Personal Injury Claims and Bankruptcy Petitions

What happens when a personal injury plaintiff files a bankruptcy petition?  What happens if that plaintiff fails to disclose in the bankruptcy petition that he has a personal injury claim that has not yet been filed?    How does a bankruptcy court discharge affect the plaintiff’s rights to later file his personal injury claim?

The Tennessee Court of Appeals recently addressed these issues in the case of Reynolds v. Tognetti, No. W2010-00320-COA-R3-CV  (Tenn. Ct. App.  Mar.4, 2011).  When the defendants learned that the now debt-discharged plaintiff was pursuing a tort claim for injuries received before he filed the bankruptcy petition, they filed a motion for summary judgment seeking dismissal of the claim on the theory of judicial estoppel.

Plaintiff responded to this motion by (1) petitioning the bankruptcy court to re-open the bankruptcy and (2) filing a motion to amend the complaint to add the bankruptcy trustee as a party plaintiff.  The trustee then moved to intervene or be substituted as a party plaintiff.  

The trial court granted the motion for summary judgment and dismissed the case.  The trial judge did not rule on the motions that had been filed by the plaintiff and trustee.

Here is a brief summary on the view of Tennessee courts on this issue:

The judicial doctrines of standing and judicial estoppel are distinct concepts. A

plaintiff may lack standing because the right to pursue the pre-petition cause of action rests exclusively with the bankruptcy trustee. A plaintiff may also be judicially estopped from pursuing the cause of action where his earlier statement wilfully misled the court and was not made inadvertently or through mistake. Because the application of either doctrine may yield the same result in a case involving the omission of an asset from a bankruptcy petition, courts may be tempted to apply the two doctrines interchangeably. However, importantly, before finding that judicial estoppel applies in a given case, a trial court must make a finding that the plaintiff’s previous statement was not made inadvertently or through mistake, Sartain v. Dixie Coal & Iron, 266 S.W. at 318, and was instead a wilfully false statement of fact, D.M.Rose & Co. v. Snyder, 206 S.W.2d at 906. Thus, it is entirely possible that a plaintiff may lack standing by virtue of his omission, but may not be judicially estopped where his omission was inadvertent. In such cases, standing may still lie with the bankruptcy trustee. See Gordon v. Draughn, No. M2008-02224-COA-R10-CV, 2009 WL 1704470, at *5-7 (Tenn. Ct. App. June 16, 2009).

The Court then ruled that the trial judge erred in granting summary judgment without first ruling on the motion to determine whether the trustee should have been substituted a the real party in interest.

This case is a little odd from a procedural standpoint (there are some other issues not addressed above) but the opinion has a nice summary of the law in this area.