Docket Report: Keathley v. Buddy Ayers Construction Inc.

Judicial estoppel is an equitable doctrine designed to prevent the judicial system from being used for inconsistent purposes. One place this arises is in bankruptcy proceedings—where someone declaring bankruptcy in one court is pursuing (undisclosed) claims in another proceeding. Courts will sometimes block the non-bankruptcy proceeding in these situations, as the undisclosed positive-value claim undermines the integrity of the bankruptcy proceeding. That is basically what happened in Keathley, where Keathley was in bankruptcy, but also had a tort claim related to an auto accident that he did not disclose to the court. The wrinkles in this case are two. First, the equities might favor him more than it might appear—it seems he disclosed the tort claim to his lawyer, who failed to tell the court. Second, the Fifth Circuit has a strict rule in this context: it blocks such a proceeding if there is any “hypothetical motive” to conceal. Applied here, it led to the dismissal of the tort claim. Other circuits apply more holistic assessments that fully account for the equities. During argument, many on the Court seemed skeptical of the Fifth Circuit’s strict rule. The model predicts that the Court will reverse the Fifth Circuit, perhaps nudging them towards a more holistic rule. The most likely dissenter is Alito.