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Vanzandt v Peaks, et al (COA – UNP 11/23/2021; RB #4355)

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Michigan Court of Appeals; Docket #354819; Unpublished
Judges Borrello, Jansen, and Boonstra; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion


STATUTORY INDEXING:
Not Applicable

TOPICAL INDEXING:
Plaintiffs in Bankruptcy


SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s summary disposition order dismissing Plaintiff Janice Vanzandt’s third-party action against Defendants Brandon Tyrell Peaks and Rock-Way, LLC (“Rock-Way”). The Court of Appeals held that Vanzandt’s action was barred by judicial estoppel, because Vanzandt failed to notify the bankrupty court in a pending Chapter 13 bankruptcy action of her potential claim against the defendants.

Vanzandt filed for Chapter 13 bankruptcy on March 28, 2016, and then was injured in a motor-vehicle collision caused by Brandon Tyrell Peaks, an employee of Rock-Way, on August 25, 2017. On September 25, 2017, the bankruptcy trustee filed a motion to dismiss Vanzandt’s bankruptcy petition based on Vanzandt’s failure to make any payments during the preceding four months. On October 12, 2017, Vanzandt hired an attorney to represent her in a third-party action against Peaks and Rock-Way with regard to the subject motor vehicle collision, and at no point thereafter did Vanzandt amend her bankruptcy payment plan or apprise either the bankruptcy court or the bankruptcy trustee of a potential claim against the defendants. On October 24, 2017, the bankruptcy court granted the bankruptcy trustee’s motion to dismiss Vanzandt’s petition. Based on this timeline, Peaks and Rock-Way moved for summary disposition in Vanzandt’s subsequent third-party action against them, arguing that she was judicially estopped from bringing said action based on her failure to disclose her claim against them in her bankruptcy proceeding. The trial court agreed and granted the defendants’ motion.

The Court of Appeals affirmed the trial court’s summary disposition order dismissing Vanzandt’s third-party action against Peaks and Rock-Way, observing, preliminarily, that the test for determining whether judicial estoppel applies in the context of concurrent bankruptcy and tort proceedings was set forth in Spohn v Van Dyke Pub Sch, 296 Mich App 470 (2012). The elements under that test include:

“(1) [the plaintiff] assumed a position that was contrary to the one that she 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) [the plaintiff’s] omission did not result from mistake or inadvertence. In determining whether [the plaintiff’s] conduct resulted from mistake or inadvertence, [the reviewing] court considers whether: (1) [the plaintiff] lacked knowledge of the factual basis of the undisclosed claims; (2) [the plaintiff] had a motive for concealment; and (3) the evidence indicates an absence of bad faith. In determining whether there was an absence of bad faith, [the reviewing court] will look, in particular, at [the plaintiff’s] ‘attempts’ to advise the bankruptcy court of [the plaintiff’s] omitted claim.”

The Court of Appeals held that the first element was satisfied because Vanzandt asserted in her bankruptcy filing that she did not have any claims against third parties—an assertion she had a duty to update throughout the pendency of the proceeding. Thus, even though, at the time Vanzandt filed the bankruptcy petition, she did not yet possess any cause of action against the defendants, her duty to disclose pertinent information regarding her assets to her creditors was a continuing one. By not disclosing her claim against the defendants, Vanzandt assumed a position in the third-party action that was contrary to the one she assumed in the bankruptcy proceeding as of the date of the subject collision.

“Plaintiff attempts to distinguish this case from Spohn by arguing that, whereas the plaintiffs in Spohn had a separate cause of action at the time they filed their bankruptcy petition, here, plaintiff’s separate cause of action did not emerge until many months after she filed her bankruptcy petition. However, plaintiff fails to account for, or reconcile, that her duty to disclose was a continuing one. Spohn, 296 Mich App at 482. Indeed, the Spohn Court’s decision that the first element of judicial estoppel was based on the plaintiff having ‘failed to include the sexual harassment claim on her bankruptcy petition, or to amend that petition.’ Id. at 482-483 (emphasis added). Therefore, the fact that plaintiff’s answer on the bankruptcy questionnaire, at the time of filing, was truthful does not mean that her failure to disclose the potential negligence claim once the accident occurred was excusable or excepts her from the application of judicial estoppel. If nothing else, she should have disclosed the potential claim once she hired a lawyer to represent her against defendants. ‘[P]ursuing a cause of action that was not disclosed as an asset in a previous bankruptcy filing creates an inconsistency sufficient to support judicial estoppel.’ Lewis v Weyerhaeuser Co, 141 F Appx 420, 425 (CA 6, 2005).”

The Court of Appeals held that the second element was satisfied because the bankruptcy court granted the bankruptcy trustee’s motion to dismiss based on the information before it at that time, which did not include Vanzandt’s potential claim against Peaks and Rock-Way.

“The second element of judicial estoppel requires the reviewing court to find that ‘the bankruptcy court adopted the contrary position either as a preliminary matter or as part of a final disposition.’ Spohn, 296 Mich App at 480. This element is fulfilled because the bankruptcy court, relying on plaintiff’s representations in her bankruptcy filing, adopted the contrary position—that there were no other potential claims—when it adopted plaintiff’s bankruptcy petition and plan. As in Spohn, neither party disputes that the bankruptcy court adopted her bankruptcy plan. Id. at 483. Further, as the trial court recognized, the bankruptcy court’s decision to dismiss the case was based on the information it had at the time, which did not include plaintiff’s negligence claim against defendants.”

The Court of Appeals held that the third element was satisfied because Vanzandt obviously had “knowledge of the factual basis of the undisclosed claims,” based on the fact that she was involved in the crash and hired a lawyer to represent her with regard to those claims while the bankruptcy proceeding was pending. The Court also determined that Vanzandt presented no evidence to overcome the presumption, under Michigan law, that a Chapter 13 petitioner has a motive to conceal based on the fact that it is “ ‘always in [the] petitioner’s interest to minimize income and assets’ in order to secure payment directly rather than to the debtor’s estate.” Lastly, the Court determined that the evidence did not support a finding of an absence of bad faith, because, although Vanzandt’s failure to make any attempt to advise the bankruptcy court of her claim against the defendants was not “ironclad proof of bad faith,” it “certainly does not clearly ‘indicate an absence of bad faith.’ ”

“The third element of judicial estoppel requires the reviewing court to find that plaintiff’s omission ‘did not result from mistake or inadvertence.’ Spohn, 296 Mich App at 480. Determining whether plaintiff’s omission resulted from mistake or inadvertence requires a reviewing court to analyze three factors: ‘whether . . . (1) [plaintiff] lacked knowledge of the factual basis of the undisclosed claims; (2) [plaintiff] had a motive for concealment; and (3) the evidence indicates an absence of bad faith.’ Id. at 480-481. Defendant concedes that at the time of initially filing her bankruptcy petition, plaintiff was unaware of any claim against defendant. However, plaintiff gained such knowledge once the accident happened, and plaintiff assuredly had such knowledge once she hired a lawyer to represent her against defendants. If, as plaintiff alleges, she sustained serious injuries as a result of the accident, her injuries would have alerted her to the possibility of a potential claim immediately following the accident. In sum, the trial court did not err in finding that plaintiff had knowledge of the factual basis of the undisclosed claim, and under her continuing duty to disclose, id. at 482, should have amended her bankruptcy filing to reflect that knowledge. Plaintiff’s claim that her failure to amend her filings was an inadvertent mistake is unsupported by the evidence.

The evidence also suggests that plaintiff had a motive for concealment. Michigan law presumes a motive to conceal ‘because ‘[i]t is always in a Chapter 13 petitioner’s interest to minimize income and assets’ in order to secure payment directly rather than to the debtor’s estate.’ Spohn, 296 Mich App at 485, quoting White, 617 F3d at 479. Plaintiff has presented no evidence to overcome this presumption.

For similar reasons, the evidence does not support a finding by the trial court of an absence of bad faith. ‘In determining whether there was an absence of bad faith, [the reviewing court] will look, in particular, at [plaintiff’s] ‘attempts’ to advise the bankruptcy court of [plaintiff’s] omitted claim.’ Spohn, 296 Mich App at 481. Here, plaintiff made no attempts to advise the bankruptcy court of her omitted claim. While it may not present ironclad proof of bad faith, this fact certainly does not clearly ‘indicate an absence of bad faith.’ Id. at 481-482. In sum, the three factors for determining whether plaintiff’s omission was the result of mistake or inadvertence suggest that plaintiff’s failure to amend her bankruptcy filing to reflect her potential negligence claim was not the result of mistake or inadvertence.”

The Court also rejected Vanzandt’s additional arguments on appeal: that judicial estoppel could not be invoked in the case because Peaks and Rock-Way were not involved in the bankruptcy proceeding; that her mistake was inadvertent and due to her inexperience with legal proceedings; that judicial estoppel required affirmative statements, not mere silence; and that the equities weighed against applying judicial estoppel because a dismissal would actually hurt her creditors and provide an undeserved windfall to the defendants.

First, plaintiff argues that if she is unable to succeed on the elements of judicial estoppel, equitable considerations suggest the application of judicial estoppel in this case is unwarranted because defendants were not involved in plaintiff’s bankruptcy proceeding. Plaintiff misreads Michigan law as this Court does not include equitable considerations as part of the doctrine of judicial estoppel. Spohn, 296 Mich App at 480-481. And, the fact that defendants were not part of plaintiff’s bankruptcy proceedings has nothing to do with the applicability of judicial estoppel given that ‘[t]he purpose of the doctrine of judicial estoppel, especially in the context of bankruptcy proceedings, is to protect the judicial process, not the parties,’ id. at 489. Accordingly, defendants’ lack of involvement in the bankruptcy proceedings is irrelevant.

Next, plaintiff states the reason for her failure to amend is unknown. Characterizing herself as a ‘litigation neophyte,’ and citing her medical recovery, plaintiff argues that her mistake was inadvertent. Plaintiff’s familiarity with the legal field, however, is irrelevant to whether she inadvertently failed to disclose her negligence claim to the bankruptcy court. Further, plaintiff provides no evidence from which the trial court could have gleaned plaintiff’s medical condition or recovery timeline.

Plaintiff also argues that judicial estoppel requires ‘inconsistent affirmative statements, not mere silence.’ Plaintiff’ argument is contrary to law. ‘Under common law, a false representation can be established by an omission when there is a duty to disclose.’ In re Eashai, 87 F3d 1082, 1089 (CA 9, 1996).

. . .

Ultimately, plaintiff’s ‘windfall’ argument cannot not be sustained for two reasons. First, the application of judicial estoppel is contingent, in part, on a demonstration of a plaintiff’s deliberate intention to mislead by having failed to disclose her potential civil cause of action in the bankruptcy proceeding, as demonstrated here. Slater, 871 F3d at 1185-1186. With the dismissal of the bankruptcy proceeding, there is no assurance that any of plaintiff’s alleged creditors would obtain a benefit if the civil negligence action proceeded, since the control of the bankruptcy trustee is not currently available to secure and distribute any monetary benefit obtained by plaintiff from the civil litigation. Second, the bankruptcy action was in Chapter 13, and for judicial estoppel purposes, serves to affirm that the bankruptcy court ‘adopted the contrary position,’ Spohn, 296 Mich App 480-481, because the amount plaintiff’s creditors would receive was premised on the adoption of the bankruptcy plan using plaintiff’s ‘expected future earnings,’ Slater, 871 F3d at 1188, which was without the benefit of inclusion or consideration of plaintiff’s potential for recovery in the civil litigation.”


Lansing car accident lawyer Stephen Sinas is the lead editor of the appellate case summaries published on this site regarding the Michigan auto insurance law. To learn more about how Stephen Sinas and how the Sinas Dramis Law Firm can help you if you have been injured in a Michigan auto accident, visit SinasDramis.com.

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