Opinion ID: 1058992
Heading Depth: 2
Heading Rank: 1

Heading: Claim Preclusion by Judicial Estoppel

Text: [J]udicial estoppel forbids parties from assuming successive positions in the course of a suit, or series of suits, in reference to the same fact or state of facts, which are inconsistent with each other, or mutually contradictory. Lofton Ridge, LLC v. Norfolk S. Ry. Co., 268 Va. 377, 380-81, 601 S.E.2d 648, 650 (2004) (citations and internal quotation marks omitted). While the concept of judicial estoppel seems clear enough, application of the doctrine has not proven susceptible to precise definition. The circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle. Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (4th Cir.1982). In New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001), the United States Supreme Court recognized the inherent malleability of the doctrine of judicial estoppel. [W]e do not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel. Id. at 751, 121 S.Ct. 1808. Although we have not previously set out a specific listing of all the necessary elements of judicial estoppel, certain factors must be present in order for the doctrine to apply. The fundamental element of judicial estoppel is that the party sought to be estopped must be seeking to adopt a position that is inconsistent with a stance taken in a prior litigation. And the position sought to be estopped must be one of fact rather than law or legal theory. Lowery v. Stovall, 92 F.3d 219, 224 (4th Cir.1996) (citation omitted). Accord Lofton Ridge, 268 Va. at 382, 601 S.E.2d at 651. To the extent Bentley lays claim to the Escrows in the case at bar, its position is one of fact and is clearly inconsistent with its failure to claim the Escrows in the prior bankruptcy proceeding. The initial element of judicial estoppel is thus satisfied because the party sought to be estopped (Bentley) has adopted a position in the current litigation (that it owns the Escrows) that is inconsistent with a stance (failure to claim the Escrows as an asset) taken in prior litigation (Bentley's bankruptcy proceeding). Although not a universally required element of judicial estoppel, it is clear the doctrine applies in Virginia only when the parties to the disparate proceedings are the same. [6] Compare Lofton Ridge, 268 Va. at 382, 601 S.E.2d at 651, with Lowery, 92 F.3d at 223, n. 3, and Ex Parte First Ala. Bank, 883 So.2d 1236, 1243-45 (Ala.2003). We recently reiterated this requirement in Lofton Ridge, noting our previous holding in The Pittston Co. v. O'Hara, 191 Va. 886, 902, 63 S.E.2d 34, 43 (1951). [T]he doctrine of estoppel by inconsistent position [i.e., judicial estoppel] does not apply to a prior proceeding in which the parties are not the same. Lofton Ridge, 268 Va. at 382, 601 S.E.2d at 651. Bentley and SK & R are without question parties in interest in the case at bar because each claims the Escrows. Bentley and SK & R were the parties before the Bankruptcy Court petitioning for approval of the Contract. Plainly, the required element of the same parties is met in this case. A prior inconsistent position and the same parties are not, however, solely sufficient to support the application of judicial estoppel. As the Supreme Court noted in New Hampshire, at least one other element must be present. [7] Courts regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled. Absent success in a prior proceeding, a party's later inconsistent position introduces no risk of inconsistent court determinations, and thus poses little threat to judicial integrity. 532 U.S. at 750-51, 121 S.Ct. 1808 (internal quotation marks and citations omitted). The importance of this factor as a condition precedent to the application of judicial estoppel was highlighted by the United States Court of Appeals for the Fourth Circuit in Lowery. The insistence upon a court having accepted the party's prior inconsistent position ensures that judicial estoppel is applied in the narrowest of circumstances. Indeed, the prior success rule narrows the scope of judicial estoppel to the point at which the necessity of protecting judicial integrity outweighs the ramifications of that protection upon the litigant and the judicial system. Because of the harsh results attendant with precluding a party from asserting a position that would normally be available to the party, judicial estoppel must be applied with caution. Lowery, 92 F.3d at 225 (citations and internal quotation marks omitted). Without the requirement that the prior court accepted the earlier inconsistent position, facts not material or relevant in the prior proceeding could be asserted as a bar to a party's cause of action in a later proceeding. In the case at bar it is clear that the prior court, the Bankruptcy Court, placed no reliance on the absence of the Escrows as an asset of Bentley's bankruptcy estate. The Bankruptcy Court's memorandum opinion and order of June 9, 2003, denying SK & R's motion to reopen Bentley's bankruptcy proceeding, noted that in approving the Contract the Court's only role was to ensure that the terms of the sale did not prejudice or impair the rights of other creditors or the equity security holders. The Bankruptcy Court then observed that no issues are raised which implicate specific rights protected by the Bankruptcy Code. This was true, in part, because Bentley's Chapter 11 plan paid all creditors in full including the unsecured creditors. The Bankruptcy Court explained that it agreed with Bentley that ... there could be no meaningful administration of the escrowed funds because all claims have been paid or otherwise satisfied. Assets are administered in bankruptcy in order to pay creditors. After the creditors have received all to which they are entitled, any remaining assets simply revert back to the debtor. Even though SK & R's secured claim against the Property was satisfied when SK & R acquired the Property, the Bankruptcy Court noted that SK & R, and consequently the Court, could not have relied on a transfer of the Escrows as a basis for approving the Contract: SK & R was not a third-party purchaser but was a creditor that was agreeing to release its claim against the debtor in exchange for the property. SK & R's counsel conceded at oral argument that SK & R was unaware of the existence of the cash escrow at the time it entered into the contract with the debtor and voted in favor of the debtor's plan. SK & R can hardly argue, therefore, that it expressly relied on receiving the escrow in exchange for waiving its claim. It is clear that Bentley's prior inconsistent position regarding the Escrows was not accepted or relied upon by the Bankruptcy Court. Because this critical element of judicial estoppel is absent, the doctrine cannot be applied to Bentley in the case at bar. The trial court therefore erred in ruling that Bentley was estopped from asserting a claim to the Escrows because it took an inconsistent position in the Bankruptcy Court by failing to list the Escrows as an asset of its bankruptcy estate. [8]