2644353200_427a5c1127_zCan a personal injury claim be barred by judicial estoppel if you fail to disclose the unliquidated claim in your personal bankruptcy proceeding? That’s the issue posed by Seymour v. Collins, currently pending before the Illinois Supreme Court. Based upon the vigorous questioning of plaintiffs during oral argument last month, the Supreme Court appears inclined to hold that failure to disclose does not necessarily doom a tort claim. Our detailed summary of the facts and underlying court opinions in Seymour is here.

The plaintiffs filed for bankruptcy in April 2008. When the husband was injured on the job the next year, the plaintiffs moved to modify their Chapter 13 bankruptcy plan. A year later, the husband was injured when the ambulance in which he was being transported was involved in an accident. He filed a tort suit for the injuries he sustained.

The plaintiffs were granted a discharge in bankruptcy in July 2012. The defendants then moved for summary judgment in the tort suit, arguing that since the plaintiffs had never disclosed the tort claim in their bankruptcy proceeding, they were now judicially estopped from collecting on the claim. The trial court granted the motion, and the Appellate Court affirmed.

Counsel for the plaintiffs began the argument. Counsel emphasized that the plaintiffs had not willfully concealed their pending tort claim; indeed, they had an affidavit from the U.S. bankruptcy trustee, confirming that they didn’t need to take any action in the bankruptcy with regard to the lawsuit unless they collected over a certain threshold. Plaintiffs hadn’t received any benefit from the nondisclosure of their claim, counsel argued. Justice Karmeier noted that the plaintiffs were arguing for de novo review, but pointed out that the Supreme Court has indicated in the past that judicial estoppel is an equitable remedy, thus triggering abuse of discretion review. Counsel conceded that abuse of discretion might apply, but suggested that the unusual fact of the Trustee’s testimony should give rise to de novo review. Chief Justice Garman asked counsel whether he was saying that the Trustee told the plaintiffs they didn’t have to report their claim, and counsel answered that the Trustee had said no action was necessary unless the plaintiffs received more than $2,000. Justice Karmeier asked counsel whether the Trustee had specifically said there was no need to report the claim, or that plaintiffs weren’t obligated to report a financial event under $2,000. Did the Trustee’s advice trump the Bankruptcy Code? Counsel answered that the Trustee had said that the plaintiffs had no reporting obligation unless they received more than $2,000 from any source. Justice Karmeier asked whether the Trustee could waive the reporting requirement of the Bankruptcy Code, and whether any reliance by plaintiffs was reasonable? Counsel responded that at the very least, non-disclosure wasn’t grounds for dismissal of the personal injury suit. The husband was totally disabled, according to counsel, and would require treatment for the rest of his life. Justice Kilbride asked who filed the paperwork which didn’t include the required disclosure. Counsel answered that the plaintiffs’ bankruptcy counsel had filed. Justice Kilbride asked whether the plaintiffs’ bankruptcy counsel had advised them not to disclose the tort claim. Counsel answered that no one had ever advised the plaintiffs to disclose the claim. Counsel concluded by arguing that dismissal was a harsh and unjust result on the facts of the case.

Counsel for the first defendant followed and argued that estoppel was an equitable doctrine consigned to the discretion of the trial court. Justice Thomas asked whether receiving a benefit was an element of judicial estoppel – wasn’t it undisputed that the plaintiffs had received no benefit from their nondisclosure? Counsel answered that there was no way to know whether the disclosure would have made a difference, and in any event, the plaintiffs had received a discharge. Justice Thomas asked who had the burden of showing a benefit from the nondisclosure to the plaintiff? Counsel again stated that the plaintiffs had received a discharge without full disclosure – there was no way of knowing what would have happened if disclosure had been made. The plaintiffs had immediately reported the change when the husband was first injured at work, asking for their plan payments to be reduced. Some time later, according to counsel, the husband had returned to work, but the plaintiffs hadn’t reported that. Justice Theis asked if the discharge was in the record. Counsel answered that at minimum, an outline of its terms was in the record; the Court could take judicial notice of the actual filing. Justice Theis suggested that this was speculative, and shouldn’t the Court know what was happening in the bankruptcy? Counsel answered that the affidavits in the record adequately describe the bankruptcy. Justice Karmeier asked whether the defendant was basing estoppel on the failure to report the husband’s return to work, or failure to report the tort claim? Counsel said both. Justice Karmeier asked why failure to report returning to work should terminate the personal injury action. Counsel answered that the bankruptcy court functions based upon total disclosure. The plaintiffs had taken factually inconsistent positions in the two proceedings, and had received a benefit from doing so. Justice Thomas asked counsel whether there would be no estoppel if the Court concluded that the plaintiffs had received no benefit from non-disclosure, and counsel answered that the Court could infer a benefit to the plaintiff. Counsel conceded, in response to Justice Thomas’ question, that the defendants had the burden of showing clear and convincing evidence that the plaintiffs had received a benefit from nondisclosure. Counsel insisted that that benefit was the discharge. No one knew what would have happened if the tort suit had been disclosed. Justice Thomas asked whether there would still be a benefit to the plaintiffs if they had disclosed the claim and received a discharge anyway. Counsel answered that in that event, there would be no basis for estoppel, since the plaintiffs wouldn’t have taken inconsistent positions. Justice Karmeier pointed out that the case was decided on summary judgment – so why wasn’t review de novo? Counsel answered that judicial estoppel is a matter of discretion regardless of the procedural vehicle. Justice Freeman noted that the bankruptcy payment plan had been set up based on the plaintiffs’ reported income. When that income changed, did that effect the balance? Counsel pointed out that since a bankrupt can only be required to pay for five years, a change in payments effectively changes the balance. That was the benefit, counsel concluded – plaintiffs had paid less on their debts than they initially agreed to.

Counsel for the medical services defendant followed, arguing that although plaintiffs were insisting that both statements had to be under oath for estoppel to apply, in fact, courts had long ago discarded the oath requirement. The test was now based on intent – what does the plaintiff intend the court to accept. Besides, the plaintiffs had taken an oath to provide full disclosure in their bankruptcy. When their circumstances changed to their detriment, they disclosed that and sought a change in their payments. When circumstances changed to their advantage, counsel argued, they didn’t tell anyone. An ongoing duty of disclosure is a small price to pay for bankruptcy protection, counsel insisted.  Justice Kilbride told counsel he was having trouble understanding how the plaintiffs’ nondisclosure in the bankruptcy proceeding had made a difference which harmed the defendants in the tort suit. Counsel answered that the creditors had lost an opportunity to seek an upwards adjustment to bankruptcy payments. Justice Kilbride asked whether the Trustee had the authority to reopen the bankruptcy estate on grounds of nondisclosure. Counsel answered no, not after a year had passed. Justice Thomas asked again what facts were in the record showing a benefit to the plaintiffs from nondisclosure. Counsel responded that they had received a discharge for reduced payments.

In rebuttal, counsel for the plaintiffs argued that the plaintiffs had received no benefit in the tort action from their nondisclosure in the bankruptcy action. They disclosed everything in discovery; there was no attempt to evade their duties. Chief Justice Garman pointed out that their disclosure had been in the tort case, however – not the bankruptcy case.

We expect Seymour to be decided in four to five months.

Image courtesy of Flickr by Taber Andrew Bain (no changes).