Verdicts

Part of Med-Mal Claim
Proceeds Declared Safe From Creditors

The U.S. Bankruptcy Court for the Eastern District of Tennessee has determined that a debtor is entitled to seek exemption of a portion of potential medical malpractice proceeds from the bankruptcy estate because his tardiness in formally disclosing the claim to his creditors and the bankruptcy trustee was excusable. In re Stiltner, 2012 Bankr. LEXIS 2204 (5/17/12).

Bankruptcy debtor Daniel Kieth Stiltner suffered complications from kidney surgery and is now dependent on dialysis and unable to work. He hired a personal injury attorney to help him seek medical malpractice damages, though it took some time to file the claim. In the meantime, Stiltner filed for bankruptcy protection on Jan. 21, 2011, largely due to the almost $400,000 in uninsured medical expenses incurred following the surgery. Prior to filing his bankruptcy petition, Stiltner discussed his potential medical malpractice claim with his bankruptcy attorney, Thomas Banks. The attorney opined (incorrectly) that the statute of limitations on medical malpractice claims was one year, which would have rendered Stiltner's med-mal suit untimely. Thus, when filing his bankruptcy petition, Stiltner omitted the medical malpractice claim on his “Schedule B ' Personal Property” in response to question 21: “Other contingent and unliquidated claims of every nature ' .”

Despite believing that his medical malpractice claim was no longer viable, Stiltner voluntarily discussed it during the first creditors' meeting, on Feb. 23, 2011, and he continued thereafter to keep the bankruptcy trustee apprised of the developments in the progress of the claim, including the fact that it was finally filed on May 6, 2011. However, he did not file amended Schedules B and C, formally disclosing the claim, until Dec. 7, 2011. In these, he claimed an exemption of $7,500 in the potential medical malpractice award against Johnson City Medical Center (JCMC), two physicians, and their medical group, with an “[u]nknown” value.

Soon thereafter, creditor Mountain States Health Alliance (MSHA), a business affiliate of JCMC, sought judicial estoppel in the U.S. Bankruptcy Court for the Eastern District of Tennessee to the debtor's claim of exemption of the $7,500 portion and a portion of any surplus of the medical malpractice claim from the bankruptcy estate.

The court began its analysis by turning to the U.S. Court of Appeals for the Sixth Circuit's decision in White v. Wyndham Vacation Ownership Inc., 617 F.3d 472 (6th Cir. 2010), which states that in the bankruptcy context, “judicial estoppel bars a party from (1) asserting a position that is contrary to one that the party has asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position, either as a preliminary matter or as part of a final disposition.” White, 617 F.3d at 476. “Applying these judicial estoppel components to the question of whether the Debtor's claimed exemption should be denied is difficult” in this case, stated the court, “because there is no 'prior proceeding' or 'prior court.' Both the Debtor's initial failure to list the potential asset and his subsequent amendment to exempt the asset took place in the same proceeding ' this bankruptcy case ' and before the same court. Moreover, the court questions whether the claim of exemption in an asset after initially failing to list the asset constitutes the assertion of a 'contrary' position as contemplated by the judicial estoppel doctrine, any more than any amendment would represent a contrary position.” The court therefore determined that judicial estoppel did not preclude Stiltner from asserting an exemption because the court had never adopted a contrary position. In addition, White had counseled that “judicial estoppel is inappropriate in cases of conduct amounting to nothing more than mistake or inadvertence.” See White, 617 F.3d at 476 (quoting Browning v. Levy, 283 F.3d 761 (6th Cir. 2002)). Here, the debtor had relied on his bankruptcy attorney's erroneous counsel concerning the viability of his medical malpractice claim, which led him mistakenly to believe he had no claim to disclose at the time of his bankruptcy filing. He had been candid about the medical malpractice claim throughout the proceedings. In addition, his greatest creditor ' which was also the objector here, MSJH ' was the primary target of his medical malpractice claim. Stiltner was therefore unlikely to be able to conceal the medical malpractice claim from them, indicating that he lacked a nefarious motive for doing so. “[W]hile the court does not mean to suggest by anything in this opinion that the Debtor was under no duty to formally amend his schedules in a more timely fashion,” the court stated in conclusion, “his failure is insufficient to demonstrate lack of good faith in light of all of the evidence including his previous full disclosure of the claim on the record.” Therefore, the court found that judicial estoppel was inapplicable to bar the Stiltner's exemption claim to the potential state court medical malpractice proceeds.

Part of Med-Mal Claim
Proceeds Declared Safe From Creditors

The U.S. Bankruptcy Court for the Eastern District of Tennessee has determined that a debtor is entitled to seek exemption of a portion of potential medical malpractice proceeds from the bankruptcy estate because his tardiness in formally disclosing the claim to his creditors and the bankruptcy trustee was excusable. In re Stiltner, 2012 Bankr. LEXIS 2204 (5/17/12).

Bankruptcy debtor Daniel Kieth Stiltner suffered complications from kidney surgery and is now dependent on dialysis and unable to work. He hired a personal injury attorney to help him seek medical malpractice damages, though it took some time to file the claim. In the meantime, Stiltner filed for bankruptcy protection on Jan. 21, 2011, largely due to the almost $400,000 in uninsured medical expenses incurred following the surgery. Prior to filing his bankruptcy petition, Stiltner discussed his potential medical malpractice claim with his bankruptcy attorney, Thomas Banks. The attorney opined (incorrectly) that the statute of limitations on medical malpractice claims was one year, which would have rendered Stiltner's med-mal suit untimely. Thus, when filing his bankruptcy petition, Stiltner omitted the medical malpractice claim on his “Schedule B ' Personal Property” in response to question 21: “Other contingent and unliquidated claims of every nature ' .”

Despite believing that his medical malpractice claim was no longer viable, Stiltner voluntarily discussed it during the first creditors' meeting, on Feb. 23, 2011, and he continued thereafter to keep the bankruptcy trustee apprised of the developments in the progress of the claim, including the fact that it was finally filed on May 6, 2011. However, he did not file amended Schedules B and C, formally disclosing the claim, until Dec. 7, 2011. In these, he claimed an exemption of $7,500 in the potential medical malpractice award against Johnson City Medical Center (JCMC), two physicians, and their medical group, with an “[u]nknown” value.

Soon thereafter, creditor Mountain States Health Alliance (MSHA), a business affiliate of JCMC, sought judicial estoppel in the U.S. Bankruptcy Court for the Eastern District of Tennessee to the debtor's claim of exemption of the $7,500 portion and a portion of any surplus of the medical malpractice claim from the bankruptcy estate.

The court began its analysis by turning to the U.S. Court of Appeals for the Sixth Circuit's decision in White v. Wyndham Vacation Ownership Inc. , 617 F.3d 472 (6th Cir. 2010), which states that in the bankruptcy context, “judicial estoppel bars a party from (1) asserting a position that is contrary to one that the party has asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position, either as a preliminary matter or as part of a final disposition.” White , 617 F.3d at 476. “Applying these judicial estoppel components to the question of whether the Debtor's claimed exemption should be denied is difficult” in this case, stated the court, “because there is no 'prior proceeding' or 'prior court.' Both the Debtor's initial failure to list the potential asset and his subsequent amendment to exempt the asset took place in the same proceeding ' this bankruptcy case ' and before the same court. Moreover, the court questions whether the claim of exemption in an asset after initially failing to list the asset constitutes the assertion of a 'contrary' position as contemplated by the judicial estoppel doctrine, any more than any amendment would represent a contrary position.” The court therefore determined that judicial estoppel did not preclude Stiltner from asserting an exemption because the court had never adopted a contrary position. In addition, White had counseled that “judicial estoppel is inappropriate in cases of conduct amounting to nothing more than mistake or inadvertence.” See White , 617 F.3d at 476 (quoting Browning v. Levy , 283 F.3d 761 (6th Cir. 2002)). Here, the debtor had relied on his bankruptcy attorney's erroneous counsel concerning the viability of his medical malpractice claim, which led him mistakenly to believe he had no claim to disclose at the time of his bankruptcy filing. He had been candid about the medical malpractice claim throughout the proceedings. In addition, his greatest creditor ' which was also the objector here, MSJH ' was the primary target of his medical malpractice claim. Stiltner was therefore unlikely to be able to conceal the medical malpractice claim from them, indicating that he lacked a nefarious motive for doing so. “[W]hile the court does not mean to suggest by anything in this opinion that the Debtor was under no duty to formally amend his schedules in a more timely fashion,” the court stated in conclusion, “his failure is insufficient to demonstrate lack of good faith in light of all of the evidence including his previous full disclosure of the claim on the record.” Therefore, the court found that judicial estoppel was inapplicable to bar the Stiltner's exemption claim to the potential state court medical malpractice proceeds.