Bankruptcy – Judicial Estoppel

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7^th Circuit Court of Appeals

Case Name: CSI Wordlwide, LLC, v. Trumpf Inc.,

Case No.: 19-2189

Officials: EASTERBROOK, ROVNER, and SCUDDER, Circuit Judges.

Focus: Bankruptcy – Judicial Estoppel

TRUMPF Inc., the U.S. subsidiary of an international business, makes specialty tools such as precision laser cutters. Trade shows are among its selling venues, and it hired Lynch Exhibits to handle its appearance at 2017 FABTECH show in Chicago. Lynch subcontracted with CSI Worldwide to provide some of the necessary services.

CSI contends that it told TRUMPF that it was unsure of Lynch’s reliability and would do the work only if TRUMPF paid it directly or guaranteed Lynch’s payment. According to CSI, TRUMPF assented – though it did not sign any undertaking to that effect. CSI did the work and billed Lynch, which did not pay. CSI filed an involuntary bankruptcy petition against Lynch, which soon filed a voluntary bankruptcy petition. CSI claimed approximately $530,000 as a creditor. It also filed this suit against TRUMPF under the diversity jurisdiction, seeking $530,000 on theories including unjust enrichment and promissory estoppel. The district court dismissed the suit on the pleadings, ruling that, by making a claim in Lynch’s bankruptcy, CSI necessarily represented that Lynch is the sole debtor. The district court called its approach judicial estoppel.

This is not a novel problem, and the Bankruptcy Code itself provides the answer. Filing a claim in bankruptcy does not foreclose claims against non-bankrupt obligors. Even a discharge in bankruptcy does not do that. 11 U.S.C. § 524(e). Many decisions recognize that a claim in bankruptcy does not block recovery from third parties such as guarantors or jointly responsible persons. See, e.g.., In re Shondel, 950 F.2d 1301, 1306 (7^th Cir. 1991). See also Union Carbide Corp. v. Newboles, 686 F.2d 593, 595 (7^th Cir. 1982) (same outcome under §16 of the Bankruptcy Act of 1898, which preceded the Bankruptcy Code of 1978).

CSI may or may not have a good claim on the merits – and TRUMPF may or may not have a defense that it has paid what it owes. These matters must be resolved on remand.

Reversed and remanded

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.