Bankrupt plaintiffs must declare tort claim, or sourt will bar suit

By Alison H. Grennan

Tort plaintiffs who file for bankruptcy without listing their tort claim as an asset may be barred from bringing that claim in a lawsuit, the Washington Court of Appeals recently held.
In Garrett v. Morgan, no. 30932-7-II (June 1, 2005), Rebecca and Russell Davis filed a Chapter 7 bankruptcy petition in May 1997. A month later, they sued Rebecca’s doctor for medical malpractice for care that he had rendered in 1994 through 1996. In the malpractice lawsuit, they claimed more than $5 million in damages.

But in their bankruptcy petition a month earlier, the Davises had not listed this claim, and they did not disclose it in the meeting of creditors. The bankruptcy court closed their case as a “no asset” bankruptcy and discharged their debts.

In the malpractice suit, Dr. Morgan moved for summary judgment. He argued that the doctrine of judicial estoppel precluded the Davises from seeking compensation against him, because they had taken a contrary position in their bankruptcy case.

The Davises responded by moving to reopen their bankruptcy case and add the claim against Dr. Morgan to their schedule of assets. The bankruptcy court granted that motion and appointed Russell Garrett as bankruptcy trustee.

Before ruling on Dr. Morgan’s summary judgment motion, the trial court held an evidentiary hearing to determine whether the Davises had acted intentionally in omitting the malpractice claim from their bankruptcy pleadings. At that hearing, the trial court concluded that Rebecca Davis intentionally failed to disclose the claim. The trial court held that the claim was barred and dismissed the action. Garrett, the bankruptcy trustee, appealed.