Kunica v. St. Jean Fin., Inc

In Kunica v. St. Jean Fin., Inc. (233 B.R. 46 [SD NY 1999]), the plaintiff, Richard Kunica, alleged that he was the assignee of certain claims or causes of action belonging to a business entity, Sci-O-Tech. Sci-O-Tech had been wholly owned by a company controlled and led by Kunica as its president. On September 14, 1994, Sci-O-Tech filed a voluntary chapter 11 petition in the Bankruptcy Court for the Eastern District of Pennsylvania. A year later, on September 27, 1995, upon the joint motion of the trustee and the debtor, the Sci-O-Tech bankruptcy proceeding was dismissed. The assignment of the claims to Kunica came five months later on February 27, 1996. That was followed, on March 27, 1997, by Kunica's commencement of an action on one of the assigned claims in Supreme Court, New York County, which became the case removed to the Southern District. The defendants subsequently moved for summary judgment on the ground that Kunica, as a result of judicial estoppel, lacked standing to sue. The asserted judicial estoppel rested on the fact that Kunica's assignor, Sci-O-Tech, had failed to disclose the existence and the value of the now assigned claim during pendency of its chapter 11 case. Conceding that Sci-O-Tech's failure to disclose and schedule in its bankruptcy proceeding the claim now sued upon would deprive him of standing and legal capacity to assert it postbankruptcy if Sci-O-Tech had been granted a discharge or if a plan of reorganization had been approved by the Bankruptcy Court, Kunica rested his opposition to the summary judgment motion front and center on section 349 of the Bankruptcy Code. The Bankruptcy Court, he argued, had simply dismissed the chapter 11 proceeding without making any further order and, therefore, Sci-O-Tech should have been automatically restored to the status it had prior to the filing of the chapter 11 petition. As a result, Kunica argued further, full right and title to all of Sci-O-Tech's property, including claims and causes of action like the one being advanced in the removed action, belonged without any strings attached to Sci-O-Tech and were, consequently, properly assignable to him. The District Court rebuffed the plaintiff's feint. (Id. at 53.) At its foundation, the decision in Kunica viewed any "safe harbor" that section 349 might afford the debtor or its postproceeding assignees against a lack of standing argument to be an unjust reward for the debtor's failure to make proper disclosure in the dismissed bankruptcy proceeding. The court held (at 54): "The parties do not cite and independent research has not revealed any authority dealing with the effect of dismissal on non-disclosed claims. However, the key issue in this case is not dismissal nor discharge, but disclosure."