Recent Case Summary

Previous stipulation with creditor did not bar Trustee’s avoidance action

The Trustee and a creditor agreed to a post-petition loan from the creditor to the bankruptcy estate to fund actions brought by the Trustee for the estate. The joint motion for Court approval of the agreement stated that the creditor “has a valid perfected lien” pursuant to a pre-petition judgment and service of a “citation to discover assets which was served…more than 90 days prior to the filing of the petition….” The Trustee subsequently brought an action against the creditor, asserting that service of the “citation to discover assets” was ineffective to create a statutory lien against the property. The creditor moved for judgment on the pleadings, asserting the doctrines of judicial estoppel, promissory estoppel and law of the case. In re CMGT, Inc., 384 B.R. 497 (Bkrtcy.N.D.Ill. 2008).

Judge Squires found judicial estoppel to be an equitable concept designed to prevent perversion of the judicial process, invoked at the Court’s discretion. Here, the Court found it would be inappropriate to impose estoppel. Though the financing order contained a “recitation with respect to the status” of the lien, its priority had not been determined by the Court. The Court held it would be a “perversion of the judicial process” to apply equitable estoppel at this stage of the proceeding, based solely on a prior stipulation between the parties. Likewise, the Court found that factual issues existed as to whether the financing order constituted an unambiguous promise by the Trustee, justly relied upon to the creditor’s detriment, as was required for application of promissory estoppel. Finally, the law of the case doctrine was found to apply only where the Court actually decides the issue in question, which had not occurred with regard to the stipulation in the financing order.