[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.
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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
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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
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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
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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
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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
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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.
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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
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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.
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