Peter Newman v. Univ. of Dayton

• Court: Court of Appeals for the Sixth Circuit
• Decided: October 24, 2018
• Docket: 17-4241
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR PUBLICATION File Name: 18a0531n.06

No. 17-4241

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED Oct 24, 2018 PETER NEWMAN, ) DEBORAH S. HUNT, Clerk ) Plaintiff-Appellant, ) ON APPEAL FROM THE ) UNITED STATES DISTRICT v. ) COURT FOR THE ) SOUTHERN DISTRICT OF UNIVERSITY OF DAYTON, et al. ) OHIO ) Defendants-Appellees. ) )

BEFORE: GUY, WHITE, and STRANCH, Circuit Judges.

HELENE N. WHITE, Circuit Judge.

Relying on the doctrine of judicial estoppel, the district court dismissed plaintiff-appellant

Peter Newman’s claims against his former employer and others because Newman had failed to

disclose both the existence of those claims and the income from his University employment in his

bankruptcy proceeding. On appeal, Newman argues that the district court erroneously found that

his omissions were not the result of mistake or inadvertence and asks us to reverse the dismissal

of his claims. For the reasons that follow, we AFFIRM.

I. BACKGROUND

Because the single issue before us is whether the district court erred in dismissing

Newman’s complaint under the doctrine of judicial estoppel, we set out the procedural and factual

background of this action and Newman’s bankruptcy proceeding only insofar as relevant to that

issue. No. 17-4241, Newman v. Univ. of Dayton, et al.

A. Newman’s Bankruptcy Proceeding

On October 8, 2014, Newman filed a Chapter 13 bankruptcy petition with the United States

Bankruptcy Court for the Southern District of Ohio. (See In re Peter K. Newman and Susan B.

Newman, Case No. 3:14-bk-33622, Doc. 1 (Bankr. S.D. Ohio).) Under a section of the petition

titled “Your Income,” Newman listed his occupation as “disabled” and his income as $0, stated

that he did not expect his income to increase the following year, and did not list any employment

in response to an instruction to “[i]nclude any part-time, seasonal, or self-employed work.” (BK.

Doc. 1 at 23.) On October 27, 2014, Newman filed a bankruptcy plan (Plan) in which he

acknowledged his responsibility to “keep the Trustee informed as to any change in status of any

claim . . . to which [Newman] may be entitled.” (BK Doc. 12 at 8.)

Between January 23, 2015, and December 22, 2016, Newman was employed as an adjunct

professor at the University of Dayton (University), where he taught courses in the School of Law,

MBA Program, and School of Business Administration and earned a total of $38,762 from his

work for the University.

Newman filed an amended Plan on February 5, 2015, in which he again listed his

occupation as “disabled” and failed to disclose his University employment or income. Newman

filed another amended Plan on February 26, 2015, which again made no reference to his

employment with the University.

The Bankruptcy Court confirmed Newman’s Plan on April 15, 2015, in an order requiring

Newman to “notify the Chapter 13 Trustee in writing if [his] place of employment changes and

the name and address of the new employer.” (BK Doc. 75 at 2.) For reasons that are irrelevant

here, Newman moved to modify the Plan on May 20, 2015; again, Newman did not disclose his

University employment or income. The Bankruptcy Court granted the request to modify on

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October 16, 2015. On July 14, 2017, the Trustee filed a motion to dismiss the bankruptcy

proceeding on the basis that Newman had failed to turn over copies of his 2016 tax returns or tax

refund as required. Although the record is not entirely clear on this point, Newman appears to

have provided the Trustee with his 2016 tax returns after the Trustee filed its motion.

On August 7, 2017—after defendants in the instant suit had filed their motion to dismiss—

Newman’s bankruptcy counsel advised the Trustee that Newman was the plaintiff in a pending

employment-discrimination lawsuit, and on August 22, 2017, Newman filed an Amended

Schedule that disclosed his claims against defendants in the instant case.

B. The Instant Suit

On September 16, 2016, Newman filed an internal discrimination and harassment

complaint against one of his students at the University, alleging that she had disrespected him

based on his age, gender, and race. On October 14, 2016, the University notified Newman that he

would not be scheduled to teach classes for the 2017 spring semester. Plaintiff met with

administrators during November and December 2016, and the University determined that his

complaint was without merit and declined to mediate his claims. Newman subsequently filed an

administrative complaint with the Department of Education Office of Civil Rights, an

employment-discrimination charge with the Equal Employment Opportunity Commission, and an

employment-discrimination claim with the Ohio Civil Rights Commission.

Newman filed the instant suit on May 19, 2017. Newman’s complaint advanced thirteen

claims under federal and Ohio law, all of which are premised on allegedly unlawful actions taken

by the University or the individual defendants in connection with Newman’s employment. On

July 14, 2017, defendants filed a motion to dismiss the complaint, arguing that Newman “is

judicially estopped from asserting the claims and seeking the damages at issue in this case”

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because, although “[a]ll of Newman’s claims are related to his employment as an adjunct instructor

at the University,” Newman never disclosed as assets in his bankruptcy proceeding “the existence

of the claims at issue in this action as contingent and unliquidated claims” or “his employment

with or earnings from the University.” (R. 18, PID 70–71.)

Newman and his bankruptcy counsel submitted affidavits in opposition to defendants’

motion. Newman’s affidavit stated that his “original bankruptcy lawyer” advised him that he was

not required to disclose his income “unless [the University] gave [him] a commitment to teach

classes on an ongoing basis.” (R. 26-1, PID 212.) The affidavit further stated that, although

Newman “did not report [his University] earnings, the Trustee was aware of [his earnings]

because” he had provided his “2014, 2015, and 2016 tax returns.” (Id. at PID 212.) Newman

further stated that his “failure to disclose [his] discrimination lawsuit resulted from mistake or

inadvertence” because he “mistakenly thought that [he] did not have to disclose [his] lawsuit until

[he] collected damages.” (Id.) Newman’s bankruptcy attorney—a different attorney than the one

who allegedly advised Newman that he need not disclose his income—filed an affidavit stating

that he rectified the omissions in the bankruptcy filings after defendants filed their motion to

dismiss in the instant suit. The affidavit makes no assertions concerning the period of time prior

to the filing of defendants’ motion to dismiss.

C. The District Court Grants Defendants’ Motion to Dismiss

On October 31, 2017, the district court granted defendants’ motion to dismiss on the basis

that the doctrine of judicial estoppel barred Newman from advancing any of the claims in the

instant suit. The court recognized that defendants’ motion relied on Newman’s bankruptcy

proceedings and, therefore, went beyond the pleadings in the instant case, but found that those

documents “are public records which may be considered by the Court in ruling on a Rule 12(b)(6)

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motion to dismiss.” (R. 38, PID 330.) However, because Newman had filed two affidavits in

opposition to defendants’ motion to dismiss, the court converted defendants’ motion to dismiss

into a motion for summary judgment.

The district court first rejected Newman’s argument “that his failure to disclose his income

is irrelevant to whether judicial estoppel should be applied,” noting that one of our prior

unpublished decisions suggests that his “failure to disclose his income from the University is not

only relevant, but is sufficient alone to support the application of judicial estoppel.” (Id. at PID

335 (citing Lewis v. Weyerhaeuser Co., 141 Fed. App’x 420, 428–29 (6th Cir. 2005)).) The court

next rejected Newman’s argument “that his failure to disclose the claims in this lawsuit should be

disregarded because they were filed after his bankruptcy petition” because that argument “does

not take into account [Newman’s] continuing duty of disclosure under the Bankruptcy Code.” (Id.

(citing Lewis, 141 F. App’x at 424; Harrah v. DSW Inc., 852 F. Supp. 2d 900, 904 (N.D. Ohio

2012)).)

The district court next considered and rejected four separate arguments in support of

Newman’s position that his omissions were the result of mistake or inadvertence. First, the court

rejected Newman’s argument that his judgment was impaired because he was “suffering from

severe depression when the disclosures were required,” noting that Newman “not only was able to

work with his attorney to file his Bankruptcy Petition, but during the same period he was also able

to obtain employment as an adjunct professor.” (Id. at PID 338–39.) The court also stated that

depression “cannot excuse a party’s lack of diligence in complying with statutory obligations.”

(Id. at PID 338 (internal quotation marks and citations omitted).)

Second, the court rejected Newman’s argument that he had relied on his attorney’s advice

that he was not required to disclose the income because the University “had not given him a firm

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commitment to hire him on an ongoing basis.” (Id. at PID 339.) The court noted both that “a

party’s failure to provide information to a bankruptcy court should not be excused due to reliance

on poor legal advice,” (id. (citing White v. Wyndham Vacation Ownership Inc., 617 F.3d, 472, 483

(6th Cir. 2010)), and that counsel’s alleged advice “was clearly erroneous, as [Newman] should

have recognized based on the declarations that he signed and filed with the Bankruptcy Court”

attesting that he “has no earned income in at least the last six months” and listing his occupation

as “disabled” (id. (quoting BK Doc. 53-1)).

Third, the court rejected Newman’s argument that he had effectively disclosed his income

by providing his tax returns to the Trustee. The court first noted that even if Newman had disclosed

his tax returns to the Trustee in a timely fashion, such disclosure “did not correct his

misrepresentation to the Bankruptcy Court.” (Id. at PID 340.) But, as the district court found, “it

is reasonable to conclude that [Newman] did not provide the 2016 tax returns to the Trustee until

after the Trustee moved to dismiss the bankruptcy case,” (id.), because the Trustee filed a motion

to dismiss on the ground that Newman had “failed to turn over a copy of the 2016 tax returns

and/or tax refund to the Chapter 13 Trustee as required by Court Order,” (BK Doc. 113 at 1), and

Newman has never asserted that he provided the requested tax returns before the Trustee’s motion.

The district court stated that although it might be plausible to infer that a debtor’s failure to disclose

income is inadvertent where he had properly provided the required tax returns, “any such inference

is obliterated by the fact that the 2016 tax returns (which reported most of [Newman’s] University

income) were provided only after the Trustee moved to dismiss the bankruptcy case.” (R. 38, PID

340.)

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Finally, the district court rejected Newman’s argument that the omission of his employment

was not material because his University income was de minimis, noting that $38,762.15 is not a

de minimis amount.

II. ANALYSIS

We review de novo both a district’s court decision to grant summary judgment and a district

court’s application of judicial estoppel.1 White, 617 F.3d at 475–76. However, the Supreme Court

has also noted that because the doctrine “is intended to prevent ‘improper use of judicial

machinery,’” New Hampshire v. Maine, 532 U.S. 742, 749 (2001) (quoting Konstantinidis v. Chen,

626 F.2d 933, 938 (D.C. Cir. 1980)), “judicial estoppel is ‘an equitable doctrine invoked by the

court at its discretion,’” id. (quoting Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990)).

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 proceeding, where (2) the prior court adopted the contrary

position either as a preliminary matter or as part of a final disposition.” White, 617 F.3d at 476

(internal quotation marks omitted) (quoting Browning v. Levy, 283 F.3d 761, 775 (6th Cir. 2002)).

“Judicial estoppel is an ‘equitable doctrine meant to preserve the integrity of the courts by

preventing a party from abusing the judicial process through cynical gamesmanship, achieving

success on one position, then arguing the opposite to suit an exigency of the moment.’” Eubanks

v. CBSK Fin. Grp., Inc., 385 F.3d 894, 897 (6th Cir. 2004) (quoting Teledyne Indus., Inc. v. NLRB,

911 F.2d 1214, 1218 (6th Cir. 1990)). We have explicitly held that judicial estoppel may bar

employment-related claims where the plaintiff has failed to disclose as an asset in a bankruptcy

proceeding either the existence of such a claim or income derived from the employment

relationship at issue. See White, 617 F.3d at 476 (holding that judicial estoppel barred employment

1 No party has challenged the district court’s decision to convert defendants’ motion to dismiss into a motion for summary judgment.

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claims because the plaintiff had failed to disclose those claims in a bankruptcy proceeding); Lewis,

141 Fed. App’x at 421–22 (holding that judicial estoppel barred employment claims because the

plaintiff had failed to disclose in a bankruptcy proceeding both those claims and her employment).

“In short, to support a finding of judicial estoppel, we must find that: (1) [Newman]

assumed a position that was contrary to the one that [he] asserted under oath in the bankruptcy

proceedings; (2) the bankruptcy court adopted the contrary position either as a preliminary matter

or as part of a final disposition; and (3) [Newman’s] omission did not result from mistake or

inadvertence.” White, 617 F.3d at 478. Newman concedes that “Defendants met the first two

prongs” of the White inquiry because his omissions qualify as contrary positions and the

bankruptcy court adopted those positions by approving the Plan. (See Appellant Br. at 16.) The

only issue before us, then, is whether Newman’s omissions resulted from mistake or inadvertence.

In making that determination, we must consider “whether: (1) [Newman] lacked knowledge of the

factual basis of the undisclosed claims [and income]; (2) [he] had a motive for concealment; and

(3) the evidence indicates an absence of bad faith.” White, 617 F.3d at 478.

Newman does not argue that he lacked knowledge of the factual basis of either the

undisclosed claims or his University income. Regarding motive, Newman argues that “he had no

motive to conceal [his University] income because each year he submitted copies of his tax returns,

including his W-2 statements showing [the] income, to the Trustee.” (Appellant Br. at 20.) But,

we have observed that it “is always in a Chapter 13 petitioner’s interest to minimize income and

assets.” White, 617 F.3d at 479 (quoting Lewis, 141 Fed. App’x at 426). And, Newman did not

readily provide his 2016 tax returns to the Trustee.

Newman argues that the record demonstrates an absence of bad faith because he “notified

the Trustee about his [University] income before he became aware of Defendants[’] judicial

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estoppel motion and, after he became aware of Defendants’ motion, he took effective corrective

measures to amend his bankruptcy filings to report his” income. (Appellant Br. at 23.) He also

argues that the omission of his income was inadvertent because his bankruptcy counsel had advised

him that he did not need to disclose the income and because he “took steps to correct [the] technical

violation” in his bankruptcy filings.2 (Id. at 3, 20–21.)

None of Newman’s arguments is persuasive. Although it is true that Newman eventually

corrected his omissions, he did so only after those omissions had been brought to the attention of

the district and bankruptcy courts by other parties. While a party’s efforts to correct omissions or

misstatements are relevant to the question of bad faith, “the timing of [the] effort is also

significant”; “efforts to correct an omission that came before the Defendants filed their motion to

dismiss are more important than efforts that came after the Defendants filed their motion to

dismiss.” White, 617 F.3d at 480. To allow a party to avoid judicial estoppel by rectifying

omissions after a motion to dismiss has been filed “would encourage gamesmanship” and defeat

the purpose of the doctrine. Id. at 481.

Here, Newman provided the Trustee with the 2016 tax returns reflecting the bulk of his

University income only after the Trustee had moved to dismiss the bankruptcy proceeding for

failure to provide that tax returns. And Newman failed to rectify the omissions of his employment

claims until defendants moved to dismiss the instant suit. Those failures are highlighted by the

fact that Newman had submitted multiple amended bankruptcy Plans and continued to update the

bankruptcy court concerning other matters even after his Plan had been approved. The district

court had sound reasons to conclude that “none of [Newman’s] arguments supports a finding of

mistake or inadvertence or excuses his conduct.” (R. 38, PID 338.)

2 Newman’s two affidavits in opposition to defendants’ motion largely concern his efforts to correct the omissions after defendants filed their motion to dismiss.

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Newman’s argument that he relied on the advice of counsel is similarly unavailing. Even

setting aside the well-established rule that an individual is responsible for the actions taken on his

behalf by his attorney under an agency theory, see, e.g., White, 617 F.3d at 483–84, the omissions

here are so blatant that Newman could not have fairly relied on the alleged advice of counsel. For

example, Newman falsely stated that he had $0 in income and failed to disclose his employment

even in response to questions about part-time work. (See BK. Doc. 1 at 23.) Similarly, although

he was obligated to inform the court of any changes to his financial situation, Newman failed to

disclose his employment claims until after defendants filed their motion to dismiss. In short, the

district court did not err in finding that Newman’s inadequate disclosures were not the result of

mistake or inadvertence—especially in light of Newman’s sophistication as an attorney and

professor—and that the doctrine of judicial estoppel therefore bars his claims.

In the alternative, Newman argues that the doctrine of unclean hands bars the application

of judicial estoppel. (See Appellant Br. at 26–30.) Although Newman raised this issue below, the

district court did not discuss the doctrine in its order and appears to have implicitly rejected it.

Newman argues that three actions by defendants’ counsel rise to the level of unclean hands:

(1) defendants’ counsel communicated with the bankruptcy Trustee concerning whether the

Trustee was aware of Newman’s employment and the claims in the instant action, thus

“attempt[ing] to interfere with [Newman’s] agreement with the Trustee regarding his approved

bankruptcy plan,” (Appellant Br. at 26–28); (2) defendants’ counsel “improperly took a frivolous

position in threatening [Newman] with Rule 11 sanctions,”3 (id. at 28); and (3) defendants’ counsel

3 This argument is premised on a footnote in defendants’ memorandum in support of their motion to dismiss stating that “the filing of the instant lawsuit raises the question of whether Newman has properly complied with Fed. R. Civ. P. 11.” (R. 18, PID 79.)

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“violated the Ohio Professional Conduct Rule 1.2[(e)]4 when she threatened [Newman] with

criminal charges regarding his Social Security disability benefits” (id. at 29–30, 29 n.11).5

We review a district court’s application of the doctrine of unclean hands for abuse of

discretion. Osborn v. Griffin, 865 F.3d 417, 451 (6th Cir. 2017) (citing Performance Unlimited,

Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1383 (6th Cir. 1995)). Under the doctrine of unclean

hands, courts may deny relief when “the party applying for such relief is guilty of conduct

involving fraud, deceit, unconscionability, or bad faith related to the matter at issue to the detriment

of the other party.” Performance Unlimited, 52 F.3d at 1383.

None of defendants’ counsel’s actions rise to the level of fraud, deceit, unconscionability,

or bad faith. Indeed, counsel’s communications with the Trustee were intended to determine, prior

to filing a motion to dismiss, whether Newman had in fact disclosed his income and claims. There

is no indication that counsel behaved improperly. Similarly, although defendants’ counsel implied,

in footnotes, that Newman may not have disclosed his claims and income in connection with his

social security benefits and inquired whether Newman had complied with Rule 11, such innocuous

suggestions, without more, are not unconscionable.

Newman has therefore failed to demonstrate that the doctrine of unclean hands should

apply here.

III. CONCLUSION

For the foregoing reasons, the district court’s order is AFFIRMED.

4 Pursuant to Ohio Rule of Professional Conduct 1.2(e), a lawyer shall not present, participate in presenting, or threaten to present criminal charges or professional misconduct allegations solely to obtain an advantage in a civil matter unless “otherwise required by law.” 5 This is a reference to another footnote in defendants’ memorandum stating that a “question remains whether Newman disclosed his earnings from the University in conjunction with his claim for and receipt of social security benefits.” (R. 18, PID 71.)

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