United States Ex Rel. Long v. GSDMIdea City, L.L.C.
798 F.3d 265
| 5th Cir. | 2015Background
- Relator Johnny Ray Long filed a qui tam False Claims Act (FCA) suit (June 2011) against his employer GSD&M alleging fraudulent profit/overhead figures in USAF contracts.
- At filing, Long was a Chapter 13 debtor under a confirmed January 2009 plan requiring $60,000 in unsecured principal repayment over five years with no interest; the plan stated estate property would remain property of the estate.
- Long did not disclose the FCA claim to the bankruptcy court, trustee, or creditors while the bankruptcy remained pending and through its closure in October 2013; trustee later reported $4,504.91 of unsecured claims discharged.
- The district court dismissed most claims on Rule 12(b)(6)/9(b) grounds, permitted remaining fraudulent-inducement claims to proceed, and denied leave for a third amendment; cross-motions on that claim were denied in part.
- GSD&M moved to dismiss based on judicial estoppel after discovering Long’s nondisclosure; the district court found (1) Long knew of the claims, (2) had a financial motive to conceal (no-interest, 60-month term, and discharged claims), and (3) dismissed Long’s personal pursuit of the FCA claims but gave the trustee 7 days to decide whether to pursue them (trustee declined).
- Long argued inadvertence (advice that disclosure unnecessary because plan was a 100% principal repayment plan) and procedural errors; the Fifth Circuit affirmed, reviewing the equitable invocation of judicial estoppel for abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether judicial estoppel bars Long’s FCA suit because he failed to disclose the claim in bankruptcy | Long: nondisclosure was inadvertent; advised disclosure unnecessary given 100% repayment plan; no motive to conceal | GSD&M: Long knew of the claim and had motive (save interest, longer repayment, discharge) to conceal; estoppel prevents inconsistent positions | Affirmed: judicial estoppel applies; Long knew of claims and had financial motive to conceal; dismissal not abuse of discretion |
| Whether Long lacked knowledge of facts giving rise to the claim (inadvertence for lack of knowledge) | Long: qui tam nature makes it less realistic to expect relator to recognize governmental interest; argued lack of knowledge at confirmation | GSD&M: filing of FCA complaint shows knowledge while bankruptcy pending | Held: Long had sufficient knowledge (complaint filed mid-plan); lack of knowledge not shown |
| Whether Long had no motive to conceal because plan required 100% principal repayment | Long: 100% repayment meant creditors would still be paid; no benefit from nondisclosure | GSD&M: plan’s favorable terms (no interest, 60 months, discharged amounts) created financial motive to conceal | Held: motive exists—interest-free, extended term, and potential discharge supported inference of motive |
| Procedural: whether district court erred by deciding estoppel on motions to dismiss / timing / trustee notice | Long: estoppel is factual and should have gone to trial or summary judgment; motion to dismiss untimely; trustee needed more time | GSD&M: estoppel defense appears on face of pleadings and public bankruptcy records; 12(c)/(b)(6) appropriate; filing timing/discretion acceptable | Held: district court did not err—may consider judicially noticeable bankruptcy records on 12(b)(6)/12(c); granting limited time to trustee was not abuse of discretion |
Key Cases Cited
- New Hampshire v. Maine, 532 U.S. 742 (doctrine of judicial estoppel protects judicial process; no inflexible prerequisites)
- Reed v. City of Arlington, 650 F.3d 571 (en banc) (three-factor framework for judicial estoppel; discretionary application)
- Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197 (inadvertence exists only when debtor lacks knowledge or motive; duty to disclose contingent claims)
- Jethroe v. Omnova Solutions, Inc., 412 F.3d 598 (judicial estoppel appropriate where debtor fails to disclose asset then pursues claim)
- Love v. Tyson Foods, Inc., 677 F.3d 258 (knowledge/inadvertence standard; question of fact reviewed for clear error)
- In re Superior Crewboats, Inc., 374 F.3d 330 (judicial estoppel can support dismissal at motion-to-dismiss stage)
- Flugence v. Axis Surplus Ins. Co. (In re Flugence), 738 F.3d 126 (Chapter 13 debtors’ continuing obligation to disclose post-petition causes of action)