Jeziorowski v. Credit Protection Association, L.P.
ORDER AND MEMORANDUM re 46 MOTION to Substitute Party filed by Joseph Jeziorowski. The motion to substitute Morris L. Horwitz, Trustee for the Estate of Jeziorowski as the plaintiff in this action and to amend the caption is granted. The Clerk of Court is directed to amend the caption consistent with this Order. SO ORDERED. Signed by Hon. Lawrence J. Vilardo on 5/1/2017. (APG)-CLERK TO FOLLOW UP-
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
ORDER AND MEMORANDUM
Credit Protection Association, L.P.,
On November 4, 2016, this Court issued a 30-day stay “for the limited purpose of
allowing the plaintiff to file an amended petition in the U.S. Bankruptcy Court (Case No.
14-10069) in order to: (1) list this litigation as an asset of the Bankruptcy Estate, and (2)
allow . . . the trustee to be substituted as plaintiff in this case.” Docket Item 42.
Pursuant to that order, the plaintiff filed both an amended petition in the related
bankruptcy proceeding and an optimistically entitled “Unopposed Motion to Substitute
Party.” See Docket Items 45, 46. The accuracy of that motion’s title was short lived: On
January 26, 2017, the defendant filed a response opposing the motion, to which the
plaintiff replied on February 2, 2017. Docket Items 49, 50. 1
For the reasons that follow, this Court GRANTS the plaintiff’s motion.
Jeziorowski filed this action in December 2013, alleging violations of the Fair
Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., and the Telephone
In the meantime, this Court granted the plaintiff’s request to extend the current
scheduling order. Docket Item 51.
Consumer Protection Act of 1991 (“TCPA”), 47 U.S.C. § 227, et seq. A short time later,
in January 2014, Jeziorowski filed a voluntary Chapter VII petition in Bankruptcy Court.
At the § 341(a) meeting of creditors, Jeziorowski mentioned his pending FDCPA/TCPA
lawsuit, which he valued at about $1,000 (the statutory FDCPA cap per claim). Docket
Item 29-1 at 1 (¶ 3); Docket Item 29-2 at 1 (¶ 4). 2 The United States Bankruptcy
Trustee (“trustee”) instructed him to have his attorney report to the Bankruptcy Court if
his case had more significant value. After the meeting, the trustee reported that the
debtor lacked assets; Jeziorowski received a discharge from Bankruptcy Court in April
2014; and the bankruptcy case was closed shortly thereafter. The FDCPA/TCPA
lawsuit, however, remained pending.
In late 2015 or early 2016, Jeziorowski’s attorney contacted the trustee to learn
how to reopen the bankruptcy case so as to include the pending federal litigation in an
amended petition. On January 27, 2016, the Bankruptcy Court reopened the plaintiff’s
After discovery was completed in this case, on February 1, 2016, the plaintiff
moved to stay the proceedings so that the Bankruptcy Estate, as administered by the
trustee, could be substituted as the plaintiff. Docket Item 29. In response, the
defendant asked this Court to deny the plaintiff’s motion to stay and to dismiss the
plaintiff’s complaint with prejudice. Docket Item 32. On March 12, 2016, this case was
reassigned from the Honorable John T. Curtin to the undersigned. Docket Item 39.
After a status update, this Court issued the above-mentioned stay, setting the stage for
the instant motion.
The defendant does not contest that this occurred but maintains that oral disclosure
alone fails to disclose assets. Docket Item 32 at 3-4.
A. Chapter VII Voluntary Petition: Disclosure Requirements
Under Chapter VII, a bankruptcy trustee can liquidate a debtor’s assets and
distribute the proceeds to creditors. Once a debtor files under Chapter VII, the debtor’s
assets, including any pending lawsuits or claims, can become the property of the
bankruptcy estate. See 11 U.S.C. § 541(a)(1); Chartschlaa v. Nationwide Mut. Ins. Co.,
538 F.3d 116, 122 (2d Cir. 2008) (“Every conceivable interest of the debtor, future,
nonpossessory, contingent, speculative, and derivative, is within the reach of § 541.”)
(per curiam) (internal quotation marks and citation omitted).
Because the complete disclosure of assets is “essential to the proper functioning
of the bankruptcy system . . . .”, Chartschlaa, 538 F.3d at 122, the law includes strict
requirements. See Fed. R. Bankr. P. 1007(b) (listing mandatory schedules, statements,
and other documents). For example, a “Statement of Financial Affairs” requires the
debtor to “[l]ist all suits and administrative proceedings to which the debtor is or was a
party within one year immediately preceding the filing of this bankruptcy case.” Docket
Item 33-1 at 32. And the failure to disclose can result in severe penalties: unlike
disclosed property that the trustee does not administer, which reverts to the debtor,
“undisclosed assets automatically remain property of the estate after the case is
closed . . . .” Chartschlaa, 538 F.3d at 122; 11 U.S.C. § 554.
Generally, “oral disclosure of [a] lawsuit [is] insufficient to satisfy [a debtor’s]
disclosure obligations under the bankruptcy code, which requires a debtor to file
complete and accurate schedules relating to his finances.” Ibok v. SIAC–Sector Inc.,
470 F. App’x 27, 29 (2d Cir. 2012) (summary order) (citing Chartschlaa, 538 F.3d at
122–23); see also Guay v. Burack, 677 F.3d 10, 19-20 (1st Cir. 2012); Lewis v.
Weyerhaeuser Co., 141 F. App’x. 420, 424-27 (6th Cir. 2005); Hamilton v. State Farm
Fire & Cas. Co., 270 F.3d 778, 784 (9th Cir. 2001); Barger v. City of Cartersville, 348
F.3d 1289, 1295 (11th Cir. 2003). As a result, when the only disclosure is oral
disclosure, a debtor later seeking to profit from an otherwise undisclosed claim may lack
standing, or the court may impose judicial estoppel to preclude him from pursuing it, or
After discharge of the bankruptcy estate, any property disclosed by the debtor
that has not been administered by the trustee is “abandoned”—that is, returned—to the
debtor. 11 U.S.C. § 554(c). But if property is not disclosed or there is incomplete
disclosure, the “undisclosed assets automatically remain property of the estate after the
case is closed.” Chartschlaa, 538 F.3d at 122. And if the undisclosed property is a
lawsuit, the debtor “lacks standing to pursue” the undisclosed claim. Coffaro v. Crespo,
721 F. Supp. 2d 141, 148 (E.D.N.Y. 2010). Such a claim therefore must be dismissed,
at least where the debtor is pursuing the claim for his or her own benefit and the
bankruptcy proceedings have not been reopened. See Rosenshein v. Kleban, 918 F.
Supp. 98, 103 (S.D.N.Y. 1996).
Many cases address either standing or judicial estoppel or discuss both together.
Coffaro, 721 F. Supp. 2d at 148 n.7 (“The issue of standing is closely intertwined with
the above issue of judicial estoppel. Indeed, many cases address [them] together, as
one issue.”); see also Parker v. Wendy’s Intern., Inc., 365 F.3d 1268, 1272 (11th Cir.
2004) (“Moreover, . . . it is questionable as to whether judicial estoppel was correctly
applied . . . . The more appropriate defense . . . was, instead, that the debtor lacked
standing.”). This Court separately addresses both.
The standing of the bankruptcy trustee to pursue such claims, however, is a
different matter. In cases that belong to the bankruptcy estate by virtue of a debtor’s
failure to disclose, the trustee becomes the real party in interest. See Kohlbrenner v.
Victor Belata Belting Co., 1998 WL 328639, at *2 (W.D.N.Y. June 3, 1998) (discussing
Fed. R. Civ. P. 17(a)). In those cases, rather than denying an innocent trustee—who is
pursuing assets for innocent creditors—the chance to recover because the debtor failed
to disclose the lawsuit, “it is generally preferable to permit the bankruptcy trustee to be
substituted, as the named plaintiff, in place of the debtor.” Kassner v. 2nd Ave.
Delicatessen Inc., 2005 WL 1018187, at *4 (S.D.N.Y. Apr. 29, 2005). Thus, when a
bankruptcy trustee contemplates pursuing a claim that might benefit creditors, courts
have granted stays to give the trustee time to make a decision even when the debtor
himself lacks standing due to the failure to disclose. See, e.g., Ayazi v. N.Y.C. Bd. of
Educ., 315 F. App’x 313 (2d Cir. 2009) (finding that debtor lacked standing but granting
stay to permit trustee time to adopt or abandon debtor’s claim); accord Kassner, 2005
WL 1018187 (finding that debtor lacked standing and dismissing plaintiff’s action with
leave to restore for trustee to pursue claim). Such action by the court—as opposed to
“simple dismissal of the complaint”—serves the purpose of protecting creditors. Ayazi,
315 F. App’x at 315.
C. Judicial Estoppel
Judicial estoppel applies when three requirements are met: “1) a party’s later
position is ‘clearly inconsistent’ with its earlier position; 2) the party’s former position has
been adopted in some way by the court in the earlier proceeding; and 3) the party
asserting the two positions would derive an unfair advantage against the party seeking
estoppel.” DeRosa v. Nat’l Envelope Corp., 595 F.3d 99, 103 (2d Cir. 2010) (citing New
Hampshire v. Maine, 532 U.S. 742, 750-51 (2001)). 4 Common sense and fairness
underlie the principle: “[w]here a party assumes a certain position in a legal proceeding,
and succeeds in maintaining that position, he may not thereafter, simply because his
interests have changed, assume a contrary position, especially if it be to the prejudice of
the party who has acquiesced in the position formerly taken by him.” New Hampshire,
532 U.S. at 749 (quoting Davis v. Wakelee, 156 U.S. 680, 689 (1895)).
Judicial estoppel applies in “situations where the risk of inconsistent results with
its impact on judicial integrity is certain.” DeRosa, 595 F.3d at 103 (quoting Uzdavines
v. Weeks Marine, Inc., 418 F.3d 138, 148 (2d Cir. 2005)). For example, to protect the
integrity of the judicial system, courts have applied judicial estoppel to bar a debtor from
failing to disclose a claim in bankruptcy and then later asserting that claim to the
advantage of the debtor and disadvantage of his creditors. Leible v. Goodyear Tire &
Rubber Co., 2015 WL 5542447 (W.D.N.Y. Sept. 18, 2015); Coffaro, 721 F. Supp. 2d at
In at least two instances, however, a debtor’s nondisclosure does not necessarily
keep his or her claim from proceeding.
First, if the nondisclosure was inadvertent—for example, if it resulted from a
“good faith mistake or unintentional error”—a debtor might not be judicially estopped
from pursuing an undisclosed cause of action. Simon v. Safelite Glass Corp., 128 F.3d
68, 73 (2d Cir. 1997) (citations omitted). Courts have found the failure to disclose
The third condition—an unfair advantage to the party opposing estoppel—may not
always be a mandatory prerequisite. See Adelphia Recovery Trust v. Goldman Sachs
& Co., 748 F.3d 110, 116 (2d Cir. 2014).
potential or pending claims to be “inadvertent or due to mistake when either the debtor
has no knowledge of the claims or no motive to conceal the claims.” Coffaro, 721 F.
Supp. 2d at 146 (quoting Galin v. IRS, 563 F. Supp. 2d 332, 340 (D. Conn. 2008)). And
a court should consider all the attendant circumstances in deciding whether
nondisclosure was purposeful or inadvertent. E.g., Ryan Operations G.P. v. SantiamMidwest Lumber Co., 81 F.3d 355, 363-64 (3d Cir. 1996) (weighing circumstances and
finding good-faith nondisclosure).
Second, even if the debtor is judicially estopped from pursuing an undisclosed
claim, the trustee is not necessarily estopped from pursuing the same claim on behalf of
the creditors. Instead, courts have allowed trustees to pursue an estopped debtor’s
claim so long as the trustee has not abandoned the claim or taken an inconsistent
position with regard to it. See Parker, 365 F.3d at 1272; Reed v. City of Arlington, 650
F.3d 571, 573-79 (5th Cir. 2011). This flexibility both “prevent[s] an alleged wrongdoer
from obtaining a windfall because the debtor failed to schedule its claims and . . .
ensure[s] that the creditors benefit from any recovery.” Rosenshein, 918 F. Supp. at
On the other hand, the estopped debtor should not benefit personally—that is,
receive “an undeserved windfall”—from the intentional failure to disclose a cause of
action on his schedule of assets. See Parker, 365 F.3d at 1273 n. 4. For that reason,
defendants might successfully invoke judicial estoppel to limit a trustee’s recovery to
what is necessary to satisfy creditors and trustee expenses. Id.; Grammer v. Mercedes
Benz of Manhattan, 2014 WL 1040991, at *6 (S.D.N.Y. 2014) (“[The Trustee] may
litigate the claims solely for the benefit of the estate and its creditors, but the Trustee
may not seek any recovery for [the debtor’s] benefit.”).
Here, the defendant invokes the doctrine of judicial estoppel to oppose the
plaintiff’s motion to substitute. More specifically, the defendant argues that
Jeziorowski’s failure to disclose this litigation in writing during his bankruptcy proceeding
now estops him from pursuing it. Docket 49 at 3-6. The defendant asserts that the
$6,000 statutory exemption to which the plaintiff would be entitled personally in
connection with this case likewise should estop the trustee from pursuing the claims. Id.
at 7. And the defendant also argues that Jeziorowski’s failure to disclose the claims in
writing eliminates his standing to pursue them.
The defendant’s arguments are misplaced. First, Jeziorowski’s standing is not in
issue because the trustee will be substituted in his place. Second, there is no reason to
judicially estop the trustee, who has never taken a position contrary to his current
position. Indeed, estopping the trustee from pursuing Jeziorowski’s claims would work
the sort of unfair windfall—this time, to the defendant—that equity is designed to
prevent. See Rosenshein, 918 F. Supp. at 103.
Moreover, the $6,000 statutory exemption to which Jeziorowski may be entitled
does not require a different result for the simple reason that Jeziorowski’s nondisclosure
plainly was inadvertent. Given that he filed his FDCPA/TCPA claim in December 2013
and failed to disclose it in writing when he declared bankruptcy a month later,
Jeziorowski clearly knew about the claim. But he had no reason not to disclose it in
writing, especially because he told the trustee about it at the meeting of creditors in
January 2014. Under the circumstances, it is far more likely that Jeziorowski had no
idea that his claim might have substantial value (and therefore was not concerned about
it) than that he was hiding it and hoping to obtain a windfall later on. And the fact that
his lawyer in the FDCPA/TCPA case moved to reopen the bankruptcy to include any
assets obtained through the lawsuit underscores that conclusion. Thus, there is no
basis for concluding that Jeziorowski deliberately was asserting inconsistent positions in
order to gain an advantage; on the contrary, there is every reason to conclude that his
nondisclosure was inadvertent and that he acted in good faith. See Ryan Operations
G.P., 81 F.3d at 363 (“[T]here is no basis in this case for inferring that [the debtor]
deliberately asserted inconsistent positions in order to gain advantage—i.e., that it
played fast and loose with the courts.”).
Jeziorowski’s original complaint in his FDCPA/TCPA case did not include a
specific damage claim, see Docket Item 1 at 5; Docket Item 1-1 at 1, so it does not
appear he was attempting to conceal the claim’s value when he told the trustee that it
might be worth only around $1,000. 5 In fact, within days of the January 31, 2016
deadline for fact depositions—when he must have had a better, updated estimate of the
value of his case—Jeziorowski reported to the Bankruptcy Court through his attorney
that his case had significant value. See Bankruptcy Docket Case No. 14-10069
(bankruptcy reopened on January 27, 2016, to allow for amended petition); Docket Item
29 (motion to stay this action on February 1, 2016).
This is not a case like Burnes, where the debtor disclosed assets only after his
adversary forced his hand. See 291 F.3d at 1288 (“Allowing [a debtor] to back-up, re5
Not coincidentally, FDCPA claims have a statutory cap of $1,000 per plaintiff. 15
U.S.C. § 1629k(b)(1).
open the bankruptcy case, and amend his bankruptcy filings, only after his omission has
been challenged by an adversary, suggests that a debtor should consider disclosing
potential assets only if he is caught concealing them.”). Indeed, although Jeziorowski’s
oral statement to the trustee that he had a pending claim might not have been a legally
sufficient disclosure, it is solid evidence that Jeziorowski was not trying to dupe the
court system, the trustee, the creditors, or anyone else. See Ryan Operations G.P., 81
F.3d at 364 (“[P]olicy considerations militate against adopting a rule that the requisite
intent for judicial estoppel can be inferred from the mere fact of nondisclosure in a
bankruptcy proceeding.”); see also Eubanks v. CBSK Fin. Grp., Inc., 385 F.3d 894, 89799 (6th Cir. 2004) (declining to apply judicial estoppel against plaintiffs who failed to
schedule potential claim, but made trustee and court aware of it). For all these reasons,
Jeziorowski is not judicially estopped from pursuing this action, and he also may pursue
the $6,000 wild-card exemption, pursuant to 11 U.S.C. § 522(d)(5), listed in his
amended schedule of assets. See Docket Item 43-6 at 13.
In sum, the trustee may pursue this claim as the substituted plaintiff, and, if he
prevails, Jeziorowski may receive the first $6,000 of the proceeds from this case if the
statutory exemption entitles him to that recovery.
For the reasons addressed above, the plaintiff’s motion to substitute Morris L.
Horwitz, Trustee for the Estate of Jeziorowski, as the plaintiff in this action and to
amend the caption in this proceeding (Docket Item 46) is GRANTED.
May 1, 2017
Buffalo, New York
s/ Lawrence J. Vilardo
LAWRENCE J. VILARDO
UNITED STATED DISTRICT JUDGE
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