Red Lobster Rest. v. Fricke

234 N.E.3d 159

RED LOBSTER RESTAURANTS LLC,¹ Appellant/Defendant,

v.Abigail FRICKE, Appellee/Plaintiff.

Supreme Court Case No. 23S-CT-304

Supreme Court of Indiana.

Argued: December 14, 2023

Filed May 21, 2024

Appeal from the Marion County Superior Court, No. 49D02-2008-CT-29481, The Honorable Timothy Oakes, Judge

ATTORNEYS FOR APPELLANT RED LOBSTER RESTAURANTS, LLC: Katherine M. Haire, Nicholas G. Brunette, Reminger Co., L.P.A., Indianapolis, Indiana

ATTORNEY FOR APPELLANT PROGRESSIVE FLOORING SERVICES, INC.: Richard W. McMinn, Nationwide Trial Division, Carmel, Indiana

ATTORNEYS FOR APPELLANT DWAYNE FEATHEROFF: John H. Brooke, Andrew Barchet, Brooke & Struble P.C., Muncie, Indiana

ATTORNEYS FOR APPELLEE ABIGAIL FRICKE: David W. Stone, Stone Law Office & Legal Research, Anderson, Indiana, Bradford J. Smith, Ken Nunn Law Office, Bloomington, Indiana

On Petition to Transfer from the Indiana Court of Appeals, No. 22A-CT-2221

Molter, Justice.

Abigail Fricke filed a Chapter 13 bankruptcy petition in the United States Bankruptcy Court. As part of that process, federal bankruptcy law required her to disclose all her assets, including any lawsuits, and to update that disclosure with any assets she acquired later. Roughly three years later, Fricke filed this lawsuit alleging she was injured when Red Lobster’s negligence caused her to trip and fall in its restaurant. But she didn’t update her bankruptcy asset schedule until after Red Lobster moved for summary judgment based on standing and judicial estoppel.

The trial court denied Red Lobster’s summary judgment motion, and the Court of Appeals affirmed, deepening a divide between panels over two questions. First, does a plaintiff-debtor’s omission of a lawsuit from their bankruptcy asset schedule deprive them of standing to pursue that lawsuit? Second, does their representation to the federal bankruptcy court that they don’t have any potential or pending legal claims judicially estop them from pursuing a claim in our state courts?

[1, 2] In Hammes v. Brumley, 659 N.E.2d 1021 (Ind. 1995), our Court established two bright line rules for Chapter 7 bankruptcies that we now extend to Chapter 13 bankruptcies. First, a plaintiff-debtor’s omission of a lawsuit from their bankruptcy asset schedule does not deprive them of standing to pursue that lawsuit, although the omission may mean they are not the real party in interest. Second, judicial estoppel does not bar the claim if the bankruptcy court permits the plaintiffdebtor to cure their omission by amending their asset schedule.

Those two rules don’t resolve every aspect of the split in Court of Appeals authority, but they compel us to affirm the trial court’s order here. As in Hammes, Fricke’s initial omission did not deprive her of standing. And she cured that omission by amending her asset schedule to disclose this lawsuit, so judicial estoppel does not bar her claim either.

Facts and Procedural History

I. Federal Bankruptcy Proceedings

[3] The United States Bankruptcy Code offers overwhelmed debtors several paths to a "fresh start" by repaying some of their debts and discharging the rest. Harris v. Viegelahn, 575 U.S. 510, 513, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015) (quotations omitted). Chapter 7 and Chapter 13 bankruptcy proceedings are the paths individuals usually travel.

[4] "Chapter 7 allows a debtor to make a clean break from his financial past, but at a steep price: prompt liquidation of the debtor’s assets." Id. When a debtor files a Chapter 7 bankruptcy petition, they must disclose all their assets, which (with some exceptions) they surrender to the bankruptcy trustee to comprise the bankruptcy estate. 11 U.S.C. § 521(a)(1)(B)(i), (a)(4). The trustee then sells that property and uses the proceeds to pay creditors, with remaining debts generally discharged. Id. §§ 541(a)(1), 704(a)(1), 726, 727. But those assets don’t include the debtor’s earnings or assets the debtor acquires after filing the bankruptcy petition. Id. § 541(a)(1). So "while a Chapter 7 debtor must forfeit virtually all his prepetition property, he is able to make a ‘fresh start’ by shielding from creditors his postpetition earnings and acquisitions." Hams, 575 U.S. at 514, 135 S.Ct. 1829.

[5, 6] Chapter 13 is an alternative to Chapter 7 and is known as a "wage earner’s plan." Perry v. Com. Loan Co., 383 U.S. 392, 397, 86 S.Ct. 852, 15 L.Ed.2d 827 (1966) (quotations omitted). This option is only available to individuals with debts below a statutory limit and regular income. 11 U.S.C. § 109(e). It "allows a debtor to retain his property if he proposes, and gains court confirmation of, a plan to repay his debts over a three- to five-year period," Harris, 575 U.S. at 514, 135 S.Ct. 1829, with collection efforts stayed in the meantime, 11 U.S.C. § 362. Chapter 13 debt payments are from the debtor’s "future earnings or other future income." Id. § 1322(a)(1). An impartial trustee administers the case, and those responsibilities include collecting payments from the debtor and paying creditors. Id. § 1326.

When the debtor files their Chapter 13 bankruptcy petition, they include a schedule of assets and liabilities and a schedule of current income and expenditures. Id. § 521(a)(1)(B)(i)-(ii). Shortly after the debtor files the bankruptcy petition, the trustee convenes a meeting where the debtor, under oath, answers the trustee’s and creditors’ questions about the debtor’s finances and proposed repayment plan. Id. §§ 341, 343. Following that meeting, the bankruptcy judge has a hearing with the debtor, trustee, and creditors to review the debtor’s proposed repayment plan. Id. § 1324.

If the judge "confirm[s]" the plan, the trustee begins paying creditors "as soon as is practicable." Id. § 1326(a)(2). If the judge does not confirm the plan, the debtor may propose a modified plan. Id. § 1323. If circumstances change, the plan can be modified either before or after confirmation at the request of the debtor, trustee, or creditors. Id. §§ 1323, 1329. Once the debtor completes the payments required under the plan, the remaining debts are generally discharged. Id. § 1328(a). And if the debtor fails to make the payments, the bankruptcy is dismissed without the debts being discharged. Id. § 1307(c)(6).

II. Fricke’s Chapter 13 Bankruptcy and State Court Lawsuit

On May 17, 2017, Fricke filed a Chapter 13 bankruptcy petition with the United States Bankruptcy Court for the Southern District of Indiana, along with a schedule of assets. The bankruptcy court approved Fricke’s five-year payment plan on September 8, 2017, and that plan included a standard provision for any assets Fricke might acquire later:

If additional property comes into the estate pursuant to 11 U.S.C. § 1306(a)(1) or if the Trustee discovers undisclosed property of the estate, then the Trustee may obtain such property or its proceeds to increase the total amount to be paid under the plan. No motion to modify the plan will be required but the Trustee may file a report to court. However, if the Trustee elects to take less than 100% of the property to which the estate is entitled OR less than the amount necessary to pay all allowed claims in full, then a motion to compromise and settle will be filed, and appropriate notice given.

App. Vol. II at 132.

After tripping and falling at a Red Lobster about two years later, Fricke sued the restaurant in the Marion Superior Court for personal injury on August 26, 2020. But she didn’t update her bankruptcy asset schedule, and she responded to a Red Lobster interrogatory by saying she had never declared bankruptcy. After discovering Fricke’s bankruptcy, Red Lobster moved for summary judgment, arguing that Fricke’s claims were barred for two reasons: (1) she lacked standing because undisclosed assets—including undisclosed lawsuits—are the property of the bankruptcy estate, not the debtor; and (2) judicial estoppel barred her from pursuing her personal injury claim because she represented to the bankruptcy court that she had no such claim.

Fricke then amended her bankruptcy asset schedule to disclose the personal injury lawsuit. She also opposed Red Lobster’s summary judgment, and her opposition included her affidavit explaining that her failure to update her bankruptcy asset schedule and her misstatement in her interrogatory response were innocent oversights. Neither the trustee nor Fricke’s creditors objected to Fricke amending her asset schedule; they did not seek to modify the court-approved repayment plan; and they did not seek any sort of sanction for Fricke’s failure to update her asset schedule more promptly. The trustee also did not seek to intervene in this state court lawsuit. Ultimately, the bankruptcy court dismissed Fricke’s bankruptcy without discharging her debts because she fell behind in payments she owed the trustee.

The trial court denied Red Lobster’s summary judgment motion, and through an interlocutory appeal, the Court of Appeals affirmed in a unanimous, published opinion. Red Lobster Rests. LLC v. Fricke, 213 N.E.3d 563, 568, 573 (Ind. Ct. App. 2023). The Court of Appeals explained that (1) "Fricke had standing because she sustained a direct injury," and (2) Red Lobster was not entitled to summary judgment based on judicial estoppel because "a factual dispute exist[ed] regarding whether Fricke intentionally concealed the personal injury suit from the bankruptcy court." Id. at 572, 573. Red Lobster then petitioned for transfer, which we granted, 221 N.E.3d 1210 (Ind. 2023), thus vacating the Court of Appeals’ opinion, Ind. Appellate Rule 58(A).

Standard of Review

[7–9] When we review a summary judgment decision, we apply the same standard as the trial court. Korakis v. Mem’l Hosp. of S. Bend, 225 N.E.3d 760, 764 (Ind. 2024). Summary judgment is proper only when the designated evidence shows no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Id. We construe all facts and reasonable inferences in the...