3D Const. and Development v. Old Standard

• Decision Date: 30 June 2005
• Docket Number: No. 20040250-CA.,20040250-CA.
• Citation: 117 P.3d 1082,2005 UT App 307
• Parties: 3D CONSTRUCTION AND DEVELOPMENT, L.L.C., Plaintiff and Appellant, v. OLD STANDARD LIFE INSURANCE COMPANY; OCWEN Federal Savings Bank, FSB; and Paxton R. Guymon, as successor trustee, Defendants and Appellees. Old Standard Life Insurance Company, Counterclaim Plaintiff and Appellee, v. 3D Construction and Development, L.L.C.; James Y. Dixon; and Ronald K. Dixon, Counterclaim Defendants and Appellant.
• Court: Utah Supreme Court

117 P.3d 1082

2005 UT App 307

3D CONSTRUCTION AND DEVELOPMENT, L.L.C., Plaintiff and Appellant, v. OLD STANDARD LIFE INSURANCE COMPANY; OCWEN Federal Savings Bank, FSB; and Paxton R. Guymon, as successor trustee, Defendants and Appellees.

Old Standard Life Insurance Company, Counterclaim Plaintiff and Appellee, v. 3D Construction and Development, L.L.C.; James Y. Dixon; and Ronald K. Dixon, Counterclaim Defendants and Appellant.

No. 20040250-CA.

Court of Appeals of Utah.

June 30, 2005.

COPYRIGHT MATERIAL OMITTED

Keith M. Backman and Jack C. Helgesen, Helgesen Waterfall & Jones, Ogden, for Appellant.

Blake D. Miller and Paxton R. Guymon, Miller Magleby & Guyon PC, Salt Lake City, for Appellees.

Before Judges BILLINGS, GREENWOOD, and JACKSON.

OPINION

GREENWOOD, Judge:

¶ 1 Plaintiff 3D Construction and Development, L.L.C. appeals the trial court's grant of Defendants'¹ motion for summary judgment. Specifically, Plaintiff argues that the trial court erred by concluding that the doctrines of judicial estoppel and issue preclusion barred Plaintiff's action. We reverse and remand.

BACKGROUND²

¶ 2 In October 2001, Old Standard loaned Plaintiff $3,905,000 in exchange for a promissory note (the Note) secured by a deed of trust on several of Plaintiff's real properties in Box Elder County, Utah. The Note provided that Old Standard was to receive a "profit participation" amount, based on how quickly Plaintiff repaid the Note. For example, if Plaintiff repaid the Note on or before January 31, 2002, Old Standard would be entitled to a profit participation of $250,000; from February 1, 2002, through April 30, 2002, $1,000,000; and $2,000,000 if Plaintiff paid off the Note thereafter. Additionally, the Note provided that should Plaintiff default, Plaintiff would be required to pay a profit participation of $2,000,000.

¶ 3 Plaintiff arranged to pay off the Note in January 2002, and contacted Old Standard in December 2001, to obtain the proper balance due. However, Old Standard did not respond to Plaintiff's inquiries until mid-January 2002. Furthermore, when Old Standard did reply, through its agent Ocwen, it erroneously contended that Plaintiff was in default, and therefore, owed the entire $2,000,000 profit participation amount. Indeed, Old Standard later admitted that it and Ocwen had erroneously imposed the $2,000,000 default profit participation amount. Nevertheless, when subsequently asked to provide the proper payoff amount, Ocwen again included the $2,000,000 profit participation amount, and further, informed Plaintiff's title company that the Note was in default.

¶ 4 In April 2002, Old Standard appointed Guymon as successor trustee. Guymon thereafter began foreclosure proceedings against Plaintiff, scheduling the sale of Plaintiff's Box Elder County property for September 27, 2002. However, to prevent Guymon's scheduled sale, on September 25, 2002, Plaintiff voluntarily filed for Chapter 7 bankruptcy. Along with the bankruptcy petition, Plaintiff also filed the required schedules. In the schedules, Plaintiff listed, as its sole creditor, Old Standard, with a debt owed of $6,500,000, secured by property worth $7,000,000. However, Plaintiff did not mark the box indicating that the $6,500,000 debt was "disputed."

¶ 5 As a result of Plaintiff filing for bankruptcy, the automatic stay of 11 United States Code section 362 prevented further action on the foreclosure proceeding. See 11 U.S.C.A. § 362 (2004).³ Thereafter, Old Standard moved for relief from the automatic stay. However, because Plaintiff intended that the bankruptcy petition would ultimately be dismissed notwithstanding Old Standard's motion, Plaintiff did not respond to Old Standard's motion. Accordingly, the bankruptcy court granted Old Standard's motion, relieving it from the automatic stay.

¶ 6 Subsequently, Guymon again scheduled a trustee's sale, this time for January 3, 2003. Once again Plaintiff stymied the sale, this time by filing a complaint, challenging the profit participation amount, accompanied by a motion for a preliminary injunction. After a hearing, the trial court denied Plaintiff's motion for a preliminary injunction.

¶ 7 Defendants then filed a motion for partial summary judgment, claiming that, as a result of the prior bankruptcy action, Plaintiff's claims were barred by (1) judicial estoppel, (2) claim preclusion, and (3) issue preclusion. After a hearing, the trial court granted Defendants' motion, concluding that Plaintiff's action was barred by judicial estoppel and issue preclusion.⁴ The trial court also certified the matter as final under Utah Rule of Civil Procedure 54(b). Plaintiff appeals.

ISSUE AND STANDARD OF REVIEW

¶ 8 Plaintiff argues that the trial court erred by granting Defendants' motion for summary judgment. Specifically, Plaintiff argues that the legal doctrines of judicial estoppel and issue preclusion do not forestall its action contesting the amount owed under the Note.

¶ 9 We review a trial court's grant of a motion for summary judgment for correctness, affording no deference to the trial court. See Ford v. American Express Fin. Advisors, 2004 UT 70,¶ 21, 98 P.3d 15. A party is entitled to summary judgment if there is no genuine issue of material fact and "the moving party is entitled to a judgment as a matter of law." Utah R. Civ. P. 56(c). Additionally, "[f]or a moving party to be entitled to summary judgment, it must establish a right to judgment based on the applicable law as applied to the undisputed facts." Smith v. Four Corners Med. Health Ctr., Inc., 2003 UT 23,¶ 24, 70 P.3d 904.

ANALYSIS

A. Judicial Estoppel

¶ 10 Plaintiff argues that the doctrine of judicial estoppel is inapplicable in the instant case because the doctrine's elements are not satisfied. Defendants counter that Plaintiff was under an affirmative duty to fully and accurately reflect its financial condition in its schedules, and that Plaintiff's failure to mark the $6,500,000 debt as "disputed" in the bankruptcy schedules estops Plaintiff from thereafter contesting the debt amount.

¶ 11 "Under judicial estoppel, `a person may not, to the prejudice of another person, deny any position taken in a prior judicial proceeding between the same persons or their privies involving the same subject matter, if such prior position was successfully maintained.'" Nebeker v. State Tax Comm'n, 2001 UT 74,¶ 26, 34 P.3d 180 (quoting Tracy Loan & Trust Co. v. Openshaw Inv. Co., 102 Utah 509, 132 P.2d 388, 390 (1942)). The purpose behind judicial estoppel is to discourage machinations by the parties that subvert the integrity of the judicial system. See Stichting Mayflower Mt. Fonds v. Jordanelle Special Serv. Dist., 2001 UT App 257,¶ 25, 47 P.3d 86 ("`This doctrine prevents parties from playing "fast and loose" with the court or blowing "hot and cold" during the course of litigation.'" (Thorne, J., dissenting) (quoting Roxas v. Marcos, 89 Hawai'i 91, 969 P.2d 1209, 1242 (1998) (citation omitted)) (additional quotations omitted)).

¶ 12 We do not believe, however, that this policy is furthered by imposing judicial estoppel in instances where the party's prior position was based on mere mistake or inadvertence and consists of only a failure to check a small box rather than an affirmative representation. See New Hampshire v. Maine, 532 U.S. 742, 753, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001) ("We do not question that it may be appropriate to resist application of judicial estoppel `when a party's prior position was based on inadvertence or mistake.'" (citation omitted)). Indeed, requiring a showing of bad faith by the party against whom judicial estoppel is sought is a widely-accepted view. See, e.g., Whiting v. Krassner, 391 F.3d 540, 544 (3d Cir.2004) (noting bad faith is "an essential requirement for the application of judicial estoppel"); Eubanks v. CBSK Fin. Group, Inc., 385 F.3d 894, 899 (6th Cir.2004) (restating "evidence of an inadvertent omission of a claim in a previous bankruptcy proceeding is a reasonable and appropriate factor to consider when analyzing judicial estoppel's applicability"); Johnson v. Oregon, 141 F.3d 1361, 1369 (9th Cir.1998) ("If incompatible positions are based not on chicanery, but only on inadvertence or mistake, judicial estoppel does not apply."); see also The Honorable William Houston Brown, Lundy Carpenter & Donna T. Snow, Debtors' Counsel Beware: Use of the Doctrine of Judicial Estoppel in Nonbankruptcy Forums, 75 Am. Bankr.L.J. 197, 225 (2001) (summarizing the circuits' different approaches toward intent as an element of judicial estoppel originating from prior bankruptcy proceedings).

¶ 13 Moreover, the fact that the Tenth Circuit does not recognize judicial estoppel undercuts Defendants' reliance on the doctrine in this case. See United States v. 49.01 Acres of Land, More or Less, Situate in Osage County, Okla., 802 F.2d 387, 390 (10th Cir.1986) (stating "`even in the case of false statements . . . public policy can be vindicated . . . more practically and fairly . . . than through suppression of truth in the future.'" (citation omitted)). As a result, had Plaintiff's action been appealed to the U.S. District Court for the District of Utah, that court, bound by the rulings of the Tenth Circuit, could not have judicially estopped Plaintiff's dispute of the $2,000,000 profit participation amount based on Plaintiff's representations to the bankruptcy court.

¶ 14 Additionally, while Plaintiff's acknowledgment that it knew its bankruptcy filing would ultimately be dismissed suggests that Plaintiff filed its bankruptcy petition in order to stall Guymon's trustee sale of Plaintiff's Box Elder County real property, this does not equate to an intentional subversion of the judiciary. See De Leon v. Comcar Indus., Inc., 321 F.3d 1289, 1292 (11th Cir.2003) (inferring bankruptcy debtor's "intent `to make a mockery of the judicial system'" from his knowledge of a claim and motive to conceal it (citation omitted)).

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