Judicial Estoppel Knocks out Another Debtor-Plaintiff’s Claim

Case: Barber v. Time for Peace, PLLC, No. 3:2019-cv-00367, 2022 WL 1721041 (E.D. Ark. May 27, 2022)

Court: U.S. District Court for the Eastern District of Arkansas (Judge Marshall)

Issue: Does a plaintiff’s failure to disclose a wage claim in a bankruptcy proceeding subject their civil claim to dismissal under judicial estoppel?

Holding: Per Eighth Circuit precedent, a plaintiff who has not disclosed a civil suit in a bankruptcy case, especially one filed after the civil lawsuit’s filing, stands to have their civil case dismissed.

Summary: In December 2019, Brooke Barber filed a Fair Labor Standards Act wage claim against her employer, Time for Peace, PLLC. Later that month, she and her husband filed a joint petition for Chapter 7 bankruptcy. This petition did not include the wage claim as an asset.

The Barbers’ debts were discharged in May 2020, and their bankruptcy case was closed in June 2020. Barber filed a second wage suit in April 2021.

In June 2021, Time for Peace filed a motion seeking dismissal on the basis that under the principle of judicial estoppel, Barber’s nondisclosure of her wage claims in bankruptcy prevented her from pursuing them. More or less immediately, Barber sought and received permission to reopen the bankruptcy case and amend her asset list to include the wage claims.

The court began its analysis by explaining judicial estoppel:

Judicial estoppel prevents a party from asserting a claim in a legal proceeding that is inconsistent with a position taken by that party in a previous proceeding. New Hampshire v. Maine, 532 U.S. 742, 749 (2001). A party may be judicially estopped from pursuing a claim that wasn't disclosed in its previous bankruptcy filings. Stallings v. Hussman Corp., 447 F.3d 1041, 1047 (8th Cir. 2006). Three factors inform the Court’s decision about whether judicial estoppel applies:

(1) whether the party’s later position is clearly inconsistent with its prior position; (2) whether the party successfully persuaded the first court to accept the party’s prior position; and (3) whether the party seeking to assert an inconsistent position would gain an unfair advantage if not estopped. Stallings, 447 F.3d at 1047; New Hampshire, 532 U.S. at 750-51.

Op. at 3-4. The court determined that “all three factors weigh in favor of estopping Barber from pursuing her wage-related claims in this case.” Id. at 4.

The first factor was satisfied by the simple fact that Ms. Barber excluded her wage claim from her list of assets in the bankruptcy  case. Telling the district court that she has a claim for unpaid wages while telling the bankruptcy court that she had no civil claims are inconsistent with each other.

The second factor, whether the litigant successfully persuaded the first court to accept her prior position, was satisfied by the bankruptcy court’s discharge of her debts.

The court held that the third factor was met because she stood to be able to recover civil damages that rightfully should have been potentially available to her creditors. Ms. Barber forwarded two arguments in opposition to the funding on the third factor.

First, she asserted inadvertence—i.e., that her exclusion of her wage claim was a mere mistake/accident. However, the court found this unpersuasive, as the bankruptcy property questionnaire form clearly asks about such claims, including “employment disputes”, and she filed for bankruptcy only two weeks after filing her first wage lawsuit.

Second, she argued that she had “cured” (fixed) the issue by reopening and amending the petition. Though the court acknowledged that she had corrected the misrepresentation to the bankruptcy court, she had done so only after the defendant in the wage action revealed this issue to the court, roughly a year and a half after her initial lawsuit and bankruptcy filings.

Deciding that the equities were against Ms. Barber, the court entered summary judgment in favor of Time for Peace.

Bottom Line: Defendants are continually on the lookout for every advantage they can find to weaken, or even extinguish, plaintiffs’ claims. Judicial estoppel is a powerful, often harsh rule in their toolkit. Plaintiffs and potential plaintiffs filing for bankruptcy should be as diligent as the defendants in their cases will be and make sure to disclose all civil claims, such as personal injury, employment discrimination, etc., to avoid losing them to judicial estoppel.