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Truth in Lending: 11.3.4.1.4 Standing in chapter 13 bankruptcy

In a chapter 13 case, the debtor normally has the right to control any litigation because the debtor remains in possession of all property of the estate.290 Thus, most courts have held that a chapter 13 debtor has standing to pursue a prepetition legal claim.291 As in chapter 7, the debtor must list any prebankruptcy legal claims on the schedule of assets.

Truth in Lending: 11.3.4.2.1 General

Practitioners are more likely to see bankruptcy standing issues raised after a bankruptcy case has closed, rather than while it remains open. Because of a peculiar twist in bankruptcy law, the bankruptcy standing problem may turn up as a surprise many years after a bankruptcy. Standing difficulties arise when the consumer omitted an existing legal claim from past bankruptcy schedules and seeks to pursue the claim later.

Truth in Lending: 11.3.4.3.1 General background

In addition to facing standing problems, debtors may be judicially estopped from pursuing unscheduled claims after bankruptcy.321 Judicial estoppel is an equitable doctrine intended to protect the integrity of the court by preventing a party from intentionally changing positions in litigation depending upon the “exigencies of the moment.”322 The doctrine precludes a party from asserting a claim in a legal proceeding inconsistent with a claim the same party made in a previous proceeding.

Truth in Lending: 11.3.4.3.3 Judicial estoppel and mistake or inadvertence

Judicial estoppel is never appropriate when the party’s assertion of a prior inconsistent position was due to mistake or inadvertence.351 The omission of the legal claim from the bankruptcy schedules must have been intentional.352 Consumers filling out bankruptcy schedules seldom meet this requirement with respect to TILA claims. They were often completely unaware that the claims existed when they signed off on the list of their assets.

Truth in Lending: 11.3.4.3.4 The effect of dismissal, plan confirmation, and relief from the stay

A court’s adoption of the party’s asserted position in the prior proceeding is a required element of judicial estoppel.374 In the bankruptcy context, the debtor party must have received an unfair advantage from the bankruptcy court’s acceptance of its position. Depending on the circumstances, a party may be able to dispute whether the bankruptcy court “accepted” a debtor’s position that included an omission from schedules.

Truth in Lending: 11.3.4.3.5 Postpetition legal claims

As was true for the analysis of standing, the claim’s inclusion in the bankruptcy estate depends on when the claim arose. Practitioners should examine when the incidents that gave rise to the TILA claims took place.

Truth in Lending: 11.3.4.3.7 Rescission and other equitable clams

If properly planned with a view toward exemptions, a rescission should not produce nonexempt equity that must be liquidated for the benefit of creditors. In most instances there should be no valid argument that the omission of a TILA rescission claim was motivated by bad faith. In general, claims for injunctive relief are not subject to judicial estoppel: they do not produce cash assets for a bankruptcy estate.399 The same should be true for a TILA rescission claim.

Truth in Lending: 11.3.4.3.8 State law standards

Practitioners should also consider whether state law, rather than federal law, sets the standard for judicial estoppel in a given case. For example, when the consumer raises TILA claims in a state court foreclosure action, state law standards for judicial estoppel should apply.

Truth in Lending: 11.3.4.3.9 Class actions

Judicial estoppel also arises in the context of class actions. Defendants opposing class certification motions have raised both bankruptcy standing and bankruptcy judicial estoppel arguments against proposed class representatives.

Truth in Lending: 11.5.1 Availability of Declaratory and Injunctive Relief

Injunctive and declaratory relief are not specifically mentioned in TILA, but a number of courts have found such relief available.434 District courts have inherent power to issue equitable relief. In Califano v. Yamasaki,435 the Supreme Court held that “[a]bsent the clearest command to the contrary from Congress, federal courts retain their equitable power to issue injunctions in suits over which they have jurisdiction.”

Truth in Lending: 11.5.2.2.1 Nature of Younger abstention

The first hurdle to declaratory and injunctive relief when there is a related state court proceeding is the Younger abstention doctrine. The circumstances justifying Younger abstention are “exceptional,” and “[a]bstention is not in order simply because a pending state-court proceeding involves the same subject matter.”452

Truth in Lending: 11.5.2.2.4 How courts have applied Younger in TILA rescission cases

Since a TILA rescission case is solely between two private parties and is not a challenge to any state court procedure, Younger abstention should not bar a federal court from enjoining a pending state court foreclosure if the plaintiff can meet the other requirements for injunctive relief.485 The Ninth Circuit reached this conclusion in a case involving eviction of a tenant after foreclosure:

Truth in Lending: 11.5.2.4.1 The Act and its exceptions

Another potential impediment is the Anti-Injunction Act, which prohibits federal courts from granting injunctions to stay proceedings in state courts.506 Courts have ruled that the term “proceedings” includes foreclosure sales scheduled to enforce state court judgments.507 The Act applies only when there is a pending state proceeding, not where a state proceeding is merely threatened508 or has concluded.

Truth in Lending: 11.5.2.5.2 Where the consumer is the defendant in the federal case

According to the Supreme Court’s formulation, the doctrine applies only to federal cases “brought by” state court losers.534 Sometimes, the consumer will be the defendant rather than the plaintiff in the federal suit. For example, the doctrine would not apply if a creditor that won a state court foreclosure judgment then filed an action in federal court seeking a declaratory judgment that the consumer’s rescission attempt was invalid. In that case, the consumer could fully litigate their rescission claim in a defensive posture.

Truth in Lending: 11.5.2.5.5 Where the federal parties are different than the state parties

The Supreme Court has made it clear that the Rooker-Feldman doctrine does not apply if the federal plaintiff was not a party to the state case.550 Even if the federal plaintiff is in privity with a party to the state case, the doctrine does not apply.551 Thus, a prior state court judgment against one of two co-owners of a home will not be a basis for invoking the doctrine to bar a federal suit by the other co-owner.552 An inter

Truth in Lending: 11.5.2.5.4 Where state case had not reached final judgment before federal case filed

The doctrine does not apply at all if the state court case has not gone to judgment at the time the federal suit is filed.539 Thus, parallel cases in state and federal court are unaffected by the Rooker-Feldman doctrine, and the two cases may proceed simultaneously.540 And since foreclosure cases often go through a number of stages, the consumer may be able to avoid the doctrine by arguing that whatever ruling the state court has rendered is not a final state court judgment.

Truth in Lending: 11.5.2.5.3 Cases removed from state court

The interplay between the federal courts’ removal jurisdiction and the Rooker-Feldman doctrine presents at least two special issues. First is whether the doctrine prevents a federal court from reviewing or modifying orders or judgments that were entered by a state court before removal. The answer is clearly no.

Truth in Lending: 11.5.2.5.8 Other related obstacles

Even if the Rooker-Feldman doctrine is inapplicable, res judicata (claim preclusion) or collateral estoppel (issue preclusion) may prevent the consumer from litigating issues in federal court that were or could have been raised in the state court proceedings.585 A federal court is required to give a state court judgment the same preclusive effect as a state court would.586 In addition, comity or abstention may allow or require a federal court to stay or dismiss a federal court a