Filed: Apr. 15, 1996
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 1996 Decisions States Court of Appeals for the Third Circuit 4-15-1996 Ryan Operations GP v. Santiam-Midwest Precedential or Non-Precedential: Docket 95-3250 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996 Recommended Citation "Ryan Operations GP v. Santiam-Midwest" (1996). 1996 Decisions. Paper 197. http://digitalcommons.law.villanova.edu/thirdcircuit_1996/197 This decision is brought to you for free and open access by the Op
Summary: Opinions of the United 1996 Decisions States Court of Appeals for the Third Circuit 4-15-1996 Ryan Operations GP v. Santiam-Midwest Precedential or Non-Precedential: Docket 95-3250 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996 Recommended Citation "Ryan Operations GP v. Santiam-Midwest" (1996). 1996 Decisions. Paper 197. http://digitalcommons.law.villanova.edu/thirdcircuit_1996/197 This decision is brought to you for free and open access by the Opi..
More
Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
4-15-1996
Ryan Operations GP v. Santiam-Midwest
Precedential or Non-Precedential:
Docket 95-3250
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996
Recommended Citation
"Ryan Operations GP v. Santiam-Midwest" (1996). 1996 Decisions. Paper 197.
http://digitalcommons.law.villanova.edu/thirdcircuit_1996/197
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1996 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
----------
No. 95-3250
----------
RYAN OPERATIONS G.P., a Virginia General Partnership
and NVR, L.P., a Virginia Limited Partnership,
on behalf of its division, NVR BUILDING PRODUCTS CO.
v.
SANTIAM-MIDWEST LUMBER CO., an Oregon Corporation;
FURMAN LUMBER, INC., a Massachusetts Corporation;
BRIGHT WOOD CORP., an Oregon Corporation
BRIGHT WOOD CORP.,
Third Party Plaintiff
v.
FORREST PAINT CO., INC., an Oregon Corporation;
GUARDSMAN PRODUCTS, INC., a Delaware Corporation,
Third Party Defendants
Ryan Operations G.P. and NVR, L.P. and
its division, NVR Building Products Co.,
Appellants
----------
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 92-2480)
----------
Argued: December 4, 1995
BEFORE: SLOVITER, Chief Judge, STAPLETON
and SAROKIN, Circuit Judges
----------
(Opinion filed April 15, 1995)
Robert B. Cave, Esq.
David G. Leitch, Esq. (ARGUED)
1
Hogan & Hartson
555 13th Street, N.W.
Washington, DC 20004-1109
Richard F. Rinaldo, Esq.
Meyer, Unkovic & Scott
1300 Oliver Building
Pittsburgh, PA 15222
Attorneys for Appellants,
Ryan Operations G.P.;
NVR LP, and its division
NVR Building Products Co.
Stephen J. Poljak, Esq.
Anstandig, Levicoff, McDyer,
Burdette & Yurcas
707 Grant Street
600 Gulf Tower
Pittsburgh, PA 15219
Attorney for Appellees,
Santiam-Midwest Lumber Co.
Louis C. Long, Esq.
Meyer, Darragh, Buckler,
Beberick & Eck
2000 The Frick Building
Pittsburgh, PA 15219
Attorney for Appellees,
Furman Lumber Inc.
Louis C. Long, Esq.
Meyer, Darragh, Buckler,
Beberick & Eck
2000 The Frick Building
Pittsburgh, PA 15219
Michael K. Atkinson, Esq.
Thomas M. Buchanan, Esq.
Michael L. Sibarium, Esq. (ARGUED)
Winston & Strawn
1400 L Street, N.W.
Washington, DC 20005
Attorneys for Third Party Plaintiff,
Bright Wood Corp.
2
Randy K. Hareza, Esq.
Burns, White & Hickton
120 Fifth Avenue
Suite 2400
Pittsburgh, PA 15222-3001
Attorney for Third Party Defendant,
Forrest Paint Co. Inc.
Norbert F. Kugele, Esq.
Warner, Norcross & Judd
111 Lyon Street, N.W.
900 Old Kent Building
Grand Rapids, MI 49503
Attorney for Third Party Defendant,
Guardsman Products Inc.
----------
OPINION OF THE COURT
----------
SAROKIN, Circuit Judge:
This case raises issues concerning the application and scope
of the doctrine of judicial estoppel. The district court, upon
recommendation of a United States Magistrate Judge, granted
summary judgment in favor of defendants on the theory that
plaintiff, having failed to disclose its claims against
defendants as a contingent asset in its Chapter 11 bankruptcy
proceedings, was judicially estopped from seeking to recover on
those claims. For the reasons that follow, we will reverse.
I.
3
Ryan Operations, plaintiff in this matter1, is in the
business of constructing homes. This action arises out of a
commercial dispute between Ryan and the manufacturer and
suppliers of primed Fingerjointed Ponderosa Pine wood trim that
Ryan purchased between January 1988 and June 1991 and used in the
construction of several thousand new homes. Ryan purchased the
wood trim from Santiam-Midwest Lumber Co. ("Santiam") from
January 1988 to March 1990, and from Furman Lumber, Inc. from
March 1990 to June 1991. The trim was manufactured by Bright
Wood Corporation.
In July 1989, Ryan began receiving complaints from
homeowners that the paint and underlying primer were peeling off
the Ponderosa Pine trim on their new homes. Ryan informed
Santiam of the problem, and Santiam suggested that Ryan switch to
a different brand of primer. Ryan did so, but the problems
continued and the complaints increased. As a result, Ryan
instituted a consumer repair program in the fall of 1991,
pursuant to which it has repainted and/or replaced the wood trim
on hundreds of houses. Ryan is currently engaged in the costly
process of replacing the trim on Ryan homes in several states.
In April 1992, Ryan filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code. In re NVR L.P., No. 92-
1
Co-plaintiff in this matter is NVR, L.P., a limited partnership
suing on behalf of its division NVR Building Products Company.
Through a merger or series of mergers, a corporation entitled
NVR, Inc. has become the successor in interest of NVR, L.P. and
the parent corporation of NVR Homes, Inc. NVR Homes, Inc., also
through a merger, has become the successor in interest of Ryan
Operations. For simplicity's sake, we will refer to plaintiffs
in this matter simply as "Ryan" or "plaintiff."
4
11704-T (Bankr. E.D. Va. Apr. 6, 1992). The following month it
filed its Schedule of Assets and Liabilities and Statement of
Financial Affairs pursuant to Bankruptcy Code § 521. Although
the Code requires the debtor to disclose all claims and causes of
actions as contingent assets, Ryan did not mention any potential
claims that it might have from the allegedly defective Ponderosa
Pine trim.
In June 1992, the bankruptcy court entered an order
authorizing Ryan to retain counsel to represent Ryan in lawsuits
by and against it in the ordinary course of business. Among the
"Routine Claims" that Ryan listed for the bankruptcy court were a
class of "homeowners claims," nonspecifically defined as claims
"by or against contractors or suppliers or relating to or arising
out of the provision of services or material to the Debtors."
App. 189-90. The court authorized Ryan to pursue and/or defend
itself against such claims.
Subsequently, in December 1992, while the bankruptcy
proceeding was still pending, Ryan filed suit in district court
against Bright Wood, Santiam and Furman Lumber, alleging various
breach of warranty claims arising out of the sale and manufacture
of the Ponderosa Pine trim and seeking to recover the costs
incurred in its consumer repair program.
In July 1993, without ever having been specifically informed
of the pending lawsuit or the potential for recovery, the
bankruptcy court confirmed Ryan's reorganization plan. Ryan
emerged from bankruptcy the following month.
5
In September 1994, defendant Bright Wood moved for summary
judgment on judicial estoppel grounds, arguing that Ryan's
failure to inform the bankruptcy court of its warranty claims
against Bright Wood precluded Ryan from pursuing those claims in
the district court. Santiam, Furman, and the third-party
defendants (who manufactured the primers used on the wood trim)
joined in Bright Wood's motion. Upon recommendation of a United
States Magistrate Judge, the district court granted summary
judgment against Ryan on March 21, 1995, on the ground of
judicial estoppel alone. From that ruling, Ryan appeals.
II.
The district court had jurisdiction pursuant to 28 U.S.C.
§1332(a)(1). We have appellate jurisdiction pursuant to 28
U.S.C. § 1291.
III.
We exercise plenary review over the district court's order
granting summary judgment. Mark v. Borough of Hatboro, 51 F.3d
1137, 1141 (3d Cir.), cert. denied,
116 S. Ct. 165 (1995).
IV.
Judicial estoppel, sometimes called the "doctrine against
the assertion of inconsistent positions," is a judge-made
doctrine that seeks to prevent a litigant from asserting a
position inconsistent with one that she has previously asserted
in the same or in a previous proceeding. It is not intended to
eliminate all inconsistencies, however slight or inadvertent;
rather, it is designed to prevent litigants from "playing 'fast
and loose with the courts.'" Scarano v. Central R. Co. of New
6
Jersey, 203 F.2d 510, 513 (3d Cir. 1953)(citation omitted). "The
basic principle . . . is that absent any good explanation, a
party should not be allowed to gain an advantage by litigation on
one theory, and then seek an inconsistent advantage by pursuing
an incompatible theory." 18 Charles A. Wright, Arthur R. Miller
& Edward H. Cooper, Federal Practice and Procedure § 4477 (1981),
p.782.
Ryan raises four issues regarding the scope and application
of judicial estoppel for our review: (1) whether the district
court erred in applying judicial estoppel at the request of one
who was neither a party to the prior proceeding nor in privity
with a party to that proceeding; (2) whether the district court
erred in applying judicial estoppel because Ryan derived no
benefit from its failure to disclose these potential claims in
the bankruptcy proceedings; (3) whether the district court erred
in concluding that Ryan's position in this lawsuit is
inconsistent with a position it took in the bankruptcy
proceedings; and (4) whether the application of judicial estoppel
in this case is inconsistent with principles of equity and
justice. We will examine each in turn.
V.
Both parties agree that federal law should govern our
disposition of this case, and we accept their agreement.2 Having
2
Judge Sarokin, the author of this opinion, would not accept the
agreement of the parties as to whether federal or state law
governs in this case, because he believes that the question must
be analyzed under the doctrine of Erie Railroad v. Tompkins, 304
U.S. 64 (1938), and that the parties cannot stipulate as to the
applicable law as they might in a choice-of-law situation. The
7
following comments are the opinion of Judge Sarokin, not the
court: It is well established that federal courts sitting in
diversity must generally apply state substantive law and federal
procedural law. Erie, 304 U.S. 64. This doctrine is rooted in
the Constitution; the Supreme Court reasoned that "declar[ing]
substantive rules of common law" in diversity cases is "'an
unconstitutional assumption of powers by courts of the United
States.'"
Erie, 304 U.S. at 78, 79; see also Charles A. Wright,
Arthur R. Miller & Edward H. Cooper, 19 Federal Practice and
Procedure § 4505. Because the question of whether federal or
state law should govern issues of judicial estoppel in diversity
cases is a question of the constitutional powers of the federal
courts, we cannot simply accept the parties' recommendation that
federal law governs without first ensuring that applying federal
law would be constitutional under the circumstances. We can
ensure that the application of federal law is constitutional in
one of two ways: (1) by determining, as I would, that the Erie
doctrine does not apply; or (2) by determining under Erie that
the law of judicial estoppel is procedural rather than
substantive in nature.
Although I believe that judicial estoppel is substantive in
nature, I am persuaded by the reasoning of the Sixth Circuit in
Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 598 n.4 (6th Cir.
1982), and the Fourth Circuit in Allen v. Zurich Ins. Co.,
667
F.2d 1162, 1167 n.4 (4th Cir. 1982), that Erie does not require
us to apply state law. The Erie doctrine is not absolute;
exceptions can be made where, as here, there are "affirmative
countervailing considerations" that implicate "strong federal
policy" considerations. Byrd v. Blue Ridge Rural Elec.
Cooperative, Inc.,
356 U.S. 525, 537-38 (1958); see also AFN,
Inc. v. Schlott, Inc.,
798 F. Supp. 219 (D.N.J. 1992). A federal
court's ability to protect itself from manipulation by litigants
should not vary according to the law of the state in which the
underlying dispute arose. I would therefore conclude that a
federal court sitting in diversity must apply federal law to
questions regarding the doctrine of judicial estoppel.
There is an additional reason why I think it important to
reach this matter. This court has never addressed this issue
directly. While we have tended in the past to rely on federal
law of judicial estoppel in diversity cases, we have occasionally
applied state law or a combination of state and federal law.
Compare Scarano, 203 F.2d 510 (applying federal law) with Linan-
Faye Construction Co. v. Housing Auth. of Camden,
49 F.3d 915 (3d
Cir. 1995)(applying New Jersey law) and with Gleason v. United
States,
458 F.2d 171 (3d Cir. 1972)(applying both federal and
state law). In some cases, there may be no relevant difference
in terms of result between federal and state law of judicial
estoppel. In other cases, however, the decision as to which law
to apply may be dispositive of the outcome. As a result, I
believe that we should take this opportunity to clarify the law
8
determined that federal law controls, we turn to the first issue
presented for our review: whether the doctrine of judicial
estoppel is available only to those who were parties or in
privity with a party to the prior proceeding. Ryan argues that
the doctrine as expounded in this circuit has a privity
requirement which prevents its being enforced by "strangers to
the earlier litigation." Appellant's Br. at 29. As it is
undisputed that none of the defendants in the instant action was
a party to the bankruptcy proceeding, Ryan contends that the
district court erred in applying judicial estoppel for their
benefit.
We first articulated the doctrine of judicial estoppel in
the seminal case of Scarano v. Central R. Co. of New Jersey, 203
F.2d 510 (3d Cir. 1953). The plaintiff in that case, following a
work-related injury, sought damages from his employer on the
ground that he was completely incapacitated. After winning a
damages award, he proceeded to sue his employer for reinstatement
under the terms of a collective bargaining agreement. We
concluded that plaintiff was estopped from seeking reinstatement,
explaining our reasoning as follows:
The 'estoppel' of which, for want of a more precise
word, we here speak is but a particular limited
application of what is sometimes said to be a general
rule that "a party to litigation will not be permitted
to assume inconsistent or mutually contradictory
positions with respect to the same matter in the same
or a successive series of suits."
of the circuit, especially since this issue has been properly
briefed and presented to us.
9
Id. at 512-13. We expressly declined to decide "[w]hether the
correct doctrine is that broad," however; instead, we stated that
the
rule we apply here need be and is no broader than this.
A plaintiff who has obtained relief from an adversary
by asserting and offering proof to support one position
may not be heard later in the same court to contradict
himself in an effort to establish against the same
adversary a second claim inconsistent with his earlier
contention.
Id. at 513 (emphasis added).
Ryan argues that the language underlined above indicates our
intention to instill a privity requirement into our newly
articulated doctrine of judicial estoppel. The above excerpts
make clear, however, that we did not hold that the doctrine was
limited to circumstances in which a party asserted incompatible
positions against the same adversary. On the contrary, we
explicitly stated that we so articulated the rule because the
facts of the case did not require us to determine whether a
broader rule might apply in other circumstances.
Ryan correctly points out that we have never applied the
doctrine of judicial estoppel for the benefit of parties who were
not involved in the prior judicial proceeding. See, e.g.
Scarano, 203 F.2d 510; Oneida Motor Freight, Inc. v. United
Jersey Bank,
848 F.2d 414 (3d Cir.)(holding that plaintiff is
judicially estopped from asserting position in post-bankruptcy
proceeding against a bankruptcy creditor that is inconsistent
with position asserted in prior bankruptcy proceeding), cert.
denied,
488 U.S. 967 (1988); Fleck v. KDI Sylvan Pools, Inc., 981
10
F.2d 107 (3d Cir. 1992)(holding that plaintiffs who promised
bankruptcy court they would not seek recovery against debtor in
excess of insurance coverage are judicially estopped from
subsequently attempting to do so), cert. denied sub nom Doughboy
Recreational, Inc., Div. of Hoffinger Indus., Inc. v. Fleck,
507
U.S. 1005 (1993); Delgrosso v. Spang & Co.,
903 F.2d 234 (3d Cir.
1990). However, we have never expressly limited the doctrine's
applicability to situations in which a litigant asserts an
inconsistent position against the same party or its privy.
The absence of an express rule notwithstanding, plaintiff
argues that language in Gleason v. United States, 458 F.2d 171
(3d Cir. 1972), reveals that privity is required. The plaintiff
in that case filed a Workers' Compensation petition following his
exposure to radioactive material in a work-related accident,
alleging prospectively that he had suffered injury. When injury
from the radiation actually materialized four years later,
plaintiff sued his employer for damages. Although plaintiff
testified in deposition that he had not actually experienced an
injury at the time of the Workers' Compensation petition, the
trial court dismissed the case on statute of limitations grounds,
reasoning that plaintiff's Workers' Compensation petition
indicated that he knew about the injury well within the
limitations period. On plaintiff's appeal, the employer argued
that plaintiff should be judicially estopped from relying on
deposition testimony which directly contradicted his Workers'
Compensation petition.
11
In reaching our conclusion that judicial estoppel was
inappropriate under the circumstances, we noted that the doctrine
of judicial estoppel "has not always been applied, but has
usually been applied where the same parties are involved and
where one of the parties has changed his position or given
something of value relying on the statement of his opponent." Id.
at 175. Ryan now argues that this language evidences a rule that
privity is required for the application of judicial estoppel. We
disagree, for two reasons. First, we neither stated a rule in
Gleason that these equitable characteristics were requirements
for the application of judicial estoppel nor rested our decision
on that basis. Rather, our decision rested on our conclusion
that the plaintiff "did not play fast and loose with the courts
or with the defendants."
458 F.2d 176. Second, although Gleason
did not attempt to distinguish between equitable estoppel and
judicial estoppel, we have since emphasized the importance of
that distinction and more clearly articulated the border between
the two doctrines. See
Oneida, 848 F.2d at 419. Ryan cannot now
extrapolate legal principles from any conflation of judicial and
equitable estoppel that may have existed prior to our
clarification of the distinction between the two.
In addition, we note that the purpose of the judicial-
estoppel doctrine militates against the imposition of a privity
requirement. Judicial estoppel "is intended to protect the
courts rather than the litigants." Fleck v. KDI Sylvan Pools,
Inc., 981 F.2d 107, 121-22 (3d Cir. 1992). As we explained in
Oneida,
12
[j]udicial estoppel looks to the connection between the
litigant and the judicial system while equitable
estoppel focuses on the relationship between the
parties to the prior litigation.
Oneida, 848 F.2d 414, 419 (3d Cir. 1988). Unlike equitable
estoppel, therefore, judicial estoppel does not require that the
party urging estoppel demonstrate that she believed or relied
upon the plaintiff's prior inconsistent statement.
Scarano, 203
F.2d at 512. While privity and/or detrimental reliance are often
present in judicial estoppel cases, they are not required.
Our conclusion that privity is not required for the
application of judicial estoppel accords with the majority view.
See Patriot Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208,
214 (1st Cir. 1987)("harm to an opponent is not an invariable
prerequisite to judicial estoppel"); Edwards v. Aetna Life Ins.
Co., 690 F.2d 595, 598 (6th Cir. 1982)("judicial estoppel may be
applied even if detrimental reliance or privity does not exist");
Konstantinidis v. Chen, 626 F.2d 933, 937 (D.C. Cir. 1980)(same);
Total Petroleum, Inc. v. Davis,
822 F.2d 734, 737 n.6 (8th Cir.
1987)(judicial estoppel does not require reliance or prejudice,
because it seeks to protect the courts); Muellner v. Mars, Inc.,
714 F. Supp. 351, 356 (N.D. Ill. 1989).
There are many instances in which the assertion of
inconsistent positions can work to the advantage of a party but
where there is no identity or relationship between those against
whom the claim (or defense) is asserted. Where the contentions
are mutually exclusive, it is irrelevant that they are asserted
against diverse parties for the purposes of determining judicial
13
estoppel. The integrity of the court is affronted by the
inconsistency notwithstanding the lack of identity of those
against whom it is asserted.
The defendants in this case thus were not barred from
seeking judicial estoppel by the fact that they were not parties
to Ryan's bankruptcy proceeding.
VI.
We reach the same conclusion with respect to Ryan's related
argument that "judicial estoppel should be applied only where the
party resisting it benefited from the statement." Appellant's
Br. at 44. Ryan contends that the district court erred in
applying judicial estoppel in this case because, by Ryan's own
estimation, Ryan did not benefit from its failure to disclose the
instant claims in the bankruptcy court.
Putting aside for a moment the question of whether Ryan
benefitted from its nondisclosure, we begin by determining
whether as a general rule a party must have benefitted from her
prior position in order to be judicially estopped from
subsequently asserting an inconsistent one. We readily conclude
that the doctrine of judicial estoppel in this circuit contains
no such requirement.3 We have noted on several occasions that
"application of the doctrine of judicial estoppel is particularly
3
We note that the Sixth and Seventh Circuits have reached the
opposite conclusion. See Edwards v. Aetna Life Ins. Co., 690
F.2d 595, 599 (6th Cir. 1982); Astor Chauffered Limousine Co. v.
Runnfeldt Investment Corp.,
910 F.2d 1540, 1548 (7th cir.
1990)("The offense is not taking inconsistent positions so much
as it is winning, twice, on the basis of incompatible
positions.").
14
appropriate in situations . . . where the party benefitted from
its original position." Delgrosso v. Spang & Co., 903 F.2d 234,
242 (3d Cir.), cert. denied,
498 U.S. 967 (1990); Murray v.
Silberstein,
882 F.2d 61 (3d Cir. 1989). In such cases, the
tribunal has acted in reliance on the party's initial assertion,
and thus the threat to the integrity of the judicial process from
subsequent assertion of an incompatible position is more
immediate.
Stating that benefit to the party from its prior position
makes application of the doctrine "particularly appropriate,"
however, is not the equivalent of stating that such benefit is a
necessary precondition to application of the doctrine. As we
stated in Lewandowski v. National Railroad Passenger Corp.
(Amtrak), 882 F.2d 815 (3d Cir. 1989), "the critical issue is
what the [party] contended in the underlying proceeding, rather
than what the jury found."
Id. at 819. Whether the party sought
to be estopped benefitted from its earlier position or was
motivated to seek such a benefit may be relevant insofar as it
evidences an intent to play fast and loose with the courts. It
is not, however, an independent requirement for application of
the doctrine of judicial estoppel.
VII.
As judicial estoppel is intended to prevent parties from
playing fast and loose with the courts by asserting inconsistent
positions, any application of the doctrine must rest upon a
finding that the party against whom estoppel is sought asserted a
position inconsistent with one she previously asserted in a
15
judicial proceeding. The third issue that Ryan raises on appeal
is whether Ryan has in fact asserted inconsistent positions
within the meaning of the judicial-estoppel doctrine. This
entails a two-part inquiry: (1) is Ryan's present position
inconsistent with a position it asserted in its Chapter 11
proceedings; and (2) if so, did Ryan assert either or both of the
inconsistent positions in bad faith--i.e., with intent to play
fast and loose with the court. Only if both prongs are satisfied
is judicial estoppel an appropriate remedy.
The district court found that Ryan's failure to list its
potential claims arising from the Ponderosa Pine trim on its
schedule of assets in the Chapter 11 proceeding constituted a
statement that Ryan had no such claim, which the current lawsuit
contradicts. Ryan contends that its present claims are not
inconsistent with any position it took in the bankruptcy
proceeding because it neither affirmatively represented that it
had no claim against defendants arising from the Ponderosa Pine
Trim situation nor misled the court with regard to the existence
and/or prosecution of those claims.
A.
As a preliminary matter, we will set forth the disclosure
requirements of the United States Bankruptcy Code in order to
place Ryan's alleged prior inconsistent statement in context. The
Code imposes on debtors an affirmative duty of full disclosure.
Section 521 requires the debtor to file with the court "a
schedule of assets and liabilities . . . and a statement of the
debtor's financial affairs." 11 U.S.C. § 521(1). The schedule
16
must disclose, inter alia, "contingent and unliquidated claims of
every nature" and provide an estimated value for each one.
Official Forms, Schedule B, App. 41.
Once the bankruptcy proceeding is underway, the debtor may
not solicit approval of a plan of reorganization from a claim-
holder unless "at the time of or before such solicitation, there
is transmitted to such holder the plan or a summary of the plan,
and a written disclosure statement approved, after notice and a
hearing, by the court as containing adequate information." 11
U.S.C. § 1125(b). Adequate information is defined as
information of a kind, and in sufficient detail, as far
as is reasonably practicable in light of the nature and
history of the debtor and the condition of the debtor's
books and records, that would enable a hypothetical
reasonable investor typical of holders of claims or
interests of the relevant class to make an informed
judgment about the plan . . . .
11 U.S.C. § 1125(a).
These disclosure requirements are crucial to the effective
functioning of the federal bankruptcy system. Because creditors
and the bankruptcy court rely heavily on the debtor's disclosure
statement in determining whether to approve a proposed
reorganization plan, the importance of full and honest disclosure
cannot be overstated. See Oneida, 848 F.2d at 417-18.
B.
It is undisputed that by failing to list its claims against
defendants on its § 521 schedule of assets, Ryan violated these
statutory duties of full disclosure. However, this court has
expressly left open the question of whether such nondisclosure,
17
standing alone, can support a finding that a plaintiff has
asserted inconsistent positions within the meaning of the
judicial-estoppel doctrine. Oneida Motor Freight, Inc. v. United
Jersey Bank, 848 F.2d 414, 419 (3d Cir. 1988)("[W]e stop short of
finding that . . . [plaintiff's] prior silence is equivalent to
an acknowledgment that it did not have a claim against the
bank.").4 We need not decide this issue here, and we decline to
do so, because we conclude that judicial estoppel would be
inappropriate in any event as there is no evidence that Ryan
acted in bad faith.
Asserting inconsistent positions does not trigger the
application of judicial estoppel unless "intentional self-
contradiction is . . . used as a means of obtaining unfair
advantage." Scarano, 203 F.2d at 513. Thus, the doctrine of
4
In that case, as here, the plaintiff sought to pursue claims
that it had failed to disclose on its § 521 schedule of assets in
a prior bankruptcy proceeding. Unlike Ryan, however, the
plaintiff in Oneida had not only failed to disclose its potential
claim against a bank for $7.7 million as a contingent asset on
its § 521 schedule of assets and liabilities, but simultaneously
claimed the corresponding $7.7 million debt to the bank as a
liability on the same schedule. Because the plaintiff had
claimed the debt in the bankruptcy proceeding without disclosing
the potential offset, we found that the plaintiff's "current suit
speaks to a position clearly contrary to its Chapter 11 treatment
of the bank's claim as undisputed."
Id. As a result, we
concluded that judicial estoppel was appropriate under the
circumstances, because "Oneida's failure to list its claim
against the bank worked in opposition to preservation of the
integrity of the system which the doctrine of judicial estoppel
seeks to protect."
Id.
In this case, Ryan did not treat the homeowners' claims
arising from the Ponderosa Pine trim debacle as undisputed; in
fact, it did not specifically mention those claims at all. As a
result, Oneida does not compel a conclusion that Ryan's
subsequent assertion of those claims was inconsistent with its
Chapter 11 treatment of them.
18
judicial estoppel does not apply "when the prior position was
taken because of a good faith mistake rather than as part of a
scheme to mislead the court." Konstantinidis v. Chen, 626 F.2d
933, 939 (D.C. Cir. 1980). An inconsistent argument sufficient
to invoke judicial estoppel must be attributable to intentional
wrongdoing. See Chaveriat v. Williams Pipe Line Co.,
11 F.3d
1420, 1428 (7th Cir. 1993); see also Total Petroleum, Inc. v.
Davis,
822 F.2d 734 (8th Cir. 1987)(holding that the doctrine
only applies to deliberate inconsistencies that are "tantamount
to a knowing misrepresentation to or even fraud on the court.").
Defendants contend that in a bankruptcy proceeding, a
debtor's failure to satisfy its statutory duty of full disclosure
gives rise to an inference of bad faith sufficient to satisfy the
requirements of the judicial-estoppel doctrine. They rely for
support on our decision in Oneida, in which we applied judicial
estoppel without an express finding of intentional misconduct. In
reaching our conclusion that plaintiff's failure to list its
claims as assets in the underlying Chapter 11 proceeding
precluded it from asserting them in a post-bankruptcy proceeding,
we stated that "Oneida's failure to list its claim against the
bank worked in opposition to preservation of the integrity of the
judicial system which the doctrine of judicial estoppel seeks to
protect." 848 F.2d at 419.
While we did not expressly analyze plaintiff's intent in
Oneida, we did not discard that analysis entirely in light of
plaintiff's affirmative duty of full disclosure under the
Bankruptcy Code. On the contrary, there was ample evidence in
19
the record from which an inference of deliberate manipulation
could be drawn. Oneida had listed its $7.7 million debt to the
bank on its schedule of liabilities without mentioning the
possibility of an offset. As a result, the creditors as a whole
had a skewed sense of Oneida's financial condition and no
knowledge of a claim that could inure to their benefit. Whereas
the creditors may have been entitled to the full amount of any
recovery had they known about the claim in advance, the
reorganization plan that they approved without knowledge of the
claim limited their potential recovery to one-third of the
debtor's gross recovery. 848 F.2d at 416 n.1. In addition, had
the bank known that Oneida would subsequently seek restitution of
the amount paid under the plan, it might well have voted against
approval of the
plan. 848 F.2d at 418. It is therefore clear
that Oneida had ample motive to conceal its claim. Moreover, as
the gravamen of Oneida's case against the bank was that the
bank's actions were responsible for forcing Oneida into
bankruptcy, it is clear that Oneida had knowledge of this
potential claim at the time it filed for bankruptcy. This
combination of knowledge of the claim and motive for concealment
in the face of an affirmative duty to disclose gave rise to an
inference of intent sufficient to satisfy the requirements of
judicial estoppel.
In contrast to Oneida, there is no basis in this case for
inferring that Ryan deliberately asserted inconsistent positions
in order to gain advantage--i.e., that it played fast and loose
with the courts. There is no evidence that the nondisclosure
20
played any role in the confirmation of the plan or that
disclosure of the potential claims would have led to a different
result. Although it may generally be reasonable to assume that a
debtor who fails to disclose a substantial asset in bankruptcy
proceedings gains an advantage, the undisputed facts weigh
against such an inference in this case. First, Ryan's failure to
list the instant claims as contingent assets was offset by its
failure to list the corresponding claims of homeowners against
Ryan resulting from the allegedly defective wood trim as
liabilities. As a result, the balance of assets and liabilities
before the court and creditors when the reorganization plan was
approved may have been unaffected by the failure to list the
claims as assets. Compare Oneida, 848 F.2d at 418 (finding
debtor who listed amount owed to creditor as a liability in
bankruptcy proceeding without any mention of possible offset
judicially estopped from pursuing post-bankruptcy claim against
that creditor). Second, pursuant to the reorganization plan,
creditors will receive 91 percent of any future recovery on the
Ponderosa Pine Trim claims, and will suffer 91 percent of the
loss if Ryan is unable to recover the expenses incurred in the
repair and replacement program from defendants. Affidavit of
Bruce W. Gilchrist, App. 191-92. Thus, it appears that Ryan
derived and intended no appreciable benefit from its
nondisclosure. Compare Payless Wholesale Distributors, Inc. v.
Culver,
989 F.2d 570, 571 (1st Cir.)(applying judicial estoppel
upon finding that plaintiff intended to "[c]onceal [its] claims
[in bankruptcy proceeding]; get rid of [its] creditors on the
21
cheap; and start over with a bundle of rights"), cert. denied,
114 S. Ct. 344 (1993).
Nor do Ryan's actions subsequent to the filing of its § 521
schedule support a finding that it sought to conceal the claims
deliberately. In an order modifying the automatic stay to allow
for litigation of "routine claims," the bankruptcy court
specifically authorized Ryan to pursue "(i) homeowner claims,
including, but not limited to, warranty claims, . . . [and] (ii)
claims by or against contractors or suppliers or relating to or
arising out of the provision of services or materials to the
Debtors . . . ." Order (i) Modifying the Automatic Stay to Allow
Litigation of Routine Claims to Proceed, (ii) Authorizing Debtors
to Settle Routine Claims, and (iii) Authorizing Debtors to Pay
Settlement Amounts or Judgments of $15,000 or Less Relating to
Routine Claims, July 1, 1992, App. 218-19. Upon receipt of this
authorization, Ryan filed the instant action during the pendency
of the bankruptcy proceedings, albeit in a different
jurisdiction. Ryan then submitted fee requests to the bankruptcy
court detailing, among other things, counsel's work in the
Ponderosa Pine Trim litigation, which the bankruptcy court
reviewed and approved for payment. App. 231-40. Finally, the
reorganization plan that the court and creditors approved
authorized Ryan to retain and enforce claims against any entity
and to adjudicate homeowner claims. Second Amended Joint Plan of
Reorganization, §§ 4.09 & 7.02, App. 86 & 92. While none of
these facts standing alone is sufficient to substitute for
disclosure under § 521, in combination they preclude a finding
22
that Ryan deliberately concealed its claims against defendants
from the bankruptcy court or otherwise sought to "obtain . . .
unfair advantage." Scarano, 203 F.2d at 513.5
We note in addition that while plaintiff cites district
court decisions from various jurisdictions that support its
position,6 defendant cites no case in which a court held that
intent to mislead or deceive could be inferred from the mere fact
of nondisclosure, and we are aware of none. We are persuaded,
however, that policy considerations militate against adopting a
rule that the requisite intent for judicial estoppel can be
5
Defendants cite several district court cases from other
jurisdictions in support of their position that a debtor's
failure to disclose a claim as an asset in bankruptcy precludes
later assertion of that claim under the doctrine of judicial
estoppel. See Pako Corp. v. Citytrust, 109 B.R. 368 (D. Minn.
1989); In re Hoffman,
99 B.R. 929 (N.D. Iowa 1989); In re Louden,
106 B.R. 109 (E.D. Ky. 1989); In re Galerie des Monnaies,
62 B.R.
224 (S.D.N.Y. 1986), aff'd,
1986 WL 6230 (S.D.N.Y. 1986); In re
Caro Area Services for the Handicapped,
53 B.R. 438 (E.D. Mi.
1985). Several of these cases are clearly distinguishable from
the instant case. See, e.g.,
Pako, 109 B.R. at 377 (finding that
debtor knowingly concealed claim in light of pre-bankruptcy
testimony of General Counsel/Chief Administrative Officer that he
thought debtor had been wronged by defendant). To the extent
that some are not, we note simply that these cases are not
binding on this court, and we are not persuaded by their
analysis.
6
See Guenther v. Snap-On Tools Corp.,
1995 WL 137061, *11 (N.D.
Ill. 1995)(unreported decision)(holding that judicial estoppel on
the basis of bankruptcy nondisclosure is inappropriate because
"there is no basis for finding any misconduct or injustice"); In
re TGX Corp.,
168 B.R. 122, 132 (W.D. La. 1994)(finding
nondisclosures "not sufficiently egregious" to justify judicial
estoppel); Reciprocal Merchandising Services, Inc. v. All
Advertising Associates, Inc.,
163 B.R. 689, 697 n.11 (S.D.N.Y.
1994)(finding that "intentional misconduct is a necessary element
in a claim for judicial estoppel" even in bankruptcy context); In
re Neptune World Wide Moving, Inc.,
111 B.R. 457 (S.D.N.Y.
1990)(stating that judicial estoppel does not apply where
inconsistency was based on inadvertence or mistake).
23
inferred from the mere fact of nondisclosure in a bankruptcy
proceeding. Such a rule would unduly expand the reach of
judicial estoppel in post-bankruptcy proceedings and would
inevitably result in the preclusion of viable claims on the basis
of inadvertent or good-faith inconsistencies. While we by no
means denigrate the importance of full disclosure or condone
nondisclosure in bankruptcy proceedings, we are unwilling to
treat careless or inadvertent nondisclosures as equivalent to
deliberate manipulation when administering the "strong medicine"
of judicial estoppel. Chaveriat v. Williams Pipe Line Co., 11
F.3d 1420, 1428 (7th Cir. 1993).
Defendants argue that rejecting their proposed "inferred
intent" rule "would invite prolonged discovery into the motives
of the debtor." Bright Wood's Br. at 25. We disagree. For
purposes of judicial estoppel, we require a showing of intent in
other contexts; we see no reason why the process of discerning
that intent should be unworkable in the bankruptcy context when
it is workable elsewhere. We therefore reject defendant's
argument that intent may be inferred for purposes of judicial
estoppel solely from nondisclosure notwithstanding the
affirmative disclosure requirement of the Bankruptcy Code.
Because Ryan did not act with the intent to play fast and
loose with the courts that is required for application of the
judicial-estoppel doctrine, we conclude that the district court
erred in granting summary judgment against Ryan on judicial
estoppel grounds.
VIII.
24
As we have already concluded that the district court erred
in granting summary judgment against Ryan on judicial estoppel
grounds, we need not reach Ryan's argument that application of
judicial estoppel under the circumstances of this case would
violate principles of equity and justice. We nonetheless state
briefly our belief that judicial estoppel is an "extraordinary
remed[y] to be invoked when a party's inconsistent behavior will
otherwise result in a miscarriage of justice." Oneida, 848 F.2d
at 424 (Stapleton, J., dissenting). It is not meant to be a
technical defense for litigants seeking to derail potentially
meritorious claims, especially when the alleged inconsistency is
insignificant at best and there is no evidence of intent to
manipulate or mislead the courts. Judicial estoppel is not a
sword to be wielded by adversaries unless such tactics are
necessary to "secure substantial equity."
Gleason, 458 F.2d at
175. In this case, application of judicial estoppel would be
unduly harsh and inequitable. While we need not and do not
decide whether we would reverse the district court's order on
this ground alone, our equitable concerns lend support to our
overall conclusion.
IX.
For the foregoing reasons, we will reverse the order of the
district court granting summary judgment in favor of defendants
and remand for further proceedings.
25
