Jinright v. Paulk

• Decision Date: 28 January 2000
• Citation: 758 So.2d 553
• Parties: Steven C. JINRIGHT and Lisa J. Jinright v. Dennis PAULK and Option Builders, Inc.
• Court: Alabama Supreme Court

758 So.2d 553

Steven C. JINRIGHT and Lisa J. Jinright v. Dennis PAULK and Option Builders, Inc.

1972275.

Supreme Court of Alabama.

January 28, 2000.¹

John T. Alley, Jr., and John W. Waters, Jr., of Alley & Waters, P.C., Montgomery, for appellants.

Fred B. Matthews of Ball, Ball, Matthews & Novak, P.A., Montgomery, for appellees.

LYONS, Justice.

The plaintiffs Steven C. Jinright and his wife Lisa J. Jinright appeal from a summary judgment in favor of the defendants Dennis Paulk and Option Builders, Inc. We reverse and remand.

In 1992, the Jinrights and Paulk, as president of Option Builders, executed a contract under the terms of which Option Builders was to construct a house for the Jinrights. As a part of that construction, Option Builders subcontracted the installation of the exterior walls of the house. That installation consisted of the application of a substance known as "dryvit" and a product known as "R-Wall." The Jinrights experienced problems with the exterior walls of the house, and in April 1996 they began negotiating with Paulk and Option Builders to have the house repaired.

On June 27, 1996, the Jinrights filed in the United States Bankruptcy Court for the Middle District of Alabama a voluntary bankruptcy petition under Chapter 13 of the United States Bankruptcy Code. The Jinrights did not disclose to the bankruptcy court their potential claim against Option Builders and others arising from the alleged faulty construction of their house. In August 1996, the bankruptcy court entered a confirmation order approving the Jinrights' Chapter 13 plan, under which they were to pay 78% of the debts owed to their unsecured creditors. The plan had a duration of 60 months.

On November 7, 1996, the Jinrights sued Paulk, Option Builders, and other defendants (the entities who had installed the exterior walls and who had supplied and manufactured the product used). On January 9, 1998, the Jinrights settled their claims against the defendants other than Paulk and Option Builders, and on February 2, 1998, those defendants were dismissed.

During the pendency of the lawsuit, the Jinrights, on October 30, 1997, filed a motion to amend their bankruptcy plan, under which they reduced to zero the amount to be paid to their unsecured creditors. On January 22, 1998, at a meeting with the bankruptcy trustee at which the Jinrights were to discuss their motion to amend, the Jinrights told the trustee about their lawsuit against Paulk and Option Builders. The Jinrights did not disclose to the trustee that they had settled claims against additional defendants, but the consequences of that omission are not before us. On February 10, 1998, at a hearing before the bankruptcy judge, the Jinrights informed the judge about the pendency of their lawsuit against Paulk and Option Builders. The bankruptcy judge continued the confirmation hearing regarding the Jinrights' amended bankruptcy plan until more information could be developed regarding the potential value of their lawsuit. We have no further details as to the status of the Jinrights' bankruptcy proceedings.

On April 14, 1998, Paulk filed a motion for a summary judgment, contending that the Jinrights had contracted not with him, but with Option Builders, for the construction of their house. The trial court scheduled a hearing on the motion for May 1, 1998. On April 23, 1998, Paulk and Option Builders filed a joint motion for a summary judgment in which they contended that the doctrine of judicial estoppel prevented the Jinrights from pursuing the lawsuit against them. After the hearing, the trial court entered a summary judgment for Paulk and Option Builders, on the ground that the doctrine of judicial estoppel barred the Jinrights from continuing their lawsuit. After their post-judgment motion was denied, the Jinrights appealed.

The Jinrights argue that the trial court erred in entering the summary judgment for Paulk and Option Builders on the basis of judicial estoppel. They maintain that they have not asserted conflicting positions in their bankruptcy proceedings and their litigation against Paulk and Option Builders. The Jinrights say that when they initially filed their bankruptcy petition, they listed on their schedule of assets a value for their house that reflected the repairs for which they were then negotiating. When the repairs were not made, however, and the necessity for litigation became apparent to them, the Jinrights say that they then amended their schedule of assets to list a lower value for their house and disclosed the litigation to the bankruptcy trustee and the bankruptcy judge. Paulk and Option Builders insist that the doctrine of judicial estoppel should bar the Jinrights from continuing to pursue their claims against Paulk and Option Builders.

The doctrine of judicial estoppel "applies to preclude a party from assuming a position in a legal proceeding inconsistent with one previously asserted. Judicial estoppel looks to the connection between the litigant and the judicial system[,] while equitable estoppel focuses on the relationship between the parties to the prior litigation." Selma Foundry & Supply Co. v. Peoples Bank & Trust Co., 598 So.2d 844, 846 (Ala.1992) (quoting Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir.), cert. denied, 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988)). The doctrine is applied to uphold the integrity of the judicial system. Chandler v. Samford University, 35 F.Supp.2d 861 (N.D.Ala.1999). However, this Court has recognized a number of limitations upon the rule against asserting inconsistent positions in judicial proceedings.

"`[T]he following have been enumerated as essentials to the establishment of an estoppel under the rule that a position taken in an earlier action estops the one taking such position from assuming an inconsistent position in a later action: (1) The inconsistent position first asserted must have been successfully maintained; (2) a judgment must have been rendered; (3) the positions must be clearly inconsistent; (4) the parties and questions must be the same; (5) the party claiming estoppel must have been misled and have changed his position; and (6) it must appear unjust to one party to permit the other to change.'"

28 Am.Jur.2d § 70 Estoppel and Waiver (1966) (as quoted with approval in Porter v. Jolly, 564 So.2d 434, 437 (Ala.1990)). Thus, a party may not claim the benefit of the doctrine of judicial estoppel unless the party can demonstrate that the party against whom the estoppel is sought procured a judgment in its favor as a result of the inconsistent position taken in the prior proceeding. Moreover, the party claiming the estoppel must have been misled by the conduct of the party against whom the estoppel is sought, and consequently changed its position to its prejudice. Id.

Paulk and Option Builders rely on two cases in which this Court applied the doctrine of judicial estoppel to preclude a plaintiff who failed to disclose a claim in a bankruptcy proceeding from pursuing related litigation. In Luna v. Dominion Bank of Middle Tennessee, Inc., 631 So.2d 917, 918 (Ala.1993), we noted that "[a] debtor in [a bankruptcy proceeding] must disclose any litigation likely to arise in a nonbankruptcy [context]." In Bertrand v. Handley, 646 So.2d 16, 18 (Ala.1994), we stated that in Luna we had "held that the doctrine of judicial estoppel applies to estop a debtor from suing on a claim where the debtor has failed to disclose the claim in an earlier bankruptcy proceeding." We applied that holding in Bertrand. As we will discuss, those cases are distinguishable from the case now before us.

First, however, a review of bankruptcy law will be helpful in understanding the features of this case that distinguish it from Luna and Bertrand. United States Bankruptcy Judge Margaret A. Mahoney provides an excellent discussion in In re Griner, 240 B.R. 432 (Bankr.S.D.Ala.1999):

"Chapter 13 is a hybrid of chapters 7 and 11. Chapter 13 is more like chapter 11 (the reorganization chapter used primarily by business debtors) than chapter 7 (the liquidation chapter of the Bankruptcy code). Chapter 13 is available to individuals who earn a regular income. Debtors propose a plan by which they will repay some or all of their debts through regular payments to a chapter 13 trustee. The trustee pays the sums collected to creditors according to the plan for a period of up to five years. The trustee is not involved in the daily lives of the debtors. He or she does not take possession of debtors' nonexempt assets or monitor ordinary course usage of assets. The trustee does not receive any of the debtors' earnings except what is paid to him or her as prescribed by the chapter 13 plan.

"In chapter 11 cases, unless a trustee has been appointed by the court, there is no trustee. The debtor handles all of his or her own affairs. This includes use, sale or lease of all assets. In chapter 7, a trustee is automatically appointed in each case. The debtor relinquishes all authority over his or her nonexempt assets.

"A chapter 7 trustee has one power which is specifically not given to a chapter 13 trustee. Under 11 U.S.C. § 704(l), a chapter 7 trustee `shall collect and reduce to money property of the estate.' `Property of the estate' is all nonexempt assets in which the debtor had an interest before bankruptcy, such as a cause of action for a work related injury. 11 U.S.C. § 541. This power therefore compels a chapter 7 trustee to take over all nonexempt lawsuits of the debtor.

"In a chapter 13 case, unless otherwise specifically provided by the [debtor's] plan, a debtor remains in possession of all of his or her assets pre- and postconfirmation. 11 U.S.C. § 1306(b). This is in contrast to chapter 7 cases where the trustee `collects (takes control of) and reduces to money' all nonexempt assets...."

240 B.R. at 436.

The Jinrights filed a bankruptcy proceeding under Chapter 13, under which debtors may...