Failure to Disclose Possible Personal Injury Claim in Previous Bankruptcy Action Results in Dismissal of the Personal Injury Suit

Under the precedent set in Spohn v Van Dyke Public Schools 296 Mich App 470 (2012), the Michigan Court of Appeals has ruled that because of a failure to disclose a possible personal injury claim in a pending bankruptcy action, the Wayne County Circuit Court should have granted the defendants’ motion for summary disposition. McDonald v. Yeldon, Unp. Per Curiam Op. of COA issued 01/03/2019 (Docket No. 339309).

The Bankruptcy Action and Personal Injury Claim

Plaintiff Carla McDonald had filed for a Chapter 13 bankruptcy action prior to the car accident that resulted in the personal injury claim, which occurred in early October of 2013. Defendant Patricia Yeldon was driving a vehicle owned by First Student, Inc. (co-defendant in this action) when she collided with McDonald’s vehicle. In January 2014, McDonald notified the bankruptcy court that she wished to modify her bankruptcy case from a Chapter 13 action to a Chapter 7 action. She did not disclose the accident to the bankruptcy court at that time, nor did she notify the bankruptcy court at her deposition that she had retained an attorney for the purpose of pursuing an auto accident case against the defendants. The bankruptcy court discharged McDonald’s debts on April 15, 2014 and closed the case on May 14, 2014.

McDonald then commenced the current auto accident action in January of 2016, after which the defendants’ filed a motion for summary disposition as McDonald had not listed the potential case as an asset during her bankruptcy case. The trial court denied this motion and the Court of Appeals granted the defendants’ application for leave to appeal.

The Appeal

The Court of Appeals chose to follow the standard for judicial estoppel that was set forth in the Spohn case. Under this standard, a party who has “successfully and unequivocally asserted a position in a prior proceeding is estopped from asserting an inconsistent position in a subsequent proceeding.” In order for the standard to apply, the claims must be inconsistent. The Spohn case promulgated a three part test for the application of judicial estoppel, which the Court of Appeals applied to the case at bar.

First, the Court assessed whether McDonald had assumed a position in the current case that was contrary to what she assumed under oath in the bankruptcy court. Because she did not disclose the possibility of a personal injury suit during her pending bankruptcy action, the Court of Appeals determined that there was no question of material fact that she had assumed a contrary position.

Second, the Court of Appeals assessed whether the bankruptcy court adopted McDonald’s contrary position. As McDonald never disclosed the possible suit to the bankruptcy court, there was no way the court could have adopted an alternate position. Therefore, there was also no question of material fact that needed to be decided on this point.

Third, McDonald argued that her non-disclosure was a simple mistake. Under the test in Spohn, if proven true, mistake would have been enough to affirm the trial court’s ruling. However, the Court of Appeals determined that McDonald knew or should have known that she needed to disclose the accident to the bankruptcy court. Additionally, McDonald presented no evidence that she told her bankruptcy attorney about the accident or her potential suit. McDonald also had a clear motive to conceal the accident from the bankruptcy court, as the addition of a possible personal injury pay-out would have greatly affected the outcome of her bankruptcy case.

The Court of Appeals went on to say that the record clearly showed that McDonald intended to file suit while the bankruptcy was still pending. Although McDonald asserted that she could go back and reopen her bankruptcy case and disclose the accident now, the Court said that it had to go forward with the estoppel action because “the purpose [of estoppel] is to enforce the need for litigants in any court proceeding to be truthful and to protect the integrity of judicial proceedings.”