N.C. Court of Appeals: T-WOL Acquisition Co., Inc. v. ECDG South, L.L.C.: Judicial Estoppel following Failure to Disclose Asset in Bankruptcy

Summary: Plaintiff Harris did not disclose any ownership interest in T-WOL, which had been incorporated in 2000,  when he filed bankruptcy in 2001.  Following suit in 2009, the Defendants moved for summary judgment arguing that Plaintiff Harris should be judicially estopped from asserting ownership in T-WOL. The purpose of judicial estoppel is "to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment."  Whitacre P’Ship v.  Biosignia Inc., 358 N.C. 1 (2004)  Relying on Bioletti v.  Bioletti, 204 N.C. App.  270 (2010), the Court of Appeals refused to allow Plaintiff Harris "to derive an unfair advantage from his inconsistent positions" by first failing to disclose an asset in a bankruptcy (regardless of "the effect that any understatement [of assets] may have ... on the out come of [the] bankruptcy proceeding" Bioletti at 278-279) and then asserting such ownership in later litigation. In order to establish judicial estoppel, it must first be plead with certainty, See Duke University v. St.  Paul Mercury Ins.  Co., 95 N.C. App.  663 (1989) or, as in this case, be tried with the express or implied consent of the parties.  The criteria for judicial estoppel then are: The party’s subsequent position is clearly inconsistent with an earlier position; The party succeeded in persuading the court to accept the earlier position, so that acceptance of an inconsistent position in a later proceeding would pose a threat to judicial integrity through either contradictory determinations or a perception that one court was misled; The party asserting the inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. Commentary: While maintaining that judicial estoppel is intended to protect the integrity of the courts, it can appear that the North Carolina Court of Appeals has a narrower view of judicial integrity than North Carolina bankruptcy courts have displayed. For example, in In re Hamlett (http://www1.ncmb.uscourts.gov/opinions/docs/hamlett.PDF ) the bankruptcy court held that judicial estoppel not withstanding, a non-disclosed personal injury lawsuit was an asset of the estate and, pursuant to 11 U.S.C. § 554(d), was not abandoned and remained an asset of the estate.  In subsequent proceedings, the bankruptcy court denied the Debtor’s attempt to exempt the personal injury claim, finding that the failure to disclose the asset had been done in bad faith.  The Chapter 7 Trustee then administered the asset, settling with the personal injury Defendant and paying a substantial dividend to unsecured creditors.  This result had the effect of maintaining the integrity of the courts by not only precluding the Debtor from deriving an unfair advantage from his failure to disclose the asset, but also prevented the Defendant from obtaining its own advantage unfairly at the expense of the unsecured claims. Perhaps if the North Carolina Court of Appeals had a deeper understanding of bankruptcy, particularly that it is not simply a two-sided adversarial proceeding, it might have instead required joinder in this case by the Chapter 7 Trustee from Plaintiff Harris’ bankruptcy case. For a copy of the opinion, please see: T-WOL Acquisition Co., Inc. v. ECDG South, L.L.C. Judicial Estoppel following Failure to Disclose Asset in Bankruptcy.pdf