Wholesalecars.com v. Hutcherson

Filing 29

MEMORANDUM OPINION AND ORDER GRANTING IN PART and DENYING IN PART 18 MOTION to Dismiss as set out herein. Signed by Chief Judge Karon O Bowdre on 3/27/2018. (JLC)

FILED
2018 Mar-27 PM 01:24
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
WHOLESALECARS.COM,
Plaintiff,
v.
CORY HUTCHERSON,
Defendant.

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2:16-cv-00155-KOB

MEMORANDUM OPINION AND ORDER
Defendant Cory Hutcherson filed for Chapter 7 bankruptcy while engaged in
arbitration of an employment discrimination claim against plaintiff
Wholesalecars.com. Ms. Hutcherson did not disclose her bankruptcy petition to
the arbitrator, and she did not disclose the pending arbitration to the Bankruptcy
Court. Ms. Hutcherson received a $116,677.22 arbitration award and did not
disclose the award to the Bankruptcy Court.
This matter comes before the court on Wholesalecars.com’s “Motion to
Vacate Arbitration Award and/or Preclude Enforcement Thereof” (doc. 1) and Ms.
Hutcherson’s response styled as a “motion to dismiss” (doc. 18). Upon filing for
Chapter 7 bankruptcy protection, the petitioner’s assets, including legal claims,
become the property of the bankruptcy estate; thus Wholesalecars.com argues Ms.
Hutcherson fraudulently procured the arbitration award by pursuing arbitration in

her own name when the standing to do so belonged to the bankruptcy trustee.
Accordingly, Wholesalecars.com asks the court to vacate the award under Title 9
U.S.C. § 10(a). Alternatively, Wholesalecars.com asks the court to judicially estop
Ms. Hutcherson from enforcing the arbitration award because she intentionally hid
the award from her creditors, the bankruptcy trustee, and the Bankruptcy Court.
As discussed below, because Ms. Hutcherson’s lack of standing did not
affect the arbitrator’s final decision, Ms. Hutcherson did not procure her award by
fraud for purposes of Title 9 U.S.C. § 10(a). Accordingly, the court denies
Wholesalecars.com’s motion to the extent that it requests vacatur under Title 9
U.S.C. § 10(a). But because Ms. Hutcherson omitted her cause of action and
arbitration award from her original and amended bankruptcy schedules and denied
under oath that she was suing anyone, the court grants Wholesalecars.com’s
motion to the extent that it requests the court to judicially estop Ms. Hutcherson
from enforcing the award in her name. The court does not preclude the bankruptcy
trustee from enforcing the final award in the interest of the bankruptcy estate. To
the extent that Ms. Hutcherson’s response styled as a “motion to dismiss” is a
motion to dismiss, the court denies the motion.
I.

BACKGROUND
On July 18, 2014, Ms. Hutcherson sued Wholesalecars.com, her prior

employer, in the Northern District of Alabama, alleging that the company illegally
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terminated her because she was pregnant. See Hutcherson v. Wholesalecars.com,
2:14-cv-01382-WMA. At Wholesalecars.com’s request, the court compelled the
case to arbitration. (Doc. 1 at 2). The timing of subsequent events plays a key role
in resolution of this matter.
On September 8 and 9, 2015, Ms. Hutcherson and Wholesalecars.com
participated in an arbitration hearing of her employment claim. (Doc. 1-7 at 4).
On September 25, 2015, Ms. Hutcherson filed a Chapter 7 bankruptcy
petition in the United States Bankruptcy Court for the Northern District of
Alabama. (Doc. 1-1). She did not disclose her suit against Wholesalecars.com in
the schedules attached to her petition. (See Doc. 1-1; Doc. 1-2; Doc. 1-3; Doc. 1-5;
Doc. 1-6). The petition required Ms. Hutcherson to report the suit on Schedule B,
Schedule C, or the Statement of Financial Affairs. (See Doc. 1-2; Doc. 1-3; Doc.
1-5). Ms. Hutcherson reported $75,675.00 as the total value of her assets. (Doc. 11 at 33). She signed her petition under penalty of perjury. (Doc. 1-1 at 4).
On October 1 and 22, 2015, Ms. Hutcherson’s attorney filed post-hearing
briefs in arbitration. (Doc. 1-7 at 4). Ms. Hutcherson’s attorney did not disclose
the bankruptcy to the arbitrator in either brief. (See Doc. 1-8; Doc. 1-9).
On November 6, 2015, Ms. Hutcherson attended the creditors meeting in her
bankruptcy case. (Doc. 1-10). At the meeting, the bankruptcy trustee specifically
asked Ms. Hutcherson, “[a]re you suing anyone for any reason?” (Id.). Under
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oath, Ms. Hutcherson responded, “[n]o sir.” (Id.).
On November 24, 2015, the arbitrator awarded $116,677.22 to Ms.
Hutcherson. (Doc. 1-7 at 21).
On January 4, 2016, Ms. Hutcherson filed amended bankruptcy schedules to
disclose previously unscheduled debts. (Doc. 1-11). She did not disclose the
award or adjust the value of her assets. (See Doc. 1-1; Doc. 1-11).
On January 7, 2016, the Bankruptcy Court discharged Ms. Hutcherson’s
debts. (Doc. 1-12).
On January 28, 2016, Wholesalecars.com filed its “Motion to Vacate
Arbitration Award and/or Preclude Enforcement Thereof.” (Doc. 1).
Wholesalecars.com argues that the court should vacate the arbitration award
pursuant to Title 9 U.S.C. § 10(a) because Ms. Hutcherson procured the award by
fraud. (Id. at 5-6). It alleges Ms. Hutcherson committed fraud by not disclosing
her bankruptcy in arbitration and vice-versa, thus hiding an asset from her
bankruptcy estate and falsely representing to the arbitrator that she had standing to
pursue a claim that belonged to the bankruptcy estate. (Id. at 20-21). Additionally,
Wholesalecars.com argues that judicial estoppel bars Ms. Hutcherson from
enforcing the arbitration award. (Id. at 6).
On March 3, 2017, this court permitted Rocco J. Leo, the trustee of Ms.
Hutcherson’s bankruptcy estate, to intervene in this case. (Doc. 17 at 3).
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Also on March 3, 2017, the court ordered Ms. Hutcherson and Mr. Leo to
file a response to Wholesalecars.com’s motion addressing two issues: (1) whether
the arbitration award should be vacated under Title 9 U.S.C. § 10 because it was
procured by corruption, fraud, or undue means; and (2) whether Ms. Hutcherson
should be judicially estopped from enforcing the award or from otherwise pursuing
her claim, including whether the judicial estoppel defense should be arbitrated.
(Doc. 17 at 7).
Subsequently, Ms. Hutcherson filed a response styled as a “Motion to
Dismiss,” (doc. 18), a “Response to Plaintiff’s Motion to Stay Proceedings,” (doc.
19), a “Response to Motion to Vacate Arbitration Award,” (doc. 20), and a
“Response to Court Order of 3/3/17” (doc. 21). In the “Response to Motion to
Vacate Arbitration Award,” Ms. Hutcherson’s attorney offers unsworn hearsay
statements from Ms. Hutcherson to explain why she did not disclose her claims
against Wholesalecars.com to the Bankruptcy Court. (Doc. 20 at 2).
In his response to the motion to vacate, Mr. Leo argues that Ms. Hutcherson
did not fraudulently procure the arbitration award by failing to disclose the
arbitration to the Bankruptcy Court. (Doc. 24 at 1-2, 7). Also, Mr. Leo argues that
the judicial estoppel issue is not a justiciable controversy because Ms. Hutcherson
has not asserted an interest in the award. (Id. at 12-13).
Wholesalecars.com replied to each response. (Docs. 25-28). The parties
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have fully briefed the issues specified by the court’s March 3, 2017 order and the
issues are ripe for resolution.
II.

DISCUSSION
a. Vacatur Under Title 9 U.S.C. § 10
The Federal Arbitration Act (FAA), Title 9 U.S.C. §§ 1-16, controls the

court’s “very limited” review of an arbitration award. Brown v. Rauscher Pierce
Refsnes, Inc., 994 F.2d 775, 778 (11th Cir. 1993). The court must confirm an
arbitration award “unless the award is vacated, modified, or corrected as prescribed
in sections 10 and 11 of [the FAA].” 9 U.S.C § 9.
Pursuant to Title 9 U.S.C. § 10(a)(1), the court may vacate an arbitration
award “procured by corruption, fraud, or undue means.” The Eleventh Circuit
applies a three-part test to review whether a party procured an award by fraud: (1)
the movant must establish fraud by clear and convincing evidence; (2) the fraud
must not have been discoverable by the exercise of due diligence before or during
the arbitration; and (3) the fraud must materially relate to an issue in the
arbitration. Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir.
1988).
Under the third prong in Bonar, the fraud materially relates to an issue in the
arbitration if it impacts the arbitrator’s decision. See Bonar, 835 F.2d at 1385
(finding that because the arbitrator relied on perjured testimony from an expert
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witness with falsified credentials, the fraud materially related to an issue in
arbitration); Scott v. Prudential Sec., Inc., 141 F.3d 1007, 1015 n.16 (11th Cir.
1998) (explaining that the arbitrators “had all the material information before them,
a fact that precludes vacatur under § 10(a)(1)”); MCI Constructors, LLC v. City Of
Greensboro, 610 F.3d 849, 859 (4th Cir. 2010) (citing Bonar and denying vacatur
when the moving party did not offer “any evidence that the undue means in dispute
actually factored into the arbitration panel’s liability determination”); Forsythe
Int’l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1022 (5th Cir. 1990) (citing
Bonar to support that the “procured by” fraud language requires a “nexus between
the alleged fraud and the basis for the panel’s decision”).
Wholesalecars.com’s motion to vacate fails under the “materially relate”
prong in Bonar. Wholesalecars.com has not demonstrated how Ms. Hutcherson’s
failure to disclose her bankruptcy filing affected the arbitrator’s decision. The
arbitrator found that Wholesalecars.com did not refute Ms. Hutcherson’s direct
evidence of pregnancy discrimination or offer any legitimate explanation for
terminating Ms. Hutcherson. (Doc. 1-7 at 10-14). The arbitrator’s decision, the
merits of the case, and Wholesalecars.com’s ability to present its defense would
not have changed had Ms. Hutcherson revealed her lack of standing and the trustee
was appropriately substituted in to the arbitration.
Because Wholesalecars.com has not established that the alleged fraud
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materially related to an issue in arbitration, the court denies Wholesalecars.com’s
motion to the extent that it requests vacatur under Title 9 U.S.C. § 10(a).
b. Judicial Estoppel
Wholesalecars.com asks the court to judicially estop Ms. Hutcherson from
enforcing the arbitration award in her own name. Wholesalecars.com argues that
Ms. Hutcherson intentionally hid her claims from the Bankruptcy Court to keep the
arbitration award away from the claims of her creditors. The court agrees.
“[T]he doctrine of judicial estoppel rests on the principle that absent any
good explanation, a party should not be allowed to gain an advantage by litigation
on one theory, and then seek an inconsistent advantage by pursuing an
incompatible theory.” Slater v. U.S. Steel Corp., 871 F.3d 1174, 1180-81 (11th
Cir. 2017) (citations and quotation marks omitted). When a Chapter 7 debtor does
not disclose to the bankruptcy court a civil action she pursues against a defendant,
a court may judicially estop the debtor from pursuing the civil action if the debtor
“intended to make a mockery of the judicial system.” Slater, 871 F.3d at 1180.
To determine whether a party intended to make a mockery of the judicial
system, “a court should look to all the facts and circumstances of the particular
case.” Slater, 871 F.3d at 1185. As the Eleventh Circuit instructed,
. . . the court may consider such factors as the plaintiff’s level of
sophistication, whether and under what circumstances the plaintiff
corrected the disclosures, whether the plaintiff told his bankruptcy
attorney about the civil claims before filing the bankruptcy
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disclosures, whether the trustee or creditors were aware of the civil
lawsuit or claims before the plaintiff amended the disclosures,
whether the plaintiff identified other lawsuits to which he was party,
and any findings or actions by the bankruptcy court after the omission
was discovered.
Slater, 871 F.3d at 1185. In addition, the court “is free to consider any fact or
factor it deems relevant to the intent inquiry.” Id. at 1185 n.9.
Ms. Hutcherson had three opportunities to disclose her lawsuit. She omitted
the lawsuit from her original bankruptcy schedules, denied under oath at the
creditors meeting that she was suing anyone, and omitted the arbitration award
from her amended bankruptcy schedules. She never attempted to disclose the
lawsuit before Wholesalecars.com filed its motion to vacate after the Bankruptcy
Court discharged her debts.
Her first opportunity to disclose her claim against Wholesalecars.com was
when she filed her bankruptcy petition 14 months after she brought suit against
Wholesalecars.com. She failed to do so. By itself, this omission does not
demonstrate intent to make a mockery of the judicial system. Indeed, “[i]t is not
difficult to imagine that some debtors . . . may not realize that a pending lawsuit
qualifies as a ‘contingent and unliquidated claim’” or a “‘suit[]and administrative
proceeding[] to which the debtor is or was a party’” as defined by the bankruptcy
schedules. Slater, 871 F.3d at 1186. So the court gives Ms. Hutcherson the benefit
of the doubt as to her first omission from her bankruptcy schedules of her claims
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against Wholesalecars.com. But the court considers all facts and circumstances
together and the court cannot excuse the remainder of Ms. Hutcherson’s conduct.
Next, and most egregiously, at the November 6, 2015 bankruptcy creditors
meeting, Ms. Hutcherson plainly denied under oath that she was suing anyone
when she was suing Wholesalecars.com. The bankruptcy trustee unambiguously
asked Ms. Hutcherson if she was “suing anyone for any reason” and she responded
under oath with “no sir.” (Doc. 1-10). Ms. Hutcherson had little room to
misunderstand the simple question and her answer was false—she was in fact
suing Wholesalecars.com and actively pursuing that case in arbitration. She sued
Wholesalecars.com on July 18, 2014. See Hutcherson v. Wholesalecars.com, 2:14cv-01382-WMA. She testified at the arbitration hearing on September 8 or 9,
2015. (Doc. 1-7 at 4). Her attorney filed post-hearing briefs on October 1 and 22,
2015. (Id.) But the arbitrator had not issued any decision at the time of the
creditors meeting. (See id.).
The court questions what else Ms. Hutcherson could reasonably consider her
action against Wholesalecars.com to be besides “suing anyone.” Perhaps Ms.
Hutcherson did not understand that pending arbitration is “suing anyone” or that
the lawsuit did not end after the arbitration hearing. However, given that she filed
a claim with the EEOC, then initiated the lawsuit, sought monetary damages,
personally participated in the hearing, and did not receive any indication that the
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suit ended, the court doubts that she could reasonably misunderstand the trustee’s
straightforward question: “are you suing anyone for any reason?”
Then on November 24, 2015, the arbitrator unambiguously communicated
that Ms. Hutcherson owned a right to payment of $116,677.22 from
Wholesalecars.com. (Doc. 1-7 at 23). Approximately six weeks later, Ms.
Hutcherson filed amended bankruptcy schedules to report previously unscheduled
liabilities. (Doc. 1-11). She represented that she read the “true and correct”
schedules by signing the “declaration under penalty of perjury” attached to the
schedules. (Id. at 25). The schedules were not true and correct because Ms.
Hutcherson did not adjust the value of her assets to include the $116,677.22
arbitration award. (See id.; Doc. 1-1 at 33).
Unlike the first omission, the court cannot construe this omission as a mere
misunderstanding. When Ms. Hutcherson again represented that she did not have
any previously unscheduled assets, Ms. Hutcherson knew she possessed an award
from a prepetition cause of action worth $116,677.22. The size of the award
itself—the award exceeds the total value of her scheduled assets by $41,002.22—
evidences Ms. Hutcherson’s awareness of and motive to conceal the award.
Furthermore, she amended her liabilities on a form that prompted her to also report
the value of her assets. (See Doc. 1-11 at 23). Because Ms. Hutcherson knew she
had a duty to report—and did report—previously unscheduled liabilities, she likely
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knew she had to report previously unscheduled assets as well.
To explain why Ms. Hutcherson did not disclose her lawsuit to the
Bankruptcy Court, her attorney—who was not her bankruptcy attorney—offers
unsworn hearsay statements without an affidavit from Ms. Hutcherson. Although
not properly before the court because the statements are hearsay, in an abundance
of caution, the court has considered whether it can give any weight at all to these
statements. 1 The statements do not alter the court’s decision.
Ms. Hutcherson’s attorney states that Ms. Hutcherson told her bankruptcy
attorney about a deposition before filing for bankruptcy and signed her petition in
the presence of her attorney’s secretary who did not review the forms with her.
(Doc. 20 at 2). This explanation might demonstrate that Ms. Hutcherson initially
disclosed to her bankruptcy attorney something about some legal proceeding in
which she gave a deposition. Under Slater, the court considers in Ms.
Hutcherson’s favor whether she “told [her] bankruptcy attorney about the civil
claims before filing the bankruptcy disclosures.” Slater, 871 F.3d at 1185.

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The statements are hearsay because Ms. Hutcherson’s attorney states what Ms.
Hutcherson told him. See Fed. R. Evid. 801(c). Although this case does not come before the
court on a motion for summary judgment, “‘a district court may consider a hearsay statement in
passing on a motion for summary judgment if the statement could be reduced to admissible
evidence at trial or reduced to admissible form.’” Jones v. UPS Ground Freight, 683 F.3d 1283,
1293-94 (11th Cir. 2012) (quoting Macuba v. Deboer, 193 F.3d 1316, 1323 (11th Cir. 1999)).
The court considers the hearsay statements in passing because the statements could be reduced to
admissible form in a sworn affidavit from Ms. Hutcherson. See Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Lambros, 1 F. Supp. 2d 1337, 1342 (M.D. Fla. 1998) (considering hearsay
statements from a party’s attorney on a motion to vacate arbitration award).
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Ms. Hutcherson’s attorney states that Ms. Hutcherson did not report the
award in her amended schedules because she “did not realize she had a duty to
report the award.” (Doc. 20 at 2). The court is not convinced. Ms. Hutcherson
knew she had a duty to report—and did report—previously unscheduled liabilities,
yet she made no attempt to report a previously unscheduled and substantial asset
she knew she possessed. Someone does not forget a recently awarded $116,677.22
asset.
In addition, Ms. Hutcherson’s attorney does not justify Ms. Hutcherson’s
conduct at the creditors meeting. Ms. Hutcherson’s attorney states that Ms.
Hutcherson “was aware of the arbitration. She was not asked about claims or
depositions or arbitration. She answered all questions honestly to the best of her
ability.” (Doc. 20 at 2). These statements fail to alleviate the court’s suspicion
that Ms. Hutcherson did understand that she was suing Wholesalecars.com because
her case began as a charge of discrimination with the EEOC then moved to
litigation in court before going to arbitration. She did not answer honestly the
direct question, “are you suing anyone for any reason?” The question was not a
trick question. If she did not understand the direct and straightforward question,
she should have asked for clarification. She did not do so, and answered falsely
without an articulated reason to do so.
Based on the foregoing reasons, the court infers that Ms. Hutcherson
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intended to make a mockery of the judicial system by intentionally hiding her
lawsuit and arbitration award from the Bankruptcy Court to keep the award away
from her creditors. Accordingly, the court grants Wholesalecars.com’s motion to
the extent that it requests the court to judicially estop Ms. Hutcherson from
enforcing the arbitration award in her name.
The court does not judicially estop Mr. Leo, as bankruptcy trustee, from
enforcing the award in the interest of the bankruptcy estate. Mr. Leo never took
inconsistent positions under oath. The court has not vacated or set aside the award.
The award remains final but belongs to the bankruptcy estate.
III.

CONCLUSION
The court DENIES IN PART Wholesalecars.com’s motion to the extent

that it requests the court to vacate the arbitration award under Title 9 U.S.C. §
10(a). The court GRANTS IN PART Wholesalecars.com’s motion to the extent
that it requests the court to judicially estop Ms. Hutcherson from enforcing the
arbitration award. The court DENIES Ms. Hutcherson’s response styled as a
“motion to dismiss” to the extent that it is a motion to dismiss.
DONE and ORDERED this 27th day of March, 2018.

____________________________________
KARON OWEN BOWDRE
CHIEF UNITED STATES DISTRICT JUDGE

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