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In Re: Thomas Kane

December 21, 2010

IN RE: THOMAS KANE THOMAS KANE, APPELLANT


APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 08-cv-05633) District Judge: Honorable Freda L. Wolfson

The opinion of the court was delivered by: Barry, Circuit Judge

Submitted Under Third Circuit LAR 34.1(a)

November 16, 2010

Before: BARRY, CHAGARES and VANASKIE, Circuit Judges

OPINION OF THE COURT

Thomas Kane appeals the judgment of the District Court affirming the Bankruptcy Court‟s decision not to apply judicial estoppel to the entirety of a proof of claim filed by his estranged wife in his bankruptcy proceeding, and its conclusion that Ms. Kane has standing to pursue equitable distribution as a post-petition claim in that proceeding. We will affirm.

I. Background

Shannon and Thomas Kane were married in August of 2004. Two years later, Ms. Kane filed for divorce in Mercer County, New Jersey, and moved to New York. In September of 2007, she presented her husband with a written settlement proposal requesting, inter alia, equitable distribution, and informing him that she intended to file for bankruptcy. On September 20, 2007, she filed a Chapter 7 petition in the Eastern District of New York. Her filing disclosed her estrangement from Mr. Kane, and the pending divorce litigation:

1. Schedule A of her petition included details about the couple‟s house and specified that "Debtor and her husband are separated";

2. Schedule F of her petition listed Mr. Kane as an unsecured creditor, specifying "[p]ossible obligations arising out of matrimonial proceeding" with a stated amount of claim listed as "unknown";

3. Ms. Kane‟s "Statement of Financial Affairs" listed the couple‟s divorce proceeding by docket number, and indicated its status as "Pending."

App. at A111, A120, A128.

On November 8, 2007, the Trustee in Ms. Kane‟s bankruptcy proceeding reviewed her petition at a 341 Meeting, see 11 U.S.C. § 341, at which she was present with counsel. Mr. Kane also attended in his capacity as a creditor listed on her petition. He argued, as he argues now, that his wife‟s sworn averments were "false and misleading because [they] failed to disclose that she was simultaneously litigating her entitlement to alimony, equitable distribution, and attorney‟s fees in another court[.]" Appellant‟s Br. at 10.*fn1 Nevertheless, after extensive colloquy, the Trustee concluded: "For the record, I‟m satisfied that the Debtor‟s disclosure was sufficient, that there are certain omissions that she might have made, they‟re negligible." Id. at A174. The Trustee also confirmed that a "distributive award is an asset of the Estate[.]" Id. at A176. Thereafter, on November 15, 2007, Ms. Kane filed an amended petition which disclosed a claim for alimony and a pending lawsuit that did not appear in her first petition. On November 20, 2007, the Trustee filed a "Trustee‟s Letter of Assets" with the Bankruptcy Court in New York, which in early 2008 granted Ms. Kane a discharge.

On April 8, 2008, Mr. Kane filed a Chapter 13 bankruptcy petition in the District of New Jersey, and his wife filed a proof of claim in the amount of $398,950.39. The Bankruptcy Court in New Jersey held a hearing on Mr. Kane‟s motion to expunge Ms. Kane‟s claim with prejudice because it was premised on claims that she failed to include in her own bankruptcy petition. The Court expunged her proof of claim without prejudice to her right to refile it. The Court concluded that such refiling would constitute a post-petition claim in Mr. Kane‟s bankruptcy action. And, the Court indicated that such a claim is dependent on the Mercer County Family Court entering an equitable distribution award in her favor, with that court responsible for determining its parameters. However, the Court ruled that Ms. Kane was judicially estopped from filing "claims for loans to debtor‟s sisters, debtor‟s premarital car loan, wedding expenses and lost social security benefits . to the extent that the matrimonial court determines such claims do not fall within the ambit of equitable distribution . as a result of her failure to disclose such claims in her bankruptcy proceeding." Id. at A36. The Court then vacated the automatic stay imposed under 11 U.S.C. § 362, permitting Ms. Kane to pursue equitable distribution in the state court.

The Bankruptcy Court‟s decision relied on two conclusions, affirmed by the District Court, that are the crux of Mr. Kane‟s arguments on appeal. First, the Court concluded that, pursuant to Section 541(a)(5) of the Bankruptcy Code, entitlement to equitable distribution "is not an asset of [a bankruptcy] estate[,]" and therefore Ms. Kane had "no obligation to list the equitable distribution right as an asset in her [petition‟s] Schedule B[.]" Id. at A33. The Court thus distinguished Ms. Kane‟s pursuit of equitable distribution in state court litigation, from entitlement to equitable distribution arising from an award entered on her behalf within 180 days of a bankruptcy filing, concluding that only the latter becomes property of a bankruptcy estate pursuant to 11 U.S.C. § 541(a)(5).

Second, the Bankruptcy Court concluded that because Ms. Kane‟s equitable distribution claim was sufficiently before the Bankruptcy Court in New York, via her 341 Meeting, she was not estopped from pursuing it in her husband‟s proceeding. The Court noted that the transcript from Ms. Kane‟s 341 Meeting addressed equitable distribution and her divorce litigation, which she had "reference[d] . . . in [her] statement of financial affairs," and concluded that "no one can suggest to this Court that the Chapter 7 trustee was not aware of the right for an equitable distribution, that there was litigation out there in which Shannon Kane was seeking equitable distribution[, but that the] . . . trustee made a conscious decision not to pursue it[.]" Id. at A33-34.

Mr. Kane appealed the Bankruptcy Court‟s order to the District Court, and Ms. Kane cross-appealed. The District Court affirmed the Bankruptcy Court in all respects, and Mr. Kane now appeals.

II. Jurisdiction and Standard of Review

The District Court‟s jurisdiction to consider an appeal from a final order of the Bankruptcy Court arises under 28 U.S.C. § 158(a)(1). We have jurisdiction ...


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