Wells Fargo Bank, N.A. v. Oparaji (In re Oparaji)

• Decision Date: 05 October 2012
• Docket Number: No. 11–20871.,11–20871.
• Citation: 698 F.3d 231
• Parties: In the Matter of Titus Chinedu OPARAJI, Debtor. Wells Fargo Bank, N.A., successor by merger to Wells Fargo Home Mortgage, Incorporated, as servicing agent for Deutsche Bank National Trust, Appellant, v. Titus Chinedu Oparaji, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

698 F.3d 231

In the Matter of Titus Chinedu OPARAJI, Debtor.Wells Fargo Bank, N.A., successor by merger to Wells Fargo Home Mortgage, Incorporated, as servicing agent for Deutsche Bank National Trust, Appellant,

v.Titus Chinedu Oparaji, Appellee.

No. 11–20871.

United States Court of Appeals, Fifth Circuit.

Oct. 5, 2012.

George A. Kurisky, Jr., Daniel J. Kasprzak, Jeffrey Bryan Lawson, Branch Masterson Sheppard (argued), Johnson, Deluca, Kurisky & Gould, P.C., Houston, TX, for Appellant.

William D. Weber (argued), Weber Law Firm, P.C., Houston, TX, for Appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, SMITH and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

Appellant Wells Fargo Bank, N.A. appeals the District Court's Amended Order granting Appellee Titus Oparaji's motion for summary judgment on the theory of judicial estoppel. For the reasons explained below, we find that judicial estoppel is not warranted. We REVERSE and REMAND for proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

On July 31, 2002, Titus Chinedu Oparaji (“Debtor”) executed a Balloon Note and Deed of Trust in favor of Wells Fargo Home Mortgage, Inc. (“Wells Fargo”) for the purchase of a home in Sugar Land, Texas (the “Property”). The note had a principal balance of $180,850.00 and accrued interest at an annual rate of 9.50%. On September 2, 2004, after failing to make multiple scheduled payments, Debtor filed for relief under Chapter 13 of the Bankruptcy Code (“First Bankruptcy”). Under the resulting bankruptcy plan, Debtor was required to pay set sums of money to a trustee, who would then use portions of each sum to satisfy Debtor's pre-petition arrearage to Wells Fargo. Debtor was also required to continue his ongoing, post-petition mortgage payments directly to Wells Fargo.

Less than a year after filing the First Bankruptcy, Debtor fell behind on his post-petition mortgage payments to Wells Fargo. On March 3, 2005, Wells Fargo filed a motion for relief from the automatic stay that was in place so that it could proceed with foreclosure of Debtor's Property as provided in the Deed of Trust. The Bankruptcy Court entered an Agreed Order on May 13, 2005, conditioned the automatic stay as to Wells Fargo, and required Debtor to modify his plan to provide for the post-petition mortgage arrearages owed to Wells Fargo.

On May 20, 2005, pursuant to the court's order, Debtor filed a motion to modify his Chapter 13 plan to add the $2,599.81 in post-petition mortgage arrearages. Wells Fargo then filed an amended proof of claim asserting a total arrearage amount of $15,209.17, including $2,599.81 in post-petition mortgage arrearages and $6,225.10 in escrow shortages. The Bankruptcy Court approved this Modified Chapter 13 Plan. On October 18, 2005, Wells Fargo again amended its proof of claim to assert $9,948.67 in total arrearages, including $2,599.81 in post-petition arrearages and $964.60 in escrow shortages.

Two years later, on May 22, 2007, Debtor filed another motion to modify his Chapter 13 Plan to provide for the ongoing, post-petition mortgage payments owed to Wells Fargo to be paid through the bankruptcy plan. Importantly, this plan addressed only the ongoing mortgage payments owed to Wells Fargo. It did not provide for prior post-petition mortgage payments that were already in default at that time. The Bankruptcy Court approved this Second Modified Chapter 13 Plan.

On December 23, 2008, Wells Fargo amended its proof of claim once more to include delinquent taxes from 2006 in the amount of $7,399.02 that it had advanced on behalf of Debtor. On April 14, 2009, Debtor filed a motion to modify his Chapter 13 Plan to become current on his plan payments to the trustee. The Bankruptcy Court approved this Third Modified Chapter 13 Plan. On October 5, 2009, the trustee filed a motion to dismiss the bankruptcy because Debtor was in default of $7,809.18 in plan payments and the case had exceeded the statutory time limit set by 11 U.S.C. § 1322(d). On November 12, 2009, the Bankruptcy Court entered an order dismissing the First Bankruptcy without discharging Debtor.

Throughout the First Bankruptcy, Debtor missed several post-petition mortgage payments to Wells Fargo, thus causing his mortgage arrearages to increase substantially over time. In fact, during this time, Debtor failed to make twenty post-petition mortgage arrearage payments to Wells Fargo. In addition, Debtor failed to maintain hazard insurance or pay property taxes on the Property. Pursuant to the Deed of Trust, Wells Fargo made these payments totaling $38,694.50 on behalf of Debtor to protect its interest in the collateral. Furthermore, following the dismissal of the First Bankruptcy, Debtor failed to make four additional mortgage payments and failed to pay $13,817.17 in property taxes.

On February 1, 2010, Debtor initiated the current bankruptcy (“Second Bankruptcy”). In response, Wells Fargo filed a proof of claim that included $86,003.25 in pre-petition arrearages to cover twenty-four missed mortgage payments totaling $37,906.56 and escrow advances totaling $43,940.87 paid by Wells Fargo for property taxes and hazard insurance on behalf of Debtor. Debtor then initiated this lawsuit, challenging the amount of Wells Fargo's claim and seeking to prevent Wells Fargo from pursuing portions of that claim based on a theory of judicial estoppel.

Both parties filed motions for summary judgment. The Bankruptcy Court granted summary judgment in favor of Debtor, finding that Wells Fargo was judicially estopped from filing a claim in the Second Bankruptcy for any amounts that could have been, but were not, claimed in the First Bankruptcy. Wells Fargo appealed this ruling to the District Court, which found that the Bankruptcy Court did not abuse its discretion. Wells Fargo now appeals to this Court, arguing that the District Court erred in affirming the award of summary judgment in favor of Debtor on the judicial estoppel claim.

II. STANDARD OF REVIEW

Here, we review the District Court's decision under the same standard of review that the District Court applied to the Bankruptcy Court's decisions. See Wells Fargo Bank of Tex., N.A. v. Sommers, 444 F.3d 690, 694 (5th Cir.2006). Thus, we review the grant of summary judgment de novo and the application of judicial estoppel for abuse of discretion.

The decision to invoke the doctrine of judicial estoppel is typically reviewed for abuse of discretion. In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir.1999). A court abuses its discretion when it bases its decision on an incorrect view of the law or a clearly erroneous assessment of the evidence. In re Blast Energy Servs., Inc., 593 F.3d 418, 423 (5th Cir.2010). However, “an abuse of discretion does not mean a mistake of law is beyond appellate correction.” Coastal Plains, 179 F.3d at 205 (citation omitted).

A grant of summary judgment is generally reviewed de novo. Hamilton v. State Farm Fire & Casualty Co., 270 F.3d 778, 782 (5th Cir.2001). This Court has stated that it will affirm a grant of summary judgment only if, “viewing that evidence in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the district court correctly applied the relevant substantive law.” Id.

III. DISCUSSION

The doctrine of judicial estoppel is “a common law doctrine by which a party who has assumed one position in his pleadings may be estopped from assuming an inconsistent position,” Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir.1988), particularly in situations where “intentional self-contradiction is being used as a means of obtaining unfair advantage in a forum provided for suitors seeking justice.” Kane v. Nat'l Union Fire Ins. Co., 535 F.3d 380, 385 (5th Cir.2008) (internal citation omitted). We have previously emphasized that judicial estoppel is “intended to protect the judicial system[ ] rather than the litigants[.] ” Coastal Plains, 179 F.3d at 205 (emphasis in original). As such, it serves the “clear and undisputed jurisprudential purpose” of “protect[ing] the integrity of the courts.” Id. at 205 n. 2 (citation omitted). Because the integrity of the judiciary would not be threatened by allowing Wells Fargo to proceed with its increased proof of claim in the Second Bankruptcy, we find that the District Court abused its discretion in determining that judicial estoppel was appropriately applied.

Courts in the Fifth Circuit generally consider three criteria when evaluating a defense of judicial estoppel, including whether: (1) the party against whom judicial estoppel is sought has asserted a legal position that is “plainly inconsistent” with a position asserted in a prior case; (2) the court in the prior case accepted that party's original position, thus creating the perception that one or both courts were misled; and, (3) the party to be estopped has not acted inadvertently. Love v. Tyson Foods, Inc., 677 F.3d 258, 261 (5th Cir.2012). The District Court incorrectly determined that Wells Fargo asserted a legally inconsistent position that was accepted by the Bankruptcy Court, thus resulting in an unwarranted grant of judicial estoppel against Wells Fargo.¹

A. Clearly Inconsistent Legal Positions

Debtor alleges, and the lower courts agree, that Wells Fargo has adopted a plainly inconsistent position in the Second Bankruptcy as compared to its claims for post-petition arrearages in the First Bankruptcy. In order to come to that conclusion, the District Court determined that creditors such as Wells Fargo are legally required to include all accrued post-petition arrearages in each amended claim they submit. In re Oparaji, 458 B.R. 881, 891–92 (S.D.Tex.2011) (“[s]ince [Wells Fargo's] amended proofs of claim asserted claims for post petition arrearages, the amendments should have accurately included all of the post petition arrearages, not only some of...