Opinion ID: 1728912
Heading Depth: 1
Heading Rank: 4

Heading: Detrimental Reliance or Judicial Estoppel

Text: Judicial estoppel has been defined as the effect of the voluntary conduct of a party whereby he is precluded from asserting rights against another who has justifiably relied upon such conduct and changed his position so that he will suffer injury if the former is allowed to repudiate the conduct. Morris v. Friedman, 94-2808, p. 8 (La.11/27/95), 663 So.2d 19, 25. This concept was codified in 1985 in La. Civ.Code art. 1967, which provides in part: A party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying. Recovery may be limited to the expenses incurred or the damages suffered as a result of the promisee's reliance on the promise. Reliance on a gratuitous promise made without required formalities is not reasonable. (emphasis added). The Department first argues that the doctrine of detrimental reliance cannot be invoked against the government. [11] The view that estoppel does not apply in cases involving the government was a corollary to the doctrine of sovereign immunity. With the abolition of sovereign immunity came a trend to permit equitable estoppel to be invoked against the government in tax matters. See Michael A. Rosenhouse, Annotation, Estoppel of State or Local Government in Tax Matters, 21 A.L.R.4th 573, 1983 WL 190977 (1983)(collecting cases); Valencia Energy Co. v. Arizona Dep't of Revenue, 191 Ariz. 565, 959 P.2d 1256 (1998). This trend is reflected in the Louisiana appellate cases that have invoked detrimental reliance in tax matters. [12] The court of appeal in the present case listed four factors required to support the somewhat greater burden for invoking equitable estoppel or detrimental reliance against a governmental agency. 98-2882 at p. 7, 752 So.2d at 394. See also Gulf States Utilities Co. v. Louisiana Pub. Serv. Comm'n, 92-1185 pp. 27-28 (La.3/17/94), 633 So.2d 1258, 1266 (Dennis, J., concurring). Applying that heightened four-prong test to the facts, the court of appeal reasoned: [T]he first element is unequivocal advice from an unusually authoritative source. Millet and McShane were members of the Task Force. Both were appointed by the Secretary of the Department to work on the Task Force. Millet was the regional tax director of one of the regional offices. Both Millet and McShane testified that they were the persons who told plaintiff that this equipment was exempt from taxes under the statute. Based on these facts, this would be considered as unequivocal advice from an unusually authoritative source. The next element is reasonable reliance on that advice by an individual. After being told the equipment was exempt from taxes, plaintiff was given tax exemption forms by Millet and McShane and were [sic] told to give them to vendors when purchasing the equipment. Therefore, plaintiff reasonably relied on that advice from Millet and McShane. Next, extreme harm must result from that reliance. Plaintiff was not informed of a change in policy that occurred one year later. Plaintiff was made knowledgeable of the change after it was audited and was assessed with interest. Being assessed with interest years later is extreme harm. Finally, gross injustice must occur in the absence of judicial estoppel. Absent judicial estoppel, plaintiff would be required to pay taxes and interest on items it was explicitly told were exempt. One year later, after the department revisited the matter, the policy was changed, but the information was not disseminated. Yet, after it was audited and assessed taxes and interest, plaintiff was finally notified of a change in policy, which resulted in gross injustice. The final element is met. 98-2882 at pp. 7-8, 752 So.2d at 394. Based on the above analysis, the court concluded that the facts presented satisfied not only the prior jurisprudential requisites for detrimental reliance, but also the statutory requirements set forth in La.Civ.Code art. 1967. We disagree that extreme harm resulted from the reliance in the present case and that gross injustice will occur in the absence of the application of judicial estoppel. Detriment resulting from reliance simply has not been proved. In reliance on advice from the Department's representatives, plaintiffs acquired the equipment without paying the taxes. Plaintiffs were harmed in that they could have paid the taxes under protest and sought recovery in court without being charged interest. The only harm to plaintiffs, as the lower courts correctly concluded, was payment of the interest incurred when they failed to pay timely under protest. [13] As to detriment suffered from incurring non-punitive interest on account of failure to pay lawful taxes when due, the Arizona Supreme Court in Valencia Energy Co. v. Arizona Dep't of Revenue, 191 Ariz. 565, 959 P.2d 1256 (1998), reasoned: [N]o detriment is incurred when the party's only injury is that it must pay taxes legitimately owed under the correct interpretation of the law. Nor will liability for non-punitive interest on the tax legitimately due constitute detrimental reliance. Non-punitive interest is, after all, nothing more than compensation for the use of money. The taxpayer had the benefit of using the funds before paying the tax claim and, in the legal sense, suffers no loss by reason of paying interest on the money it retained in its possession. 959 P.2d at 1268-69 (citations omitted). We are substantially in accord with the Valencia reasoning. Interest, when incurred other than as a penalty, is defined as the damages due for the delay in performance of an obligation to pay money. See La.Civ.Code art. 2000. Plaintiffs were obligated to pay the Department the amount of the sales taxes due in 1993 and 1994. Plaintiffs did not pay the taxes timely, and interest was due as damages caused by this failure. Moreover, although plaintiffs may have had a good reason for not paying the taxes timely, the effect of the non-payment was that plaintiffs either (1) retained the money they should have paid as taxes and used that money in their business operations or earned interest on it, or (2) were not required to borrow money (at interest) to pay the taxes when due. In either event, the incurring of interest because of untimely payment of the debt was not shown by this record to be a detriment. [14]