system. Delgrosso, 903 F.2d at 241; Oneida Motor Freight, 848 F.2d at 419.
The doctrine traces its roots to the Supreme Court's enunciation in Davis v. Wakelee that "where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position." 156 U.S. 680, 689 (1895). First adopted in the Third Circuit in Scarano v. Central Railroad Co., the doctrine represents a measure of protection of the integrity of the courts, designed to prevent litigants from "playing fast and loose with the courts." 203 F.2d 510, 513 (3d Cir. 1953).
Thus, a court may apply the doctrine in a situation where "intentional self-contradiction is being used as a means of obtaining unfair advantage in a forum provided for suitors seeking justice." Scarano, 203 F.2d at 513.
The contours of the doctrine are, for the most part, relatively straight forward. The doctrine applies to assertions of both factual and legal positions. See Hardwick v. Cuomo, 891 F.2d 1097, 1105 n.14 (3rd Cir. 1989); In the Matter of Cassidy, 892 F.2d 637, 641-42 (7th Cir.), cert. denied sub nom. Cassidy v. Comm'r, 112 L. Ed. 2d 24, 111 S. Ct. 48 (1990); Patriot Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208, 214 (1st Cir. 1987); United States v. Starrett City Associates, 605 F. Supp. 262, 264 (E.D.N.Y. 1985). Not surprisingly, judicial estoppel may be applied based on the assertion of a party or a party's legal counsel. Thus, a position taken or a representation made by counsel in a legal brief or in argument to the court may provide a basis for estoppel. Lewandowski v. National Railroad Passenger Corp., 882 F.2d 815, 819 (3d Cir. 1989). If there is an uncertain aspect of the doctrine of judicial estoppel it is whether a party can be estopped only when its inconsistent assertion was actually adopted by the court in the prior action
or at least was successfully maintained in that action without necessarily having been judicially adopted, or whether the offending party need only have played "fast and loose" with the court even if ultimately unsuccessful in the prior action.
The purpose behind the requirement that there have been judicial adoption or, in some other respect, successful maintenance of a prior inconsistent position is that, absent acceptance of that prior position, there is no risk of inconsistent results and, thus, the integrity of the judicial process is unaffected and the perception and/or danger that either the first or subsequent court was misled is not present. Stevens Technical Services, 885 F.2d at 588-89. And, presumably because of the view that the integrity of the judicial process can be sorely compromised short of inconsistent results, the purpose of the broader view of the doctrine of judicial estoppel is to vindicate the integrity and efficacy of the court by preventing the offending party from continuing in "fast and loose" behavior which undermines the integrity of the court. Patriot Cinemas, 834 F.2d at 214. Indeed, if what is at issue is the integrity of the court, whether a court is asked to rely or has in fact relied on a prior inconsistent position should be a distinction without a difference.
A determination as to whether and how, in this circuit, a party may be judicially estopped must necessarily begin with Scarano. The oft-quoted holding of Scarano states that, "[a] plaintiff who has obtained relief from an adversary by asserting and offering proof to support one position may not be heard later in the same court to contradict himself in an effort to establish against the same adversary a second claim inconsistent with the earlier contention." Scarano, 203 F.2d at 513. On its face, this statement appears to suggest a requirement that before a party may be estopped, the prior position must have been successfully maintained.
The facts of Scarano, however, indicate that the estoppel ordered there did not turn on any such requirement.
The plaintiff in Scarano brought suit under the Federal Employers Liability Act to recover for injuries sustained while working for the defendant. After a jury returned a verdict in plaintiff's favor but before the court had ruled on defendant's motion for a new trial, the parties settled the action. Id. at 511. Thereafter, plaintiff brought a second action against defendant for breach of contract and sought, in connection therewith, lost wages, past and future. Based on plaintiff's assertion in the first action that he was "totally incapacitated from resuming his former occupation or from engaging in any other form of labor", he was estopped from making a contrary assertion in the second action. Id. at 511-12. The court noted that to require a judgment based on the earlier assertion in order to invoke judicial estoppel would confuse that concept with collateral estoppel. Id. Deriving its ruling from the general principle that "a party to litigation will not be permitted to assume inconsistent or mutually contradictory positions with respect to the same matter in the same or a successive series of suits," the court declined to decide whether the rule should be that broad. Id. at 513 (quoting II Freeman on Judgments § 631 (5th ed. 1925)).
Rather, recognizing that each case must be decided on its own facts and circumstances and relying on the fact that the "rendition of the $ 35,000 verdict was a significant factor in the negotiations which led ultimately to a stipulated judgment in the amount of $ 27,750," id. at 53 n.3, the court's holding was restricted to the facts before it, with the outer boundaries of the doctrine left open for future consideration.
Although Third Circuit law in the wake of Scarano has recited the holding of that case, that court has pointedly and repeatedly focused its analysis on the assertion of a prior position, treating the "benefit" requirement of Scarano more as a factor to be considered or weighed than as a mandatory element of the doctrine. While the prior position may, in fact, have been successfully maintained in many or most of those cases, the court has clearly indicated that judicial estoppel can be applied in the absence of having successfully maintained the prior position, opining on more than one occasion that "application of doctrine of judicial estoppel is particularly appropriate in situations like this, where the party benefitted from its original position." Delgrosso, 903 F.2d at 242 (emphasis added); see also Murray v. Silberstein, 882 F.2d 61, 66 (3d Cir. 1989).
In Lewandowski, for example, the court noted that "the critical issue is what the employee contended in the underlying proceeding, rather than what the jury found." 882 F.2d at 819. See also Hardwick, 891 F.2d at 1105, n.4 (the doctrine binds parties to factual and legal positions); Oneida Motor Freight, 848 F.2d at 419 (the doctrine precludes a party from assuming a position inconsistent with one previously asserted); Shell Oil Co. v. Trailer & Truck Repair Co., 828 F.2d 205, 209 (3d Cir. 1987) (the doctrine prevents a party from arguing contradictory positions in different actions). Moreover, the district court in Wade v. Woodings-Verona Tool Works Inc. explicitly held that there is no requirement that a prior position be successfully maintained in order to apply judicial estoppel. 469 F. Supp. 465, 467 (W.D Pa. 1979). To impose such a requirement, the court noted, would be to confuse judicial estoppel with other types of estoppel, most particularly collateral estoppel.
While the Third Circuit has focused its attention on the assertion of a prior position, Oneida Motor Freight did not require even that much before finding that Oneida, a Chapter 11 debtor, was both equitably and judicially estopped from further litigating a claim against a creditor which could have been the basis for recovery against that creditor as well as the basis for financial benefits to other creditors if the claim had been successfully prosecuted. Oneida had previously failed to disclose the claim in its reorganization plan, much less take or successfully maintain a position with reference to that claim, and the Bankruptcy Court was unaware that Oneida even thought that it had such a claim. "The silence," said the Third Circuit, was "deafening." 848 F.2d at 417.
We conclude that Oneida's failure to list its claim against the bank worked in opposition to preservation of the integrity of the system which the doctrine of judicial estoppel seeks to protect. Although we stop short of finding that, as the bank argues, Oneida's prior silence is equivalent to an acknowledgement that it did not have a claim against the bank, we agree that its current suit speaks to a position clearly contrary to its Chapter 11 treatment of the bank's claim as undisputed.
Id. at 419.
Finding no requirement in the law of the Third Circuit that a party have been successful in its prior position, and in consideration of the strong policy rationale underlying the concept of judicial estoppel, Schlott will be judicially estopped from asserting that its agreement with AFN is illegal.
Schlott's actions are clearly the type of "evil the courts should not tolerate." Scarano, 203 F.2d at 513. Embroiled in simultaneous litigation over the same subject matter with the same adversary, Schlott has maintained and sought court rulings in different fora at the same time on diametrically opposed positions with respect to the validity of Schlott's license agreement with AFN; indeed, it makes no attempt to characterize its positions in the two courts (which, presumably could simultaneously determine that the agreement is legal and illegal) as anything other than completely opposite. Having exhorted the Superior Court of New Jersey to rule in its favor based on its agreement with AFN, Schlott cannot now be heard to shield itself from liability by simultaneously asserting the invalidity of that agreement. "If parties feel free to select contradictory positions before different tribunals to suit their ends, the integrity and efficacy of the courts will suffer." Patriot Cinemas, 834 F.2d at 214. In furtherance of the broader policy of protecting the integrity of the court and the judicial system, "no further judicial aid [will] be given this particular enterprise of blowing hot and cold as the occasion demands." Allen, 667 F.2d at 1167 n.3. Because Schlott will be estopped from asserting that its contract with AFN is illegal, its motion to dismiss the complaint or, in the alternative, for summary judgment, will be denied.
V. Rule 11 Sanctions
AFN's motion for Rule 11 sanctions will be denied as well. AFN sought Rule 11 sanctions against Schlott because Schlott has "taken diametrically opposed positions before two different courts within the space of a little more than a month." (Pl. Br. at 5). Beyond that, AFN argues, Schlott should have known that it would be judicially estopped from making its "frivolous" motion to dismiss given that it moved to dismiss AFN's complaint the first time around on the ground of judicial estoppel. Id. at 2-3, 29. The motion and the inconsistent position asserted therein, AFN concludes, aside from being wholly without merit, were made in bad faith and for purposes of delay and have caused AFN needless litigation costs.
The all-too-familiar Rule 11 provides, as relevant here, that an attorney's signature certifies that he or she has read the pleading or motion or other papers that has prompted the Rule 11 application; and that that pleading or motion is well grounded in fact and law and not interposed for any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation. If the pleading or motion has been signed in violation of Rule 11, sanctions shall be imposed on the attorney or the client or both. The test is one of reasonableness under the circumstances, and good faith is not a defense. Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., U.S. , 111 S. Ct. 922, 112 L. Ed. 2d 1140 (1991).
There is nothing reasonable about Schlott's intentional decision to take a position in this court just one month after it had taken a diametrically opposed position in the state court; indeed, that decision is one more example of the fact, and fact it be, that AFN and Schlott are at each other's throats in this and each of the other cases in which they are involved. It is also true, of course, that Schlott's motion to dismiss in which the fact of diametrically opposed positions first surfaced has delayed resolution of the merits of the action and has caused AFN to expend time and money.
But that is not enough. Of critical importance in a Rule 11 analysis is whether the motion to dismiss was well grounded in fact and law. Given the disposition on the ground of judicial estoppel, however, the merits of the mortgage banker-mortgage broker argument on which the motion was predicated were not reached much less any conclusion drawn as to whether the motion was or was not well grounded in fact and law or interposed for at least one improper purpose.
AFN's contention that Rule 11 sanctions are called for because Schlott should have known that it was judicially estopped from taking inconsistent positions having earlier invoked the very authority invoked against it now is similarly unavailing. Although not the law in the Third Circuit, at least in this court's view, there is caselaw which supports Schlott's contention that until its prior position has been "successfully maintained," it can effectively do whatever it pleases before any court of its choice. AFN's motion for Rule 11 sanctions will be denied.
An appropriate order shall issue.
MARYANNE TRUMP BARRY
Dated: July 14, 1992