Supreme Court says bankruptcy paperwork error shouldn't knock out debtor’s injury suit 

WASHINGTON (CN) — The Supreme Court revived a personal injury lawsuit against a trucking company on Thursday, holding that a lower court erred in dismissing the case based on omissions in the victim’s bankruptcy filings.

Writing for a unanimous court, Justice Ketanji Brown Jackson said the Fifth Circuit’s ruling unfairly doomed the victim’s lawsuit by failing to consider properly consider whether the paperwork error was intentional.

“Equity, we have said, ‘eschews mechanical rules; it depends on flexibility,’” Jackson wrote. “Thus, when a court conducts an equitable inquiry, it must act ‘on a case-by-case basis,’ considering all relevant facts and circumstances.”

Thomas Keathley filed for bankruptcy in 2019 after experiencing financial difficulties. Under a Chapter 13 filing, Keathley would repay his debts interest free.

A year after a bankruptcy court confirmed his repayment plan, Keathley was in a life-altering car accident. An employee of Buddy Ayers Construction hit Keathley’s vehicle, leading to neck, back and hand injuries that required surgery, injections and prolonged physical therapy.

Keathley reported the accident to his bankruptcy lawyer a few weeks later, noting that he intended to file a personal injury suit. But Keathley’s lawyer never passed the report on to the bankruptcy court.

Buddy Ayers Construction asked the courts to dismiss Keathley’s suit under judicial estoppel, a legal doctrine preventing a party from asserting contradictory facts in separate legal filings. The company framed Keathley’s disclosure error as an attempt to manipulate the courts.

Under a prior ruling from the Fifth Circuit, motive to conceal is presumed when debtors fail to disclose personal injury claims to a bankruptcy court. However, after Keathley successfully notified the bankruptcy court of his claims, neither the Chapter 13 trustee nor the creditors moved to modify his repayment plan. The bankruptcy court also did not punish Keathley for the omission.

Jackson, a Joe Biden appointee, said the Fifth Circuit’s standard was simultaneously too rigid and too broad. She wrote that the appeals court failed to fully recognize that judicial estoppel is an equitable doctrine.

“The overbreadth of the Fifth Circuit’s rule (the fact that it almost always is satisfied) makes it patently incompatible with an inadvertence-or-mistake standard, which suggests that circumstances — and outcomes — may vary,” Jackson wrote. “A near-dispositive criterion is a poor fit for a fair inquiry into whether an omission is actually the result of inadvertence or mistake.”

Keathley’s lawyers praised the court’s ruling.

“It ensures that everyday Americans who have fallen on hard times and turned to the bankruptcy system are not deprived of their right to pursue claims based on a presumption that a missed disclosure is the product of bad faith — rather than an innocent mistake by a lay person trying in good faith to navigate a complex legal process,” Gregory Garre, an attorney with Latham & Watkins, said.

The nine-page opinion explained the court’s decision to vacate the Fifth Circuit’s ruling without addressing how the doctrine should be applied in other cases.

Justice Clarence Thomas, a George W. Bush appointee, joined by Justice Neil Gorsuch, a Donald Trump appointee, wrote a separate concurrence casting doubt on the foundation of judicial estoppel generally.

Justice Sonia Sotomayor, a Barack Obama appointee, also wrote separately to explain why the doctrine should never be applied when bankruptcy proceedings are pending.

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