Valuing Litigation Claims at $0 in Chapter 11 Triggers Judicial Estoppel Against Later Pursuit of Substantial Damages

Introduction

In Royal American Construction, Incorporated v. Roofing Designs by JR, L.L.C., the Fifth Circuit affirmed summary judgment barring Roofing Designs’ counterclaims and bond-related claims on judicial estoppel grounds after Roofing Designs pursued significant damages in district court but treated those same claims as valueless (and initially omitted the Hartford claim) in its Chapter 11 case.

The dispute arose from two 2020 subcontracts on a Houston apartment project. After noncompletion, Roofing Designs recorded mechanic’s and retainage lien affidavits and asserted it was owed money by Royal American and under bonds issued by Hartford Fire Insurance Company. While litigating in federal district court and asserting six-figure (later, over $600,000) damages, Roofing Designs filed Chapter 11 and scheduled its cause of action against Royal American as “unknown” with a $0.00 value and initially made no mention of Hartford. The bankruptcy court later confirmed Roofing Designs’ plan. Royal American and Hartford obtained summary judgment in district court based on judicial estoppel.

Summary of the Opinion

The Fifth Circuit held the district court properly applied judicial estoppel. Roofing Designs’ district-court position (seeking substantial damages) was plainly inconsistent with its bankruptcy disclosures (valuing claims at $0 and initially omitting Hartford). The bankruptcy court “accepted” Roofing Designs’ position by confirming the plan. And the nondisclosure was not inadvertent because Roofing Designs knew of the claims and had a motive to conceal their value (retaining upside while discharging debts). The court therefore affirmed dismissal with prejudice.

Analysis

Precedents Cited

Kane v. Nat'l Union Fire Ins. Co., 535 F.3d 380 (5th Cir. 2008) (per curiam): cited for standards of review—summary judgment is reviewed de novo and application of equitable estoppel for abuse of discretion—framing the appellate lens through which the Fifth Circuit assessed the district court’s ruling.
In re Coastal Plains, Inc., 179 F.3d 197 (5th Cir. 1999): the decision’s backbone. It supplies (i) the definition of judicial estoppel, (ii) the principle that the doctrine protects the judicial process (not opposing-party reliance), (iii) the debtor’s affirmative bankruptcy duty to disclose all assets, including contingent and unliquidated claims, (iv) the standard for “judicial acceptance,” and (v) the “inadvertence” test (knowledge and motive). The panel repeatedly used In re Coastal Plains, Inc. to treat omission/undervaluation in schedules as representing “no such claims exist” and to find motive where concealment could yield financial benefit.
Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011) (en banc): provides the Fifth Circuit’s modern three-factor test for judicial estoppel: (1) plainly inconsistent positions, (2) prior court acceptance, and (3) lack of inadvertence. It also reiterates the doctrine’s purpose—protecting integrity of the judicial process.
New Hampshire v. Maine, 532 U.S. 742 (2001): quoted through Reed v. City of Arlington for the integrity-of-the-judicial-process rationale supporting discretionary estoppel.
Jethroe v. Omnova Sols., Inc., 412 F.3d 598 (5th Cir. 2005): invoked for the proposition that judicial estoppel is “particularly appropriate” when a debtor fails to disclose an asset in bankruptcy but pursues it elsewhere, and for the repeated Fifth Circuit rule that plan confirmation can constitute judicial acceptance of the debtor’s position.
In re Flugence, 738 F.3d 126 (5th Cir. 2013): cited to reinforce that omission (or effectively treating claims as nonexistent/valueless) violates the disclosure duty, and that plan confirmation reflects acceptance for estoppel purposes.
In re Superior Crewboats, Inc., 374 F.3d 330 (5th Cir. 2004): used to support the inference of motive to conceal where nondisclosure can produce a financial benefit; also part of the Fifth Circuit’s consistent bankruptcy-estoppel line.
Love v. Tyson Foods, Inc., 677 F.3d 258 (5th Cir. 2012): cited for the practical point that motive is “almost always met” when a debtor fails to disclose a claim, making the “inadvertence” defense difficult once knowledge is established.
U.S. ex rel. Long v. GSDMIdea City, L.L.C., 798 F.3d 265 (5th Cir. 2015): supports the notion that motive can be shown by the prospect of financial benefit from concealment.
Allen v. C & H Distribs., L.L.C., 813 F.3d 566 (5th Cir. 2015): clarifies timing—motive is assessed at the time the debtor failed to disclose, not after confirmation/discharge or later amendments.

Legal Reasoning

Plain inconsistency: $0 in bankruptcy vs. six-figure litigation. The panel treated Roofing Designs’ bankruptcy schedules and plan disclosures as representations about the existence and value of assets. Given the “express, affirmative duty” to disclose contingent and unliquidated claims (In re Coastal Plains, Inc.), listing the Royal American claim as “unknown” with $0.00—and initially omitting Hartford altogether—was inconsistent with simultaneously pursuing the same litigation in district court and previously representing damages of $227,756.43 (initial disclosures) and over $600,000 (corporate representative testimony). The court emphasized the principle: representing a claim as valueless in one forum and valuable in another is plainly inconsistent.
Acceptance by the bankruptcy court through plan confirmation. Applying In re Coastal Plains, Inc.’s “judicial acceptance” standard and the plan-confirmation cases (including Jethroe v. Omnova Sols., Inc. and In re Flugence), the Fifth Circuit agreed that confirmation of Roofing Designs’ plan amounted to acceptance of the position that there were no meaningful litigation assets to fund the estate—particularly where the plan did not disclose Hartford and valued the Royal American claim at $0.00.
No inadvertence: knowledge + motive to conceal. The court applied In re Coastal Plains, Inc.’s rule that nondisclosure is inadvertent only if the debtor lacked knowledge or lacked motive to conceal. Knowledge was straightforward because Roofing Designs filed the claims before the Chapter 11 petition. Motive was inferred from the potential financial benefit: undervaluing claims could reduce what creditors receive while preserving the upside for the debtor. The court also used Love v. Tyson Foods, Inc. and U.S. ex rel. Long v. GSDMIdea City, L.L.C. to reinforce how readily motive is found, and Allen v. C & H Distribs., L.L.C. to focus the inquiry on the time of nondisclosure rather than later attempted fixes (like amended schedules filed after plan confirmation pressures emerged).
Discretion and purpose: protecting judicial integrity. Consistent with Reed v. City of Arlington and New Hampshire v. Maine, the panel emphasized the doctrine’s institutional purpose. It also reiterated, via In re Coastal Plains, Inc., that detrimental reliance by the opposing party is not required.

Impact

Reinforces a valuation-based estoppel theory: not only outright omission, but also scheduling a known lawsuit as “unknown” and worth $0 can trigger judicial estoppel when the debtor later seeks substantial recovery.
Heightened risk for construction-claim debtors: subcontractors asserting mechanic’s liens, retainage claims, and bond claims must treat those rights as bankruptcy “assets” requiring meaningful disclosure; undervaluation can forfeit the claims entirely, even against sureties like Hartford.
Limited curative value of late amendments: the decision signals skepticism toward amendments made only after plan confirmation and after an adversary flags nondisclosure, aligning with the timing principle in Allen v. C & H Distribs., L.L.C..
Practical litigation consequence: dismissal with prejudice is affirmed, underscoring that judicial estoppel can be case-dispositive rather than merely evidentiary or remedial.

Complex Concepts Simplified

Judicial estoppel: a rule preventing a party from “playing both sides” by taking one position in one court (e.g., “this claim is worth $0”) and the opposite in another (e.g., “this claim is worth $600,000”), when the first court acted on the initial position.
Bankruptcy schedules / disclosure duty: required filings listing a debtor’s assets and liabilities. Lawsuits and potential claims are “assets,” even if the amount is uncertain.
Contingent and unliquidated claims: claims that may depend on future events (contingent) or are not yet reduced to a specific dollar amount (unliquidated). They still must be disclosed.
Plan confirmation: the bankruptcy court’s approval of a Chapter 11 plan. In the Fifth Circuit, confirmation often counts as the court “accepting” the debtor’s representations about assets for judicial estoppel purposes.
Mechanic’s lien / retainage lien: statutory tools that help contractors/subcontractors secure payment by asserting an interest tied to improved property and withheld “retainage.” Even if disputed, related payment rights can be valuable assets that must be disclosed in bankruptcy.
Quantum meruit: an equitable claim seeking the reasonable value of services provided when contract recovery is unavailable or disputed.

Conclusion

The Fifth Circuit’s decision underscores a strict and practical rule: a debtor cannot pursue substantial litigation recoveries after telling a bankruptcy court—explicitly or effectively—that those same claims are worth nothing (or failing to disclose them). By applying the three-part test from Reed v. City of Arlington and the bankruptcy-disclosure framework of In re Coastal Plains, Inc., the court reaffirmed that plan confirmation can lock in the debtor’s prior representations and that “inadvertence” is narrowly construed when knowledge and financial incentive exist. The case is a clear warning that bankruptcy transparency about litigation assets must be both timely and meaningful, or the claims risk being lost entirely through judicial estoppel.