No. 14-­--8030 PETER METROU, Trustee of the Bankruptcy Estate of David Matichak v. M.A. MORTENSON COMPANY and SCHUFF STEEL COMPANY

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

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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

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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

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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

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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.

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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.

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