United States District Court, D. Massachusetts
OPINION AND ORDER
A. O'Toole, Jr. United States District Judge.
East Boston Savings Bank (“EBSB”) and Joseph
Scurio have moved to dismiss the plaintiffs' Amended
Verified Complaint under Federal Rule of Civil Procedure
12(b)(6). The plaintiffs filed an opposition.
amended complaint alleges that the plaintiffs borrowed funds
from EBSB to begin a new business. Their loan was guaranteed
by the Small Business Administration. Scurio, an employee at
EBSB, explained the process of applying for an SBA-guaranteed
loan. In connection with the loan, the plaintiffs granted the
bank a mortgage on their home, in addition to a security
interest in the commercial assets of the new business. The
complaint alleges that Scurio told them that the SBA would
pay 90% of the outstanding loan balance if the loan were to
go into default.
three years, the plaintiffs fell behind in making their
monthly payments. A restructuring of the debt was attempted,
but ultimately the plaintiffs again fell behind in their
payments. EBSB began foreclosure proceedings against the
mortgaged property. The plaintiffs then filed for Chapter 7
bankruptcy protection. As a result, the plaintiffs obtained a
discharge of their unsecured debt, but EBSB began a
foreclosure proceeding against the plaintiffs' home. In
response, the plaintiffs commenced a Chapter 13 bankruptcy
proceeding. Prior to confirmation of the Chapter 13 plan, the
plaintiffs were informed that all assets listed as
collateral, including their house, would have to be sold
before the SBA would make any payment to the bank under its
guaranty. (Am. Verified Compl. ¶ 11 (dkt. no. 17).)
Eventually, EBSB was granted relief from the bankruptcy stay
and proceeded with the foreclosure sale. Despite the
plaintiffs' attempts to prevent the foreclosure, the home
was sold in October 2016 and the proceeds were applied to
reduce the plaintiffs' debt to EBSB.
September 18, 2017, the plaintiffs filed their original
complaint against the defendants. A few months later, an
amended complaint was filed alleging a variety of claims
against EBSB, Scurio, and the SBA. Each claim stems from what
the plaintiffs allege was a misrepresentation by Scurio to
the effect that the SBA's guaranty payment would occur
prior to any foreclosure on the plaintiffs' home.
moving to dismiss the amended complaint, EBSB and Scurio
raised several grounds for dismissal. However, the Court need
only address the issue of judicial estoppel in order to
resolve the motion. Judicial estoppel is designed to prevent
a party from taking a legal position in one case which is
inconsistent with a position previously taken in a prior one.
See New Hampshire v. Maine, 532 U.S. 742, 749
(2001). “[W]here a party assumes a certain position in
a legal proceeding, and succeeds in maintaining that
position, he may not thereafter, simply because his interests
have changed, assume a contrary position, especially if it be
to the prejudice of the party who has acquiesced in the
position formerly taken by him.” Id.
(alteration in original) (quoting Davis v. Wakelee,
156 U.S. 680, 689 (1895)). In order for judicial estoppel to
apply, (1) the plaintiffs must have taken a position in a
prior legal proceeding inconsistent with one currently being
asserted, and (2) they must have succeeded in persuading the
previous court to accept that position. Guay v.
Burack, 677 F.3d 10, 16 (1st Cir. 2012) (quoting
Alt. Sys. Concepts v. Synopsys, Inc., 374 F.3d 23,
33 (1st Cir. 2004)). Both of these requirements are satisfied
doctrine of judicial estoppel is applicable in the context of
bankruptcy proceedings. See Payless Wholesale Distribs.,
Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570, 571
(1st Cir. 1993). “The basic principle of bankruptcy is
to obtain a discharge from one's creditors in return for
all one's assets, except those exempt, as a result of
which creditors release their own claims and the bankrupt can
start fresh.” Id. Legal claims, including
those that are contingent or unliquidated, are considered to
be an asset under the Bankruptcy Code and must be disclosed
by the party seeking bankruptcy relief. See id. at
571-72; Compton v. Depuy Orthopaedics, Inc., No.
CIV. A. 02-10531-RWZ, 2002 WL 1046698, at *1 (D. Mass. May
22, 2002); Welsh v. Quabbin Timber, Inc., 199 B.R.
224, 229 (D. Mass. 1996). Prior courts have estopped a
plaintiff from asserting claims after a bankruptcy discharge
when the debtor “knew all of the facts that were
pertinent to its current lawsuit when it filed bankruptcy,
” see Welsh, 199 B.R. at 229 (quoting
Hoffman v. First Nat'l Bank of Akron, Iowa, 99
B.R. 929, 933 (N.D. Iowa 1989)); accord Compton,
2002 WL 1046698, at *1, or when the debtor failed to
“amend his asset schedules and petition if
circumstances change during the bankruptcy proceedings,
” Guay, 677 F.3d at 17.
present case, the plaintiffs never listed their claims
against the defendants as an asset in either the Chapter 7 or
Chapter 13 proceedings. The claims necessarily existed then,
and they were required to list them. The result of the
plaintiffs' Chapter 7 case was a discharge of their
existing debt. Allowing them now to pursue claims that they
knew of but did not disclose in the bankruptcy proceedings
would be inequitable and would result in an unjust windfall
to the plaintiffs should their claims be meritorious.
plaintiffs' response to the motion to dismiss does not
offer any argument against the defendants' judicial
estoppel ground for dismissal. Their failure to oppose this
argument amounts to a waiver of any objection to it. See
Leader v. Harvard Univ. Bd. of Overseers, No. CV
16-10254-DJC, 2017 WL 1064160, at *6 (D. Mass. Mar. 17,
2017); Tian v. Aspen Tech., Inc., 53 F.Supp.3d 345,
368 n.8 (D. Mass. 2014); Perkins v. City of
Attleboro, 969 F.Supp.2d 158, 177 (D. Mass. 2013)
(dismissing a count plaintiff failed to address in his
opposition to the motion to dismiss).
judicial estoppel defense is sufficient to dismiss the
claims. It may also be noted that a related argument for
dismissal by the defendants is also sound. The claims against
the defendants now being asserted accrued prior to the
plaintiffs' bankruptcy petitions, and in the Chapter 13
proceeding they were properly the property of the bankruptcy
estate, enforceable by the trustee.
[A] cause of action ‘is a property right which passes
to the trustee in bankruptcy, even if such cause of action is
not included in schedules filed with the Bankruptcy
Court.' Moreover, ‘property that is not formally
scheduled is not abandoned and therefore remains part of the
estate.' Accordingly, [c]ourts have held that because an
unscheduled claim remains the property of the bankruptcy
estate, the debtor lacks standing to pursue the claims after
emerging from bankruptcy, and the claims must be dismissed.
Welsh, 199 B.R. at 229 (citations omitted). Apart
from the estoppel, the plaintiffs would not have standing to
bring these claims had they been disclosed to the trustee, as
they should have been.
foregoing reasons, the defendants' motion to dismiss
(dkt. no. 26) is GRANTED as to all counts against EBSB and
Scurio. Because the claims against the SBA are derivative of
the now dismissed claims against EBSB ...