BANKRUPTCY AND JUDICIAL ESTOPPEL

Jacqueline W. August

On October 3, 2016, Plaintiff Sharr Garza sustained injuries after Defendant Chase Willard Reiche turned his vehicle in front of Plaintiff’s oncoming vehicle. Plaintiff filed a Complaint in October 2019 asserting that Defendant’s negligent conduct caused her injuries. During a deposition on May 15, 2020, Plaintiff revealed that she and her spouse filed a Chapter 13 bankruptcy petition in September 2016. Plaintiff failed to identify the negligence claim in the amendments to the asset schedules until May 20, 2020.

Defendant filed a motion for summary disposition arguing that the doctrine of judicial estoppel barred Plaintiff’s negligence claims since prior to the May 2020 amendment, Plaintiff denied that she had any claims against third parties. Defendant further argued that Plaintiff was unable to pursue the claim herself since the cause of action was the property of the estate. Plaintiff argued that Defendant failed to meet the requirements of judicial estoppel and that she had concurrent authority with the trustee to bring the negligence suit. The trial court granted Defendant’s motion for summary disposition under MCR 2.116(C)(7) and concluded that the doctrine of judicial estoppel should be employed on the basis of Plaintiff’s representations in the bankruptcy proceeding.

Plaintiff appealed. The Court of Appeals, in Garza v Reiche, et al (Unpub, COA No. 354310, 7/29/21), first noted that judicial estoppel is an equitable doctrine that generally prevents a party from prevailing in one phase of a case on an argument and then subsequently relying on a contradictory argument to prevail in another phase. See Spohn v Van Dyke Pub Sch, 296 Mich App 470, 479; 822 NW2d 239 (2012). To support a finding of judicial estoppel in the context of bankruptcy proceedings, a reviewing court must find the following: (1) the plaintiff assumed a position that was contrary to the one that she asserted under oath in the bankruptcy proceedings; (2) the bankruptcy court adopted the contrary position as a preliminary matter or as part of a final disposition; and (3) the plaintiff’s omission did not result from mistake or inadvertence.

The Court of Appeals found that Defendant did not establish all the requirements necessary for application of the judicial estoppel doctrine. Regarding the first requirement, Plaintiff ultimately corrected her original petition to include her negligence claim by filing the May 2020 amendment, even though the correction came after a significant delay. The Court further found that Plaintiff’s failure to disclose the potential asset in bankruptcy court arose from mistake or inadvertence and not an ulterior motive to manipulate the courts. Records supported that Plaintiff advised her bankruptcy attorneys of the accident and her potential claim. The Court found the application of the judicial estoppel doctrine in the present case was not necessary to avoid a miscarriage of justice. Plaintiff’s initial failure to disclose her potential claim in the bankruptcy court placed her creditors, not Defendant, in jeopardy and preventing Plaintiff from pursuing her claim would be a detriment to her creditors.

The Court held that the trial court erred in granting summary disposition since the application of the judicial estoppel doctrine would not further the doctrine’s purpose and Defendant had failed to establish all the requirement necessary for application of the doctrine. The Court declined to consider Defendant’s second argument that summary disposition was proper because there was no factual dispute that Plaintiff lacked the legal capacity to file her lawsuit. Instead, the Court remanded the matter back to the trial court to address that argument.