October 21, 2009
SAMUEL MARQUEZ AND ANGELA MARQUEZ, PLAINTIFFS-APPELLANTS,
OFFICER CHRISTOPHER DREW, OFFICER EDWARD EMDE, THE TRENTON POLICE DIVISION, THE CITY OF TRENTON AND TRENTON POLICE DIRECTOR JOSEPH SANTIAGO, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Mercer County, L-2730-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 29, 2009
Before Judges Reisner, Yannotti and Chambers.
Plaintiffs Samuel and Angela Marquez appeal from a May 23, 2008 order granting summary judgment dismissing their complaint on grounds of judicial estoppel, and a July 31, 2008 order denying reconsideration. They also appeal from interlocutory orders dismissing their claim under the New Jersey Civil Rights Act and denying their motion to amend the complaint to add a claim under 42 U.S.C.A. § 1983.*fn1 We affirm the dismissal of the State law claim, reverse the other rulings, and remand.
We will discuss the pertinent facts in greater detail in our legal analysis. However, in brief, plaintiffs contend that on October 12, 2003, Mr. Marquez was brutally beaten by the Trenton police, who then filed groundless criminal charges against him. Those charges were dismissed several years later, when the prosecution failed to produce discovery. By that time, plaintiffs contend, their legal bills and Mr. Marquez's health problems attributable to the assault had driven them into bankruptcy.
After they filed their bankruptcy petitions,*fn2 plaintiffs filed this civil rights lawsuit against the police and related defendants on October 11, 2005. However, three years later in 2008, their lawsuit was dismissed on judicial estoppel grounds, because plaintiffs had initially failed to list their potential civil lawsuit as a contingent asset in their bankruptcy petition, and they did not promptly amend their petition after this lawsuit was filed.
Our review of the trial court's grant of summary judgment is de novo, using the standard set forth in Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), which requires that we consider the evidence in the light most favorable to the non-moving parties. See Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We review a trial court's decision to invoke judicial estoppel for abuse of discretion, see State, Div. of Motor Vehicles v. Caruso, 291 N.J. Super. 430, 438 (App. Div. 1996), but we owe no deference to a trial court's interpretation of the law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
We begin our analysis by considering the doctrine of judicial estoppel. In order to protect the integrity of the court system, "[w]hen a party successfully asserts a position in a prior legal proceeding, that party cannot assert a contrary position in subsequent litigation arising out of the same events." Kress v. La Villa, 335 N.J. Super. 400, 412 (App. Div. 2000), certif. denied, 168 N.J. 289 (2001). It has been summarized as follows: "The principle is that if you prevail in Suit # 1 by representing that A is true, you are stuck with A in all later litigation growing out of the same events." Kimball Int'l, Inc. v Northfield Metal Prods., 334 N.J. Super. 596, 607 (App. Div. 2000) (quoting Eagle Found., Inc. v. Dole, 813 F.2d 798, 810 (7th Cir. 1987)).
However, judicial estoppel is not a favored remedy, because of its draconian consequences. It is to be invoked only in limited circumstances:
It is . . . generally recognized that judicial estoppel is an "extraordinary remedy," which should be invoked only "when a party's inconsistent behavior will otherwise result in a miscarriage of justice." Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 365 (3d Cir. 1996) (quoting Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 424 (3d Cir.) (Stapleton, J., dissenting), cert. denied, 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed. 2d 532 (1988)); see also Teledyne Indus., Inc., supra, 911 F.2d at 1218 ("Judicial estoppel is applied with caution to avoid impinging on the truth-seeking function of the court because the doctrine precludes a contradictory position without examining the truth of either statement.").
Thus, as with other claim and issue preclusion doctrines, judicial estoppel should be invoked only in those circumstances required to serve its stated purpose, which is to protect the integrity of the judicial process. [Kimball Int'l, Inc. v Northfield Metal Prods., supra, 334 N.J. Super. at 608 (footnote omitted).]
The Kimball decision echoed language from Ryan Operations, supra, in which the Third Circuit Court of Appeals rejected a claim of judicial estoppel based on the bankruptcy debtor's failure to disclose a lawsuit:
[Judicial estoppel] is not meant to be a technical defense for litigants seeking to derail potentially meritorious claims, especially when the alleged inconsistency is insignificant at best and there is no evidence of intent to manipulate or mislead the courts. Judicial estoppel is not a sword to be wielded by adversaries unless such tactics are necessary to "secure substantial equity." [Ryan, supra, 81 F.3rd at 365 (citation omitted).]
In Ali v. Rutgers, 166 N.J. 280 (2000), our Supreme Court quoted with approval the above language from Kimball, with its internal quotation from Ryan, and confirmed the Court's view that judicial estoppel is an "extraordinary remedy." Ali, supra, 166 N.J. at 288. More recently, the Third Circuit has emphasized that judicial estoppel is a remedy to be used sparingly:
Observing that judicial estoppel "is often the harshest remedy" that a court can impose for inequitable conduct, we have held that a district court may not invoke the doctrine unless: (1) "no sanction established by the Federal Rules or a pertinent statute is up to the task of remedying the damage done by a litigant's malfeasance;" and (2) "the sanction [of judicial estoppel] is tailored to address the harm identified." In this case, the District Court failed to conduct the former inquiry, and we hold that its conclusion that judicial estoppel was tailored to address any harm caused by the inconsistent representations was not an exercise of sound discretion.
The application of judicial estoppel constitutes an exercise of a court's inherent power to sanction misconduct. "Because of their very potency, inherent powers must be exercised with restraint and discretion." [Montrose Med. Group Participating Sav. Plan v. Bulger, 243 F.3d 773, 784 (3d Cir. 2001) (citations omitted).]
The federal appeals court reiterated that view in Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. Gen. Motors Corp., 337 F.3d 314, 319-20 (3d Cir. 2003), cert. denied, 541 U.S. 1043, 124 S.Ct. 2172-73, 158 L.Ed. 2d 732 (2004).
Against that legal backdrop, we consider the following facts most pertinent. First of all, plaintiffs did not conceal the bankruptcy from defendants, who did not initially propound any discovery asking about a possible bankruptcy filing. Instead, plaintiffs spontaneously disclosed the bankruptcy filing in answer to a form interrogatory asking about their economic losses. Second, plaintiffs applied to the Bankruptcy Court to have Robin Lord, their attorney in this case, appointed as special counsel on October 4, 2006, months before defendants filed their January 30, 2007 motion seeking to amend their answer to raise the defense of judicial estoppel.*fn3 As plaintiffs' undisputed evidence demonstrated, filing the special counsel application protected the creditors' right to obtain their eventual share of the lawsuit proceeds, if any.
Plaintiffs then filed an amended bankruptcy disclosure form, listing this lawsuit as an asset on March 20, 2007, before defendants filed their summary judgment motion. See In re Gershenbaum, 598 F.2d 779 (3d Cir. 1979) (affirming bankrupt's right to freely amend the petition at any time prior to closure of the case); Fed. R. Bankr. P. 1009. Consequently, at the point when defendants filed their summary judgment motion, plaintiffs had already corrected the omission on which that motion was based. See Rowan v. Green, 572 S.E.2d 338 (Ga. Ct. App. 2002) (no judicial estoppel where debtor amended her bankruptcy filing to disclose the lawsuit before defendant's dismissal motion was decided); compare Scoggins v. Arrow Trucking Co., 92 F. Supp. 2d 1372 (S.D. Ga. 2000) (lawsuit dismissed where there was no showing that debtor tried to amend petition prior to defendant's motion to dismiss).
In opposing summary judgment, plaintiffs also filed a certification from their bankruptcy counsel, John Zimnis. In his certification, Zimnis, an experienced bankruptcy lawyer, explained that the confirmation of a Chapter 13 bankruptcy plan was not final and did not discharge plaintiffs' debts. Moreover, he explained that a Chapter 13 disclosure statement may be freely amended at any time during the pendency of the case. He also attested that upon learning of the civil rights lawsuit, he filed the necessary papers to have Lord, plaintiffs' counsel in this action, appointed as special counsel to the debtors, which, in turn, would require the Bankruptcy Court's approval of any settlement of that lawsuit.
Plaintiffs also submitted a letter from the Bankruptcy Trustee confirming Zimnis's opinion as to the significance of the application to appoint special counsel. According to the Trustee, that filing put the Trustee on notice of a potential asset (the litigation), and would prevent the debtor from obtaining a discharge without satisfying the Trustee as to the outcome of the litigation. In other words, as soon as the special counsel application was filed, the creditors were protected.
Under the facts of this case, we cannot agree with defendants that the Bankruptcy Court's acceptance of plaintiffs' Chapter 13 repayment plan should result in judicial estoppel. In applying the doctrine of judicial estoppel, we have considered the unique procedural doctrines of the court in which a party has allegedly "prevailed." For example, while a settlement normally does not result in judicial estoppel because it is not an adjudication on the merits, we have held that a Tax Court settlement can result in judicial estoppel because the Tax Court must consider the merits of the settlement. City of Atlantic City v. California Ave. Ventures, L.L.C., 23 N.J. Tax 62, 66 (App. Div. 2006).
Turning to the procedures of the Bankruptcy Court, acceptance of a Chapter 13 repayment plan does not conclude the Bankruptcy case, and a debtor's disclosure statement can be freely amended at any time prior to closure of the case. Rowan, supra, 572 S.E.2d at 339-40. In this case, acceptance of the plan ensured that the case would continue for several more years, while plaintiffs complied with the terms of the plan. Further, there is no evidence that disclosure of this lawsuit would have been a factor in the Bankruptcy Court's decision to approve plaintiff's repayment plan.*fn4 See Ryan, supra, 81 F.3d at 364.
Defendants' reliance on Krystal Cadillac and similar cases in which courts found a debtor to be judicially estopped, is unpersuasive. Unlike Krystal Cadillac, supra, or Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir. 1988), which involved large commercial debtors filing Chapter 11 bankruptcies, there is no evidence here that plaintiffs negotiated concessions from their creditors or otherwise benefited, or sought to benefit, from the fact that the creditors did not initially know about the civil rights suit.
Defendants do not dispute that plaintiffs' unsecured debts were mostly under $1000 and amounted in total to about $36,000.
Further, unlike this case, the lawsuits in Oneida and Krystal were against parties that had some significant connection to the bankruptcy case. More importantly, in those cases, the debtors never made adequate disclosure of their claims in their Bankruptcy filings. See also In re Coastal Plains, 179 F.3d 197 (5th Cir. 1999) (concealment of $10 million claim and clear manipulation of Chapter 11 bankruptcy process); In re Superior Crewboats, Inc., 374 F.3d 330, 333 (5th Cir. 1999) (Chapter 13 debtors failed to disclose personal injury lawsuit and falsely advised creditors that the claim was barred by the statute of limitations, thereby obtaining a "no asset" discharge); Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir. 2006) (plaintiff obtained Chapter 7 discharge without ever disclosing discrimination claim); Barger v. City of Cartersville, 348 F.3d 1289, 1291-92 (11th Cir. 2003) (debtor obtained Chapter 7 discharge without disclosing discrimination lawsuit and lied to trustee about the lawsuit).
In summary, dismissing this case on judicial estoppel grounds did not serve the doctrine's essential purpose to prevent a miscarriage of justice, see Kimball, supra, 334 N.J. Super. at 608, and was a mistaken exercise of the trial court's discretion. See Caruso, supra, 291 N.J. Super. at 438. We therefore reverse the order dismissing the complaint on judicial estoppel grounds.
We reach a similar conclusion regarding the denial of plaintiffs' motion to amend their complaint to include a § 1983 claim. Plaintiffs evidently preferred to litigate in State court, believed that asserting a State Civil Rights Act claim would protect their right to counsel fees if they prevailed, and therefore limited themselves initially to State law claims. Defendants did not unsuccessfully seek to remove this case to federal court, and plaintiffs did not "prevail" before any court by failing to include the federal law claim originally. There is no persuasive basis to conclude that the late assertion of the § 1983 claim would prejudice defendants in their ability to defend against this lawsuit, or that permitting the amendment would delay the litigation.
Defendants' apparent preference to litigate in federal court, without more, does not provide a basis for judicial estoppel. See Montrose, supra, 243 F.3d at 785 ("[J]udicial estoppel may not be used to punish litigants for how they treat other litigants . . . ; its only legitimate purpose is to remedy an affront to the court's integrity."). Tamburelli Properties Association v. Cresskill, 308 N.J. Super. 326, 335-36 (App. Div. 1998), on which defendants rely, is not on point. There, the municipality was judicially estopped from challenging on appeal a valuation method that it had "embraced" before the trial court. Ibid. We therefore conclude that judicial estoppel is inapplicable here. Consequently, we reverse the order denying leave to amend the complaint to add the § 1983 claim.
We do, however, agree with the trial court's decision to dismiss the State Civil Rights Act claim. N.J.S.A. 10:6-1 and -2. The Act was adopted in 2004, after the events giving rise to this claim, and by its terms took effect on September 10, 2004. We cannot conclude that the legislation was intended to apply retroactively. That is particularly so because, among other things, the Act subjects a losing defendant to the assessment of civil penalties. N.J.S.A. 10:6-2e. Plaintiffs' reliance on Pasqua v. Council, 186 N.J. 127, 152-53 (2006), is misplaced, because the Court did not address the retroactivity issue. Finally, our ruling on the § 1983 amendment satisfies plaintiffs' expressed interest in being able to obtain counsel fees if they prevail.
Accordingly, we reverse the orders dismissing the complaint on judicial estoppel grounds and denying leave to amend the complaint, and we remand this matter to the trial court for further proceedings consistent with this opinion.
Affirmed in part, reversed and remanded in part.