Journal of American Law

SPRING 2015

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Spring 2015 // Journal of American Law 31 Hamilton v. State Farm 25 is a good illustration of how the judicial estoppel doctrine is applied in an insurance claim situation. Hamilton made a claim for vandalism damages to his house and thef of property. State Farm was suspicious of the claim for various reasons, including Hamilton's fnancial difculties and the fact that Hamilton needed the insurance money to keep the house from being sold in a trustee's sale. Hamilton fled for Chapter 7 bankruptcy. A few days lat- er State Farm denied the claim. Afer the claim was denied, Hamilton fled his bankruptcy schedules. In Schedule B, in response to the question asking for "other contingent and nonliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setof claims," Ham- ilton answered "none." He did not disclose his claim against State Farm in response to this question or any other place on his schedules. Hamilton obtained a discharge. Afer the discharge, the bankruptcy trustee noticed that Hamilton had listed a large vandalism loss on his schedules and asked Hamilton whether he was pursuing an insurance claim for that damage. Hamilton did not provide the request- ed information to the trustee. As a result, the trustee fled a motion to dismiss Hamilton's bankruptcy arguing bad faith, lack of truthfulness under oath, and failure to cooperate. Tree months afer the discharge was granted, the court va- cated the discharge and dismissed the bankruptcy. Tree months afer that ruling, Hamilton sued State Farm for breach of the insurance policy and bad faith for failing to pay his insurance claim. State Farm moved for summary judg- ment on several grounds, one of which was that the doctrine of judicial estoppel barred Hamilton's claim because he failed to list it on his bankruptcy schedules. Hamilton argued that, even though initially he obtained a discharge, because the discharge was later vacated and the bankruptcy dismissed, the bankruptcy court did not accept the information in his schedules. He argued that the discharge must be permanent to satisfy the judicial acceptance require- ment of judicial estoppel. Te court rejected this argument and held that Hamilton was barred from pursuing his claims against State Farm. We now hold that Hamilton is precluded from pur- suing claims about which he had knowledge, but did not disclose, during his bankruptcy proceedings, and that a discharge of debt by a bankruptcy court, un- der these circumstances, is sufcient acceptance to provide a basis for judicial estoppel, even if the dis- charge is later vacated. Our holding does not imply that the bankruptcy court must actually discharge debts before the judicial acceptance prong may be satisfed. Te bankruptcy court may "accept" the debtor's assertions by relying on the debtor's nondis- closure of potential claims in many other ways. See, e.g., In re Coastal Plains, 179 F.3d [197] at 210 [(5 th Cir. 1999)] (fnding that judicial acceptance was sat- isfed when the bankruptcy court lifed a stay based in part on the debtor's nondisclosure in its bankrupt- 25 270 F.3d 778, 783 (9 th Cir. 2001). cy schedules and in a lifstay stipulation); Donaldson v. Bernstein, F.3d 547, 555-56 (3 rd Cir. 1997) (holding that judicial acceptance was satisfed when the court approved the debtor's plan of reorganization). 26 Te court explained that the failure to list the claims de- ceived the bankruptcy court and the creditors "who relied on the schedules to determine what action, if any, they would take in the matter." 27 Te court found that it was the "failure to disclose assets on the schedules that provides the most com- pelling reason to bar him from prosecuting claims against State Farm." 28 Te holding and rationale in Hamilton are instructive with regard to how judicial estoppel is applied in the insur- ance claims context. Where an asset was not disclosed and the debtor did not take the opportunity to correct that omission when the trustee asked, the court had a basis to fnd there was misconduct. On the other hand, when such an omission is corrected afer the schedules are fled, the court may deter- mine that judicial estoppel should not bar the claim. 29 In Ea- glePicher v. Federal Ins. Co., the suit was not disclosed initially but later was disclosed, although under the name of the wrong afliate of the debtor. Once the omission was corrected and the information about the suit was somewhere in the sched- ules, the court held that the debtor/insured would not beneft by his initial failure to disclose the asset. Because many courts require there to be intent to supply false or incomplete information, arguments ofen are made that the debtor did not know he was required to disclose the information. Such arguments do not, and should not, succeed in most states or under federal law when the information is known. When the debtor knows of the claim or suit that is not reported or knows of the jewelry item or other property that is not disclosed, there can be no reasonable argument that the omission was not intentional. Te schedules clearly ask about claims. Tey clearly ask that jewelry owned be listed. Te pur- pose of the bankruptcy schedules is to compel disclosure of all assets. Tus, when ownership and knowledge of the asset is proved, the court should fnd that the intent element of judi- cial estoppel has been established. valuation and What is Payable When jewelry or other property is listed on a Schedule B but in a value that is far less than is being made in the insurance claim, another issue arises. Ofen jewelry is listed generally, not item-by-item, with an overall value stated. Te argument typically is made that the valuation entered in the schedule is the "garage sale" value. It is asserted that it is difcult to get very much when a private person is seeking to sell jewelry, so it is an honest statement when low values are reported. It is correct that reporting actual cash value, rather than 26 Id., at 784. 27 Id. 28 Id. 29 EaglePicher Inc. v. Federal Ins. Co., 2007 U.S. Dist. LEXIS 57683 (D.Az. 2007).

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