Creditor not estopped from asserting claim against alleged guarantor by also making claim in the principal’s bankruptcy

At issue in CSI Worldwide, LLC v. TRUMPF Inc., No. 19-2189 (7th Cir. Dec. 11, 2019) was the scope of the judicial estoppel theory. A trade show exhibitor contracted with an exhibit installer to provide services for a trade show in Chicago. The installer subcontracted some of the work out. The subcontractor was dubious of the contractor’s reliability so it asked the exhibitor to guarantee the payment.

The subcontractor did the work but the contractor did not pay, leading to the contractor to file bankruptcy. The subcontractor made a claim in the bankruptcy but it also filed suit against the exhibitor on theories including unjust enrichment and promissory estoppel. The district court dismissed the suit on the pleadings, ruling that, by making a claim in the contractor’s bankruptcy, the subcontractor necessarily represented that the contractor was the sole debtor. The district court characterized its approach as judicial estoppel.

The Appellate Court reversed. It held that judicial estoppel did not block the subcontractor’s suit, because it has not prevailed by collecting the debt from the contractor’s estate in bankruptcy. Nor was the subcontractor’s claim against the exhibitor “contrary” to its claim against the contractor. It made no assertion in the bankruptcy case that the contractor was solely responsible for payment. It had not tried to recover twice on one debt. “The district court believed that making a claim in bankruptcy necessarily abandons all claims against other potentially responsible persons, but it did not explain why or cite authority. As far as we are aware, there is no such authority to be found. Seeking to recover one debt from multiple persons is common and proper.” The reviewing court cited joint torfeasors and guarantors as “good examples”. Making a claim in bankruptcy against one tortfeasor, or the guarantor’s principal, does not cut off the victim or the creditor’s claims.

The Court also noted that this was not a novel problem, and the Bankruptcy Code in fact provides the answer. Filing a claim in bankruptcy does not foreclose claims against non-bankrupt obligors. Even a discharge in bankruptcy does not do that. 11 U.S.C. § 524(e).

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