Michigan Court of Appeals; Docket #354310; Unpublished
Judges Tukel, Sawyer, and Cameron; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Judicial Estoppel
SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiff Sharr Garza’s third-party action against Defendant Chase Willard Reiche. The Court of Appeals held that the doctrine of judicial estoppel did not bar Garza’s action even though she failed to disclose her negligence claim on her first two amendments to her asset schedule in a separate bankruptcy proceeding.
In September of 2016, approximately one month before the subject motor vehicle collision, Garza and her husband filed for Chapter 13 bankruptcy. After the subject collision, Garza filed several amendments to the asset schedules in the bankruptcy proceeding, but did not disclose her negligence claim. In October of 2019, she filed the underlying lawsuit against Reiche; then in May 2020, she finally disclosed the negligence claim in the asset schedules. Reiche moved for summary disposition in Garza’s third-party action, arguing that Garza’s negligence claim was barred by judicial estoppel because, prior to the amendment filed in May 2020, “Garza had affirmatively denied that she had any claims against third parties during her bankruptcy proceedings.” The trial court granted Reiche’s moton, concluding that judicial estoppel should be employed to bar Garza’s third-party action against Reiche.
The Court of Appeals reversed the trial court’s summary disposition order, setting forth, preliminarily, the correct analysis for applying the doctrine of judicial estoppel in a bankruptcy proceeding, established in the case of Spohn v Van Dyke Pub Sch, 296 Mich App 470 (2012):
"[T]o support a finding of judicial estoppel, [a reviewing court] must find that: (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 either as a preliminary matter or as part of a final disposition; and (3) [the plaintiff’s] omission did not result from mistake or inadvertence. [Alterations in original; quotation marks and citation omitted.]"
In this case, the Court of Appeals held that the first element was not met because Garza ultimately did comply with her responsibilities under the bankruptcy code—by correcting her otherwise contrary position—while the bankruptcy proceeding was still pending.
"With respect to the first requirement, Garza was unable to include her potential negligence claim in her original petition because the accident had not yet occurred. Although Garza amended the bankruptcy schedules twice after the October 2016 accident, she did not list the negligence claim until May 2020. Regardless, the record establishes that Garza did amend her asset schedules to include the negligence claim. Although delayed, Garza ultimately complied with her responsibilities under the bankruptcy code and corrected her otherwise contrary position by filing the May 2020 amendment. In light of the amended filing and the fact that the bankruptcy matter remained pending when the amendment was filed, we conclude that Reiche failed to establish the first requirement for the application of judicial estoppel. Cf. Spohn, 296 Mich App at 481-483 (finding that ‘the first requirement for the application of judicial estoppel was demonstrated’ because it was ‘undisputed that Spohn did not include her potential sexual harassment lawsuit on her bankruptcy petition and did not amend that petition to list the possible cause of action while the bankruptcy remained pending’)."
The Court of Appeals also held that the third element was not met because Garza’s failure to disclose the negligence claim in her first two amendments to the asset schedules was a simple mistake, not the product of “some ulterior motive to deliberately manipulate the courts through cynical gamesmanship.” Garza informed her bankruptcy attorney about the subject collision soon after it happened, and her personal injury attorney inquired with her bankruptcy attorney about whether any steps needed to be taken in the bankruptcy court once the third-party action was filed. These actions did not indicate an attempt by Garza to engage in such manipulation.
"The record establishes that Garza was involved in the motor vehicle accident on October 3, 2016, which was after the bankruptcy petition was filed. The record supports that Garza had informed her first bankruptcy attorney that her vehicle had been totaled in a motor vehicle accident and that the attorney filed a stipulation and order on December 5, 2016, which allowed credit for Garza to purchase or lease a new vehicle. In October 2017, Garza retained a personal injury attorney. On October 26, 2017, Garza’s personal injury attorney wrote a letter to Garza’s second bankruptcy attorney, requesting that the bankruptcy attorney advise him as to whether any steps needed to be taken with the bankruptcy court. Thus, the record supports that Garza advised her bankruptcy attorneys of the accident and her potential claim. As already discussed, the May 2020 amendment was filed when the bankruptcy matter was still pending. Cf. Spohn, 296 Mich App at 486-487 (finding evidence of bad faith where ‘there [was] no dispute that Spohn did not inform the bankruptcy court of the potential sexual harassment lawsuit or make any attempts to amend her bankruptcy petition’)."
Lastly, the Court of Appeals held that applying judicial estoppel in this case would defeat the general purpose of the doctrine. The Court quoted the following language from a previous Court of Appeals panel’s decision in Opland v Kiesgan, 234 Mich App 352 (1999)—“ ‘[j]udicial estoppel is an extraordinary remedy to be invoked when a party’s inconsistent behavior will otherwise result in a miscarriage of justice’ ”—in holing that a miscarriage of justice would result if the doctrine of judicial estoppel were applied to bar Garza’s third-party action, because it would “deprive Garza’s creditors of recovery of some of the amounts owed to them by Garza.”
"Additionally, declining to apply the doctrine of judicial estoppel under the circumstances of this case advances the general purpose of the doctrine. Garza identified the negligence claim as a potential asset of her bankruptcy estate while the bankruptcy proceeding was still pending. Furthermore, application of the doctrine is not necessary to avoid a miscarriage of justice. See Opland, 234 Mich App at 364. Garza’s initial failure to disclose her potential claim in the bankruptcy court placed her creditors, not Reiche, in jeopardy. Moreover, application of judicial estoppel in this case has the potential of causing a miscarriage of justice by preventing Garza from pursuing her claim, which would be to the detriment of her creditors. Indeed, application of the judicial estoppel doctrine and dismissal of Garza’s claim could deprive Garza’s creditors of recovery of some of the amounts owed to them by Garza."
