374 F.3d 330 (5th Cir. 2004), 03-30692, In re Superior Crewboats, Inc.

Docket Nº:03-30692.
Citation:374 F.3d 330
Party Name:In re: In the Matter of: SUPERIOR CREWBOATS, INC., as owner of the MV STACEY D, petitioning for Exoneration from or Limitation of Liability. Superior Crewboats Inc., as owner of the MV STACEY D, Petitioner-Appellant, v. Primary P & I Underwriters, Defendant-Appellee, and Arthur Hudspeath; Wilbur J. Babin, Jr., Claimants-Appellees.
Case Date:June 18, 2004
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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374 F.3d 330 (5th Cir. 2004)

In re: In the Matter of: SUPERIOR CREWBOATS, INC., as owner of the MV STACEY D, petitioning for Exoneration from or Limitation of Liability.

Superior Crewboats Inc., as owner of the MV STACEY D,

Petitioner-Appellant,

v.

Primary P & I Underwriters, Defendant-Appellee,

and

Arthur Hudspeath; Wilbur J. Babin, Jr., Claimants-Appellees.

No. 03-30692.

United States Court of Appeals, Fifth Circuit

June 18, 2004

Page 331

[Copyrighted Material Omitted]

Page 332

Patrick J. McShane (argued), Cindy Teresa Matherne, Frilot, Partridge, Kohnke & Clements, New Orleans, LA, for Petitioner-Appellant.

Darleen M. Jacobs, Alfred Ambrose Sarrat, Jr. (argued), Jacobs & Sarrat, New Orleans, LA, for Claimants-Appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JONES, WIENER, and PRADO, Circuit Judges.

EDITH H. JONES, Circuit Judge:

This case principally raises the question whether judicial estoppel prohibits these debtors from prosecuting a personal injury lawsuit that they did not timely disclose to the bankruptcy court. The district court

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concluded that confusion as to the viability of the claim, combined with the bankruptcy trustee's lack of diligence, made judicial estoppel unwarranted as a matter of law. The district court's rationale allows these debtors to have their cake and eat it too, as they retain the enormous benefit of a bankruptcy discharge while standing in line to receive funds from the injury lawsuit after the creditors are paid. Because judicial estoppel is designed to prevent such guile, we reverse.

I. BACKGROUND

On August 26, 1999, Arthur Hudspeath was allegedly injured disembarking the MV STACEY D, a ship owned and operated by Superior Crewboats, Inc. ("Superior"). A little more than one year later, Hudspeath and his wife ("the Hudspeaths") filed a Chapter 13 bankruptcy petition in the Eastern District of Louisiana. As a condition of bankruptcy, the Hudspeaths were required to report, under penalty of perjury, the existence of any pending litigation or potential lawsuits. This information is specifically required on the debtors' schedules and statement of affairs. The filings' general purpose is to permit the court, the trustee, and the creditors to evaluate the debtors' financial condition at the date of bankruptcy and ascertain what assets may be available for distribution to creditors. The debtors are also obliged to update their schedules as necessary to assure full disclosure.

The Hudspeaths' schedules represented that they had no pending or potential lawsuits. However, on January 18, 2001, while their bankruptcy case was still pending, the Hudspeaths filed a state court lawsuit against Superior with respect to Mr. Hudspeath's boating injury. They did not, however, take steps to have service on the defendant accomplished until some six months later. Neither did the Hudspeaths formally amend their bankruptcy filings, before discharge, to reflect this lawsuit.

In May 2001, the Hudspeaths' bankruptcy was converted from Chapter 13 to Chapter 7. On July 12, 2001, the Hudspeaths disclosed the lawsuit at the § 341 creditors' meeting convened in the converted case, but the Hudspeaths inaccurately informed the creditors that the suit was prescribed. 1 Furthermore, the Hudspeaths did not disclose that they had requested service of process in the state court lawsuit approximately one month earlier. Shortly after the creditors' meeting, the bankruptcy trustee filed a Petition of Disclaimer and Abandonment concerning the lawsuit. On October 1, 2001, the bankruptcy court granted the Hudspeaths a "no asset" discharge.

On January 18, 2002, Superior filed an admiralty limitation proceeding in the same federal court in which the bankruptcy had lodged. Mr. Hudspeath responded with a complaint to recover his damages in the limitation proceeding. On July 31, 2002, Superior informed the bankruptcy trustee that Hudspeath was continuing to pursue a pre-petition personal injury claim. On August 28, 2002, two days after the three-year limitations period had run, the trustee moved to re-open the bankruptcy. In mid-September 2002, the Hudspeaths filed amended schedules disclosing the claim against Superior, and in October 2002, in response to Superior's motion to dismiss, the trustee moved to substitute

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for the Hudspeaths, as plaintiff, in the limitation proceeding.

In its motion to dismiss, Superior argued that the personal injury claim was barred by judicial estoppel and Federal Rule of Civil Procedure 17(a), which requires a suit to be brought by the real party in interest. The district court rejected the judicial estoppel argument, determining that it could not "conclude that the Hudspeaths took inconsistent positions" because it was "a question of fact to be determined at trial and not a matter of law to be decided summarily." In re Superior Crewboats, Inc., No. 02-161, 2003 WL 133228, *6 (E.D.La. Jan. 14, 2003) ("Superior I"). The district court did not at that time address Superior's Rule 17(a) argument, but did grant the Hudspeaths' motion to file a third amended petition. 2 The district court later addressed, and rejected, Superior's Rule 17(a) argument. Superior II, 2003 WL 21219887, *6. Thereafter, the district court designated its rulings as immediately appealable under 28 U.S.C. § 1292(b), and this court accepted the appeal.

II. STANDARD OF REVIEW

We review a district court's judicial estoppel determination for abuse of discretion. See Hall v. GE Plastic Pacific PTE Ltd., 327 F.3d 391, 396 (5th Cir.2003) (citing Ahrens v. Perot Systems Corp., 205 F.3d 831, 833 (5th Cir.2000)). However, " 'an abuse of discretion standard does not mean a mistake of law is beyond appellate correction', because '[a] district court by definition abuses its discretion when it makes an error of law.' " In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir.1999) (quoting Koon v. United States, 518 U.S. 81, 100, 116 S.Ct. 2035, 2047, 135 L.Ed.2d 392 (1996)).

III. DISCUSSION

The threshold, and as it turns out dispositive, question in this appeal is whether judicial estoppel bars the appellees from pursuing Mr....

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