Court Opinion

ID: 57749
Source: CourtListenerOpinion
Date Created: 2010-04-26 02:12:36+00
Date Added: 2024-06-11T09:40:37.327541
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT United States Court of Appeals
                                                   Fifth Circuit

                                                                            FILED
                                                                         January 25, 2008

                                       No. 06-31246                   Charles R. Fulbruge III
                                                                              Clerk

ENGINES SOUTHWEST, INC.

                                                   Plaintiff-Appellant/Cross-Appellee

GRAYSON HOLDINGS, INC.

                                                   Movant-Appellant/Cross-Appellee
v.

KOHLER CO.

                                                   Defendant-Appellee/Cross-
                                                   Appellant

                  Appeals from the United States District Court
                      for the Western District of Louisiana
                             USDC No. 5:03-CV-1460

Before HIGGINBOTHAM, DAVIS, and SMITH, Circuit Judges.
PER CURIAM:1
                                              I.
       This case concerns a dispute over a contract (the “Distribution
Agreement”) entered into in 1988 between “Engines Southwest” and Kohler Co.

       1
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                                    No. 06-31246

(“Kohler”). The Distribution Agreement provided for “Engines Southwest” to
engage in the wholesale distribution of engines and engine parts manufactured
by Kohler. The Distribution Agreement was signed by Al Rich in his capacity as
President. Al Rich is the president of Engines Southwest, Inc. (“ESI”).
      “Engines Southwest,” a Shreveport division of Grayson Company of the
Southwest, Inc. (“Grayson”), performed under the Distribution Agreement.
Despite this fact, on July 21, 2003, ESI and not Grayson sued Kohler in a
Louisiana state court alleging that Kohler violated the Louisiana Repurchase
Act, La. Rev. Stat. § 51:481–90, by improperly terminating the Distribution
Agreement. Kohler then removed the case to federal court. ESI, the named
plaintiff, then moved for summary judgment. In May 2005, the district court
issued a Memorandum Ruling and Order granting ESI’s motion for summary
judgment, finding that Kohler had improperly terminated the Distribution
Agreement.
      Having determined liability, the district court then scheduled a trial on
damages.     Shortly before the damages trial was to begin, ESI moved to
substitute Grayson as plaintiff, urging that Grayson rather than ESI was the
party to the Distribution Agreement and the real party in interest to the suit.
That motion was denied; the district court concluded that judicial estoppel
prevented substitution of Grayson for ESI so late in the proceeding.2 Grayson
then sought to intervene as the real party in interest. Based on its earlier
ruling, the district court denied the motion to intervene. Kohler then filed a
motion for summary judgment, asserting that because ESI never reported
taxable income it could not establish any facts supporting a claim for loss of
income.

      2
        The district court also concluded that ESI was the real party in interest to the
Distribution Agreement.

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                                  No. 06-31246

      In November 2006, the district court entered judgment granting Kohler’s
motion. ESI and Grayson timely appealed the judgment and the denial of the
motions to substitute Grayson as plaintiff and of Grayson’s intervention as
plaintiff.   Kohler cross-appeals the district court’s summary judgment
determination that Kohler is liable to ESI. For the reasons set forth below, we
AFFIRM the district court’s judgment.
                                       II.
                                       A.
      A district court’s reliance on judicial estoppel is reviewed for abuse of
discretion. Hall v. GE Plastic Pacific PTE, Ltd., 327 F.3d 391, 396 (5th Cir.
2003); Ahrens v. Perot Systems Corp., 205 F.3d 831, 833 (5th Cir. 2000) (citing
In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir. 1999), cert. denied, 528
U.S. 1117 (2000)).
                                       B.
      “Judicial estoppel applies to protect the integrity of the courts—preventing
a litigant from contradicting its previous, inconsistent position when a court has
adopted and relied on it.” Ahrens, 205 F.3d at 833 (quoting Afram Carriers, Inc.
v. Moeykens, 145 F.3d 298, 303 (5th Cir. 1998), cert. denied, 525 U.S. 1141
(1999)). It “is a common law doctrine by which a party who has assumed one
position in his pleadings may be estopped from assuming an inconsistent
position.” Coastal Plains, 179 F.3d at 205 (internal quotation marks and citation
omitted). Judicial estoppel should be applied where a party’s “[(1)] position is
clearly inconsistent with the previous one; (2) the court must have accepted the
previous position; and (3) the non-disclosure must not have been inadvertent.”
In re Superior Crewboats, 374 F.3d 330, 335 (5th Cir. 2004) (citing Scarano v.
Central R.R. Co., 203 F.2d 510, 513 (3d Cir. 1953)); see also New Hampshire v.
Maine, 532 U.S. 742, 750 (2001) (holding that courts should resist application of
judicial estoppel when the prior position was based on inadvertence or mistake).

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                                  No. 06-31246

Additionally, the court may consider whether “the party seeking to assert an
inconsistent position would derive an unfair advantage or impose an unfair
detriment on the opposing party if not estopped.” New Hampshire, 532 U.S. at
750 (citing, inter alia, Davis v. Wakalee, 156 U.S. 680, 689 (1895); Scarano, 203
F.2d at 513)).
      ESI does not deny that its new position is inconsistent with its previous
position or that it persuaded the court to accept its earlier position. Instead, ESI
argues, as it did to the district court, that the position it advanced and convinced
the court to accept resulted from inadvertence or mistake and that correcting the
mistake will not unfairly advantage ESI or disadvantage Kohler. After calling
for briefs and hearing argument on these issues the district court rejected ESI’s
arguments. We are persuaded that the district court did not err in resolving
these issues.
      Mistake or inadvertence is an applicable defense to judicial estoppel if the
offending party did not have the relevant correct information at its disposal to
begin with. New Hampshire, 532 U.S. at 753–54 (holding that judicial estoppel
was applicable where a party asserted inadvertence or mistake but had the
opportunity to ascertain the correct information to begin with).           Another
consideration is whether the offending party had a motive to conceal the truth
to begin with. See Superior Crewboats, 374 F.3d at 335 (“[T]he debtor’s failure
to satisfy its statutory disclosure duty is ‘inadvertent’ only when, in general, the
debtor either lacks knowledge of the undisclosed claims or has no motive for
their concealment.”) (quoting Coastal Plains, 179 F.3d at 210) (emphasis in
original).
      The district court considered the argument of whether inadvertence or
mistake excused ESI’s conduct. Although the court concluded that it did not
believe that ESI was trying to play “fast and loose” with the court and that this
was not a case of blatant legal bad faith, it was satisfied that this was not an

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                                 No. 06-31246

appropriate case for a “good faith” mistake or inadvertence defense. The court
pointed out that ESI waited two and a half years after filing suit to substitute
plaintiffs, that ESI waited a number of months after seeking summary judgment
on liability and persuading the court to grant that judgment, that the record
reflects that ESI “muddied” discovery issues, and that ESI even delayed
notifying the district court of its desire to substitute plaintiffs once it had
determined substitution would be necessary. Our review of the record satisfies
us that the district court did not abuse its discretion in determining that the
defense of inadvertence or mistake is inapplicable in this case.
      Although this Court does not require the party asserting judicial estoppel
to demonstrate prejudice or detrimental reliance, see Coastal Plains, 179 F.3d
at 205, the district court considered whether ESI would gain an unfair
advantage or Kohler would be unfairly disadvantaged should substitution occur.
The district court concluded that Kohler would be prejudiced by substitution of
plaintiffs at such a late stage in the litigation because Kohler reasonably
believed that it was contracting with ESI, Kohler communicated its termination
of the contract to ESI, and Kohler’s entire litigation strategy was premised on
defending the suit brought by ESI. Our review of the record satisfies us that the
district court did not abuse its discretion in determining that Kohler would be
unfairly disadvantaged by substitution at this stage in the litigation.
                                      III.
      Because we agree that the district court did not abuse its discretion in
applying judicial estoppel we need not consider whether the district court erred
in determining that the real party in interest to the contract was ESI.
Additionally, we need not consider Kohler’s cross-appeal as to Kohler’s liability
to ESI.   Accordingly,   the district court’s judgment in favor of Kohler is
AFFIRMED.

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            No. 06-31246

AFFIRMED.

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