In re Wakefield

• Decision Date: 19 July 2004
• Docket Number: Adversary No. 01-3697.,Bankruptcy No. 01-32889-SAF-7.
• Citation: 312 B.R. 333
• Parties: In re Daniel Alan WAKEFIELD, Debtor. Daniel Alan Wakefield, Plaintiff, v. Southwest Securities, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Texas

312 B.R. 333

In re Daniel Alan WAKEFIELD, Debtor.

Daniel Alan Wakefield, Plaintiff, v. Southwest Securities, Inc., Defendant.

Bankruptcy No. 01-32889-SAF-7.

Adversary No. 01-3697.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

July 19, 2004.

COPYRIGHT MATERIAL OMITTED

Dane Scott Field, Goins, Underkofler, et al., Dallas, TX, Counsel for Plaintiff.

Daniel P. Elms, Baker & McKenzie, Dallas, TX, Counsel for Defendant.

MEMORANDUM OPINION AND ORDER ON REMAND

STEVEN A. FELSENTHAL, Chief Judge.

It is the law of this case that Southwest Securities, Inc., in violation of 11 U.S.C. § 525(b), terminated the employment of Daniel Alan Wakefield, the debtor, because he filed a petition for relief under Chapter 7 of the Bankruptcy Code. Wakefield v. SWS Securities, Inc. (In re Wakefield), 293 B.R. 372, 383 (N.D.Tex.2003). Southwest Securities, Inc., attempts to avoid the consequences of its unlawful act by requesting the court to preclude Wakefield's lawsuit by application of the doctrine of judicial estoppel. Southwest Securities contends that Wakefield should have amended his bankruptcy schedules to include the § 525(b) cause of action even though it arose after the commencement of Wakefield's Chapter 7 case and even though the cause of action was not and could not be property of the bankruptcy estate. The doctrine of judicial estoppel has no application to the facts of this case.

At trial, the court held that judicial estoppel did not apply. On appeal, the United States District Court for the Northern District of Texas reversed that determination because, according to the appellate court, the trial court made an error of law by applying a "purely objective standard" to the question of Wakefield's motive in not scheduling the § 525(b) claim. The appellate court vacated the trial court's judgment in part and remanded for further proceedings "on the judicial estoppel issue." Wakefield, 293 B.R. at 375.

On remand, on April 12, 2004, the court held a status conference with the parties, setting a briefing schedule and a hearing on the remanded issue. Wakefield filed his brief on remand on May 3, 2004. Southwest Securities filed its responsive brief on remand on May 24, 2004. Wakefield filed his reply brief on May 24, 2004. The court held a hearing on remand on June 2, 2004. As mandated by the appellate court, this court addresses the judicial estoppel issue.

Southwest Securities contends that the appellate court remanded a "specific issue" to this court — namely, "whether there is evidence of a subjective motive for Wakefield to conceal his § 525(b) claim from his trustee and creditors." Defendant's Reply to Plaintiff's Brief on Remand at 1-2, Wakefield v. Southwest Securities, Inc. (In re Wakefield), adversary no. 01-3697 (Bankr.N.D. Tex. reply filed May 24, 2004). The appellate court did not limit the remand to the narrow issue highlighted by Southwest Securities. The appellate court vacated the judicial estoppel decision and remanded for further consideration of the judicial estoppel issue, with a mandate to apply the legal standards articulated by the appellate court for the trial court's exercise of discretion. On remand, this court must now exercise its discretion, applying the standards articulated by the appellate court.

Judicial Estoppel

"Judicial estoppel is `a common law doctrine by which a party who has assumed one position in his pleadings may be estopped from assuming an inconsistent position[.]'" In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir.1999) (quoting Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir.1988)). "The purpose of the doctrine is `to protect the integrity of the judicial process', by `prevent[ing] parties from playing fast and loose with the courts to suit the exigencies of self interest [.]'" Id. (quoting Brandon, 858 F.2d at 268).

Judicial estoppel is applied when two requirements are met: the position of the party to be estopped is clearly inconsistent with its previous one, and the party convinced the court to accept the previous position. See id. at 206. In Coastal Plains the Fifth Circuit at least implicitly recognized the additional requirement that the party to be estopped must have acted intentionally rather than inadvertently. See id. at 206 (noting that many courts impose such a requirement) and 210-13 (without expressly adopting the requirement, addressing on the merits plaintiffs' contention that they had acted unintentionally and inadvertently); In re West Delta Oil Co. v. Hof, 2002 WL 1963317, at *4 (E.D.La. Aug.21, 2002) (holding that Coastal Plains "did not blanketly adopt other circuits' requirement of intent or bad faith in order for judicial estoppel to apply," but applied elements of "inadvertence defense" "[w]ithout explicitly adopting or rejecting the possibility of an `inadvertence defense' to judicial estoppel generally"). The Coastal Plains panel held that, "in considering judicial estoppel for bankruptcy cases, the debtor's failure to satisfy its statutory disclosure duty is `inadvertent' only when, in general, the debtor either lacks knowledge of the undisclosed claims or has no motive for their concealment." Coastal Plains 179 F.3d at 210 (footnote omitted).

Wakefield, 293 B.R. at 378-79.

Inconsistent Position

Southwest Securities contends that Wakefield should have scheduled his § 525(b) cause of action in his originally filed schedules or by filing an amended schedule. At trial, the court found that Wakefield's position in the § 525(b) lawsuit was inconsistent with his schedules as filed, and not amended. Wakefield v. Southwest Securities, Inc. (In re Wakefield), adversary no. 01-3697 at 17 (Bankr.N.D.Tex. Oct. 17, 2002). This court respectfully disagrees. As the appellate court has vacated the judicial estoppel decision, this court may re-examine the question. Indeed, in its decision on appeal, the appellate court recognized the propriety of re-examining the question. The court opined:

If the bankruptcy court on remand follows reasoning that distinguishes between property of the estate and Wakefield's personal property, it should reevaluate whether this analysis must be conducted under the first prong of the Coastal Plains test rather than under the intentional/inadvertent component. If the court holds that Wakefield had no obligation to disclose his § 525(b) cause of action because it was not property of the estate, and that his chapter 7 schedules could not have been inconsistent with the filing of the adversary proceeding, this reasoning would fall within the first prong of Coastal Plains. See Coastal Plains, 179 F.3d at 206 (addressing whether position of party to be estopped is clearly inconsistent with previous position).

Wakefield, 293 B.R. at 382.

Wakefield filed his petition for relief under Chapter 7 of the Bankruptcy Code on April 3, 2001. 11 U.S.C. § 301. The commencement of the case created "an estate." 11 U.S.C. § 541(a). The "estate is comprised of all the following property, wherever located and by whomever held: (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1) (emphasis added). The debtor must file a schedule of assets. 11 U.S.C. § 521(1). The debtor may exempt some of those assets from the estate. 11 U.S.C. § 522. The Chapter 7 trustee must "collect and reduce to money the property of the estate" and "investigate the financial affairs of the debtor." 11 U.S.C. § 704(1) and (4).

Official forms have been promulgated for use as the schedules required to be filed by § 521(1). Schedule B (Personal Property) requires that the debtor list "[o]ther contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims." Official Bankr.Form 6.

A claim for recovery of money by the debtor constitutes property. However, by definition, a claim under § 525(b) cannot arise until after the commencement of the bankruptcy case.

Section 525(b) provides:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt — (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

11 U.S.C. § 525(b).

By its express terms, § 525(b) applies to "an individual who is or has been a debtor under this title." Id. A "debtor" means "person ... concerning which a case under this title has been commenced." 11 U.S.C. § 101(13). Therefore, no claim under § 525(b) exists until a person becomes a debtor after the commencement of a case under the Bankruptcy Code. Brassfield v. Jack McLendon Furniture, Inc., 953 F.Supp. 1424, 1432-33 (M.D.Ala.1996).

As a result, the claim did not exist as of the commencement of the case. A debtor must schedule all his interest in property as of the commencement of the case. Obviously, a debtor has no duty to schedule the non-existence of a cause of action.

A claim under § 525(b) cannot be considered a "contingent" claim or an "unliquidated" claim as of the commencement of the case. A "claim" means a "right to payment, whether or not such right is ... unliquidated [or] ... contingent...." 11 U.S.C. § 101(5). As discussed above, under the plain language of § 525(b), Wakefield had no right to payment until he became a debtor under the Bankruptcy Code and Southwest Securities committed the prohibited discriminatory act. Surely, Southwest Securities is not suggesting...