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Judicial Estoppel: A Lethal Defense

July 28, 2011Bob SummersRelated Practice Areas: Civil Rights Litigation & Correctional Healthcare

A good defense lawyer is always on the look out for an extra tool to place in his or her tool kit for getting a case dismissed with prejudice in a straightforward fashion with little expense to the client. The problem is that most defense lawyers are so entrenched in the merits of the case that they spend little time thinking outside the box and looking for lethal procedural arguments which could defeat the claim far in advance of trial or even a motion for summary judgment. The somewhat recent case of Berge v. Mader, and the doctrine of judicial estoppel as it was utilized therein provide an example of just such a defense. 957 N.E. 2d 968, 2011 Ill. App (1st) 103778 (1st Dist. 2011). Specifically, this case demonstrates how a plaintiff’s failure to disclose her actual or potential personal injury claim as an asset on her bankruptcy petition can serve to bar that same plaintiff from pursuing money damages in an otherwise unrelated personal injury lawsuit.

In Berge, the plaintiff, Shirley Berge, filed for bankruptcy under Chapter 13 of the Bankruptcy Code (i.e. the Chapter which allows for discharge in bankruptcy pursuant to a payment plan structured by the Federal Bankruptcy Court) in April 2006. Id. At 970. One month later, in May 2006, she was involved in a automobile accident with a car owned by defendant no.1 and operated by defendant no.2. Id. In November 2007, the plaintiff filed a negligence action against the defendants. Id. She then converted her Chapter 13 bankruptcy petition to a Chapter 7 bankruptcy petition (i.e. the Chapter allowing for a complete discharge in bankruptcy) in May 2009 and received a full discharge of all debts in October 2009. Id. At no point in time did plaintiff ever disclose her potential or pending personal injury lawsuit as an asset to the Bankruptcy Court or her creditors. Id.

The defendants in the personal injury lawsuit ultimately learned of the plaintiff’s bankruptcy case and filed a motion for summary judgment requesting that the Circuit Court apply the doctrine of judicial estoppel and dismiss the case due to plaintiff’s failure to disclose the personal injury claim in her list of assets disclosed to the Bankruptcy Court. Id. The Circuit Court granted the motion and the Illinois Appellate Court affirmed. On appeal, the Appellate Court reviewed the five elements of judicial estoppel: (1) the two positions must be taken by the same party; (2) the positions must be taken in judicial proceedings; (3) the positions must be given under oath; (4) the party must have successfully maintained the first position, and received some benefit thereby; and (5) the two positions must be totally inconsistent with one another. The Court then went on to find that each of those elements was satisfied. Id. at 972. Along the way, the Court disregarded arguments by the plaintiff that: (1) she had told her bankruptcy attorney about her personal injury suit and he had failed to list it on her petition; and (2) she attempted to amend her bankruptcy petition after her debts had been discharged (even if the defendants’ motion for summary judgment was already pending). Id.

Given this lethal holding by the Illinois Appellate Court, the question arises as to why it is so important to the Illinois Courts that plaintiffs disclose pending or potential personal injury lawsuits as assets in their bankruptcy petitions, should they file for bankruptcy. The answer lies in the provisions of the Bankruptcy Code itself. Section 541 of the Bankruptcy Code defines broadly what property belongs to the bankruptcy estate as “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. sec. 541(a)(1). Furthermore, beyond the language of section 541 itself, relevant case law interpreting this section has found that it encompasses “every conceivable interest of the debtor, future, non-possessory, contingent, speculative, and derivative.” See Dailey v. Smith 292 Ill. App. 22, 684 N.E. 2d 991,(1st Dist. 1997) (citing In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993). Accordingly, when bankruptcy petitioners are required to disclose each and every asset in their bankruptcy petition, a potential personal injury cause of action, and especially a filed and pending personal injury lawsuit, falls within the parameters of section 541.

In addition to the simple fact that the Bankruptcy Code clearly requires the disclosure of all assets, including pending and potential personal injury claims, the Court in Berge was also clearly concerned that a failure to dismiss the plaintiff’s claim once and for all would injure or at least cast a shadow upon the integrity of the judicial system. Indeed, in reaching its holding, and in rejecting the arguments put forward by the plaintiff, the Court emphasized that the “primary focus of judicial estoppel in Illinois is purely on the actions of the litigant and its effect on the judicial system.” Id. Berge, 957 N.E. 2d at 973. Similarly, in Dailey v. Smith, the only other published Illinois Appellate Court decision addressing this issue, the Appellate Court stated, “Judicial estoppel is designed to protect the integrity of the courts; it does not focus on the fairness of the relationship between the litigants.” 292 Ill. App. 3d at 27. Clearly the Court was concerned in both of these cases, not only with punishing the conduct of the plaintiff, but also with preserving its own reputation. In short, the Court could find no way around the fact that permitting a single party to maintain two “totally inconsistent” positions in two separate proceedings for the purposes of receiving a benefit in each could only impugn the reputation and honor of the Courts.

Given the holding in Berge, the diligent defense attorney must make it a regular practice to ascertain whether the plaintiff in the lawsuit he or she is defending has filed a petition for discharge in bankruptcy. If so, the defense attorney must identify whether the plaintiff has disclosed his or her pending lawsuit as an asset on the bankruptcy petition. If not, a motion to dismiss may well be appropriate and will serve as an industrious and efficient way to dismiss a lawsuit once and for all. While this might sound like a drastic punishment for plaintiffs, the Illinois Appellate Court has demonstrated on more than one occasion that it is more concerned with preserving its own integrity than it is with allowing a dishonest or careless plaintiff to maintain his or her otherwise legitimate lawsuit.