Opinion
Civil Action No. CV-00-S-1461-NE.
August 8, 2000
ORDER OF AFFIRMANCE
This action is before the court on appellant's appeal from a decision of the United States Bankruptcy Court for the Northern District of Alabama. The sole basis for appellant's appeal is the refusal by a United States Bankruptcy Judge to reopen his bankruptcy case as permitted by 11 U.S.C. § 350(b).
11 U.S.C. § 350(b) provides:
A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.
Appellant, a sales manager employed by Liberty National, filed a voluntary petition for bankruptcy under Chapter 13 of the United States Bankruptcy Code on June 22, 1998. Three days after filing his petition, Liberty National demoted him to the position of insurance agent, allegedly because he was hospitalized for depression in December of 1997. Appellant met with Tim Case, an employment discrimination attorney, on October 9, 1998 to discuss his demotion. Although appellant converted his Chapter 13 bankruptcy petition to a Chapter 7 petition several days later on October 13, 1998, he failed to disclose his discrimination claim against Liberty National. Appellant filed a charge of discrimination with the Equal Employment Opportunity Commission on October 16, 1998, alleging that Liberty National's conduct violated the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq. He met with the Chapter 7 Trustee on November 20, 1998, but again failed to disclose his discrimination claim. He received a Chapter 7 discharge on January 25, 1999, and his bankruptcy case was closed on February 5, 1999.
A detailed time line setting forth the relevant facts considered by the Bankruptcy Judge may be found on pages 12-14 of his Memorandum Opinion. (R. at 1-3.) Accordingly, only the most relevant facts are outlined above.
Appellant received a right to sue letter from the EEOC on February 11, 1999, and filed a lawsuit against Liberty National in the United States District Court for the Northern District of Alabama on May 7, 1999. Liberty National responded with a motion to dismiss, arguing that appellant's lawsuit should be dismissed under the doctrine of judicial estoppel and due to lack of standing. Appellant's lawsuit in fact was dismissed without prejudice on August 27, 1999. Appellant petitioned the United States Bankruptcy Judge to reopen his case on October 14, 1999.
The decision to reopen a case pursuant to § 350(b) lies within the sound discretion of the bankruptcy court. In re McDaniel, 217 B.R. 348, 351 (Bankr. N.D. Ga. 1998); In re Daniel, 205 B.R. 346, 347 (Bankr. N.D. Ga. 1997); In re Collis, 223 B.R. 814 (Bankr. M.D. Fla. 1997). Accordingly, that decision will not be set aside absent a showing that the Bankruptcy Judge abused his discretion. In re Haker, 411 F.2d 568, 569 (5th Cir. 1969).
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) ( en banc), the Eleventh Circuit adopted as binding precedent all Fifth Circuit decisions handed down prior to the close of business on September 30, 1981.
More than one year after he filed a charge of discrimination with the EEOC, appellant requested permission to reopen his bankruptcy case to include his disability discrimination claim against Liberty National as an asset. He argued that he should be allowed to reopen his bankruptcy case because his failure to include this discrimination claim in his original petition was inadvertant.
Specifically, he contends that his employer, Liberty National, demoted him on June 25, 1998 due to a disability, in violation of the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq.
The Bankruptcy Judge rejected appellant's argument, stating that "[i]t is inconceivable given the time frame during which the debtor converted his case and filed his EEOC charge against Liberty National that the failure to disclose the claim was inadvertent. . . ." The Bankruptcy Judge found that appellant was well aware of his claim against Liberty National during the pendency of his bankruptcy case, but intentionally failed to disclose the claim in an apparent attempt to defraud the bankruptcy system and his creditors.
Memorandum Opinion (r. at 44) at 8.
The debtor in the present case was . . . well aware of his [discrimination] claim against Liberty National during the pendency of his case, but argues that the omission of the claim was merely inadvertent. . . . [T]he debtor did not disclose his claim against Liberty National as an asset in his chapter 13 schedules even though he was demoted a mere three days after filing his bankruptcy petition in June of 1998. Even if the debtor was not aware that he had a claim against Liberty National at that time, he was certainly aware of the claim when he converted his case to chapter 7 on October 13, 1998 only four days after meeting with an attorney to discuss suing Liberty National for discrimination. The claim was never disclosed in the schedules that were required to be filed following conversion. On October 16, 1998, only three days after the debtor converted his case to chapter 7, he again met with his attorney and filed a charge of discrimination with the EEOC against Liberty National. When the debtor attended his 341 meeting approximately one month later on November 20, 1998, he had yet another opportunity to disclose the claim to his trustee and creditors but failed to do so. Instead, the debtor did not disclose the claim until Liberty National filed a motion to dismiss the civil action based on lack of standing and judicial estoppel [more than one year after he had been granted a Chapter 7 discharge]. The proper time for disclosure had passed. . . . The Bankruptcy Code requires full disclosure and the debtor did not comply with this requirement despite having numerous opportunities to disclose his claim during his chapter 13 case, after conversion, and before filing suit in his own name against Liberty National. Accordingly, the Court finds that the debtor's motion to reopen is due to be denied.
Id. at 6-8 (emphasis supplied).
Following a careful and thorough review of the entire record on appeal, this court concludes that the United States Bankruptcy Judge did not abuse its discretion by refusing to reopen appellant's bankruptcy case. As the Fifth Circuit recently explained:
It goes without saying that the Bankruptcy Code and Rules impose upon bankruptcy debtors an express, affirmative duty to disclose all assets, including contingent and unliquidated claims. . . . "The duty of disclosure in a bankruptcy proceeding is a continuing one, and a debtor is required to disclose all potential causes of action." . . . "`The debtor need not know all the facts or even the legal basis for the cause of action: rather, if the debtor has enough information . . . prior to confirmation to suggest that it may have a possible cause of action, then that is a "known" cause of action such that it must be disclosed." . . .
Viewed against the backdrop of the bankruptcy system and the ends it seeks to achieve, the importance of this disclosure duty cannot be overemphasized. . . .
The rationale for . . . decisions (invoking judicial estoppel to prevent a party who failed to disclose a claim in bankruptcy proceedings from asserting that claim after emerging from bankruptcy] is that the integrity of the bankruptcy system depends on full and honest disclosure by debtors of all of their assets. The courts will not permit a debtor to obtain relief from the bankruptcy court by representing that no claims exist and then subsequently to assert those claims for his own benefit in a separate proceeding. The interests of both the creditors, who plan their actions in the bankruptcy proceeding on the basis of information supplied in the disclosure statements, and the bankruptcy court, which must decide whether to approve the plan or reorganization on the same basis, are impaired when the disclosure provided by the debtor is incomplete.In the Matter of: Coastal Plains, Inc., 179 F.3d 197, 207-208 (5th Cir. 1999) (citations omitted); Payless Wholesale Distributors, Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570, 571 (1st Cir. 1993) (stating that "[t]he basic principle of bankruptcy is to obtain a discharge from one's creditors in return for all one's assets, except those exempt, as a result of which creditors release their own claims and the bankrupt can start fresh. Assuming there is validity in [debtor's] suit, it has a better plan. Conceal your claims; get rid of your creditors on the cheap, and start over with a bundle of rights. This is a palpable fraud that the court will not tolerate, even passively. [Debtor], having obtained judicial relief on the representation that no claims existed, can not resurrect them and obtain relief on the opposite basis") (quoted with approval in Coastal Plains, 179 F.3d at 213); Chandler v. Samford University, 35 F. Supp.2d 861, 864 (N.D. Ala. 1999) (Acker, J.) (deciding to join "the multitude of courts recognizing the doctrine of judicial estoppel as a bar to a debtor's assertion of a claim not identified as an asset in an earlier bankruptcy proceeding"); see generally In re International Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir. 1985) (stating in another bankruptcy context that "[i]t is well accepted that the bankruptcy court is guided by the principles of equity, and that the court will act to assure that `fraud will not prevail, that substance will not give way to form, that technical considerations will not prevent substantial justice from being done'") (citations omitted).
Therefore, the decision of the bankruptcy court entered on February 23, 2000, is AFFIRMED. Costs are taxed to appellant. The Clerk of Court is DIRECTED to close this file.