Metrou v. M.A. Mortenson Co., No. 14-8030 (7th Cir. 2015)
Annotate this Case
Justia Opinion Summary
Want to stay in the know about new opinions from the Seventh Circuit US Court of Appeals?
Sign up for free summaries delivered directly to your inbox. Learn More ›
You already receive new opinion summaries from Seventh Circuit US Court of Appeals. Did you know we offer summary newsletters for even more practice areas and jurisdictions? Explore them here.
Matichak was injured at work in 2009 and filed a workers’ compensation claim. Matichak filed a Chapter 7 bankruptcy petition in 2010, disclosing the claim, valued at $7,500. About a year after the discharge, Matichak filed a tort suit against firms that, he maintained, had contributed to his injury, seeking substantial damages. Defendants sought summary judgment, because Matichak had not listed any tort claim in his bankruptcy assets. Matichak then notified the Trustee, who reopened the bankruptcy and moved to replace Matichak as the plaintiff in the tort suit. The district court allowed the substitution but held that recovery could not exceed the value of debts that had not been paid in 2010. The Seventh Circuit reversed. The judge did not find that Matichak deliberately hid the tort claim; he claims that he thought that the workers’ compensation claim was his only potential source of compensation. Allowing the tort suit to proceed without a damages cap will allow the Trustee to hire counsel to take the suit on a contingent fee. If Matichak was trying to deceive his creditors, the bankruptcy judge may decide to give the creditors a bonus, or to return any excess to the tort defendants.
Download PDF
In the United States Court of Appeals For the Seventh Circuit ____________________ No. 14- 8030 PETER METROU, Trustee of the Bankruptcy Estate of David Matichak, Plaintiff- Appellant, v. M.A. MORTENSON COMPANY and SCHUFF STEEL COMPANY, Defendants- Appellees. ____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 11 C 9187 — George M. Marovich, Judge. ____________________ SUBMITTED MARCH 2, 2015 — DECIDED MARCH 23, 2015 ____________________ Before FLAUM, EASTERBROOK, and WILLIAMS, Circuit Judg- es. EASTERBROOK, Circuit Judge. David Matichak was injured at work in August 2009 and filed a workers’ compensation claim. Matichak and his wife filed a bankruptcy petition un- der Chapter 7 in September 2010; he disclosed the workers’ compensation claim on his schedule of assets and valued it 2 No. 14- 8030 at $7,500. The bankruptcy court discharged the Matichaks’ debts that December. About a year after the discharge, Matichak filed a tort suit against two firms that, he maintained, had contributed to his injury. The suit sought substantial damages. Defend- ants asked the district judge for summary judgment, observ- ing that Matichak had not listed any tort claim on his sched- ule of assets in the bankruptcy. That omission bars Matichak from prosecuting the suit, for the claim belongs to the Trus- tee while the bankruptcy case is open. See, e.g., Biesek v. Soo Line R.R., 440 F.3d 410 (7th Cir. 2006). We added in Cannon- Stokes v. Potter, 453 F.3d 446 (7th Cir. 2006), that a debtor is judicially estopped from litigating after the bankruptcy ends; having told the bankruptcy court implicitly that any tort claim had no value, and having received a discharge in re- sponse, the debtor is estopped from contending in a later suit that the claim is valuable. See also, e.g., Spaine v. Com- munity Contacts, Inc., 756 F.3d 542 (7th Cir. 2014). In response to the defense motion, Matichak notified the Trustee, who reopened the bankruptcy and moved to re- place Matichak as the plaintiff in the tort suit. This is the ap- proach we had contemplated in Biesek as the appropriate way to deal with a legal asset omitted from bankruptcy schedules. The district court allowed the substitution but then ruled, in response to a further motion by the defend- ants, that the Trustee’s recovery could not exceed the value of the debts that had not been paid in 2010. In other words, the district judge concluded that, although Matichak’s credi- tors may benefit from the tort suit, Matichak himself cannot. The Trustee asked the district judge to certify that ruling for an interlocutory appeal under 28 U.S.C. §1292(b). The No. 14- 8030 3 judge did so, but the initial order omitted the findings re- quired by that statute. (Section 1292(b) permits an appeal on- ly if the district judge finds, “in writing”, that the “order in- volves a controlling question of law as to which there is sub- stantial ground for difference of opinion and that an imme- diate appeal from the order may materially advance the ul- timate termination of the litigation”.) In response to a re- minder, the judge entered a proper certification. Within ten days the Trustee filed a motion asking for our permission to appeal. Defendants maintain that the request is jurisdiction- ally late, but Fed. R. App. P. 5(a)(3) provides that, when a district judge’s initial order lacks essential findings, the time runs from entry of a revised order containing them. See also Weir v. Propst, 915 F.2d 283, 287 (7th Cir. 1990). The application for our permission to appeal therefore is timely, and we grant permission. The district court’s ruling reduces the stakes to a level at which it would not be worthwhile financially for the Trustee to pursue the claim. On the assumption (which we must indulge) that the tort claim is valid, cutting the maximum recovery to the amount of Matichak’s unpaid debts in 2010 would injure the credi- tors even though the district judge’s target was Matichak himself. Moreover, the question the district judge identified as appropriate for review is one on which there is no appel- late precedent in any circuit. The district judge did not find that Matichak deliberately hid the tort claim from his creditors in 2010. True, he did not list a tort claim among his assets, but he maintains that this was because he thought that the workers’ compensation claim (which he did list) was his only potential source of compensation. Not until after the bankruptcy had ended did 4 No. 14- 8030 his lawyers tell him that he might be able to recover in tort from someone other than his employer. Or so he says. The district judge did not hold an evidentiary hearing on the subject, and we therefore must assume that Matichak is tell- ing the truth. The district judge devised a categorical rule that made it unnecessary to decide whether Matichak was trying to de- ceive his creditors. According to the judge, a debtor’s ability to reopen the bankruptcy and turn the claim over to the Trustee expires the moment defendants in a later suit dis- cover its omission from the bankruptcy schedules and assert judicial estoppel. Otherwise, the judge wrote, debtors would be encouraged to conceal their assets from creditors, because sometimes (when the defendants missed the problem) they would cut out the creditors, and if the defendants did see the problem the debtors would be no worse off than if they had made a timely disclosure during the bankruptcy. The ques- tion the judge certified under §1292(b) is whether the right to turn the whole tort claim over to the Trustee in bankruptcy expires as soon as defendants in the tort suit discover the omission from the bankruptcy schedules. (Although we speak here, and throughout, of a tort claim, the legal issue is the same for all kinds of claims, be they tort, contract, em- ployment discrimination, or anything else.) Debtors could gain from hiding choses in action only if defendants in later suits rarely inquire whether the plaintiff passed through bankruptcy between the time the claim arose and the litigation about that claim. If defendants ask routine- ly about bankruptcy, as they have a powerful incentive to do, then the omission will come to light. Some omissions will be culpable and should be punished, if that can be done No. 14- 8030 5 without injuring the creditors too. But other omissions will be innocent—based on poor communication between bank- ruptcy counsel and tort counsel, or based on a belief that the tort claim will not be valuable—and should not be punished. Matichak contends that his omission is among the innocent ones, and the district court did not find otherwise. Instead the district court adopted an approach that throws out all claims omitted from bankruptcy forms, whether or not the omission was culpable—and even if that will injure the cred- itors too, by reducing the stakes to the point where the suit must be abandoned as having a negative value (net of legal expenses). Biesek concludes that principles of judicial estoppel must not be applied in a way that injures innocent creditors as well as culpable debtors. We now add, what should have been apparent, that debtors who make innocent errors should not be punished by loss of their choses in action when they turn the claims over to the Trustees. When as in Cannon- Stokes a debtor stubbornly tries to cut out the credi- tors, then the claim is gone forever. But a debtor who errs in good faith, and tries to set things right by surrendering the asset to the Trustee, remains entitled to any surplus after creditors have been paid, just as would have occurred had the claim been disclosed on the bankruptcy schedules. The Trustee is entitled to pursue this litigation as an asset of the estate in bankruptcy. Whether or not Matichak should have disclosed the claim in the bankruptcy does not matter to a suit maintained by the Trustee, who is not even argua- bly culpable for any misconduct. Reducing the stakes in the tort suit could injure the creditors along with the debtor. 6 No. 14- 8030 Whether Matichak tried to hide the claim in the bank- ruptcy is a question more appropriately addressed to the bankruptcy judge, who can decide (if the Trustee prevails in this tort suit) what disposition to make of any proceeds that remain after paying counsel and the creditors. Allowing the tort suit to proceed without a damages cap will ensure that the creditors receive their due—for the full stakes will allow the Trustee to hire counsel to take the suit on a contingent fee. If it turns out that Matichak was trying to deceive his creditors, the bankruptcy judge may decide to give the credi- tors a bonus, or perhaps to return any excess to the defend- ants in this tort suit. Either way, the creditors will escape in- jury at Matichak’s hands because it will remain economically feasible to prosecute the tort suit. The application for leave to appeal is granted, and the district court’s decision is reversed. (The papers filed in con- nection with the application, supplemented at our request by memoranda addressing two additional questions, make fur- ther briefs unnecessary.) The case is remanded for proceed- ings consistent with this opinion.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
