Clark v. AII Acquisition, LLC, 886 F.3d 261

In 2010 John and Michele Clark entered a Chapter 13 plan to repay creditors over five years; monthly deductions from Mr. Clark’s Boeing paycheck continued through July 2015.
Weeks before the final payment, John Clark was diagnosed with mesothelioma and informed his bankruptcy counsel, who did not update the bankruptcy court or schedules.
The Clarks filed a personal injury suit against Boeing and others on July 29, 2016; one week later the bankruptcy court entered final discharge (all creditors had been paid in full under the Plan).
Boeing moved to dismiss in federal court based on judicial estoppel, arguing the Clarks’ failure to disclose the claim in bankruptcy bars the suit; the district court granted dismissal with prejudice.
On appeal the Second Circuit vacated the dismissal and remanded, holding judicial estoppel is reviewed for abuse of discretion and that equitable factors weighed against estoppel here because nondisclosure had only a de minimis effect.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standard of review for invoking judicial estoppel	District-court deference is appropriate	De novo review required (per dicta in Uzdavines)	Abuse of discretion is the proper standard
Whether failure to list claim in bankruptcy satisfies elements of judicial estoppel	Failure to disclose was not done to gain unfair advantage; trustee says disclosure would not have changed outcome	Nondisclosure is an inconsistent position adopted by the bankruptcy court via discharge, so estoppel applies	Inconsistent position and adoption existed, but those elements alone are insufficient; must consider equitable balance
Whether nondisclosure caused unfair advantage/prejudice to creditors or defendants	Disclosure would have been de minimis; Plan already paid creditors in full so no prejudice	Sanctity of the oath and judicial integrity justify estoppel even if effect was minimal	No unfair advantage shown; trustee affidavit and facts indicate nondisclosure would not have altered bankruptcy outcome, so equity disfavors estoppel
Whether dismissal with prejudice was an appropriate sanction	Equitable relief should allow the claim to proceed where nondisclosure was not manipulative and effect was negligible	Judicial estoppel necessary to deter nondisclosure and protect bankruptcy process	Dismissal was an abuse of discretion; case vacated and remanded for further proceedings

Uzdavines v. Weeks Marine, Inc., 418 F.3d 138 (2d Cir. 2005) (discussed prior treatment of judicial estoppel and review standard)
Rodal v. Anesthesia Grp. of Onondaga, P.C., 369 F.3d 113 (2d Cir. 2004) (definition of judicial estoppel as barring inconsistent positions)
New Hampshire v. Maine, 532 U.S. 742 (2001) (equitable balancing required before applying judicial estoppel)
BPP Ill., LLC v. Royal Bank of Scotland Group, LLC, 859 F.3d 188 (2d Cir. 2017) (discussed unfair-advantage inquiry and application of judicial estoppel)
Adelphia Recovery Trust v. Goldman, Sachs & Co., 748 F.3d 110 (2d Cir. 2014) (noting exceptions where prejudice need not be shown)
Holmberg v. Armbrecht, 327 U.S. 392 (1946) (equity rejects mechanical rules)
Alternative System Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23 (1st Cir. 2004) (noting judicial estoppel’s amorphous, equitable nature)