Texas Court Dismisses ERISA Lawsuit due to Judicial Estoppel

The case of Kidd v. The Prudential Insurance Company of America demonstrates the importance of disclosing all potential assets on a bankruptcy petition. This includes an administrative claim for long-term benefits and potential for a lawsuit if those benefits are denied. Because of the plaintiff’s claim she had no assets in Bankruptcy Court, she was judicially estopped from pursing her ERISA lawsuit in the Texas federal District Court, since long-term disability benefits and causes-of-actions to receive them are considered an asset.

Factual Background

Plaintiff Cassandra Kidd, employee of Kimberly-Clark Corporation, filed a claim for long-term disability benefits on January 7, 2013. Her claim was subsequently denied and she appealed. On March 11, 2016, she was informed that she had exhausted her administrative remedies and subsequently, on August 11, 2016, she filed this ERISA lawsuit.

Meanwhile, on February 3, 2015, plaintiff filed a petition for bankruptcy, stating she had no assets and was given a no asset discharge on June 15, 2016. At no time did she ever disclose that she had a pending claim for claim for long-term disability benefits. When she was informed her claim had been denied, she failed to disclose that she had the potential for filing an ERISA cause-of-action and would be doing so.

ERISA Lawsuit Barred by Judicial Estoppel Doctrine

The common law doctrine of judicial estoppel prevents parties to litigation from taking inconsistent positions in different court actions. There are three principles, all of which the Texas District Court determined plaintiff violated.

1. Parties cannot present one position in a court proceeding that is inconsistent with their “prior legal position.” Here, plaintiff claimed in the bankruptcy proceeding she had no assets, even though her potential for receiving long-term disability benefits, either directly from Prudential or by way of the ERISA cause of action, are considered assets by the bankruptcy court. The plaintiff conceded that her claim of no assets in bankruptcy court was inconsistent with her pursuit of disability benefits in the ERISA court.

2. A court accepted the prior position. Again, the plaintiff agreed that the bankruptcy court accepted her position that she had no assets.

3. The party did not act inadvertently. Inadvertently is interpreted as when the failure to disclose was because “the debtor either lacks knowledge of the undisclosed claims or has no motive for their concealment.” The court held that plaintiff had “both knowledge of the undisclosed claim and a motive to conceal the claim.” Therefore, her action was not inadvertent.

The Court ultimately concluded, “Plaintiff has the potential to collect on her insurance claim after having received the benefit of failing to disclose it to her creditors in her bankruptcy proceeding, a windfall that the judicial estoppel doctrine is designed to prevent.”

This case was not handled by our office, but we think it is instructive to those who may be considering filing for bankruptcy, or are already in the process of bankruptcy, while pursuing their claim for disability benefits. If you have questions about this case, or any questions concerning your own disability claim, contact one of our disability attorneys at Dell & Schaefer for a free consultation.

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