Opinion
No. 61104-6-I.
November 17, 2008.
Appeal from a judgment of the Superior Court for Snohomish County, No. 06-2-12191-9, Ronald L. Castleberry, J., entered November 29, 2007.
Affirmed by unpublished opinion per Schindler, C.J., concurred in by Agid and Ellington, JJ.
In a voluntary chapter 7 bankruptcy, a debtor must disclose all contingent and unliquidated claims. If the debtor does not list a known potential claim on the bankruptcy schedules and then attempts to sue on the claim after the bankruptcy case is closed, the doctrine of judicial estoppel may bar the lawsuit. Michael and Maria McCorvy appeal the trial court's decision to apply the doctrine of judicial estoppel to dismiss their lawsuit against Guaranty Mortgage Corporation (Guaranty Mortgage), Guaranty Mortgage broker Mike Asasy, and AB Escrow Services, Inc. (AB Escrow). There is no dispute that when the McCorvys filed for chapter 7 bankruptcy, they knew they had potential claims against Guaranty Mortgage, Asasy, and AB Escrow. However, in their bankruptcy petition, the McCorvys only disclosed a potential claim against their previous mortgage holder, and never amended the bankruptcy schedules to disclose the potential claims against Guaranty Mortgage, Asasy, and AB Escrow. Because the McCorvys took a clearly inconsistent position by failing to disclose the known claims in the bankruptcy proceeding but later filing a lawsuit against Guaranty Mortgage, Asasy, and AB Escrow on those claims, we conclude the trial court did not abuse its discretion in applying the doctrine of judicial estoppel and dismissing the McCorvys' lawsuit.
FACTS
In 2001, Guaranty Mortgage broker Mike Asasy assisted Michael and Maria McCorvy in obtaining a loan with Option One Mortgage Corporation (Option One Mortgage) to purchase a house in Gig Harbor. In March 2003, the McCorvys obtained a second mortgage on the Gig Harbor house with American General Finance (American General).
In spring 2003, the McCorvys contacted Asasy about prequalifying for a home loan to purchase a new house in Marysville. After reviewing their financial information, Asasy told the McCorvys that they were qualified to obtain a loan with Option One Mortgage, subject to satisfaction of their existing home loan.
The McCorvys listed the Gig Harbor house for sale with John L. Scott Real Estate-Lake Tapps. In May 2003, the McCorvys accepted an offer to purchase the house from David and Erin Jackson. The offer was contingent on the Jacksons obtaining financing. The McCorvys designated Rainier Title Insurance Company (Rainier Title) as the closing agent, and scheduled the closing for June 12. On May 12, the Jacksons received notification that they qualified for a home loan.
On May 24, the McCorvys made an offer to purchase a house in Marysville. The offer was contingent on the sale of the Gig Harbor house. In the offer, the McCorvys designated AB Escrow Services, Inc. (AB Escrow) as the closing agent for the Marysville house.
When the Jacksons had trouble obtaining financing, the McCorvys agreed to extend the closing date for the Gig Harbor house several times. According to the McCorvys, even though the Jacksons had not obtained financing for the Gig Harbor house, Asasy told the McCorvys on August 7 that Option One Mortgage would fund their loan for the Marysville house. On August 8, the McCorvys purchased the Marysville house. Shortly thereafter, the sale of the Gig Harbor house to the Jacksons fell through.
In October, Option One Mortgage sent the McCorvys a notice of default. The McCorvys had not made mortgage payments on the Gig Harbor house since July. The McCorvys subsequently lost the Gig Harbor house to foreclosure. American General sued and obtained a judgment against the McCorvys for the amount owed on the second mortgage.
On July 15, 2004, the McCorvys filed a chapter 7 bankruptcy petition in the United States Bankruptcy Court for Western Washington, requesting a discharge from their debts, including the American General judgment against them. The notice to debtors informed the McCorvys that while certain property was exempt under chapter 7, the bankruptcy trustee would liquidate their property and use the proceeds to pay creditors.
Schedule B of the bankruptcy petition required the McCorvys to list "all personal property of the debtor of whatever kind." Schedule B states that the debtor must identify all "[o]ther contingent and unliquidated claims of every nature. . . ." In response, the McCorvys identified "claims against their previous mortgage holder, Option One, to be brought in an adversary action," with a "current market value of debtor's interest in property" as $17,000. On Schedule C, "Property Claimed as Exempt," the McCorvys identified the Marysville house and a number of items of personal property, including claims against Option One Mortgage. On Schedule D, the McCorvys listed Option One Mortgage as a creditor with a secured claim on the Marysville house. On Schedule F, the McCorvys listed American General as a creditor holding an unsecured priority claim for the amounts owed for the second mortgage on the Gig Harbor house. The McCorvys declared under penalty of perjury that the information provided in the schedules was "true and correct to the best of my knowledge, information, and belief."
On December 23, the bankruptcy court entered an order of discharge. On January 5, 2006, the bankruptcy trustee filed a report of no distribution, stating that there was no property available for distribution. On January 6, the court approved the trustee's report and closed the bankruptcy. As part of the bankruptcy, American General's judgment against the McCorvys was discharged.
Ten months later, on October 31, 2006, the McCorvys filed a lawsuit against Option One Mortgage, Wells Fargo Bank, Minnesota (Wells Fargo), Guaranty Mortgage, Asasy, AB Escrow, Rainier Title, John L. Scott Real Estate-Lake Tapps, and John L. Scott Real Estate-Marysville. The McCorvys alleged that they purchased the Marysville house without selling the Gig Harbor house based on assurances that the Gig Harbor house would close within days. The McCorvys claimed they were entitled to damages based on: (1) fraud, (2) violation of the Consumer Protection Act (CPA), chapter 19.86 RCW, (3) violation of the Mortgage Broker Practices Act (MBPA), chapter 19.146 RCW, (4) breach of contract, (5) breach of fiduciary duty, (6) negligence, and (7) breach of the implied covenant of good faith and fair dealing.
The court granted the motion filed by Option One Mortgage and Wells Fargo to compel binding arbitration. The court also granted a motion to dismiss Rainier Title.
The remaining defendants, Guaranty Mortgage, Asasy, AB Escrow, John L. Scott Real Estate-Lake Tapps, and John L. Scott Real Estate-Marysville, filed a motion for summary judgment dismissal. The defendants argued that the claims for fraud, violation of MBPA, breach of fiduciary duty, negligence, and breach of implied covenant of good faith and fair dealing were barred by the three-year statute of limitations. The defendants also argued that the doctrine of judicial estoppel barred the McCorvys' lawsuit. In addition, AB Escrow, John L. Scott Real Estate-Lake Tapps, and John L. Scott Real Estate-Marysville argued there was no evidence to support the CPA or for breach of contract claims.
The court granted the motion to dismiss claims barred by three-year statute of limitations, and concluded that as to AB Escrow, John L. Scott Real Estate-Lake Tapps, and John L. Scott Real Estate-Marysville, there was no evidence to establish a CPA violation or breach of contract. The court also ruled that because the McCorvys took a contradictory position by not identifying known potential claims against the remaining defendants in the bankruptcy proceedings, the McCorvys' lawsuit was barred by the doctrine of judicial estoppel:
The question is whether or not the current action is barred by the operation of judicial estoppel. In analyzing this particular aspect, as indicated, I've read in detail all of the cases that have been cited by counsel. The claim on its face does not mention or identify any of the named moving defendants. It does not assert any sort of claim against anyone other than the mortgage holder Option One. It does not allude to claims being asserted against any other parties known or unknown in any amount.
It is not so much the failure to name the dollar amount that is fatal to the plaintiffs, but rather it is the fact there is no mention in any way, shape or form of these defendants or possible claims against these defendants. There is no amount of money even asserted against these defendants. Nothing in this claim would put either the bankruptcy court on notice or the creditors in bankruptcy court on notice of any of the potential claims against any of these defendants.
John L. Scott Real Estate-Lake Tapps and John L. Scott Real Estate-Marysville are no longer parties to the appeal.
ANALYSIS
The McCorvys contend the trial court abused its discretion in applying the doctrine of judicial estoppel and dismissing their lawsuit against Guaranty Mortgage, Asasy, and AB Escrow on summary judgment.
Because the McCorvys do not assign error to the trial court's decision to dismiss the claims barred by the three-year statute of limitations, that issue is waived on appeal. Kadoranian by Peach v. Bellingham Police Dep't, 119 Wn.2d 178, 191, 829 P.2d 1061 (1992); State v. Motherwell, 114 Wn.2d 353, 358 n. 3, 788 P.2d 1066 (1990).
We review the trial court's decision to grant summary judgment de novo to determine whether there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Haslett v. Planck, 140 Wn. App. 660, 665, 166 P.3d 866 (2007); Cunningham v. Reliable Concrete Pumping, Inc., 126 Wn. App. 222, 226-27, 108 P.3d 147 (2005).
The equitable doctrine of judicial estoppel precludes a party from asserting one position in a court proceeding and later seeking an advantage by taking a clearly inconsistent position in another court. Bartley-Williams v. Kendall, 134 Wn. App. 95, 98-99, 138 P.2d 1103 (2006). The purpose of the doctrine is:
to preserve respect for judicial proceedings without the necessity of resort to perjury statutes; to bar as evidence statements by a party which would be contrary to sworn testimony the party has given in prior judicial proceedings; and to avoid inconsistency, duplicity, and . . . waste of time.
Cunningham, 126 Wn. App. at 225.
We review the trial court's application of the doctrine of judicial estoppel to the facts of the case for abuse of discretion. Cunningham, 126 Wn. App. at 227. When the decision of the trial court is a matter of discretion, "it will not be disturbed on review except on a clear showing of abuse of discretion, that is, discretion manifestly unreasonable, or exercised on untenable grounds or for untenable reasons." State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971).
A party can invoke the doctrine of judicial estoppel in a motion for summary judgment to bar claims based on an inconsistent position in a prior proceeding. To defeat summary judgment, the nonmoving party must present evidence to rebut the determination of clear inconsistency and that application of the doctrine of judicial estoppel was an abuse of discretion. Abercrombie Fitch Co. v. Moose Creek, Inc., 486 F.3d 629, 634 (9th Cir. 2007) (concluding that the evidence "fail[ed] to rebut the determination of clear inconsistency," and therefore the application of the doctrine of judicial estoppel was not an abuse of discretion).
The Washington Supreme Court has identified three "core factors" the court should consider in determining whether the doctrine of judicial estoppel applies:
(1) whether a party's later position is clearly inconsistent with its earlier position;
(2) whether judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled; and
(3) whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.
Arkison v. Ethan Allen, Inc., 160 Wn.2d 535, 538-39, 160 P.3d 13 (2007) (citing New Hampshire v. Maine, 532 U.S. 742, 750-51, 121 S. Ct. 1808, 149 L.Ed.2d 968 (2001)) (internal quotations omitted). According to the court, other considerations may also guide the court's decision, including whether a party's prior position was based on inadvertence or mistake. Arkison, 160 Wn.2d at 539.
In the context of bankruptcy cases, the doctrine of judicial estoppel applies when a debtor does not disclose known claims and attempts to pursue the claims after discharge from bankruptcy. Cunningham, 126 Wn. App. at 230. The rationale for applying the doctrine of judicial estoppel is to preclude a debtor who fails to disclose a claim in bankruptcy from pursuing that claim after discharge because
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 of reorganization on the same basis, are impaired when the disclosure provided by the debtor is incomplete.
In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999) (quoting Rosenshein v. Kleban, 918 F.Supp. 98, 104 (S.D.N.Y. 1966)).
When a debtor files a petition for bankruptcy, an "estate" is created. 11 U.S.C. § 541(a). All legal or equitable interest in the debtor's property at the time of filing becomes the property of the bankruptcy estate unless it is subject to an exemption. 11 U.S.C. § 522(b)(1), § 541(a)(1). The bankruptcy schedules must be prepared as prescribed by the Official Forms and executed under penalty of perjury. Fed.R.Bankr.P. 1007(b); 9009; 1008. It is well established that the debtor has a duty to prepare the bankruptcy schedules and statements "carefully, completely, and accurately" and bears the risk of nondisclosure. In re Mohring, 142 B.R. 389, 394 (Bankr. E.D. Cal. 1992).
We denied the McCorvys' motion on appeal to take judicial notice of the July 1, 2002 Handbook for Chapter 7 Trustees.
The Bankruptcy Code imposes an express, affirmative duty on the debtors to disclose "all assets including contingent and unliquidated claims." Coastal Plains, 179 F.3d at 208. A debtor must disclose all possible causes of action, "even if the likelihood of success is unknown." Cunningham, 126 Wn. App. at 230. A debtor also has an ongoing duty to amend the bankruptcy schedules to accurately disclose all information. Hamilton v. State Farm Fire Cas. Co., 270 F.3d 778, 784 (9th Cir. 2001). Although there are "no bright-line" rules for how much itemization and specificity is required, a debtor must be as particular as is reasonable under the circumstances. In re Mohring, 142 B.R. at 395.
Here, it is undisputed that the McCorvys only disclosed a claim against their previous mortgage holder, Option One Mortgage, on the bankruptcy schedules, even though they knew about, but did not disclose, the potential claims against Guaranty Mortgage, Asasy, and AB Escrow. Michael McCorvy testified, "We knew at the time that we filed for Chapter 7 bankruptcy protection that we had claims against all of the defendants herein. . . ." It is also undisputed that the McCorvys did not amend the schedules to disclose the potential claims against Guaranty Mortgage, Asasy, and AB Escrow. However, the McCorvys assert that they did not take an inconsistent position by failing to list the potential claims against Guaranty Mortgage, Asasy, and AB Escrow. We disagree.
Schedule B requires the debtor to list all "contingent and unliquidated claims of every nature." By omitting the known claims against Guaranty Mortgage, Asasy, and AB Escrow from Schedule B, and then pursuing those claims after discharge from bankruptcy, the McCorvys took an inconsistent position. The trial court did not abuse its discretion in concluding the McCorvy took a position in the lawsuit against Guaranty Mortgage, Asasy, and AB Escrow that was "?clearly inconsistent with its earlier position.'" Arkison, 160 Wn.2d at 538-39.
Emphasis added.
The McCorvys' reliance on Ingram v. Thompson, 141 Wn. App. 287, 169 P.3d 832 (2007), and Cusano v. Klein, 264 F.3d 936 (9th Cir. 2001), to argue that they did not take an inconsistent position because they disclosed the potential claims against Option One Mortgage is unpersuasive.
In Ingram, after Ingram was involved in a car accident, he filed for chapter 7 bankruptcy. Ingram, 141 Wn. App. at 289. On the schedule of assets, Ingram described the personal injury claim as having "?value unknown, but believed to be less than $5,000.00.'" Ingram, 141 Wn. App. at 289. After obtaining a discharge in bankruptcy, Ingram filed a personal injury lawsuit seeking substantially greater damages. Ingram, 141 Wn. App. at 290. Relying on the doctrine of judicial estoppel, the trial court ruled that Ingram's damages were limited to $5,000. Ingram, 141 Wn. App. at 290. On appeal, we reversed and held that because Ingram properly disclosed his claim in bankruptcy, he did not take a clearly inconsistent position in the lawsuit. Ingram, 141 Wn. App. at 291. In reaching this conclusion we stated that "[t]here is a substantial difference between non-disclosure and a disclosure undervaluing an asset, as demonstrated by Cusano v. Klein, 264 F.3d 936 (9th Cir. 2001)." Ingram, 141 Wn. App. at 291.
In Cusano, Cusano, listed "songrights in . . . Songs written while in the band known as `KISS,'" and assigned the value of the asset as "unknown" in his chapter 11 bankruptcy. Cusano, 264 F.3d at 946. The Ninth Circuit held that Cusano did not forfeit his right to pursue his lawsuit against former band members and record labels by describing the asset as "songrights" and listing the value as unknown.
Although it would have been more helpful for Cusano to break down the description further so that it named songs, albums, and dates of and parties to royalty and copyright agreements, the additional detail would not have revealed anything that was otherwise concealed by the description as it was, which provided inquiry notice to affected parties to seek further detail if they required it. Any undervaluation of the `songrights' asset does not impair Cusano's interest in it. . . .
Cusano, 243 F.3d at 946-47.
Here, unlike in Ingram and Cusano, the McCorvys did not disclose their potential claims against Guaranty Mortgage, Asasy, and AB Escrow. Undervaluing an asset is not the equivalent of failing to disclose an asset. The McCorvys' failure to identify the known claims against Guaranty Mortgage, Assay, and AB Escrow is fatal. As the trial court correctly observed, "It is not so much the failure to name the dollar amount that is fatal to the plaintiffs, but rather it is a fact there is no mention in any way, shape or form of these defendants or possible claims against these defendants." The disclosure of the potential claims against Option One Mortgage, the McCorvys' previous mortgage holder for the Gig Harbor house, did not provide sufficient notice about potential claims against Guaranty Mortgage, Asasy, and AB Escrow concerning the alleged assurances that the McCorvys contend resulted in the purchase of the Marysville house and bankruptcy.
The McCorvys also argue that their position was not inconsistent because they informally disclosed and fully discussed their potential claims against Guaranty Mortgage, Asasy, and AB Escrow with the bankruptcy trustee. In rejecting the McCorvys' argument, the trial court relied on Hamilton, 270 F.3d 778.
Although the McCorvys assert that the bankruptcy trustee investigated a potential lawsuit against all of the defendants, the McCorvys later sued and decided not to administer the potential claims for the benefit of the bankruptcy estate, they presented no evidence below to support that assertion.
Despite counsel informing the trustee of the identity of the other defendants and identifying possible claims against them, there was no amendment in the bankruptcy court of the pleading either adding these claims or adding these defendants. Rather, plaintiff relies upon the assertion that having informed the trustee, that would be sufficient to preclude the operation of judicial estoppel.
That approach was specifically rejected in the Hamilton case wherein the bankrupt claimant had informally informed the trustee of possible claims and the court applied the principle of judicial estoppel.
In Hamilton, the Ninth Circuit held that notifying the bankruptcy trustee "by mail or otherwise is insufficient to escape judicial estoppel." Hamilton, 270 F.3d at 784. Because the debtor in Hamilton did not amend the schedules to provide the requisite notice, the court affirmed dismissal of the lawsuit as barred by the doctrine of judicial estoppel.
In Cunningham, this court relied on Hamilton to reject the same argument the McCorvys make in this case. In Cunningham, Cunningham had a potential personal injury claim and a worker's compensation claim from a prior injury, but did not disclose the personal injury claim in the chapter 7 bankruptcy filing. Cunningham, 126 Wn. App. at 225-26. After the bankruptcy case was closed, Cunningham filed a personal injury lawsuit. Cunningham, 126 Wn. App. at 226. The defendant, Reliable, filed a motion for summary judgment arguing that judicial estoppel barred Cunningham's personal injury lawsuit. In opposition, Cunningham asserted that he did not take an inconsistent position because he disclosed his claim against the defendant Reliable to the trustee during a meeting of creditors. On appeal, we affirmed dismissal of Cunningham's lawsuit as barred by the doctrine of judicial estoppel. We held that even if Cunningham informally disclosed the personal injury to the bankruptcy trustee, because of the affirmative duty to disclose all assets including contingent and unliquidated claims, nothing "short of listing the claim in the bankruptcy schedules is sufficient to avoid the effect of judicial estoppel." Cunningham, 126 Wn. App. at 229.
Likewise, we conclude that even if the McCorvys informally disclosed their potential claims against Guaranty Mortgage, Asasy, and AB Escrow to the bankruptcy trustee, the trial court did not abuse its discretion in ruling that the McCorvys took a clearly inconsistent position by failing to list those claims on the bankruptcy schedules and then filing a lawsuit on the claims after discharge from bankruptcy.
The out-of-state cases the McCorvys cite are distinguishable. Period Homes, Ltd. v. Wallick, 569 S.E.2d 502 (Ga. Ct. 2002) (claim acquired after bankruptcy filing); Johnson v. Trust Co. Bank, 478 S.E.2d 629 (Ga.Ct.App. 1996) (claim disclosed in Statement of Financial Affairs and case reopened and schedules amended); Sports Page, Inc. v. First Union Management, Inc., 328 N.W.2d 427 (Minn.Ct.App. 1989) (claim formally abandoned by trustee).
This case also meets the second factor under Arkison, which requires a perception that either the first or the second court was misled by accepting an inconsistent position. Arkison, 160 Wn.2d at 538-39. Because the bankruptcy was closed as a no asset case, the bankruptcy court implicitly accepted the debtor's position as stated in the bankruptcy schedules. Cunningham, 126 Wn. App. at 231. However, the McCorvys contend that they acted in good faith and did not intend to mislead the bankruptcy court.
Neither bad faith nor the intent to mislead are elements of judicial estoppel. Cunningham, 126 Wn. App. at 233-34; Hamilton, 270 F.3d at 784. Nonetheless, the doctrine may not apply if the inconsistent position was due to inadvertence. Helfand v. Gerson, 105 F.3d 530 (9th Cir. 1997). In bankruptcy cases, the debtor's failure to comply with the statutory duty to disclose is "inadvertent" only when the debtor lacks knowledge of the undisclosed claims. Coastal Plains, 179 F.3d at 210. Here, because the McCorvys admit that they knew about the claims against Guaranty Mortgage, Asasy, and AB Escrow, they cannot claim inadvertence.
The McCorvys cite an unpublished federal court opinion, Froshiesar v. Babij, 2004 WL 2360529 (D. Or. Oct. 15, 2004), in support of their argument that because they acted in good faith, judicial estoppel does not apply. GR 14.1(b) allows citation to an unreported federal court opinion if, as here, the court permits citation to its own unreported opinions. However, Froshiesar is distinguishable. In Froshiesar, the debtor reopened the bankruptcy case and obtained a court order abandoning the previously undisclosed claim as an asset. 2004 WL 2360529, at 8-10. In addition, the creditors were going to receive some benefit if the lawsuit was successful. Froshiesar, 2004 WL 2360529, at 10.
The McCorvys also argue that there can be no perception that the bankruptcy court was misled based on the assertion that
[i]f a neutral third party were to review the McCorvys' schedules, they would see a lawsuit against Option One identified on the schedules. If that same party then reviewed the records of Snohomish County for a lawsuit filed by the McCorvys, that party would find such a lawsuit filed against Option One and other defendants. . . .
The McCorvys' argument is without merit. The McCorvys filed for bankruptcy on July 15, 2004. The bankruptcy was closed on January 6, 2006. The McCorvys did not file their lawsuit against Guaranty Mortgage, Asasy, and AB Escrow until ten months later, on October 31, 2006.
As to the third factor, by not disclosing the potential claims against Guaranty Mortgage, Asasy, and AB Escrow on the bankruptcy schedules, the McCorvys retained an asset that might have created a benefit for the unsecured creditors. Cunningham, 126 Wn. App. at 231. And by obtaining a discharge in bankruptcy, the McCorvys received a benefit at the expense of the creditors. McFarling v. Evameski, 141 Wn. App. 400, 404, 171 P.3d 497 (2007).
On this record, we conclude the trial court did not abuse its discretion in applying the doctrine of judicial estoppel, and affirm the trial court's summary judgment dismissal of the McCorvys lawsuit against Guaranty Mortgage, Asasy, and AB Escrow.
Because we affirm the trial court's decision to dismiss the lawsuit as barred by the doctrine of judicial estoppel, we need not address the alternate grounds for dismissing the CPA and breach of contract claims against AB Escrow. Nevertheless, we conclude that the McCorvys did not carry their burden of presenting evidence to establish these claims against AB Escrow.