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Indiana personal injury plaintiff gets to have her cheddar biscuits and eat them too

6/12/24

By: Donald Patrick Eckler and Joshua W. Zhao

In Red Lobster Restaurants, LLC v. Fricke, No. 23S‐CT‐304, the Indiana Supreme Court held that omission of a lawsuit from a bankruptcy asset schedule does not deprive a plaintiff of standing. Additionally, curing the omission prevents judicial estoppel from barring the claim. 

Abigail Fricke filed for Chapter 13 bankruptcy in 2017. She included a schedule of assets in her filing. In 2020, Fricke filed a personal injury lawsuit against Red Lobster, but did not update her bankruptcy asset schedule and responded to an interrogatory from Red Lobster stating that she never declared bankruptcy. When Red Lobster discovered Fricke’s bankruptcy, Red Lobster moved for summary judgment, arguing that Fricke lacked standing because undisclosed assets are the property of the bankruptcy estate and judicial estoppel barred her claim because she represented to the bankruptcy court that she had no personal injury claim. 

Fricke amended her bankruptcy asset schedule to disclose the lawsuit against Red Lobster and argued that her failure to update her bankruptcy asset schedule and her misstatement in her interrogatory answer were innocent oversights. There was no opposition to Fricke’s amendment in her bankruptcy case, although her bankruptcy case was dismissed as Fricke fell behind on payments. The trial court denied Red Lobster’s motion for summary judgment, which the court of appeals affirmed. Red Lobster successfully petitioned for transfer to the Indiana Supreme Court. 

The Indiana high court made two holdings. First, the Indiana Supreme Court held that Fricke had standing because she had “a demonstrable injury allegedly caused by” Red Lobster. Even if Fricke was not the real party in interest because the claim must be pursued on behalf of the bankruptcy estate, the proper resolution would be to allow the trustee to be substituted in as the plaintiff rather than to dismiss the case. However, since Fricke disclosed the lawsuit in her bankruptcy and her bankruptcy was dismissed, Fricke is permitted to pursue the lawsuit on her own behalf and she had standing to do so. 

Second, the Indiana Supreme Court held that judicial estoppel does not bar Fricke’s claims as Fricke’s amendment did not affect the bankruptcy proceedings nor the debt discharge. Judicial estoppel only applies when an inconsistent position is acted on by the court. Since Fricke did not prevail on an inconsistent position, there is no judicial estoppel. The Court noted that even after Fricke amended her asset schedule, the bankruptcy court, the bankruptcy’s trustee, and Fricke’s creditors did not seek relief. The Court explained that if the federal court has no good reason to support a sanction for Fricke’s omission, the state courts do not either. 

Since plaintiffs can easily avoid a penalty for non-disclosure of a lawsuit in bankruptcy proceedings, defendants should be prepared to inquire about bankruptcies that the plaintiffs might be involved in because disclosure might not necessarily be forthright.  

Please do not hesitate to contact Patrick Eckler at Patrick.Eckler@fmglaw.com or your local FMG relationship partner to discuss this important opinion or for any related Tort questions.