Ryan Operations G.P. v. Santiam-Midwest Lumber Co.

Decision Date15 April 1996
Docket NumberNo. 95-3250,SANTIAM-MIDWEST,95-3250
Citation81 F.3d 355
Parties, 28 Bankr.Ct.Dec. 1178 RYAN OPERATIONS G.P., a Virginia General Partnership and NVR, L.P., a Virginia Limited Partnership, on Behalf of its Division, NVR Building Products Co. v.LUMBER CO., an Oregon Corporation; Furman Lumber, Inc., a Massachusetts Corporation; Bright Wood Corp., an Oregon Corporation. BRIGHT WOOD CORP., Third Party Plaintiff, v. FORREST PAINT CO., INC., an Oregon Corporation; Guardsman Products, Inc., a Delaware Corporation, Third Party Defendants, Ryan Operations G.P. and NVR, L.P. and its division, NVR Building Products Co., Appellants.
CourtU.S. Court of Appeals — Third Circuit

On Appeal from the United States District Court for the Western District of Pennsylvania; Donetta W. Ambrose, Judge. (D.C.Civ. No. 92-2480).

Robert B. Cave, David G. Leitch(argued), Hogan & Hartson, Washington, DC, Richard F. Rinaldo, Meyer, Unkovic & Scott, Pittsburgh, PA, for Appellants Ryan Operations G.P.; NVR LP, and its Division NVR Building Products Co.

Stephen J. Poljak, Anstandig, Levicoff, McDyer, Burdette & Yurcas, Pittsburgh, PA, for Appellees Santiam-Midwest Lumber Co.

Louis C. Long, Meyer, Darragh, Buckler, Beberick & Eck, Pittsburgh, PA, for Appellees Furman Lumber Inc.

Louis C. Long, Meyer, Darragh, Buckler, Beberick & Eck, Pittsburgh, PA, Michael K. Atkinson, Thomas M. Buchanan, Michael L. Sibarium (argued), Winston & Strawn, Washington, DC, for Third Party Plaintiff Bright Wood Corp.

Randy K. Hareza, Burns, White & Hickton, Pittsburgh, PA, for Third Party Defendant Forrest Paint Co. Inc.

Norbert F. Kugele, Warner, Norcross & Judd, Grand Rapids, MI, for Third Party Defendant Guardsman Products Inc.

Before SLOVITER, Chief Judge, STAPLETON and SAROKIN, Circuit Judges.

OPINION OF THE COURT

SAROKIN, Circuit Judge:

This case raises issues concerning the application and scope of the doctrine of judicial estoppel. The district court, upon recommendation of a United States Magistrate Judge, granted summary judgment in favor of defendants on the theory that plaintiff, having failed to disclose its claims against defendants as a contingent asset in its Chapter 11 bankruptcy proceedings, was judicially estopped from seeking to recover on those claims. For the reasons that follow, we will reverse.

I.

Ryan Operations, plaintiff in this matter 1, is in the business of constructing homes. This action arises out of a commercial dispute between Ryan and the manufacturer and suppliers of primed Fingerjointed Ponderosa Pine wood trim that Ryan purchased between January 1988 and June 1991 and used in the construction of several thousand new homes. Ryan purchased the wood trim from Santiam-Midwest Lumber Co. ("Santiam") from January 1988 to March 1990, and from Furman Lumber, Inc. from March 1990 to June 1991. The trim was manufactured by Bright Wood Corporation.

In July 1989, Ryan began receiving complaints from homeowners that the paint and underlying primer were peeling off the Ponderosa Pine trim on their new homes. Ryan informed Santiam of the problem, and Santiam suggested that Ryan switch to a different brand of primer. Ryan did so, but the problems continued and the complaints increased. As a result, Ryan instituted a consumer repair program in the fall of 1991, pursuant to which it has repainted and/or replaced the wood trim on hundreds of houses. Ryan is currently engaged in the costly process of replacing the trim on Ryan homes in several states.

In April 1992, Ryan filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. In re NVR L.P., 147 B.R. 126 (Bankr.E.D.Va.1992). The following month it filed its Schedule of Assets and Liabilities and Statement of Financial Affairs pursuant to Bankruptcy Code § 521. Although the Code requires the debtor to disclose all claims and causes of actions as contingent assets, Ryan did not mention any potential claims that it might have from the allegedly defective Ponderosa Pine trim.

In June 1992, the bankruptcy court entered an order authorizing Ryan to retain counsel to represent Ryan in lawsuits by and against it in the ordinary course of business. Among the "Routine Claims" that Ryan listed for the bankruptcy court were a class of "homeowners claims," nonspecifically defined as claims "by or against contractors or suppliers or relating to or arising out of the provision of services or material to the Debtors." App. 189-90. The court authorized Ryan to pursue and/or defend itself against such claims.

Subsequently, in December 1992, while the bankruptcy proceeding was still pending, Ryan filed suit in district court against Bright Wood, Santiam and Furman Lumber, alleging various breach of warranty claims arising out of the sale and manufacture of the Ponderosa Pine trim and seeking to recover the costs incurred in its consumer repair program.

In July 1993, without ever having been specifically informed of the pending lawsuit or the potential for recovery, the bankruptcy court confirmed Ryan's reorganization plan. Ryan emerged from bankruptcy the following month.

In September 1994, defendant Bright Wood moved for summary judgment on judicial estoppel grounds, arguing that Ryan's failure to inform the bankruptcy court of its warranty claims against Bright Wood precluded Ryan from pursuing those claims in the district court. Santiam, Furman, and the third-party defendants (who manufactured the primers used on the wood trim) joined in Bright Wood's motion. Upon recommendation of a United States Magistrate Judge, the district court granted summary judgment against Ryan on March 21, 1995, on the ground of judicial estoppel alone. From that ruling, Ryan appeals.

II.

The district court had jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). We have appellate jurisdiction pursuant to 28 U.S.C. § 1291.

III.

We exercise plenary review over the district court's order granting summary judgment. Mark v. Borough of Hatboro, 51 F.3d 1137, 1141 (3d Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 165, 133 L.Ed.2d 107 (1995).

IV.

Judicial estoppel, sometimes called the "doctrine against the assertion of inconsistent positions," is a judge-made doctrine that seeks to prevent a litigant from asserting a position inconsistent with one that she has previously asserted in the same or in a previous proceeding. It is not intended to eliminate all inconsistencies, however slight or inadvertent; rather, it is designed to prevent litigants from "playing 'fast and loose with the courts.' " Scarano v. Central R. Co. of New Jersey, 203 F.2d 510, 513 (3d Cir.1953) (citation omitted). "The basic principle ... is that absent any good explanation, a party should not be allowed to gain an advantage by litigation on one theory, and then seek an inconsistent advantage by pursuing an incompatible theory." 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4477 (1981), p. 782.

Ryan raises four issues regarding the scope and application of judicial estoppel for our review: (1) whether the district court erred in applying judicial estoppel at the request of one who was neither a party to the prior proceeding nor in privity with a party to that proceeding; (2) whether the district court erred in applying judicial estoppel because Ryan derived no benefit from its failure to disclose these potential claims in the bankruptcy proceedings; (3) whether the district court erred in concluding that Ryan's position in this lawsuit is inconsistent with a position it took in the bankruptcy proceedings; and (4) whether the application of judicial estoppel in this case is inconsistent with principles of equity and justice. We will examine each in turn.

V.

Both parties agree that federal law should govern our disposition of this case, and we accept their agreement. 2 Having determined that federal law controls, we turn to the first issue presented for our review: whether the doctrine of judicial estoppel is available only to those who were parties or in privity with a party to the prior proceeding. Ryan argues that the doctrine as expounded in this circuit has a privity requirement which prevents its being enforced by "strangers to the earlier litigation." Appellant's Br. at 29. As it is undisputed that none of the defendants in the instant action was a party to the bankruptcy proceeding, Ryan contends that the district court erred in applying judicial estoppel for their benefit.

We first articulated the doctrine of judicial estoppel in the seminal case of Scarano v. Central R. Co. of New Jersey, 203 F.2d 510 (3d Cir.1953). The plaintiff in that case, following a work-related injury, sought damages from his employer on the ground that he was completely incapacitated. After winning a damages award, he proceeded to sue his employer for reinstatement under the terms of a collective bargaining agreement. We concluded that plaintiff was estopped from seeking reinstatement, explaining our reasoning as follows:

The 'estoppel' of which, for want of a more precise word, we here speak is but a particular limited application of what is sometimes said to be a general rule that "a party to litigation will not be permitted to assume inconsistent or mutually contradictory positions with respect to the same matter in the same or a successive series of suits."

Id. at 512-13. We expressly declined to decide "[w]hether the correct doctrine is that broad," however; instead, we stated that the

rule we apply here need be and is no broader than this. A plaintiff who has obtained relief from an adversary by asserting and offering proof to support one position may not be heard later in the same court to contradict himself in an effort to establish against the same adversary a second claim inconsistent with his earlier contention.

Id. at 513 (emphasis added).

Ryan argues that the language underlined above indicates our intention to instill a privity...

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