Auday v. Wetseal Retail, Inc.

Filing 46

MEMORANDUM. An Order shall enter.Signed by District Judge Curtis L Collier on 1/17/12. (JGK, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT CHATTANOOGA
KAREN AUDAY,
Plaintiff,
v.
THE WET SEAL RETAIL, INC.,
Defendant.

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1:10-CV-260
Collier/Lee

MEMORANDUM
Before the Court is Plaintiff Karen Auday’s (“Plaintiff”) “Motion for Relief from Judgment
and/or to Alter or Amend Judgment” (Court File No. 37), seeking relief from the Court’s earlier
Judgment Order dismissing her employment discrimination action under the doctrine of judicial
estoppel. Defendant The Wet Seal Retail, Inc. (“Defendant”) has responded (Court File No. 43),
and Plaintiff replied (Court File No. 45). For the following reasons, the Court will DENY Plaintiff’s
motion (Court File No. 37).

I.

FACTS & PROCEDURAL HISTORY
The facts of this case are stated in detail in the memorandum accompanying the Judgment

Order dismissing the case (Court File No. 35), and the Court will not repeat them at length here.
Briefly, Plaintiff’s employment was terminated by Defendant on September 17, 2009. At the time
of her termination, as now, Plaintiff believed her termination was discriminatory and actionable.1

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This is evident from a September 21, 2009 e-mail in which Plaintiff expressed her opinion
she was wrongfully terminated, and stated her intention to consult an attorney. This e-mail was
attached to a pleading, and so was properly considered by the Court when deciding Defendant’s
motion for judgment on the pleadings. See Fed. R. Civ. P. 10(c).

On September 21, 2009, Plaintiff and her husband filed a Chapter 7 bankruptcy petition. The
petition listed $510,725.63 in liabilities. As part of the bankruptcy petition, Plaintiff filled out an
accompanying Schedule of Assets. Under penalty of perjury, Petitioner marked “None” by the entry
“Other contingent and unliquidated claims of every nature,” omitting her potential lawsuit against
Defendant. Throughout the course of her bankruptcy proceedings, Plaintiff never amended the
petition and associated schedules to reflect her termination by Defendant and her possession of
employment discrimination claims against it, despite amending the petition at one point to alter the
unsecured creditor list.
On January 5, 2010, Judge Cook entered an order discharging Plaintiff and her husband.
One month after the discharge, on February 8, 2010, the trustee of Plaintiff’s bankruptcy estate
applied to the bankruptcy court to employ Plaintiff’s present counsel as “special counsel” to pursue
the employment discrimination claim. According to Plaintiff, Plaintiff’s present counsel had
notified the trustee of Plaintiff’s employment discrimination claim on December 17, 2009.2
On September 15, 2010, Plaintiff’s complaint against Defendant was removed to this Court.
Defendant moved for judgment on the pleadings on three distinct theories: 1) Plaintiff was judicially
estopped from bringing the present claim because she failed to disclose it to the bankruptcy court;

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A December 17, 2009 letter from Plaintiff’s present counsel to the bankruptcy trustee
informing him of Plaintiff’s potential case against Defendant was attached as an exhibit to a
declaration of the trustee (Court File No. 16-3). This letter is very general: it does not state when
Plaintiff’s claim arose, whether Plaintiff was aware of the factual basis before filing for bankruptcy,
and what sorts and amounts of damages would be sought. Because the declaration was outside the
pleadings – not to mention the fact the declaration was unsigned and therefore inadmissible – the
Court did not consider it or the attached letter as evidence. Plaintiff now argues the Court should
have converted the motion for judgment on the pleadings into a motion for summary judgment so
that it could consider the declaration and letter. However, while the Court did not formally consider
these items as evidence, its analysis essentially credited the documents, but found judicial estoppel
applied nonetheless.
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2) Plaintiff lacked standing because her claim was part of the bankruptcy estate; and 3) Plaintiff was
bound by an arbitration agreement to arbitrate her claim. The Court held Plaintiff was indeed
judicially estopped from bringing the present discrimination suit, and so dismissed the case. The
Court did not reach the other two independent grounds for dismissal raised by Defendant. Following
the dismissal, Defendant filed the present for relief from judgment and/or to amend judgment.

II.

STANDARD OF REVIEW
Plaintiff has filed the present motion pursuant to Rules 59(e) and 60(b) of the Federal Rules

of Civil Procedure. These rules are quite similar, both substantively and in the formidable challenge
they present to litigants who would utilize them. Rule 59(e) provides for the filing of a motion to
alter or amend a judgment, but the Rule does not list specific grounds for such a motion. The Sixth
Circuit has explained courts may grant a Rule 59(e) motion to alter or amend if there is a clear error
of law, newly discovered evidence, an intervening change in controlling law, or a need to prevent
manifest injustice. Intera Corp. v. Henderson, 428 F.3d 605, 620 (6th Cir. 2005). Such a motion
is proper only if it contains “an argument or controlling authority that was overlooked or disregarded
in the original ruling, presents manifest evidence or argument that could not previously have been
submitted, or successfully points out a manifest error of fact or law.” Davie v. Mitchell, 291 F.
Supp.2d 573, 634 (N.D. Ohio 2003). Parties “cannot use a motion for reconsideration to raise new
legal arguments that could have been raised before a judgment was issued.” Roger Miller Music,
Inc. v. Sony/ATV Publ’g, LLC, 477 F.3d 383, 395 (6th Cir. 2007).
Rule 60(b) does list the grounds for a motion for relief from judgment, and they are quite
similar to those applied by courts in the Rule 59(e) context:

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On motion and just terms, the court may relieve a party or its legal representative
from a final judgment, order, or proceeding for the following reasons: (1) mistake,
inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that,
with reasonable diligence, could not have been discovered in time to move for a new
trial under Rule 59(b); (3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or misconduct by an opposing party; (4) the judgment is void; (5)
the judgment has been satisfied, released, or discharged; it is based on an earlier
judgment that has been reversed or vacated; or applying it prospectively is no longer
equitable; or (6) any other reason that justifies relief.
Fed. R. Civ. P. 60(b).
Motions to reconsider under Rule 60(b) provide opportunities for the Court to “correct
manifest errors of law or fact and to review newly discovered evidence or to review a prior decision
when there has been a change in the law.” Madden v. Chattanooga City Wide Serv. Dep’t, No. 1:06CV-213, 2007 WL 2156705, at *3 (E.D. Tenn. July 25, 2007) (quotation omitted). Such motions
seek extraordinary judicial relief and can be granted only upon a showing of exceptional
circumstances. McAlpin v. Lexington 76 Auto Truck Stop, Inc., 229 F.3d 491, 502-03 (6th Cir.
2000). “A Rule 60(b) motion is not a substitute for an appeal.” Madden, 2007 WL 2156705, at *3
(quotation omitted). With regard to the catch-all provision of Rule 60(b)(6), the Sixth Circuit has
stated “Rule 60(b)(6) should apply only in exceptional or extraordinary circumstances which are not
addressed by the five numbered clauses of the Rule.” Olle v. Henry & Wright Corp., 910 F.2d 357,
365 (6th Cir. 1990) (quotation omitted).

III.

DISCUSSION
The basis of Plaintiff’s motion, under both Rules 59(e) and 60(b), is her contention the court

made “manifest errors of law and fact” in dismissing the case (Court File No. 45, p. 10).
Specifically, Plaintiff argues the Court misunderstood the bankruptcy system, most notably the role

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of the trustee, when determining Plaintiff was judicially estopped from bringing her employment
discrimination claim because she failed to disclose it to the bankruptcy court. According to Plaintiff,
her present counsel’s December 17, 2009 letter to the trustee was effectively disclosure of the
discrimination claim to the bankruptcy court, thus this Court erred in finding she did not disclose
the claim to the bankruptcy court.3 As before, the Court disagrees.
In the bankruptcy context, judicial estoppel “bars a party from (1) asserting a position [in a
civil suit] that is contrary to one that the party has asserted under oath in a prior [bankruptcy]
proceeding, where (2) the [bankruptcy] court adopted the contrary position ‘either as a preliminary
matter or as part of a final disposition.’” White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472,
476 (quoting Browning v. Levy, 283 F.3d 761, 775 (6th Cir. 2002)). Plaintiff’s present “position”
– that is, that she has an employment discrimination claim against Defendant – is “contrary to” a
position asserted under oath in the prior bankruptcy proceeding, namely, that she did not possess any
undisclosed claims. It is undisputed Plaintiff neglected to ever include her potential lawsuit in the
bankruptcy petition,4 and it is undisputed this petition, including accompanying schedules, was made

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Plaintiff also suggests the Court may have “inadvertently overlooked” certain facts,
including: 1) it was the trustee who applied to the bankruptcy court for approval of the
commencement of this case, rather than the Plaintiff; and 2) the employment of present counsel was
approved by the bankruptcy court before commencement of this case. The Court did not overlook
these facts. The Court discussed in detail the application to employ special counsel (which was filed
post-discharge), and specifically noted it was the trustee who filed the application (Court File No.
35, p. 3). Similarly, the Court acknowledged the employment of present counsel was approved by
the bankruptcy court before commencement of this case (id.). This fact has nothing to do with the
Court’s determination Plaintiff did not disclose her potential claim to the bankruptcy court until after
her discharge was entered.
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Plaintiff quibbles with the Court’s statement that Plaintiff omitted the potential lawsuit in
her “bankruptcy petition.” “The omission was actually on a ‘schedule of assets,” Plaintiff points out
(Court File No. 38, p. 9). This hair-splitting criticism borders on frivolous. The schedule of assets
was a schedule to the bankruptcy petition, was submitted as part of the bankruptcy petition, and,
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under oath. Plaintiff had a duty to disclose the potential lawsuit to the bankruptcy court, and she
neglected this duty, both by her initial omission of the claim from the petition, and by her continuing
failure to amend the petition to include the claim. “It is well-settled that a cause of action is an asset
that must be scheduled under [11 U.S.C.] § 521. Moreover, the duty of disclosure is a continuing
one, and a debtor is required to disclose all potential causes of action.” Lewis v. Weyerhaeuser Co.,
141 F. App’x 420, 424 (6th Cir. 2005) (quotation omitted).
Despite the conceded omission of her employment discrimination claim from the bankruptcy
petition, Plaintiff claims present counsel’s disclosure of the claim to the trustee prior to discharge
effectively served as notice of the claim to the bankruptcy court, thus she did not, in fact, assert
contrary positions in the two cases. Plaintiff suggests the Court’s earlier conclusion to the contrary
evidenced a misunderstanding of the bankruptcy system and the role of the trustee. However,
Plaintiff has proffered no compelling law or precedent for the proposition that writing a letter to the
bankruptcy trustee telling him of the existence of a potential unliquidated claim is equivalent to
amending the schedule of assets, much less that it was a “manifest error of law” for the Court to find
them not equivalent.5 Indeed, if writing a letter to the trustee is equivalent to updating one’s
bankruptcy petition and schedules, it is difficult to see why there should exist a formal mechanism
for amendment at all. The Court adheres to its earlier conclusion that, letter to the trustee
notwithstanding, Plaintiff did not disclose the existence of her potential discrimination claim to the
bankruptcy court prior to discharge. See Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778,

along with the rest of the bankruptcy petition, was signed under penalty of perjury.
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Still less has Plaintiff shown a letter to the trustee which, like the one Plaintiff’s counsel
allegedly sent the trustee, does not even state the possible value of the claim would sufficiently
apprise the bankruptcy court of the existence of this asset.
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784 (9th Cir. 2001) (holding that “notifying the trustee [of a potential claim] by mail or otherwise
is insufficient to escape judicial estoppel” and that the plaintiff “[wa]s required to have amended his
disclosure statements and schedules to provide the requisite notice, because of the express duties of
disclosure imposed on him by 11 U.S.C. § 521(1), and because both the court and [the plaintiff’s]
creditors base their actions on the disclosure statements and schedules.”).
Additionally, the Court adheres to its conclusion that the bankruptcy court “adopted” the
position Plaintiff had no assets beyond those listed in the schedule of assets when it entered the
discharge. Plaintiff contends that because any proceeds of the instant lawsuit could be distributed
among her creditors, and because the trustee could seek revocation of the discharge if he thought
it justified, the bankruptcy court did not “adopt” the disclosures in her schedule of assets in any
meaningful way. Apparently in Plaintiff’s view, a bankruptcy court only adopts a position when it
takes a truly irreversible action for which the position is a necessary predicate. This view is
untenable. If a bankruptcy court does not adopt a debtor’s under-oath representation that her debts
far outstrip her assets, as indicated in the schedule of assets, when it enters a Chapter 7 discharge,
it is difficult to see what court action could possibly constitute “adoption.” Such a view would make
judicial estoppel a dead letter, at least in the Chapter 7 context.
Furthermore, courts have repeatedly held a bankruptcy court adopts a debtor’s representation
of her assets when it enters a discharge. See, e.g., id. (“a [Chapter 7] discharge of debt by a
bankruptcy court is sufficient acceptance to provide a basis for judicial estoppel”); In re Johnson,
345 B.R. 816, 622 (Bankr. W.D. Mich. 2006) (“This court implicitly accepted the statements in the
Debtor’s schedules and statement of financial affairs when it granted her a [Chapter 7] discharge of
debts.”); Pate v. United Parcel Serv., Inc., No. 3:05-cv-531, 2006 WL 2076795, *2 (E.D. Tenn. July

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24, 2006) (finding that judicial estoppel should apply when “[i]n the [Chapter 7] bankruptcy
proceedings, the plaintiff failed to list his employment claims as an asset of his estate, and the
bankruptcy court granted the plaintiff a discharge without knowing about the claims.”). In light of
the weight of precedent, as well as the neutering of the judicial estoppel doctrine which would
follow if discharge were insufficient to constitute adoption of a debtor’s schedule of assets, the Court
determines it did not err, much less make a “manifest mistake of law,” by holding the bankruptcy
court adopted the position Plaintiff had no additional assets when entering discharge.

IV.

CONCLUSION
For the reasons stated above, the Court concludes it did not make “manifest errors of law or

fact” when holding the doctrine of judicial estoppel operates to bar Plaintiff’s employment
discrimination claim. Accordingly, the Court will DENY Plaintiff’s Motion for Relief from
Judgment and/or to Alter or Amend Judgment (Court File No. 37).
An Order shall enter.

/s/
CURTIS L. COLLIER
CHIEF UNITED STATES DISTRICT JUDGE

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