Is a Dismissal on Grounds of Judicial Estoppel Reviewed De Novo or for Abuse of Discretion? — Circuit Split — Elements of Judicial Estoppel — Application to Administrative Proceedings — Prejudice Not Essential

Lia v. Saporito, 2013 U.S. App. LEXIS 20975 (2d Cir. Oct. 17, 2013):

Plaintiff Don Lia appeals from the dismissal of his claims against defendants Michael Saporito and Jesse Armstead for specific performance, declaratory judgment, breach of fiduciary duty, constructive trust, unjust enrichment, and an accounting. Plaintiff  Mobile Management, LLC ("Mobile Management") appeals from the dismissal of its claim against defendants for breach of fiduciary duty. Specifically, plaintiffs challenge the district court's determination that (1) Lia is judicially estopped from asserting each of his claims, and (2) plaintiffs' fiduciary claims are, in any event, untimely or fail to state a claim for relief. We review decisions to dismiss on these grounds de novo, see Gatt Commc'ns, Inc. v. PMC Assocs., LLC, 711 F.3d 68, 74 (2d Cir. 2013) (stating de novo standard applies to review of dismissal pursuant to Fed. R. Civ. P. 12(b)(6)), City of Pontiac Gen. Employees' Ret. Sys. v. MBIA, 637 F.3d 169, 173 (2d Cir. 2011) (citing de novo standard of review for a district court's "interpretation and application of a statute of limitations"), Uzdavines v. Weeks Marine, Inc., 418 F.3d 138, 142 (2d Cir. 2005) (stating that invocation of judicial estoppel "is a pure question of law, which we review de novo").

Footnote 1.  We recognize that our sister circuits are split  as to whether dismissal on grounds of judicial estoppel should be reviewed de novo, see Solomon v. Vilsack, 628 F.3d 555, 561 (D.C. Cir. 2010); Lorillard Tobacco Co. v. Chester, Willcox & Saxbe, 546 F.3d 752, 757 (6th Cir. 2008), or for abuse of discretion, see Queen v. TA Operating, LLC,     F.3d    , 2013 WL 4419322, at *3 (10th Cir. 2013) (reviewing for abuse of discretion); Ah Quin v. Cnty. of Kauai Dep't of Transp.,     F.3d    , 2013 WL 3814916, at *2 (9th Cir. 2013); Grochocinski v. Mayer Brown Rowe & Maw, LLP, 719 F.3d 785, 795 (7th Cir. 2013); Rockwood v. SKF USA Inc., 687 F.3d 1, 10 (1st Cir. 2012); In re Oparaji, 698 F.3d 231, 235 (5th Cir. 2012); Capella Univ., Inc. v. Exec. Risk Specialty Ins. Co., 617 F.3d 1040, 1051 (8th Cir. 2010); In re Kane, 628 F.3d 631, 636 (3d Cir. 2010); Stevens v. Tolbert, 471 F.3d 1173, 1175 (11th Cir. 2006). We have no reason on this appeal to reconsider our precedent favoring de novo review because the record supports dismissal even under that more demanding standard. See Hoffler v. Bezio, 726 F.3d 144, 151-52 (2d Cir. 2013) (stating that court need not determine standard of review when result would be same under either standard). ***

 

1. Judicial  Estoppel

A party who "assumes a certain position in a legal proceeding, and succeeds in maintaining that position," can be judicially estopped from assuming a contrary position thereafter simply because his interests have changed. New Hampshire v. Maine, 532 U.S. 742, 749 (2001) (internal quotation marks omitted); see DeRosa v. Nat'l Envelope Corp., 595 F.3d 99, 103 (2d Cir. 2010) (holding that judicial estoppel will generally apply if (1) "party's later position is clearly inconsistent with its earlier position," (2) former position was "adopted in some way by the court in the earlier proceeding," and (3) "party asserting the two positions would derive an unfair advantage against the party seeking estoppel" (internal quotation marks omitted)). Because the purpose of the rule is to "protect the integrity of the judicial process," New Hampshire v. Maine, 532 U.S. at 749 (internal quotation marks omitted), it is properly applied only when "the risk of inconsistent results with its impact on judicial integrity is certain," DeRosa v. Nat'l Envelope Corp., 595 F.3d at 103 (internal quotation marks omitted).

Lia does not here dispute that judicial estoppel can apply "to sworn statements made   to administrative agencies . . . as well as to courts." Id. Neither does he seriously contend--nor could he--that he takes a position in the complaint in this action that is not clearly inconsistent with that taken in his deposition testimony in a 2005-2006 New Jersey administrative protest. Instead, he asserts that the district court erred in holding his claims judicially estopped because (1) he was not a party to the New Jersey proceeding nor in privity with any party to that proceeding; (2) his deposition testimony was not necessary to the ultimate disposition of the administrative proceeding; (3) any inconsistency between his deposition testimony and his position in this action affords plaintiffs no unfair advantage; and (4) defendants' unclean hands bar them from asserting estoppel. We disagree.

Assuming without deciding that judicial estoppel applies only to parties or their privies in a prior proceeding, that requirement is satisfied here because the crux of Lia's complaint is that pursuant to various agreements made in 2003 and 2006, he is the undisclosed 75% owner, sole manager, and sole financier of Hamilton Honda, also known as "All Star Motors, LLC" ("All Star"), which was a party to the administrative proceeding. See Central Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A., 56 F.3d 359, 368 (2d Cir. 1995) (explaining that for res judicata purposes, determination of whether party is in privity with former litigant requires court to inquire whether "party controlled or substantially participated in the control of the presentation on behalf of a party to the prior action" and that its interests were "identical to the interests" of former litigant (internal quotation marks and alterations omitted)).

As for Lia's contention that his prior deposition testimony was not necessary to the ultimate decision of the New Jersey proceeding, he mistakenly conflates collateral estoppel and judicial estoppel.   Collateral estoppel "bars the relitigation of issues actually litigated and decided in the prior proceeding, as long as that determination was essential to that judgment." Id. at 375. Judicial estoppel, by contrast, demands no similar "but for" causation; it requires only that "the party's former position has been adopted in some way by the court in the earlier proceeding."   Adelphia Recovery Trust v. HSBC Bank USA (In re Adelphia Recovery Trust), 634 F.3d 678, 695-96 (2d Cir. 2011)  (emphasis added; internal quotation marks omitted); accord Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 397 (2d Cir. 2011) (stating that prior position must be adopted by court "in some manner" (internal quotation marks omitted)). As earlier noted, the concern animating judicial estoppel is "improper use of judicial machinery." New Hampshire v. Maine, 532 U.S. at 750. Thus, the relevant question is whether a "party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled."   Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 170 (2010) (emphasis added; internal quotation marks omitted). The statement in Adler v. Pataki, 185 F.3d 35 (2d Cir. 1999), that "judicial estoppel applies only when a tribunal in a prior separate proceeding has relied on a party's inconsistent factual representations and rendered a favorable decision," id. at 41 n.3 (emphasis omitted), is not to the contrary.

In any event, the administrative law judge ("ALJ") in the New Jersey proceeding did rely on Lia's deposition testimony in determining  that Lia had no ownership interest in All Star, the New Jersey Motor Vehicle Franchise Committee adopted the ALJ's findings of fact and conclusions of law in their entirety in its final decision, and the New Jersey Appellate Division affirmed. See W&D Imports, Inc. v. Am. Honda Motor Co., Inc., 2008 WL 281576 (N.J. Super. Ct. App. Div. Feb. 4 2008). Thus, like the district court, we conclude that because Lia's inconsistent assertions in his deposition testimony and in his complaint present a situation where "the risk of inconsistent results with its impact on judicial integrity is certain," judicial estoppel properly applies. DeRosa v. Nat'l Envelope Corp., 595 F.3d at 103 (internal quotation marks omitted).

Nor can Lia escape this conclusion by insisting that his deposition testimony was immaterial to the ALJ's disposition because the ALJ characterized his noninvolvement in All Star as an inconsequential red herring. As is evident from the record, the ALJ eschewed accusations of Lia's alleged covert involvement in All Star because it credited his testimony of non-involvement. Thus, whatever other findings may have lent support to the ALJ's protest resolution, his conclusion depended  on a finding that persons other than Lia owned the dealership that was the subject of the protest and that Lia held no concealed interest therein.

Lia argues that he received no unfair advantage from his prior testimony and defendants here would suffer no unfair detriment. Although "the doctrine of judicial estoppel applies 'especially' when it prejudices 'the party who has acquiesced in the position formerly taken by the party to be estopped,'" the relevant question remains "whether a party has successfully maintained a position in one proceeding and assumed a contrary position in another proceeding after his interests have changed."   In re Adelphia Recovery Trust, 634 F.3d at 699 (quoting DeRosa v. Nat'l Envelope Corp., 595 F.3d at 103 (alterations omitted)). For reasons already stated, we answer that question in the affirmative.

 

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