Committee of the Russian Federation v. U.S.

• Decision Date: 28 February 1997
• Docket Number: No. C-96-2771-JLQ.,C-96-2771-JLQ.
• Parties: The COMMITTEE OF THE RUSSIAN FEDERATION ON PRECIOUS METALS AND GEMS, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of California

987 F.Supp. 1181

The COMMITTEE OF THE RUSSIAN FEDERATION ON PRECIOUS METALS AND GEMS, Plaintiff, v. UNITED STATES of America, Defendant.

No. C-96-2771-JLQ.

United States District Court, N.D. California.

February 28, 1997.

Mark E. Beck, Joan M. Steinmann, Beck, De Corso, Daly, Barrera & Oh, Los Angeles, CA, for Plaintiff.

Jay R. Weill, U.S. Attys. Office, for Defendant.

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY ADJUDICATION

QUACKENBUSH, Senior District Judge.

BEFORE THE COURT is Plaintiff's Motion for Summary Adjudication on the issue of judicial estoppel, heard on February 3, 1997, in San Francisco, California. Mark E. Beck and Joan M. Steinmann appeared on behalf of the Plaintiff. Jay R. Weill appeared on behalf of the Defendant. Having reviewed the record, heard from counsel, and being fully advised in this matter, IT IS HEREBY ORDERED that Plaintiff's Motion for Summary Adjudication is DENIED for the following reasons.

FACTUAL BACKGROUND

This is one of several cases filed in this court, as well as cases filed in Tax Court and Bankruptcy Court, concerning the alleged theft of millions of dollars worth of Russian valuables by Golden ADA, Inc. and a jeopardy assessment and resulting liens and seizures of the IRS against Golden ADA, Inc.

It is The Committee of the Russian Federation (The Committee's) position in this action that the IRS's jeopardy assessment and resulting liens and seizures were wrongful because the assets of Golden ADA rightfully belong to the Committee. The Committee first brought this motion as a Motion to Limit Discovery, subsequently converted to this Motion for Summary Adjudication. The Committee claims that the IRS, in obtaining its jeopardy tax assessment against Golden ADA, relied on the position that Golden ADA had wrongfully converted the Committee's diamonds and other valuables, and that, therefore, judicial estoppel should be applied to preclude the IRS from now taking the position in this case that the valuables were not stolen from the Committee.

It is clear that, in obtaining its jeopardy assessment, the IRS did rely in part on the allegations of the Committee that Golden ADA had wrongfully converted its diamonds and other valuables asserted in Case No. C-95-3449-JLQ (the RICO case). However, Judge Henderson did not rule on the merits of the Committee's allegations in approving the IRS assessment, but rather ruled that it was reasonable to rely on the Committee's unproven allegations to support the jeopardy assessment because those factual issues would subsequently be litigated in either the Tax Court or the District Court.

The affidavit of Revenue Agent Victoria Rex in support of the jeopardy assessment reflects that she did rely, at least in part, on documents and pleadings filed by the Committee in the RICO case, as well as an Affidavit in Support of Application for a Search Warrant to search two boxes being shipped from Golden ADA, San Francisco to Golden ADA, Belgium, both of which set forth the Committee's alleged fraudulent conversion of valuables claims against Golden ADA.

However, the Rex affidavit also refers to a letter dated July 19, 1994 written by Golden ADA Controller, Jay Howell, to Andrei Kozlenok stating that Golden faced a number of potential tax problems, including but not limited to: (1) debts owed the Committee for gold and diamonds that had been sold; (2) Company expenditures personal in nature that should be included in individual income tax returns of the owners, including houses, boats, and cars; (3) $26,968,716.00 deducted in 1993 and $109,135,253.00 deducted in 1994 as "Purchases"; (4) frequent turnover in key officer positions in Golden ADA, with the latest CEO, Jack Immendorf, being paid in excess of $2,000,000.00 in 8 months time; (5) cash flow problems and the sale of corporate assets indicating that bankruptcy filing could be imminent; (6) cashiers checks payable to Golden employees for their weekly payroll; and (7) documentation for numerous wire transfers involving transfers of large amounts of cash overseas without explanation. Therefore, the jeopardy assessment was not based only on the allegations of the Committee of fraud and wrongful conversion of valuables by Golden ADA.

To the contrary, there were additional reasons for approving the jeopardy assessment, other than the claims of the Committee. There was clear indication that there were multiple problems with Golden ADA's tax returns and financial dealings, and it appeared clear that Rajiv Gosain was on the verge of putting Golden ADA into bankruptcy.

It is the IRS's position in this case that no discovery has yet been allowed, and that there is now information, not available at the time of the jeopardy assessment, leading the IRS to believe that the diamonds and other valuables may not have been wrongfully converted from the Committee, but rather were some kind of capital contribution by the Committee to Golden ADA.

SUMMARY JUDGMENT STANDARD

The purpose of summary judgment or summary adjudication is to avoid unnecessary trials when there is no dispute as to the facts before the court. Zweig v. Hearst Corp., 521 F.2d 1129 (9th Cir.1975), cert. denied, 423 U.S. 1025, 96 S.Ct. 469, 46 L.Ed.2d 399. Fed.R.Civ.P. 56(c) provides that summary judgment is only proper where the pleadings, discovery, and affidavits show that there is "no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." In considering a motion for summary judgment, the court must examine all the evidence in the light most favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962).

The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The court must view the evidence presented "through the prism of the substantive evidentiary burden." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). However, credibility determinations, weighing of the evidence, and drawing legitimate inferences from the facts belongs to a jury. The judge's function is not himself to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. Id. at 249, 106 S.Ct. at 2510.

At issue here is whether the court should rule as a matter of law that the doctrine of judicial estoppel precludes the IRS from taking any position in this litigation other than the position that Golden ADA wrongfully converted diamonds and other valuables from the Committee.

JUDICIAL ESTOPPEL

The doctrine of judicial estoppel is invoked "to prevent a party from changing its position over the course of judicial proceedings when such positional changes have an adverse impact on the judicial process." United States v. Nix, 21 F.3d 347 (9th Cir. 1994). The Ninth Circuit set forth the principles underlying judicial estoppel in Russell v. Rolfs, 893 F.2d 1033 (9th Cir.1990), cert. denied, 501 U.S. 1260, 111 S.Ct. 2915, 115 L.Ed.2d 1078 (1991).

The doctrine of judicial estoppel, sometimes referred to as the doctrine of preclusion of inconsistent positions, is invoked to prevent a party from changing its position over the course of judicial proceedings when such positional changes have an adverse impact on the judicial process ... The policies underlying preclusion of inconsistent positions are general considerations of the orderly administration of justice and regard for the dignity of judicial proceedings ... Judicial estoppel is intended to protect against a litigant playing fast and loose with the courts ... Because it is intended to protect the integrity of the judicial process, it is an equitable doctrine invoked by a court at its discretion.

Id. at 1036. "The integrity of the judicial process is threatened when a litigant is permitted to gain an advantage by the manipulative assertion of inconsistent positions, factual or legal." Helfand v. Gerson, 105 F.3d 530 (9th Cir.1997). However, there is no threat to the integrity of the judicial process when a litigant takes alternative positions in a case in support of its position. See Bradley v. Harcourt, Brace and Co., 104 F.3d 267 (9th Cir.1996).

The IRS contends that judicial estoppel does not apply to the Government. The IRS is correct that courts are normally reluctant to apply equitable estoppel against the Government. See United States v. Omdahl, 104 F.3d 1143 (9th Cir.1997); United States v. Shampang, 987 F.2d 1439, 1444 (9th Cir. 1993). The IRS is also correct that non mutual offensive collateral estoppel does not apply against the Federal Government. United States v. Mendoza, 464 U.S. 154, 104 S.Ct. 568, 78 L.Ed.2d 379 (1984).

However, as the Committee notes, the Ninth Circuit has stated that unlike collateral estoppel and equitable estoppel, judicial estoppel focuses exclusively on preventing the use of inconsistent assertions that would result in an "affront to judicial dignity" and "a means of obtaining unfair advantage." Columbia Pictures Television v. Krypton Broadcasting of Birmingham, Inc., 106 F.3d 284 (9th Cir.1997); Rockwell International v. Hanford Atomic Metal Trades, 851 F.2d 1208, 1210 (9th Cir.1988). Additionally, the Ninth Circuit has applied judicial estoppel against Governmental bodies. Northern Alaska Environmental Center v. Lujan, 961 F.2d 886, 891 (9th Cir.1992); Russell v. Rolfs, supra, 893 F.2d 1033.

The Committee relies on Reynolds v. Commissioner, 861 F.2d 469 (6th Cir.1988) and Continental Illinois Corp. v. Commissioner, 998 F.2d 513 (7th Cir.1993), cert. denied, 510 U.S. 1041, 114 S.Ct. 685, 126...