Brooks v. Beatty

Opinion

USCA1 Opinion

May 27, 1994            [NOT FOR PUBLICATION]

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                                     
                                 ____________________

        No. 93-1891
                                   MARLENE BROOKS,

                                Plaintiff, Appellant,

                                          v.

                               JOHN J. BEATTY, ET AL.,

                                Defendants, Appellees.

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APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                   [Hon. Edward F. Harrington, U.S. District Judge]
                                               ___________________

____________________

                                        Before

                              Torruella, Cyr and Boudin,

                                   Circuit Judges.
                                   ______________

____________________

Francis  C. Newton, Jr., with  whom John R.  Dunnell and Russell,
             _______________________             ________________     ________
        Plummer & Rutherford, P.C. were on brief for appellant.
        __________________________
             Peter  J. Kajko, with whom  Sidney Gorovitz and Dropkin, Perlman,
             _______________             _______________     _________________
        Leavitt & Rubin were on brief for appellee Resolution Trust.
        _______________
             Jay L.  Seibert, with whom Hart and Lamond, P.C. was on brief for
             _______________            _____________________
        appellee Neil Tobin.
             George  W. Mykulak, with whom Mark A. Berthiaume, Janice O. Fahey
             __________________            __________________  _______________
        and Goldstein & Manello, P.C. were on brief for appellees Anderson and
            _________________________
        March.

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CYR, Circuit  Judge.  The present  appeal requires that
                    CYR, Circuit  Judge
                         ______________

          we  revisit the doctrine of  judicial estoppel, this  time in the

          context  of an  action by  a former  chapter 7  debtor who  later

          failed to disclose the cause of action as an asset in her chapter

          7 proceeding.   We conclude  that the  court below  improvidently

          granted summary  judgment  for defendants-appellees  on  judicial

          estoppel grounds but that  plaintiff-appellant in any event lacks

          standing  to maintain the action.   We therefore  vacate the dis-

          trict court judgment and remand for further proceedings.

I
                                          I

                                      BACKGROUND
                                      BACKGROUND
                                      __________

On  September  10,  1991,  plaintiff-appellant  Marlene

          Brooks brought this action for declaratory relief and compensato-

          ry damages against ComFed Mortgage Company ("ComFed") and various

          individual defendants.  The Resolution Trust Corporation ("RTC"),

          successor to  ComFed, was  substituted as  a  party defendant  on

          November 6, 1991.  The thrust of the claim in  the present action

          is  that the  former Brooks  residence was  wrongfully foreclosed

          upon  as a  result  of the  fraudulent  or negligent  conduct  of

          defendants-appellees.  

                    On  May 6,  1992, Brooks  filed a  voluntary chapter  7

          petition.  Although she promptly informed defendants-appellees of

          her chapter 7 petition,  Brooks failed to list the  present cause

          of action  (hereinafter  "the ComFed  action") on  her chapter  7

schedule of assets.   On June 19, 1992, RTC  notified Brooks that

          the  failure to  schedule the ComFed  action as  an asset  of the

          chapter 7 estate  was improper,  and that the  ComFed action  was

          property of the chapter 7 estate subject to the exclusive control

          of the chapter 7 trustee.  On August 27, 1992, before the chapter

          7 trustee became aware of the ComFed action, Brooks was granted a

          discharge in bankruptcy.

                    RTC  moved for  summary judgment  in the  ComFed action

          based on  Brooks' failure to schedule  the action as an  asset in

          her chapter 7 case.  The motion was denied by the district court.

          Shortly thereafter, Brooks moved to reopen the chapter 7 proceed-

          ing to amend her schedule of assets to reflect the ComFed action.

          The bankruptcy court summarily denied the motion, on the  inappo-

          site authority of  In re Thibodeau, 136  B.R. 7 (Bankr.  D. Mass.
                             _______________

          1992) (holding that a chapter 7 debtor  is not entitled to reopen

          a no-asset  case to  list a creditor;  stating that  if and  when
                                      ________

          assets become available, the bankruptcy case can be reopened, the

          claim  listed, and  the  estate administered).    Brooks did  not

          appeal the bankruptcy court decision. 

                    Thereafter,  in light  of Payless  Wholesale Distribs.,
                                              _____________________________

          Inc.  v. Alberto  Culver, Inc.,  989 F.2d  570 (1st  Cir.), cert.
          ____     _____________________                              _____

          denied, 114 S. Ct.  344 (1993), RTC moved for  reconsideration of
          ______

          its  motion for summary judgment.   In a  brief memorandum order,

          unaccompanied  by findings of fact, the  district court held that

          Payless  controlled, and  concluded  that  Brooks was  judicially
          _______

                                          3

estopped from  prosecuting the  ComFed action.   Summary judgment

          was entered for all defendants, and Brooks brought this appeal.

A.   Judicial Estoppel
          A.   Judicial Estoppel
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                    We review  a grant of summary judgment de novo, employ-
                                                           __ ____

          ing  the same criteria incumbent  upon the district  court in the

          first instance.  Pedraza v.  Shell Oil Co., 942 F.2d 48,  50 (1st
                           _______     _____________

          Cir. 1991),  cert. denied, 112 S. Ct.  993 (1992).  Summary judg-
                       _____ ______

          ment  is appropriate where the  record, viewed in  the light most

          favorable to the nonmoving party, reveals no trialworthy issue as

          to any material  fact, and the moving party  is entitled to judg-

          ment as a matter of law.  See Fed. R. Civ. P. 56(c); Vanhaaren v.
                                    ___                        _________

          State  Farm Mut. Auto  Ins. Co., 989  F.2d 1, 3  (1st Cir. 1993);
          _______________________________

          Mesnick  v. General Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991),
          _______     _________________

          cert. denied, 112 S. Ct. 2965 (1992).
          _____ ______

                    We held  in Payless that judicial  estoppel precluded a
                                _______

          former chapter 11 debtor from  maintaining a prepetition cause of

          action not disclosed in its earlier chapter 11 proceeding:

                    Even  a  cursory  examination  of  the claims
                    shows  that defendants should have figured in
                    both aspects  of Chapter 11  proceedings, and
                    that  Payless could  not have  thought other-
                    wise.
                                        * * *
                    The basic  principle of bankruptcy is  to ob-
                    tain  a discharge  from  one's  creditors  in
                    return  for all  one's  assets, except  those
                    exempt, as  a result  of which creditors  re-
                    lease  their own claims  and the bankrupt can
                    start fresh.   Assuming there is  validity in
                    Payless's present suit, it has a better plan.
                    Conceal your  claims; get rid of  your credi-

                                          4

tors  on the  cheap,  and start  over with  a
                    bundle of  rights.  This is  a palpable fraud
                    that the court will  not tolerate, even  pas-
                    sively.    Payless, having  obtained judicial
                    relief on  the representation that  no claims
                    existed, can  not now resurrect  them and ob-
                    tain relief on the opposite basis.

          Payless, 989 F.2d at 571  (footnotes & citations omitted) (citing
          _______

          Patriot  Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208 (1st
          ______________________    ____________________

          Cir. 1987) (plaintiff in federal action estopped from contradict-

          ing statement in related state  court action against same  defen-

          dant);  and Oneida Motor Freight, Inc. v. United Jersey Bank, 848
                      __________________________    __________________

          F.2d 414 (3d  Cir.), cert.  denied, 488 U.S.  967 (1988)  (former
                               _____  ______

          chapter 11  debtor equitably  estopped from  pursuing prepetition

          claims against defendant-creditor where causes of action were not

          disclosed in chapter 11 proceeding).

                    Brooks contends that the district court applied Payless
                                                                    _______

          with  too  broad a  brush, and  protests that  she engaged  in no

          willful  or iniquitous  conduct  but  instead  attempted  without

          success  to amend her chapter 7 schedules.   She asserts that she

          will attempt  to  do so  again  if and  when the  present  action

          against ComFed proves  fruitful.   In essence,  although she  now

          concedes "negligence" in failing to schedule the ComFed action as

          an  asset,  Brooks insists  that she  was  not playing  "fast and

          loose," and that the judicial estoppel ruling constituted revers-

          ible  error.   We  agree that  summary  judgment on  the judicial

          estoppel claim was inappropriate.

5

Nothing in its decision suggests that the Payless court
                                                              _______

          wrenched the  prudential doctrine  of judicial estoppel  from its

          traditional moorings.  In  Patriot Cinemas this court emphasized,
                                     _______________

          as  a "guiding  principle," that  "[j]udicial estoppel  should be
                 _______  _________

          employed  when a  litigant is  'playing fast  and loose  with the

          courts,'  and when 'intentional  self-contradiction is being used

          as a means of obtaining unfair advantage in  a forum provided for

          suitors seeking  justice.'"   Patriot  Cinemas, 834  F.2d at  212
                                        ________________

          (quoting Scarano  v. Central R. Co.,  203 F.2d 510, 513  (3d Cir.
                   _______     ______________

          1953));  accord  Payless,  989  F.2d at  571  (applying  judicial
                   ______  _______

          estoppel only after  concluding that appellants had engaged  in a

          "palpable fraud that  the court will not  tolerate, even passive-
           ________ _____

          ly.") (emphasis added).  Judicial estoppel is an equitable device

          which does not lend itself to reflexive application.

                    The district  court made  no  findings explicating  its

          application of judicial estoppel.  An examination of the evidence

          adduced on  summary judgment  below indicates that  Brooks estab-

          lished a genuine issue of material fact concerning her bona fides
                                                                 ____ _____

          in failing  to schedule  the ComFed  action  as an  asset in  her

          chapter  7  case.   The record  includes  two relevant  pieces of

          evidence:   (1) a letter  from the RTC  advising Brooks  that her

          earlier failure to  schedule the  ComFed action as  an asset  had

          been  improper; and (2) the  affidavit of John  R. Dunnell, Esq.,

          Brooks' counsel  in  the  present  action, stating  that  he  had

          contacted Brooks' bankruptcy counsel,  Jay P. Satin, Esq., before

                                          6

receiving  the  RTC letter  (and again  afterward), and  had been

          assured on both occasions  by Satin that Brooks was  not required

          to schedule the ComFed action in her chapter 7 case.  Although it

          is troubling that Brooks  waited approximately eight months after

          the RTC warning    and until after she had received her chapter 7

          discharge      before attempting  to  amend  her asset  schedule,

          because  the issue arose on  summary judgment we  must credit the
                                       _______ ________

          Dunnell affidavit as a plausible basis for layman Brooks' assert-

          ed  reliance  on her  bankruptcy  counsel's  misinformation as  a

          possible defense against a finding of bad faith.  The conflicting

          evidentiary signals simply illustrate  that the judicial estoppel

          issue was inappropriate for summary disposition under Rule 56.

B.   Standing
          B.   Standing
               ________

                    Brooks concedes that the cause of action against ComFed

          should have been scheduled as an asset in her  chapter 7 proceed-

          ing.   See 11 U.S.C.   541(a)(1).   It is equally  clear that the
                 ___

          ComFed action became property  of the chapter 7 estate.   Carlock
                                                                    _______

          v. Pillsbury Co., 719 F. Supp. 791, 856 (D. Minn. 1989) ("A cause
             _____________

          of  action is  a property  right which  passes to the  trustee in

          bankruptcy,  even  if such  cause of  action  is not  included in

          schedules filed  with the bankruptcy court.").   Further, because

          the ComFed action  was not  scheduled as an  asset, it was  never

          abandoned  by the  chapter 7  trustee.   See 11  U.S.C.   554(d);
                                                   ___

          United States v. Grant, 971 F.2d 799, 803 n.4 (1st Cir. 1992) (en
          _____________    _____                                         __

7

banc) (holding  that abandonment by trustee  "does not relinquish
          ____

          an  undisclosed  interest  in property")  (emphasis  in original,
              ___________

          citing  Dushane v.  Beall, 161  U.S. 513,  516 (1896));  see also
                  _______     _____                                ___ ____

          Krank v. Utica Mutual  Ins. Co., 109 B.R. 668 (E.D.  Pa.), aff'd,
          _____    ______________________                            _____

          908 F.2d  962 (3d  Cir. 1990).   Thus, Brooks  lacks standing  to

          prosecute the present action.

III
                                         III

                                      CONCLUSION
                                      CONCLUSION
                                      __________

We  therefore vacate  the  judgment and  remand to  the

          district court with instructions  to stay further proceedings for

          ninety days to permit plaintiff-appellant to reopen her chapter 7

          proceeding and amend her schedule of assets to include the ComFed

          action,  and  to permit  the  bankruptcy court  to  afford notice

          thereof  to the  former  chapter 7  trustee, any  newly-appointed

          chapter 7 trustee, and the United States Trustee for the District

          of  Massachusetts, to  sell or  abandon the  ComFed action  or to

          intervene in the pending district court action.  In the event the

          ComFed action  is abandoned or  acquired by Brooks,  the district

          court should resolve  the judicial estoppel  issue on the  merits

          following an evidentiary hearing.  See Rivera-Gomez v. de Castro,
                                             ___ ____________    _________

          900 F.2d 1,  2 (1st Cir. 1990) (advocating Fed.  R. Civ. P. 12(d)

          procedure to  conserve  "scarce judicial  resources by  targeting

          early  resolution of threshold issues").  In the event the ComFed

8

action is duly  transferred to  an entity other  than Brooks,  or

          retained by the chapter 7 trustee, and such entity or the chapter

          7  trustee intervenes,  the pending  district court  action shall

          proceed  on the merits; otherwise, it shall be dismissed for lack

          of standing.

                    The district court judgment is vacated and the  case is
                    The district court judgment is vacated and the  case is
                    ___ ________ _____ ________ __ _______ ___ ___  ____ __

          remanded for  further proceedings consistent  with this  opinion;
          remanded for  further proceedings consistent  with this  opinion;
          ________ ___  _______ ___________ __________  ____ ____  _______

          costs to plaintiff-appellant.
          costs to plaintiff-appellant.
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