IN RE ORTIZ

Decision Date11 June 2010
Docket NumberBankruptcy No. 07-22466-svk,07-25336-svk. Adversary No. 09-2199.,08-27374-svk
PartiesIn re Rene R. ORTIZ, Douglas Lynn Lindsey and Betty Jane Lindsey, and Valerie Jones, Debtors. Rene R. Ortiz, et al., Plaintiffs, v. Aurora Health Care, Inc., Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Wisconsin

COPYRIGHT MATERIAL OMITTED

Michael J. Watton, Milwaukee, WI, for Debtors and Plaintiffs.

Bartholomew F. Reuter, Frank W. DiCastri, Foley & Lardner LLP, Milwaukee, WI, for Defendant.

MEMORANDUM DECISION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

SUSAN V. KELLEY, Bankruptcy Judge.

I. Background and Procedural Posture

This adversary proceeding was filed on June 23, 2009, and alleges that the Defendant, Aurora Health Care, Inc. ("Aurora"), attached invoices containing confidential medical records to proofs of claim filed by Aurora in the Plaintiff-Debtors' bankruptcy cases, in violation of Bankruptcy Rule 9037 and a Wisconsin statute governing the confidentiality of health care records.1 On July 23, 2009, Aurora filed a Motion to Dismiss the Complaint. After briefing, including an amicus brief from the Wisconsin Hospital Association, on October 6, 2009, the Court dismissed Count I of the Complaint alleging that Aurora violated Bankruptcy Rule 9037. However, the Court did not dismiss Count II, but instead requested additional briefs on the limited issue of whether the medical records attached to Aurora's proofs of claim exceeded "the extent needed" for billing, collection and payment of the claims as described in Wis. Stat. § 146.82. After additional briefing, including an amicus brief filed by the Wisconsin Medical Society, on November 10, 2009, the Court held a hearing and denied the Motion to Dismiss Count II, finding under the test enunciated in the Supreme Court's decision in Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), that the Complaint set forth a "plausible claim" that Aurora's proofs of claim violated the Wisconsin statute.

Meanwhile, on July 31, 2009, the Debtors filed a Motion for Class Certification, which after briefing, the Court granted on March 9, 2010. Although a motion is pending, the Court has not yet ruled on whether the Bembenek adversary proceeding should be consolidated with this class action.

On December 11, 2009, the Debtors filed a Motion for Abstention, arguing that, since the only remaining claim is grounded in State law, and that law is unsettled, this Court should abstain to allow the issue to be determined in a Wisconsin court. Aurora objected and on December 30, 2009, filed a Motion to Withdraw the Reference of this adversary proceeding to the District Court, but did not seek to stay the proceedings in this Court. On January 5, 2010, this Court denied the Motion for Abstention. On March 19, 2010, the District Court denied Aurora's request to withdraw the reference.

On March 10, 2010, Aurora filed a Motion for Summary Judgment (the "Motion") with a three-pronged attack on the Debtors' Complaint: judicial estoppel, the absolute litigation privilege and the Debtors' lack of actual damages. A status conference was held on March 23, 2010, and the Court set a briefing schedule on the Motion. On May 18, 2010, after the parties had the opportunity to fully brief the issues notated in the Motion, the Court held oral argument. At the conclusion of that hearing, having rejected Aurora's judicial estoppel argument, the Court took under advisement the absolute litigation privilege damages issues, asking the Debtors to file a supplemental statement pointing to the places in the record demonstrating that they have incurred actual damages. That Supplement was filed on May 19, 2010. The Court having considered the briefs, argument of counsel and the record in this case now issues this Memorandum Decision which constitutes the Court's findings of fact and conclusions of law.

II. Summary Judgment Standard

Summary judgment is governed by Rule 56 of the Federal Rules of Civil Procedure, made applicable by Rule 7056 of the Federal Rules of Bankruptcy Procedure, and is appropriately granted when the moving party can establish that there is no genuine issue of material fact and that the party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Material facts are facts which "might affect the outcome of the suit." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In determining whether a genuine issue of material fact exists, "a trial court must view the record and all reasonable inferences drawn therefrom in the light most favorable to the non-moving party." Robin v. Espo Engineering Corp., 200 F.3d 1081, 1088 (7th Cir.2000). Any doubt as to the existence of a material fact is to be resolved against the moving party. Liberty Lobby, 477 U.S. at 255, 106 S.Ct. 2505.

Summary judgment should be granted when a party has failed to make "a showing sufficient to establish the existence of an element essential to that party's case and on which the party will bear the burden of proof at trial." Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548. "The non-moving party, however, cannot rest on the pleadings alone, but instead must identify specific facts to establish that there is a genuine triable issue." Bilow v. Much Shelist Freed Denenberg Ament & Rubenstein, P. C., 277 F.3d 882, 893 (7th Cir.2001). "Conclusory statements, not grounded in specific facts, are not sufficient to avoid summary judgment." Lucas v. Chicago Transit Authority, 367 F.3d 714, 726 (7th Cir.2004); see also FED.R.CIV.P. 56(e).

III. Discussion

Aurora claims that Aurora is entitled to summary judgment based on three independent theories: (1) judicial estoppel; (2) the absolute litigation privilege; and (3) lack of proof of actual damages. These arguments will be addressed in order.

A. Judicial Estoppel

Judicial estoppel "is an equitable concept providing that a party who prevails on one ground in a lawsuit may not in another lawsuit repudiate that ground." United States v. Christian, 342 F.3d 744, 747 (7th Cir.2003). This doctrine's purpose is "to protect the integrity of the judicial process by preventing litigants from deliberately changing positions according to the exigencies of the moment." Matthews v. Potter, 316 Fed.Appx. 518, 522 (7th Cir.2009) (quoting New Hampshire v. Maine, 532 U.S. 742, 749-750, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)) (quotation marks omitted). Judicial estoppel may apply when:

(1) the later position is clearly inconsistent with the earlier position; (2) the facts at issue are the same in both cases; (3) the party to be estopped convinced the first court to adopt its position; and (4) the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.

Christian, 342 F.3d at 747. "Judicial estoppel is strong medicine, however, and it should not be used where it would work an injustice ... The rule looks toward cold manipulation and not an unthinking or confused blunder." In re FV Steel & Wire Co., 349 B.R. 181, 185 (Bankr.E.D.Wis. 2006) (citation omitted).

The doctrine of judicial estoppel is normally invoked to prevent a party from asserting positions in successive judicial proceedings that are so "clearly inconsistent" that accepting the latter position would create the perception that at least one of the courts was deceived. Matthews, 316 Fed.Appx. at 522. The doctrine is frequently invoked in connection with bankruptcy proceedings, when a debtor has failed to disclose a claim but then pursues the claim after the bankruptcy is concluded. See, e.g., Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir.2006) (where debtor's schedules omitted any mention of claim, debtor was judicially estopped from pursuing claim post-discharge). However, "estoppel is an equitable concept ... its application is therefore within the court's sound discretion. It should not be used where it would work an injustice, such as where the former position was the product of inadvertence or mistake, or where there is only an appearance of inconsistency between the two positions but both may be reconciled." In re Cassidy, 892 F.2d 637, 642 (7th Cir.1990) (internal citations and quotations omitted).

Aurora alleges that judicial estoppel prevents the Debtors from pursuing their claims because the Debtors failed to mention their claims against Aurora in their Schedules or Plans, and now seek to press claims that they previously denied. However, the claims here arose after the Debtors filed their bankruptcy petitions, when Aurora filed proofs of claim containing private medical information. Unlike the debtor in Canon-Stokes, these Debtors could not possibly have known about their claims against Aurora when preparing their Schedules. Aurora admitted as much at oral argument, but contends that judicial estoppel applies nonetheless because the Debtors have an ongoing duty to notify the Court and the trustee of post-petition claims. Failing to amend their Schedules after learning of the claims, Aurora argues, is akin to concealing assets, and the Debtors should be estopped from pursuing their claims.

To support its argument, Aurora primarily relies upon Hamilton v. State Farm Fire & Casualty Company, 270 F.3d 778 (9th Cir.2001), Clarke v. UPS, Inc., 421 B.R. 436 (W.D.Tenn.2010), and Young v. Town of Greenwood, No. 08-602, 2009 WL 1924192 (W.D.La. June 26, 2009). However, these cases are easily distinguishable on the facts, as none involves a cause of action arising from the defendant's actions in a bankruptcy case where the subsequent complaint was brought before the same bankruptcy court.

Aurora also posits that the bankruptcy estate can only be notified of a potential claim by amending the bankruptcy schedules. While the Debtors arguably bore an ongoing duty to...

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