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This weeks case update:

Kucera, Montana Supreme Court, Judicial Estopple
Case no. DA 19-0331

A City water line near Kucera’s residence burst, sending thousands of gallons of water into his neighborhood. Evidently, after speaking with his insurance company, Kucera believed he had a claim against the City. The City denied Kucera’s claim. Nearly ten months after filing his claim against the City, Kucera filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Kucera concurrently filed a personal property schedule in which he stated under penalty of perjury that he had no “contingent and unliquidated claims of any nature” despite the fact that he already asserted a claim for damages against the City and had a potential cause of action. Kucera filed a complaint in District Court against the City for negligence, nuisance, and inverse condemnation, alleging the City was liable for compensatory damages caused by the water leak. The City filed its first Motion for Summary Judgment, arguing that Kucera’s claims were barred by judicial estoppel because he failed under penalty of perjury to disclose the potential claims on his bankruptcy petition. Kucera re-opened his bankruptcy case and amended his personal property schedule to disclose his lawsuit against the City. The District Court granted the City’s motion and dismissed Kucera’s claims, holding that both of Kucera’s claims were barred by judicial estoppel, and alternatively, that Kucera’s negligence claim was barred by the statute of limitations.

Judicial estoppel is an equitable doctrine intended to protect the integrity of the judicial process from manipulation by litigants who seek to prevail, twice, on opposite theories. Judicial estoppel precludes a party to an action from taking a position inconsistent with the party’s prior judicial declarations. Generally, a debtor who fails to disclose a contingent and unliquidated claim in a bankruptcy proceeding is judicially estopped from pursuing that claim after being discharged from bankruptcy. As a threshold consideration, the court must also determine whether the party being estopped sought to intentionally manipulate the courts by taking inconsistent positions; the doctrine does not apply when a party’s prior position was based on inadvertence or mistake.

It is undisputed that Kucera did not disclose his potential claims against the City in his bankruptcy petition and schedules. Unlike Dovey, however, Kucera did not present any evidence to the District Court, nor does he argue now, that his failure to include the potential claims on his bankruptcy schedule was a result of inadvertence or mistake. Rather, Kucera argues judicial estoppel does not apply because he eventually re-opened and amended his bankruptcy petition to include his claims against the City. Kucera’s argument rests entirely on one sentence from a Ninth Circuit opinion: “Judicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset.”Kucera’s argument is unfounded. Hamilton stands for the proposition that so long as a debtor updates a bankruptcy schedule or disclosure during the pendency of the bankruptcy, not after bankruptcy has closed, then judicial estoppel will not apply. As Hamilton further explains, “The debtor’s duty to disclose potential claims as assets does not end when the debtor files schedules, but instead continues for the duration of the bankruptcy proceeding.”

When Kucera filed for bankruptcy in June 2012, he had a duty to disclose his potential claim at the time of filing, or at the very least, prior to closure of bankruptcy in February 2013.Kucera’s omission can hardly be interpreted as a result of a mistake or inadvertence. The District Court did not err in granting summary judgment in favor of the City of Billings. Because judicial estoppel is dispositive of the issue, we need not address whether Kucera’s claims were time-barred.

Kucera v. Billings, February 11, 2020, Peter L. Helland for Kucera, Gerry P. Fagan for Billings

2020 Mont, B.R. 39 (February 11, 2020)


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