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Cloud v. Northrop Grumman Corp.11/12/1998
e court,'" and that a "good faith mistake" cannot support judicial estoppel. (Id. at pp. 362-363.)
Although it did not cite Ryan, the International Engine opinion is not necessarily contrary. (International Engine, supra, 64 Cal.App.4th 345.) International Engine was a summary judgment case. The court stated that " he determination of the existence of judicial estoppel is a factual finding . . .," and noted that application of judicial estoppel "should be done with great circumspection." (Id at p. 354) International Engine reviewed the evidence and concluded that "appellants were aware of the potential claim against respondent but intentionally chose not to disclose it the bankruptcy court." (Id. at pp. 352-353.) The court found "multiple subsequent failures to disclose the potential action" and that "for years [appellants] knew of respondent's potential liability" and that appellants "were fully aware of their claim and did not act under ignorance, fraud or mistake." (Id at p. 353.) The record in the instant case would not permit equivalent findings here.
Clearly, consideration of whether a debtor has engaged in a deliberate scheme to mislead and gain unfair advantage, as opposed to having made a mistake born of misunderstanding, ignorance of legal procedures, lack of adequate legal advice, or some other innocent cause, requires consideration of the evidence. As the declaration filed by plaintiff in opposition to Northrop's motion for judgment on the pleadings shows, there is evidence which could negate the findings necessary to support the application of judicial estoppel in this case. Hence the trial court should not have attempted to decide this issue on a motion for judgment on the pleadings.
e. State courts should not interfere with the operation of the bankruptcy laws under the guise of judicial estoppel.
Primary objectives of bankruptcy law include giving the individual debtor a "fresh start" while equitably distributing the debtor's assets among the creditors. (See, e.g., People v. Goebel (1987) 195 Cal.App.3d 418, 422-423.) In addition, when the rights of creditors are adjudicated in the bankruptcy proceeding, those creditors are entitled to the peace and benefits of res judicata finality, as discussed above. However, application of the doctrine of judicial estoppel in the absence of any basis for a res judicata finding, on the authority of Oneida and its progeny, can frustrate the primary objectives of bankruptcy law. It penalizes both the debtor and the creditors, while bestowing a windfall upon the third-party non-creditor defendant, possibly the very party whose wrongful actions caused or contributed to the bankruptcy and consequent loss to the debtor and creditors. (Cf. Adams v. Manown, supra, 615 A.2d 611, 617-618 [available alternatives are not limited to giving debtor the benefit of a fraudulent nondisclosure or giving defendant the benefit of a windfall dismissal, correct analysis allows recovery by bankruptcy trustee for benefit of creditors].)
Moreover, in the Chapter 7 context, there is generally little need to ponder the possible application of judicial estoppel in a case in which the debtor has failed to schedule a claim. Such a debtor will lack standing to sue on that claim, and a circumstance in which such a party without standing needs to be judicially estopped is difficult to conceive. Under the liberal policy of amendment enunciated in Klopstock and followed consistently thereafter (with the possible exception of Coats), such a debtor is entitled to leave to amend to attempt to cure her lack of standing. Once the trustee has either abandoned the claim or substituted in, no possibility of unfair advantage is apparent, and it a
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