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U.S. First Circuit Court Upholds Judicial Estoppel in Bankruptcy Case

The United States Court of Appeals for the First Circuit held in April 2012 that the U.S. District Court for the District of New Hampshire did not abuse its discretion in applying judicial estoppel to foreclose appellant’s claims in a bankruptcy case. Kevin and Lorraine Guay filed for bankruptcy under Chapter 11 on September 28, 2008. On June 23, 2009, the case was converted to a Chapter 7 proceeding. Their home and properties were concurrently searched by Concord, N.H. Police for evidence of hazardous waste disposal, a search which resulted in extensive damage and spawned a collateral federal suit against Concord, N.H. Police and officials and Environmental Protection Agency officials.

Throughout their bankruptcy proceeding, the Guays failed to file amended asset schedules identifying their lawsuits as assets. This was noticed and brought to the Guays’ attention, who then offered to provide the Trustee with copies of relevant filings. The procedure requires formally amending their asset schedules, which was not done. Bankruptcy court ordered the Guays to amend their asset schedules by October 28, 2008, then on October 27, granted the Guays an order discharging all debts eligible for discharge under Chapter 7 bankruptcy, but did not dismiss the case or the Trustee. The Guays filed a timely affidavit stating no amendments were necessary.

The Guays amended their asset schedule in December 2009, after defendants raised the issue of judicial estoppel, listing their lawsuits as Obligations to Debtors. Defendants moved to dismiss the Guays’ claims on multiple grounds, including judicial estoppel. The court adopted the magistrate judge’s recommendation and dismissed all of the Guays’ claims except malicious abuse of process and their Fourth Amendment claims. Defendants moved for summary judgment, which the district court granted in November 2010 on the basis of the Guays’ failure to disclose their claims as assets in bankruptcy.

The court of appeals focused on abuse of discretion on the part of the district court as the yardstick by which to measure possible culpability with respect to the issues under appeal. The court found the record indicated appellants’ failure to identify a claim as an asset barred appellants from pursuing the claims in a later proceeding, termed the Guays’ actions as “playing fast and close” with the court system. The court found the Guays took contradictory positions in their civil and bankruptcy proceedings, that bankruptcy court granted discharge on the basis of misleading information, satisfying the two requisite elements for application of judicial estoppel, which rendered further claims inequitable to the interest of justice. See: Guay v. Burack, 677 F.3d 10 (1st Cir. 2012).

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Related legal case

Guay v. Burack