Noting its own lack of clarity on the subject, the U.S. Court of Appeals for the Second Circuit on Friday set down its views on the proper use of judicial estoppel.
“It’s time to put uncertainty to rest: today we hold that a district court’s invocation of judicial estoppel is reviewed on for abuse of discretion,” the appellate court stated.
The panel of Circuit Judges Dennis Jacobs, Guido Calabresi and Denny Chin noted that its uncertainty could be traced back to its 2005 decision in Uzdavines v. Weeks Marine, where, in passing dicta, the issue of whether judicial estoppel applies “is a pure question of law, which we review de novo.” The court has not directly addressed the issue since.
The court now joins most of its other sister circuits—with the exception of the Sixth Circuit—in holding that “abuse of discretion is the appropriate standard.”
Standing on newly firm footing as a matter of law resulted in the panel vacating and remanding a motion to dismiss, based on the equitable doctrine of judicial estoppel, issued by U.S. District Judge George Daniels of the Southern District of New York.
The suit involves a couple in the process of resolving a bankruptcy when the husband, John Edward Clark, was diagnosed with mesothelioma. A week prior to having the bankruptcy settled, the Clarks sued Boeing and a host of other corporations they believed had exposed him to asbestos, the cause of the cancer.
Boeing argued that the suit couldn’t proceed, as the Clarks had failed to disclose the cancer diagnosis during bankruptcy, which could have potentially changed the outcome of that legal proceeding ahead of the one they now hope to pursue. This failure to disclose estops them from pursuing personal injury claims related to the diagnosis forever, according to Boeing. John Clark died while the suit was pending appeal.
Daniels agreed, calling judicial estoppel a “harsh rule.” The panel Friday said it was, in fact, not the case.
The panel agreed that Daniels had applied the right test for judicial estoppel. Yes, the Clarks took an inconsistent position in a prior proceeding, which was adopted in a judgment favorable to them. The problem, the panel said, is that “judicial estoppel is not a mechanical rule,” and while these conditions may be necessary to impose it, they are not on their own sufficient to mete out judicial estoppel.
An equities test needed to be performed as well, the panel said. In this case, Boeing itself acknowledged that it faced no harm from the Clarks’ error before the bankruptcy court. Going further, the panel found that on top of this, the error ultimately had no effect on their case.
Disclosure of the potential suit against Boeing wouldn’t have altered the outcome of the bankruptcy proceedings. The Clarks had agreed to pay their creditors back in full and Boeing could point to no other creditors who could have come calling knowing a personal injury suit was afoot.
“Nothing in the record before us suggests that the Clarks withheld Mr. Clark’s diagnosis from the bankruptcy court in an effort to game the bankruptcy system. Indeed, it is hard to see what benefit they could even have hoped to obtain from nondisclosure,” the panel said. “In these circumstances, we hold that the principles of equity require the courts to entertain Mrs. Clark’s personal injury claims.”
“My client and I are very thankful for today’s decision and we are looking forward to bringing our case to trial,” said Shrader & Associates attorney Robert Shuttlesworth, who represented the Clarks.
Boeing was represented by Manion Gaynor & Manning name attorney Martin Gaynor III. He did not respond to a request for comment.