Loth v. Union Pac. R.R. Co., ED 94105.

• Decision Date: 12 April 2011
• Docket Number: No. ED 94105.,ED 94105.
• Citation: 354 S.W.3d 635
• Parties: Mike LOTH, Appellant, v. UNION PACIFIC RAILROAD COMPANY, Respondent.
• Court: Missouri Court of Appeals

354 S.W.3d 635

Mike LOTH, Appellant,

v.UNION PACIFIC RAILROAD COMPANY, Respondent.

No. ED 94105.

Missouri Court of Appeals, Eastern District, Division Three.

April 12, 2011.Motion for Rehearing and/or Transfer to

Supreme Court Denied May 24, 2011.

Application for Transfer Denied

June 28, 2011.

Leonard P. Cervantes, Jennifer Suttmoeller, Joseph A. Terry, St. Louis, MO, for appellant.

Stephen M. Buckley, Ann E. Buckley, St. Louis, MO, for respondent.

LAWRENCE E. MOONEY, Judge.

Today we address the propriety of judicial estoppel under certain facts and circumstances posited in a summary-judgment record. Plaintiff Mike Loth filed a Federal Employer's Liability Act (FELA) action against defendant Union Pacific Railroad Company. The trial court entered summary judgment in favor of the railroad, holding that the plaintiff was judicially estopped from proceeding with his FELA lawsuit because he had failed to include the lawsuit as an asset when obtaining a discharge of his debts in bankruptcy court. Because the trial court impermissibly made credibility determinations in awarding judgment in favor of the railroad, and because the evidence reasonably supports two inferences—one in favor of the railroad and one in favor of the plaintiff—regarding the plaintiff's intent in failing to disclose his claim, we reverse the trial court's judgment and remand for further proceedings.

Factual and Procedural Background

The plaintiff filed a FELA action against the railroad in September of 2003, alleging that he suffered cumulative trauma injuries to his hands, wrists, fingers, and knees as a result of his work as a sheet-metal worker for the railroad. Approximately six months later, the plaintiff filed a voluntary petition for chapter 7 bankruptcy.¹ Plaintiff did not list his pending FELA action on the schedule of assets or the statement of financial affairs that were attached to his bankruptcy petition.² The bankruptcy court granted plaintiff a discharge on July 16, 2004.³ Plaintiff's FELA action was still pending at the time.

In August of 2008, four years after obtaining his discharge in bankruptcy, the plaintiff asked the bankruptcy court to reopen his case in order to include his FELA claim that he had “inadvertently” omitted when he filed his bankruptcy petition. In support of his motion, the plaintiff filed an affidavit, in which he stated that he had informed his bankruptcy attorney when they were preparing his bankruptcy petition that he had a pending FELA claim. According to the plaintiff's attestations, his attorney asked whether the claim would be settled within three years, and the plaintiff answered it would not. The plaintiff further professed that he relied upon his bankruptcy attorney's advice in completing the bankruptcy documents. He also declared that he relied upon his bankruptcy attorney's advice in responding to questions at the first meeting of creditors. According to the plaintiff, the bankruptcy trustee asked him at that meeting whether he had any claims that might be settled within six months, and he responded that he did not. Two days after plaintiff filed his motion, the bankruptcy court granted the plaintiff's request to reopen the bankruptcy case.

Nearly a year later, in July of 2009, the railroad moved for summary judgment in the FELA action, asserting that the judicial-estoppel doctrine should bar plaintiff's FELA action because plaintiff had failed to list it as an asset when obtaining a discharge of his debts in bankruptcy court.⁴ Relying entirely on federal- court decisions, the railroad noted that the failure to disclose a cause of action in a bankruptcy proceeding provides an appropriate basis for the court to apply judicial estoppel.⁵ The railroad acknowledged that in deciding whether to apply the doctrine, courts invariably consider whether the debtor's omission was inadvertent. As the railroad explained, the courts consider a failure to disclose “inadvertent” when the debtor either had no knowledge of the undisclosed claim or had no motive to conceal the claim. Under such circumstances, the railroad conceded, courts have stated that it may be appropriate to resist application of judicial estoppel. Put differently, the doctrine does not apply when a party's prior position was taken because of a good-faith mistake rather than as part of a scheme to mislead and manipulate the court. The railroad adamantly argued, however, that such was not the case here. Rather, the railroad insisted that the plaintiff's omission was not inadvertent because the plaintiff had both knowledge of his FELA claim and motive to conceal that claim from his creditors. The railroad stressed that plaintiff's motive to conceal the claim was inferred from the fact that by omitting the claim plaintiff could recover on his claim without his creditors' knowledge, and thus would be able to keep any and all proceeds for himself, to the exclusion of those creditors. The railroad also stressed that plaintiff's motive to conceal was inferred from the fact that plaintiff successfully obtained a no-asset discharge of his debts. The railroad posited that had the plaintiff disclosed the claim, he likely would not have received a no-asset discharge.

The plaintiff countered that the court should refrain from applying the doctrine because he had made a good-faith effort to comply with the bankruptcy rules and the requirements of the court and had not engaged in a scheme to manipulate or mislead the court. Plaintiff noted that judicial estoppel is not a mandatory doctrine, but rather is an equitable doctrine, invoked by a court at its discretion. He further noted the court should apply judicial estoppel only in the most egregious circumstances, where a party intended to play “fast and loose” with the court and had clearly sought to manipulate the court process for his own advantage. Plaintiff contended that no such circumstances existed here. Rather, he asserted that he simply acted in good-faith reliance on his attorney's advice and on a good-faith belief that his answers were correct as he understood the questions. The plaintiff further pointed out that he took corrective measures when he became aware that he should have disclosed the pending litigation.

Plaintiff noted that besides two proposed inferences, the defendant had presented no evidence that he acted in bad faith. He contended that nondisclosure unaccompanied by bad faith does not justify the application of judicial estoppel. Citing language from a federal case, the plaintiff urged restraint in drawing negative inferences in his case, arguing that “[a]lthough it may generally be reasonable to assume that a debtor who fails to disclose a substantial asset in bankruptcy proceedings gains an advantage the specific facts of a case may weigh against such in inference.” Stallings v. Hussmann Corp., 447 F.3d 1041, 1049 (8th Cir.2006)(internal quotation omitted). Plaintiff suggested that such was the case here—that the circumstances surrounding his nondisclosure militated against any inferences of dubious motive. Plaintiff further points to the reasoning of the Stallings court that “[a] rule that the requisite intent for judicial estoppel can be inferred from the mere fact of nondisclosure in a bankruptcy proceeding would unduly expand the reach of judicial estoppel in post-bankruptcy proceedings and would inevitably result in the preclusion of viable claims on the basis of inadvertent or good-faith inconsistencies.” Stallings, 447 F.3d at 1049 (internal quotation omitted).

Plaintiff also urged restraint on the part of the trial court because, as the plaintiff argued, his behavior in failing to disclose his claim would not result in an unfair advantage for him. Plaintiff noted that he did not stand to benefit from his FELA action. Rather, he noted, it would be his creditors who would suffer harm if he was precluded from pursuing his claim. Plaintiff lastly posited that application of judicial estoppel could be contrary to public policy because it would frustrate the purpose of bankruptcy and penalize his creditors while bestowing a windfall upon the railroad.

In support of his response to the railroad's summary-judgment motion, the plaintiff filed an affidavit from Richard L. Cox, the bankruptcy trustee for plaintiff's bankruptcy estate.⁶ In his affidavit, Cox noted the plaintiff had amended his bankruptcy schedules and statement of financial affairs to list the FELA claim as an asset of the bankruptcy estate, and that the plaintiff had claimed no exemption in the claim. He further stated that no creditor, party in interest, or other person or entity had objected to plaintiff's amended schedules, alleged that the plaintiff had committed fraud or had intentionally concealed any assets by omitting the existence of the claim from his original schedules, or had asked the bankruptcy court to revoke plaintiff's discharge in bankruptcy.

Continuing, Cox affirmed that the bankruptcy court had made no finding or determination that plaintiff had committed fraud or had intentionally concealed assets. Cox declared that, based on his review of the pleadings filed in the bankruptcy case and the circumstances surrounding the matter, he was satisfied that the plaintiff had not endeavored to intentionally conceal assets from his creditors, the bankruptcy trustee, or the bankruptcy court. Cox opined that plaintiff had neither committed fraud nor intentionally concealed assets based on his experience and three factors. First, the plaintiff had self-reported the omission before the claim was resolved, thereby placing all creditors and parties in interest in the same position they would have been in had the plaintiff listed the claim on his original schedules. Second, plaintiff had not claimed an exemption in and sought recovery of the potential proceeds. And third, the plaintiff had cooperated and had offered a reasonable explanation for the claim's omission. Cox explained that had p...