Opinion
No. 7-00-15349 MA.
September 15, 2004
Steve H. Mazer, Albuquerque, NM, Attorney for Debtor.
Christopher DeLara, Albuquerque, NM, Attorney for Steven Rodriguez.
ORDER GRANTING MOTION TO REOPEN BANKRUPTCY
THIS MATTER is before the Court on the Motion to Reopen Bankruptcy ("Motion to Reopen"), filed by the Debtor, Dominic D. Padilla, by and through his attorney of record, Steven H. Mazer. Debtor seeks to reopen his bankruptcy proceeding for the purpose of adding a pre-petition personal injury claim that was not listed in the Debtor's statements or schedules. There is now pending in the Second Judicial District Court for the District of New Mexico, as Case No. CV 2002-08460, a cause of action brought by Debtor against Steven Rodriguez ("State Court Action"). Steven Rodriguez, by and through his attorney of record, Guebert, Bruckner Bootes, P.C. (Christopher J. DeLara), opposes the Motion to Reopen, asserting that Debtor's failure to include the personal injury action in his bankruptcy statements and schedules was not inadvertent. The Court heard oral argument on August 18, 2004, at which time the Court took the matter under advisement. After considering the Motion to Reopen and the arguments of counsel, and being otherwise sufficiently informed, the Court finds that the Motion to Reopen will be granted so that the Chapter 7 Trustee can administer this asset.
Section 350(b) governs reopening of closed bankruptcy proceedings, and provides that
A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.11 U.S.C. § 350(b).
Whether to reopen a bankruptcy case is left to the sound discretion of the bankruptcy court, provided it is guided by the parameters of the statute. See In re Alpex Computer Corp., 71 F.3d 353, 356 (10th Cir. 1995). Clearly the personal injury claim the Debtor now seeks to add to his statements and schedules is a pre-petition claim that is an asset of the bankruptcy estate. Section 350(b) specifically provides that a case may be reopened for the purpose of administering assets. However, Mr. Rodriguez points out in his opposition to the Motion to Reopen that the Debtor failed to list the personal injury claim when he knew he held such a claim, and that only after Mr. Rodriguez claimed in the State Court Action that Debtor should be judicially estopped from asserting the claim due to his failure to list it in his bankruptcy statements and schedules did Debtor seek to reopen his bankruptcy for the purpose of adding the omitted claim. These facts are troubling, and raise serious questions about the Debtor's good faith.
Emerging case law suggests that is appropriate for the bankruptcy court to consider the Debtor's motive in order to determine whether to grant a motion to reopen for the purpose of adding an omitted asset. See, e.g., Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1288 (11th Cir. 2002) (in evaluating whether judicial estoppel should apply, court also found that the debtor who had knowledge of his employment discrimination claims during the pendency of his bankruptcy but failed to disclose it in the bankruptcy should not be allowed to reopen his bankruptcy case to add the lawsuit); In re Rochester, 308 B.R. 596, 604 (Bankr.N.D.Ga. 2004) (court considered whether the debtor intentionally failed to disclose asset in order to determine whether to reopen); In re Haskett, 297 B.R. 637 (Bankr.N.D.Ala. 2003). These courts reason that when a debtor intentionally fails to disclose a cause of action in his bankruptcy, he should not be allowed to manipulate the judicial system by later reopening his bankruptcy proceeding to add the omitted asset in order to thwart a defendant's judicial estoppel defense. Burnes, 291 B.R. at 1288. The Court can infer an improper motive for reopening a bankruptcy proceeding to add an omitted asset when it can be shown that the debtor knew of his cause of action during the bankruptcy, yet failed to disclose it. See Haskett, 297 B.R. At 642 (discussing different court's approaches to inferring intent). The facts of this case appear to fit these parameters. Debtor knew of his possible cause of action during the pendency of his bankruptcy proceeding. Only after Rodriguez raised the defense of judicial estoppel in the State Court Action did the Debtor seek to reopen his bankruptcy case to add this personal injury claim. It would be unfair to allow the Debtor to dispose of Rodriguez's judicial estoppel defense by simply reopening his bankruptcy case and amending his schedules.
However, as pointed out in Haskett, "the role of the bankruptcy court is to determine the effects on the estate, the debtor, and the creditors, not the defendants in the previously undisclosed cause of action . . ." 297 B.R. at 640. The omitted personal injury cause of action is an asset of this bankruptcy which may yield proceeds for the benefit of creditors of the estate. A debtor should not be allowed to benefit from his failure to disclose, but neither should creditors of the bankruptcy estate be forced to forfeit an asset. The consequence to the Debtor may very well be that he is not entitled to claim an exemption in the proceeds from the omitted personal injury claim. See In re Grogan, 300 B.R. 804, 808 (Bankr.D.Utah 2003) (noting that "intentional concealment of assets bars the debtor's exemption claim after the assets are uncovered."). But whether the Debtor is entitled to claim an exemption is a separate question for another day.
The Haskett court applied judicial estoppel principles in evaluating whether to reopen the case and found that, although the debtor had knowledge of her cause of action during the pendency of her bankruptcy, and an inferred motive to omit it from her schedules, she offered a reasonable explanation for her failure to disclose, and would be allowed to reopen her case. 297 B.R. at 644.
Based on the foregoing, the Court concludes that the Motion to Reopen should be reopened to allow the Chapter 7 trustee to administer the asset.
WHEREFORE, IT IS HEREBY ORDERED, that the Motion to Reopen is GRANTED.
ORDERED FURTHER, that the United States Trustee appoint a Chapter 7 Trustee in this case.