Opinion
Case No. 10-21336-svk.
October 1, 2010
MEMORANDUM DECISION AND ORDER ON OBJECTION TO CLAIM
This case involves dueling debtors. In separate bankruptcy cases, one debtor did not completely disclose in her Chapter 7 schedules the child support owed to her by the other debtor; the other debtor now seeks to prevent her from filing a claim for that child support in his pending Chapter 13 case. The issue is whether judicial estoppel is an appropriate remedy to resolve the duel.
Melanie Critton ("Ms. Critton"), filed a Chapter 13 petition on September 17, 2008, and her case was converted to Chapter 7 on January 2, 2009. In February 2009, Ms. Critton filed her schedules and attended a § 341 meeting of creditors with Chapter 7 trustee Michael P. Maxwell. Apparently, at the time of her petition, Ms. Critton was owed $39,934.94 in child support by her ex-husband. However, Ms. Critton did not disclose the past due child support — either in her schedules or at the § 341 meeting. For example, Ms. Critton checked "none" on Schedule B questions asking whether she had accounts receivable, other liquidated debts owed to her, other contingent or unliquidated claims of any nature, and other unlisted personal property. However, when asked whether she had a claim to alimony, maintenance, support, or property settlements, Ms. Critton responded that she "receives $237 [per] month in alimony." (Brief in Support of Allowance of Creditor's Claim 2.) Ms. Critton also listed her 20-year-old daughter as a dependent. Based upon the information provided in her schedules and at the § 341 meeting of creditors, the trustee reported a no-asset case. Ms. Critton received her discharge on June 13, 2009.
On February 2, 2010, Ms. Critton's ex-husband, James A. McCullough ("the Debtor") filed his own Chapter 13 petition. The Milwaukee County Child Support Agency objected to confirmation of the plan, because the Debtor's plan did not provide sufficient payment on the Agency's claim for outstanding child support obligations. The Debtor objected to the County's claim on April 28, 2010, alleging that the support owed on behalf of Ms. Critton was actually owed to her Chapter 7 trustee. Subsequently, Ms. Critton filed her own proof of claim for $39,934.94 in unpaid child support obligations under § 507(a)(1)(A) or (a)(1)(B).
At Ms. Critton's request, the Court reopened her bankruptcy case on September 7, 2010, so that she could amend her schedules to reflect the child support claim. Ms. Critton amended Schedule B to state that she "receives $237 [per] month for child support arrearage. [Ms. Critton] is owed $39,934.94 in back child support. [Ms. Critton's] daughter and her granddaughter(s) reside with [her] and are the benecificaries [sic] of the support." (Amended Schedule B in Case No. 08-30110.) The Debtor has objected to Ms. Critton's claim, contending that judicial estoppel should bar her claim because Ms. Critton is attempting to play fast and loose with this Court by minimizing her child support claim in her own bankruptcy, but maximizing her claim in the Debtor's bankruptcy.
Courts unanimously hold that "a debtor who denies owning an asset, including a chose in action or other legal claim, cannot realize on that concealed asset after the bankruptcy ends." Cannon-Stokes v. Potter, 453 F.3d 446, 448 (7th Cir. 2006). Discharged debtors who later attempt to realize on concealed asset may be judicially estopped. Id. The doctrine of judicial estoppel prevents "a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase." New Hampshire v. Maine, 532 U.S. 742, 749 (2001). Judicial estoppel shields the court against a party who engages in "the perversion of the judicial machinery" by "blowing hot and cold as the occasion demands" or "having one's cake and eating it too." Reynolds v. C.I.R., 861 F.2d 469, 472 (6th Cir. 1988) (collecting various metaphors used by the courts to describe judicial estoppel) (citations omitted). In essence, the doctrine raises the stakes for a party to tell the truth by heightening the cost of lying. Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420, 1428 (7th Cir. 1993). Ultimately, the application of judicial estoppel is a discretionary standard. The Seventh Circuit has enumerated four factors for determining whether the remedy is appropriate against a party:
(1) the later position is clearly inconsistent with the earlier position; (2) the facts at issue are the same in both cases; (3) the party to be estopped convinced the first court to adopt its position; and (4) the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.
U.S. v. Christian, 342 F.3d 744, 747 (7th Cir. 2003) (citing New Hampshire v. Maine, 121 U.S. 742, 750 (U.S. 2001)). Even if these factors are met, judicial estoppel is not appropriate where the clearly inconsistent positions are the product of inadvertence or mistake. In re FV Steel and Wire Co., 349 B.R. 181, 185 (Bankr. E.D. Wis. 2006).
The Debtor argues that like Biesek v. Soo Line Railroad Co., 440 F.3d 410 (7th Cir. 2006), and Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir. 2006), this is an appropriate case for judicial estoppel because Ms. Critton has set forth a clearly inconsistent position from which she stands to derive an unfair advantage. However, these cases are distinguishable. In Biesek, the employer had offered the debtor $62,500 to settle the suit three months before the debtor filed his chapter 7 petition, but the debtor did not disclose that amount in the schedules. 440 F.3d at 411. Upon discharge, the debtor asked the court to enforce the settlement he had not disclosed in his bankruptcy. Id. The court held judicial estoppel was an appropriate remedy because "[f]ailure to reveal this potential recovery could not have been inadvertent-especially as this offer, if accepted, made [the debtor] solvent, and he would have been required to satisfy all of his debts." Id. at 411-12. In Cannon-Stokes, the debtor filed bankruptcy and "expressly denied that she had any valuable legal claims," despite simultaneously asserting a $300,000 claim against the Postal Service. 453 F.3d at 447. Upon discharge, the debtor then filed suit against the Postal Service to realize her claim. Id. The court judicially estopped the debtor because she had set forth two clearly inconsistent positions that were not the product of mistake or inadvertence, but rather a conscious decision not to disclose a bankruptcy asset. Id.
Here, unlike the circumstances in Biesek and Cannon-Stokes, Ms. Critton's failure to clearly disclose the total amount of unpaid support was not a conscious decision to hide a bankruptcy asset, but rather her failure was attributable to unthinking inadvertence. When asked whether she had a claim to alimony, maintenance, support, or property settlements, Ms. Critton disclosed monthly "alimony" payments in the amount of $237. Ms. Critton admitted that when asked if anyone owed her money at her § 341 meetings, she responded "no," adding that she was never asked specifically whether she was owed back child support. The Debtor argues it is clearly inconsistent for Ms. Critton to state she had no claim, or at least a $237 monthly alimony claim, in her bankruptcy, and then to assert that she has a nearly $40,000 claim in the Debtor's bankruptcy. However, Ms. Critton explains that the inconsistency is reconcilable: she believed there was no reasonable likelihood she would have been paid her full claim amount. "To argue her child support claim would have had a much greater value on the date she filed her bankruptcy, based on [sixteen] years of trying to collect it herself would be a stretch. In fact, if she had listed the full balance of the past due child support as an asset, that would not have been accurate either." (Br. in Supp. of Allowance of Creditor's Claim 4.) Moreover, unlike the debtor in Cannon-Stokes who never amended her bankruptcy schedules and the debtor in Biesek who attempted to reach a deal only after his case was dismissed and on appeal, Ms. Critton has reopened her bankruptcy case and amended her schedules to state clearly the full amount owed to her by the Debtor. 453 F.3d at 449. By doing so, Ms. Critton now has reconciled her inconsistent statements.
Having found the inconsistency is reconcilable, the Court next considers whether allowing Ms. Critton to pursue her claim would result in an unfair advantage against the Debtor. In FV Steel, this Court found that judicial estoppel was not appropriate because, among other things, the defendant failed to show the debtor would benefit from the nondisclosure of the debtor's claim against the defendant. Here, too, the Debtor fails to show Ms. Critton benefits from the ambiguous disclosure of her claim against the Debtor. If the claim is uncollectible, her failure to list it does not inure to her benefit. And like the debtor in FV Steel, any risk of Ms. Critton now benefitting from her nondisclosure has been minimized by the reopening of her bankruptcy case so that her Trustee can pursue or abandon the claim. 349 B.R at 188.
As this Court has recognized, judicial estoppel is an extraordinary remedy to shield against the miscarriage of justice. Id. "It is not meant to be a technical defense for litigants seeking to derail potentially meritorious claims . . . and there is no evidence of intent to manipulate or mislead the courts." Id. (citation omitted). To absolve the Debtor of his unpaid child support obligation — a first priority claim — by virtue of Ms. Critton's innocent oversight would be inequitable. Under these circumstances, the doctrine of judicial estoppel does not apply to bar Ms. Critton's claim.
IT IS THEREFORE ORDERED: the Debtor's objection to Ms. Critton's claim is overruled, and her claim is allowed as filed.
Dated: October 1, 2010