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Wallick v. Period Homes Ltd.

Judicial estoppel did not bar plaintiff's claim that defendant breached a contract to buy a bankruptcy asset, even though he did not add the claim to his bankruptcy asset schedule, because the claim was a proceed or product of a scheduled bankruptcy estate asset.

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The question on appeal is whether a Chapter 11 bankruptcy debtor, whose petition has been discharged after all debts are paid, is judicially estopped from pursuing a claim against a party who allegedly breached a contract to buy the bankruptcy estate’s primary asset, which claim was never added to the bankruptcy’s asset schedule. We hold that the cause of action was a proceed or product of a scheduled asset of the bankruptcy estate and that no clear mandate obligated the debtor to supplement the asset schedule to add this as a separate asset. Accordingly, judicial estoppel does not apply to bar the action.

While in a Chapter 11 bankruptcy, Douglas Wallick as debtor-in-possession contracted to sell the bankruptcy estate’s primary asset-real estate owned by him and some co-tenants-to Period Homes, Ltd.1 for $800,000. Period Homes terminated the contract, ostensibly because it could not timely obtain needed governmental approvals for the proposed use of the property. The landowners then sold the property to another party for $730,000. The bankruptcy was converted to a Chapter 7 bankruptcy, and after the Chapter 7 trustee paid all claims, the trustee had surplus proceeds of $61,000, which he turned over to Wallick.

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