BANKRUPTCY CORNER
BANKRUPTCY CORNER
Judicial Estoppel When Debtor Fails to Disclose a Cause of Action
JASON S. RIGOLI
On January 13, 2026, the Fifth Circuit issued a non-precedential opinion on the application of judicial estoppel where the debtor failed to disclose a cause of action on its schedules. See Roofing Designs by JR LLC v. Royal American Construction
Inc., Case No. 25-20048, 2026 U. S. App. LEXIS 824, 2026 WL 94972( 5th Cir. Jan. 13, 2026). The opinion came down after the United States Supreme Court granted certiorari on the issue to resolve a circuit split on the application of judicial estoppel for a debtor’ s non-disclosure of a cause of action. Keathley v. Buddy Ayres Construction, Inc., 25-6( Sup. Ct.).
Currently, the Fifth and Tenth Circuits essentially“ employ a‘ rigid’ and‘ unforgiving’ rule that permits judicial estoppel whenever the debtor knew the facts underlying his claim and there is a plausible motive to conceal it, which is virtually always present given the financial implications of bankruptcy.” See Petition for Writ of Certiorari, p. 2( emphasis in original)( citing Keathley v. Buddy Ayres Construction, Inc., 686 F. Supp. 3d 495, 502-03( N. D. Miss. 2023)). On the other hand, the Eleventh, Ninth, Seventh, Sixth, and Fourth Circuits require that the debtor intended to mislead the bankruptcy court before employing judicial estoppel. See Slater v. United States Steel Corp., 871 F. 3d 1174( 11th Cir. 2017)( requiring evidence of intent to mislead).
The Supreme Court has not yet set oral argument in Buddy Ayres and briefing continues.
However, with respect to the recent Fifth Circuit opinion, it appears that the facts of the case actually go beyond the mere failure to disclose. In Royal American Construction, the litigation had been pending in federal court prior to the filing of bankruptcy, in which the debtor had filed counterclaims and third-party claims against a bond, and stated it was seeking $ 227,756.43 in damages while its corporate representative testified it was seeking of $ 600,000. 2026 U. S. App. LEXIS 824 at * 1-3 and 6. Meanwhile the debtor scheduled that it had an“ unknown” cause of action against the counter-defendant with a value of $ 0.00. Id. at * 3. The debtor then filed its Chapter 11 plan of reorganization, in which the debtor said it“ believe [ d ]” it ha“ numerous claims,” but that the claims were speculative and provided no value to the estate and then confirmed a plan based upon the claims( which were already pending) as being valueless. Id. at * 3-4. As a result of the non-disclosure of the true value of the claims not only in the schedules but also in connection with confirmation of the plan, the counter- and third-party defendants jointly moved for summary judgment, which was granted based upon judicial estoppel. Id.
It would appear, at least by my reading of Royal American, that the failure to disclose in this case satisfies the standard under all circuit precedent, especially where the debtor confirms a plan based upon the representation that the claims are valueless. Such a confirmation may also result in the application of res judicata, or claim preclusion, under the circumstances. See Iberiabank v. Geisen( In re FFS Data, Inc.), 776 F. 3d 1299, 1306( 11th Cir. 2015)(“ A bankruptcy court ' s confirmation order that is final and no longer subject to appeal becomes res judicata to the parties and those in privity with them.)( citations and quotation marks omitted)).
Conclusion
Currently, in this Circuit the party seeking to apply judicial estoppel for failing to disclose must demonstrate subjective intent of the debtor to mislead the courts. We will see what the Supreme Court has to say in short order.
This article submitted by Jason S. Rigoli, Esq., Furr and Cohen, P. A., 2255 Glades Road, Suite 419A, Boca Raton, FL 33431, jrigoli @ furrcohen. com
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