Date: 04-02-2018

Case Style:

Case Number: 17-1727-cv

Judge: Calabresi

Court: United States Court of Appeals for the Second Circuit on appeal from the Southern District of New York (New York County)

Plaintiff's Attorney: Alani Golanski, David Allan Chandler, Thomas Hughson Hart, III, Matthew Blake McLeod, Robert Eugene Shuttlesworth

Defendant's Attorney: Martin F. Gaynor, Bradley M. Wanner

Description: In 2015, John Edward Clark was diagnosed with mesothelioma,
a cancer caused by the inhalation of asbestos fibers. At that time, Mr.
Clark was nearing completion of a Chapter 13 bankruptcy plan that
he and his wife, Michele, had entered into in 2010. Although the
Clarks fulfilled their last remaining obligations under the plan within
a matter of weeks, their bankruptcy proceeding remained formally
2 Boeing’s brief was joined by United Technologies Corporation, AII Acquisition,
LLC, Pecora Corporation, AWC 1997 Corporation, BorgWarner Morse Tec LLC,
CBS Corporation, General Electric Company, Crane Co., Eaton Aeroquip LLC,
General Cable Corporation, Goodrich Corporation, FKA B.F. Goodrich Company,
The Goodyear Tire & Rubber Company, Goodyear Canada, Inc., Harco, LLC,
i/s/h/a Harco Laboratories, Inc., Henkel Corporation, Lennox Industries Inc., Mine
Safety Appliance Company, LLC, Lockheed Martin Corp., Navistar, Inc., FKA
International Truck and Engine Corporation, and Pneumo Abex LLC.
4
open for another full year before finally coming to a close on August
5, 2016. One week prior to their discharge from that proceeding, the
Clarks initiated the present suit: a personal injury action against The
Boeing Company and a host of other corporations they believed had
exposed Mr. Clark to asbestos.
Boeing soon thereafter moved to dismiss the Clarks’ personal
injury suit on grounds of judicial estoppel. According to Boeing, the
couple’s failure to disclose Mr. Clark’s diagnosis during bankruptcy
bars them from pursuing personal injury claims related to that
diagnosis now. The district court agreed, granting Boeing’s motion
and dismissing the Clarks’ claims with prejudice.
Mr. Clark died during the pendency of the couple’s appeal to
this court. But we grant to Mrs. Clark what relief we can: the April 28,
2017 judgment of the district court granting Boeing’s motion to
dismiss is VACATED, and the case REMANDED for further
proceedings.
I.
By early 2010, the Clarks found themselves more than $100,000
in debt.3 Seeking to regain their financial footing, the couple filed for
Chapter 13 bankruptcy in the United States Bankruptcy Court for the
3 Because this case comes to us on an appeal of a motion to dismiss, “the following
facts drawn from plaintiffs’ complaint are presumed true, and are presented in the
light most favorable to plaintiffs.” Am. Trucking Ass’n, Inc. v. N.Y. State Thruway
Auth., 795 F.3d 351, 354 (2d Cir. 2015).
5
District of Connecticut. Under the Clarks’ proposed bankruptcy plan
(“the Plan”), the couple agreed to repay their creditors in full, with
interest at the federal judgment rate, over five years through monthly
payroll deductions.4 See 28 U.S.C. § 1961. If all conditions were met,
the Clarks would emerge from bankruptcy at the end of that period
debt free. Following a confirmation hearing held in July 2010, the
bankruptcy court set the Plan in motion.
For nearly five years, everything went as planned. Each month
$2,152 was deducted from Mr. Clark’s paycheck from his then
employer, Boeing, and each month the couple inched closer to a
discharge from bankruptcy. Then, only a few weeks before the Clarks’
sixtieth (and final) monthly deduction was taken in July 2015,5
tragedy struck: Mr. Clark was diagnosed with mesothelioma.
Mr. Clark immediately suspected that the culprit was asbestos
exposure, which he had suffered during his two decades of service in
the United States Air Force and in his subsequent private sector
employment. Soon after being diagnosed, Mr. Clark decided to bring
suit against the corporations he believed responsible for exposing him
to the known carcinogen. Mr. Clark—unsure of whether his
4 Certain debts, such as Mr. Clark’s student debt and home mortgage, were not
included as part of the couple’s Chapter 13 bankruptcy restructuring.
5 There was a factual dispute before the district court as to when exactly the Clarks
completed payment under the Plan. Because this case comes to us on a motion to
dismiss (and because Boeing does not argue on appeal that payment was
completed after July 2015), we accept the Clarks’ chronology.
6
bankruptcy asset schedules needed to be updated to reflect his
diagnosis and intention to litigate—alerted his bankruptcy counsel to
this information and “trusted him to do what was required under the
law.” Aff. of John Edward Clark ¶ 14 (Feb. 3, 2017). Mr. Clark’s
counsel, however, never passed this information along to the
bankruptcy court during the pendency of the Clarks’ bankruptcy
proceeding.
On July 29, 2016, the Clarks filed a personal injury action in
New York state court against more than fifty corporate defendants,
including Boeing.6 One week later, with every creditor having been
paid in full, the couple received a final discharge from bankruptcy.
After the Clarks’ personal injury suit was removed to federal
court,7 Boeing moved to dismiss. In its motion,8 Boeing argued that
the suit was barred by the equitable doctrine of judicial estoppel,
which “prevents a party from asserting a factual position in one legal
proceeding that is contrary to a position that it successfully advanced
in another proceeding.” Rodal v. Anesthesia Grp. of Onondaga, P.C., 369
6 The Clarks had previously filed a short‐lived action in Illinois state court. The
Clarks voluntarily dismissed this first suit after (i) several defendants were
dismissed for want of personal jurisdiction; and (ii) Boeing notified the Clarks that
it planned to file a motion to dismiss. Boeing does not base its assertion of judicial
estoppel in the present suit on this earlier filing, which, like the present action, was
brought after the Clarks had completed payment under the Plan.
7 The suit was removed by Lockheed Martin to the United States District Court for
the Southern District of New York pursuant to 28 U.S.C. § 1442.
8 This motion was ultimately joined by numerous defendants. For ease of
understanding, we refer solely to Boeing throughout this opinion.
7
F.3d 113, 118 (2d Cir. 2004). According to Boeing, the couple’s failure
to disclose Mr. Clark’s diagnosis during bankruptcy estops them from
pursuing personal injury claims related to that diagnosis forever
thereafter.9
The district court agreed. Characterizing judicial estoppel as a
“harsh rule,” it granted Boeing’s motion on April 28, 2017, and
dismissed this suit in its entirety. Clark v. Advanced Composites Grp. et
al., 2017 WL 2266981, at *5 (S.D.N.Y. April 28, 2017). The Clarks timely
appealed on May 26, 2017. Mr. Clark succumbed to his illness
approximately six months later on November 24, 2017.
II.
There has been some uncertainty in this circuit as to the proper
standard by which to review a district court’s decision to invoke
judicial estoppel. This uncertainty can be traced back to our decision
in Uzdavines v. Weeks Marine Inc., 418 F.3d 138 (2d Cir. 2005), where
we indicated in passing that whether judicial estoppel applies “is a
pure question of law, which we review de novo.” Id. at 143 (emphasis
removed). In subsequent decisions, we have taken pains to note that
we are not bound by our dicta to this effect in Uzdavines.10 But because
9 The parties variously focus on the key date as the onset of Mr. Clark’s diagnosis,
or the onset of litigation. Another possibly relevant date is the discovery that Mr.
Clark’s disease was actionable. The first thing one does on receiving a fatal
diagnosis is not usually to seek consultation with one’s bankruptcy counsel.
10 See Intellivision v. Microsoft Corp., 484 Fed. App’x 616, 618 (2d Cir. 2012)
(summary order); Welfare Fund v. Bidwell Care Ctr., LLC, 419 Fed. App’x 55, 59 n.6
8
we were able to “affirm the district court under de novo review” in
those cases, we declined to “consider whether a more deferential
standard should apply.” BPP Ill., LLC v. Royal Bank of Scot. Grp. LLC,
859 F.3d 188, 191 (2d Cir. 2017). It is time we put this uncertainty to
rest: today we hold that a district court’s invocation of judicial
estoppel is reviewed only for abuse of discretion.
Abuse of discretion review is a “natural fit” for the judicial
estoppel doctrine, which has a somewhat “amorphous nature.” Alt.
Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 31 (1st Cir. 2004). While
the doctrine functions generally to bar litigants from taking
inconsistent positions in successive suits, “the exact criteria for
invoking judicial estoppel will vary based on specific factual
contexts.” Adelphia Recovery Tr. v. Goldman, Sachs & Co., 748 F.3d 110,
116 (2d Cir. 2014) (internal quotation marks omitted). The district
court is the “judicial actor . . . better positioned” to determine whether
the criteria for invoking judicial estoppel have been met within the
particular factual context of a given case, Miller v. Fenton, 474 U.S. 104,
(2d Cir. 2011) (summary order). In Uzdavines, this court declined to disturb the
National Labor Relation Board’s decision not to apply judicial estoppel. We noted
(i) that the party to be estopped did “not tak[e] an ‘inconsistent’ position,” (ii) that
the position in question “did not confer ‘an unfair advantage’” and (iii) that
“equity [did] not suggest, much less require,” that judicial estoppel be applied.
Uzdavines, 418 F.3d at 148. Because the issue of the appropriate standard of review
was not briefed in the case (and because the Uzdavines Court plainly would have
upheld the Board’s determination under any standard), our passing reference to
de novo review was dicta.
9
114 (1985), as well as whether a lesser sanction would suffice to
address a litigant’s lack of candor. See Klein v. Stahl GMBH & Co.
Maschinefabrik, 185 F.3d 98, 109 (3d Cir. 1999) (“Judicial estoppel is
[but] one arrow in the quiver of sanctions at a court’s disposal.”).
Nearly every other circuit has likewise held that abuse of
discretion is the appropriate standard in this context.11 Even the one
holdout—the Sixth Circuit—has recently “questioned the continuing
viability” of de novo review in light of the Supreme Court’s
characterization of judicial estoppel as “an equitable remedy ‘invoked
by a court at its discretion.’” Javery v. Lucent Tech., Inc., 741 F.3d 686,
697 (6th Cir. 2014) (internal citation omitted)).
While deferential, abuse of discretion review is not a rubber
stamp. A district court may not “do inequity in the name of equity.”
27A AM. JUR. 2D EQUITY § 84 (2012). And we will overturn a district
court’s decision to invoke judicial estoppel that, “though not
necessarily the product of a legal error or a clearly erroneous factual
11 See, e.g., Alt. Sys. Concepts, 374 F.3d at 31; McNemar v. Disney Store, Inc., 91 F.3d
610, 613 (3d Cir. 1996); Minnieland Priv. Day Sch., Inc. v. Applied Underwriters Captive
Risk Assurance Co., 867 F.3d 449, 457 (4th Cir. 2017); Gabarick v. Laurin Mar. (Am.)
Inc., 753 F.3d 550, 553 (5th Cir. 2014); Gronchocinksi v. Mayer Brown, 719 F.3d 785,
797 (7th Cir. 2013); Stallings v. Hussmann Corp., 447 F.3d 1041, 1046‐47 (8th Cir.
2006); United States v. Garcia, 37 F.3d 1359, 1366‐67 (9th Cir. 1994); Eastman v. Union
Pac. R.R. Co., 493 F.3d 1151, 1156 (10th Cir. 2007); Talavera v. Sch. Bd., 129 F.3d 1214,
1216 (11th Cir. 1997); Marshall v. Honeywell Tech. Sys., Inc., 828 F.3d 923, 928 (D.C.
Cir. 2016); Trs. in Bankr. of N. Am. Rubber Thread Co. v. United States, 593 F.3d 1346,
1351 (Fed. Cir. 2010).
10
finding[,] cannot be located within the range of permissible
decisions.” Zervos v. Verizon N.Y., Inc., 252 F.3d 163, 169 (2d Cir. 2001).
III.
The question before us, then, is whether the district court
abused its discretion in invoking judicial estoppel against the Clarks.
We conclude that it did. We take it as axiomatic that judicial
estoppel—an equitable doctrine—is to be construed in light of
equitable principles. It seems equally evident to us that the balance of
equities tips overwhelmingly in the Clarks’ favor. And yet, the district
court found judicial estoppel to be required. What went wrong?
The district court’s April 28, 2017 judgment dismissing this suit
started off on the right foot. It began by noting that the party asserting
judicial estoppel must show (i) that “the party against whom the
estoppel is asserted took an inconsistent position in a prior
proceeding” and (ii) that “that position was adopted by the first
tribunal in some manner, such as by rendering a favorable judgment.”
Clark, 2017 WL 2266981, at *4 (quoting Robinson v. Concentra Health
Serv., Inc., 781 F.3d 42, 45 (2d Cir. 2015)). As to the first element, the
district court held that the Clarks’ failure to disclose their personal
injury causes of action to the bankruptcy court amounted to an
implicit false representation that no such causes of action existed. Id.
As to the second element, the district court reasoned that the
bankruptcy court “adopted” the Clarks’ inconsistent position by
11
“rendering a favorable judgment”—i.e., by discharging them from
bankruptcy. Id.
Having satisfied itself that the Clarks met the judicial estoppel
doctrine’s two prerequisite elements, the district court held ipso facto
that the couple’s personal injury claims must be estopped. And
therein lies the district court’s error: judicial estoppel is not a
mechanical rule. See Holmberg v. Armbrecht, 327 U.S. 392, 396 (1946)
(“Equity eschews mechanical rules.”).
That a litigant (i) took a prior inconsistent position and (ii)
convinced an earlier tribunal to adopt that position may be necessary
conditions for judicial estoppel to be imposed, but they are not
sufficient ones. Before judicially estopping a litigant, a court must
inquire into whether the particular factual circumstances of a case “tip
the balance of equities in favor” of doing so. New Hampshire v. Maine,
532 U.S. 742, 751 (2001).
Our cases make clear that this inquiry begins by asking whether
the prior inconsistent position in question gave the party to be
estopped an “unfair advantage” over the party seeking estoppel. BPP
Ill., 859 F.3d at 192. The answer here is that Boeing concedes that it
was in no way prejudiced by the Clarks’ failure to disclose their
personal injury causes of action to the bankruptcy court.
While significant, this concession does not end the inquiry. See,
e.g., Adelphia, 748 F.3d at 116 (“Although we have recognized that
12
typically the application of judicial estoppel requires showing unfair
advantage against the party seeking estoppel, we have not required
this element in all circumstances.” (internal quotation marks and
brackets omitted)). We have been particularly apt to overlook the
general requirement that a party seeking estoppel have suffered
prejudice where, as here, the party to be estopped failed to make the
proper disclosures during bankruptcy.12 In such circumstances, this
court has justified the imposition of judicial estoppel in part on the
unfair advantage the estopped party may have gained over “former
creditors, who had a right to consider the [undisclosed] claims”
during bankruptcy. BPP Ill., 859 F.3d at 194.
As we have previously noted, however, this rationale cannot
extend to the “unusual case” in which a debtor’s nondisclosure had
at most a “de minimis effect” on a prior bankruptcy proceeding.
Adelphia, 748 F.3d at 120. This is just such a case. As the Standing
Trustee for the District of Connecticut certified in an affidavit
submitted on the Clarks’ behalf, disclosure “would not have altered
the outcome” of the couple’s bankruptcy proceeding. Aff. of Molly T.
Whiton ¶ 5 (Mar. 20, 2017).
12 Accord W. HOMER DRAKE, JR. ET AL., CHAPTER 13 PRACTICE & PROCEDURE § 16:7
(2017) (“Courts have concluded . . . that the debtor’s failure to disclose a cause of
action gives her an unfair advantage because it permits her to obtain the full
benefit of the recovery to the detriment of her creditors.”).
13
This is because the Plan already required the Clarks to repay
their creditors in full. Disclosing Mr. Clark’s diagnosis to the
bankruptcy court would therefore have only affected the couple’s
bankruptcy proceeding if their creditors were able to convince the
bankruptcy court to raise the applicable interest rate under the Plan.
Given that the Clarks were mere weeks away from completing
repayment at the time of Mr. Clark’s diagnosis, and were already
paying interest at a standard rate, this scenario strikes us as more than
implausible.13
Boeing does not seriously dispute any of these facts.14 Instead,
it urges that, because “judicial estoppel protects the sanctity of the
oath and the integrity of the judicial process,” there are cases in which
a court may properly invoke the doctrine even in response to a prior
inconsistent position that had only a de minimis effect. Bates v. Long
Island R.R. Co., 997 F.2d 1028, 1037 (2d Cir. 1993). The point is well
taken. We do not deny that there may be unusual circumstances in
which the need to safeguard the integrity of the courts may tip the
13 Boeing gestures at the possibility that additional creditors might have sought to
intervene in the Clarks’ bankruptcy proceedings if Mr. Clark’s diagnosis had been
timely disclosed. Because Boeing does not show that any such creditors actually
existed (or give any reason to think the bankruptcy court would have allowed any
such creditors to intervene so late in the course of bankruptcy), this assertion
seems too remote to warrant serious consideration.
14 See Boeing Br. at 15 n.4 (dedicating only a single footnote to arguing that the
Clarks’ nondisclosure had more than a de minimis impact on their bankruptcy
proceeding).
14
equities in favor of judicial estoppel even when the inconsistency in
question made no material difference.
But this case is surely not of that sort. Nothing in the record
before us suggests that the Clarks withheld Mr. Clark’s diagnosis
from the bankruptcy court in an effort to game the bankruptcy
system. Indeed, it is hard to see what benefit they could even have
hoped to obtain from nondisclosure. In these circumstances, we hold
that the principles of equity require the courts to entertain Mrs.
Clark’s personal injury claims.
To be clear, we are not giving unscrupulous litigants the green
light to play “fast and loose with the courts.” Wight v. BankAmerica
Corp., 219 F.3d 79, 89 (2d Cir. 2000). Nor do we wish to hamper district
courts who deem judicial estoppel necessary to ensure the “full
disclosure by debtors” that is “essential to the proper functioning of
the bankruptcy system.” Chartschlaa v. Nationwide Mut. Ins. Co., 538
F.3d 116, 122 (2d Cir. 2008). But to hold on the facts of this case that
Mrs. Clark’s claims are barred by an equitable doctrine would be to
deprive the concept of equity of any meaning. The district court’s
April 28, 2017 judgment granting Boeing’s motion to dismiss is
VACATED, and the case REMANDED for further proceedings.15

15 Because we vacate the district court’s judgment dismissing this case, we need
not reach the Clarks’ argument that their suit should not be estopped against
Prysmian Communications Cables & Systems USA, LLC, which did not join
Boeing’s motion to dismiss.

Outcome: Vacated and Remanded

Plaintiff's Experts:

Defendant's Experts:

Comments: