Cohoon v. IDM Software, Inc.

• Decision Date: 15 December 2005
• Docket Number: No. 2004–816.,2004–816.
• Citation: 891 A.2d 552,153 N.H. 1
• Court: New Hampshire Supreme Court
• Parties: Barry COHOON and another v. IDM SOFTWARE, INC. and another.

153 N.H. 1

891 A.2d 552

Barry COHOON and another

v.IDM SOFTWARE, INC. and another.

No. 2004–816.

Supreme Court of New Hampshire.

Argued: Oct. 20, 2005.

Opinion Issued: Dec. 15, 2005.

Cleveland, Waters and Bass, P.A., of Concord (William B. Pribis, on the brief and orally), for the plaintiffs.

Cook, Little, Rosenblatt & Manson, P.L.L.C., of Manchester (Arnold Rosenblatt and Michael S. Owen, on the brief, and Mr. Rosenblatt orally), for defendant IDM Software, Inc.

McLane Graf Raulerson & Middleton, P.A., of Manchester (Wilbur A. Glahn, III and Andrea L. Daly, on the brief, and Mr. Glahn orally), for defendants John H. Leggett and Stuart J. Sheppard.

NADEAU, J.

The defendants, IDM Software, Inc. (IDM), John H. Leggett (Leggett), Stuart J. Sheppard (Sheppard), J. Tracy Emerick, Dana W. Leggett and Robert Sheppard appeal orders of the Trial Court (McHugh , J.) granting summary judgment to the plaintiffs, Barry Cohoon and Joseph McCarran. The plaintiffs cross appeal. We affirm in part, reverse in part, vacate in part and remand.

The following facts were either found by the trial court or are supported in the record before us. Leggett is the president and majority shareholder, as well as a director, of IDM. Sheppard is also a director and shareholder of IDM. Cohoon and McCarran purchased shares of IDM, each paying $30,000. The shares had not been registered or properly noticed in compliance with RSA 421–B:11 (Supp.2005). As a result of errors made in registering its shares, IDM sued its prior counsel for malpractice (the malpractice suit). Among the damages asserted by IDM in that action was "exposure to shareholder claims." In its pretrial statement, IDM elaborated on this element of damages, alleging "[l]iability for claims of rescission pursuant to N.H. RSA 421–B:25 totaling $635,000, plus interest, costs and attorneys' fees."

The defendant-attorneys in the malpractice suit filed a motion in limine to exclude evidence of rescission damages. In an order dated March 24, 2003, the court ruled that it would "permit [IDM] as part of its damages, to include as a separate component the amount of money that it would be required to return to the investors pursuant to RSA 421–B." Before the court issued the order, however, the parties settled the malpractice suit for $900,000. By letter to its shareholders dated May 19, 2003, IDM gave notice of a special meeting of shareholders to consider approving a plan of dissolution of the corporation.

Subsequently, Cohoon and McCarran brought this action against IDM, Leggett and Sheppard, among others. Their writ asserted causes of action for rescission under RSA 421–B:25 against all principal defendants, breach of majority shareholders' duty against Leggett and others, and a claim captioned "PLEA OF LAW—JUDICIAL ESTOPPEL" against IDM. All of the parties moved for summary judgment.

The trial court initially granted the plaintiffs' motion and denied the defendants', noting that it could not "imagine a case crying out for the application of the doctrine of judicial estoppel more than the case at bar." The court ruled:

By claiming that the corporation had a legal obligation to pay its [investors] $635,000, and by refusing to negotiate a lesser amount with the investors in the context of settlement discussions in the earlier case, the corporation obligated itself to fully refund to its investors the amounts of money that it received from the law firm defendant. By taking the position that the corporation did in the earlier litigation, it would be a fraud on the Court now to seek to withhold payment of the investors' claims in full.

The defendants moved for reconsideration and the court held an evidentiary hearing. The court then ruled that its previous order finding that the requirements for judicial estoppel had been met was erroneous. It nevertheless affirmed its grant of summary judgment to the plaintiffs "on the grounds that [rescission] is available to the plaintiffs both under the terms of RSA 421–B and also under the doctrine of equitable estoppel."

Upon motion of the individual defendants for clarification and/or reconsideration, the court clarified that its findings were applicable to Leggett and Sheppard, but not to the other individual defendants. IDM, Leggett, Sheppard, J. Tracy Emerick, Dana W. Leggett and Robert Sheppard appeal and the plaintiffs cross appeal.

"In reviewing a trial court's summary judgment ruling, we consider the affidavits and other evidence, and all inferences properly drawn from them, in the light most favorable to the non-moving party." Furbush v. McKittrick, 149 N.H. 426, 429, 821 A.2d 1126 (2003). "We review the trial court's application of the law to the facts de novo ." Id.

IDM first argues that the trial court erred in applying equitable estoppel because the plaintiffs failed to prove the elements of that doctrine. We need not address this argument, however, because we find merit in the plaintiffs' cross-appeal. Cf. Sherryland v. Snuffer, 150 N.H. 262, 267, 837 A.2d 316 (2003) (where trial court reaches correct result on mistaken grounds, we will affirm if valid alternative grounds support the decision). Specifically, the plaintiffs argue that the trial court "erred when it ultimately ruled that judicial estoppel did not apply to the facts of this case."

"The doctrine of judicial estoppel generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase." In re Pack Monadnock, 147 N.H. 419, 425–26, 790 A.2d 786 (2002) (quotation omitted); see Kelleher v. Marvin Lumber & Cedar Co., 152 N.H. 813, 848, 891 A.2d 477, 2005 WL 3429739 (2005). We have noted three factors that "typically inform the decision whether to apply the doctrine in a particular case."

New Hampshire v. Maine, 532 U.S. 742, 750, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001) ; see Pack Monadnock, 147 N.H. at 426, 790 A.2d 786.

One factor to consider in deciding whether to apply the doctrine of judicial estoppel is whether the party's later position is clearly inconsistent with its earlier position. Courts also regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position. A third consideration is 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.

Pack Monadnock, 147 N.H. at 426, 790 A.2d 786 (quotations and citations omitted); see Kelleher, 152 N.H. at 848, 891 A.2d 477.

In reversing its decision on judicial estoppel, the trial court upheld its finding that the first factor had been met. With regard to the second factor, however, the court noted that the malpractice case settled before trial and that "the issue under consideration, namely whether or not the shareholders of IDM were entitled to [rescission] pursuant to RSA 421–B:25, was not formally decided by the Court until after the first lawsuit was settled." The court then interpreted our decision in Pack Monadnock as "saying ... that before the doctrine of judicial estoppel is implemented in this state there has to be a showing that the Court adopted the first position of the party and that that adoption induced the other party to take certain action to its detriment."

The trial court found that the plaintiffs here could not make that showing. Specifically, it stated:

The bottom line is this. The inducement for the defendant in the original lawsuit to settle could not have been this Court's acceptance of the plaintiffs' position in the original lawsuit to the effect that [rescission] was available to the shareholders because in fact the Court's ruling on that issue postdated the settlement itself.

The trial court read into the doctrine of judicial estoppel an element of reliance by the alleged wronged party that is not required. See, e.g. , Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 598 (6th Cir.1982). The court misread Pack Monadnock as requiring "that the change in position did not induce the alleged wronged party to take action." What Pack Monadnock actually says is that the earlier position taken by the State "did not induce either the probate court or superior court to take action." Pack Monadnock, 147 N.H. at 426, 790 A.2d 786 (emphasis added). That is just another way of saying that the party against whom estoppel is asserted did not "succeed[ ] in persuading a court to accept that party's earlier position." Id. (quotation omitted). Thus, the factors we noted in Pack Monadnock do not contain a requirement that the alleged wronged party be induced to act.

The plaintiffs contend that the second factor in the general judicial estoppel inquiry is satisfied because the trial court clearly accepted IDM's position in the court's order on the malpractice defendant-attorneys' motion in limine to exclude evidence of rescission damages. They argue, "The fact that the Court did not publish this decision does not matter in the context of a judicial estoppel analysis." IDM, on the other hand, asserts that "[t]he trial court never issued any order or decision adopting IDM's position in the prior case, whatever the court may have thought or believed about IDM's position in that case." Thus, the parties frame the dispositive question as whether IDM "succeeded in persuading [the trial] court to accept [its] earlier position." Pack Monadnock, 147 N.H. at 426, 790 A.2d 786.

Before addressing that question, we note that the factors recited in Pack Monadnock and Kelleher are not fixed elements to be applied blindly in every case. Indeed, in New Hampshire v. Maine, the Supreme Court restated the observation of other courts that "the circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle." New Hampshire v. Maine, 532 U.S. at 750, 121 S.Ct. 1808 (quotation and brackets omitted). "In enumerating these factors, we do not establish...