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Bankruptcy — judicial estoppel

By: WISCONSIN LAW JOURNAL STAFF//September 6, 2012//

Bankruptcy — judicial estoppel

By: WISCONSIN LAW JOURNAL STAFF//September 6, 2012//

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United States Court of Appeals For the Seventh Circuit

Civil

Bankruptcy — judicial estoppel

A law firm’s failure to disclose a claim on its retention papers, that resulted in no prejudice, is not grounds to invoke judicial estoppel.

“Like the bankruptcy court and the district court before us, we find that the larger equities at stake in this matter supported the bankruptcy court’s refusal to invoke the doctrine of judicial estoppel. On this record, the omission of the D&O claims from the Freeborn & Peters retention application papers was a regrettable mistake that led to this unnecessary litigation. That omission, however, did not warrant Knight’s attempt to foreclose pursuit of the D&O claims altogether. All interested parties were aware of the pertinent facts, specifically of Chatz’s dual roles as trustee in the Companies’ bankruptcy and trustee in Knight’s personal bankruptcy, of Freeborn & Peters’s representation of Chatz in both of those roles, and of the existence of the D&O claims. The omission of an explicit reference to the D&O claims in the retention application was therefore harmless. Accordingly, there was no equitable basis for the bankruptcy court to invoke the doctrine of judicial estoppel and to find that Chatz abandoned the D&O claims, which would permit Knight to escape upwards of $34 million in potential liability. Refusing to do so was a sound exercise of the bankruptcy court’s discretion.”

Affirmed.

11-3588 In re Knight-Celotex, LLC

Appeal from the United States District Court for the Northern District of Illinois, Der-Yeghiayan, J., Hamilton, J.

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