Moore v. Fred’s Stores of Tennessee, Inc., No. 4:05-CV-133, 2006 WL 2374768 (M.D. Ga. August 16, 2006)

Prior to filing his bankruptcy petition, Debtor filed a lawsuit against the Debtor for violations of the Fair Labor Standards Act.  While the action was pending, Debtor filed his Chapter 7 (Case No. 06-40115 (Bankr. M.D.Ga.), but failed to disclose the FLSA lawsuit as an asset.  As a result, Defendant filed a motion to dismiss based upon judicial estoppel, leading the Debtor to amend his bankruptcy schedules to disclose the asset.  He also entered into an agreement with the Chapter 7 Trustee to exempt up to $5,000 of any recovery against the Defendant.

The District Court first determined that the Debtor was judicially estopped from pursuing the FLSA lawsuit based upon his failure to initially list the lawsuit on his bankruptcy schedules — 

This omission could not have been inadvertent. … The present lawsuit was filed on November 21, 2005, and he filed his bankruptcy petition only three months later on February 28, 2006. Furthermore, Plaintiff made no attempt to amend his bankruptcy schedule to disclose the claims in this action until after Defendant filed a Motion to Dismiss the present action for lack of standing and because of judicial estoppel. See Barger, 348 F.3d at 1297 (explaining that amending the schedule after the defendant has filed for summary judgment "deserves no favor" because it suggests that "a debtor should consider disclosing potential assets only if he is caught concealing them") (citation omitted). Under these circumstances, Plaintiff is judicially estopped from asserting these claims.

 The Court then determined that the Trustee could not pursue the claims on behalf of the Estate under the proposal agreed to by the Trustee and Debtor —

Although the record is not entirely clear, a fair reading of that record reveals that the bankruptcy trustee for some reason agreed to exempt $5,000.00 of any claim that Plaintiff may have in this lawsuit. The ultimate effect of that exemption would be to permit Plaintiff to recover all or a portion of his FLSA claim notwithstanding his failure to disclose the claim in a timely manner in the bankruptcy proceeding. Moreover, enforcement of that agreement would be contrary to the purposes of the doctrine of judicial estoppel. Therefore, it is clear that in light of this Court’s finding that Plaintiff is judicially estopped from pursuing his FLSA claims, the bankruptcy trustee cannot be allowed to pursue such claims if the result of that pursuit would be for the Plaintiff to benefit in any way from any such recovery by the trustee.

 Finally, the Court addressed the issue of whether the Trustee could pursue the claims in the absence of an agreement with the Debtor to exempt $5,000 —

In this case, the Plaintiff did not list his FLSA claim as exempt property when he filed his petition initially. As explained previously, he did not list the claim at all. However, the trustee has now agreed with the debtor that $5, 000. 00 of his FLSA claim shall be exempt. If Plaintiff’s FLSA claim is less than the exemption of $5,000.00, then it is clear that it does not belong to the trustee. … Therefore, even though Plaintiff is judicially estopped from personally recovering on his FLSA claim and thus may not have had a colorable basis for the exemption, this does not void the exemption as to the trustee and permit the trustee to pursue an otherwise exempt claim. 
The present record is silent as to the total amount of Plaintiff’s FLSA claim. Therefore, the issue presently before the Court is whether the trustee has standing to pursue Plaintiff’s FLSA claim, with $5,000.00 of the claim being exempt (but not recoverable by the debtor), when the total value of the FLSA claim is unknown at this time.

A party seeking to invoke the jurisdiction of the federal court has the burden of establishing that it has standing to pursue its claim. … For the trustee to establish standing in this case, she must establish that the FLSA claim she seeks to pursue exceeds the exemption amount of $5,000.00. The record is silent as to the value of the FLSA claim, and it would be sheer speculation to conclude that it exceeds $5,000.00. Therefore, the Court finds that the trustee has failed to establish standing to pursue this claim. Accordingly, Plaintiffs’ motion to substitute the bankruptcy trustee as a party is denied.