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Bartel v. A-C Product Liability Trust

United States District Court, E.D. Pennsylvania

December 16, 2016

WILLARD E. BARTEL Administrator for Estate of William A. Lawrence, ET AL., Plaintiffs,
A-C PRODUCT LIABILITY TRUST, ET AL., Defendants. E.D. PA Civil Action No. 5:11-45628-ER


          EDUARDO C. ROBRENO, J.

         This case was transferred in August 2011 from the United State District Court for the Northern District of Ohio to the United States District Court for the Eastern District of Pennsylvania, where it became part of the consolidated asbestos products liability multidistrict litigation (MDL 875) . The case was assigned to the Court's maritime docket ("MARDOC").

         Willard e. Bartel and David E. Peebles ("Plaintiffs"), Administrators of the Estate of William A. Lawrence, allege that Mr. Lawrence ("Decedent" or "Mr. Lawrence") was exposed to asbestos while working aboard various ships. Plaintiffs assert that Decedent developed an asbestos-related illness as a result of his exposure to asbestos aboard those ships.

         For the reasons that follow, the Court will deny Defendants' motion.

         I. BACKGROUND

         On August 28 1996, Mr. Lawrence brought claims for non-malignant asbestos-related disease (now pursued by Plaintiffs after the death of Mr. Lawrence) against various defendants, including shipowners represented by Thompson Hine LLP ("Defendants" or the "Thompson Hine Shipowners"). A little over two months later, on December 11, 1996, Mr. Lawrence filed for bankruptcy pursuant to Chapter 7 of the bankruptcy code, without listing his asbestos claims as an asset in the bankruptcy filing (the "First Bankruptcy"). By way of Order dated March 14, 1997, Judge Charles Weiner[1] dismissed those claims administratively, leaving open the possibility for the action to be pursued at a later, unspecified date.[2] Mr. Lawrence was discharged from bankruptcy in the First Bankruptcy action very shortly thereafter, on March 27, 1997. Approximately eight years later, on February 1, 2005, Mr. Lawrence again filed for bankruptcy pursuant to Chapter 7 of the bankruptcy code, again without listing his asbestos claims as an asset in that bankruptcy filing (the "Second Bankruptcy"). He was discharged from bankruptcy in the Second Bankruptcy action on May 9, 2005. Approximately four years later, on or about December 8, 2009, Mr. Lawrence was diagnosed with colon cancer, giving rise to claims for a malignant asbestos-related disease. On August 1, 2011, the MDL Court reinstated the asbestos action (now being pursued by Plaintiffs), which had been dismissed by Judge Weiner in 1996. A summary of this timeline of events is as follows:

■ August 28, 1996 - Asbestos action filed (non-malignancy claims)
■ December 11, 1996 - First Bankruptcy action filed
■ March 14, 1997 - Asbestos action administratively dismissed
■ March 27, 1997 - First Bankruptcy action discharge
■ February 1, 2005 - Second Bankruptcy action filed
■ May 9, 2005 - Second Bankruptcy action discharge
■ December 8, 2009 - Cancer diagnosis (malignancy claims)
■ August 2011 - Asbestos action reinstated by MDL Court

         The Thompson Hine Shipowners have moved for summary judgment, arguing that (1) Plaintiff's claims are barred by way of judicial estoppel because Plaintiff failed to disclose the asbestos action as an asset in his bankruptcy filings, and (2) Plaintiff does not have standing to pursue the asbestos action because it is now owned by one (or both) of the bankruptcy estates.


         A. Summary Judgment Standard

         Summary judgment is appropriate if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). "A motion for summary judgment will not be defeated by 'the mere existence' of some disputed facts, but will be denied when there is a genuine issue of material fact." Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 581 (3d Cir. 2009) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248 (1986)).

         A fact is "material" if proof of its existence or non-existence might affect the outcome of the litigation, and a dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 4 77 U.S. at 248.

         In undertaking this analysis, the court views the facts in the light most favorable to the non-moving party. "After making all reasonable inferences in the nonmoving party's favor, there is a genuine issue of material fact if a reasonable jury could find for the nonmoving party." Pignataro v. Port Auth. of H.Y. & N.J., 593 F.3d 265, 268 (3d Cir. 2010) (citing Reliance Ins. Co. v. Moessner, 121 F.3d 895, 900 (3d Cir. 1997)) . While the moving party bears the initial burden of showing the absence of a genuine issue of material fact, meeting this obligation shifts the burden to the non-moving party who must "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 250.

         B. The Applicable Law

         The parties appear to assume that Defendants' legal arguments regarding "judicial estoppel" and the "real party in interest" are matters of federal law that should be decided in the first instance by the Court. The Court agrees with this approach. See Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 358 (3d Cir. 1996).[3] In matters of federal law, the MDL transferee court applies the law of the circuit where it sits, which in this case is the law of the U.S. Court of Appeals for the Third Circuit. Various Plaintiffs v. Various Defendants ("Oil Field Cases"), 673 F.Supp.2d 358, 362-63 (E.D. Pa. 2009) (Robreno, J.). Therefore, the Court will apply Third Circuit law in deciding the issues raised by Defendants' motion.


         A. Judicial Estoppel

         Defendants contend that all of Plaintiff's claims are barred on grounds of judicial estoppel. Specifically, they contend that Mr. Lawrence took irreconcilably inconsistent positions in his bankruptcy proceedings and the instant proceeding. Defendants state that Mr. Lawrence concealed the existence of his asbestos claims when filing for bankruptcy (both times) by not reporting them as pending or likely claims on Schedule B ("Personal Property"), while simultaneously asserting such claims in the current asbestos action (which was filed less than three months before the filing of the bankruptcy action). They further assert that a finding of bad faith is warranted because Mr. Lawrence had knowledge of the asbestos claims each time that he filed for bankruptcy and had a motive to conceal the claims from the Bankruptcy Court (i.e., to keep any proceeds of the claims while reducing the amount of assets available for distribution amongst the creditors - a motive Defendants assert is common to nearly all debtors in bankruptcy).[4]

         Finally, Defendants contend that no lesser remedy is warranted because the sanction of barring the non-malignancy asbestos claims is necessary to (1) keep Plaintiffs from profiting from the omission and (2) preserve the integrity of the bankruptcy proceedings.

         Without clearly distinguishing between his non-malignancy claims and his malignancy claims - and without explicitly acknowledging that there were two separate bankruptcy actions pending during the course of Mr. Lawrence's asbestos action - Plaintiffs contend that the asbestos claims are not barred on grounds of judicial estoppel. First, Plaintiffs contend that Mr. Lawrence did not take inconsistent positions between his bankruptcy filing(s) and the present asbestos action because (1} his non-malignancy claim was dismissed by Judge Weiner's May 1996 dismissal order (indirectly, by way of the March 1997 dismissal order, which Plaintiffs appear to suggest was made retroactive such that Plaintiff's case was already dismissed in August of 19 96 when it was filed), and (2) his colon cancer diagnosis was not made (and, therefore, his colon cancer claims did not arise) until after his bankruptcy action(s) had been closed, such that he was not required to list these claims as assets in his bankruptcy action(s). Moreover, Plaintiffs argue that even if Mr. Lawrence should have identified the asbestos claims, the failure to do so was a good faith mistake such that judicial estoppel is not warranted.

         Second, Plaintiffs assert that Defendants bear the burden of establishing bad faith, but have no evidence that Mr. Lawrence acted in bad faith when he did not list his asbestos claims as an asset in his bankruptcy filing(s).

         B. Real Party in Interest/Standing

         1. All Claims (Non-Malignant and Malignant Claims)

         In the alternative, Defendants contend that Plaintiffs have no right to pursue the claims (either the non-malignancy claims or the malignancy claims) because the claims no longer belong to Plaintiffs and instead belong to the bankruptcy trustee. Specifically, Defendants argue that, even though Mr. Lawrence did not report these asbestos claims as assets in the bankruptcy filings, as required by 11 U.S.C. § 541(a)(1), those claims automatically became part of the corresponding bankruptcy estate(s) when the bankruptcy petitions were filed. As a result, they assert that only the bankruptcy trustees can administer the claims.

         Defendants also argue that, because Mr. Lawrence did not reveal any of the asbestos claims, such that they were never properly scheduled as assets in either of the bankruptcy actions, the trustees were incapable of passing those claims back to Mr. Lawrence through abandonment of any remaining assets not administered (as would normally happen pursuant to 11 U.S.C. § 554). As such, Defendants assert that, even though the bankruptcy actions have both closed, the rights to the asbestos claims did not revert back to Mr. Lawrence upon those closures and instead remain with the trustee(s), such that Plaintiffs may not now pursue them.

         With respect to the non-malignancy claims, Plaintiffs assert that, because these claims were "uncertain" during his bankruptcy, they were never assets of the bankruptcy estate (regardless of whether or not they were disclosed). Therefore, according to Plaintiffs, they (and not the bankruptcy trustee) are the proper party to pursue these claims.

         With respect to the malignancy claims. Plaintiffs assert that, because the colon cancer diagnosis was not made (and, therefore, the colon cancer claims did not arise) until after Mr. Lawrence was discharged from bankruptcy, they were never assets of the bankruptcy estate - and Mr. Lawrence could not have been required to disclose them. In short, Plaintiffs argue that the bankruptcy estate could not have an asset that was not in existence at the time of the bankruptcy.

         2. Malignancy Claims

         With respect to the malignancy claims, Defendants also assert, as another alternative, that Plaintiffs' claims for malignant asbestos-related disease (based upon his diagnosis of colon cancer, which occurred after both the First and Second Bankruptcy actions had been closed) are property of the estate, such that Plaintiffs also lack standing to pursue these claims -despite the fact that the diagnosis of colon cancer did not occur until after Mr. Lawrence's bankruptcy actions were filed -because those claims are sufficiently rooted in his pre- bankruptcy past to constitute property of the estate.[5]Specifically, Defendants argue that, under Segal, any new claim that is "sufficiently rooted in the pre-bankruptcy past" should be included in the debtor's bankruptcy estate, 382 U.S. at 380, and that, since the asbestos exposures (and the non-malignant asbestos injury) arose pre-bankruptcy, any injuries arising therefrom (such as Mr. Lawrence's colon cancer claims) should be considered part of the bankruptcy estate because they are "sufficiently rooted in the pre-bankruptcy past."

         Plaintiffs assert that the claims for malignant asbestos-related disease (based upon the post-petition diagnosis of colon cancer) are not property of the estate - and never were - because they did not arise until after Mr. Lawrence had been discharged from bankruptcy. In support of this argument, Plaintiffs cite to this MDL's court's decision, Nelson v. A.W. Chesterton, 2011 WL 6016990 (E.D. Pa. Oct. 27, 2011) (Robreno, J.), holding that maritime law follows the "two-disease rule" such that Mr. Lawrence's colon cancer diagnosis gave rise to a malignant disease that constitutes a second and separate cause of action from that initially filed for his non-malignant asbestos-related disease. As such, Plaintiffs seems to suggest that, even if the Court should determine that the non-malignancy-claims are property of the bankruptcy estate that Plaintiffs are now barred from pursuing, the malignancy claims (for colon cancer) are not property of the estate (and never were), such that Plaintiffs may still pursue those claims free and clear of any debts not fully paid to creditors in the bankruptcy action(s).


         The bankruptcy code requires debtors seeking benefits under its terms to schedule, for the benefit of creditors, all his or her interests and property rights. Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 (3d Cir. 1988); 11 U.S.C. §§ 521, 1125. This duty of disclosure includes not only pending lawsuits or lawsuits the debtor intends to bring, but even any potential and likely causes of action. See Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. Gen. Motors Corp., 337 F.3d 314, 322 (3d Cir. 2003); Oneida, 848 F.2d at 417 (providing that *[i]t has been specifically held that a debtor must disclose any litigation likely to arise in a non-bankruptcy contest"). However, debtors are not required to list "every 'hypothetical, ' 'tenuous, ' or 'fanciful' claim on an asset disclosure form." Freedom Med., Inc. v. Gillespie, No. 06-3195, 2013 WL 2292023, at *23 (E.D. Pa. May 23, 2013) (quoting Krystal Cadillac, 337 F.3d at 323).

         Once the debtor has filed his bankruptcy petition, the bankruptcy estate - which in a Chapter 7 case is controlled by the trustee - "encompasses everything that the debtor owns upon filing a petition, as well as any derivative rights, such as property interests the estate acquires after the case commences." In re O'Dowd, 233 F.3d 197, 202 (3d Cir. 2000). "While a bankruptcy case is pending, it is the trustee, and not the debtor, who has the capacity to pursue the debtor's claims." In re Kane, 62 8 F.3d at 63 7 (internal quotation marks and citations omitted). Additionally, "[p]ursuant to 11 U.S.C. § 554(d), a cause of action which a debtor fails to schedule, remains property of the estate because it was not abandoned and not administered." Allston-Wilson v. Philadelphia Newspapers, Inc., No. 05-4056, 2006 WL 1050281, at *i (E.D. Pa. Apr. 20, 2006); see also In re Kane, 628 F.3d at 637 ("an asset must be properly scheduled in order to pass to the debtor through abandonment under 11 U.S.C. § 554") (quoting Hutchins v. IRS, 67 F.3d 40, 43 (3d Cir. 1995)).

         Typically, the only interests that a bankruptcy estate owns are those that a plaintiff has at the time the petition is filed. In re O'Dowd, 233 F.3d 197, 202 (3d Cir. 2000) (concluding that the bankruptcy "estate encompasses everything that the debtor owns upon filing a petition") (emphasis added); 11 U.S.C. § 541(a)(1). However, any new, post-petition interest (such as a legal claim) that is "sufficiently rooted in the pre-bankruptcy past" can also constitute part of the debtor's bankruptcy estate. See Segal v. Rochelle, 382 U.S. 375 (1966).

         Judicial estoppel is a "doctrine that seeks to prevent a litigant from asserting a position inconsistent with one that she has previously asserted in the same or in a previous proceeding." Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 358 (3d Cir. 1996) (internal quotation marks and citations omitted). At the heart of judicial estoppel is the idea that "absent any good explanation, a party should not be allowed to gain an advantage by litigation on one theory, and then seek an inconsistent advantage by pursuing an incompatible theory." Id. (quoting 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4477 (1981), p. 782). However, this doctrine is "not intended to eliminate all inconsistencies no matter how slight or inadvertent they may be." Id. It "should only be applied to avoid a miscarriage of justice" and "is only appropriate when the inconsistent positions are tantamount to a knowing misrepresentation to or even fraud on the court." Krystal Cadillac, 337 F.3d at 319, 324 (internal quotation marks and citations omitted). The "doctrine of judicial estoppel does not apply 'when the prior position was taken because of a good faith mistake rather than as part of a ...

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