Commercial Litigation and Arbitration

Equitable Estoppel May Prevent Party from Reversing Position in Second Litigation with Same Adversary Where Judicial Estoppel Does Not Apply

Segal v. Strausser Enters., Inc., 2012 U.S. App. LEXIS 13228 (3d Cir. June 28, 2012):

Appellees (collectively, "Segal") entered a real estate deal with Strausser Enterprises, Inc. ("SEI") that contained a mandatory arbitration clause. After the parties entered the contract, SEI believed that one of Segal's impending commercial transactions violated the deal and, through its attorney, Mellon, sued to enjoin Segal's actions in Pennsylvania state court. The Northampton County Court of Common Pleas held that SEI's claims fell under the mandatory arbitration clause and, accordingly, dismissed the suit. SEI unsuccessfully appealed to the Pennsylvania Superior Court.

SEI commenced arbitration against Segal, during which Mellon continued to serve as SEI's lead counsel. In the arbitration, Segal raised its own claims against SEI and Mellon, seeking damages and legal fees stemming from Mellon's allegedly frivolous state court filings and appeals. SEI objected to these claims being arbitrated. In its letter to the Court of Common Pleas advising that the dispute had been submitted to arbitration, for example, SEI contended that the arbitration panel did not have jurisdiction over the issue of Segal's attorneys' fees. See App. 00201. During arbitration, moreover, SEI repeatedly argued to the arbitration panel that the issue of legal fees was not properly subject to arbitration and should be submitted to a court. After some negotiation, Segal agreed to withdraw its fees claims from arbitration and raise them, instead, in court. The parties verbally memorialized this agreement before the arbitration panel, and the panel accepted the withdrawal. ***

While the arbitration continued, Segal asserted its fees claims, as promised, in a complaint filed in the District Court for the Eastern District of Pennsylvania on November 5, 2007. The complaint alleged tortious interference with contract, tortious interference with prospective relations, malicious prosecution, and abuse of process, all arising from Mellon's (on SEI's behalf) allegedly improper legal filings aimed at thwarting Segal's impending transaction. The complaint named as defendants SEI, Gary Strausser (SEI's principal), and Mellon.

On January 4, 2008, the defendants filed a motion to dismiss Segal's complaint or, alternatively, to compel arbitration because Segal's claims arose from a contract with a mandatory arbitration clause. ***

This attempt by the defendants to return to arbitration "the very same claims" they had just successfully removed from arbitration led Segal to seek sanctions under Rule 11 of the Federal Rules of Civil Procedure. Shortly before the hearing on that sanctions motion, defendants SEI and Strausser withdrew their support from the motion to compel arbitration for "strategic reasons." App. 00375. Mellon, though, pressed on.

The District Court converted Mellon's motion into a motion for summary judgment, incorporated into the record all relevant evidence presented at the sanctions hearing, and, on November 19, 2009, issued an order denying Mellon's motion on the grounds of equitable estoppel. The Court held that Segal's detrimental reliance on SEI's earlier, anti-arbitration arguments equitably estopped Mellon from later adopting the position that the exact same claims should be returned to arbitration. As an aside, the Court noted that Mellon's "fast and loose" tactics would likely run afoul of the doctrine of judicial estoppel as well. ***

"[E]quitable estoppel serves to protect litigants from unscrupulous opponents who induce a litigant's reliance on a position, then reverse themselves to argue that they win under the opposite scenario." Teledyne Indus., Inc. v. NLRB, 911 F.2d 1214, 1220 (6th Cir. 1990) (emphasis removed); see Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 419 (3d Cir. 1988) ("[E]quitable estoppel focuses on the relationship between the parties to the prior litigation." (citations omitted)). As the District Court correctly explained, equitably estopping a litigant from taking a self-contradictory position is proper if: (1) the parties (or parties in privity with them) were adverse in a prior proceeding; (2) the party seeking estoppel detrimentally relied on its opponent's prior position; and (3) the party seeking estoppel would be prejudiced if its opponent were allowed to assume a new position. See Montrose Med. Grp. Participating Sav. Plan v. Bulger, 243 F.3d 773, 779 n.3 (3d Cir. 2001); Teledyne, 911 F.2d at 1220; Novelty Knitting Mills, Inc. v. Siskind, 457 A.2d 502, 503 (Pa. 1983) ("[E]quitable estoppel recognizes that an informal promise implied by one's words, deeds or representations which leads another to rely justifiably thereon to his own injury or detriment, may be enforced in equity.").***

Notwithstanding Mellon's contention that he is not a "party" for equitable estoppel purposes, see Brief for Appellants 26, Mellon proudly claims that he is, in fact, "an agent of SEI" for the purposes of invoking SEI's arbitration clause, see id. at 17. Mellon must accept the bitter of agency with the sweet, and may not claim a position as SEI's agent when it serves him and disavow it when it does not.

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