Seus v. Kohler Co. et al

Filing 20

MEMORANDUM OPINION to be set forth more fully in the following Judgment. Signed by District Judge Thomas W Phillips on March 29, 2012. (mailed to Mr. Seus) (AYB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE

CHRISTIAN SEUS,
Plaintiff,
v.
KOHLER CO.,
BRIGGS & STRATTON CORPORATION,
AMERICAN HONDA MOTOR COMPANY,
TECUMSEH PRODUCTS COMPANY,
DEERE & COMPANY,
Defendants.

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No. 3:11-CV-237
Phillips

MEMORANDUM OPINION

Plaintiff Christian Seus, filed this action asserting claims for RICO violation,
intentional misrepresentation, civil conspiracy, unjust enrichment, and fraud. Before the
court are defendants’ motions to dismiss the complaint for plaintiff’s failure to list this lawsuit
as an asset in his Chapter 7 bankruptcy proceeding. Defendants contend that judicial
estoppel requires dismissal of plaintiff’s complaint. Plaintiff has responded in opposition.
For the reasons which follow, defendants’ motions to dismiss will be granted.

Background
On April 25, 2010, five months before filing for bankruptcy, Seus discovered
the claims he seeks to pursue in this case through the news. In May 2010, he oped out of

the class action litigation asserting claims with respect to the horsepower labeling of lawn
mowers, thereby preserving his right to bring an individual lawsuit.

On October 4, 2010, Seus filed a voluntary petition under Chapter 7 of the
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of
Tennessee. Seus listed his lawn mower as an asset, but failed to list his claims with
respect to his lawn mower. Seus amended his bankruptcy petition on numerous occasions
in October through December 2010, but continued to omit his lawn mower claims. On
February 8, 2011, Seus was discharged from bankruptcy without ever disclosing to the
Bankruptcy Court the existence of the claims he now seeks to bring before this court.

On April 20, 2011, just two months after his bankruptcy discharge, Seus filed
the instant lawsuit in the Circuit Court of Knox County, bringing claims of a RICO violation,
intentional misrepresentation, civil conspiracy, unjust enrichment, and fraud arising out of
his ownership of the lawn mower identified in his bankruptcy petition. Defendant Briggs
removed the action to this court on May 26, 2011.

Standard of Review
Defendants have moved for dismissal of plaintiff’s complaint pursuant to
Rules 12(b)(6), Federal Rules of Civil Procedure. A motion to dismiss under Rule 12(b)(6),
Federal Rules of Civil Procedure, requires the court to construe the complaint in the light
most favorable to the plaintiff, accept all the complaint’s factual allegations as true, and
determine whether the plaintiff undoubtedly can prove no set of facts in support of his
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claims that would entitle him to relief. Meador v. Cabinet for Human Resources, 902 F.2d
474, 475 (6th Cir.) cert. denied, 498 U.S. 867 (1990). The court may not grant such a
motion to dismiss based upon a disbelief of a complaint’s factual allegations. Lawler v.
Marshall, 898 F.2d 1196, 1198 (6th Cir. 1990); Miller v. Currie, 50 F.3d 373, 377 (6th Cir.
1995) (noting that courts should not weigh evidence or evaluate the credibility of
witnesses). The court must liberally construe the complaint in favor of the party opposing
the motion. Id. However, the complaint must articulate more than a bare assertion of legal
conclusions. Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434 (6th Cir. 1988).
“[The] complaint must contain either direct or inferential allegations respecting all the
material elements to sustain a recovery under some viable legal theory.” Id. (citations
omitted).

If, in a Rule 12(b)(6) motion to dismiss, “matters outside the pleadings are
presented to and not excluded by the court, the motion must be treated as one for
summary judgment under Rule 56.” Wysocki v. IBM, 607 F.3d 1102, 1104 (6th Cir. 2010).
Here, the parties have submitted matters outside the pleadings in support of their positions.
Consequently, the court will consider the parties’ arguments under Rule 56(c), which
provides that summary judgment will be granted by the court only when there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter of law. The
burden is on the moving party to conclusively show that no genuine issue of material fact
exists. The court must view the facts and all inferences to be drawn therefrom in the light
most favorable to the non-moving party. Matsushita Elec. Indus. Co., v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986); Morris to Crete Carrier Corp., 105 F.3d 279, 280-81 (6th
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Cir. 1987); White v. Turfway Park Racing Ass’n, Inc., 909 F.2d 941, 943 (6th Cir. 1990); 60
Ivy Street Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir. 1987). Once the moving party
presents evidence sufficient to support a motion under Rule 56, Federal Rules of Civil
Procedure, the non-moving party is not entitled to a trial simply on the basis of allegations.
The non-moving party is required to come forward with some significant probative evidence
which makes it necessary to resolve the factual dispute at trial. Celotex Corp. v. Catrett,
477 U.S. 317 (1986); White, 909 F.2d at 943-44. The moving party is entitled to summary
judgment if the non-moving party fails to make a sufficient showing on an essential element
of its case with respect to which it has the burden of proof. Celotex, 477 U.S. at 323;
Collyer v. Darling, 98 F.3d 220 (6th Cir. 1996).

Analysis
The doctrine of judicial estoppel “generally prevents a party from prevailing
in one phase of a case on an argument and then relying on a contradictory argument to
prevail in another phase.” New Hampshire v. Maine, 532 U.S. 742, 749 (2001); White v.
Wyndham Vacation Ownership, Inc., 2010 WL 3155161 (6th Cir. Aug. 11, 2010). This
doctrine is “utilized in order to preserve the integrity of the courts by preventing a party form
abusing the judicial process through cynical gamesmanship.” Browning v. Levy, 283 F.3d
761, 775 (6th Cir. 2002); see also Eubanks v. CBSK Financial Group, Inc., 385 F.3d 894,
897 (6th Cir. 2004) (“Judicial estoppel, however, should be applied with caution to avoid
impinging on the truth-seeking function of the court, because the doctrine precludes a
contradictory position without examining the truth of either statement”).

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In the bankruptcy context, the Sixth Circuit has previously noted that “judicial
estoppel bars a party from (1) asserting a position that is contrary to one that the party has
asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary
position either as a preliminary matter or as part of a final disposition.” Browning, 283 at
775-76. Furthermore, Browning noted that “judicial estoppel is inappropriate in cases of
conduct amounting to nothing more than mistake or inadvertence.” Id. at 776. Two
circumstances in which a debtor’s failure to disclose might be deemed inadvertent are (1)
“where the debtor lacks knowledge of the factual basis of the undisclosed claims,” and (2)
where “the debtor has no motive for concealment.” Id. at 776. Moreover, a court should
“consider whether a party has gained an unfair advantage from the court’s adoption of its
earlier inconsistent statement.” Longaberger Co. v. Kolt, 586 F. 3d 459, 470 (6th Cir. 2009)
citing New Hampshire, 532 U.S. at 751.

In short, to support a finding of judicial estoppel, the court must find that (1)
plaintiff assumed a position that was contrary to the one that he asserted under oath in the
bankruptcy proceedings, (2) the bankruptcy court adopted the contrary position either as
a preliminary matter or as part of a final disposition, and (3) plaintiff’s omission did not
result from mistake or inadvertence. White, 2010 WL 3155161. In determining whether
plaintiff’s conduct resulted from mistake or inadvertence, the court considers whether (1)
plaintiff lacked knowledge of the factual basis of the undisclosed claim, (2) plaintiff had a
motive for concealment, and (3) the evidence indicates an absence of bad faith. Id. In
determining whether there was an absence of bad faith, the court will look, in particular, at
plaintiff’s “attempts” to advise the bankruptcy court of the omitted claim. Id.
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Here, the defendant has come forward with evidence that shows that plaintiff
assumed a position that was contrary to one that he asserted under oath in the bankruptcy
proceeding, and (2) the bankruptcy court adopted the contrary position as a preliminary
matter. Seus failed to include in his bankruptcy petition the fact that he had been a class
member in the law mower class action litigation, despite identifying four other lawsuits to
which he was a party. Seus had numerous opportunities to correct his omission. He
amended his petition on numerous occasions during his bankruptcy, but never identified
his claims against defendants arising out of his lawn mower.

Based on these

representations, the Bankruptcy Court discharged Seus from bankruptcy on February 8.
2011. By entering the discharge order on February 8, the Bankruptcy Court adopted
plaintiff’s position that he did not own any causes of action against defendants.

Just two months later, and without informing or seeking leave from the
Bankruptcy Court, Seus filed the instant complaint on April 20, 2011. His complaint seeks
compensatory, punitive, and treble damages stemming from the allegedly inaccurate
horsepower rating of an engine in a lawn mower plaintiff purchased.

After considering the evidence presented by defendants, the question
becomes whether plaintiff can point to evidence showing an absence of bad faith. He can
do this by showing his attempts to correct his initial omission. Since the bankruptcy system
depends on accurate and timely disclosures, the extent of these efforts, together with their
effectiveness, is important. See Eubanks, 385 F.3d at 898-99. Further, since judicial
estoppel seeks to prevent parties from abusing the judicial process through cynical
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gamesmanship, the timing of plaintiff’s efforts is also significant. Id. Here, Seus admits he
discovered the factual basis of the undisclosed claims at least four months prior to filing for
bankruptcy. He opted out of class-action litigation concerning the undisclosed claims four
months before filing for bankruptcy. By concealing his claims and receiving the bankruptcy
discharge, it is apparent that Seus sought to evade his creditors and keep the putative
value of the claims for himself. This is precisely why full disclosure of assets in the context
of a bankruptcy is required. See White v. Wyndham Vacation Ownership Inc., 617 F.3d
472, 479 (6th Cir. 2010) (if plaintiff had disclosed her potential harassment claim, it would
have become part of the bankruptcy estate and any proceeds would have gone to her
creditors).

In response to defendants’ motion to dismiss, plaintiff has submitted a
response arguing that he made the bankruptcy trustee aware of the lawn mower claims and
the trustee decided to abandon them.

However, Seus never filed a motion in the

Bankruptcy Court requesting that his law mower claims be abandoned by the trustee, and
he never obtained an order entered by the Bankruptcy Court granting abandonment of his
lawn mower claims. In fact, it was not until after Seus was discharged in his bankruptcy
case that he allegedly requested the trustee to abandon the lawn mower claims. Seus has
submitted an undated “Agreed Order of Abandonment” related to his lawn mower claims,
and argues that the Trustee abandoned the lawn mower case before it was filed. However,
this purported “Agreed Order” was never entered by the Bankruptcy Court. It is clear from
the face of the document that it was prepared after the instant case had been removed to
this court on May 26, 2011, long after plaintiff’s discharge in the Bankruptcy Court.
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Plaintiff personally declared “under penalty of perjury” that the contents of his
bankruptcy petitions was “true and correct.” Plaintiff also failed to point out the omission
at any time during the pendency of his bankruptcy case. Plaintiff was provided with multiple
opportunities to disclose this lawsuit and repeatedly failed to do so. The Bankruptcy Code
requires a debtor to file a schedule of assets and liabilities, a schedule of current income
and current expenditures, and a statement of the debtor’s financial affairs. Caprella v. CSX
Transp. Inc., 2009 WL 2950248, citing 11 U.S.C. § 521(1). Because it is well-settled that
a cause of action is an asset that must be scheduled under § 521, plaintiff was obligated
to disclose this claim when completing his bankruptcy documentation. Id.

The Bankruptcy Court relied on plaintiff’s sworn assertions in his petition
when it granted plaintiff’s discharge. Since plaintiff’s plan was adopted by the Bankruptcy
Court, the court clearly adopted the information contained in his bankruptcy petition. See
Browning, 283 F.3d at 775 (prior court need only adopt the contrary position either as a
preliminary matter or as part of a final disposition),

In light of all of the above, the court believes that judicial estoppel is
appropriate in this matter and will grant defendants’ request to dismiss this action.

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Conclusion
For the reasons stated above, defendants’ motions to dismiss [Docs. 8, 12]
will be converted to one for summary judgment, and summary judgment is GRANTED in
favor of defendants. Plaintiff’s complaint is DISMISSED with prejudice pursuant to
Fed.R.Civ.P. 56(c).

ENTER:
s/ Thomas W. Phillips
United States District Judge