McCallister v. Gordon Dixon, M.D., Blackfoot Med. Clinic, Inc.

• Decision Date: 01 February 2013
• Docket Number: No. 38196.,38196.
• Citation: 303 P.3d 578,154 Idaho 891
• Court: Idaho Supreme Court
• Parties: Kathleen A. McCALLISTER, in her capacity as the bankruptcy trustee, Plaintiff–Appellant, v. Gordon DIXON, M.D., Blackfoot Medical Clinic, Inc., Defendants–Respondents, and Blackfoot Medical Center, LLC, Defendant.

154 Idaho 891

303 P.3d 578

Kathleen A. McCALLISTER, in her capacity as the bankruptcy trustee, Plaintiff–Appellant,

v. Gordon DIXON, M.D., Blackfoot Medical Clinic, Inc., Defendants–Respondents,andBlackfoot Medical Center, LLC, Defendant.

No. 38196.

Supreme Court of Idaho, Boise, September 2012 Term.

Feb. 1, 2013.

Cooper & Larsen, Chartered, Pocatello, attorneys for Appellant, Javier Gabiola argued.

Moffat, Thomas, Barrett, Rock & Fields, Chtd., Pocatello, attorneys for Respondent, Julian Gabiola argued.

W. JONES, Justice.

I. NATURE OF THE CASE

This is an appeal from a district court order dismissing Plaintiff–Appellant (Jerry Doherty) as a party in a medical malpractice action against Respondents (Dr. Gordon E. Dixon and Blackfoot Medical Clinic). The judgment was certified under Rule 54(b) of the Idaho Rules of Civil Procedure on November 24, 2010. The district court, on September 16, 2010, ruled that because Doherty failed to disclose this claim as an asset in his Chapter 13 bankruptcy proceeding, he was judicially estopped from pursuing this claim against Respondents. The district court further ordered that Doherty take nothing from Respondents, and that the bankruptcy trustee be substituted as the party-plaintiff. Doherty appeals the district court's order and argues that the district court abused its discretion in granting summary judgment.

II. FACTUAL AND PROCEDURAL BACKGROUND

On September 12, 2004, Doherty sought treatment from Blackfoot Medical Clinic and Dr. Dixon—a general practitioner—for an eye injury. Doherty claims that Dr. Dixon failed to perform appropriate tests and failed to refer Doherty to an eye specialist, which resulted in the loss of his eye. On July 25, 2005, Doherty filed a Chapter 13 bankruptcy petition because he was behind on his truck payments. Doherty did not list any potential claims against Respondents on his asset schedule. The bankruptcy court confirmed Doherty's bankruptcy plan on September 6, 2005, whereby Doherty avoided over $12,000 in unsecured creditor claims. Doherty commenced a lawsuit against Respondents on September 6, 2006. Doherty did not amend his bankruptcy asset schedule to reflect the claim against Respondents prior to his discharge on January 21, 2009.

Doherty filed a motion in limine on August 11, 2009, seeking to exclude evidence of his bankruptcy. In response to the motion, on August 18, 2009, Respondents raised the issue of Doherty's failure to amend his bankruptcy asset schedule after filing this lawsuit. Respondents' response was treated by both Doherty and the district court as a motion for summary judgment.

On August 26, 2009, Doherty reopened his bankruptcy case and filed an Amended Schedule B (asset schedule), which reflected the current lawsuit as a potential asset. The bankruptcy court permitted Doherty to reopen his bankruptcy case on March 4, 2010. Doherty moved to join Kathleen McCallister ("McCallister") as a party-plaintiff to the lawsuit in her official capacity as bankruptcy trustee.

On September 16, 2010, the district court granted Respondents' motion for summary judgment and substituted McCallister as a party-plaintiff. After disposing of issues not raised on this appeal, the district court concluded that a debtor filing for bankruptcy must list all existing and potential assets and that this duty continues while the bankruptcy is pending. The district court found that by October 28, 2004, Doherty believed that Dr. Dixon's failure to refer him earlier to a specialist resulted in his loss of vision. Also, the district court found that when Doherty filed suit against Respondents on September 6, 2006, Doherty was fully aware that he had a claim against them. Yet, Doherty failed to list this asset or to amend his asset schedule with the bankruptcy court until Respondents objected.

The district court rejected the reasoning used in a string of Georgia cases that permit a subsequent reopening of a bankruptcy proceeding and disclosure of a non-disclosed asset to avoid application of judicial estoppel. It relied instead on federal precedent holding that the reopening cure encourages gamesmanship. The district court reasoned that the Georgia law was not persuasive because it failed to recognize the allocation of assets during bankruptcy. During bankruptcy, assets and causes of action belong entirely to the bankruptcy trustee. The Georgia approach—by permitting a debtor to maintain a lawsuit that does not belong to him or her as a debtor in bankruptcy—undermines the bankruptcy code. Also, permitting the debtor to "undo" his lack of disclosure encourages non-disclosure. Therefore, the district court found that such a cure is not a defense to judicial estoppel.

Doherty filed an affidavit asserting his non-disclosure of this lawsuit in his bankruptcy proceeding was a good-faith mistake. The district court found that good faith is insufficient to avoid application of judicial estoppel, because judicial estoppel is based upon knowledge of the asset and the potential incentive to conceal the asset. The district court found that the alleged mistake was the result of either a failure of counsel, which does not amount to inadvertence or mistake, or to ignorance of the law, which is not a defense. As to the two issues the district court found dispositive—knowledge and incentive—it found that Doherty knew of the claim, benefited from the discharge by the bankruptcy proceeding, and had a potential motive to conceal the claim from the bankruptcy court.

Doherty now argues that Respondents in the current matter are not prejudiced by his non-disclosure because it is primarily Doherty's creditors who were prejudiced. But the prejudice caused to Respondents did not weigh heavily on the district court's decision: it is the integrity of the judicial system, not individuals, that is protected by judicial estoppel.

Finally, the district court rejected Doherty's claim that permitting judicial estoppel would result in inequity because it allegedly impairs the ability of Doherty's creditors to collect. The district court found that even where a party fails to disclose a cause of action, that action belongs to the bankruptcy estate and the trustee of that estate maintains exclusive standing to pursue that claim. The district court did not find judicial estoppel inequitable to Doherty's creditors because it ordered the bankruptcy trustee be substituted for Doherty.

III. ISSUES ON APPEAL

1. Whether the district court abused its discretion in imposing judicial estoppel.

2. Whether either Doherty or Respondents are entitled to attorney's fees and costs on appeal.

IV. STANDARD OF REVIEW

Though the district court called its dismissal of Doherty's claims "summary judgment," in actuality it merely dismissed Doherty's action on the basis of judicial estoppel. Therefore, the dismissal of Doherty will properly be reviewed under the abuse of discretion standard, not the summary judgment standard. The doctrine of judicial estoppel sounds in equity and is invoked at the discretion of the court. Sword v. Sweet, 140 Idaho 242, 252, 92 P.3d 492, 502 (2004). A reviewing court will examine an alleged abuse of discretion based on "(1) whether the trial court correctly perceived the issue as one of discretion; (2) whether the trial court acted within the outer boundaries of its discretion and consistently with legal standards applicable to the specific choices available to it; and (3) whether the trial court reached its decision by an exercise of reason." Riley v. W.R. Holdings, LLC, 143 Idaho 116, 121, 138 P.3d 316, 321 (2006).

V. DISCUSSION

A. The District Court Did Not Abuse Its Discretion When It Judicially Estopped Doherty From Pursuing His Claim.

Doherty argues the imposition of judicial estoppel was improper because Doherty's claim against Respondents has nothing to do with his bankruptcy; does not involve the same parties; and does not arise out of the same transaction. Also, Doherty contends the district court improperly weighed inferences from the record that Doherty had no intent to conceal the lawsuit as an asset in the bankruptcy proceeding and his reopening and amending of bankruptcy asset avoids application of judicial estoppel. Doherty maintains that it is inequitable to both him and his bankruptcy creditors to dismiss him as a party, because the failure to report the claim did not prejudice Respondents, and prevents Doherty and his creditors from recovering.

1. Judicial Estoppel Applies to Bankruptcy Proceedings.

Idaho adopted the doctrine of judicial estoppel in Loomis v. Church, 76 Idaho 87, 277 P.2d 561 (1954). Judicial estoppel precludes a party from advantageously taking one position, then subsequently seeking a second position that is incompatible with the first. A & J Const. Co. v. Wood, 141 Idaho 682, 684, 116 P.3d 12, 14 (2005). The policy behind judicial estoppel is to protect "the integrity of the judicial system, by protecting the orderly administration of justice and having regard for the dignity of the judicial proceeding." Id. at 685, 116 P.3d at 15 (quoting Robertson Supply Inc. v. Nicholls, 131 Idaho 99, 101, 952 P.2d 914, 916 (Ct.App.1998) ). Broadly accepted, it is intended to prevent parties from playing fast and loose with the legal system. Id.; see also 31 C.J.S. Estoppel and Waiver § 186 (2012). Judicial estoppel protects the integrity of the judicial system, not the litigants; therefore, it is not necessary to demonstrate individual prejudice. Wood, 141 Idaho at 686, 116 P.3d at 16 (citing Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778 (9th Cir.2001) ). Judicial estoppel applies to inconsistent positions taken in bankruptcy proceedings. Id. (relying on decisions from numerous courts holding "privity ... [though] often present in judicial estoppel cases, [is] not required." Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1286 (11th Cir.2002) ).

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