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Payless Wholesale Distrib. v. Alberto Culver

United States Court of Appeals, First Circuit
Apr 5, 1993
989 F.2d 570 (1st Cir. 1993)

Summary

holding that failure to disclose a pending legal claim is "a palpable fraud that the court will not tolerate, even passively"

Summary of this case from Autos v. Gowin

Opinion

No. 92-2149.

Heard February 5, 1993.

Decided April 5, 1993. Rehearing and Rehearing En Banc Denied May 26, 1993.

Fernando L. Gallardo with whom Woods Woods was on brief for plaintiffs, appellants.

Victor E. Grimm with whom Michael J. Abernathy, Bell, Boyd Lloyd, Ana Matilde Nin, Ramon Coto-Ojeda and McConnell Valdes Kelley Sifre Griggs Ruiz-Suria were on brief for defendants, appellees.

Appeal from the United States District Court for the District of Puerto Rico.

Before STAHL, Circuit Judge, ALDRICH and COFFIN, Senior Circuit Judges.


On July 17, 1990 plaintiffs Payless Wholesale Distributors, Inc. (Payless); L.A. Formulations, Inc. (LAF); and Leonel M. Lima (Lima) filed a 110 page first amended complaint, containing twenty causes of action against Alberto Culver (P.R.), Inc.; LSE Sales Corp.; LSE Advertising Company; Alberto-Culver Company; and Leonard S. Etten. Monetary damages were specified for each cause, varying between $5 million and $150 million. Out of abundance of caution, plaintiffs requested "any additional relief that this Honorable Court deem (sic) just and proper." The district court, quite properly, criticized the complaint for not being "a short and plain statement" in accordance with Fed.R.Civ.P. 8(a)(2). Even more justly, it could have complained of the flagrant violation of Fed.R.Civ.P. 11. The amount of damages sought is a relevant matter. See Mestayer v. Wisconsin Physicians Service Ins. Corp., 905 F.2d 1077, 1080 (7th Cir. 1990). Cf. Thorpe v. Mutual of Omaha Ins. Co., 984 F.2d 541, 544 (1st Cir. 1993). Coupled with the extended complaint it would be difficult to think of clearer indifference to counsel's elementary obligations.

". . . The signature of an attorney or party constitutes a certificate [of] belief . . . it is well grounded in fact. . . ."

In a comprehensive opinion the court granted defendants' motion to dismiss nineteen of the causes of action, and then granted a motion for summary judgment for defendants as to the twentieth. Happily, we need not reach the correctness of these individual rulings. The court should have recognized the defense of judicial estoppel and dismissed the complaint at the outset. On that basis we affirm.

According to the complaint defendants were guilty, inter alia, of violating the antitrust and RICO laws, tortious interference with contractual relations, mail and wire fraud, conspiracy, breach of contract, fault or negligence, and damage to reputation, all for the purpose of driving plaintiffs out of business. By reason of these alleged wrongs Payless, soon after commencing business in February, 1986, found itself having to take various actions that it would not have chosen. Business was unsuccessful, and in July, 1988 it filed for bankruptcy under Chapter 11. In re Payless Wholesale Distributors, Inc., No. 88-0951 (Bankr.D.P.R. filed July 14, 1988). In connection therewith there were requirements to give reasons for filing, and to list all debtor's assets, including claims and causes of action. In no filing did Payless even vaguely refer to the present claims, or distinguish the one defendant mentioned from its other creditors, yet Payless now alleges bankruptcy was "a direct result of the conspiratorial acts of defendants." First Am. Complaint ¶ 98. Even a cursory examination of the claims shows that defendants should have figured in both aspects of the Chapter 11 proceedings, and that Payless could not have thought otherwise. The brazenness of its ambivalence is illustrated by its present assertion that the statute of limitations had not run because it had been tolled by the pendency of Chapter 11.

Strictly, Payless is the one business entity having claims. LAF was a manufacturer of products Payless proposed to sell, and Lima a mere stockholder. Neither had independent rights. Warth v. Seldin, 422 U.S. 490, 499, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975); Jones v. Niagara Frontier Transp. Auth., 836 F.2d 731, 736 (2d Cir. 1987), cert. denied, 488 U.S. 825, 109 S.Ct. 74, 102 L.Ed.2d 50 (1988).

The 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 Payless's present 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. See, e.g., In re H.R.P. Auto Center, Inc., 130 B.R. 247, 253-54 (Bankr.N.D.Ohio 1991) (collecting cases). Payless, having obtained judicial relief on the representation that no claims existed, can not now resurrect them and obtain relief on the opposite basis. This may not be strictly equitable estoppel, as the court observed. Indeed, defendants may have a windfall. However, it is an unacceptable abuse of judicial proceedings.

It is a generally recognized proposition that one cannot play "fast and loose with the courts." Patriot Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208, 212 (1st Cir. 1987). The language in Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir.), cert. denied, 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988) is singularly on point.

A long-standing tenet of bankruptcy law requires one seeking benefits under its terms to satisfy a companion duty to schedule, for the benefit of creditors, all his interests and property rights. In Re Hannan, 127 F.2d 894 (7th Cir. 1942).

848 F.2d at 416.

Disclosure is important, in this case, not only to the bank as an adversary and as a creditor, but to the other creditors and to the bankruptcy court. Here, "the silence" in the Oneida bankruptcy record concerning this present claim, as they say in the vernacular, "is deafening."

Id. at 417.

In order to preserve the requisite reliability of disclosure statements and to provide assurances to creditors regarding the finality of plans which they have voted to approve, we hold that under the facts here present Oneida's failure to announce this claim against a creditor precludes it from litigating the cause of action at this time.

Id. at 418.

By noting, and then disregarding Oneida Motor Freight, and stating that Payless's "disclosure statement does not constitute the adoption of a position by Payless in one judicial proceeding that is intentionally inconsistent with its claims in this case" the court failed to appreciate the long accepted nature of Payless's obligations in the Chapter 11 proceeding. Nothing more need be said.

Affirmed.


Summaries of

Payless Wholesale Distrib. v. Alberto Culver

United States Court of Appeals, First Circuit
Apr 5, 1993
989 F.2d 570 (1st Cir. 1993)

holding that failure to disclose a pending legal claim is "a palpable fraud that the court will not tolerate, even passively"

Summary of this case from Autos v. Gowin

holding that plaintiff/debtor "having obtained judicial relief on the representation that no claims existed, can not now resurrect them and obtain relief on the opposite basis"

Summary of this case from Reutov v. Future Motion, Inc.

holding that debtor, who failed to announce his claim against a creditor during his Chapter 11 bankruptcy case, was judicially estopped from subsequently litigating the cause of action.

Summary of this case from Federal Home Loan Mortgage v. Hulet

holding debtor who obtained relief in bankruptcy based on representation that it had no claims other than those listed in petition was judicially estopped from asserting undisclosed pre-petition claim

Summary of this case from Back v. the Town of Cloverdale, (S.D.Ind. 2001)

holding that the district court should have recognized the defense of judicial estoppel and dismissed Payless's complaint, and stating that “[t]he basic principle of bankruptcy is to obtain a discharge from one's creditors in return for all [of] one's assets, except those exempt, as a result of which creditors release their own claims and the bankrupt can start fresh,” and that Payless had “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,” and that “Payless, having obtained judicial relief on the representation that no claims existed, can not now resurrect them and obtain relief on the opposite basis”

Summary of this case from Dotlich v. Tucker Hester, LLC

finding judicial estoppel appropriate where the debtor "obtained judicial relief on the representation that no claims existed"

Summary of this case from Negron v. Weiss

affirming the application of judicial estoppel where the debtor-plaintiff concealed its claims and received a discharge through which it could "get rid of [its] creditors on the cheap" and possibly obtain "a windfall" by asserting the claims post-discharge

Summary of this case from Access Limousine Serv., Inc. v. Serv. Ins. Agency, LLC

recognizing doctrine of judicial estoppel applies in bankruptcy proceedings; addressing unscheduled assets

Summary of this case from In re Oxford Homes, Inc.

In Payless, the court argued that "[e]ven a cursory examination of the claims shows that [the creditors] should have figured in [the bankruptcy] proceedings, and that [the debtor] could not have thought otherwise."

Summary of this case from Botelho v. Buscone (In re Buscone)

In Payless, the court referred to the bankruptcy debtor's failure to disclose a pending legal claim as "a palpable fraud that the court will not tolerate, even passively."

Summary of this case from Eastman v. Un. Pacific

applying judicial estoppel upon finding that plaintiff intended to "[c]onceal [its] claims [in bankruptcy proceeding]; get rid of [its] creditors on the cheap; and start over with a bundle of rights"

Summary of this case from Ryan Operations G.P. v. Santiam-Midwest Lumber

In Payless we held that where a debtor obtains relief under Chapter 11 of the Bankruptcy Code based on his representations under penalty of perjury that he had no assets other than those scheduled, that debtor is judicially estopped from asserting pre-petition claims not disclosed during the bankruptcy case, even though the judicial estoppel might result in a windfall to the defendant.

Summary of this case from Jeffrey v. Desmond

In Payless, the plaintiff sought Chapter 11 Bankruptcy relief from its creditors making no mention of its claims against the defendants, and then, two years later filed a complaint against the defendants asserting that its bankruptcy was "'a direct result of the conspiratorial acts of defendants.'" 989 F.2d at 571.

Summary of this case from Murray v. Kindred Nursing Ctrs. W. LLC

adding that “a better plan” of “conceal[ing] your claims; get[ting] rid of your creditors on the cheap, and start[ing] over with a bundle of rights .... is palpable fraud that the court will not tolerate, even passively”

Summary of this case from Canterbury v. J.P. Morgan Acquisition Corp.

explaining how a debtor benefits from concealing claims

Summary of this case from Hernandez v. Response Mortg. Serv. Inc.

In Payless, the court affirmed the dismissal of the plaintiff's suit where the plaintiff had previously filed for bankruptcy without listing the action among its assets.

Summary of this case from Howell v. Town of Leyden

noting that plaintiff failed to list claims in bankruptcy case but alleged that the bankruptcy resulted from defendants' conspiracy

Summary of this case from Back v. the Town of Cloverdale, (S.D.Ind. 2001)

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"

Summary of this case from In re Gandy

In Payless Wholesale Distribs., Inc. v. Alberto Culver, 989 F.2d 570, 571 (1st Cir. 1993), the plaintiff had failed to disclose, either in its Chapter 11 schedules or its disclosure statement, twenty causes of action for which it was seeking from $5 to $150 million in damages per cause.

Summary of this case from Donato v. Metropolitan Life Ins. Co.

In Payless, the plaintiff/former debtor ("Payless") had filed for bankruptcy, obtained a discharge of its debts, and then filed a lawsuit seeking damages for defendants' wrongful business practices which allegedly caused its bankruptcy.

Summary of this case from Welsh v. Quabbin Timber, Inc.

In Payless, the Plaintiff/Chapter 11 debtor failed to list causes of action against Alberto Culver (P.R.), Inc. and others both in its schedules and in its disclosure statement.

Summary of this case from In re Russo

involving cause of action that arose pre-petition

Summary of this case from In re Foreman

involving cause of action that arose pre-petition

Summary of this case from In re Foreman

In Payless Wholesale Distributors, Inc. v. Alberto Culver (P.R.), Inc., 989 F.2d 570 (1st Cir. 1993), cert. denied, 510 U.S. 931, 114 S.Ct. 344, 126 L.Ed.2d 309 (1993), the Plaintiff/Chapter 11 debtor failed to list causes of action against Alberto Culver (P.R.), Inc. and others both in its schedules and in its disclosure statement.

Summary of this case from In re Sullivan

characterizing Payless' "plan" in bringing 20 claims against defendants following Payless' discharge in bankruptcy as "[c]onceal[ing] your claims; get[ting] rid of your creditors on the cheap, and start[ing] over with a bundle of rights"

Summary of this case from Dailey v. Smith
Case details for

Payless Wholesale Distrib. v. Alberto Culver

Case Details

Full title:PAYLESS WHOLESALE DISTRIBUTORS, INC., ET AL., PLAINTIFFS, APPELLANTS, v…

Court:United States Court of Appeals, First Circuit

Date published: Apr 5, 1993

Citations

989 F.2d 570 (1st Cir. 1993)

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