Court Opinion

ID: 4201099
Source: CourtListenerOpinion
Date Created: 2017-09-05 15:09:51.627484+00
Date Added: 2024-06-11T14:14:06.359630
License: Public Domain

FILED
                                                                        Sep 05 2017, 5:33 am

                                                                            CLERK
                                                                        Indiana Supreme Court
                                                                           Court of Appeals
                                                                             and Tax Court

      ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEE
      Thomas A. Brodnik                                          T. Joseph Wendt
      Patrick M. Cline                                           Edward M. Smid
      Doninger Tuohy & Bailey LLP                                Barnes & Thornburg LLP
      Indianapolis, Indiana                                      Indianapolis, Indiana
      Scott Treadway
      EST Law, LLC
      Indianapolis, Indiana

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      Jason Ellis,                                               September 5, 2017
      Appellant-Defendant/Counterclaimant,                       Court of Appeals Case No.
                                                                 32A01-1607-PL-1477
              v.                                                 Appeal from the Hendricks
                                                                 Superior Court 4
      Keystone Construction                                      The Honorable Mark A. Smith,
      Corporation,                                               Judge
      Appellee-Plaintiff/Counterclaim                            Trial Court Cause No.
      Defendant.                                                 32D04-1207-PL-77

      Mathias, Judge.

[1]   Jason Ellis (“Ellis”) challenges the order of the Hendricks Superior Court

      granting summary judgment in favor of Keystone Construction Corporation

      (“Keystone”). On appeal, Ellis presents four issues, one of which we find

      Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017              Page 1 of 15
      dispositive, which we restate as whether the trial court erred in determining that

      the doctrine of judicial estoppel precluded Ellis’s claims against Keystone.

[2]   We affirm.

                                   Facts and Procedural History1
[3]   Keystone is a construction company formed by Ersal Ozdemir (“Ersal”) in

      2002, with Ersal as the sole shareholder. Ellis was experienced in the

      commercial construction industry, and in late 2002 and early 2003, Ersal

      recruited Ellis to come to work for Keystone. Ellis claims that Ersal offered to

      make him a “partner” in Keystone with a 20% ownership interest. Ellis agreed

      and began to work for Keystone as the director of construction.

[4]   Thereafter, although Ellis’s partnership or ownership status was never

      formalized in writing, Ersal introduced Ellis to others as his “partner,” and told

      others that he had a “partner” in Keystone. Ellis was also referred to on

      Keystone’s website as a partner and in internal corporate records as a “partner”

      and “director.” Ersal also discussed Keystone’s obligation to pay dividends to

      Ellis, and Ellis received some dividends from Keystone in addition to his salary.

[5]   After Ellis joined Keystone, Ersal’s younger brother, Huseyin Ozdemir

      (“Huseyin”), also joined Keystone as a third member or shareholder. Huseyin’s

      1
        Keystone disputes many of the facts designated by Ellis in opposition to Keystone’s motion for summary
      judgement. We set forth the facts in accordance with our standard of review of the trial court’s grant of
      summary judgment, i.e., we construe all factual inferences in favor of Ellis as the non-moving party. See Hill
      v. Gephart, 54 N.E.3d 402, 406 (Ind. Ct. App. 2016), aff’d on reh’g at 62 N.E.3d 408, trans. denied.

      Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017                       Page 2 of 15
      background was in finance and accounting, and he became the financial officer

      of the company. Huseyin told others working for Keystone that he, Ersal, and

      Ellis were “partners” or “owners” of Keystone. Appellant’s App. Vol. 4, p. 25.

[6]   As the company grew, it became involved in several large commercial

      construction projects. Ellis and Huseyin also pressured Ersal to reduce their

      ownership status to writing in a formal shareholder or partnership agreement.

      In 2006, Ersal sent Ellis and Huseyin an email stating that he had met with

      attorneys who were preparing a partnership agreement, a buy/sell agreement,

      and stock certificates. Apparently, however, these agreements were never

      signed by the parties.

[7]   In 2010, Huseyin sent Ersal an email demanding that Ersal purchase his shares

      of Keystone for $2,500,000, which Huseyin believed represented his share of the

      value of Keystone at the time, which he determined was in excess of

      $7,500,000. Huseyin also complained of Ersal’s failure to formalize the

      ownership of the company. Ersal responded by claiming that he had always

      owned 100% of the company. He also stated that if Huseyin believed the

      company was worth that much, he should buy it from Ersal for that price.

[8]   At the same time as the dispute over ownership of Keystone was developing,

      Ellis and his then wife, Brooke Ellis (“Brooke”) were in the process of

      dissolving their marriage. Brooke filed for dissolution in February 2010.

      Eventually, Ellis and Brooke entered into a settlement agreement resolving all

      issues in the dissolution, which the dissolution court accepted and incorporated

      Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 3 of 15
      into the dissolution decree. This settlement agreement purported to disclose “all

      the property and interest, both real and personal, now held by [Ellis and

      Brooke].” Appellee’s App., Vol. 3, p. 164. The agreement also provided that

      Ellis and Brooke “have amicably and equitably divided all personal property

      acquired during the course of the marriage,” and that both parties “represent

      and warrant to each other that there has been a full disclosure of assets and that

      the property referred to in this Agreement represents all the property of any sort

      whatsoever which either of them have an interest in or right to, whether legal or

      equitable.” Id. at 168, 171. The settlement agreement also contained a provision

      stating that, “[i]t is understood and agreed that this is an agreement to settle all

      property rights[.]” Id at 171. The settlement agreement further contained an

      integration clause stating, that “[e]ach party hereto acknowledges . . . that this

      Agreement constitutes all of the terms of the contract between said parties.” Id.

      On March 18, 2011, the dissolution court approved the Ellises’ proposed

      Settlement Agreement. Notably, however, the settlement agreement contained

      no mention of any ownership interest or shares of Keystone.

[9]   In November 2011, Huseyin resigned from Keystone. He also transferred

      $2,500,000 from Keystone to an organization he owned2 to compensate him for

      what he believed was his share of the value of Keystone. Ellis questioned Ersal

      about Huseyin’s departure from Keystone, asking in an email if Huseyin was

      “still partners with us?” and if there would be a “distribution to shareholders

      2
        According to the bank statement listing the $2,500,000 transfer, the money was transferred from Keystone
      to KeyEnterprises. Appellant’s App. Vol. 5, p. 177.

      Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017                    Page 4 of 15
       soon for 2011.” Appellant’s App. Vol. 6, p. 124. Ersal responded with an email

       stating:

               Christi is trying to put the [Keystone] financials together by next
               week. I am not sure if there will be any profit sharing distribution
               at this time. I will let you know after I review the financials.
               Sain [i.e., Huseyin] is not involved in Keystone.

       Id. at 123.

[10]   Ellis continued to pressure Ersal for documentation formalizing his ownership

       interest in Keystone. In March 2012, Ersal and Ellis had a meeting at which

       they discussed Ellis’s ownership interest in Keystone. Ellis recorded this

       conversation, and stated that he had met with his attorneys who had sent him

       documentation for what he referred to as “the partnership thing.” Appellant’s

       App. Vol. 6, p. 79. But instead of showing Ellis with a 20% interest, the

       documents Ersal presented to Ellis showed Ellis with only a 5% interest in

       Keystone. Ellis rejected this, stating that he was supposed to be a “partner”

       from “day one” and stated that he and Ersal had discussed a “10 to 20 percent”

       ownership interest. Id. at 92-93. Ersal denied that this had been the case.

[11]   Ellis and Ersal were unable to come to an agreement regarding the ownership

       of Keystone, and Ellis resigned from the company in May 2012. On June 1,

       2012, Ellis sent a letter to Keystone seeking access to certain financial and

       corporate records of Keystone, asserting rights he would have as a shareholder.

       Keystone responded by filing a complaint on June 15, 2012, seeking a

       declaratory judgment that Ellis was not a shareholder or partner in Keystone.
       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 5 of 15
       Ellis responded on July 26, 2012, with an answer to the complaint, affirmative

       defenses, and seven counterclaims alleging breach of fiduciary duty; fraud and

       constructive fraud; breach of contract, promissory estoppel, conversion; and

       unjust enrichment; and also requesting compulsory production of corporate

       records; an accounting; a declaratory judgment and imposition of a constructive

       trust.

[12]   After various filings by both parties, Keystone filed a motion for judgment on

       the pleadings on January 31, 2013, with regard to Ellis’s counterclaims of

       breach of fiduciary duty, conversion, and fraud and constructive fraud. After

       Ellis filed a response, the trial court granted Keystone’s motion on March 25,

       2013. Keystone then filed a motion for summary judgment on May 12, 2014.

       Ellis responded to this motion after successfully seeking an extension of time,

       and the trial court denied Keystone’s motion on August 12, 2014.

[13]   Undeterred, on November 17, 2015, Keystone filed another motion for

       summary judgment as to the issue of damages. And before the trial court could

       issue a ruling on this motion, on December 14, 2015, Keystone filed a motion

       to renew its previously-denied motion for summary judgment on the grounds of

       newly discovered evidence. In this motion, Keystone sought summary

       judgment on the grounds of judicial estoppel, noting that Ellis’s settlement

       agreement with his ex-wife Brooke contained no mention of any stock or

       ownership interest in Keystone and claiming that Ellis was therefore estopped

       from asserting an ownership interest in the present case. Ellis responded to both

       motions for summary judgment, and Keystone filed replies.

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 6 of 15
[14]   On May 27, 2016, the trial court held a hearing on Keystone’s motion for

       summary judgment based on judicial estoppel. The trial court issued an order

       on June 6, 2015, granting Keystone’s motion for summary judgment. Keystone

       then moved for entry of final judgment, which the trial court granted on July

       12, 2016, by entering an order of final judgment in favor of Keystone. Ellis now

       appeals.

                                   Summary Judgment Standard
[15]   Summary judgment is appropriate where there are no genuine issues of material

       fact and the movant is entitled to judgment as a matter of law. Ind. Trial Rule

       56(C); Knighten v. E. Chi. Hous. Auth., 45 N.E.3d 788, 791 (Ind. 2015). The

       movant’s burden is to show that its designated evidence, with all conflicts,

       doubts, and reasonable inferences resolved in the non-moving party’s favor,

       affirmatively negates the non-moving party’s claim. Hughley v. State, 15 N.E.3d

       1000, 1003 (Ind. 2014). The burden then shifts to the non-moving party to show

       an issue of fact affecting the outcome of the case that requires resolution by the

       fact-finder. Id. We review the trial court’s ruling de novo as a question of law,

       taking care that the nonmovant is not improperly denied her day in court. Id.

       We may affirm denial of summary judgment on any theory or basis found in

       the designated evidence. Chang v. Purdue Univ., 985 N.E.2d 35, 45 (Ind. Ct.

       App. 2013), trans. denied.

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 7 of 15
                                             Judicial Estoppel
[16]   Ellis contends that the trial court erred when it determined that his claim of

       having a share of ownership of Keystone is barred due to judicial estoppel.

       Judicial estoppel is a judicially created doctrine that seeks to prevent a litigant

       from asserting a position that is inconsistent with one asserted in the same or a

       previous proceeding. Morgan Cty. Hosp. v. Upham, 884 N.E.2d 275, 280 (Ind. Ct.

       App. 2008), trans. denied (citing Robson v. Texas E. Corp., 833 N.E.2d 461, 465

       (Ind. Ct. App. 2005)). The doctrine is not intended to eliminate all

       inconsistencies, but is instead designed to prevent litigants from playing “fast

       and loose” with the courts. Id. Thus, the primary purpose of judicial estoppel is

       to protect the integrity of the judiciary, not to protect litigants. Id. (citing

       Robson, 833 N.E.2d at 466). As we have explained before, “[t]he basic principle

       of judicial estoppel is that, absent a good explanation, a party should not be

       permitted to gain an advantage by litigating on one theory and then pursue an

       incompatible theory in subsequent litigation.” Id. Judicial estoppel applies only

       to intentional misrepresentation. Id. Accordingly, “the dispositive issue

       supporting the application of judicial estoppel is the bad-faith intent of the

       litigant subject to estoppel.” Id.

[17]   Unlike equitable estoppel, which focuses on the relationship between the

       parties, judicial estoppel focuses on the relationship between a litigant and the

       judicial system. Turner v. Stuck, 778 N.E.2d 429, 432 (Ind. Ct. App. 2002). That

       is, judicial estoppel is intended to protect the integrity of the judicial system

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 8 of 15
       rather than to protect litigants from allegedly improper action by their

       opponents. Id.

[18]   This court has held that judicial estoppel is applicable when a bankrupt debtor

       fails to disclose a cause of action as an asset in bankruptcy proceedings and then

       pursues the omitted cause of action in a subsequent proceeding. Upham, 884

       N.E.2d at 280 (citing Robson, 833 N.E.2d at 465). In this context, we adopted a

       burden-shifting approach to determine whether to apply judicial estoppel. Id.

       An inference of bad faith arises when the party asserting judicial estoppel,

       typically the defendant, demonstrates that the plaintiff-debtor had knowledge of

       an unscheduled claim and motive for concealment in the face of a duty to

       disclose. Id. If the defendant establishes the plaintiff’s knowledge of a claim and

       motive for concealment, the debtor-plaintiff then has the burden of coming

       forth with evidence indicating that the nondisclosure was made in good faith.

       Id. (citing Robson, 833 N.E.2d at 467). Thus, while the plaintiff’s knowledge and

       motive are “important in establishing judicial estoppel, the inquiry does not end

       there if the debtor-plaintiff comes forward with evidence indicating that the

       non-disclosure was made in good faith.” Id.

[19]   In applying this burden-shifting test, it is important to remember that the

       ultimate purpose of the test is to determine the actual presence of bad faith. Id.

       Indeed, judicial estoppel “is not meant to be a technical defense for litigants

       seeking to derail potentially meritorious claims[.]” Id. (citing Ryan Operations

       G.P. v. Santiam–Midwest Lumber Co., 81 F.3d 355, 364 (3rd Cir. 1996)).

       Therefore, the dispositive question is whether the plaintiff was playing “fast and

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 9 of 15
       loose” with the courts, not whether the plaintiff merely omitted a claim on her

       bankruptcy schedule (or, in the present case, failed to disclose assets in

       settlement agreement). See id.

[20]   This balance-shifting test is applicable here, where the Ellis filed a document

       with the dissolution court purporting to list all of his assets, yet omitted the

       ownership interest he now claims. This court has applied judicial estoppel in a

       similar situation. In Turner v. Stuck, the parties entered into an oral partnership

       to purchase a boat. 778 N.E.2d at 430. Several years after the purchase of the

       boat, Stuck sued to dissolve the partnership and sell the boat. Id. Turner then

       executed a document to assign his interest in the boat to his uncle. Id. But

       Turner answered Stuck’s complaint by counterclaiming for his share of the

       value of the boat. Id. And before the litigation over the boat had commenced,

       Turner’s wife filed to dissolve their marriage. Id. In the property settlement

       agreement reached by the parties, Turner affirmatively denied owning the boat.

       Id. On appeal from a grant of summary judgment in favor of Stuck, we held that

       Turner was judicially estopped from claiming ownership in the boat:

               Turner's position in the dissolution proceeding was that he did
               not own the boat, which is contrary to his later assertion that he
               does in fact own the boat as a partnership asset and that this
               interest has not been transferred or assigned to anyone else.
               Turner took the position that he did not own the boat in the
               dissolution proceeding to prevent the boat from becoming part of
               the marital estate. In the present litigation, he may not now argue
               the opposite position.

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 10 of 15
       Id. at 432. Keystone argues that the same is true here, and that judicial estoppel

       should apply to bar Ellis from claiming an ownership interest in Keystone.

[21]   Under the burden-shifting test set forth in Upham and Robson, Keystone has

       established that Ellis failed to disclose his claimed ownership interest in

       Keystone to the dissolution court. Keystone also established Ellis had

       knowledge of his claim and a motive for concealment, i.e. to hide the assets

       from the dissolution court. As set forth in Upham and Robson, if the defendant

       establishes the plaintiff’s knowledge of a claim and motive for concealment, the

       plaintiff then has the burden of coming forth with evidence indicating that the

       nondisclosure was made in good faith. Id.

[22]   Ellis claims that he designated evidence establishing a genuine issue of material

       fact with regard to whether his non-disclosure of his claimed ownership interest

       in Keystone in his settlement agreement was made in good faith. He refers to

       the affidavits he and his ex-wife Brooke made showing that the couple

       intentionally left the Keystone interest out of the settlement agreement because

       they did not want to delay the dissolution proceedings. See, e.g., Appellant’s

       App., Vol. 4, pp. 27-28 (affidavit of Brooke Ellis in which she averred that she

       was aware of the ownership dispute between Ellis and Ersal, that she and Ellis

       agreed that they would “address [Brooke’s] interest in those shares” after the

       dispute was resolved, and that she did not believe that Ellis intended to deceive

       her with regard to his ownership interest in Keystone); id., Vol. 7, pp. 38-39

       (supplemental affidavit of Brooke Ellis in which she averred that “it was not

       [her] intent to deceive the [dissolution court] by filing the divorce Settlement

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 11 of 15
       Agreement,” that she signed the Settlement Agreement despite its failure to list

       Ellis’s claimed ownership interest in Keystone so she could simply “be

       divorced” as quickly as possible, and that she and Ellis had agreed to an

       “equitable split” of his ownership interest in Keystone); id., Vol. 7, pp. 90-91

       (deposition of Jason Ellis in which he admits to not listing his claimed

       ownership in Keystone as a marital asset so he could “sort . . . out” his dispute

       with Ersal).

[23]   Even if we view this evidence in the light most favorable to Ellis, it establishes

       that his omission of his claimed ownership interest in Keystone was intentional,

       not merely a good-faith mistake, as was the case in Upham. See Upham, 884

       N.E.2d at 283 (holding Upham’s affidavit created a genuine issue of material

       fact about whether the nondisclosure of her malpractice action was a good-faith

       mistake).

[24]   We acknowledge, as we did in Upham, that “summary judgment is particularly

       problematic in cases such as this one because the ultimate issue to be decided is

       the plaintiff[]’s intent to play fast and loose with the courts.” 884 N.E.2d at 283.

       But here, both Ellis and Brooke admitted in their affidavits that they knew

       about Ellis’s claimed ownership interest in Keystone, yet intentionally left this

       out of the Settlement Agreement which purported to divide the marital assets.

       While this evidence might prevent a claim of fraud between the parties, we do

       not consider this as evidence of good faith as it pertains to the court. To the

       contrary, it was an intentional act to keep from the dissolution court a

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 12 of 15
       potentially large marital asset. Indeed, the Settlement Agreement itself stated

       that

               Husband and Wife hereby represent and warrant to each other
               that there has been a full disclosure of assets and that the property
               referred to in this Agreement represents all the property of any sort
               whatsoever and wheresoever located, real, personal, or mixed, which
               either of them have an interest in or right to, whether legal or equitable.
                                                        ***
               Each party hereto acknowledges that no representations of any
               kind have been made to him or her as an inducement to enter
               into this Settlement Agreement, other than the representations set
               forth herein, and that this Agreement constitutes all of the terms of the
               contract between said parties.
                                                        ***
               It is understood and agreed that this is an agreement to settle all
               property rights and other issues between Husband and Wife in the event
               a dissolution should be granted by the Court.

       Appellant’s App., Vol. 3, p. 171 (emphasis supplied).

[25]   Ellis’s designated evidence simply shows that he and his ex-wife were

       intentionally keeping from the dissolution court the existence of a potentially

       large marital asset (Ellis’s twenty-percent claim of an allegedly multi-million-

       dollar corporation). Under these facts and circumstances, we agree with the

       trial court that Ellis has not established a genuine issue of material fact with

       regard to the issue of his good faith in omitting his claimed ownership interest

       in Keystone from his dissolution Settlement Agreement.

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017          Page 13 of 15
[26]   All of Ellis’s claims are based upon his position that he is entitled to an

       ownership interest in Keystone. As we have concluded that Ellis is judicially

       estopped from asserting any such interest, the remainder of his claims

       necessarily fail. For example, Ellis’s claim of breach of a fiduciary duty

       presumes that he was a shareholder. Since Ellis is judicially estopped from

       asserting a claim that he is a shareholder, his claim of breach of a fiduciary duty

       fails.3 And to the extent that Ellis’s claim for monetary damages was based on

       his allegation of a breach of a fiduciary duty, this claim also fails.

[27]   The same is true with regard to Ellis’s claims for breach of contract, promissory

       estoppel, and unjust enrichment. Ellis summarizes his allegations on these

       claims as follows:

                Keystone agreed to provide Mr. Ellis twenty percent (20%) of
                Keystone’s stock. He also alleges that he has not received that
                stock, and has not received dividends. He also alleges that
                Keystone has declared that he is no longer a shareholder in
                breach of the agreement. Finally, he alleges he has been damaged
                by Keystone’s withholding of dividends and profits.

       Appellant’s Br. at 39–40 (record citations omitted).

       3
         Nevertheless, the general rule is that the directors, and not the corporation itself, owe a fiduciary duty to
       shareholders. Ormond v. Anthem, Inc., 799 F. Supp. 2d 910, 936, 2011 WL 2619618 (S.D. Ind. 2011) (citing
       Arnold v. Soc’y For Savs. Bancorp, Inc., 678 A.2d 533, 539–540 (Del. 1996)); Radol v. Thomas, 772 F.2d 244, 258
       (6th Cir. 1985) (“There is not, and could not conceptually be any authority that a corporation as an entity has
       a fiduciary duty to its shareholders.”); see also G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 238 (Ind. 2001)
       (holding that corporation could not be held liable for damages awarded due to the majority shareholder’s
       breach of his fiduciary duty, and therefore the recovery for any breach of fiduciary duty comes from
       Goldsmith [the majority shareholder], not G&N [the corporation].”).

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017                      Page 14 of 15
[28]   Again, these claims are based on his right to assert a claim that he is, in fact,

       entitled to be a shareholder in Keystone. But we have concluded that judicial

       estoppel prevents Ellis from asserting any such interest. Accordingly, these

       claims also fail. And since Ellis’s claims are all precluded by judicial estoppel,

       there is no need for further discovery, as Ellis also requests.

                                                  Conclusion
[29]   The trial court did not err in concluding that Ellis, by intentionally omitting his

       claimed ownership interest in Keystone from his dissolution Settlement

       Agreement, is now judicially estopped from asserting a claim of an ownership

       interest in Keystone. The trial court therefore properly granted summary

       judgment in favor of Keystone.

[30]   Affirmed.

       Kirsch, J., and Altice, J., concur.

       Court of Appeals of Indiana | Opinion 32A01-1607-PL-1477 | September 5, 2017   Page 15 of 15