Effect of the Failure to Identify Pending Tort Action on Bankruptcy Filing

It is not uncommon for plaintiffs in personal injury cases to get into financial problems.  Medical bills need to be paid and the injured person’s income is often disrupted and may be nonexistent.

But, this opinion makes it clear that the failure to disclose the existence of the pending personal injury suit can result in its dismissal.  In Gardner v. Union Pacific Railway Co., No. 05-8106 (10th Cir. July 6, 2007) the plaintiff failed to disclose his pending personal injury suit filed under the Rail Road Workers’ Compensation Act in his post-accident bankruptcy and failed to tell the truth about the lawsuit in a meeting of creditors.  He received a discharge of his debts under Chapter 7 of the Code.

Almost a year later plaintiff’s personal injury attorney became aware of the filing and notified the bankruptcy trustee, who in turn moved to re-open the bankruptcy and list the pending case as an asset.  The defendants in the personal injury case got involved before the federal district court and asked the court to dismiss the case the grounds of judicial estoppel.  The federal district judge agreed, saying "[w]hat the Court finds most telling . . . is the fact that when given the opportunity at the meeting of creditors to reveal the pending litigation, Mr. Gardner did not disclose his personal injury action. First, he explicitly denied having a personal injury action pending. Second, his attorney represented that the claim was not workers’ compensation “per se,” but indicated that any claim was related to an on-the-job injury, leading the Trustee to believe that the claim was similar in nature to a workers’ compensation claim. Third, Mr. Gardner’s attorney referred to UPRR’s failure to provide hearing aids to Mr. Gardner, misrepresenting the extent of the claims involved. Mr. Gardner had an affirmative duty to speak up and let the trustee know the nature of his lawsuit against UPRR as well as eight other defendants. . . ."

 

The 10th Circuit Court of Appeals affirmed.  It said "Gardner took ‘clearly inconsistent’ positions in the bankruptcy and district courts. The obvious “perception” is that Gardner misled the bankruptcy court.  And Gardner received the benefit of a  discharge without ever having disclosed his pending personal injury action against Defendants, thus providing him an unfair advantage over his creditors. See id. The district court’s discretionary application of judicial estoppel was appropriate under such circumstances. That Gardner’s bankruptcy was reopened and his creditors were made whole once his omission became known is inconsequential. A discharge in bankruptcy is sufficient to establish a basis for judicial estoppel, ‘even if the discharge is later vacated.’  Allowing Gardner to ‘back up’ and benefit from the reopening of his bankruptcy only after his omission had been exposed would ‘suggest[] that a debtor should consider disclosing potential assets only if he is caught concealing them. This so-called remedy would only diminish the necessary incentive to provide the bankruptcy court with a truthful disclosure of the debtor’s assets.’" 

Unfortunately, the personal injury lawyer did not know about the bankruptcy filing and could have assisted the bankruptcy lawyer in avoiding this problem.  Yet another reason to have  regular conversations with our clients about what is going on in their lives and to encourage them to tell us about significant events.

Note:  if you read this opinion you will see that it is styled differently than I have styled it above.  The Court changed the style in the opinion, and therefore I changed the style for this post.