than a week before Al-Mansoob's summary-judgment response was due. While his counsel certainly could have done a better job, both in his initial summary-judgment response and at oral argument, his failure to focus on the bad-faith factor is understandable given that White was the first case to clearly announce bad faith as part of the judicial-estoppel inquiry. Finally, the trustee timely sought reconsideration of the summary judgment under Rule 59(e). Under these circumstances, we may properly take the supplemental evidence into account. See id. (where plaintiff's late-filed affidavit "was sufficient to alert the court to the presence of an issue of material fact, and counsel offered a plausible
The strength and nature of that evidence distinguish this case from White. Whereas White's actions indicated an intent to hide her harassment claim, there is simply nothing to suggest that Al-Mansoob tried to conceal this case from the bankruptcy court or trustee. The suit was already pending when he filed for bankruptcy, and his attorney communicated freely about it with the trustee from nearly the inception of the bankruptcy proceeding, repeatedly seeking the trustee's guidance as to how the litigation should be handled. In light of those communications, the fact that Al-Mansoob's bankruptcy filings were not amended until after Defendants moved for summary judgment is significantly less damning. See Eubanks, 385 F.3d at 898 n. 1 (noting that "various courts in other jurisdictions have held that a trustee's knowledge of the claim precludes the application of judicial estoppel since the plaintiff was obviously not trying to defraud the court if they [sic] placed the trustee on notice."). In short, the record contains ample evidence that Al-Mansoob's omission of this lawsuit from his bankruptcy filings was inadvertent. Consequently, the suit is not barred by judicial estoppel.
For the foregoing reasons, we
