Judicial Estoppel: Medical Malpractice Claim Survives Omission From Bankruptcy Schedule A/B

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A chapter 7 trustee was allowed to pursue a medical malpractice claim that the debtor had failed to list in her papers, even where the trustee and the debtor had agreed to split the lawsuit proceeds.
In this New Hampshire case, Alward v. Johnston, 2017-0080 (N.H. Dec. 21, 2018), the state’s supreme court disagreed with other courts that the debtor’s conduct in omitting the asset should be imputed to the bankruptcy trustee.
The chapter 7 debtor had consulted with two different law firms before filing bankruptcy. Each firm declined to help her pursue a malpractice case based on failed back surgery. As a result, the debtor believed that the malpractice claim had no merit.
One year after filing chapter 7, the debtor was urged by her ex-husband to consult with another firm about her failed surgery. She found a new law firm which promptly filed a malpractice suit.
The state trial court dismissed the case based upon judicial estoppel, but the New Hampshire Supreme Court reversed, holding that the malpractice case could go forward. The debtor’s failure to list the claim should not be held against her creditors or the trustee, who were innocent of misconduct.
Furthermore, judicial estoppel is an equitable remedy. It would stand equity on its head to provide a windfall to the tortfeasor (the doctors) at the expense of the innocent party (the creditors of the debtor).
It is hoped that this ruling will provide support to debtors who mistakenly fail to list lawsuit rights in their bankruptcy papers.

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