Latham Secures Important Supreme Court Victory for Everyday Bankruptcy Filers
The US Supreme Court handed a unanimous victory to our client, an individual debtor whose personal-injury lawsuit had been thrown out because he failed to promptly disclose the claim during his Chapter 13 bankruptcy proceedings. This victory ensures that courts can no longer dismiss a debtor’s legal claims outside of bankruptcy based on a rigid presumption of bad faith, and instead must consider the full circumstances before finding that a debtor’s omission in disclosing a claim was purposeful — a shift that will protect debtors, creditors, and the integrity of the bankruptcy system alike.
Latham successfully briefed and argued the case on behalf of Thomas Keathley, a Mississippi man of modest means who was seriously injured when a truck driven by an employee of Buddy Ayers Construction struck his vehicle, injuring him and permanently reducing his earning capacity. Mr. Keathley informed his bankruptcy counsel of the accident shortly afterward, but the claim was not formally listed on his bankruptcy schedules. When Buddy Ayers Construction learned of the lawsuit, it invoked the doctrine of judicial estoppel to have the case dismissed — arguing that the failure to disclose the claim should bar Mr. Keathley from pursuing it entirely.
The lower courts agreed, applying the Fifth Circuit’s rigid two-part test that treated a failure to disclose a claim as purposeful whenever the debtor knew the facts underlying the claim and had a hypothetical motive to conceal it — conditions that are nearly always present in any bankruptcy. Latham convinced the Supreme Court to grant certiorari, and then prevailed unanimously on the merits. The Court agreed with Latham that the Fifth Circuit’s rigid rule was incorrect and that courts must instead examine the totality of the circumstances to determine whether a debtor’s omission was genuinely inadvertent or mistaken. This decision will have real consequences for the hundreds of thousands of American households who file for bankruptcy each year, most of them ordinary people who do not realize a potential lawsuit counts as a disclosable “asset.” Going forward, those debtors will no longer lose legitimate claims — and creditors will no longer lose potential recoveries — based on a near-automatic presumption that an honest mistake was intentional fraud.
The Latham team was led by Washington, D.C. partner Greg Garre (who argued the case before the Supreme Court in March). Washington, D.C. associate Christina Gay and New York associate Kristin Holladay led the briefing on the case, and New York associate Bapu Kotapati assisted. Partners Roman Martinez, Melissa Sherry, Samir Deger-Sen and associates Christine Smith, Ben Harris, and Soren Schmidt served as moot court judges.