Practicing to Deceive: Using the Doctrine of Judicial Estoppel to Untangle the Web in Employment Cases, Part II
In the last issue, part one of this article focused on the current status of the doctrine of judicial estoppel, particularly in the bankruptcy context, along with the defenses to the application of the doctrine. Part two returns to the story of the diligent practitioner and delves into some basic principles of bankruptcy law and practice implicated in the doctrine.
Applicable Principles of Bankruptcy Law1
In addition to the bankruptcy principles discussed in the first part of this article, there are some unique aspects of bankruptcy law that further complicate the application of judicial estoppel. These principles are discussed below. Ignorance of these provisions may, at a minimum, adversely impact the outcome of the case or, at worst, could result in sanctions against both the party and its counsel, regardless of whether they are intentionally violated. Therefore, it is important to be able to spot these issues when addressing the application of judicial estoppel.
• Presence of the Trustee — In bankruptcy practice, there are, in general, two types of trustees: Case trustees, typically bankruptcy practitioners who are appointed to administer the bankruptcy action, and the United States Trustee, a part of the Department of Justice created by Congress to oversee the bankruptcy system. While the United States Trustee is empowered to take an active role in any bankruptcy case, its main role in Ch. 7 and Ch. 13 bankruptcies is to prevent substantial abuse of the bankruptcy law in the discharge of debts, investigate bankruptcy fraud (such as fraudulently concealing assets), and appoint and supervise case trustees in the administration of the bankruptcy action. The United States Trustee is rarely, if ever, implicated in the judicial estoppel analysis. However, the case trustees can have a great impact on the analysis.
To demonstrate, let’s return to the story of the diligent practitioner, who was last reviewing the principles of judicial estoppel to determine her applicability in the ADA action. After familiarizing herself with these principles, the practitioner prepared and filed a motion for summary judgment in the ADA action, arguing that the plaintiff was barred from proceeding with this action by the doctrine of judicial estoppel. Specifically, she argued that the debtor had knowledge of the lawsuit since it was filed two months before his petition in the Ch. 7 proceeding. The debtor also had a motive to conceal the action because he is seeking more than a million dollars, he received a discharge in the bankruptcy proceeding, and he would be able to keep any benefits realized from this lawsuit while, at the same time, avoiding his debts. The practitioner also noted that the totality of the circumstances supported the application of the doctrine, including that the debtor was represented by counsel in the bankruptcy proceeding; he disclosed several lawsuits filed against him in the petition; he repeatedly was warned of his obligation to provide complete and truthful information; and he obtained a complete discharge of all his debts while concealing this claim.
Immediately after receiving notice of this motion, the debtor amended his petition and schedules in the bankruptcy court to disclose this lawsuit, including the name of the case, case number, court in which the action was pending, and type of action. Although this amended disclosure was provided to the case trustee as a matter of course through the electronic filing system, the debtor did not provide any other notice to the case trustee of this action or inform the case trustee of the status of the action. However, subsequently, counsel for the debtor and the case trustee had several interactions and the trustee ultimately reported the lawsuit as an asset of the bankruptcy estate. The case trustee, however, did not file a notice of appearance in the ADA action or assert any other objection to the debtor’s continued prosecution of the action.
Thereafter, the motion for summary judgment was fully briefed. Upon consideration of the parties’ filings, the court granted the practitioner’s motion for summary judgment, finding that the debtor was barred from proceeding with this claim based on the doctrine of judicial estoppel and it dismissed the case. But is this the end?
• Debtor’s Lack of Standing — When a debtor files a petition for relief under Ch. 7,2 all potential causes of action existing at that time become property of the bankruptcy estate, and the debtor’s rights in those claims are extinguished.3 This is true even if the debtor fails to disclose the claim in his or her petition.4 The only exception is when the trustee has abandoned the property back to the debtor.5
After the commencement of the bankruptcy action under Ch. 7, a case trustee is appointed to marshal and liquidate the debtor’s assets, including any potential causes of action. As a result, the 11th Circuit repeatedly has held the trustee “has exclusive standing to assert [these] claims.”6 While the court has used the term “standing,” in this context, it is shorthand for the real party in interest.7
The 11th Circuit made this distinction clear in Barger v. City of Cartersville, Georgia, 348 F.3d 1289, 1292 (11th Cir. 2003), when it rejected the notion that the debtor lacked standing, in a constitutional sense, when she filed for bankruptcy protection under Ch. 7 less than two months after she instituted the discrimination lawsuit. The court concluded that the debtor had constitutional standing, and, thus, the district court’s order was not infirm for lack of subject matter jurisdiction. It explained that the issue is one of real party in interest.8 Although the court noted that the trustee was the real party in interest, it found that the debtor’s prosecution of the action did not render the resulting order invalid.9 Indeed, the court recognized that an action can only be dismissed for lack of prosecution by the real party in interest if there has been an objection to the prosecution of the action by the named party and the real party in interest fails to substitute in the action.10
Despite the clarity of the 11th Circuit’s ruling in Barger, the use of the term “standing” in a number of subsequent 11th Circuit decisions has caused much confusion surrounding this issue. Criticism of the concept of “standing” is not unique.11 Several commentators have noted the confused jurisprudence in this area.12 Courts, including the U.S. Supreme Court, have long criticized the imprecise use of the term “standing.”13 It also is common for both courts and parties to confuse the concepts of constitutional standing and real party in interest, even though they are conceptually distinct.14
Subsequent to the Barger decision, there have been several unpublished decisions of the 11th Circuit suggesting that the concept of “standing” in this context is jurisdictional.15 Additionally, there have been other decisions affirming the dismissal of the debtor’s claim for a lack of “standing” without clarifying whether this dismissal is for a lack of standing in a jurisdictional sense or whether it is based on the lack of prosecution by the real party in interest after an objection.16 Regardless, it is an untenable reading of these cases to suggest that the basis is a lack of constitutional or jurisdictional standing, as it would place these decisions in direct conflict with Barger and in violation of the well settled prior precedent rule.17 Instead, while the language of these decisions is somewhat imprecise, these rulings appear to be based on the failure to prosecute the action by the real party in interest. Because of this confusion, some district court decisions in Florida likewise have suggested that the lacking of standing is jurisdictional when the debtor prosecutes a claim belonging to the bankruptcy estate; however, this interpretation would be in direct conflict with the 11th Circuit’s decision in Barger.18
Although the courts could have been more precise in their use of the term “standing,” certain principles are clear unless and until the 11th Circuit, sitting en banc, overrules the Barger decision.19 While the trustee is indisputably the real party in interest, that fact does not invalidate or preclude the application of the doctrine of judicial estoppel to an action prosecuted by the debtor. It does not render any order issued by the district court while the debtor prosecuted the action to be infirm for lack of subject matter jurisdiction. The action, nonetheless, may be dismissed for failure to prosecute in the name of the real party after an objection is made. This is separate and apart from the application of the doctrine of judicial estoppel. Additionally, the trustee’s status as the real party in interest provides him or her with the right to substitute for the debtor at any time, including on appeal.20 Thus, the action may not be final by the entry of an order against the debtor.
• Trustee’s Substitution on Appeal — When the trustee substitutes for the debtor on appeal, the trustee steps into the shoes of the debtor and is limited to the same arguments available to the debtor.21 The trustee, however, cannot vacate the application of judicial estoppel to the debtor based on the lack of subject matter jurisdiction or due process.22 Indeed, the 11th Circuit recently rejected both of these arguments in Dunn v. Advanced Medical Specialties, Inc., 556 F. Appx. 785, 789-90 (11th Cir. 2014), when the trustee substituted for the debtor on appeal and then argued that the order of dismissal based on judicial estoppel should be vacated.23 In doing so, the court also rejected the trustee’s argument that the defendant, in addition to the debtor, had an obligation to notify the trustee of the action and the pending motion for summary judgment.24
Thus, on appeal or after the entry of judgment against the debtor, the trustee is limited to the same arguments that would have been available to the debtor as to why the district court abused its discretion in applying the judicial estoppel doctrine.25 There is no basis to vacate the order and the order is not void as a matter of law because the action was prosecuted by the debtor.
• Trustee’s Substitution in the Underlying Action — If the trustee substitutes for the debtor in the underlying suit, however, the doctrine of judicial estoppel cannot be applied against the trustee unless he or she also made inconsistent statements under oath.26 For example, in Parker v. Wendy’s International, Inc., 365 F.3d 1268, 1271 (11th Cir. 2004), the plaintiff filed for bankruptcy protection two years after the plaintiff filed a lawsuit for employment discrimination, but she failed to disclose the pending lawsuit in the bankruptcy petition. After she received a discharge, her attorney in the discrimination action notified the court that she inadvertently had failed to disclose the lawsuit on her bankruptcy petition.27 Her attorney requested a continuance of the trial in order to notify the bankruptcy trustee and reopen the bankruptcy proceeding.28 The bankruptcy court reopened the proceeding and then the trustee requested and was granted permission to intervene in the action.29 Subsequently, the defendant moved to dismiss based on judicial estoppel, and the court granted that motion.30 On appeal, the 11th Circuit reversed the district court’s order, finding that the court improperly applied the doctrine of judicial estoppel to the trustee, who was the only party in the action at the time of its ruling.31 It explained that the trustee became the real party in interest upon the filing of the bankruptcy petition, he did not abandon the claim back to the debtor, and he did not make any inconsistent statements under oath.32 Thus, the court held that the doctrine of judicial estoppel could not be applied to the trustee.33
Notwithstanding, even if the trustee substitutes for the debtor in the underlying action, there may be particular circumstances in the case to warrant reaching the issue of judicial estoppel. For example, if there is a surplus of assets in the bankruptcy estate, which may be created by the cause of action at issue, the doctrine of judicial estoppel could be applied to preclude the debtor from obtaining those funds.34 In addition, in some instances, the trustee may enter into an agreement with the debtor to exempt a certain portion of the recovery in the lawsuit or otherwise agree to split the recovery.35 This type of agreement may have several implications, requiring the court to engage in the judicial estoppel analysis. First, the trustee may be barred, at least in part, from pursuing the claim, under the doctrine of judicial estoppel, if “the result of that pursuit would be for the [p]laintiff to benefit in any way from any such recovery by the trustee.”36 Second, an agreement to exempt a certain monetary amount of the recovery may deprive the trustee of the right to pursue the claim altogether, unless the trustee can establish that the claim is worth more than the exempted amount.37
• Trustee Stands in the Shoes of the Debtor — Regardless of whether the trustee substitutes for the debtor or files his or her own action, the trustee is subject to all of the other defenses, including the statute of limitations, that might have applied against the debtor if no bankruptcy action had been filed.38 There is one important caveat. The Bankruptcy Code provides the trustee with an extension of the statute of limitations in certain instances. Specifically, 11 U.S.C. §108(a) provides that, if the statute of limitations has not expired before the filing of the bankruptcy petition, the trustee may commence the action either by the expiration of the period or “two years after the order for relief,” whichever is later. In a case of a voluntary bankruptcy, the filing of the petition constitutes the “order for relief.”39 Thus, this provision typically extends the statute of limitations for up to two years after the filing of the petition.40 However, to date, neither the 11th Circuit nor any district courts in Florida have addressed the extension of the statute of limitations under any employment statutes based on this provision. Nonetheless, this provision has applied to extend the statute of limitations in other contexts, including tort claims. There is nothing in the text of the statute indicating it would be inapplicable to employment claims.41 Thus, this provision may allow the trustee to pursue a claim that otherwise would be time-barred if no bankruptcy petition had been filed.
• Use of an Alternate Forum: Seeking Relief in Bankruptcy Court — Litigating a judicial estoppel issue may bring the parties into bankruptcy court. This may occur in a number of different ways. First, the bankruptcy action may be closed when the nondisclosure is discovered. This occurs with some frequency in a Ch. 7 proceeding when the debtor has received a “no-asset discharge.”42 In those cases, the proceeding is open for a relative short period of time, and, once the discharge is entered, the case trustee is relieved of his or her responsibility, and the case is closed.43 Thus, if the nondisclosure is subsequently discovered, the bankruptcy case typically will need to be reopened.
The debtor also may return to bankruptcy court to try to obtain a favorable ruling on the issue of judicial estoppel. The debtor in Barger tried this maneuver.44 After the defendant filed a motion for judicial estoppel, the debtor filed a motion to reopen the bankruptcy proceeding to identify her lawsuit as an asset.45 The bankruptcy court held a hearing, at which both the debtor and defendants appeared, and the court allowed the debtor to reopen her case.46 In addition, after the district court entered an order dismissing her lawsuit based on judicial estoppel, the bankruptcy court entered a written order allowing her to reopen her case, finding that the debtor did not conceal the claim.47 On appeal, the trustee, in place of the debtor, argued that the bankruptcy court’s order collaterally estopped the district court from entering summary judgment based on the doctrine of judicial estoppel.48 The 11th Circuit, however, rejected this argument, finding that the defendants, who were not parties to the bankruptcy proceedings, did not have a full and fair opportunity to litigate the judicial estoppel claim in bankruptcy court.49
The last example requires us to return to the story of the diligent practitioner. After the court dismissed the debtor’s claims based on judicial estoppel, the debtor appealed the judgment to the 11th Circuit. Several months later, the case trustee moved to substitute for the debtor on appeal and sought a stay to file a motion to vacate in the district court. The trustee argued to the district court that the dismissal order was void as a matter of law based on a lack of subject matter jurisdiction, a violation of due process to the trustee and equitable principles. The district court rejected all of these arguments, and the matter returned to the 11th Circuit for review. At this point, the practitioner focused on the appeal in the 11th Circuit, believing that this matter was nearing an end. However, several weeks later, the trustee filed a motion in the bankruptcy court asserting that the practitioner and her client violated the automatic stay in the Bankruptcy Code by filing the initial motion for summary judgment against the debtor. The bankruptcy court set the motion for hearing, requiring the practitioner and her client to appear to answer the motion. Could filing a defensive motion be the basis for sanctions in bankruptcy court? Will there ever be any finality in this action?
• The Long Reach of the Automatic Stay — Generally, upon the filing of a bankruptcy petition, the Bankruptcy Code, 11 U.S.C. §362, provides for an automatic stay of most proceedings to prevent enforcement of pre-petition claims or other interference with the property of the estate or debtor.50 “Section 362 ‘is one of the fundamental debtor protections provided by the bankruptcy laws’ because it ‘gives the debtor a breathing spell from his creditors,’ ‘stops all collection efforts, all harassment, and all foreclosure actions,’ and ‘permits the debtor to attempt a repayment or reorganization plan.’”51 It also “protects creditors by preventing a race for the debtor’s assets and enabling an orderly liquidation process.”52 In particular, the statute provides:
Except as provided in subsection (b) of this section, a petition filed under [§§]301, 302, or 303 of this title, or an application filed under [§]5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of…any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.53
A willful54 violation of the automatic stay may be remedied by actual damages, including attorneys’ fees and costs, as well as punitive damages.55 In addition, “‘[a]ctions taken in violation of the automatic stay are void and without effect.’”56 The automatic stay, however, does not apply to actions brought by the debtor.57
In the hypothetical involving the diligent practitioner, the trustee argued that, by filing the motion for summary judgment, the practitioner and her client violated the automatic stay because they asserted possession or control over property of the estate ( i.e. the debtor’s discrimination claims). Although the 11th Circuit has not had the opportunity to write extensively on this topic, it has rejected this proposition, at least implicitly if not explicitly. For example, in Crosby v. Monroe County, 394 F.3d 1328, 1331, n.2 (11th Cir. 2004), the 11th Circuit relied on the Seventh Circuit’s decision in Martin-Trigona v. Champion Federal Savings & Loan Association, 892 F.2d 575, 577 (7th Cir. 1989), to conclude that the plaintiff’s Ch. 13 petition did not prevent the court from adjudicating the merits of the appeal and affirming the entry of summary judgment against the plaintiff on his claims. Likewise, in Thomas v. Blue Cross & Blue Shield Association, 333 F. Appx. 414, 421 (11th Cir. 2009), the court rejected the plaintiff’s argument that the court’s entry of an injunction precluding him from pursuing his counterclaims violated the automatic stay.58 Furthermore, in Dunn, the trustee argued that the district court erred in refusing to vacate the summary judgment order, applying the doctrine of judicial estoppel because the motion was filed in violation of the automatic stay.59 The 11th Circuit rejected this argument in its ruling affirming the district court’s order on the motion to vacate.60 This conclusion also is consistent with the established 11th Circuit precedent affirming the entry of summary judgment in favor of a defendant and against the debtor based on the doctrine of judicial estoppel.61
A number of circuit and district courts, outside of the 11th Circuit, likewise have rejected this argument.62 Specifically, these courts have explained that the defendant has the right to assert and litigate its defenses in an action brought by the debtor without violating the automatic stay.63 This is true even if a successful defense will result in the loss of the claim.64 Indeed, in Martin-Trigona, the Seventh Circuit noted:
There is…no policy of preventing persons whom the [debtor] has sued from protecting their legal rights. True, the [debtor’s] cause of action is an asset of the estate; but as the defendant in the [debtor’s] suit is not, by opposing that suit, seeking to take possession of it, subsection (a)(3) is no more applicable than (a)(1) is.65
There are, however, a few bankruptcy court decisions finding to the contrary, including one in Florida.66 In addition, at least one court has held that the settlement of a claim, which is the property of the bankruptcy estate, is void as a matter of law.67 For example, in In re Dooley, 399 B.R. 340, 349-50 (Bankr. D. Mass. 2009), the bankruptcy court in the District of Massachusetts found that the settlement of a personal injury action after the plaintiff had filed a Ch. 7 bankruptcy petition was void and the plaintiff was required to return the settlement funds, including the portion of the settlement representing attorneys’ fees and costs.68 In reaching this conclusion, the court warned: “Lawyers who engage in personal injury work ought to have a better background in an area of law which leaves them so exposed to criticism and liability.”69
Conclusion
Our story of the diligent practitioner ends with the bankruptcy court denying the motion for sanctions based on the automatic stay and, shortly thereafter, the 11th Circuit affirming the district court’s application of the doctrine of judicial estoppel and refusal to vacate the judgment, thereby bringing finality to this matter. So what is the moral of this story?
The doctrine of judicial estoppel is a powerful weapon and deterrent for nondisclosure in bankruptcy proceedings. While the doctrine appears simple on its face, its application can be fraught with complications as well as a variety of proceedings in several fora. An understanding and knowledge of this doctrine and some basic principles of bankruptcy law will help navigate this complex and exceedingly complicated area of the law. Since this doctrine, at its core, invokes the discretion of the court, it will require an intensive focus on the facts, and its application will be dependent on the particular circumstances presented. However, as the diligent practitioner learned, this area is not one to fear and the doctrine of judicial estoppel can be the best tool for untangling a web of lies and preserving the integrity of the court.
1 This author is not a bankruptcy expert. This discussion is presented from the author’s perspective as a result of her experience with this topic. It is not intended to be exhaustive or all inclusive. For that, there are many wonderful treatises and articles written by bankruptcy practitioners. Instead, this part is intended to provide an overview of some of the common principles encountered when litigating the judicial estoppel issue in an employment case.
2 Proceedings under Ch. 13 typically do not present the same “standing” or real party in interest issue. Crosby v. Monroe Cnty., 394 F.3d 1328, 1331 n.2 (11th Cir. 2004). Instead, unless the Ch. 13 plan provides otherwise, the debtor “retains standing to pursue legal claims on behalf of the estate.” Id.; see also 11 U.S.C. §§1303, 1306(b). Thus, the application of the judicial estoppel doctrine in Ch. 13 cases can be less complicated, and there is no third-party available to try to save the claim from the doctrine.
3 Barger v. City of Cartersville, Ga., 348 F.3d 1289, 1292 (11th Cir. 2003) (citing 11 U.S.C. §541(a)); see also Parker v. Wendy’s International, Inc., 365 F.3d 1268, 1272 (11th Cir. 2004) (noting that, under §541 of the Bankruptcy Code, “virtually all of a debtor’s assets, both tangible and intangible, vest in the bankruptcy estate upon the filing of a bankruptcy petition”). In addition, causes of action that accrued prior to the petition, even if filed after the petition, typically become property of the bankruptcy estate. Parker, 365 F.3d at 1272. Thus, the timing of the filing of the lawsuit, whether before or after the petition, is not dispositive of whether the claim belongs to the bankruptcy estate.
4 Barger, 348 F.3d at 1292; see also Parker, 365 F.3d at 1272 (recognizing that the failure to list an asset on a bankruptcy schedule causes that asset to remain part of the bankruptcy estate even after the bankruptcy action is closed).
5 Parker, 365 F.3d at 1272 (“Once an asset becomes part of the bankruptcy estate, all rights held by the debtor in the asset are extinguished unless the asset is abandoned back to the debtor pursuant to §554 of the Bankruptcy Code.”).
6 Barger, 348 F.3d at 1292; see also Parker, 365 F.3d at 1272 (noting that “only the trustee in bankruptcy has standing to pursue [the claim]”).
7 Barger, 348 F.3d at 1292 (“Accordingly, the [t]rustee is the real party in interest and it has exclusive standing to assert any discrimination claims.”); Parker, 365 F.3d at 1272 (“Thus, a trustee, as the representative of the bankruptcy estate, is the proper party in interest, and is the only party with standing to prosecute causes of action belonging to the estate.”).
8 Barger, 348 F.3d at 1292 .
9 Id. at 1292-93. The 11th Circuit recently reaffirmed this ruling in Dunn v. Advanced Medical Specialties, Inc., 556 F. Appx. 785, 789-90 (11th Cir. 2014), when the trustee, after substituting for the debtor on appeal, sought to vacate the district court’s order granting summary judgment against the debtor based on the doctrine of judicial estoppel. The court rejected the trustee’s argument that the district court’s order was void for lack of subject matter jurisdiction because the trustee had exclusive standing over the claim. It explained that the trustee was confusing constitutional standing with real party in interest.
10 Fed. R. Civ. P. 17(a); Barger, 348 F.3d at 1292. Likewise, when there has been a transfer of interest, as in the case of Barger and the hypothetical involving the diligent practitioner, Rule 25(c) allows the action to continue to be litigated in the name of the original party unless, after a motion, the court requires the substitution of the real party in interest. Fed. R. Civ. P. 25(c); Barger, 348 F.3d at 1292-93. As a result, even in the absence of judicial estoppel, a defendant can move to dismiss the action and require substitution of the trustee. If the trustee declines to substitute in the action, it can be dismissed.
11 See Wright & Miller, Federal Practice and Procedure 13A §3531 (3d ed.) (“Decades ago, Justice Douglas observed that ‘[g]eneralizations about standing to sue are largely worthless as such.’ Many exasperated courts and commentators have echoed the thought, often adding that standing doctrine is no more than a convenient tool to avoid uncomfortable issues or to disguise a surreptitious ruling on the merits.” (quoting Ass’n of Data Processing Serv. Org. v. Camp, 397 U.S. 150, 151 (1970) (citations omitted))).
12 See Erwin Chemerinsky, Federal Jurisdiction (5th ed. 2007) (citing Joseph Vining, Legal Identity 1 (1978) (“Standing frequently has been identified by both justices and commentators as one of the most confused areas of the law. Professor Vining wrote that it is impossible to read the standing decisions ‘without coming away with a sense of intellectual crisis. Judicial behavior is erratic, even bizarre. The opinions and justifications do not illuminate.’”).
13 Bond v. United States, 131 S. Ct. 2355, 2362 (2011) (observing that “the question whether a plaintiff states a claim for relief ‘goes to the merits’ in the typical case, not the justiciability of a dispute, and conflation of the two concepts can cause confusion” (citations omitted)); see also Pennsylvania Family Inst., Inc. v. Black, 489 F.3d 156, 165 (3d Cir. 2007) (“Few doctrines of constitutional law have engendered as much discussion, and confusion, as those of standing and ripeness.”); Liberty Nat. Ins. Holding Co. v. Charter Co., 734 F.2d 545, 554 (11th Cir. 1984) (noting that the “[t]he law of standing is related to and likely to be confused with the concepts of real party in interest, capacity to sue, and the existence and definition of private causes of action.”); cf. Thomas P. Lewis, Constitutional Rights and the Misuse of “Standing,” 14 Stan. L. Rev. 433, 434 (1962) (“With so many ideas parading behind the ‘standing’ banner — a banner waved sometimes on the basis of the commands of article III, sometimes in the exercise of discretion — it is small wonder that this area of constitutional law has been defined as a ‘complicated specialty of federal jurisdiction’ and as part of an inquiry to be fathomed only by the ‘expert feel of lawyers.’”).
14 Gonzalez ex rel. Gonzalez v. Reno, 86 F. Supp. 2d 1167, 1182 (S.D. Fla. 2000) (“The concepts of a plaintiffs’ standing to sue and his status as the real party in interest are interrelated, yet conceptually distinct….[S]tanding is a constitutional requirement that asks whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues…[and a] real party in interest is the party in whose name a federal civil action shall be prosecuted.” (internal quotation marks and citations omitted)), aff’d sub nom. Gonzalez v. Reno, 212 F.3d 1338 (11th Cir. 2000); see also K-B Trucking Co. v. Riss Int’l Corp., 763 F.2d 1148, 1154 (10th Cir. 1985) (“We believe, however, that the standing challenge is not properly raised in connection with real party in interest analysis under Rule 17(a).”); see also Wright & Miller, Federal Practice and Procedure 13A §3531 (3d ed.) (“Confusions of standing with real-party-in-interest doctrine occur with some frequency.. . . The confusion of standing with real-party-in-interest concepts may have unfortunate consequences. A focus on standing may lead a court to refuse application of the ameliorating rules that enable substitution of the real party in interest when the wrong plaintiff filed the action.”).
15 Davy v. Star Packaging Corp., 517 F. Appx. 874, 876 (11th Cir. 2013) (finding that the plaintiff lacked “standing” to appeal because “only the trustee of [the debtor]’s estate, who the magistrate judge recognized as the real party in interest, can appeal the summary judgment against [the debtor]’s claims”); Webb v. City of Riverdale, 472 F. Appx. 884, 884-85 (11th Cir. 2012) (noting that “[b]ecause [the debtor] did not have standing to prosecute the case, the district court should have refrained from ruling on the defendant’s motion for summary judgment [based on the doctrine of judicial estoppel]” and vacating “the district court’s order denying the motion”); Chen v. Siemens Energy Inc., 467 F. Appx. 852, 853-54 (11th Cir. 2012) (affirming the dismissal of the action by the debtor, which did not involve the failure to disclose the lawsuit, because the debtor did not have “standing” to pursue the action); Baxley v. Pediatric Servs. of Am., Inc., 147 F. Appx. 59, 60 (11th Cir. 2005) (“Before we can reach the merits of [the debtor]’s employment claims [(which were dismissed by the district court based on judicial estoppel)], we must determine whether [the debtor] has standing to bring these claims.”). Of course, these unpublished decisions of the 11th Circuit, even if read to find the debtor lacked constitutional or jurisdictional standing, have little value as they are not precedent in the 11th Circuit, and certainly could not overrule a prior published decision of the court. Fed. R. App. P. 36-2 (“Unpublished opinions are not considered binding precedent, but they may be cited as persuasive authority.”); United States v. Hanna, 153 F.3d 1286, 1288 (11th Cir. 1998) (“In this circuit, only the court of appeals sitting en banc, an overriding [U.S.] Supreme Court decision, or a change in the statutory law can overrule a previous panel decision.”); see also Smith v. GTE Corp., 236 F.3d 1292, 1303 (11th Cir. 2001) (“Under our prior precedent rule, a panel cannot overrule a prior one’s holding even though convinced it is wrong.”) (internal quotation marks omitted).
16 Isaac v. IMRG, 224 F. Appx. 907, 909 (11th Cir. 2007) (affirming the district court’s order dismissing the plaintiff’s claim and noting that the plaintiff “does not have standing to bring these claims because the only party with standing to bring these claims is the trustee of the bankruptcy estate”); Jones v. Clayton County, 184 F. Appx. 840, 842 (11th Cir. 2006) (noting that “our caselaw make clear that [the debtor’s] failure to list this cause of action as a potential asset on his bankruptcy petition means that he lacks standing to bring this claim”) (emphasis in original).
17 Hanna, 153 F.3d at 1288. It also would render void for lack of subject matter jurisdiction numerous other decisions in which the court affirmed the entry of summary judgment against the debtor based on the doctrine of judicial estoppel. See, e.g., Robinson v. Tyson Foods, Inc., 595 F.3d 1269, 1276-77 (11th Cir. 2010); Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1289 (11th Cir. 2002).
18 See Haven v. Hot Rayz Comms., LLC, No. 6:11-cv-2028-Orl-28TBS, 2013 WL 2154871 at **3-4 (M.D. Fla. 2013) (granting dismissal of the debtor claims for lack of “standing,” and noting that the trustee, as the real party in interest, had not sought to substitute for the debtor in the action); Alvarez v. Royal Atl. Developers, Inc., 854 F. Supp. 2d 1219, 1226-28 (S.D. Fla. 2011) (finding that the judgment procured by the debtor was void because the debtor lacked standing to prosecute the action, which was a jurisdictional prerequisite, when he concealed the lawsuit from the bankruptcy court in his petition). But see Garcia v. Am. Sec. Ins. Co., No. 8:12-CV-00728-EAK, 2012 WL 2589862 at *2 (M.D. Fla. 2012) (denying the defendant’s motion to dismiss for lack of standing, even though the trustee was the real party in interest at the time the complaint was filed, because the lack of a real party in interest is not jurisdictional and the rules provide an opportunity for the plaintiff to cure a defect in the identity of the real party in interest).
Alvarez, 854 F. Supp. 2d at 1226-28, also involved a unique set of facts. In addition to concluding that there was a lack of jurisdictional standing, the court found, in the alternative, that the judgment was void by the doctrine of judicial estoppel. In this case, the plaintiff and the trustee colluded to conceal the bankruptcy proceeding from the defendant and the district court until after entry of judgment in the debtor’s favor. Id. The court concluded that “[t]his ‘strategic decision’ to not inform [d]efendant or this [c]ourt had real consequences.” Id. These unusual facts render the decision of limited applicability.
19 A panel of the 11th Circuit in Parker opined in dicta and without a detailed explanation that “it is questionable as to whether judicial estoppel was correctly applied in Burnes. ” Parker, 365 F.3d at 1272. In the panel’s opinion, “[t]he more appropriate defense in the Burnes case was, instead, that the debtor lacked standing.” Id. However, the dictum of a subsequent panel is insufficient to overrule the prior decision of Burnes, which was explicitly decided on the grounds of judicial estoppel, not “standing.” Barger, 348 F.3d at 1294; see also Burke-Fowler v. Orange Cnty., Fla., 447 F.3d 1319, 1323 n.2 (11th Cir. 2006) (“[W]hen a later panel decision contradicts an earlier one, the earlier panel decision controls.”).
20 Barger, 348 F.3d at 1292-93.
21 Id.
22 Dunn, 556 F. Appx. at 789-90 (rejecting the trustee’s claims to vacate the order of dismissal because “the [t]rustee could have made an appearance in the action, sought a stay to investigate the claim, or filed an objection to [d]ebtor’s continued prosecution of the action” instead of taking no action).
23 Id.
24 Id. at 789 (finding that “the [t]rustee does not cite any legal authority in support of this suggestion and we can find none”). Indeed, it is the debtor, not the defendant, who has the obligation to the trustee. 11 U.S.C. §521.
25 In addition to these arguments, the trustee and creditors have additional remedies for the nondisclosure through seeking a revocation of the discharge as well as possible professional malpractice claims if other parties are responsible for the nondisclosure. See 11 U.S.C. §727; In re Phillips, 476 F. Appx. 813, 815 (11th Cir. 2012) (affirming the denial of a discharge to a debtor due to omissions from his statement of financial affairs).
26 Parker, 365 F.3d at 1272; see also Wheeler v. Florida Dep’t of Corr., No. 3:04-CV-1147-J-32MCR, 2006 WL 2321114 at *5 (M.D. Fla. 2006) (substituting the trustee for the debtor even though the trustee did not seek to appear in the action until after the defendant filed its motion to dismiss based on judicial estoppel and denying the application of the doctrine of judicial estoppel to the trustee).
27 Parker, 365 F.3d at 1271.
28 Id.
29 Id.
30 Id.
31 Id. at 1272.
32 Id.
33 Id. Likewise, if the trustee initiates his or her own action based on the claim, the 11th Circuit’s decision in Parker would compel the same conclusion that the doctrine of judicial estoppel will not be available unless the trustee personally made in the inconsistent statements under oath.
34 Parker, 365 F.3d at 1273, n.4 (noting that, in the instance of a surplus, the doctrine of judicial estoppel “could be invoked by the defendant to limit any recovery to only that amount and prevent an undeserved windfall from devolving on the non-disclosing debtor”). When the debtor has quantified his or her alleged damages in excess of the debts reported in the petition, that evidence should support a request for the court to reach the issue of judicial estoppel, even if the trustee has substituted for the debtor, to preclude the debtor from obtaining a windfall if there is a surplus. Id. ; see also Moore v. Fred’s Stores of Tennessee, Inc., No. 4:05CV133 CDL, 2006 WL 2374768 at *3 (M.D. Ga. Aug. 16, 2006).
35 See Moore, 2006 WL 2374768 at *3 (observing that “the bankruptcy trustee for some reason agreed to exempt $5,000.00 of any claim that Plaintiff may have in this lawsuit”); see also Answer Br. of Appellee, Dunn v. Advanced Med. Specialties, Inc., 2013 WL 3296520 at *54 (noting that, after the district court applied the doctrine of judicial estoppel to the debtor, the trustee entered into an agreement with the debtor to “‘split the recovery or settlement 80 [percent] and 20 [percent] respectfully, with 80 [percent] going to the [e]state for the benefit of creditors and 20 [percent] to the [d]ebtor, after the contingency fee is paid and costs paid by the [d]ebtor are reimbursed”).
36 See Moore, 2006 WL 2374768 at *3.
37 Id. at *4.
38 Parker, 365 F.3d at 1272, n.3 (recognizing the well settled principle that “the trustee does not have any more rights than the debtor has”). In addition, as a practical matter, while the trustee may pursue the claim, the trustee will still have to deal with the credibility issues surrounding the debtor’s initial concealment of the claim from the bankruptcy court, as the debtor is likely to be one of the main witnesses in support of the claim.
39 11 U.S.C. §301(b) (“The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.”).
40 Clementson v. Countrywide Fin. Corp., No. 10-CV-01956-WYD-KMT, 2011 WL 1884715 at *9 (D. Colo. 2011) report and recommendation adopted, No. 10-CV-01956-WYD-KMT, 2011 WL 1884627 (D. Colo. May 18, 2011), aff’d, 464 F. Appx. 706 (10th Cir. 2012).
41 In re Verilink Corp., 405 B.R. 356, 366 (Bankr. N.D. Ala. 2009) (noting that, while the statute of limitations for the tort claims expired under state law on July 28, 2006, the filing of the bankruptcy petition on April 9, 2006, extended the statute of limitations for the trustee to pursue the tort claims).
42 See, e.g., Barger, 348 F.3d at 1291, 1297.
43 See, e.g., id. at 1291.
44 Id.
45 Id.
46 Id.
47 Id.
48 Id. at 1293.
49 Id.
50 Lodge v. Kondaur Capital Corp., 750 F.3d 1263, 1268 (11th Cir. 2014); In re Jacks, 642 F.3d 1323, 1328 (11th Cir. 2011); In re Williford, 294 F. Appx. 518, 521 (11th Cir. 2008).
51 Jacks, 642 F.3d at 1328 (quoting H.R. Rep. No. 95-595 at 340, 1978 U.S.C.C.A.N. 5963, 6297 (1978)); see also Williford, 294 F. Appx. at 521.
52 Jacks, 642 F.3d at 1328.
53 11 U.S.C. §362(a)(3).
54 “An act is deemed to be a willful violation under 362(h) if the defendant knew of the automatic stay, and intentionally committed the act regardless of whether the violator specifically intended to violate the stay.” In re Roche, 361 B.R. 615, 622 (Bankr. N.D. Ga. 2005) (citing Jove Engineering, Inc. v. I.R.S., 92 F.3d 1539, 1555 (11th Cir. 1996)).
55 Lodge, 750 F.3d at 1268 (citing 11 U.S.C. §362(k)).
56 Williford, 294 F. Appx. at 521 (quoting United States v. White, 466 F.3d 1241, 1244 (11th Cir. 2006)).
57 Crosby, 394 F.3d at 1331, n.2 (noting that “[t]he automatic stay provision of the Bankruptcy Code, 11 U.S.C. §362, does not extend to lawsuits initiated by the debtor”); see also Thomas v. Blue Cross & Blue Shield Ass’n, 333 F. Appx. 414, 420 (11th Cir. 2009).
58 Specifically, the court noted that although the counterclaims “may be ‘property of the estate,’ [they] were not stayed by the automatic bankruptcy stay[ and] they were open to possible defeat by [the defendant’s] defenses. It would not make sense under a plain reading of the statute to treat raising a defense against a nonstayed counterclaim as an ‘exercise of control over property.’” Thomas, 333 F. Appx. at 421.
59 Appellant Br., Dunn v. Advanced Med. Specialties, Inc., 2013 WL 1399479 at *45 (Apr. 1, 2013).
60 Dunn, 556 F. Appx. at 790.
61 See, e.g., Barger, 348 F.3d at 1296-97; Burnes, 291 F.3d at 1289.
62 Martin-Trigona, 892 F.2d at 577; see also In re Palmdale Hills Property, LLC, 654 F.3d 868, 875 (9th Cir. 2011) (finding that the automatic stay does not “prevent a defendant from protecting its interests against claims brought by the debtor…[and this] is true, even if the defendant’s successful defense will result in the loss of an allegedly valuable claim asserted by the debtor’”); ACandS, Inc. v. Travelers Casualty & Surety Co., 435 F.3d 252, 259 (Fla. 3d Cir. 2006) (“Defenses, as opposed to counter-claims, do not violate the automatic stay because the stay does not seek to prevent defendants sued by a debtor from defending their legal rights and ‘the defendant in the bankrupt’s suit is not, by opposing that suit, seeking to take possession of it.’”); In re Merrick, 175 B.R. 333, 334 (9th Cir. Bankr. App. 1994) (concluding that “a defendant need not seek relief from the automatic stay in order to defend himself against a lawsuit commenced by the debtor” and recognizing that “a contention by a defendant that the trustee’s claim is unfounded can[not] be equated with exercising dominion or control over property of the estate”); Brown v. Armstrong, 949 F.2d 1007, 1009 (8th Cir. 1991); United States v. Inslaw, Inc., 932 F.2d 1467, 1473 (D.C. Cir. 1991) (concluding that “someone defending a suit brought by the debtor does not risk violation of §362(a)(3) by filing a motion to dismiss the suit, though his resistance may burden rights asserted by the bankrupt”); Piscatelli v. Nationstar Mortgage, LLC, No. 13-80692-CIV, 2013 WL 7137480 at *6 (S.D. Fla. 2013) (“This [c]ourt rejects [p]laintiff’s argument that [d]efendants violated the bankruptcy court’s automatic stay by removing this case to federal court and filing motions to dismiss.”), report and recommendation adopted, No. 13-80692-CIV, 2014 WL 406520 (S.D. Fla. 2014); Houey v. Carolina First Bank, Civil Case No. 1:11cv225, 2012 WL 3278795 at **2-3 (W.D.N.C. 2012); In re Chenault, No. 09-9071, 2010 WL 797015 at *1 (C.D. Ill. 2010); Parks National Bank v. Univ. Centre Hotel, Inc., No. 1:06-cv-00077-MP-AK, 2007 WL 604936 at *4 (N.D. Fla. 2007) (recognizing that “because a person sued by a debtor is merely protecting their legal rights by opposing the lawsuit, there is no act to take possession of the debtor’s property”); Trans Caribbean Lines v. Tracor Marine, Inc., 49 B.R. 360, 362 (S.D. Fla. 1985).
63 Id.
64 Id.
65 Martin-Trigona, 892 F.2d at 577.
66 In re Quarles, No. 04-11059-R, 2009 WL 1346548 at *4 (Bankr. N.D. Okla. 2009) (holding that an order entered in a state court wrongful death action, filed by the debtor, violated the automatic stay when it restricted recovery on the claims, now being pursued by the trustee, based on the doctrine of judicial estoppel, but not discussing the contrary weight of authority); In re Enyedi, 371 B.R. 327, 333 (Bankr. N.D. Ill. 2007) (finding that the defendants’ filing of a motion to dismiss, based on the doctrine of judicial estoppel, violated the automatic stay because it was an attempt to exercise control over the action, but not mentioning the binding precedent of Martin-Trigona ); In re Mid-City Parking, Inc., 332 B.R. 798, 808 (Bankr. N.D. Ill. 2005) (criticizing Martin-Trigona and noting in dicta in a footnote that the law is unsettled and that the stay may be violated by the filing of a motion to dismiss); In re Gen. Associated Investors Ltd. P’ship, 159 B.R. 551, 553-55 (Bankr. D. Ariz. 1993) (concluding that there was a violation of the automatic stay when a defendant, who also was a creditor in the bankruptcy action, filed a motion to dismiss a pre-petition action filed by the debtor challenging a tax assessment); see also In re Muhlig, 494 B.R. 755, 758 (Bankr. S.D. Fla. 2013) (recognizing that the filing of a motion for summary judgment, based on the lack of standing of the debtor and judicial estoppel, in a state court wrongful death action was in violation of the automatic stay). In the decision of In re Muhlig, the court found that there was no exercise of control over the property of the estate when the motion was filed in an action litigated by the real party in interest, but that there was an attempt to exercise control over the property of the estate when the action was not litigated by the real party in interest. Id. at 766-67. This distinction, however, is not found in the text of §362. In addition, the court suggested that the defendant was required to serve a copy of the motion for summary judgment on the trustee. See id. at 765. Subsequently, however, the 11th Circuit held, in an unrelated action, that there is no authority for the proposition that the defendant is required to serve a copy of the motion on the trustee. See Dunn, 566 F. Appx. at 789.
67 In re Dooley, 399 B.R. 340, 349-50 (Bankr. D. Mass. 2009).
68 Id.
69 Id. at 350.
Sacha Dyson is a partner with Thompson, Sizemore, Gonzalez & Hearing, P.A., in Tampa. She received her B.S., with honors, from Rochester Institute of Technology, and her J.D., cum laude, from Stetson University College of Law, where she served as the executive editor of the Stetson Law Review. She represents businesses, governmental entities, and educational institutions in labor, employment, education, housing, and other civil rights disputes.
This column is submitted on behalf of the Labor and Employment Law Section, Frank E. Brown, chair, and Robert Eschenfelder, editor.
