Opinion ID: 769494
Heading Depth: 3
Heading Rank: 2

Heading: The Adverse Interest Exception

Text: 32 Under New York law, the adverse interest exception rebuts the usual presumption that the acts and knowledge of an agent acting within the scope of employment are imputed to the principal. Mediators, 105 F.3d at 827 (citing Center v. Hampton Affiliates, 497 N.Y.S.2d 898, 899-900 (N.Y. 1985)). Under the exception, management misconduct will not be imputed to the corporation if the officer acted entirely in his own interests and adversely to the interests of the corporation. See Hampton Affiliates, 497 N.Y.S.2d at 900. The theory is that where an agent, though ostensibly acting in the business of the principal, is really committing a fraud for his own benefit, he is acting outside of the scope of his agency, and it would therefore be most unjust to charge the principal with knowledge of it. Munroe v. Harriman, 85 F.2d 493, 495 (2d Cir. 1936) (internal quotation marks and punctuation omitted). The adverse interest exception, however, is narrow and applies only when the agent has totally abandoned the principal's interests. Mediators, 105 F.3d at 827 (quotation marks omitted). 33 The complaint in this case alleges that BCCI was adversely dominated by corrupt [management], who, act[ed] in their own interests and not in the interests of BCCI . . . . Relying on this language, the district court found that the complaint pled facts sufficient to trigger the adverse interest exception. 34 SPIB takes issue with this finding, arguing that the complaint also alleges that BCCI was dominated by corrupt prior senior managers and directors and that in such circumstances the adverse interest exception does not operate to abrogate the Wagoner rule. See Mediators, 105 F.3d at 827 (exception does not apply where the principal and agent are one and the same); Wechsler v. Squadron, Ellenoff, Plesent & Sheinfeld, L.L.P., 212 B.R. 34, 36 (S.D.N.Y. 1997) (Wagoner rule . . . applies where all relevant shareholders and/or decisionmakers are involved in the fraud . . . .). 35 We find no fault in the district court's analysis. For purposes of SPIB's Rule 12 motion, the district court correctly construe[d] the complaint in favor of the Liquidators and credited their adverse interest allegation as true. Thompson, 15 F.3d at 249; see Warth, 422 U.S. at 501; cf. In re Wedtech Sec. Litig., 138 B.R. 5, 8 (S.D.N.Y. 1992) (rejecting argument that plaintiff lacked standing under the Wagoner rule where issue of fact remained as to the key question of whether the guilt of the corporate officers can be imputed to the corporation.). 36 The district court went on to conclude, however, that the Liquidators were collaterally estopped from invoking the adverse interest exception because they pled guilty on behalf of BCCI to the New York indictment. More specifically, the court ruled that: (1) by pleading guilty to the New York indictment the Liquidators admitted that Abedi and Naqvi acted in the interests of BCCI by orchestrating the Gulf/Gokal scam; and (2) this admission collaterally estopped the Liquidators from invoking the adverse interest exception. We reject this reasoning.
37 [T]he preclusive effect of a state court determination in a subsequent federal action is determined by the rules of the state where the prior action occurred. In re Sokol, 113 F.3d 303, 306 (2d Cir. 1997) (citing 28 U.S.C. § 1738). In New York, there are but two necessary requirements for the invocation of the doctrine of collateral estoppel. There must be an identity of issue which has necessarily been decided in the prior action and is decisive of the present action, and, second, there must have been a full and fair opportunity to contest the decision now said to be controlling. Kulak v. City of New York, 88 F.3d 63, 71 (2d Cir. 1996) (quoting Schwartz v. Public Administrator of the Bronx, 298 N.Y.S.2d 955, 960 (N.Y. 1969)). Collateral estoppel attaches only if it is clear that these strict requirements have been satisfied, lest a party be precluded from obtaining at least one full hearing on his or her claim. Gramatan Home Investors Corp. v. Lopez, 414 N.Y.S.2d 308, 311 (N.Y. 1979). 38 The district court concluded that the full and fair opportunity prong of collateral estoppel was satisfied in this case because in New York a guilty plea is accorded the same preclusive effect . . . as is a conviction after trial. Wight, 1999 WL 199021 at  (internal quotation marks omitted). 39 We are not convinced that this is an accurate statement of New York law. True, some lower New York courts have afforded guilty pleas preclusive effect. See Abrahao v. Perrault, 537 N.Y.S.2d 913, 914 (3d Dep't 1989); Merchants Mutual Ins. Co. v. Arzillo, 472 N.Y.S.2d 97, 103 (2d Dep't 1984). Others, however, have declined to do so, reasoning that a judgment based on a plea of guilty does not carry with it the safeguards which accompany a judgment after trial. Davis v. Hanna, 468 N.Y.S.2d 729, 730 (4th Dep't 1983) (relying on Vavolizza v. Krieger, 352 N.Y.S.2d 919, 923 (N.Y. 1974)). 40 Moreover, we question whether any New York court would apply collateral estoppel based on the unique guilty plea involved here. The New York plea agreement expressly provided that it would not preclude the Liquidators from bringing actions against third parties like SPIB. Indeed, in another (unrelated) BCCI case, the district court held that the identically worded federal plea agreement did not deprive the Liquidators of standing to bring fraud claims on behalf of BCCI against its former legal counsel. See BCCI (Luxembourg) Holdings, S.A. v. Clifford, 964 F. Supp. 468, 478 (D.D.C. 1997). The Clifford court reasoned that [t]o interpret the Plea Agreement contrary to the intent of the parties would result in extreme unfairness. 964 F. Supp. at 479. We suspect that if squarely confronted with the issue, the New York courts would bow to similar considerations. See D'Arata v. New York Cent. Mut. Fire Ins. Co., 563 N.Y.S.2d 24, 26 (N.Y. 1990) (collateral estoppel is grounded on concepts of fairness and should not be rigidly or mechanically applied). 41 Ultimately, however, we need not take this issue head on. This is so because the other prerequisite of collateral estoppel under New York law was not met. Specifically, the same issue of whether Abedi and Naqvi acted in the interests of BCCI by orchestrating the Gulf/Gokal scam was not necessarily decided by the Liquidators guilty plea. See Schwartz, 298 N.Y.S.2d at 960. 42 The Liquidators pled guilty on behalf of BCCI to various corporate frauds, such as overstating its capital, and authorizing kickbacks to other financial organizations to deter them from scrutinizing the bank's rotting capital structure. New York Penal Law § 20.20(2)(b) provides in pertinent part: 43 A corporation is guilty of an offense when . . . [t]he conduct constituting the offense is engaged in, authorized, solicited, requested, commanded, or recklesslytolerated by . . . a high managerial agent acting within the scope of his employment and in behalf of the corporation. 44 The essential facts alleged by the indictment to support the Liquidators' plea were that BCCI, together with Abedi and Naqvi, engaged in a scheme to convince depositors and other banking and financial institutions, by means of false pretenses, representations, and promises that the BCCI was a safe financial repository and institution for funds. 45 It may be true that by pleading guilty to these allegations the Liquidators admitted that Abedi and Naqvi were acting generally in the interests of BCCI. To use the language of § 20.20(2)(b), Abedi and Naqvi may have admitted that they were acting in behalf of BCCI in generally running their various scams (rather than adversely to the bank's interests as would be necessary for the adverse interest exception to apply). 46 The problem is that the Liquidators did not condescend to particulars and they never specifically admitted that Abedi and Naqvi acted in the interests of BCCI by orchestrating the Gulf/Gokal scam. Indeed, the Gulf/Gokal scam is nowhere even mentioned in the indictment. Accordingly, Abedi and Naqvi could have been acting in favor of BCCI in one or more of their many other scams, but could have been acting adversely to the bank's interests in the Gulf/Gokal scam. 47 In sum, we believe that the Liquidators did not necessarily concede that Abedi and Naqvi acted in the interests of BCCI by orchestrating the Gulf/Gokal scam. We, therefore, conclude that the district court erred in applying collateral estoppel on the basis of the New York guilty plea. Accordingly, the Liquidators may continue to litigate the potential applicability of the adverse interest exception. Of course, we express no opinion on whether the exception may ultimately apply.
48 The Liquidators see no need at all for any further analysis of the adverse interest issue. Going for the jugular, they assert that in an earlier BCCI case--Hamid v. Price Waterhouse & Co. et al., No. CV 91 4483, 1992 WL 696398 (C.D. Cal. April 30, 1992), aff'd 51 F.3d 1411 (9th Cir 1995)--SPIB succeeded in persuading the court that BCCI's depositors lacked standing to sue SPIB, based on an argument that is inconsistent with its position in this case. According to the Liquidators: (1) SPIB argued in Hamid that the depositors lacked standing because their claims against SPIB were derivative of the claims owned by the Liquidators; and (2) in the course of making that argument, SPIB conceded that the Liquidators would have standing to sue it because managers' misconduct would not be attributed to BCCI. In this way, the Liquidators maintain, SPIB was able to persuade the Hamid court to deny standing to the depositors. Because this position, the Liquidators argue, is the exact opposite of SPIB's position in th 49 is case, SPIB should be judicially estopped from arguing against the Liquidators' standing here. We disagree. 50 Judicial estoppel is designed to prevent a party who plays fast and loose with the courts from gaining unfair advantage through the deliberate adoption of inconsistent positions in successive suits. Bates v. Long Island R.R., 997 F.2d 1028, 1037-38 (2d Cir. 1993). As an equitable doctrine, judicial estoppel does not rest easily with the concept of standing, which in both its constitutional and prudential dimensions, is a prerequisite to federal subject matter jurisdiction. See Thompson, 15 F.3d at 248. Indeed, it has been cautioned that special care should be taken in considering whether judicial estoppel should even apply to matters affecting federal subject matter jurisdiction. 18 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4477, at 784 (1981) (citing In re Southwestern Bell Tel. Co., 535 F.2d 859, 861 (holding that judicial estoppel could not be applied to defeat diversity jurisdiction, and stating that [w]hatever the scope of the doctrine may be, so far as we have been able to discover it has never been employed to prevent a party from taking advantage of a federal forum when he otherwise meets the . . . requirements of federal jurisdiction. . . . Judicial estoppel principles cannot conclusively establish jurisdictional facts.), aff'd en banc, 542 F.2d 297 (5th Cir. 1976), rev'd on other grounds, Gravitt v. Southwestern Bell Tel. Co., 430 U.S. 723 (1977); but see Selected Risks Ins. Co. v. Kobelinski, 421 F. Supp. 431, 435 (E.D. Pa. 1976) (holding that defendant was judicially estopped from asserting subject matter jurisdiction because it had previously won a dismissal for lack of subject matter jurisdiction). 51 Special care in this area makes eminently good sense. It is axiomatic that a lack of subject matter jurisdiction may be raised at any time 'even by a party who originally asserted jurisdiction.' United States v. Leon, 203 F.3d 162, 164 n.2 (2d Cir. 2000) (quoting United States v. Heyward-Robinson Co., 430 F.2d 1077, 1080 (2d Cir. 1970)). Thus, we have already held that arguments for or against standing may not be waived. See Thompson, 15 F.3d at 248 (citing National Wildlife Fed'n v. United States, 626 F.2d 917, 924 n.13 (D.C. Cir. 1980) (voluntary waiver of challenge to prudential standing is necessarily ineffective because standing implicates federal jurisdiction)). The bottom line is that irrespective of how the parties conduct their case, the courts have an independent obligation to ensure that federal jurisdiction is not extended beyond its proper limits. See Thompson, 15 F.3d at 248. 52 In the circumstances of this case, our independent duty to ensure the Liquidators have standing cannot be hamstrung by the arguments previously made by SPIB in the Hamid case. To the contrary, we conclude that the court should have the benefit of whatever illumination SPIB's arguments on the standing question can provide. 53 A party invoking judicial estoppel must show that: (1) his adversary advanced an inconsistent factual position in a prior proceeding, and (2) the prior inconsistent position was adopted by the first court in some manner. AXA Marine & Aviation Ins. (UK) Ltd. v. Seajet Indus. Inc., 84 F.3d 622, 628 (2d Cir. 1996). [T]here must be a true inconsistency between the statements in the two proceedings. If the statements can be reconciled there is no occasion to apply an estoppel. Simon v. Safelite Glass Corp., 128 F.3d 68, 72-73 (2d Cir. 1997). Here, these requirements are not satisfied by the various statements relied upon by the Liquidators in support of its judicial estoppel argument. 54 In Hamid, the closest SPIB itself came to advancing an inconsistent position on the issue of the Liquidators' standing to assert the common law claims advanced here, was joining in a brief to the Ninth Circuit that included a footnote stating: 55 [The depositors-plaintiffs] complain that [the third-party defendants (77 in number including SPIB)] have not conceded that the liquidators have standing to sue and argue that BCCI's liquidators would have difficulty succeeding on any claim that they did have standing to bring because of the possibility that the misconduct of BCCI's former management would be attributed to the bank. Defendants have never denied the liquidators standing to sue third parties for alleged looting of BCCI, only that there would be merit to such a suit. Whether BCCI's liquidators would be successful in pursuing any claim is irrelevant, of course, to the question of whether they own the claim. 56 Even if we assume that this Delphic footnote is inconsistent with SPIB's position in this case, it is not a valid predicate for judicial estoppel. This is so, becausethe Ninth Circuit did not address in any way the question of whether management misconduct could be imputed to BCCI, and could therefore deprive the Liquidators of standing to assert claims against SPIB. See Hamid, 51 F.3d at 1414 (The issues we resolve involve timeliness of appeal, judicial recusal, the derivative nature of the depositors' RICO claims, and the application of the Alien Tort Statute.). Accordingly, because SPIB's allegedly inconsistent position in Hamid was not adopted by the court in some manner judicial estoppel cannot apply to this case. AXA Marine, 84 F.3d at 628.