Opinion
NO. 2016-CA-000695-MR
01-19-2018
TRALICIA LEDESMA APPELLANT v. AT&T CORPORATION APPELLEE
BRIEF FOR APPELLANT: Kurt A. Scharfenberger Louisville, Kentucky BRIEF FOR APPELLEE: Shannon Antle Hamilton Bethany A. Breetz Rebecca A. Weis Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE AUDRA J. ECKERLE, JUDGE
ACTION NO. 14-CI-003337 OPINION
AFFIRMING
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BEFORE: ACREE, DIXON, AND STUMBO, JUDGES. ACREE, JUDGE: Tralicia Ledesma appeals the Jefferson Circuit Court's April 27, 2016 opinion and order dismissing her pregnancy discrimination and retaliation claims against AT&T Corporation based on the doctrine of judicial estoppel. She argues the circuit court improperly applied the doctrine to her case. We disagree, and affirm.
Judge Janet Stumbo concurred in this opinion prior to retiring from the Kentucky Court of Appeals effective December 31, 2017. Release of this opinion was delayed by administrative handling.
On June 24, 2014, Ledesma filed the underlying lawsuit against AT&T claiming she was discriminated against and demoted in violation of KRS Chapter 344. Specifically, she alleged that, in 2013, she informed AT&T officials that she was pregnant, after which AT&T perceived her as disabled and refused to accommodate her pregnancy. Ledesma complained to AT&T about the discrimination, but her concerns went unanswered. AT&T then allegedly demoted Ledesma in response to her complaints of discrimination. Her civil complaint requested both compensatory and punitive damages.
Kentucky Revised Statutes.
On July 25, 2014, Ledesma filed for voluntary Chapter 7 bankruptcy. When asked in her Statement of Financial Affairs (SoFA) to "[l]ist all suits . . . to which the debtor is or was a party within one year immediately preceding the filing of th[e] bankruptcy case," Ledesma failed to disclose this lawsuit against AT&T. Similarly, where she was requested on Schedule B (Personal Property) of the bankrupt schedules to list "[o]ther contingent and unliquidated claims of every nature . . . ," or "[o]ther personal property of any kind not already listed," Ledesma responded: "None." Nowhere else in her bankruptcy petition or SoFA did Ledesma declare ownership of any other property, specifically a chose in action in the form of any claims against AT&T. She signed the petition declaring under penalty of perjury that the information provided was true and correct. The trustee reported no assets for distribution, and the bankruptcy court discharged Ledesma in October 2014, terminating her bankruptcy proceedings.
Ledesma's discrimination action sat idle until the circuit court issued a CR 77.02(2) show cause notice in July 2015. Ledesma then moved for a pretrial conference, which was scheduled for January 2016. In December 2015, AT&T moved for judgment on the pleadings based on judicial estoppel, arguing Ledesma was precluded from pursuing her discrimination and retaliation claims because she denied their existence to the bankruptcy court.
Kentucky Rules of Civil Procedure.
In response to AT&T's motion, Ledesma re-opened her bankruptcy case and filed an amended SoFA disclosing this pending litigation, but failed to identify the type of claims asserted or the potential value of those claims. Ledesma did not amend Schedules B or C (Property Claimed as Exempt). The bankruptcy court again closed Ledesma's case on March 8, 2016.
Back in circuit court, Ledesma opposed AT&T's motion. She argued there was no evidence that she had a motive for nondisclosure or acted in bad faith. The circuit court found Ledesma's position lacking. It noted that Ledesma possessed knowledge of her pre-petition complaint and had a clear motive for concealment: preventing the trustee from learning of it and potentially administering it himself for the benefit of her creditors. The circuit court also looked unfavorably upon Ledesma's efforts to amend her bankruptcy filings only after AT&T moved for judgment on the pleadings, and considered those efforts insufficient, for Ledesma failed to accurately amend her Schedule B or C to disclose her claims against AT&T. By order entered April 27, 2016, the circuit court granted AT&T's motion, finding the doctrine of judicial estoppel precluded Ledesma's discrimination and retaliation claims, and dismissed her complaint. Ledesma appealed.
Though the circuit court recited that it was granting AT&T's motion for judgment on the pleadings, its order clearly demonstrates that it considered exhibits attached to that motion. "Because the exhibits constituted matters outside the pleadings, and the court considered those exhibits in rendering its judgment, we treat the court's order as a summary judgment rather than a judgment on the pleadings. Kentucky CATV Association, Inc. v. City of Florence, 520 S.W.3d 355, 358 fn1 (Ky. 2017) (citing CR 12.03).
Summary judgment is proper when there exists no genuine issue of material fact and movant is entitled to judgment as a matter of law. Carter v. Smith, 366 S.W.3d 414, 419 (Ky. 2012). It involves only questions of law with the simple determination of whether a fact question exists. Allstate Insurance Company v. Smith, 487 S.W.3d 857, 860 (Ky. 2016). Our review is de novo. Furlong Development Co., LLC v. Georgetown-Scott County Planning and Zoning Commission, 504 S.W.3d 34, 37 (Ky. 2016).
However, the United States Supreme Court has also explained that "judicial estoppel is 'an equitable doctrine invoked by the court at its discretion.'" Lorillard Tobacco v. Chester, Willcox & Saxbe, 546 F.3d 752 (6th Cir. 2008) (quoting New Hampshire v. Maine, 532 U.S. 742, 750, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)). In Kentucky, matters committed to the circuit court's sound discretion are reviewed by an appellate court for an abuse of discretion. See generally Budig v. Budig, 481 S.W.2d 95, 97 (Ky. 1972) (declining to interfere with matters clearly within the sound discretion of the trial court unless there was an abuse of that discretion); Lewis v. Weyerhaeuser Co., 141 Fed. Appx. 420, 423-24 (6th Cir. 2005) ("Indeed, a majority of federal courts that have addressed the issue apply the abuse of discretion standard to a district court's application of judicial estoppel."). We owe deference to the circuit court's exercise of its discretion in this case.
Ledesma argues the circuit court erred in dismissing her complaint as barred by the doctrine of judicial estoppel. She claims she did not intentionally fail to disclose her torts lawsuit to the bankruptcy court, and she corrected that defect by re-opening the bankruptcy and listing the lawsuit as an asset. Considering these facts, Ledesma argues, application of the doctrine of judicial estoppel is inappropriate and misplaced. We disagree.
The doctrine of judicial estoppel is an equitable principle designed to protect the integrity of the judicial process by preventing a party from taking inconsistent positions in separate judicial proceedings. Mefford v. Norton Hospitals, Inc., 507 S.W.3d 580, 584 (Ky. App. 2016) (citing Colston Investment Co. v. Home Supply Co., 74 S.W.3d 759, 763 (Ky. App. 2001)). It generally prevents a party from asserting a claim in a legal proceeding that is contrary to a claim asserted by that party in a prior proceeding. New Hampshire, 532 U.S. at 749, 121 S. Ct. at 1814; Hisle v. Lexington-Fayette Urban County Government, 258 S.W.3d 422, 434 (Ky. App. 2008). Judicial estoppel "preserve[s] the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship." Lewis, 141 Fed. Appx. at 424 (citation omitted). However, it is a harsh doctrine because it binds a party to a position without regard to the truth of either position taken. Eubanks v. CBSK Financial Group, Inc., 385 F.3d 894, 897 (6th Cir. 2004). Courts have urged its cautious application. Id.
Judicial estoppel is not reducible to a simple general formula. New Hampshire, 532 U.S. at 750, 121 S. Ct. at 1815. Generally, however, three factors are considered: "(1) whether the party's later position is clearly inconsistent with its earlier position; (2) whether the party succeeded in persuading a court to accept the earlier position; and (3) whether 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." Hisle, 258 S.W.3d at 434-35. "These same factors have been applied on a modified basis in the bankruptcy context where a debtor fails to disclose an asset either in the original bankruptcy petition or by subsequent amendment." Mefford, 507 S.W.3d at 584-85. As explained by the Sixth Circuit, in the context of a prior bankruptcy proceeding: "The doctrine of judicial estoppel bars a party from (1) asserting a position that is contrary to one that the party has asserted under oath in a prior [bankruptcy] proceeding, where (2) the prior court adopted the contrary position 'either as a preliminary matter or as part of a final disposition.'" Browning v. Levy, 283 F.3d 761, 775 (6th Cir. 2002) (citation omitted).
Applying the elements of judicial estoppel to this case, we, like the circuit court, find those elements met. First, Ledesma's pursuit of her discrimination and retaliation action is without question contrary to her sworn bankruptcy petition and schedules. "A debtor has an affirmative duty to disclose all of its assets to the bankruptcy court." Id.; 11 U.S.C. § 521(a)(1). Potential causes of action are assets that must be disclosed. Lewis, 141 Fed. Appx. at 424 ("It is well-settled that a cause of action is an asset that must be disclosed under § 521"). "[T]he disclosure obligations of consumer debtors are at the very core of the bankruptcy process and meeting these obligations is part of the price debtors pay for receiving the bankruptcy discharge." Id. "Viewed against the backdrop of the bankruptcy system and the ends it seeks to achieve, the importance of this disclosure duty cannot be overemphasized." In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999).
Ledesma asserted a position in the bankruptcy court which was contrary to her position in the circuit court. In bankruptcy court, she filed a sworn petition indicating that she had no contingent or unliquidated claims, yet in the circuit court she asserted that she had such claims. Ledesma filed suit against AT&T a month before seeking bankruptcy protection, yet she omitted mention of the discrimination/retaliation action in her SoFA or on Schedules B or C. She signed all bankruptcy documents under penalty of perjury. Ledesma's omission of her discrimination claims from her bankruptcy filings was tantamount to an oath that the claims did not exist at the time she filed her bankruptcy petition (whether by abandonment or otherwise), and this sworn position is inconsistent with her continued pursuit of those claims before the circuit court. "Pursuing a cause of action that was not disclosed as an asset in a . . . bankruptcy filing creates an inconsistency sufficient to support judicial estoppel." Felix v. Dow Chemical Co., 2:07-CV-971, 2008 WL 207857, at *4 (S.D. Ohio Jan. 23, 2008).
In accordance with Federal Rule of Appellate Procedure (FRAP) 32.1, "A court may not prohibit or restrict the citation of federal judicial opinions, orders, judgments, or other written dispositions that have been: (i) designated as "unpublished" ... and (ii) issued ... after January 1, 1997." While Kentucky courts are not bound by FRAP 32.1 or federal cases interpreting Kentucky law, the federal judiciary has determined that all of its opinions rendered after January 1, 1997, have equally persuasive import without regard to their designation as unpublished. We should take no less a view of post-1996 unpublished federal opinions than we do of published federal opinions. --------
Second, in granting a discharge and closing her "no asset" case, the bankruptcy court adopted Ledesma's statement that she had no potential or actual causes of action. This satisfies the requirement of judicial acceptance of Ledesma's position.
"Once a defendant demonstrates that a finding of judicial estoppel is supported by the record, a plaintiff must come forward and show why the doctrine should not apply under the facts of the case." Pate v. United Parcel Service, Inc., 3:05-CV-531, 2006 WL 2076795, at *2 (E.D. Tenn. July 24, 2006). Ledesma argues that judicial estoppel should not apply because her omission resulted from a good-faith mistake and she took affirmative steps to correct her error. Specifically, she claims: (1) she did not intentionally fail to disclose this lawsuit in her bankruptcy petition, and (2) she corrected her original failure to disclose by re-opening her bankruptcy and listing this lawsuit.
Ledesma is correct that judicial estoppel does not apply where the prior inconsistent position occurred because of mistake or inadvertence. New Hampshire, 532 U.S. at 753, 121 S.Ct. at 1816; Mefford, 507 S.W.3d at 585 ("[J]udicial estoppel is inappropriate in cases of conduct amounting to nothing more than mistake or inadvertence." (citation omitted)). The failure to disclose a cause of action may be deemed inadvertent where (1) the debtor lacks knowledge of the factual basis of the undisclosed claim, and (2) the debtor has no motive for concealment of the claim. Browning, 283 F.3d at 776 (citing In re Coastal Plains, 179 F.3d at 210); Mefford, 507 S.W.3d at 585.
Ledesma acknowledged knowing of her civil claim against AT&T before filing her bankruptcy petition. In her motion before the bankruptcy court to re-open her case, she said "she knew that she had signed paperwork"; she simply was "no[t] given any confirmation of the filing of the suit." (Motion to Reopen at [1], In re: Tralicia Dominique Ledesma, No. 14-32819-acs, (Bankr. W.D. Ky. Feb. 4, 2016)). Through her attorney, she filed this discrimination and retaliation action in June 2014, one month before seeking bankruptcy protections in July 2014. There is no doubt Ledesma had actual knowledge of the factual basis for the undisclosed discrimination and retaliation claims.
Ledesma also had a motive for concealing her claim against AT&T: minimizing her assets that would be available to satisfy her bankruptcy debtors' claims. If a tort action becomes an asset in the bankruptcy estate, "then the proceeds from it could go towards paying [the debtor's] creditors, rather than simply to paying [the debtor]." White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472, 479 (6th Cir. 2010). By omitting her pre-petition lawsuit from the bankruptcy proceedings, Ledesma stood to reap a large benefit - keeping any recovery for herself and out of the bankruptcy estate. See, e.g., In re Blose, 01-36066, 2009 WL 2982932, at *4 (Bankr. W.D. Ky. Sept. 14, 2009) ("[Debtor] also possessed a motive to conceal her claim since any recovery post discharge would inure to her, rather than her bankruptcy estate."); Felix, 2008 WL 207857, at *4 (when a debtor is aware of a pre-petition claim, "[a] motive to conceal can be inferred from this fact alone, as '[b]y omitting the claims, [she] could keep any proceeds for herself and not have them become part of the bankruptcy estate.").
Ledesma argues she had no motive to conceal her discrimination and retaliation claims because, even if disclosed, they would not have been part of her Chapter 7 bankruptcy estate. Citing In re Bobroff, 766 F.2d 797 (3d Cir. 1985) and In re Wakefield, 312 B.R. 333 (Bankr. N.D. Tex. 2004), Ledesma contends that, unlike in a Chapter 13 bankruptcy where the motive to not disclose a cause of action that arose during the pendency of the bankruptcy is clear, in a Chapter 7 bankruptcy there is no clear motive for its nondisclosure. Bobroff and Wakefield do not support Ledesma's position. Those cases dealt with matters that arose post- petition; that is, the causes of action accrued after the filing of the debtor's bankruptcy petition. This case deals with a pre-petition civil action. Ledesma filed her discrimination and retaliation claims before she filed her bankruptcy petition. This is a meaningful distinction because, in a Chapter 7 bankruptcy:
the only property interests of a debtor that become part of the estate are those existing as of the commencement of the case. To enable the chapter 7 debtor to make a fresh start, the Code sets the date of filing the petition as the critical time as of which the property comprising the estate is to be determined, and the rights of others connected with the proceeding adjusted.Bobroff, 766 F.2d at 803 (internal citations and quotations omitted)(emphasis added). A tort claim, like Ledesma's discrimination and retaliation claims, that exists at the time a debtor files his or her Chapter 7 bankruptcy petition is an asset which, when properly disclosed, becomes part of the bankruptcy estate. See id. There is a "strong case for application of judicial estoppel when a Chapter 7 debtor fail[s] to disclose a pre-petition [tort] action[.]" Mefford, 507 S.W.3d at 586. We are not convinced that Ledesma's omission arose from mistake or inadvertence and we find no abuse of discretion in the circuit court's determination that it was not.
Ledesma points out, and we agree, that even if the inconsistent position was not the product of mistake or inadvertence, the absence of bad faith prevents the application of judicial estoppel. White, 617 F.3d at 480; Stephenson v. Malloy, 700 F.3d 265, 268 (6th Cir. 2012) ("White added a bad-faith inquiry to the inadvertence prong of the judicial-estoppel test[.]"). A debtor can demonstrate the lack of bad faith by "showing her attempts to correct her initial omission." Id. Thus, "even if the debtor has knowledge of a potential cause of action and a motive to conceal it, if the plaintiff does not actually conceal it and instead takes affirmative steps to fully inform the trustee and the bankruptcy court of the action, it is highly unlikely that the omission in the bankruptcy petition was intentional." Lewis, 141 Fed. Appx. at 436. "Furthermore, since judicial estoppel seeks to prevent parties from abusing the judicial process through cynical gamesmanship, the timing of [the debtor's] effort is also significant." White, 617 F.3d at 480.
In White, the plaintiff made three "limited and ineffective attempts to correct her initial misfiling," two of which occurred before the defendants filed a motion to dismiss and one which occurred after the filing of the dismissal motion. 617 F.3d at 480-81. The Sixth Circuit deemed the plaintiff's efforts insufficient and applied the doctrine of judicial estoppel to bar her harassment claim. Here, Ledesma made only one attempt to correct her initial misfiling and, as in White, Ledesma's correction was both too late and insufficient.
First, Ledesma did not attempt to correct her bankruptcy filings until after AT&T moved for judgment on the pleadings. We, like the circuit court, ascribe little value to Ledesma's efforts. White explained:
We will not consider favorably the fact that [the debtor] updated her initial filings after the motion to dismiss was
filed. To do so would encourage gamesmanship, since [the debtor] only fixed her filings after the opposing party pointed out that those filings were inaccurate. See Barger, 348 F.3d at 1297 ("Allowing [a debtor] to back-up, re-open the bankruptcy case, and amend his bankruptcy filings, only after his omission has been challenged by an adversary, suggests that a debtor should consider disclosing potential assets only if he is caught concealing them.") (citation omitted).617 F.3d at 481 (footnote omitted). Only after Ledesma realized that her discrimination and retaliation claims were in peril did she move to re-open her bankruptcy case to identify the lawsuit as an asset. Action in the face of dismissal does not demonstrate the absence of bad faith, but rather the opposite. Had Ledesma moved to reopen her bankruptcy case prior to the filing of the dismissal motion, the circuit court, and this Court, might have been inclined to view her actions in a different light.
Second, Ledesma did not adequately fix her bankruptcy filing error. While she amended her SoFA to list the lawsuit as an asset, she merely identified it as a civil suit pending in Jefferson Circuit Court. Nowhere did Ledesma identify the type of litigation, the potential value of the lawsuit, the facts giving rise to the lawsuit, when those facts took place, or the relief she was seeking. Furthermore, Ledesma failed entirely to amend Schedules B or C to disclose her claims against AT&T. White, 617 F.3d at 481-82 (the debtor "did not adequately fix" her bankruptcy "filings but, instead, only updated a part of them"). We agree with the circuit court that Ledesma's attempt to correct her incomplete filing was both inadequate and too late.
In sum, we agree with the circuit court that: (1) Ledesma assumed a position that was contrary to the one that she asserted under oath in the bankruptcy proceeding; (2) the bankruptcy court adopted the contrary position as part of its final disposition and discharging of Ledesma; and (3) Ledesma's omission did not result from mistake or inadvertence. Accordingly, we affirm the Jefferson Circuit Court's April 27, 2016 Opinion and Order dismissing Ledesma's complaint as barred by the doctrine of judicial estoppel.
ALL CONCUR. BRIEF FOR APPELLANT: Kurt A. Scharfenberger
Louisville, Kentucky BRIEF FOR APPELLEE: Shannon Antle Hamilton
Bethany A. Breetz
Rebecca A. Weis
Louisville, Kentucky