Wednesday, October 19, 2022

Don’t estop thinking about your leave claim

"Is there money owed to you for claims against third parties, whether or not you have filed a lawsuit or made a demand for payment, such as for accidents, employment disputes, insurance claims, or rights to sue?"

When Stephen Stanley filed his bankruptcy petition with the bankruptcy court, he answered that question, "No." 

His problem, however, was that within weeks of filing his bankruptcy, Stanley's employer fired him from job, which he believed was related to their earlier FMLA violations. 

Several months later, the bankruptcy court modified Stanley's bankruptcy plan with "no future modifications." Indeed, Stanley never disclosed to the bankruptcy court the FMLA claims (or the FMLA lawsuit he filed against his former employer) until 16 months later, and only after the employer's lawyer questioned him about it at his deposition in his FMLA interference lawsuit.

The district court dismissed Stanley's FMLA claim based on judicial estoppel, which the 6th Circuit affirmed

Judicial estoppel prevents a party from prevailing in a case based on an argument, and then relying on a contradictory argument to prevail in case. In other words, Stanley couldn't represent to the bankruptcy court that no money is owed to him for any employment claims, and later contradictorily represent to another court that he had a FMLA claim against his prior employer.

Staley claimed that his FMLA should have proceeded despite the contrary representations made in bankruptcy court because its omission from his bankruptcy filings resulted from mistake or inadvertence. The 6th Circuit was not persuaded and refused to give Stanley a pass for his misrepresentation based on the fact that he was represented by counsel.

[T]he omission was made in bad faith. [M]erely allowing a bankruptcy petitioner to avoid judicial estoppel by correcting omissions after an opposing party notifies them of the same would encourage gamesmanship.… It is troubling that Stanley was represented by counsel in both his bankruptcy case and this case, but that he nonetheless wound up in this position.… But neither bad legal advice nor attorney inadvertence automatically excuses an omission. Although Stanley argues that he "did not know that [he] ought to have disclosed [his] FMLA claim," (even though he certified that the information he provided was true and correct) ignorance of the law is generally not an excuse.

A quality result. An employee cannot make one representation to one court and expect to make the opposite representation on the same issue to another court and get away with it. And, as the court correctly pointed out, shame on all of his lawyers for allowing this to happen.