Martineau v. Wier

934 F.3d 385

Paige MARTINEAU, Plaintiff - Appellant,

v.Joel WIER; Diane Wier; Richard Guest, Defendants - Appellees.

No. 18-2294

United States Court of Appeals, Fourth Circuit.

Argued: May 8, 2019

Decided: August 12, 2019

ARGUED: Matthew James Greer, WILLIAMS & CONNOLLY, LLP, Washington, D.C., for Appellant. Bess J. DuRant, SOWELL & DURANT, LLC, Columbia, South Carolina, for Appellees. ON BRIEF: Thornwell F. Sowell, SOWELL & DURANT, LLC, Columbia, South Carolina, for Appellees.

Before NIEMEYER and HARRIS, Circuit Judges, and Ellen L. HOLLANDER, United States District Judge for the District of Maryland, sitting by designation.

Vacated and remanded by published opinion. Judge Harris wrote the opinion, in which Judge Niemeyer and Judge Hollander joined.

PAMELA HARRIS, Circuit Judge:

Years after entering into a settlement that released certain tort claims, Paige Martineau filed for Chapter 7 bankruptcy. After her debts were discharged and the bankruptcy proceedings closed, Martineau brought this case in federal district court, seeking to rescind her settlement agreement as fraudulently induced and to pursue a tort action.

The district court rejected that effort and entered judgment in favor of the defendants. First, the district court held, Martineau lacked standing because her tort claims were the property of her bankruptcy estate when she filed this action. And in any event, the court found, judicial estoppel precluded Martineau’s suit: Because Martineau had not disclosed her future legal claims when she filed for bankruptcy, the court reasoned, she had effectively disavowed them, and could not now take a contrary position.

We come to a different conclusion. The district court’s "standing" determination conflates Article III requirements with the distinct real-party-in-interest analysis; when the two are untangled, it becomes clear that Martineau has both Article III standing and the legal entitlement to pursue these tort claims on her own behalf. With respect to judicial estoppel, the district court relied on an improper presumption of bad faith, short-circuiting the necessary inquiry. Accordingly, we remand so that the district court may evaluate the appropriateness of judicial estoppel in light of all facts and circumstances without recourse to a presumption of bad faith.

I.

A.

Martineau’s underlying tort claims stem from a grisly attack on her by defendant Richard Guest on October 13, 2009. Martineau encountered Guest outside of Guest’s apartment, while visiting her boyfriend in the same building. According to the police report, Guest stabbed Martineau repeatedly with an eight-to-ten-inch kitchen knife in an unprovoked assault. The police arrested Guest, who was charged with assault and battery with intent to kill and kidnapping. Guest was found incompetent to stand trial, however, and civilly committed to a mental health facility.

In the years that followed, Martineau retained counsel to investigate potential claims against Guest and co-defendants Diane and Joel Wier, Guest’s sister and brother-in-law and the owners of the apartment building in question. According to Martineau, the Wiers assured her that the only relationship they had with Guest was as landlords, and that they had no reason to know of his severe mental illness or potential dangerousness. Relying on those representations, Martineau alleges, she concluded that the Wiers could not be held liable for negligence in connection with Guest’s attack on her. As a result, Martineau, still represented by counsel, agreed in October of 2012 to release all claims against the Wiers and Guest in exchange for $20,000 – a sum that she contends represents only a fraction of her damages.

Roughly a year later, in December of 2013, prosecutors in Guest’s criminal case gave Martineau access to Guest’s criminal file for the first time. It was at that point, Martineau alleges, that she learned that the Wiers in fact had ample knowledge of Guest’s long history of mental illness and propensity for violence. According to Martineau, Diane had attempted to have Guest involuntarily committed years earlier; she was the trustee of a long-standing mental health trust established because Guest was incompetent to manage funds; and the Wiers had discovered poems by Guest describing bloody stabbings. Despite these revelations, Martineau took no legal action, believing that her settlement agreement barred her from proceeding against the Wiers or Guest.

B.

In June of 2015, eighteen months after reviewing Guest’s criminal file, Martineau, now proceeding without counsel, filed for Chapter 7 bankruptcy. When a debtor files for Chapter 7 bankruptcy, her assets immediately are transferred to the bankruptcy estate. See 11 U.S.C. § 541(a). A Chapter 7 bankruptcy trustee liquidates that property and distributes the proceeds to the debtor’s creditors. Id. §§ 704(a)(1), 726. The estate does not include, however, wages earned or assets acquired after the debtor files for bankruptcy. See id. § 541(a)(1). A Chapter 7 debtor thus gains a "clean break" from her financial struggles, "but at a steep price: prompt liquidation of the debtor’s assets." Harris v. Viegelahn , ––– U.S. ––––, 135 S. Ct. 1829, 1835, 191 L.Ed.2d 783 (2015).

To facilitate this process, a Chapter 7 debtor must disclose to the bankruptcy court those assets which now belong to the estate, 11 U.S.C. § 521(a), including "all legal [and] equitable interests of the debtor," id . § 541(a). Courts "uniformly" interpret this statutory language to include causes of action. In re Bogdan , 414 F.3d 507, 512 (4th Cir. 2005) (internal quotation marks omitted). And indeed, Martineau’s disclosures listed a pending suit she had against her then-landlord. Those disclosures did not, however, mention any potential future claims against Guest and the Wiers.

The bankruptcy court appointed a trustee to oversee the distribution of assets within Martineau’s estate. In carrying out that responsibility, a trustee need not pursue all claims, and instead may "abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate." 11 U.S.C. § 554(a). That includes legal claims deemed to be "worthless or low value." Biesek v. Soo Line R. Co. , 440 F.3d 410, 413 (7th Cir. 2006). Here, the trustee abandoned any interest in Martineau’s assets, including her lawsuit against her landlord. In October of 2015, the bankruptcy court discharged Martineau’s debt and closed her case.

C.

1.

Martineau filed this suit in federal district court in July of 2016, almost a year after her bankruptcy proceedings concluded. In her complaint, Martineau sought to rescind her 2009 settlement agreement as fraudulently induced. She also asserted a series of tort-based claims against Guest and the Wiers, arising from Guest’s assault on her and the Wiers’ alleged negligence in allowing Guest to live unsupervised in their apartment complex.

The defendants moved to dismiss Martineau’s case on numerous grounds. As relevant here, they contended that Martineau lacked "standing" to pursue the tort claims against them because those claims belonged to her bankruptcy estate and could be asserted only by the bankruptcy trustee. In response, Martineau petitioned the bankruptcy court to reopen her proceedings and filed amended bankruptcy schedules that listed her claims against Guest and the Wiers. The bankruptcy court granted Martineau’s motion and appointed a trustee to administer the newly disclosed claims. In February of 2017, that trustee abandoned any interest in Martineau’s legal claims. The bankruptcy court closed Martineau’s case for the second time without taking further action.

While Martineau was before the bankruptcy court, the defendants raised an additional defense related to the bankruptcy proceedings: Because Martineau had failed to disclose her tort claims against them in her initial bankruptcy filings, the defendants argued, judicial estoppel barred her from asserting them now. Judicial estoppel, the defendants explained, is an equitable principle that precludes a party from taking inconsistent positions in judicial proceedings. Martineau’s original filings amounted to a declaration that she had no claims against them, the defendants contended, and that position necessarily was inconsistent with the pursuit of her claims in this action.

2.

The magistrate judge assigned to the case converted the defendants’ motion to dismiss into a motion for summary judgment, and recommended finding for the defendants on both standing and judicial estoppel grounds.

On standing, the magistrate judge agreed with the defendants that Martineau’s claims against them became the property of the estate when Martineau filed for bankruptcy, giving the bankruptcy trustee "exclusive standing" to pursue them. J.A. 241. The magistrate judge acknowledged that Martineau regained the right to pursue her claims on her own behalf when the second bankruptcy trustee abandoned them in February of 2017.¹ But that did not matter, the magistrate judge reasoned, because "standing is measured at the time the complaint is filed" – here, in July of 2016, when Martineau filed this action and before the claims were abandoned. J.A. 243.

The magistrate judge also agreed with the defendants that the doctrine of judicial estoppel independently precluded Martineau’s suit. Judicial estoppel, the magistrate judge explained, "prevent[s] litigants from taking contrary positions in court filings" and thus "protect[s] the essential integrity of the judicial process." J.A. 242 (internal quotation marks omitted). The magistrate judge recognized that judicial estoppel does not apply when inconsistent positions are the result of inadvertence or a "good faith mistake." J.A. 243. And Martineau was arguing just that: According to Martineau, she inadvertently omitted her as-yet-unfiled legal claims against the defendants from her June 2015 bankruptcy disclosures because she believed at the time that...