Your former employee sues you, but your employee-plaintiff filed for bankruptcy. You diligently research the bankruptcy filings and discover the employee did not disclose the lawsuit against you in those filings, which are sworn to under oath. You might have a winner to get out of the case, right? Well, it is not quite that simple, according to a recent ruling in Georgia. The potential argument that the plaintiff’s claims may be precluded or estopped if he or she has not sufficiently disclosed the lawsuit in the bankruptcy certainly exists. A divided Georgia Supreme Court, however, said that a whistle-blower’s claims can continue despite the inconsistent position taken in her bankruptcy filings. The decision is significant to keep in mind when crafting early dismissal arguments premised on inconsistent bankruptcy disclosures.
In May 2013, Fulton County employee Sandra Ward-Poag filed for personal Chapter 13 bankruptcy protection in the Bankruptcy Court for the Northern District of Georgia. Bankruptcy petition schedules call for the filing debtor to disclose any and all claims they have as assets. The Bankruptcy Court confirmed her Chapter 13 plan in March 2014, which required her to make her plan payments to the bankruptcy trustee through March 2019.
Ward-Poag worked for Fulton County as the manager of Wolf Creek Amphitheater beginning in 2012. In October 2016, when her bankruptcy was still active and she was making plan payments, Ward-Poag filed a civil whistleblower claim against Fulton County alleging that after she raised the issue of a Fulton County commissioner attempting to use the amphitheater for personal gain that she was demoted and retaliated against. She sought $3 million in damages plus attorneys’ fees in her complaint. Although her bankruptcy case was still open and pending, Ward-Poag did not initially file any amendment to her bankruptcy asset disclosures.
In September 2017, over a year after the case was first filed, the county filed a motion for summary judgment asserting that judicial estoppel barred Ward-Poag’s claims because she did not disclose the lawsuit in her bankruptcy filings as an asset per the requirements of the bankruptcy code and that she was required to amend her asset listings in the bankruptcy court. A short time later, Ward-Poag did just that and amended her bankruptcy petition to include her litigation against the county but swore, under penalty of perjury, that the lawsuit was valued at only $1. She then responded to the motion for summary judgment stating that she had no intention to deceive the bankruptcy court, was unaware of her obligation to amend her schedules years after they were submitted, and that she had amended her schedules.
The trial court granted the county summary judgment based on judicial estoppel with her personal bankruptcy case. That is her claim was barred because she took a position in her whistleblower complaint that was inconsistent with her bankruptcy filings. At the summary judgment hearing, the judge proclaimed that Ward-Poag made “a mockery of the court and a mockery of the bankruptcy court” in asking for much more than $1 in her lawsuit. In his written order, the judge noted that Ward-Poag was a law school graduate, was represented by counsel in her bankruptcy, and amended her bankruptcy schedules only after the county raised it in their motion, all suggesting that Ward-Poag intended to deceive and was inconsistent in her court filings. The intermediate Court of Appeals reversed the trial court, but did so with the bright line rule that because Ward-Poag had amended her bankruptcy filing to disclose the lawsuit that all was cured.
Judicial Estoppel Based on Bankruptcy Filings
The court began with a discussion that judicial estoppel is commonly applied with bankruptcy debtors who pursue a damages claim that they fail to include as an asset in bankruptcy. The idea is that when assets are not revealed in the bankruptcy petition, “including unliquidated tort claims, it operates as a denial that such assets exist, deprives the bankruptcy court of the full information it needs to evaluate and rule … deprives creditors of resources that may satisfy unpaid obligations [and] preserves the integrity of the judicial forum by not permitting a debtor to take inconsistent positions to manipulate the system.” The 11th Circuit guidance applies a two-part test for judicial estoppel, asking (1) whether the party took an inconsistent position under oath in a separate proceeding and (2) whether these inconsistent positions were calculated to make a mockery of the judicial system.
Holding: Not So Simple, Consider All Facts and Circumstances
First, the Georgia Supreme Court rejected the Court of Appeals’ “bright line rule” that just because Ward-Poag amended her bankruptcy petition she eliminated any judicial estoppel contention. The Georgia Supreme Court found it is not always so simple, as a party may sometimes amend, but still take an inconsistent position. “We disapprove cases that can be read to support the proposition that any amendment, no matter how inaccurate, will automatically make a debtor’s positions consistent for purposes of judicial estoppel.”
Instead, the Georgia Supreme Court reversed the summary judgment ruling because the trial court “not only ignored Ward-Poag’s evidence, it also construed the facts and drew inferences against Ward-Poag when it was required to do the exact opposite.” The court leaned heavily on the 11th Circuit precedent to determine where the inconsistency was calculated to make a mockery of the judicial system, which required review of “all the facts and circumstances of the particular case” that may include the party’s sophistication, any corrections made, reliance on the bankruptcy attorney, whether creditors were aware, and any findings by the bankruptcy court. To be clear, the court’s decision does not mean that the county lost on its judicial estoppel defense. Rather, the question of her intent to deceive was for the fact finder and not for the judge to decide before a trial. “This is not one of those rare cases where the evidence of intent is plain and undisputed. There are genuine issues of material fact as to whether Ward-Poag intended to deceive her creditors and make a mockery of the judicial system by any inconsistent position she may have taken.” The court went on to say that multiple other factors could be considered as to the appropriateness of judicial estoppel, such as whether there would be a windfall to a bad actor and any public interest, since it was an equitable doctrine.
The chief judge authored a vigorous dissent to assert that the trial court’s order properly concluded that she acted with the intent to make a mockery of the judicial system through her inconsistent filings. In particular, the dissent was frustrated by the fact that while Ward-Poag could claim some ignorance before the county’s motion, it was her actions afterward in amending the schedules but placing a value of only $1, while simultaneously seeking $3 million in damages elsewhere.
Lesson: Check the Bankruptcy Filings of Your Plaintiff and Pick Your Battles
The Georgia Supreme Court took a very nuanced view of judicial estoppel to reverse the summary judgment order, but the principle should still be a part of your defensive playbook where your plaintiff is in bankruptcy. With any new litigation filed against the company by an individual one item to always check is any potential bankruptcy filings by the plaintiff. Despite the Georgia Supreme Court’s decision, there still may be avenues to pursue dismissal based on what is disclosed in the bankruptcy petition or schedules. With personal bankruptcies likely to tick up in the coming months and years, every employer who finds itself in new litigation should make a point to check any bankruptcy filings by the plaintiff and take advantage of any estoppel arguments.