Bradford, C.J.
Case Summary
Reva Capalla and Mark Capalla (the “Capallas”) owned businesses relating to the sale and distribution of wine and alcohol. In 2017, they entered into agreements with Wilbert Best and Best Vineyards, LLC (“Best Vineyards”) (collectively, the “Best Parties”) to be the exclusive distributors of Best Vineyards’ products in certain states. Issues arose shortly after the parties entered into the agreements. Since that time, the parties have been arguing (in various tribunals) about funds allegedly owed to the Best Parties and each side’s actions as they relate to the parties’ agreements and the funds. On October 5, 2021, the Capallas filed suit against the Best Parties. The trial court subsequently granted judgment on the pleadings in favor of the Best Parties. The Capallas appeal from the trial court’s order. We affirm.
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At the outset, we note that the Capallas failed to timely disclose their interest in the underlying civil claims in their bankruptcy proceedings. “Both federal courts and Indiana courts have uniformly held that a debtor who fails to disclose a potential cause of action in a bankruptcy proceeding is precluded from pursuing such undisclosed claims in subsequent litigation.” Schlosser v. Bank of W. Ind., 589 N.E.2d 1176, 1179 (Ind. Ct. App. 1992). “The courts have barred subsequent litigation under the doctrines of standing, equitable estoppel, judicial estoppel, and res judicata.” Id. In light of the facts and circumstances surrounding the instant matter, we conclude that the Capallas’ claims are barred under the doctrine of judicial estoppel and because the Capallas lack standing to bring the claims.
A. Judicial Estoppel
“Judicial estoppel is ‘a common law doctrine by which a party who has assumed one position in his pleadings may be estopped from assuming an inconsistent position.’”…
“Judicial estoppel is applicable when a bankrupt debtor fails to disclose a cause of action as an asset in bankruptcy proceedings and then pursues the omitted cause of action in a subsequent proceeding.” Robson v. Tex. E. Corp., 833 N.E.2d 461, 466 (Ind. Ct. App. 2005), trans. denied. A debtor seeking shelter under the bankruptcy laws has a statutory duty to disclose all assets, or potential assets, to the bankruptcy court. In re Coastal Plains, 179 F.3d at 207– 08…
“The duty of disclosure in a bankruptcy proceeding is a continuing one, and a debtor is required to disclose all potential causes of action.” In re Coastal Plains, 179 F.3d at 208; Smith v. Haynes & Haynes P.C., 940 F.3d 635, 643 (11th Cir. 2019) (“That duty to disclose is a continuing one that does not end once the forms are submitted to the bankruptcy court; rather, a debtor must amend her financial statements if circumstances change.”); Youngblood, 932 F. Supp. at 868 (“[P]arties in a bankruptcy proceeding are bound to disclose any litigation which has the potential of arising in a non-bankruptcy context.”). “This duty applies to proceedings under Chapter 13 and Chapter 7 alike because ‘any distinction between the types of bankruptcies available is not sufficient enough to affect the applicability of judicial estoppel because the need for complete and honest disclosure exists in all types of bankruptcies.’” [Footnote omitted.] Robinson v. Tyson Foods, Inc., 595 F.3d 1269, 1274 (11th Cir. 2010) (quoting De Leon v. Comcar Indus., Inc., 321 F.3d 1289, 1291 (11th Cir. 2003)). Courts have emphasized the importance of full and honest disclosure in bankruptcy proceedings, stating that it is crucial to the system’s effective functioning. Robinson, 595 F.3d at 1274. Stated differently, “[v]iewed against the backdrop of the bankruptcy system and the ends it seeks to achieve, the importance of this disclosure duty cannot be overemphasized.” In re Coastal Plains, 179 F.3d at 208. The doctrine of judicial estoppel is “often applied to ensure strict adherence with common law and statutory concepts of complete and candid disclosures.” Youngblood, 932 F. Supp. at 868.
Applying the above-discussed authority to the instant matter, we conclude that the Capallas had a continuing duty to disclose their cause of action against the Best Parties to the bankruptcy court and to include it as an estate asset. The record demonstrates that the Capallas failed to do so. [Footnote omitted.] As such, we must determine whether, in light of their failure to disclose the cause of action, they are judicially estopped from bringing the action in the trial court. We consider “two primary factors in determining whether to apply judicial estoppel.” Ajaka v. Brooksamerica Mortg. Corp., 453 F.3d 1339, 1344 (11th Cir. 2006). “First, the allegedly inconsistent positions must have been taken under oath in a prior proceeding, and second, they must have been calculated to make a mockery of the judicial system.” Id. (internal quotation omitted).
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…We find the Eleventh Circuit’s decisions in Smith and Robinson to be instructive and likewise conclude that by failing to timely update their bankruptcy cases to include their cause of action against the Best Parties, the Capallas took two inconsistent positions under oath. The issue of judicial estoppel, therefore, centers on their intent.
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With respect to motive, “[t]here is a general motive to keep a claim from becoming part of the bankruptcy estate because, if the civil claim became a part of the bankruptcy estate, then the proceeds from it could go towards paying the debtor’s creditors, rather than simply to paying the debtor.” Bone, 956 F. Supp. 2d at 883 (internal quotation and brackets omitted); see also Robinson, 595 F.3d at 1275–76 (noting that a debtor had a motive for failing to disclose her interest in a civil lawsuit, i.e., wanting to keep any settlement or judgment to herself). We conclude that this general motive applies to the Capallas. By failing to disclose their interest in the underlying civil case to the bankruptcy court, the Capallas would be able to keep any funds they might recover as opposed to having such funds applied to their debt. For these reasons, we conclude that the Capallas were judicially estopped from bringing the underlying lawsuit.
B. Standing
In addition, “[o]nce a debtor files bankruptcy, any unliquidated lawsuits, including any personal injury cause of action, become part of the bankruptcy estate.” Hammes, 659 N.E.2d at 1025 n.4…
“The lack of standing effectively prevents a plaintiff from pursuing an action and restrains the court from exercising its general jurisdiction over any issue in the case.” Schlosser, 589 N.E.2d at 1179. In Schlosser, we concluded that “[b]ecause the Schlossers failed to list in their bankruptcy schedule the cause of action against BWI, they later lacked standing to pursue the claim” and “[t]he suit must be brought exclusively by the trustee of the Schlossers’ bankruptcy estate.” Id. We reach the same conclusion in this case. Once the Capallas filed bankruptcy, their claims against the Best Parties belonged to the bankruptcy estate and could only have been brought by the trustee of their bankruptcy estates. Further, because the Capallas failed to disclose their interests in the civil suit, the bankruptcy trustee cannot be said to have abandoned the claim. Because the claim remained exclusively with the bankruptcy trustee, the Capallas lacked standing to bring the underlying lawsuit.
The Capallas were both judicially estopped from bringing and lacked standing to bring the claims presented in this matter. We therefore conclude that the trial court did not err in granting judgment on the pleadings to the Best Parties.
The judgment of the trial court is affirmed.
Bailey, J., and Najam, Sr.J., concur.