10th Cir. Declines to Use 'Harsh Remedy' of Judicial Estoppel

Even outside the Internet, your statements can come back to haunt you. Yesterday, the Tenth Circuit examined the doctrine of judicial estoppel, a "harsh remedy" that prevents a party from taking a different position on an issue in subsequent litigation.

In this two-part bankruptcy/breach of contract dispute, the court decided not to opt for judicial estoppel.

Background

The case begins innocuously enough: Vehicle Market Research (VMR) owned some software that was used to calculate the value of an automobile loss for insurance purposes. VMR's sole shareholder, a human named John Tagliapietra, filed for bankruptcy in 2005. In his bankruptcy petition, he said his VMR shares were worth nothing.

In 2009, Tagliapietra -- stepping into VMR's shoes -- sued another company, Mitchell International, for misappropriating that car insurance software, which VMR had licensed to Mitchell. Mitchell had stopped paying royalties on the license because it allegedly developed its own product by using Tagliapietra's software.

At a deposition, Tagliapietra said the royalties were worth up to $4 million. Mitchell seized on this statement to "prove" that Tagliapietra was making an inconsistent valuation of the royalties, based on the $0.00 value from his bankruptcy petition and sought to invoke judicial estoppel.

Judicial Estoppel Not Necessary

Judicial estoppel is a last resort, used when parties change their mind about the same facts in different litigation. Mitchell argued that, because Tagliapietra had already stated in his bankruptcy petition that the value of VMR was $0.00, he could not now be allowed to argue that the value of his software was $4 million.

The Tenth Circuit, however, said that the valuations were not "clearly inconsistent" for three reasons. First, the value of the software was an opinion, not a fact. Second, Tagliapietra said the royalties were worth up to $4 million, establishing only a ceiling of the value. Third, the value of the royalties doesn't directly translate into VMR stock value.

You might be tempted to say that judicial estoppel would be appropriate because Tagliapietra had a duty to update the valuation of the stock in his bankruptcy petition. Well, you'd be wrong. Not only is that view held in a minority of jurisdictions, but someone's belief in value, said the court, doesn't translate into an actual value -- at least, in terms of judicial estoppel.

Splitting hairs? Maybe. The Tenth Circuit may have gone out of its way to read a problem out of the claim for judicial estoppel, but given the disfavor according to using it, courts would rather find a way out of using judicial estoppel and wave it around only when absolutely backed into a corner.

Related Resources:

• The State of Judicial Estoppel in Bankruptcy (American Bankruptcy Institute)
• Ninth and Tenth Circuits Differ on Judicial Estoppel Considerations (National Consumer Bankruptcy Rights Center)
• Judicial Estoppel Gets the Disney Treatment (FindLaw's U.S. Ninth Circuit Blog)
• Hollister Disabled-Access Case: Class Certification Affirmed by 10th Cir. (FindLaw's U.S. Tenth Circuit Blog)