In Re Kane
OPINION OF THE COURT
Thomas Kane appeals the judgment of the District Court affirming the Bankruptcy Court’s decision not to apply judicial estoppel to the entirety of a proof of claim filed by his estranged wife in his bankruptcy proceeding, and its conclusion that Ms. Kane has standing to pursue equitable distribution as a post-petition claim in that proceeding. We will affirm.
I. Background
Shannon and Thomas Kane were married in August of 2004. Two years later, Ms. Kane filed for divorce in Mercer County, New Jersey, and moved to New York. In September of 2007, she presented her husband with a written settlement proposal requesting, inter alia, equitable distribution, and informing him that she intended to file for bankruptcy. On September 20, 2007, she filed a Chapter 7 petition in the Eastern District of New York. Her filing disclosed her estrangement from Mr. Kane, and the pending divorce litigation:
1. Schedule A of her petition included details about the couple’s house and specified that “Debtor and her husband are separated”;
2. Schedule F of her petition listed Mr. Kane as an unsecured creditor, specifying “[p]ossible obligations arising out of matrimonial proceeding” with a stated amount of claim listed as “unknown”;
3. Ms. Kane’s “Statement of Financial Affairs” listed the couple’s divоrce proceeding by docket number, and indicated its status as “Pending.”
App. at Allí, A120, A128.
On November 8, 2007, the Trustee in Ms. Kane’s bankruptcy proceeding reviewed her petition at a 341 Meeting,
see
On April 8, 2008, Mr. Kane filed a Chapter 13 bankruptcy petition in the District of New Jersеy, and his wife filed a proof of claim in the amount of $398,950.39. The Bankruptcy Court in New Jersey held a hearing on Mr. Kane’s motion to expunge Ms. Kane’s claim with prejudice because it was premised on claims that she failed to include in her own bankruptcy petition. The Court expunged her proof of claim without prejudice to her right to refile it. The Court concluded that such refiling would constitute a post-petition claim in Mr. Kane’s bankruptcy action. And, the Court indicated that such a claim is dependent on the Mercer County Family Court entering an equitable distribution award in her favor, with that court responsible for determining its parameters. However, the Court ruled that Ms. Kane was judicially estopped from filing “claims for loans to debtor’s sisters, debtor’s premarital car loan, wedding expenses and lost social security benefits ... to the extent that the matrimonial court determines such claims do not fall within the ambit of equitable distribution ... as a result of her failure to disclose such claims in her bankruptcy proceeding.”
Id.
at A36. The Court then vacated the automatic stay imposed under
The Bankruptcy Court’s decision relied on two conclusions, affirmed by the District Court, that are the crux of Mr. Kane’s arguments on appeal. First, the Court concluded that, pursuant to Section 541(a)(5) of the Bankruptcy Code, entitlement to equitable distribution “is not an asset of [a bankruptcy] estate[,]” and therefore Ms. Kane had “no obligation to list the equitable distribution right as an asset in her [petition’s] Schedule B[.]”
Id.
at A33. The Court thus distinguished Ms. Kane’s
pursuit
of equitable distribution in state court litigation, from
entitlement
to equitable distribution arising from an award entered on her behalf within 180 days of a bankruptcy filing, concluding that only the latter becomes property of a bankruptcy estate pursuant to
Second, the Bankruptcy Court concluded that becаuse Ms. Kane’s equitable distribution claim was sufficiently before the Bankruptcy Court in New York, via her 341 Meeting, she was not estopped from pursuing it in her husband’s proceeding. The Court noted that the transcript from Ms. Kane’s 341 Meeting addressed equitable distribution and her divorce litigation, which she had “reference[d] ... in [her] statement of financial affairs,” and concluded that “no one can suggest to this Court that the Chapter 7 trustee was not aware of the right for an equitable distri
Mr. Kane appealed the Bankruptcy Court’s order to the District Court, and Ms. Kane cross-appealed. The District Court affirmed the Bankruptcy Court in all respects, and Mr. Kane now appeals.
II. Jurisdiction and Standard of Review
The District Court’s jurisdiction to consider an appeal from a final order of the Bankruptcy Court arises under
We employ “the same standard of review [that] the District Court employed in reviewing the Bankruptcy Court’s decision. We review factual findings for clear error, and we exercise plenary review over any legal conclusions.”
Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. Gen. Motors Corp.,
III. Discussion
A. Introduction
The Bankruptcy Code requires that a debtor file necessary declarations adequately, honestly, аnd in good faith.
See, e.g.,
In
Ryan Operations G.P. v. Santiam-Midwest Lumber Co.,
we set forth the Code’s disclosure requirements, and sought to place a party’s “alleged prior inconsistent statement in context.”
The Code imposes on debtors an affirmative duty of full disclosure.Section 521 requires the debtor to file with the court “a schedule of assets and liabilities ... and a statement of the debtor’s financial affairs.” The schedule must disclose, inter alia, “cоntingent and unliquidated claims of every nature” and provide an estimated value for each one.
These disclosure requirements are crucial to the effective functioning of the federal bankruptcy system. Because creditors and the bankruptcy court rely heavily on the debtor’s disclosure statement in determining whether to approve a proposed reorganization plan, the importance of full and honest disclosure cannot be overstated.
Id. (internal citations omitted).
As indicated above, a debtor’s disclosure obligation extends to “contingent assets” such as causes of aсtion pursued against another party,
Krystal Cadillac,
The Bankruptсy Code defines the property of a bankruptcy estate as including,
inter alia,
(1) “all legal or equitable interests of the debtor in property as of the commencement of the case,”
(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(c) Unless the court orders otherwise, any property scheduled undersection 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.
(d) Unless the court orders otherwise, property of the estate that is not abandoned under this sеction and that is not administered in the case remains property of the estate.
In light of the foregoing, we have emphasized that
Mr. Kane correctly cites various of these obligations that the Bankruptcy Code and case law impose on debtors. However, his arguments that the District Court erred— (1) by refusing to apply judicial estoppel to the entirety of Ms. Kane’s proof of claim, and (2) by сoncluding that she has standing to pursue equitable distribution — fail because he elides two other considerations that necessarily govern our decision. First, courts have discretion in applying the fact-specific, equitable remedy of judicial estoppel. Second, jurisdictional considerations caution us against, if not prevent us from, essentially second-guessing the basis for a discharge in bankruptcy by a court not subject to our review.
Underlying Mr. Kane’s appeal is his fundamental contention that Ms. Kane’s Chapter 7 proceeding worked a fraud upon the three courts that have сonsidered this matter and her creditors. That contention belonged, in the first instance, before the court responsible for overseeing her peti
B. Judicial Estoppel
Judicial estoppel is a fact-specific, еquitable doctrine, applied at courts’ discretion. Mr. Kane insufficiently accounts for this, and for the corollary that a given set of circumstances does not, as he suggests, necessarily compel its application. Accordingly, his judicial estoppel argument fails.
We summarized the doctrine of judicial estoppel, and applied it in a bankruptcy case, in Krystal Cadillac. Our summary bears quoting at some length:
We first articulated the doctrine of judicial estoppel in Scarano v. Central R. Co. of N.J., [203 F.2d 510 (3rd Cir. 1953) ]. There, we ... recognized the intrinsic ability of courts to dismiss an offending litigant’s complaint without considering the merits of the underlying claims when such dismissal is necessary to prevent a litigant from playing fast and loose with the courts.
Since Scarano, wе have consistently stated that the doctrine should only be applied to avoid a miscarriage of justice.
Thus, in Ryan Operations G.P. v. Santiam-Midwest Lumber Co., we stated! that t]he basic principle of judicial estoppel ... is that absent any good explanation, a party should not be allowed to gain an advantage by litigation on one theory, and then seek an inconsistent advantage by pursuing an incompatible theory.
Judicial estoppel is therefore not intended to eliminate all inconsistencies no matter how slight or inadvertent they may be. In Montrose Medical Group [Participating Savings Plan v. Bulger ], we identified cеrtain criteria for determining when seemingly inconsistent litigation stances justify application of the doctrine. We concluded:
First, the party to be estopped must have taken two positions that are irreconcilably inconsistent. Second, judicial estoppel is unwarranted unless the party changed his or her position in bad faith — i.e., with intent to play fast and loose with the court. Finally, a district court may not employ judicial estoppel unless it is tailored to address the harm identified and no lesser sanction would adequately remedy the damage done by the litigant’s misconduct.
We also noted that equity requires that the presiding court give the party to be estopped a meaningful opportunity to provide an explanation for its changed position.
More generally, and citing various circuit court decisions, including our own in
Scarano,
the Supreme Court has described judicial estoppel as imposing not “inflexible prerequisites^]” but rather as encompassing “[additional considerations [that] may inform the doctrine’s application in specific factual contexts.”
New Hampshire v. Maine,
The crux of Mr. Kane’s judicial estoppel argument is that his wife’s averments and omissions in her bankruptcy proceeding were inconsistent with (if not concealed) terms of a settlement proposal in the couple’s divorce proceeding, and/or claims to equitable distribution that she began litigating against Mr. Kane approximately one year prior to the filing of her Chapter 7 petition. These alleged misrepresentations and omissions, the argument goes, underlie her proof of claim filed in his bankruptcy prоceeding.
However, irreconcilable inconsistency is but the first of three prongs in a judicial estoppel analysis, and all three must be satisfied before a court opts to apply the doctrine. In
Ryan,
it was “undisputed” that the debtor had violated disclosure duties, but we declined to apply estoppel because the bad faith prong had not been satisfied.
To be sure, there would be no issue here if Ms. Kane’s Chapter 7 petition had included the specific amount that she sought in equitable distribution, rather than referencing her divorce litigation in various sections of the petition, and presumably relying on the extensive discussion of her claims at her 341 Meeting to fill in any gaps. Hоwever, her disclosures must be placed “in context.”
See Ryan,
Accordingly, for purposes of the fact-specific doctrine of judicial estoppel, we have no reason to conclude that the District Court erred in finding that Ms. Kane’s proof of claim in her husband’s bankruptcy proceeding was not irreconcilably inconsistent with her disclosures in her bankruptcy рroceeding, or a bad faith change in position manifesting an intent to play fast and loose with the courts. 4 That the Bankruptcy Court applied estoppel to claims that she had not referenced on her petition in any manner at all, reinforces this conclusion. 5
C. Standing
Mr. Kane next argues that the District Court erred when it reasoned that because equitable distribution was not part of his wife’s bankruptcy estate, she has standing to pursue it as a basis of her proof of claim in his bankruptcy. Although we affirm the Court’s conclusion, we do so for a somewhat different reason: Ms. Kane’s equitable distributiоn claim was abandoned to her when the Bankruptcy Court in New York granted a discharge, and it is not for us to review that court’s decision.
Here the threshold questions are (1) whether Ms. Kane’s equitable distribution claim was a “legal or equitable interest” pursuant to
“Analysis under
New Jersey law provides that, “in all actions where a judgment of divоrce ... is entered the court may make such award or awards to the parties ... to effectuate an equitable distribution of [marital] property[.]” NJ.S.A. 2A:34-23(h). Accordingly, “the New Jersey Supreme Court has held that ‘[b]y the plain terms of the statute,’ the right to equitable distribution of marital property arises upon entry of the judgment of divorce.”
Berlingeri,
The upshot of this definition is that when Ms. Kane filed for bankruptcy, she had an interest in an equitable distribution of marital property — namely, by virtue of being married to Mr. Kane, and by virtue of having initiated a divorce action in which she was seeking equitable distribution — but she did not have a right to it. Her claim quаlified as a contingent, equitable interest in (marital) property that could not ripen into a vested property interest — i.e., a tangible asset — until entry of a judgment of divorce. 7 The District Court blurred this distinction, assuming that only the latter interest is at issue in the instant case, accordingly (and erroneously) concluding that Ms. Kane had no duty to disclose her equitable distribution claim because no divorce judgment had been entered.
Returning to
Mr. Kane correctly notes that courts have held that where a debtor conceals an asset or fails to schedule it, the asset remains the property of the bankruptcy estate and, accordingly, the debtor can be found to lack standing to pursue its further disposition.
See, e.g., Vreugdenhill v. Navistar Int’l Transp. Corp.,
In
Hutchins,
the debtor instituted an antitrust suit and amended his bankruptcy petition to reflect the cause of action. After his discharge in bankruptcy, a dispute arose over an IRS tax refund discrepancy. The IRS argued that because Hutchins had not scheduled the refund in his bankruptcy petition, it was never abandoned to him but rather remained part of the bankruptcy estate, and Hutchins accordingly did not have standing to pursue it. We rejected that argument, concluding rather that Hutchins had standing to pursue the claim because the refund “existed during the bankruptcy as an integral part of the antitrust claim — or if separately as a still inchoate right — [such that] the tax claim was properly scheduled through the scheduling of the antitrust action and descended to Hutchins through abandonment.”
Hutchins,
Hutchins obviously did not address the situation before us — a disclosed divorce action/unscheduled equitable distribution claim — but it helps us to resolve it. Distinguishing Hutchins from a “standard case” where a debtor does not schedule a tax refund to which he is legally entitled (and, thus, possesses a vested asset), we ascribed the nebulous character of Hutch-ins’s putatively unscheduled asset — the tax refund — to “the result of action by the bankruptcy trustee[,]” who was responsible for filing the tax return (i.e., of the estate) from which the refund stemmed. Id. at 43. Thus, we observed,
at the time of the bankruptcy, the crucial asset ... was the antitrust settlement. During the bankruptcy, no “tax refund” asset existed. It was at best an inchoate right. Creating the legal fiction that this asset arose at the time of [an] erroneous filing [by the trustee] and existed independently, albeit covertly, would require every debtor to list as an additional asset a potential tax refund due to the possibly erroneous filings of the trustee. Alternatively, the debtor would have to supervise and double check the actions of the trustee, contrary to the intention of11 U.S.C. § 704 , which makes the bankruptcy trustee accountable for all property received. See In re R.E. Lee & Sons, Inc.,95 B.R. 316 (Bankr.M.D.Pa.1989) (limiting debtor’s burden to reasonable diligence in completing schedules). There seems little to recommend either course as an innovation in bankruptcy procedure.
Hutchins,
The facts of
Hutchins
do not map precisely onto those here, but its logic does. “At the time of [Ms. Kane’s] bankruptcy, the crucial asset” was not a vested right to marital property — е.g., in the form of a property settlement that pegged the value of assets that would come to her upon entry of a judgment of divorce — but rather was her (contingent) claim to equitable distribution, on the assumption that the marriage
in fact will end
in a judgment of divorce.
See id.
“[N]o ‘[equitable distribution]’ asset existed” as a freestanding property right; rather “[i]t was at best an inchoate right.”
See id.
8
And the Trus
The discharge in bankruptcy granted Ms. Kane by the Bankruptcy Court in New York is not subject to our appellate review. However, the record before us permits the conclusion that the Trustee abandoned Ms. Kane’s equitable distribution interest to her, either having determined its relative “value and benefit” to the estate, or having considered it scheduled and not otherwise administering it prior to discharge.
See
IV. Conclusion
Having found that judicial estoppel is unwarranted in light of the totality of facts relevant to Ms. Kane’s disclosures in bankruptcy, and that application of Hutchins to those same facts yields the conclusion that her equitable distribution claim was abandoned to her upon discharge and that, accordingly, she has standing to pursue equitable distribution according to the terms set forth in the Bankruptcy Court’s order, we will affirm the judgment of the District Court. 9
Notes
. Among the various matters that Mr. Kane alleges that Ms. Kane failed to disclose, or misrepresented, are the following:
1. She "falsely responded” that “the value of any 'alimony, maintenance, support, and property settlements' in which she 'is or may be entitled ... ’" was " '0.00.’ ” Appellant’s Reply Br. at 3 (citing Schedule B, Question 17 of the Chapter 7 petition, asking for "current value of debtor's interest in property without deducting any secured claim or exemption”).
2. At Ms. Kane’s 341 Meeting, "[w]ithout any further elaboration, she falsely responded[ ] 'No' ” to the question whether she had " 'any lawsuits, insurance claims pending where you may collect some money?’ ” Id.
3. Ms. Kane's amended bankruptcy petition “once again falsely” set forth the error alleged in number one, above. Id.
. Given the faсts that he alleges, one would assume that Mr. Kane would have formally objected to the Bankruptcy Court's granting of a discharge in Ms. Kane’s proceeding, as he was permitted to do pursuant to
. While judicial estoppel is fact-specific, its application is not tribunal-specific.
See, e.g., Oneida Motor Freight, Inc. v. United Jersey Bank,
. There is no evidence that Ms. Kane effectively “limited the reference to ... [her equitable distribution] claim
in order to conceal
the claim[] from creditors in the hope of retaining any recovery for [her]self.”
See Krystal Cadillac,
. Mr. Kane also argues that the District Court erred in holding that the informal disclosure of Ms. Kane's divorce claims to the Trustee "cured [her] omissions and misrepresentations ... and defeated judicial estoppel.” Appellant’s Br. at 28. While we take a somewhat different route in reaсhing the District Court’s ultimate conclusion as to judicial estoppel, we note that the Court carefully stated that it was not holding that informal disclosure is sufficient. Nor, we note, do we.
. We recently have redefined “claim” most liberally for purposes of bankruptcy law, overruling a decision on which the District Court partially relied.
See In re Grossman's, 607
F.3d 114, 121 (3d Cir.2010),
overruling Avellino & Bienes v. M. Frenville Co.,
. Herein lies the distinction between
. The fact that no property settlement had been stipulated to, and thus no
settlement
was part of Ms. Kane’s bankruptcy estate, distinguishes this case from
Reid v. Reid,
We also note that in concurrent bankruptcy and divorce cases, courts have described spouses’ interests in marital property subject to equitable distribution as "inchoate” because these
interests
do not become property
rights
— i.e., do not vest — until entry of a judgment of divorce.
See, e.g., DiGeronimo,
. We reject Mr. Kane’s remaining arguments without further discussion.