Judicial Estoppel

Judicial estoppel, sometimes referred to as the doctrine of preclusion of inconsistent positions, prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding.  The dual purposes for applying this doctrine are to maintain the integrity of the judicial system and to protect parties from opponents’ unfair strategies.  Judicial estoppel is intended to prevent litigants from playing “fast and loose with the courts.”  It is an extraordinary remedy to be invoked when a party’s inconsistent behavior will otherwise result in a miscarriage of justice.

Courts may decide to apply the affirmative defense of judicial estoppel against a plaintiff’s claims to prevent judicial fraud from a litigant’s deceitful assertion of a position completely inconsistent with one previously asserted, thus compromising the integrity of the administration of justice by creating a risk of conflicting judicial determinations.  Judicial estoppel is an equitable doctrine to protect against fraud on the courts.  Judicial estoppel may be based on a position taken by a party or party’s legal counsel.

As explained by the court in AFN, INC. v. SCHLOTT, INC., 798 F. Supp. 219 (D.N.J. 1992):

Judicial estoppel, sometimes referred to as “preclusion by inconsistent positions,” is an equitable doctrine which precludes a party from asserting a position in a legal proceeding that contradicts or is inconsistent with a previously asserted position. The doctrine is distinct from other forms of estoppel.  While what were popularly known as res judicata and collateral estoppel focus on the effect of a final judgment on a party’s ability to relitigate a matter which was essential to the judgment, and equitable estoppel looks to the relationship between the parties, requiring representation, reliance, and prejudice, judicial estoppel centers on the relationship between the litigant and the judicial system.

The doctrine traces its roots to the Supreme Court’s enunciation in Davis v. Wakelee that “[w]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position.” 156 U.S. 680 (1895).  The doctrine represents a measure of protection of the integrity of the courts, designed to prevent litigants from “playing fast and loose with the courts.”  Thus, a court may apply the doctrine in a situation where intentional self-contradiction is being used as a means of obtaining unfair advantage in a forum provided for suitors seeking justice.

Id. at 223-224 (citations omitted).

Five-Prong Analysis for Application of Judicial Estoppel

The courts generally use a five-prong test to determine whether to apply judicial estoppel.  Judicial estoppel applies when:

  1. the same party has taken two positions;
  2. the positions were taken in judicial or quasi-judicial administrative proceedings;
  3. the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true);
  4. the two positions are totally inconsistent; and
  5. the first position was not taken as a result of ignorance, fraud, or mistake.”

See Jackson v. County of Los Angeles, 60 Cal. App. 4th 171, 183 (2017).

Judicial Estoppel vs. Equitable Estoppel

The doctrine of judicial estoppel is different from the doctrine of equitable estoppel.  Unlike equitable estoppel that focuses on the relationship between the parties to the lawsuit at issue, judicial estoppel focuses on the relationship between the litigant and the judicial system, and is designed to protect the integrity of the judicial process.

As explained by the Court in Jackson v. County of Los Angeles, supra:

Judicial estoppel differs from equitable estoppel.  A party may invoke equitable estoppel to prevent his opponent from changing positions if (1) he was an adverse party in the prior proceeding; (2) he detrimentally relied upon his opponent’s prior position; and (3) he would now be prejudiced if a court permitted his opponent to change positions. Equitable estoppel focuses on the relationship between the parties, and is designed to protect litigants from injury caused by less than scrupulous opponents.  By contrast, judicial estoppel focuses on the relationship between the litigant and the judicial system, and is designed to protect the integrity of the judicial process.  By definition, equitable estoppel requires privity, reliance, and prejudice because the doctrine concentrates on the relationship between the parties to a specific case. Conversely, none of these elements is or should be required under the judicial estoppel doctrine.  The gravamen of judicial estoppel is not privity, reliance, or prejudice. Rather, it is the intentional assertion of an inconsistent position that perverts the judicial machinery.

Id. at 183, quotations and citations omitted; see also MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal.4th 412, 424 (2005) (“the equitable doctrine of judicial estoppel targets not only unfairness between individual parties, but also abuse of the judicial system itself’]; Vowers & Sons v. Strasheim, 254 Neb. 506 (1998) )“unlike equitable estoppel, judicial estoppel may be applied even if detrimental reliance or privity does not exist.”)

Judicial Estoppel in the Context of Bankruptcy Filings

A debtor who files bankruptcy has an express, affirmative duty to file with the bankruptcy court a schedule of assets and liabilities, which must disclose under penalty of perjury, among other things, all causes of action the debtor has or may have against third parties. (11 U.S.C. § 521(a)(1)(B)(i); Fed. Rules Bankr. Proc., rule 1007(b)(1)(A).  “It is very important that a debtor’s bankruptcy schedules and statement of affairs be as accurate as possible, because that is the initial information upon which all creditors rely ” (Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 785 (9th Cir. 2001).  The debtor’s duty to disclose any claims against third parties includes not only pending claims, but also contingent and unliquidated claims. “The debtor need not know all the facts or even the legal basis for the cause of action; rather, if the debtor has enough information … prior to confirmation to suggest that it may have a possible cause of action, then that is a ‘known’ cause of action such that it must be disclosed.” (In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999).  Accordingly, a debtor’s failure to disclose actual or potential claims to the bankruptcy court can later bar the debtor from pursuing those claims under the doctrine of judicial estoppel.

In the bankruptcy context, judicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset.  The debtor’s failure to disclose such claims to the bankruptcy court in his original or supplemental schedules estops him from pursuing those claims later on down the road.  See, e.g., Thomas v. Gordon, 85 Cal. App. 4th 113, 120 (2000) (a party who signed documents under oath in bankruptcy case claiming to list all her assets, but who did not mention shares in two corporations, was judicially estopped from claiming ownership interest in those corporations in suit against accountants for breach of duty of care).

The reason for applying judicial estoppel in such circumstances is “the plaintiff-debtor represented in the bankruptcy case that no claim existed, so he or she is estopped from representing in the lawsuit that a claim does exist.” Ah Quin v. County of Kauai Dept. of Transp., 733 F.3d 267, 271 (9th Cir. 2013); see also Payless Wholesale Distrib. v. Alberto Culver, 989 F.2d 570, 571 (1st Cir. 1993) (“Conceal your claims; get rid of your creditors on the cheap, and start over with a bundle of rights. This is a palpable fraud that the court will not tolerate, even passively.”); Coastal Plains, supra, 179 F.3d at 208 (“The courts will not permit a debtor to obtain relief from the bankruptcy court by representing that no claims exist and then subsequently to assert those claims for his own benefit in a separate proceeding. The interests of both the creditors, who plan their actions in the bankruptcy proceeding on the basis of information supplied in the disclosure statements, and the bankruptcy court, which must decide whether to approve the plan of reorganization on the same basis, are impaired when the disclosure provided by the debtor is incomplete.’”).

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