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Plaintiff estopped from pursuing LTD claim due to not disclosing LTD claim...

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    Plaintiff estopped from pursuing LTD claim due to not disclosing LTD claim on bankruptcy filings – D. Ut.

    Attached is a case out of Utah, Lane v. Prudential Insurance Company. This case is before the court on defendant’s 12(b)(6) motion to dismiss. Plaintiff filed a LTD claim with Defendant in March 2016. In April 2016, plaintiff filed chapter 7 bankruptcy, however, she did not disclose her LTD claim as an asset. The court finds that plaintiff is judicially estopped from pursuing her LTD claim.

    The doctrine of judicial estoppel bars claims “to protect the integrity of the judicial
    process by prohibiting parties from deliberately changing positions according to the exigencies
    of the moment.” Eastman v. Union Pac. R. Co., 493 F.3d 1151, 1156 (10th Cir. 2007) (quoting
    New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001)). Judicial estoppel “is intended to
    prevent improper use of judicial machinery.” Id. The Tenth Circuit has recognized three factors
    to inform the decision of whether to apply judicial estoppel in a particular case: 1) whether a
    party’s subsequent position is “‘clearly inconsistent’ with its former position”; 2) whether “the
    suspect party succeeded in persuading a court to accept that party’s former position, ‘so that the
    judicial acceptance of an inconsistent position in a later proceeding would create the perception
    that either the first or the second court was misled’”; and 3) whether “the party seeking to assert
    an inconsistent position would gain an unfair advantage in the litigation if not estopped.” Id.

    1) Clearly inconsistent positions
    First, the court analyzes whether Plaintiff took clearly inconsistent positions in her
    bankruptcy filings and the Complaint in this case. The Tenth Circuit has recognized that “[t]he
    bankruptcy code imposes a duty upon a debtor to disclose all assets, including contingent and
    unliquidated claims.” Eastman, 493 F.3d at 1159. Multiple questions on the voluntary Statement
    of Financial Affairs submitted by Plaintiff in her bankruptcy call for the disclosure of Plaintiff’s
    long-term disability claim, including questions specifically asking about “[i]nterests in insurance
    policies” such as “disability…insurance”; “claims against third parties” such as “insurance
    claims”; and “[o]ther amounts someone owes you” such as “disability insurance payments” or
    “disability benefits.” (Case No. 16-23238 at Questions 30-34.) Plaintiff responded that the
    answer to each of those questions was “no.” Now Plaintiff asserts that she was and is owed longterm disability benefits from Defendant. Those positions are clearly inconsistent.

    2) Perception that a court was misled
    Next, the court analyzes whether Plaintiff succeeded in persuading the bankruptcy court
    to accept her former position, such that this court’s adoption of a different position would create
    the perception that one court—either the bankruptcy court or this one—was misled. The
    bankruptcy court undoubtedly relied on the representations in Plaintiff’s Statement of Financial
    Affairs when making a determination as to Plaintiff’s eligibility for discharge. The bankruptcy
    court then granted Plaintiff a full discharge and terminated her bankruptcy case on October 4,
    2016. (See id.) The Tenth Circuit has observed that a debtor “benefits from an automatic stay”
    when she files for bankruptcy and “receives the ultimate benefit of bankruptcy when [s]he
    receives a discharge.” Eastman, 493 F.3d at 1159. At the end of her chapter 7 bankruptcy
    discharge, Plaintiff was relieved “of any obligation to pay outstanding debts.” Id. “In exchange
    for these benefits, the bankruptcy code required only that [Plaintiff] fully and accurately disclose
    [her] financial status.” Id. Plaintiff failed to do so, and “[t]he obvious ‘perception’ is that
    [Plaintiff] misled the bankruptcy court.” Id.

    3) Unfair advantage
    Finally, the court analyzes whether Plaintiff’s failure to disclose her long-term disability
    benefit claim to the bankruptcy court provided Plaintiff with an unfair advantage. Plaintiff
    received the benefit of a no asset bankruptcy discharge, despite her failure to disclose pending
    long-term disability claims against Defendant in the bankruptcy court, thus relieving her of a
    duty to repay her many creditors. The Tenth Circuit has held that bankruptcy relief, conditioned
    only on honest disclosure, provides a debtor an unfair advantage over his creditors when the
    debtor fails to disclose potential claims. Eastman, 493 F.3d at 1159 (noting that the Plaintiff
    “received the benefit of a discharge without ever having disclosed his pending personal injury
    action against Defendants, thus providing him an unfair advantage over his creditors.”)
    Accordingly, Plaintiff has gained an unfair advantage by failing to disclose her long-term
    disability claims in her bankruptcy proceedings.

    Inadvertence or Mistake
    The Supreme Court has observed that “it may be appropriate to resist application of
    judicial estoppel when a party’s prior position was based on inadvertence or mistake.” New
    Hampshire v. Maine, 532 U.S. 742, 753 (2001). However, the Tenth Circuit has “not been overly
    receptive to debtors’ attempts to recover on claims about which they ‘inadvertently or
    mistakenly’ forgot to inform the bankruptcy court.” Eastman, 493 F.3d at 1157. Instead, the
    Tenth Circuit has viewed failure to disclose to the bankruptcy court excusable “only when, in
    general, the debtor either lacks knowledge of the undisclosed claims or has no motive for their
    concealment.” Id. (quoting In re Coastal Plains, Inc., 179 F.3d 197, 210 (5th Cir.1999)). “Where
    a debtor has both knowledge of the claims and a motive to conceal them, courts…infer deliberate
    manipulation.” Id.

    Plaintiff knew at the time she submitted her Statement of Financial Affairs in April 2016
    that she had filed a claim only one month earlier with Defendant, seeking long-term disability
    benefits. Plaintiff also had a motive to conceal her long term disability claims in order to obtain a
    no asset bankruptcy discharge. In fact, Plaintiff received a discharge on October 14, 2016, and
    filed her long term disability benefits appeal with Defendants only weeks later on October 31,
    2016. Plaintiff has not provided the court with any facts to support a finding of inadvertence or
    mistake. Thus, Plaintiff is judicially estopped from pursuing her claims here.
    Attached Files