Reynolds v. Dept/Transportation, et al
REPORT AND RECOMMENDATIONS of Special Master that defendants' 8432 motion for application of judicial estoppel to the individual contempt claim of Leroy Williams be GRANTED and that Mr. Williams not be permitted to pursue his individual contempt claim ; Objections to R&R due by 9/22/2009. Signed by Special Master C.A. Gonzalez on 8/31/09. (djy, )
IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF ALABAMA NORTHERN DIVISION
JOHNNY REYNOLDS, ET AL., Plaintiffs, v. CIVIL ACTION NUMBER 85-cv-665-MHT Special Master González
ALABAMA DEPARTMENT OF TRANSPORTATION, ET AL., Defendants.
R E P O R T AND RECOMMENDATION
I Pending is the "Defendants' Motion for Judicial Estoppel Concerning Leroy Williams." Docket ¹ 8432. The Defendants' motion is based upon the
fa ilu re of Mr. W illia m s to list his individual contempt claim and his participation in th e Reynolds January 2001 settlement in his bankruptcy proceedings. The facts a t issue are not contested. Mr. W illia m s filed for bankruptcy protection in the United States District C o u r t, Middle District of Alabama, on four separate occasions. Three of these
b a n k ru p tc y filings occurred while Mr. W illia m s was employed by the Alabama D e p a rtm e n t of Transportation.1 O n December 15, 1997, Mr. W illia m s filed for Chapter 13 bankruptcy, Case ¹ 97-06343. This case was terminated on September 7, 2000. On October 10, 2 0 0 0 , Mr. W illia m s filed a Chapter 7 bankruptcy, Case ¹ 00-05568, which was te r m in a te d on January 29, 2001. Finally, on December 17, 2002, Mr. and Mrs. W illia m s filed another Chapter 13 bankruptcy that was later converted to a C h a p te r 7 bankruptcy, Case ¹ 02-34006. The December 2002 case was d isc h a rg e d on May 26, 2004. (See generally Docket ¹ 8433 at 2 and exhibits c ite d therein). Mr. W illia m s has been deceptive in these individual contempt proceedings c o n c e rn in g the number of times he filed for bankruptcy. In his deposition he a d m its to filing only two bankruptcies. Id., at Exhibit G, 14:11 - 15:19. In re s p o n s e to an interrogatory specifically asking whether he had filed for b a n k ru p tc y protection within the past fifteen years, Mr. W illia m s answered "No." See id., at Exhibit B, Interrogatory 10 ("Have you filed for bankruptcy within the p ro c e e d in g fifteen years? "If so, please give the case number and court. R e s p o n s e : No.") These false statements are troubling.
Mr. W illia m s began working at ALDOT on April 2, 1994, as a Highway M a in te n a n c e Technician I. Docket ¹ 8433 Exhibit C-2.
II The Defendants believe they are entitled to invoke the doctrine of judicial e s to p p e l to prevent Mr. W illia m s from proceeding with his individual contempt c a s e because he did not disclose to the Bankruptcy Court his individual contempt c la im s against the Defendants in the Reynolds case. Docket ¹ 8433 at 3. Judge Thompson has explained the doctrine of judicial estoppel as follows:
Judicial estoppel is an equitable doctrine, invoked at the court's discretion, under which a party is precluded from asserting a claim in a legal proceeding inconsistent with a claim made in a precious proceeding. Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1285 (11th Cir. 2002). The doctrine exists "to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment." Id., (quoting New Hampshire v. Maine, 532 U.S. 742, 750 (2001)). Nevertheless, the doctrine "ought to be applied with caution `because the harsh results attendant with precluding a party from asserting a position that would normally be available to the party.'" Sumner v. Michelin N. Am., 966 F.Supp. 1567, 1578 (M. D. Ala.) (Thompson, J.) (quoting Lowery v. Stovall, 92 F.3d 219, 224 (4th Cir.1996)). While "the circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle," New Hampshire, 532 U.S. at 750, the Eleventh Circuit Court of Appeals considers two primary factors in applying the doctrine to a particular case. "First, it must be shown that the allegedly inconsistent positions were made under oath in a prior proceeding. Second, such inconsistencies must be shown to have been calculated to make mockery of the judicial system." Burnes, 291 F.3d at 1285 (quoting Salomon Smith Barney, Inc. v. Harvey, 260 F.3d 1302, 1308 (11th Cir. 2001)). Therefore, judicial estoppel may be applied only in situations involving intentional manipulation 3
of the courts, not when the litigant's contradictory positions are the "product of inadvertence or mistake." Burnes, 291 F.3d at 1287 (quoting Matter of Cassidy, 892 F.2d 637, 642 (7th Cir.1990)). Judicial estoppel "looks toward cold manipulation." Johnson Service Co. v. Transamerica Ins. Co., 485 F.2d 164, 175 (5th Cir.1973). The "deliberate and intentional manipulation" of the courts required before judicial estoppel may properly be invoked can be inferred from the record. Burnes, 291 F.3d at 1287. In bankruptcy, a debtor has a duty to disclose all potential assets and must amend her financial statements if circumstances change. 11 U.S.C.A. § 521(1). Potential assets may include "contingent, dependant or conditional" claims, and a debtor must disclose them if she has "enough information prior to confirmation to suggest that [she] may have a possible cause of action." Youngblood Group v. Lufkin Fed. Sav. And Loan Ass'n, 932 F.Supp. 859, 867 (E. D. Tex.1996) (Heartfield, J.) (internal citations omitted). Such claims include "litigation which has the potential of arising in a non-bankruptcy context." Id. at 868. Spann v. Dyncorp Technical Services, LLC, 403 F.Supp.2d 1082, 1086-87 (M.D. Ala. 2005)(Thompson, J.).
As Judge Thompson noted, "[a] debtor seeking shelter under the b a n k ru p tc y laws must disclose all assets, or potential assets, to the bankruptcy c o u r t. 11 U.S.C. § 521(1), and 541(a)(7)." Burnes at 1286. The duty to disclose is a continuing one that does not end once the bankruptcy is filed; rather, a debtor m u s t amend his or her financial statements as circumstances change. Id. "Full a n d honest disclosure in a bankruptcy case is `crucial to the effective functioning
o f the federal bankruptcy system.'" Id. quoting Ryan Operations G.P. v. S a n tia m -M id w e s t Lumber Co. et al., 81 F.3d 355, 362 (3d Cir. 1996). III A A s to the first two bankruptcies filed by Mr. W illia m s , in 1997 and then a g a in in 2000, the failure to list participation in the Reynolds case does not rise to th e level of "intentional manipulation." Mr. W illia m s was never a class re p r e s e n ta tive in Reynolds and played no role in the development of class litig a tio n strategy. Docket ¹ 8461 at 2. The first bankruptcy was filed in 1997 a n d final in September 2000--several months before the January 2001 s e ttle m e n t agreement from which Mr. W illia m s would eventually receive some m o n e y. The second bankruptcy was filed in October 2000 and final on January 2 9 , 2001, less than two weeks after the Plaintiffs and Defendants submitted the p ro p o s e d settlement to the Court, Docket ¹ 4700. There is no evidence that Mr. W illia m s knew he would receive money from the settlement since the Court had n o t yet held the fairness hearing which was still several months off. There is no fa c tu a l basis for determining that Mr. W illia m s engaged in deliberate and
intentional manipulation of the courts when he failed to disclose to the
B a n k ru p tc y Court his status as a class member in the Reynolds case.
B 1 W ith respect to Mr. W illia m s ' December 2002 bankruptcy filing, the issues a re decidedly different. On December 17, 2002, Mr. W illia m s filed a voluntary p e titio n for bankruptcy under Chapter 13 of the United States Bankruptcy Code. At the time of the bankruptcy filing, Mr. W illia m s had not received any c o m p e n s a tio n from his participation in the Reynolds settlement. By Mr. W illia m s ' o w n admission, however, by September 2003 he had received payment of his p ro m o tio n settlement funds. Docket ¹ 8461 at 2, 3. Earlier that year on March 5 , 2003, Mr. W illia m s and several hundred other members of the Plaintiffs class g a ve notice of their individual contempt claims. See Docket ¹ 6482 at 1-2. Then on January 27, 2004, Mr. and Mrs. W illia m s converted their Chapter 13 b a n k ru p tc y to a Chapter 7. T h e notice of conversion from a Chapter 13 filing into a Chapter 7 filing re q u ire d the completion several forms issued by The United States Bankruptcy C o u r t for the Middle District of Alabama. See In re W illia m s , Bankruptcy Case N o . 02-34006. at Docket ¹ 46. The forms are submitted to the Court under p e n a lty of perjury and signed by the debtor. Among the forms filed is Form 7 e n title d "Statement of Financial Affairs." Mr. and Mrs. W illia m s filed their
S ta te m e n t of Financial Affairs on January 27, 2004. Question four in the "S ta te m e n t of Financial Affairs" asks the following: 4 . Suits and administrative proceedings, executions, g a rn is h m e n ts and attachments a . List all suits and administrative proceedings to which the debtor is or w a s a party within one year immediately preceding the filing of this b a n k ru p tc y case. (Married debtors filing under chapter 12 or chapter 13 m u s t include information concerning either or both spouses whether or not a joint petition is filed, unless the spouses are separated and a joint petition is not filed.) ... Id. at 25 (emphasis in original). In response to this question, the W illia m s e s list a single garnishment action file d against Mrs. W illia m s in the small claims court of Montgomery County. No m e n tio n is made of the March 2003 individual contempt claim of Mr. W illia m s .2
2 There are two primary factors that the Eleventh Circuit Court of Appeals c o n s id e rs when applying the doctrine of judicial estoppel: (1) "it must be shown
In addition to the fact that Mr. W illia m s ' pending individual contempt c la im should have been listed in response to question four of the "Statement of F in a n c ia l Affairs," it should have also been listed in response to question 20 of "S c h e d u le B. Personal Property" dealing with contingent and unliquidated claims. Question 20 requires debtors to list: "[o]ther contingent and unliquidated claims o f every nature,. . . ." In response to this question, the only item listed was a w o rk e r's compensation claim. See In re W illia m s , Bankruptcy Case No. 023 4 0 0 6 , Docket ¹ 46 at 10.
th a t the allegedly inconsistent positions were made under oath in a prior p ro c e e d in g " and (2) "such inconsistencies must be shown to have been c a lc u la te d to make a mockery of the judicial system." Spann, 403 F.Supp. 2d at 1 0 8 6 , citing Burnes, 291 F.3d at 1285, quoting Salomon Smith Barney, Inc. v. H a rve y, 260 F.3d 1302, 1308 (11th Cir. 2001). T h a t Mr. W illia m s failed to disclose 3 his pending individual contempt claims w h e n he signed under oath the petition to convert his and Mrs. W illia m s ' Chapter 1 3 bankruptcy to a Chapter 7 bankruptcy is incontestable. The question is w h e th e r his failure to disclose was "calculated to make a mockery of the judicial s ys te m ." "Circumstances showing that debtors have made a `mockery of justice' im p ly a strong showing of intent to deceive" Thompson v. Quarles, 392 B. R. 5 1 7 , 527 (S. D. Ga. 2008). Determining "whether a failure to disclose was based o n an honest mistake or intentional manipulation of the court depends on the fa c ts of each case." Id. "Deliberate or intentional manipulation can be inferred fro m the record," and "the debtor's failure to satisfy its statutory disclosure duty is `in a d ve rte n t' only when, in general, the debtor either lacks knowledge of the u n d is c lo s e d claims or has no motive for their concealment." Burnes, 291 F.3d at 1 2 9 8 , quoting In re Coastal Plains, Inc., 179 F.3d 197, 210 (5th Cir. 1999). "A debtor seeking shelter under the bankruptcy laws must disclose all a s s e ts , or potential assets, to the bankruptcy court. "The duty to disclose is a c o n tin u in g one that does not end once the forms are submitted to the bankruptcy c o u rt; rather a debtor must amend his Financial Statements if circumstances c h a n g e ." Burnes, 291 F.3d at 1286 (internal citations omitted).
T h e re is no affidavit from Mr. W illia m s or other evidence in the record that w o u ld explain why Mr. W illia m s failed to disclose his pending individual contempt c la im to the Bankruptcy Court. All that is left then are the inferences to be g le a n e d from the record. The Eleventh Circuit's opinion in Burnes v. Pemco
Aeroplex, Inc. is instructive in such cases.
B u r n e s , was an employment class action brought in the Northern District of A la b a m a . One of the named class members, Mr. Billups, had been an employee o f Pemco for several years at the time of the suit. On July 3, 1997, Mr. Billups' la w y e r filed for Chapter 13 relief in The United State Bankruptcy Court for the N o rth e rn District of Alabama. Burnes, 291 F.3d at 1284. Six months later, J a n u a ry 30, 1998, Mr. Billups filed a claim of discrimination with the EEOC. Id. Then, on December 9, 1999, Mr. Billups, joined a class action lawsuit against his e m p lo ye r Pemco. In the complaint, Mr. Billups and the other members of the c la s s sought both monetary and injunctive relief. "Mr. Billups never amended his C h a p te r 13 schedule of assets or statement of financial affairs to include his la w s u it against Pemco." Id. During the pendency of the lawsuit, Mr. Billups moved the Bankruptcy C o u rt to convert his Chapter 13 petition to a Chapter 7 case. As part of the c o n ve rs io n , Mr. Billups filed an updated schedule of assets and liabilities. His s c h e d u le s did not include any mention of his pending claims against Pemco. Id. On January 23, 2001, Mr. Billups received a `no asset,' complete discharge of his
d e b ts from the Bankruptcy Court. On May 3, 2001, Pemco moved for summary ju d g m e n t asserting that the doctrine of judicial estoppel barred Mr. Billups' claims. T h e Eleventh Circuit affirmed the grant of summary judgment to Pemco on th e basis of judicial estoppel with respect to Mr. Billups' claims for monetary relief, b u t reversed the District Court's application of the doctrine to bar his claims for in ju n c tiv e relief. Id. at 1289. On the basis of the record before it, the Circuit C o u rt had no difficulty concluding that Mr. Billups' failure to amend his financial s ta te m e n t was intentional and an effort to manipulate the judicial process to re c e ive the benefits of a "no asset" discharge from the Bankruptcy Court while m a in ta in in g for himself the potential monetary windfall that a successful lawsuit m a y bring. Id. at 1287-88. 3 T h e circumstances of Mr. W illia m s ' case are in material respects almost in d is tin g u is h a b le from those of Mr. Billups in the Burnes case. At the time of Mr. W illia m s ' conversion of his Chapter 13 bankruptcy to a Chapter 7 bankruptcy, he fa ile d to disclose his then pending claims for individual contempt relief. There is n o basis for believing that Mr. W illia m s was unaware of his claim or that he was u n a w a re of the need to disclose the claim. Indeed, Mr. W illia m s had a long h is to ry of filing bankruptcies. It is also telling that Mr. W illia m s has difficulty telling th e truth with respect to his history of bankruptcy, having admitted to only two
p re vio u s bankruptcies in his deposition and earlier denying filing any bankruptcies w h a ts o e ve r in response to interrogatories. Mr. W illia m s ' failure to disclose his pending individual contempt claim at the tim e of his Chapter 7 filing had the effect of potentially sheltering money from his rig h tfu l creditors. Mr. and Mrs. W illia m s were given a "no asset" discharge from th e Bankruptcy Court. W h a t the Bankruptcy Court would have done had the d is c lo s u re been made is not known, but what is known is that Mr. W illia m s had a d u ty to disclose, he failed in that duty and that failure, based on the evidence in th e record, was most likely intentional and constituted purposeful manipulation of th e judicial process. 4 M r. W illia m s ' counsel in the pending individual contempt claims 4 argues th a t the Defendants should not be permitted to rely on the equitable powers of the C o u r t to avoid potential liability to Mr. W illia m s because of the Defendants' s tip u la te d contempt of the Consent Decree and because of the Defendants' p re vio u s arguments in the case that the "Plaintiffs are precluded from receiving
Counsel now representing Mr. W illia m s in his individual contempt claim w e re not involved in any aspect of Mr. W illia m s ' December 2000 bankruptcy or a n y of his earlier bankruptcies. There is no evidence that Plaintiff's counsel were a w a re of Mr. W illia m s ' dissembling to the Bankruptcy Court and there is no s u g g e s tio n in the record or otherwise that counsel knew Mr. W illia m s ' answers to h is interrogatory or deposition questions concerning prior bankruptcies were fa lse .
m o n e ta ry damages by the 2001 settlement." Docket ¹ 8461 at 5. Of course, the b a r to monetary relief only exists through the date of the fairness hearing--May 2 9 , 2001--and Mr. W illia m s claims damages from the date of the fairness h e a rin g through at least 2003 and perhaps later. The incontestable fact that the D e fe n d a n ts have conceded their contempt of the Consent Decree does not mean tha t they lose the ability to defend the claims of individuals who assert they were p e rs o n a lly injured as a result of the contempt. Nor does it relieve the individual c la im a n ts from the obligation of being truthful and honest in their dealings with the c o u r ts . T h e weight of the evidence is that Mr. W illia m s was intentionally deceptive w h e n he failed to disclose his individual contempt claim to the Bankruptcy Court a t the time he converted his Chapter 13 filing to a Chapter 7 filing. III AC C O R D IN G L Y , it is recommended that Defendants' motion for the a p p lic a tio n of judicial estoppel to the individual contempt claim of Leroy W illia m s , D o c k e t ¹ 8432, be GRANTED, and that Mr. W illia m s not be permitted to pursue h is individual contempt claim.
Objections to this Report and Recommendation must be filed with the Clerk of Court by September 22, 2009. Failure to file objections in a timely manner constitutes a waiver of the right to review by the District Court.
IT IS SO RECOMMENDED this 31st day of August 2009.
/s/ C. A. González SPECIAL MASTER
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