Press "Enter" to skip to content

Fla. App. Court (4th DCA) Holds Trial Court Improperly Applied Federal Judicial Estoppel Rule to Undisclosed Assets in Bankruptcy

The District Court of Appeal of the State of Florida, Fourth District, recently reversed a trial court’s order denying two borrowers’ request for attorney’s fees and costs on judicial estoppel grounds.

In so ruling, the Fourth DCA held that the trial court improperly relied on a Fifth Circuit case and failed to apply Florida’s judicial estoppel doctrine when it concluded that the borrowers’ failure to disclose their attorney’s fee claim in their Chapter 11 bankruptcy schedules barred the fee claim.

A copy of the opinion in Anfriany v. Deutsche Bank National Trust is available at:  Link to Opinion.

In 2008, the mortgagee (“bank”) filed a foreclosure action against two borrowers.  Subsequently, the bank voluntarily dismissed the foreclosure without prejudice. In 2011, the borrowers moved to tax attorney’s fees and costs. In 2012, the trial court granted the borrowers’ motion and found that they were entitled to their reasonable attorney’s fees and costs. If the parties did not agree on the amount of fees, then the trial court indicated it would conduct an evidentiary hearing to set the reasonable amount of fees.

In 2013, the borrowers filed a Chapter 11 voluntary bankruptcy petition. The petition’s bankruptcy schedules required the borrowers to disclose the value of all personal property. This included contingent and unliquidated claims,  The borrowers did not list any contingent claim assets. In 2014, the bankruptcy court confirmed the borrowers’ reorganization plan.  As it was a Chapter 11 bankruptcy, the reorganization plan did not discharge the borrowers’ debts.

In September 2016, the bank moved to vacate the fee entitlement order. The bank argued that judicial estoppel barred the fee claim because the borrowers did not disclose their entitlement to attorney’s fees and costs as a contingent and unliquidated asset in their bankruptcy. The bank also argued that judicial estoppel barred the borrowers from recovering attorney’s fees in the foreclosure because they took inconsistent positions in the bankruptcy court and the foreclosure court.

In response, the borrowers argued that judicial estoppel did not apply because the Chapter 11 bankruptcy did not discharge their debts.  Without a discharge, the borrowers argued they did not prevent their creditors from collecting any amounts owed and therefore did not prejudice the creditors.  The borrowers also argued that they did not intentionally attempt to conceal assets because they did not know that attorney’s fees constituted an asset.

Relying on U.S. Court of Appeals for the Fifth Circuit law, In Re Coastal Plains, Inc., 179 F. 3d 197 (5th Cir. 1999), the trial court rejected the borrowers’ “absence of prejudice” argument, finding that when considering how bankruptcy cases impact judicial estoppel, courts apply the doctrine to bankruptcy cases generally.  Although the trial court found that the borrowers had no motive to conceal their claim, it did not matter whether the omission was inadvertent because the trial court held it had no discretion and had to find that judicial estoppel applied and precluded the borrowers’ attorney’s fees claim.  As such, the trial court granted the bank’s motion to vacate the fee entitlement order.

This appeal followed when the borrowers filed a petition for certiorari review of the trial court’s fee entitlement order.  The Fourth DCA issued an order that it would treat the case as a final appeal and decided to hear the case.

The Fourth DCA applies a mixed standard of review for judicial estoppel. The Fourth DCA reviews factual findings in the order for an abuse of discretion and any legal conclusions de novo.

The borrowers argued that the trial court erred when it applied judicial estoppel because it improperly failed to consider the reorganization of their debt versus the discharge of their debt, and because it did not accord sufficient weight to its finding that the borrowers’ failure to disclose the fee claim in the bankruptcy was inadvertent.

The Fourth DCA observed that “[j]udicial estoppel is an equitable doctrine that is used to prevent litigants from taking totally inconsistent positions in separate judicial, including quasi-judicial, proceedings.” Blumberg v. USAA Cas. Ins. Co., 790 So. 2d 1061, 1066 (Fla. 2001). Judicial estoppel therefore “protects the integrity of the judicial process and prevents parties from making a mockery of justice by inconsistent pleadings and playing fast and loose with the courts.”  Grau v. Provident Life & Accident Ins. Co., 899 So. 2d 396, 400 (Fla. 4th DCA 2005).

The Fourth DCA also found that, as the Florida Supreme Court stated in Blumberg, the position taken in the prior matter “must have been successfully maintained” to apply judicial estoppel. Blumberg, 790 So. 2d at 1066.  In addition, “the positions must be clearly inconsistent, the parties must be the same and the same questions must be involved.”  Id.  The party seeking to apply judicial estoppel must have been misled and changed their position.  Thus, “[t]here can be no estoppel where both parties are equally in possession of all the facts pertaining to the matter relied on as an estoppel.” Id.

Additionally, the Fourth DCA previously declared in Grau that when the parties are identical, a successful claim or position in a former judicial proceeding bars a party from making a completely inconsistent claim or asserting a clearly conflicting position in a subsequent judicial proceeding where it prejudices the adverse party.  However, the mutuality of parties requirement is subject to a “special fairness and policy considerations” exception. Id. at 400. Thus, “[t]he prejudice component of judicial estoppel occurs when the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.”  Id. at 400 n. 3.

The Appellate Court here held that the trial court erred because it did not properly apply Florida’s doctrine of judicial estoppel. The trial court instead relied on In re Coastal Plains, Inc., 179 F.3d 197 (5th Cir. 1999), to conclude that judicial estoppel barred the borrowers’ entitlement to attorney’s fees and costs.  The parties did not advise the trial court that “the elements of judicial estoppel under federal law in such cases may not be identical to the elements usually required under state law in Florida.”  Montes v. Mastec N. Am., Inc., 132 So. 3d 1195, 1198 n.2 (Fla. 3d DCA 2014). Therefore, according to the Fourth DCA, the trial court improperly failed to apply “the Florida judicial estoppel doctrine as iterated in Blumberg and Grau.”

The Fourth DCA concluded that two reasons prevent judicial estoppel from precluding the borrowers’ attorney’s fees claim.

First, judicial estoppel does not apply where both parties possess all the material facts pertinent to estoppel.  Here the bank was a creditor in the borrower’s Chapter 11 bankruptcy and knew about the fee entitlement order.

Second, the Appellate Court noted, the borrowers’ inconsistent position did not prejudice the bank.  The Fourth DCA found that the borrowers did not assert anything in the Chapter 11 bankruptcy inconsistent with the fee entitlement order. Indeed, the trial court found that the borrowers did not have any motive to conceal the fee entitlement order in the bankruptcy proceeding.  The Appellate Court therefore found that the borrowers did not intentionally take inconsistent positions to obtain “an unfair advantage in a forum provided for suitors seeking justice.”  Grau at 401.

Thus, the Fourth DCA reversed the trial court’s order vacating the borrowers’ entitlement to attorney’s fees, and remanded the case for further proceedings consistent with its opinion.

Print Friendly, PDF & Email

Ernest Wagner practices in Maurice Wutscher's Commercial Litigation and Consumer Litigation groups, and leads the firm’s Insurance Recovery and Advisory group. Based in Chicago, he also supports the firm’s litigation matters in its Miami office. Ernest has substantial experience in various types of commercial and insurance recovery litigation. He has conducted more than 35 jury trials, and more than 150 arbitrations for plaintiffs and defendants. He has also successfully represented clients in numerous appeals, in various jurisdictions. Ernest earned his Juris Doctor from Emory University School of Law in Atlanta, Georgia, and his Bachelor of the Arts from the University of Iowa.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.