Wertz v. Burris Company, Inc.
Filing
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ORDER. Defendant Burris Company, Inc.'s Motion to Dismiss Plaintiff's First Amended Complaint 25 is GRANTED in part and DENIED in part. By Judge Philip A. Brimmer on 9/18/15.(pabsec)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 14-cv-01456-PAB-KLM
TRACY L. ZUBROD, Trustee for the Bankruptcy Estate of Kellee D. Wertz, n/k/a
Kellee D. Escobar-Romero,
Plaintiff,
v.
BURRIS COMPANY, INC., a Delaware Corporation,
Defendant.
ORDER
This matter is before the Court on the Motion to Dismiss Plaintiff’s First Amended
Complaint [Docket No. 25] filed by defendant Burris Company, Inc. (“Burris”). Plaintiff
asserts claims for relief for retaliation under the Age Discrimination and Employment
Act, 29 U.S.C. § 621 et seq., and retaliation under Title VII of the Civil Rights Act, 42
U.S.C. § 2000e et seq., on behalf of the Bankruptcy Estate of Kellee D. Wertz (the
“bankruptcy estate”). See Docket No. 23 at 11-13. Burris seeks dismissal on the
grounds that plaintiff is judicially estopped from asserting her retaliation claims because
Ms. Wertz failed to disclose those claims to the bankruptcy court. The Court has
jurisdiction pursuant to 28 U.S.C. § 1331.
I. BACKGROUND
The Court recites only those facts that are relevant to the instant motion. Ms.
Wertz filed for Chapter 7 bankruptcy on March 16, 2011. See Bankruptcy Case No. 11-
15324-SBB (Docket No. 1). In her petition, Ms. W ertz indicated that she did not have
any contingent or unliquidated claims of any nature. Id. at 9. On July 12, 2011, the
bankruptcy court issued an order discharging Ms. Wertz. Bankruptcy Case No. 1115324-SBB (Docket No. 20). On July 20, 2012, plaintiff1 filed her Chapter 7 Trustee’s
Final Account and Distribution Report. Id. (Docket No. 26). The report indicates claims
discharged without payment totaling $196,727.97. Id. at 1. The bankruptcy court
accepted plaintiff’s report and closed Ms. Wertz’s case on August 2, 2012. Id. (Docket
No. 27).
On May 6, 2011, Ms. Wertz filed a Charge of Discrimination against Burris with
the Equal Employment Opportunity Commission (“EEOC”). Docket No. 23 at 2, ¶ 5.
The EEOC issued a probable cause determination on August 20, 2013 and issued a
Notice of Right to Sue on February 26, 2014. Id. Ms. Wertz filed this action on May 23,
2014. Docket No. 1. Ms. Wertz’s complaint alleges that, soon after she began work
with defendant in July 2009, she witnessed “a corrupt corporate culture in which
discrimination, harassment and retaliation against employees on the basis of race, age
and gender was pervasive and utterly unchecked by anyone in the management
structure.” Docket No. 1 at 2, ¶ 7, 3, ¶ 11. Ms. W ertz further alleges that, from autumn
2010 to December 2010, defendant terminated or targeted for termination multiple
employees due to their age, id. at 5, ¶¶ 31-33, and that, in the summer of 2010, Burris’s
general manager, Steve Bennetts, instructed her to avoid hiring women who might
1
Although Ms. Wertz initiated this action, as used in this Order, “plaintiff” refers to
Ms. Zubrod in her capacity as trustee for the bankruptcy estate. The Court will also
refer to Ms. Zubrod as the “trustee.”
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become pregnant or individuals who were “too old.” Id. at 6, ¶ 40. Ms. Wertz reported
the conduct to her superiors on multiple occasions dating back to at least July 2010,
see id. at 6, ¶¶ 35, 40, and alleges that, in July 2010, Mr. Bennetts “began a campaign
of berating, harassing and demeaning” her in retaliation for her complaints. Id. ¶ 41.
Ms. Wertz alleged that this pattern continued until she resigned her employment with
Burris in December 2010. See generally id. at 7-10, ¶¶ 48-68.
On July 17, 2014, Burris moved to dismiss Ms. Wertz’s complaint on the ground
that Ms. Wertz’s failure to disclose her retaliation claims to the bankruptcy court
judicially estopped her from asserting those claims. See Docket No. 6. Ms. Wertz
moved to reopen her bankruptcy case on August 18, 2014 and disclosed her claims in
this action to the bankruptcy court. See Bankruptcy Case No. 11-15324-SBB (Docket
No. 28). Plaintiff was reappointed trustee of the bankruptcy estate on September 12,
2014. Id. (Docket No. 35). On October 6, 2014, the trustee filed an application to
employ the law firm that filed this case on behalf of Ms. Wertz to represent the trustee
in this action. Id. (Docket No. 38). The trustee’s contingency fee arrangement with the
firm provides that the law firm shall receive 40% of any amount collected by the trustee
and that the remaining proceeds are to be distributed as follows: 75% to Ms. Wertz and
25% to the bankruptcy estate. Id. (Docket No. 38-3 at 1). The trustee provided notice
of her application to appoint the law firm to Ms. Wertz’s creditors on October 8, 2014.
See id. (Docket No. 40). No objections were filed, see id. (Docket No. 43), and the
bankruptcy court granted plaintiff’s application on November 5, 2014. Id. (Docket No.
44).
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Meanwhile, in this action, Ms. Wertz and the trustee jointly moved to substitute
Ms. Zubrod as plaintiff on the ground that, since the trustee did not abandon Ms.
Wertz’s claims in this matter, the trustee was the real party in interest. See Docket No.
21 at 4. The Court granted the motion (Docket No. 22) and denied Burris’s motion to
dismiss as moot. Docket No. 24. The trustee filed a first amended complaint on
October 17, 2014, Docket No. 23, and Burris f iled the present motion, which repeats its
argument that the trustee is judicially estopped from asserting her claims.
II. ANALYSIS
“The doctrine of judicial estoppel is based upon protecting the integrity of the
judicial system by ‘prohibiting parties from deliberately changing positions according to
the exigencies of the moment.’” Bradford v. Wiggins, 516 F.3d 1189, 1194 (10th Cir.
2008) (quoting New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001)); see also In re
Cassidy, 892 F.2d 637, 641 (7th Cir. 1990) (“Judicial estoppel is a doctrine intended to
prevent the perversion of the judicial process”). The Court considers whether “1) a
party’s later position is clearly inconsistent with its earlier position; 2) a party has
persuaded a court to accept that party’s earlier position, so that judicial acceptance of
an inconsistent position in a later proceeding would create the perception that either the
first or second court was misled; and 3) the party seeking to assert the inconsistent
position would derive an unfair advantage if not estopped.” Mathews v. Denver
Newspaper Agency LLP, 649 F.3d 1199, 1209 (10th Cir. 2011) (quoting Bradford, 516
F.3d at 1194 (internal quotations omitted)).
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Burris argues that plaintiff should be estopped from pursuing this matter under
an agreement that benefits Ms. Wertz and her attorneys more than her creditors.
Docket No. 25 at 6. Plaintiff responds that judicial estoppel does not bar a bankruptcy
trustee from pursuing claims on behalf of the bankruptcy estate. See Docket No. 26 at
6-7. Burris replies that, notwithstanding the substitution of the bankruptcy trustee as
plaintiff in this matter, judicial estoppel is appropriate because Ms. W ertz stands to
benefit personally from this litigation under the terms of the contingency fee
arrangement, which prejudices Ms. Wertz’s creditors. Docket No. 27 at 5-6. Although
Burris seeks dismissal of plaintiff’s first amended complaint, in its reply, Burris states
that “[a]t a minimum,” the Court should issue an order that prohibits Ms. Wertz from
personally recovering for her claims. Id. at 7.
A. Ms. Wertz
Before taking up the issue of whether the trustee can be judicially estopped from
asserting Ms. Wertz’s discrimination claims, the Court considers whether Ms. Wertz
would be estopped from asserting her claims. First, the Court finds that Ms. Wertz has
taken “clearly inconsistent” litigation positions. Mathews, 649 F.3d at 1209. In her
voluntary bankruptcy petition filed on March 16, 2011, Ms. W ertz represented that she
had no “contingent and unliquidated claims” of any nature. Bankruptcy Case No. 1115324-SBB (Docket No. 1 at 9). However, Ms. Wertz claims that she was acutely
aware of the discriminatory atmosphere at her workplace and resigned from her job in
December 2010. Docket No. 25 at 4. In fact, the trustee claims that “it was
Defendant’s conduct, and the loss of Ms. Wertz’s job, that forced her into bankruptcy in
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the first place.” Docket No. 26 at 13. On May 6, 2011, less than two months after her
representation to the bankruptcy court, Ms. Wertz filed a Charge of Discrimination with
the EEOC regarding discriminatory acts that she claimed occurred between July 2009
and December 2010. Docket No. 25-3 at 2. Shortly after the EEOC issued its Notice of
Right to Sue, Ms. Wertz initiated this lawsuit. Ms. Wertz’s representation to the
bankruptcy court about having no contingent or unliquidated claims and her
subsequently alleged discrimination claims are clearly inconsistent. Second, the Court
finds that Ms. Wertz, in obtaining a discharge, succeeded in persuading the bankruptcy
court to adopt her clearly inconsistent position. Eastman v. Union Pac. R.R. Co., 493
F.3d 1151, 1160 (10th Cir. 2007) (“A discharge in bankruptcy is sufficient to establish a
basis for judicial estoppel, even if the discharge is later vacated”) (citation and quotation
omitted). Third, the Court finds that Ms. Wertz would gain an unfair advantage if she
were not estopped from pursuing this action, because she would be able to pursue the
litigation without the risk that the majority of her award would go to her creditors. See
Queen v. TA Operating LLC, 734 F.3d 1081, 1092 (10th Cir. 2013).
Finally, the Court considers the trustee’s statement that Ms. Wertz’s failure to
disclose her claims was inadvertent. New Hampshire, 532 U.S. at 753 (“it may be
appropriate to resist application of judicial estoppel when a party’s prior position was
based on inadvertence or mistake”). The Court finds that, given the close temporal
proximity between Ms. Wertz’s misrepresentation to the bankruptcy court and her
EEOC charge, Ms. Wertz’s claimed inadvertence provides no excuse. Ms. Wertz knew
of the conduct underlying her claims and had a motive to conceal her intent to pursue
those claims from the bankruptcy court. Eastman, 493 F.3d at 1157 (approving of other
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circuit court rulings that a debtor who conceals a claim from the bankruptcy court can
only claim inadvertence or mistake when he or she “either lacks knowledge of the
undisclosed claims or has no motive for their concealment”) (citations omitted). The
trustee does not provide an affidavit from Ms. Wertz or any other facts that tend to
support that her misrepresentation to the bankruptcy court was inadvertent. See
Dzakula v. McHugh, 746 F.3d 399, 401 (9th Cir. 2014) (rejecting excuse of
inadvertence where a nondisclosing debtor “presented no evidence, by affidavit or
otherwise, explaining her initial failure to include the action on her bankruptcy
schedules”). Finally, the fact that Ms. Wertz was represented by counsel in her
bankruptcy action further undermines her claimed inadvertence. Whereas a pro se
party filing a bankruptcy petition may be able to state plausibly that he or she did not
understand the meaning of the representations made on bankruptcy schedules, a
represented party can make no such claim. Cf. Cannon-Stokes v. Potter, 453 F.3d
446, 448-49 (7th Cir. 2006) (noting that a represented debtor cannot excuse
misrepresentation to the bankruptcy court by claiming good faith reliance on bad legal
advice).
Because Ms. Wertz’s conduct satisfies the three primary judicial estoppel factors
and she cannot claim the excuse of inadvertence, Ms. Wertz would be judicially
estopped from asserting her claims in this action.
B. The Trustee
The Court now considers the effect of the trustee’s substitution as the plaintiff in
this action. The Tenth Circuit has not decided whether a debtor’s actions empower a
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court to apply judicial estoppel against a bankruptcy trustee who substitutes for the
debtor. The Tenth Circuit has, however, noted in dicta that applying judicial estoppel to
dismiss the claims of a bankruptcy trustee is “quite likely . . . inappropriate, at least to
the extent [debtor’s] personal injury claims were necessary to satisfy his debts.”
Eastman, 493 F.3d at 1155, n.3. Other circuits have found that an innocent trustee
may pursue an undisclosed claim where the debtor herself is estopped. See Reed v.
City of Arlington, 650 F.3d 571, 573 (5th Cir. 2011) (en banc) (“absent unusual
circumstances, an innocent trustee can pursue f or the benefit of creditors a judgment or
cause of action that the debtor fails to disclose in bankruptcy”); Stephenson v. Malloy,
700 F.3d 265 (6th Cir. 2012) (holding that a bankruptcy trustee can pursue a negligence
action even where the debtor is judicially estopped); Biesek v. Soo Line R.R. Co., 440
F.3d 410, 413 (7th Cir. 2006) (noting that a claim that was not disclosed in bankruptcy
“belongs to the Trustee, for the benefit of [the debtor’s] creditors,” and that, if a court
estopped a trustee due to debtor’s actions, creditors would be “hurt a second time”).
In most situations involving the substitution of a trustee for the non-disclosing
debtor, the trustee’s focus on enhancing the estate for the benefit of creditors weighs
against applying judicial estoppel to the trustee. But this is not a typical case. Here, the
trustee has agreed that Ms. Wertz will be able to recover 75% of any judgment on her
discrimination claims after payment of attorney’s fees. In other words, the only
consequence for Ms. Wertz having failed to disclose her claims in the bankruptcy case,
an act that would otherwise cause the dismissal of her claims, is that her potential
recovery is reduced by 25%. Perhaps the trustee had good reasons for cutting this deal
with Ms. Wertz. Perhaps, for instance, offering Ms. Wertz 75% of any recovery was the
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only way to gain her cooperation to prosecute claims that would undoubtedly require
her personal involvement. The Court does not know because the trustee has not
explained the circumstances behind the contingency fee agreement. Instead, the
trustee relies on the fact that the agreement was disclosed to the creditors and the
creditors did not object. In this respect, the trustee is acting in the interests of the
creditors, who are attempting to get whatever potential payments they can. But neither
the trustee nor the creditors are given the task of determining whether the integrity of
the judicial process is upheld by such an arrangement. That task is assigned to the
Court. For that reason, the trustee’s claim that the Court should defer to her “authority
and wisdom” in administering the bankruptcy estate, Docket No. 26 at 5, is misplaced.
It is frequently true in the bankruptcy context that the application of judicial estoppel will
hurt creditors, who otherwise may be able to share in any judgment in favor of the
debtor or trustee. But, as the Seventh Circuit noted in Cannon-Stokes, “[a] doctrine that
induces debtors to be truthful in their bankruptcy filings will assist creditors in the long
run (though it will do them no good in the particular case) – and it will assist most
debtors too, for the few debtors who scam their creditors drive up interest rates and
injure the more numerous honest borrowers.” 453 F.3d at 448.
The Court agrees with the trustee that, under the circumstances here, it would be
inappropriate to estop her from pursuing Ms. Wertz’s discrimination and retaliation
claims. Such claims, if successful, will help pay Ms. Wertz’s creditors. Eastman, 493
F.3d at 1155 n.3 (reasoning that estoppel against a trustee is inappropriate “at least to
the extent [the debtor’s] . . . claims were necessary to satisfy his debts”). However, the
same is not true of the trustee’s decision to allow Ms. Wertz to participate in any
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recovery in the event of a judgment in the trustee’s favor. The Supreme Court noted in
New Hampshire that judicial estoppel is an equitable doctrine. New Hampshire, 532
U.S. at 750. The Court also noted that “the circumstances under which judicial
estoppel may appropriately be invoked are probably not reducible to any general
formulation or principle.” Id. Here, the fact that the trustee is allowing Ms. Wertz to
keep 75% of any judgment or settlement after the payment of attorney’s fees has the
effect of undermining the integrity of the bankruptcy process. Queen, 734 F.3d at 1087
(noting that the purpose of judicial estoppel is “to protect the integrity of the judicial
process” and to “prevent improper use of judicial machinery”) (quoting New Hampshire,
532 U.S. at 749-50). Such an arrangement allows Ms. Wertz to gain the benefit of a
discharge in the bankruptcy case and then, after her non-disclosure was discovered by
Burris, to suffer a diminution of her potential recovery (assuming her arrangement with
her attorneys contained the same 40% contingency fee as the trustee’s agreement) of
only 25%. In Anderson v. Seven Falls Co., No. 12-cv-01490-RM-CBS, 2014 WL
553486, at *8 (D. Colo. Feb. 12, 2014), the court applied judicial estoppel ag ainst a
bankruptcy trustee to the extent the trustee intended to or agreed to pay any portion of
the recovery to the debtor. The court held that, while the trustee and the debtor’s
creditors could be made whole, a debtor who concealed her claim from the bankruptcy
court should not be allowed any portion of the recovery. Id. The Court adopts this
approach. The trustee may pursue this action on behalf of the bankruptcy estate, but
the trustee is estopped from paying any portion of the amount recovered to Ms. Wertz.2
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The Court’s order disallowing any payment to Ms. Wertz does not disturb the
trustee’s agreement with retained counsel that they are entitled to 40% of any amount
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III. CONCLUSION
For the foregoing reasons, it is
ORDERED that defendant Burris Company, Inc.’s Motion to Dismiss Plaintiff’s
First Amended Complaint [Docket No. 25] is GRANTED in part and DENIED in part as
reflected in this Order.
DATED September 18, 2015.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
the trustee recovers in this litigation.
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