Business Associate George Klidonas and Business Partner Regina Griffin authored “Estoppel Does Not Extend to Innocent Trustees,” which appears in the November 2011 issue of the American Bankruptcy Institute Journal.
The article examines the doctrine of judicial estoppel which generally prevents a party from advancing an argument in one legal proceeding, and then interposing a contradictory argument in a subsequent proceeding. Its purpose, Klidonas and Griffin write, is to “protect the integrity of the judicial system” and “to achieve substantial justice.”
However, the article points out that in the bankruptcy context, judicial estoppel has been used to preclude debtors who have failed to disclose the existence of law¬suits they possess against third parties “from pursuing concealed claims by taking inconsistent positions.” Klidonas and Griffin question whether judicial estoppel should then “operate to bar a bankruptcy trustee from pursuing causes of action that the debtor had failed to disclose among his assets.”
They point out that in Reed v. City of Arlington, a three-judge panel for the Fifth Circuit initially answered this question affirmatively, but a Fifth Circuit subsequently reheard the case en banc and held that absent unusual circumstances, an innocent trustee can pursue for the benefit of creditors a judgment or cause of action that the debtor had failed to disclose in bankruptcy, making it clear that “bankruptcy trustees will no longer be judicially estopped from pursuing claims for the benefit of creditors as a result of the post-petition misconduct of debtors.”
Concluding the article, Klidonas and Griffin do point out that the Fifth Circuit itself noted that its general rule enunciated in Reed could be limited in “unusual circumstances.”