This is a judicial estoppel case, which is controlled by two principles: our reluctance to impose the harsh remedy of judicial estoppel, and the failure by the party asserting judicial estoppel to bear its burden to point to clearly inconsistent statements in support of its arguments.
The case involves statements made by plaintiff Vehicle Market Research, Inc. (VMR) in a breach of contract case that were allegedly inconsistent with earlier statements by the sole owner and alter-ego of that company, John Tagliapietra, in his Chapter 7 bankruptcy proceeding. Specifically, VMR developed and owned certain intellectual property (referred to in the contract as “Materials and Intellectual Property”)—including a software system to calculate the value of a total loss of an automobile for the purposes of the automobile insurance industry (the “TLSS Product”) and certain “pre-existing software tools, utilities, concepts, techniques, text, research or development” used in the development of TLSS (the “Pre-Existing Materials”). (R. Vol. I at 261, ¶8.1.) When Mr. Tagliapietra filed for personal bankruptcy, he asserted that his shares in VMR were worth nothing. A few years later, as the bankruptcy was winding down, VMR sued Mitchell International, Inc. (Mitchell), the company to which it had exclusively licensed the Materials and Intellectual Property, seeking up to $4.5 million in damages for the alleged misappropriation of the Materials and Intellectual Property. The question before us is whether the statements by VMR and Mr. Tagliapietra in the litigation against Mitchell were so clearly contrary to the statements made by Mr. Tagliapietra in his bankruptcy proceeding that VMR should be judicially estopped from proceeding with its suit against Mitchell.
There is no doubt that when Mr. Tagliapietra filed his bankruptcy, he listed the value of VMR’s stock as 0.00. He did not amend that statement, except to approve the bankruptcy Trustee’s valuation of the shares at a value of “unknown” at some point in 2009, around the time that he was preparing to file his lawsuit (in the shoes of VMR) against Mitchell. As a result of Mr. Tagliapietra’s representations in the bankruptcy court, the Trustee and the bankruptcy court awarded Mr. Tagliapietra a discharge of his debts based in part on the assumption that his company was worthless.
Turning to the VMR litigation at hand against Mitchell, VMR alleged in the unverified complaint that it was entitled to up to $4.5 million on its contract with Mitchell authorizing Mitchell to use the Materials and Intellectual Property. In Mr. Tagliapietra’s 2011 deposition in the instant litigation, he acknowledged that the Pre-Existing Materials, the existence of which preceded the filing of his bankruptcy, were worth $4 million in 2009.
We review the doctrine of judicial estoppel with guidance telling us we should apply it sparingly and require a clearly inconsistent statement before invoking it. We conclude that neither VMR’s litigation claim for payments until they reach a cap of $4.5 million nor Mr. Tagliapietra’s deposition testimony in that lawsuit—that VMR was entitled to “up to” $4 million in royalties and that, in 2009, the Pre-Existing Materials were worth $4 million—is clearly inconsistent with his valuation of 0.00 for his VMR stock at the time of his bankruptcy petition in 2005, the date when the initial bankruptcy representations were made.
If there were grounds for judicial estoppel, it would have to be based on a duty by Mr. Tagliapietra to amend his bankruptcy pleadings to report a possible increased value for his VMR stock at least as of the time that VMR filed its suit against Mitchell in 2009. However, our precedent is not clear on whether a debtor has a continuing duty to amend his bankruptcy schedules when the estate’s assets change in value. Given our reluctance to invoke judicial estoppel, and keeping in mind that judicial estoppel is an affirmative defense that its proponent must prove, we conclude that in this case Mitchell has not met its burden of showing any clearly inconsistent statements that would warrant that relief. We therefore REVERSE the district court’s opinion as an abuse of discretion.
Download Vehicle Market Research v. Mitchell International