Vicki Parker v. Wendy's International

• Court: Court of Appeals for the Eleventh Circuit
• Decided: March 31, 2004
• Docket: 02-16185
• Status: Published

Opinion

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED ________________________ U.S. COURT OF APPEALS ELEVENTH CIRCUIT March 31, 2004 No. 02-16185 THOMAS K. KAHN ________________________ CLERK

D. C. Docket No. 99-00038-CV-N-S

VICKI PARKER,

Plaintiff,

THOM AS E. REYNOLDS,

Intervenor-Plaintiff- Appellant,

versus

WENDY'S INTERNATIONAL, INC., WEN-ALABAMA, W en-Alabama, Inc.,

Defendants-Appellees.

________________________

Appeal from the United States District Court for the Northern District of Alabama _________________________

(March 31, 2004) Before TJOFLAT, BIRCH and GOODWIN *, Circuit Judges.

BIRCH, Circuit Judge:

Bankruptcy trustee Thomas E. Reynolds, plaintiff-intervenor in this

employment discrimination action filed by Vicki Parker against Wendy’s

International, Inc., and Wen-Alabama, Inc. (hereinafter collectively referred to as

“Wendy’s”), appeals the district court’s finding that judicial estoppel bars

Reynolds from pursuing Parker’s claim on behalf of Parker’s creditors in

bankruptcy. The district court applied our holding in Burnes v. Pemco Aeroplex,

Inc., 291 F.3d 1282 (11th Cir. 2002), and found that judicial estoppel was proper

because Parker failed to disclose the existence of her discrimination claims when

she filed for Chapter 7 bankruptcy. Because Parker’s actions indicate that her

omission in the bankruptcy court was inadvertent and because the equities balance

in favor of allowing Reynolds to proceed, we REVERSE the decision of the district

court.

I. BACKGROUND

In January 1999, Parker filed a complaint, as amended, against Wendy’s,

alleging racial discrimination in the workplace and retaliation in violation of Title

VII of the Civil Rights Act, 42 U.S.C. § 2000e, et seq. Wendy’s denied the

* Honorable Alfred T. Goodwin, United States Circuit Judge for the Ninth Circuit, sitting by designation.

2 allegations contained in the complaint, and the case was set for trial. On 9

February 2001, Parker and her former husband filed a petition for relief under

Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the

Northern Division of Alabama. The schedules in the bankruptcy case did not list

Parker’s claim against Wendy’s as a potential asset. On 31 May 2001, the

bankruptcy court entered an order granting a “no asset” discharge for Parker and

her former husband.

Thereafter, Parker’s attorney in this case requested a trial continuance,

contending that Parker had inadvertently failed to disclose the existence of her

discrimination case to the trustee of her bankruptcy estate, Reynolds, who needed

to be advised of the discrimination action in order to reopen the bankruptcy case.

The court granted this motion. Reynolds moved to intervene in this case or,

alternatively, for substitution as the real party in interest. Reynolds informed the

district court that Parker had filed for relief under Chapter 7 on or about 9 February

2001, and had failed to disclose the existence of the discrimination claims.

Reynolds stated that, after Parker’s attorneys informed him that the discrimination

case existed, he investigated and then moved to reopen the bankruptcy case to

allow for further administration of the bankruptcy assets. The bankruptcy court

granted his motion to reopen, and the district court granted Reynolds’s motion to

3 intervene.

Wendy’s then moved to dismiss Parker’s discrimination claims. Wendy’s

argued that, under our reasoning in Burnes, Parker’s claims for monetary damages

were barred by the doctrine of judicial estoppel because she failed to disclose the

existence of her discrimination suit to the bankruptcy court. Wendy’s contended

that Parker had knowledge of her discrimination claims prior to, and during, the

bankruptcy proceedings and that she would not have been entitled to a “no asset”

complete discharge of all debts had her creditors, Reynolds, or the bankruptcy

court known of a lawsuit claiming substantial damages. According to Wendy’s,

the fact that the bankruptcy court reopened Parker’s proceedings was relevant only

as an acknowledgment that Parker’s failure to disclose resulted in a tangible benefit

to Parker in the bankruptcy proceeding.

The district court granted Wendy’s motion to dismiss, construed as a motion

for judgment on the pleadings. The district court found that “this case [wa]s

factually and procedurally indistinguishable” from Burnes because Parker had

failed to disclose the existence of her discrimination claim when she filed for

Chapter 7 bankruptcy and the bankruptcy proceeding resulted in the discharge of

her debts. R1-30 at 2. As a result, the district court held that Parker was judicially

estopped from bringing her discrimination claim and dismissed her complaint with

4 prejudice.

Reynolds then moved for reconsideration, arguing that this case was

distinguishable from Burnes. First, Reynolds pointed out that, where the real party

in interest in Burnes was the debtor acting on his own behalf, here the real party in

interest is the trustee, Reynolds, acting on behalf of Parker’s creditors. Moreover,

Reynolds argued that Parker and her attorneys informed Reynolds of the claim and

Reynolds reopened the bankruptcy case before Wendy’s had moved to dismiss

based on judicial estoppel. Reynolds contended that this sequence of events also

distinguished this case from Burnes because the debtor in Burnes only moved to

reopen his bankruptcy case after the defendant argued judicial estoppel. Reynolds

argued that judicial estoppel should not apply because Parker “ha[d] done the right

thing for the creditors of the bankruptcy case by reopening the case and attempting

to recover some value to be paid against their claims.” R1-32 at 3. Finally,

Reynolds contended that imposing judicial estoppel would result in an injustice to

the innocent creditors who would be denied “the possibility of actually recovering

some money” and would grant a windfall to Wendy’s who would be able to

“escape their own liability at the expense of the innocent [creditors] in the

bankruptcy case.” Id. at 4.

The district court denied Reynolds’s motion for reconsideration, concluding

5 that the distinctions between this case and Burnes were not determinative. The

district court found that neither Reynolds’s intervention as the real party in interest

nor the fact that Reynolds reopened the bankruptcy case prior to Wendy’s assertion

of judicial estoppel changed the fact that Parker, who remained a party to the

discrimination action, asserted a claim that was inconsistent with the position she

took in the bankruptcy proceeding. Reynolds timely appealed.

II. DISCUSSION

Reynolds now appeals the district court’s grant of judgment on the pleadings

to Wendy’s and its denial of Reynolds’s motion for reconsideration.1 Specifically,

Reynolds argues that the district court abused its discretion when it applied judicial

estoppel. We review a judgment on the pleadings de novo. Cannon v. City of

West Palm Beach, 250 F.3d 1299, 1301 (11th Cir. 2001). “Additionally, we

review the district court’s application of judicial estoppel for abuse of discretion.”

Burnes, 291 F.3d at 1284. “The abuse of discretion standard includes review to

determine that the discretion was not guided by erroneous legal conclusions.”

Talavera v. School Bd. of Palm Beach County, 129 F.3d 1214, 1216 (11th Cir.

1997).

1 Because we reverse the district court’s grant of judgment on the pleadings, we do not reach the issue of whether the district court properly denied Reynolds’s motion for reconsideration.

6 As a threshold issue, we must determine whether these issues were properly

preserved for appeal. Wendy’s argues that Reynolds failed to preserve the issue of

whether judicial estoppel applies for appellate review because, prior to the entry of

the district court’s order dismissing the case, he failed to respond to Wendy’s

motion to dismiss in which it first raised the issue of judicial estoppel. Wendy’s

argument fails because the judicial estoppel issue was raised in the district

court–by Wendy’s in its motion to dismiss. Moreover, judicial estoppel was the

precise issue the district court addressed in its dismissal order and the issue

presented in this appeal is whether that application was appropriate. Accordingly,

the issue of judicial estoppel is subject to our review.

“Judicial estoppel is an equitable concept invoked at a court’s discretion”

and designed “to prevent the perversion of the judicial process .” Burnes, 291 F.3d

at 1285 (citation omitted). Although the Supreme Court has noted that “the

circumstances under which judicial estoppel may appropriately be invoked are

probably not reducible to any general formulation of principle,” New Hampshire v.

Maine, 532 U.S. 742, 750, 121 S.Ct. 1808, 1815 (2001) (citations omitted), we

generally consider two factors. “First, it must be shown that the allegedly

inconsistent positions were made under oath in a prior proceeding. Second, such

inconsistencies must be shown to have been calculated to make a mockery of the

7 judicial system.” Burnes, 291 F.3d at 1285 (citation omitted). The district court

correctly determined that the first prong of this test was met; however, the district

court erred in concluding that the second prong was also met.

Reynolds concedes that Parker took inconsistent positions in bankruptcy

court and district court. Reynolds argues that Parker’s inconsistent statements

should not be attributed to him and that, even if judicial estoppel would bar Parker,

it should not bar Reynolds from pursuing this claim on behalf of Parker’s creditors.

Reynolds contends that judicial estoppel should not apply to him, as bankruptcy

trustee, because he did not know of the discrimination claim during the bankruptcy

proceedings and, therefore, did not take inconsistent positions in the courts.

Moreover, Reynolds posits that applying judicial estoppel to him would not serve

the policy of encouraging honest disclosure to the courts because Reynolds was

never dishonest with the courts.

This argument fails because general bankruptcy law requires that the trustee

in bankruptcy does not have any more rights than the debtor has and cannot reach

more assets than the debtor can. Bank of Marin v. England, 385 U.S. 99, 101, 87

S. Ct. 274, 276 (1966) (“The trustee succeeds only to such rights as the bankrupt

possessed; and the trustee is subject to all claims and defenses which might have

been asserted against the bankrupt but for the filing of the petition.”); see also In re

8 Halabi, 184 F.3d 1335, 1337 (11th Cir. 1999) (“[T]he trustee’s powers are

necessarily limited to the actual or potential property of the bankruptcy estate. The

trustee’s strong arm reaches only so far as to enable him to avoid ‘any transfer of

property of the debtor or any obligation incurred by the debtor. 11 U.S.C.

§544(a).’” (citation omitted)). Because Parker made inconsistent statements under

oath to the district court and to the bankruptcy court, the first prong of our general

test for judicial estoppel is met.

Whether Parker’s inconsistent statements were “calculated to make a

mockery of the judicial system,” as required by the second prong, is not as clear.

This prong requires that Parker intended to mislead the bankruptcy court.

“[J]udicial estoppel applies in situations involving intentional contradictions, not

simple error or inadvertence.” Burnes, 291 F.3d at 1286. In Burnes, we

determined that intent can be inferred from the record and that such an inference is

appropriate when the evidence shows that the debtor knew about the undisclosed

claims and had motive to conceal them from the bankruptcy court. Id. at 1287.

Although these factors, when present, can create an inference of intent, we note

that they create only an inference and are not conclusive proof of intent. The other

circumstances of the case may negate that inference. In Burnes, we noted that

“courts must always give due consideration to all of the circumstances of a

9 particular case when considering the applicability” of judicial estoppel. Id. at

1286. We conclude that simply asking whether there was knowledge and motive

to conceal, without considering all of the other circumstances of the case, as the

district court did here, was error. Moreover, the error in this case was not

harmless because the totality of the circumstances in this case shows that, even

though Parker had knowledge and motive to conceal, 2 her omission was not

intentional.

This case is distinguishable from Burnes because the timing of events

indicate that Parker’s omission of her discrimination claim from her bankruptcy

estate schedule was inadvertent. In Burnes, the debtor did not attempt to disclose

his discrimination claim to the bankruptcy court or to reopen his bankruptcy case

until after the defendant in his discrimination action moved to dismiss based on

judicial estoppel. In contrast, Parker disclosed her discrimination claim to

Reynolds and the bankruptcy court as soon as she realized it was relevant to the

bankruptcy proceeding and before Wendy’s moved to dismiss. The timing of

events indicates that Parker was not trying to gain an advantage from her omission.

If Parker were trying to gain such an advantage, she would have tried to settle with

2 Parker does not deny that she knew of her discrimination claim before and during the bankruptcy proceedings. Moreover, Parker would have motive to conceal this claim from the bankruptcy court–to receive a “no asset” discharge.

10 Wendy’s quietly, keeping her no asset discharge and all of the settlement proceeds.

Therefore, Parker does not appear to have been acting intentionally or with bad

faith when she omitted this claim during the original bankruptcy proceedings.

The language in Burnes supports our conclusion that timing matters in

determining whether judicial estoppel is proper. In Burnes, we focused on the fact

that the debtor attempted to reopen his bankruptcy case “only after his omission

ha[d] been challenged by an adversary,” and we noted that allowing the case to

proceed at that point “suggests that a debtor should consider disclosing potential

assets only if he is caught concealing them.” Id. at 1288. Moreover, in a similar

case in which we upheld the application of judicial estoppel we focused on the fact

that the debtor “did not amend his bankruptcy documents to add a potential

employment discrimination claim until after [the defendant] relied on [the

omission] in its motion to dismiss.” De Leon v. Comcar Indus., Inc., 321 F.3d

1289, 1292 (11th Cir. 2003). Because the sequence of events shows that Parker’s

omission was inadvertent and that her inconsistent statements were not intended to

“make a mockery of the judicial system,” the second requirement for judicial

estoppel is not met.

We also note that judicial estoppel is an equitable concept. Therefore, while

considering the totality of the circumstances, we must also ask how the equities

11 balance. In this case, equity favors allowing the trustee to pursue Parker’s

discrimination claim for three reasons. First, we again note that the Parker’s

omission was unintentional and was not done in bad faith. Second, if we bar

Reynolds from pursuing this claim, Parker’s creditors, the only completely

innocent parties in this case, will be denied a chance at recovery. Finally, allowing

the case to go forward does not mean that Parker’s inconsistent statements will

necessarily be rewarded. The bankruptcy court may choose to sanction Parker for

her omission by revocation of her discharge, or other actions. Because the equities

balance in favor of letting Reynolds proceed with this claim, we conclude that the

district court erred when he applied judicial estoppel to bar this suit.

III. CONCLUSION

Because the evidence shows that Parker did not intend “make a mockery of

the judicial system” and because the equities balance in favor of allowing Reynolds

to pursue Parker’s discrimination claim on behalf of Parker’s creditors, we

conclude that the district court erred in applying judicial estoppel. Accordingly,

we REVERSE the district court’s grant of judgment on the pleadings to Wendy’s

and REMAND this case to the district court for further proceedings consistent with

this opinion.