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

By Alison H. Killebrew

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.

The Court of Appeals noted that judicial estoppel precludes a party from gaining an advantage by asserting one position in court and then later taking a clearly inconsistent position in court. In limited circumstances, the court will not invoke the doctrine, such as where the party can reasonably explain the differing positions. In the bankruptcy context, the debtor has an express, affirmative duty to disclose all assets, which includes contingent and unliquidated claims.

Because the doctrine of judicial estoppel is intended to protect the integrity of the judiciary, it applies in the court where the self-contradiction first appears, even if the debtor later takes steps, such as reopening the bankruptcy, in an effort to avoid its effect. Garrett argued that since Dr. Morgan was not a creditor or otherwise involved in the bankruptcy case, he therefore could not argue judicial estoppel. The Court of Appeals rejected that argument.

Because “judicial estoppel seeks to protect courts and not parties, the doctrine may be applied even if the inconsistent actions involve different parties or, in the absence of reliance, damage or final judgment in the first action.”

Garrett also argued that when the Davises reopened their bankruptcy and added the malpractice claim to their schedule of assets, any inconsistency was eliminated. The Court of Appeals disagreed. The consequence of closing a bankruptcy as a “no asset” case is that the debtors tell the creditors that no such claim exists, and the creditors are prevented from pursuing it.

Supreme Court enforces 'absolute' pollution exclusion as written

By Christina L. Smith

The "absolute" pollution exclusion contained in most general-liability insurance policies defeats coverage for illness caused by toxic fumes, according to a recent 5-4 decision by the Washington Supreme Court.

In Quadrant Corp. v. American States Ins. Co., no. 74663-0 (Apr. 28, 2005), Pacific was making repairs and improvements on an apartment building owned by Roy Street Associates. During the repair work, Pacific Restoration applied waterproofing sealants to a deck. The sealants contained a toxic substance called TDI, whose fumes can irritate the respiratory tract and in high concentrations can cause central-nervous-system depression.

Delores Kaczor was a tenant in the apartment building next door. Pacific failed to warn Kaczor that it would be applying the sealants, and it failed to ventilate the area adequately. Fumes entered Kaczor’s apartment, making her ill. Kaczor claimed that the fumes worsened her pre-existing chronic obstructive pulmonary disease. Kaczor sued Pacific.

American States insured Pacific for general liability. The policy also covered Roy Street Associates as an additional insured. The policy excluded from liability coverage any bodily injury or property damage “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.” Roy Street Associates held a liability policy with State Farm that contained a nearly identical exclusion.

After Kaczor sued, both insurers declined to defend the insureds based on the pollution exclusions. The insureds sued both insurers and moved for summary judgment, arguing that this pollution exclusion applied only to “traditional environmental pollution.” The trial court disagreed and entered summary judgment in favor of the insurers. The Court of Appeals affirmed. The Washington Supreme Court accepted review.

The Court considered the history of pollution exclusions. In the 1970s, insurers began including a pollution exclusion in their policies that still permitted coverage if the pollution was “sudden and accidental.” After extensive litigation over the meaning of that term, insurers began using the current, “absolute” pollution exclusion.

The Washington Supreme Court previously considered the absolute pollution exclusion in Kent Farms, Inc. v. Zurich Ins. Co. 140 Wn.2d 396 (2000), in which a fuel deliveryman was injured when a farm’s shutoff valve malfunctioned and diesel fuel spilled onto the deliveryman and into his throat and stomach. There, the Court held that the insured’s liability stemmed from negligent maintenance of the valve, not from environmental harm caused by pollution.

This time, however, the Quadrant Court held that Kent Farms was factually distinguishable. Here, the underlying injury and claim were primarily the result of the toxic nature of the pollutant. The Court noted that two Washington Court of Appeals decisions, Cook v. Evanson, 83 Wn. App. 149 (1996) and City of Bremerton v. Harbor Ins. Co., 92 Wn. App. 17 (1998), were more on-point. In those cases, the Court of Appeals held that the absolute pollution exclusion defeated coverage for claims arising from toxic fumes and noxious gases and odors. And even though Kent Farms was decided more recently, that case did not impliedly or expressly reject the reasoning of either Cook or City of Bremerton.

The dissent in Quadrant argued that the “efficient proximate cause” rule should apply to provide coverage. That rule states that if a covered event causes a chain of other events, the last of which would be excluded, there still is coverage. Here, the dissent contended, Pacific was sued for failing to prepare against dispersal of fumes or warning Kaczor against their effects, both of which the dissent claimed would be covered.

Court allows service by publication only after diligent attempts to find defendant

By Marc Rosenberg

A plaintiff’s service of a summons by publication is effective only after he shows diligent efforts to find defendant, that defendant cannot be found, and that defendant is either hiding in Washington or has left the state, the Washington Court of Appeals has held.

In Rodriguez v. James-Jackson, no. 53132-8-I (April 2, 2005), Rodriguez and James-Jackson were involved in an auto accident in March 1998. Later in 1998, James-Jackson and her husband moved from Washington to Texas. She submitted a change-of-address form for the post office and notified her auto insurer of the move.

Two years later, Rodriguez filed suit for his injuries in the accident. In February 2001, Rodriguez’s attorney moved to permit service of the summons by publication and filed a declaration stating that he had tried without success to reach James-Jackson by both regular and registered mail at her old address. The attorney alleged an Internet search for James-Jackson in Washington and Alaska. The court permitted service by publication. After the statute of limitations had run, James-Jackson learned of the suit and moved to dismiss. The trial court granted the motion, and Rodriguez appealed.

The Court of Appeals affirmed, noting that service by publication requires a sworn statement that defendant cannot be found within Washington and is either hiding in the state or has left to avoid creditors or service of process. The controlling statute, RCW 4.28.170, requires not only those allegations, but actual facts to support them. The statute further requires proof of reasonably diligent efforts to find the defendant to effect personal service.

Around The Firm

The Martindale-Hubbell Law Directory has conferred an “AV” rating, its highest, on Michelle A. Corsi. An AV rating denotes both “very high to preeminent” legal ability and the highest ethical standards. Martindale-Hubbell also as conferred a BV rating on Donna M. Young, Alan M. Singer, and William R. Kiendl. A BV rating denotes high to very high legal ability, and again the highest ethical standards. Congratulations to all of these Lee Smart lawyers.

Michael A. Patterson and William L. Cameron successfully defended a community water association in Perino v. Sierra Vista Water Assn., a federal court action brought by one of the community’s residents. Plaintiff alleged that the association had violated the Fair Housing Act by refusing to let him apply for grants in the association’s name. The court granted Mike and Bill’s summary judgment motion.

Tammy L. Williams and Pamela J. DeVet won the appeal of Padilla v. Merchandising Inventives, Inc. In that retailer-liability case, a display hanging from ceiling hooks at a craft store fell and hit plaintiff. She sued the store owner just before the running of the three-year statutory limitation period. The store owner answered after the statute of limitations had run and alleged as an affirmative defense the fault of the seller and the manufacturer of the hooks. Plaintiff later added the hook manufacturer and seller as defendants. On behalf of the manufacturer, Tammy and Pam moved for summary judgment, arguing that the statute of limitations had run. Plaintiff argued that she did not fully appreciate that the hooks could be defective and did not sue the additional defendants until her attorney learned during discovery that they could have played a role in the accident. The trial court disagreed and granted summary judgment, and the Court of Appeals affirmed.

Steven G. Wraith and Melisa K. Thompson won summary judgment of dismissal of Soos Creek Water & Sewer Dist. v. Jet Set Northwest, Inc. v. Shope Enterprises, Inc., a $900,000 claim involving failure of concrete repairs. The court agreed with Steve and Melisa that their client, the product seller, was not liable to the product manufacturer for indemnity and dismissed the third-party complaint.

Jeffrey P. Downer won summary judgment of dismissal of Parkins v. Yagi v. Sumpter, a real-estate malpractice case. Plaintiff property sellers sued the buyers for default on a promissory note. The buyers blamed their default on the sellers’ and the real estate agent’s alleged misrepresentation of the property as being suitable for short platting. Only after losing that argument in arbitration and requesting a trial de novo did the buyers bring a third-party claim against Jeff’s client, the real estate agent. The court agreed with Jeff that by that time, the statute of limitations had run and dismissed the action.

Matthew D. Taylor won summary judgment in Ricci v. Stanford, a counseling-malpractice claim. In opposition to Matt’s summary judgment motion, plaintiff offered a declaration that was inadmissible, which Matt moved to strike. The court granted the motion to strike, leaving plaintiff without proof of the claim, and then granted Matt’s summary judgment motion. ... Alan Singer won dismissal of Dehner v. Sburlino, a rear-end auto-accident case, based on plaintiff’s violations of his discovery obligations. At the outset of the case, Alan propounded discovery, to which plaintiff failed to respond. The judge granted Alan’s motion to compel. Plaintiff violated that order. Alan moved to dismiss, but the court instead continued the trial date. The clerk dismissed the case because no one had appeared for the first trial date. Plaintiff’s counsel then chose to file the same action and obtain a different judge who did not know of the past orders. Alan waited a year as plaintiff’s counsel did nothing, and then renewed his motion to dismiss. The second judge granted dismissal and awarded additional terms to Alan.