Per 5th Circuit, BAFFC Daily Commentary:

Reed v. City of Arlington No. 08-11098

http://www.ca5.uscourts.gov/opinions/pub/08/08-11098-CV0.wpd.pdf

http://www.ca5.uscourts.gov/opinions/pub/04/04-11213-CV1.wpd.pdf (December 19, 2006 Order Denying Rehearing).

http://www.ca5.uscourts.gov/opinions/pub/04/04-11213-CV0.wpd.pdf >(June 30, 2006 Panel Opinion).

Before JONES, Chief Judge, DeMOSS, and CLEMENT, Circuit Judges.

REVERSED. (September 16, 2010).

Kim Lubke ("Lubke"), a firefighter, won a verdict and substantial judgment against the City of Arlington, Texas ("the City") on his Family and Medical Leave Act ("FMLA") claim. During the pendency of the City's appeal to the Fifth Circuit, Lubke and his wife filed for Chapter 7 bankruptcy relief, but omitted the disclosure of his pending six-figure judgment from the schedule of assets accompanying his bankruptcy filings. Also omitted were disclosures of an oil and gas lease (though it had not paid any royalties to the Lubkes), five goats, and a flea market business. Deeming Lubke's to be a "no asset" case, the Bankruptcy Court granted a discharge of $300,000 of mostly credit card debt. Unaware of Lubke's bankruptcy, the Fifth Circuit affirmed the verdict against the City, but remanded for a recalculation of damages. (The Court's June 30, 2006 Opinion is linked above). Lubke then informed his trial attorney in the FMLA case, for the first time, that he had filed bankruptcy. Efforts were then successfully made to reopen the bankruptcy case. The trustee substituted herself in place of Lubke in the District Court, and the City, upon learning of the bankruptcy, filed a supplement to its petition for rehearing, which at the time was still pending in the Fifth Circuit. The City argued that Lubke should have been judicially estopped from collecting on the judgment given his failure to disclose it as an asset in his bankruptcy. On December 19, 2006, the Fifth Circuit denied rehearing, but remanded for the District Court to recalculate damages and to rule, in the first instance, on the City's judicial estoppel claim. (The Court's December 19, 2006 Order on Petition for Rehearing is linked above). On remand the District Court agreed that judicial estoppel applied to Lubke, but not to the Trustee. Accordingly, the District Court permitted the trustee to collect the judgment, but "concerned that Lubke would benefit from any remaining funds not disbursed to creditors," ordered any surplus be returned to the City and not remitted to Lubke. The City appealed.

The Fifth Circuit acknowledged that its prior decisions "applying judicial estoppel to claims concealed from bankruptcy courts" have reached results that have created "a mosaic." Nevertheless, the Court indicated, "[t]he lowest common denominator appears to lie in a holistic, fact-specific consideration of each claim of judicial estoppel that arises from litigation claims undisclosed to a bankruptcy court." Here, the Court found the District Court erred in not applying judicial estoppel against the trustee. Notably, the Court found that Lubke's creditors were not materially advantaged by the trustee's collection of the judgment inasmuch as most had not refiled their claims when the case was re-opened. Accordingly, the principal remaining bankruptcy claimants were the trustee, and Lubke's trial lawyer. That caused the Court to conclude, "equity does not favor ignoring Lubke's misuse of the court system for the primary benefit of attorneys[,]" and thus "both Lubke and [the trustee] must be judicially estopped" from collecting the judgment. The Court reasoned that to hold otherwise would send debtors the message that they "'should consider disclosing personal assets only if [they are] caught concealing them.'" In re Superior Crewboats, 374 F.3d at 336 (quoting Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1288 (11th Cir. 2002)).