United States District Court, E.D. California
April 21, 2015
KATHLEEN GARCIA, Plaintiff,
STANDARD INSURANCE COMPANY, and DOES 1 to 100, Defendants.
MEMORANDUM AND ORDER
WILLIAM B. SHUBB, District Judge.
Plaintiff Kathleen Garcia was denied benefits by her disability insurer Standard Insurance Company ("Standard"). In this action, originally filed in the Sacramento County Superior Court, plaintiff asserts claims against Standard for breach of contract and breach of the duty of good faith and fair dealing under California law. Standard timely removed the action to this court based on diversity of citizenship. Presently before the court is Standard's motion for partial summary judgment pursuant to Federal Rule of Civil Procedure 56.
I. Factual and Procedural Background
Plaintiff was employed as a dental hygienist. At the age of 56, she took out a policy for long-term disability insurance with Standard which entitled her to a monthly payment of $3, 800 per month if she became disabled such that she could not perform her job duties.
During a lunchtime walk on November 2, 2010, plaintiff stumbled and injured her left hand. Claiming she was unable to return to work, plaintiff applied for disability benefits. Standard preliminarily approved plaintiff's claim for long-term benefits under a reservation of rights. However, Standard ultimately denied plaintiff's claim. Plaintiff has not returned to her job as a dental hygienist, and she states she continues to experience pain that radiates up the edge of her hand.
In its pending motion, Standard seeks summary judgment only on plaintiff's good faith and fair dealing claim. (See Def.'s Mot. (Docket No. 22).)
Standard argues that the court should apply the doctrine of judicial estoppel to preclude plaintiff's tort claim and limit her contract claim to $50, 000, because she failed to disclose the tort claim in an earlier bankruptcy proceeding. "Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001) (citing Rissetto v. Plumbers & Steamfitters Local 343, 94 F.3d 597, 600 (9th Cir. 1996)). It is invoked by a court at its discretion. New Hampshire v. Maine, 532 U.S. 742, 750 (2001).
"In the bankruptcy context, the federal courts have developed a basic default rule: If a plaintiff-debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the action." Ah Quin v. Cnty. of Kauai Dep't of Transp., 733 F.3d 267, 271 (9th Cir. 2013); see also Payless Wholesale Distribs., Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570, 571 (1st Cir. 1993) ("Conceal your claims; get rid of your creditors on the cheap, and start over with a bundle of rights. This is a palpable fraud that the court will not tolerate, even passively."). The Ninth Circuit has thus applied judicial estoppel "when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset." Hamilton, 270 F.3d at 784.
Application of the doctrine is meant to ensure "the orderly administration of justice and regard for the dignity of judicial proceedings" and to "protect a litigant playing fast and loose with the courts." Id. at 782 (internal quotation marks and citation omitted). "[T]he integrity of the bankruptcy system depends on full and honest disclosure by debtors of all their assets." Hamilton, 270 F.3d at 785 (citing In re Coastal Plains, 179 F.3d 197, 208 (5th Cir. 1999)). The interests of the creditors and the courts "are impaired when the disclosure provided by the debtor is incomplete." Id.
In her chapter 7 bankruptcy filing, plaintiff disclosed a claim against Standard for $50, 000 which she represented was "exempt" under California Code of Civil Procedure Section 704.130 as a mere claim for recuperating disability benefits. (Id. at 256, 258); see Cal. Code Civ. P. § 704.130 ("Benefits from a disability or health insurance policy or program are exempt without making a claim."). Then, immediately after her debt was discharged, plaintiff filed this action which included millions of dollars in damages for a non-exempt tort claim. (See Nelson Decl. Ex. J at 248 (docket indicating debt was discharged August 15, 2013); Notice of Removal Ex. A at 15 (plaintiff's state court Complaint filed on August 15, 2013)).
This is not a case where plaintiff merely undervalued her claim in the bankruptcy filing. See Whitworth v. Nat'l Enter. Sys, Inc., Civ. No. 3:08-00968, 2009 WL 2948529, at *4 (D. Or. Sept. 9, 2009) (holding that the plaintiff did not take a "clearly inconsistent" position with his prayer for damages of over $15, 000 in the current action when his previous valuation was $1, 000 in his bankruptcy filings). Plaintiff's representation of her claim as one that was "exempt" because it was limited to disability benefits was clearly inconsistent with her Complaint in this action for multi-million dollar damages in tort. See New Hampshire, 532 U.S. at 750. This representation, accepted by the bankruptcy court, gave plaintiff an unfair advantage by keeping potential proceeds from a tort claim from her creditors. See id.
Moreover, the court need not make a further inquiry into whether plaintiff's concealment of her tort claim was intentional. The Supreme Court has recognized that "it may be appropriate to resist application of judicial estoppel when a party's prior position was based on inadvertence or mistake." Id. at 753. However, the Ninth Circuit has, consistent with other circuits, interpreted New Hampshire narrowly and held that that in most circumstances, courts should "apply a presumption of deliberate manipulation." Ah Quin, 733 F.3d at 273. Here, there are no circumstances present to rebut this presumption. Plaintiff made no effort to correct her misrepresentation, even though it appears she was represented by counsel during her bankruptcy proceeding. Plaintiff is therefore estopped from bringing her good faith and fair dealing claim.
IT IS THEREFORE ORDERED that defendant's motion for summary judgment be, and the same hereby is, GRANTED with respect to plaintiff's good faith and fair dealing claim, and DENIED with respect to plaintiff's contract claim, regarding plaintiff's eligibility for supplemental social insurance benefits.