A Prior Inconsistent Statement Is Not Necessarily Your Road to Judicial Estoppel
March 07, 2019
You have been engaged in extensive motion practice in the Supreme Court of the State of New York. You learn that your adversary, it appears, has taken a position contrary to the one taken in a prior proceeding. These “gotcha” moments don’t happen often, but you savor them when they do. You immediately proceed to seek an order from the court that the non-movant be judicially estopped from taking that contrary position in the current proceeding. Will you be successful in invoking the doctrine? Maybe. A recent decision by Commercial Division Justice Andrew Borrok highlights the difficulty in succeeding on a summary judgment motion premised on judicial estoppel.
The doctrine of judicial estoppel may be invoked when the party takes one position in a prior proceeding, securing a favorable outcome; and a contrary or inconsistent position in a subsequent proceeding. In Divine Capital, LLC v Legado Inv. Group, LLC, Plaintiff Divine Capital, LLC (“Divine Capital”) attempted to recover $4 million that it transferred to Legado Investment Group, LLC (“LIG”) as a reserve fund to finance an assisted living facility, subject to certain conditions. Two separate agreements were executed, setting forth terms pursuant to which Plaintiff could withdraw the funds, i.e., the Divine Project Equity Reserve Agreement (“Divine PERA”) and the KB Project Equity Reserve Agreement (“KB PERA”).
Plaintiff’s initial complaint alleged breach of the Divine PERA, asserting that it was the governing agreement. The Court denied Plaintiff’s ex parte motion seeking an attachment of the funds for reasons, including that KB Capital was an indispensable party to the action, and LIG represented that it would hold the funds in the LIG Account pending resolution of the case.
Plaintiff then amended its complaint, adding KB Capital as a Plaintiff and adding a cause of action for breach of contract. The amended pleading alleged an alternative theory; if KB PERA, and not Divine PERA, is the controlling agreement, then Plaintiffs are entitled to a return of the funds by virtue of the terms set forth in that agreement. Plaintiffs moved by order to show cause seeking an order of attachment of the funds, which the Court denied.
Plaintiffs subsequently moved for summary judgment seeking to invoke the doctrine of judicial estoppel to prevent LIG from taking the position that the KB PERA governs the investment, in light of the fact that they previously argued that the Divine PERA governed. The Court denied the motion because Plaintiffs failed to establish that the Court relied on LIG’s prior position, i.e., that the Divine PERA is the controlling agreement in arriving at its decision. Indeed, the Court’s decision denying the initial request for an attachment of funds was based on the fact that KB Capital, not a plaintiff in the action until Divine Capital amended its complaint, was an essential party; and because LIG represented that they would hold funds in the LIG Account pending the resolution of the case, thus not warranting the attachment of funds. Put differently, the Court determined that because the record did not show that the Court relied on LIG’s statements regarding which agreement governed the investment of funds in denying Divine Capital’s ex parte motion, the doctrine of judicial estoppel was inapplicable.
Relying on a New York Court of Appeals’ decision in Stewart v Chautauqua Cty. Bd. of Elections, Justice Borrok held that a party cannot rely on a prior proceeding in which the court “did not unambiguously adopt the prior inconsistent position in some manner.” In Stewart v Chautauqua Cty. Bd. of Elections, the Court similarly determined that the doctrine of judicial estoppel was inapplicable because the record was unclear on whether the petitioner successfully persuaded the Supreme Court to adopt his initial position.
The Takeaway: Judicial estoppel can only be invoked in matters where the “court has relied on or adopted a party’s prior inconsistent position in ruling in that party’s favor.” However, you cannot simply rely on the fact that a non-movant is adopting an inconsistent position in attempting to invoke the doctrine. Rather, you must show that the court relied on the inconsistent position in coming to its decision.