Opinion
No. X05 CV 04 4009299 S
December 3, 2007
MEMORANDUM OF DECISION RE MOTIONS FOR SUMMARY JUDGMENT (222.10, 223.00)
I. Background
In this action the plaintiffs seek a declaratory judgment that the plaintiff Mayer Zeiler is the owner of 99% of the issued shares of the two plaintiff companies, Achim Deitsch Textiles (Achim) and Flocktex Industries, Ltd. (Flocktex). The judgment is sought based in part on the allegation that Sara Deitsch and her late husband, David Deitsch, had transferred their 1/6 portion of the issued shares in the companies to Zeiler. The defendants Sara Deitsch, Mordecai Deitsch and Joseph Deitsch who are respectively the mother-in-law and brothers-in-law of Zeiler deny that Zeiler owns the claimed shares in the companies because, among other things, Zeiler failed to pay the stated consideration for the transfer of the shares from David and Sara Deitsch. The defendants also assert counterclaims. The plaintiffs (hereinafter referred to sometimes as Zeiler) have moved for summary judgment on the grounds of judicial estoppel or unclean hands. The defendants (hereinafter referred to sometimes as Deitsch) have opposed that motion and made their own summary judgment motion seeking to dismiss the complaint.
II. Standard of Review
Summary judgment may be granted when the court finds there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Practice Book § 17-49. A genuine issue as to a material fact requires an evidentiary foundation. Appleton v. Board of Education, 254 Conn. 205, 209 (2000). A fact is material when its existence or not would make a difference in the result of a case. United Oil Co. v. Urban Development Commission, 158 Conn. 364, 378 (1969). The party seeking summary judgment has the burden of providing the absence of any genuine issue as to a material fact. Appleton v. Board of Education, supra. In deciding a summary judgment motion the trial court must view the evidence in the light most favorable to the non-moving party. Id. Finally, the trial court, in the context of a summary judgment motion, may not decide issues of material fact but only determine whether such genuine issues exist. Nolan v. Borkowsky, 206 Conn. 495, 500 (1998).
III. The Zeiler Summary Judgment Motion
The parties generally agree that at one time in the 1990s the ownership of various business interests in the United States and Israel, started and overseen by David Deitsch, were divided into six roughly equal shares with a one-sixth share belonging to David and Sara Deitsch, one-sixth to each of David and Sara's sons, Mordecai and Joseph and their wives, one-sixth to their daughter Ell Zeiler and her husband Mayer, and one-sixth to each of their other two daughters Dorothy Pinson and husband Jacob, and Rachel Sandman and husband Joshua. In connection with a dispute resolution proceeding under orthodox Jewish law known as the Beth Din, the Zeiler shares in the United States entities were transferred to the Mordecai and Joseph Deitsch families and the Pinson and Sandman families, and the Mordecai and Joseph Deitsch interests and the Pinson and Sandman interests in the Israeli business, Achim and Flocktex, were transferred to Zeiler. The interests of David and Sara Deitsch were not part of the Beth Din resolution, apparently because David's health prevented his participation. It is also undisputed that there is a document signed by David and Sara Deitsch purportedly transferring all their interest in Achim and Flocktex to Zeiler in September 1999, shortly after the Beth Din proceeding, for $3.1 million payable over eleven years. The defendants contest the validity or enforceability of this document.
David Deitsch died in 2001, and his sons Mordecai and Joseph Deitsch were appointed executors of his estate. According to the complaint in this action Zeiler contends that he paid the $3.1 million purchase price for the shares by offsetting that amount against money owed to him by David Deitsch. The defendants contend that the sale by David and Sara of their shares in the Israeli companies was not valid, and they dispute that Zeiler even paid the $3.1 million consideration. The motion for summary judgment by Zeiler cites various communications from the Deitschs claiming ownership of a significant portion of Achim and Flocktex and argues the defendants are estopped by both the doctrines of judicial estoppel and unclean hands from arguing that position because they never listed either the Israeli companies' stock or the debt allegedly owed by Zeiler as an asset of David Deitsch's estate.
Zeiler's motion relies heavily on the doctrine of judicial estoppel. Where a party assumes a position in a legal proceeding, and succeeds in that proceeding, judicial estoppel bars that party from assuming a contrary position simply because that party's interests have changed, especially if another which acquiesced in the initial position is to be prejudiced. Davis v. Wakelee, 156 U.S. 680, 689 (1895). The doctrine prevents a party from asserting a claim in a legal proceeding that is inconsistent with a position taken by the party in an earlier proceeding, without a good explanation. The purpose of a doctrine is uniformly said to be the protection of the integrity of the judicial process. New Hampshire v. Maine, 532 U.S. 742, 749 (2001).
Judicial estoppel has been recognized and applied on a regular basis in the federal court system. See New Hampshire v. Maine, supra, 532 U.S. 749-51. The doctrine has also been recognized in numerous state court systems. E.g. Aiello v. Aiello, 447 Mass. 388 (2006); Otis v. Arabella Mutual Insurance Co., 443 Mass. 634 (2005); State Farm Mutual v. Bepat, 35 A.D.3d 588, 827 N.Y.S.2d 2007 (N.Y.App.Div., 2d Dep't 2006).
No appellate court in Connecticut has explicitly recognized the doctrine of judicial estoppel. In Gurski v. Rosenblum Filan, 276 Conn. 257 (2005) the Connecticut Supreme Court, in a different context, sided with those cases deploring circumstances wherein parties shift their stances and take inconsistent positions depending on where the money is. Id., 277 (citing among other cases Otis v. Arabella Mutual Insurance Co., supra). In SKW Real Estate Ltd. Partnership v. Mitsubishi Motor Sales of America, Inc., 56 Conn.App. 1 (1999), cert denied, 252 Conn. 931 (2000), the Connecticut Appellate Court discussed judicial estoppel but stated "we do not have to determine whether Connecticut recognizes the doctrine of judicial estoppel because there is no factual basis to apply any estoppel principles here." Id., 8 (footnote omitted); see also Thompson Orcutt, 59 Conn.App. 201, 204 n. 5, (2000) rev'd on other grounds, 257 Conn. 301 (2001) (did not consider whether doctrine should be recognized in Connecticut).
However, a number of trial courts in Connecticut have discussed and many have applied the judicial estoppel doctrine. See Cendant Corp. v. Commissioner of Labor, Superior Court, judicial district of New Britain, CV 03 0520241 (March 9, 2004, Pinkus, J.) (discussing doctrine and upholding Labor Commissioner's finding that a party took inconsistent positions); Mowad v. Colonial Supply Co., Superior Court, judicial district of Waterbury, CV 99-015354S (July 29, 2002, Wolven, J.) (holding that a party who did not list a cause of action on a bankruptcy schedule was barred from pursuing it for lack of standing and by the doctrine of judicial estoppel); Dana Investment v. Robinson Cole, Superior Court, judicial district of Waterbury, X03 CV00-0505126 (March 8, 2001, Aurigemma, J.) (same); Lindholm v. Brandt, Superior Court, judicial District of Stamford-Norwalk at Stamford, complex litigation docket, X05 CV02-0189393 (August 29, 2005, Rogers, J.) (holding that facts did not support a judicial estoppel claim against the plaintiff).
Because of the adoption of the doctrine of judicial estoppel by the United States Supreme Court and the federal court system in general, the recognition of the doctrine by other states, its common sense basis, and the policies it seeks to promote, this court concludes that the appellate courts of this state would adopt the doctrine and its application under the appropriate circumstances.
In general terms, this court adopts the elements of the judicial estoppel doctrine set out by Justice Ginsberg's opinion for a unanimous United States Supreme Court:
Courts have observed that "[t]he circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle," [ Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (CA4 1982)]; accord, Lowery v. Stovall, 92 F.3d 219, 223 (CA4 1996); Patriot Cinemas, Inc. v. General Cinema Corp., 834 F.3d 208, 212 (CA1 1987). Nevertheless, several factors typically inform the decision whether to apply the doctrine in a particular case: First, a party's later positions must be "clearly inconsistent" with its earlier position. United States v. Hook, 195 F.3d 299, 306 (CA7 1999); In re Coastal Plains, Inc., 179 F.3d 197, 206 (CA5 1999); Hossaini v. Western Mo. Medical Center, 140 F.3d 1140, 1143 (CA8 1998); Maharaj v. Bankamerica Corp., 128 F.3d 94, 98 (CA2 1997). Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create "the perception that either the first or the second court was misled," [ Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 599 (CA6 1982)]. Absent success in a prior proceeding, a party's later inconsistent position introduces no "risk of inconsistent court determinations," United States v. C.I.T. Constr. Inc., 944 F.2d 253, 259 (CA5 1991), and thus poses little threat to judicial integrity. See Hook, 195 F.3d, at 306; [ Konstantinidis v. Chen, 626 F.2d 933, 939 (CADC 1980)]. A third consideration is whether 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. See [ Davis v. Wakelee, 156 U.S., at 689]; Philadelphia, W, B.R. Co. v. Howard, 13 How. 307, 335-37 (1852); [ Scarano v Central R. Co., 203 F.2d 510, 513 (CA3 1953)] Judicial estoppel forbids use of "intentional self-contradiction . . . as a means of obtaining unfair advantage"); see also 18 Wright § 4477, p. 782.
In enumerating these factors, we do not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel. Additional considerations may inform the doctrine's application in specific factual contests."
New Hampshire v. Maine, supra, 532 U.S.750-51
The thrust of Zeiler's summary judgment motion contends the Deitschs, specifically Mordecai and Joseph as co-executors of their father's estate, never mentioned David's claimed ownership interest in Achim or Flocktex in the federal estate tax filings made, or in probate court proceedings that took place, after David's death, nor was any mention made of money owed by Zeiler to David as consideration for the Achim and Flocktex stock. The evidence presented on this point is relatively undisputed consisting of a Connecticut Court of Probate inventory signed by Mordecai and Joseph on December 26, 2001, a Probate Court Interim Estate Administrator Account signed January 6, 2005, a United States Estate Tax Return Form 706 signed August 8, 2002, and a Connecticut Succession Tax Return signed August 26, 2002. None of these documents make reference to the assets now claimed to be owned by the Deitschs, i.e. the shares or the consideration for the shares. At most, these documents disclose David's ownership of one "founders" share of Flocktex and that information about Flocktex is difficult to come by. In the federal estate tax form, the co-executors state that there are 2,225,000 regular shares and 100 founder's of Flocktex outstanding and David's one share constituted ownership of 0.000000449% of the company.
The plaintiffs point out that the doctrine of judicial estoppel has been held to apply when positions are taken inconsistent with those previously taken in probate court or similar proceedings. See Kimco of New York, Inc. v. Devan, 163 A.D.2d 573, 558 N.Y.S.2d 630 (N.Y.App.Div., 2d Dept 1990) and discussion therein. Federal courts have also barred parties from taking positions inconsistent with tax filings made to the Internal Revenue Service. This is sometimes called "quasi estoppel" or the "duty of consistency." See Matter of Davidson, 947 F.2d 1294 (5th Cir. 1991); Eagen v. United States, 80 F.3d 13 (1st Cir. 1996).
In their affidavit opposing summary judgment, Mordecai and Joseph Deitsch state that the documents identified above submitted in connection with their father's estate "reflects our understanding that our father, David Deitsch, owned assets in the Israeli companies at issue but that the value of those assets was undetermined" and they continue "it has always been our intention to amend these documents upon receipt of complete information or determination, either between the parties or in court, concerning our father's interests and claims in the Israeli companies." Deitsch Affidavit, October 10, 2007, ¶¶ 9, 10.
While the Deitsch filings and affidavit are troubling, the court cannot grant summary judgment for the plaintiffs on their complaint on the basis of judicial estoppel or estoppel of any nature. Two Superior Court cases have concluded that summary judgment is inappropriate when judicial estoppel is argued in circumstances somewhat similar to this case. In Krauss v. Aetna Life Casualty Co., Superior Court, judicial district of New Haven, CV90-236432 (August 24, 1994, Stanley, J.) [12 Conn. L. Rptr. 325] the court made reference to the oft-cited description of the elements of judicial estoppel, i.e.
The moving party asserting judicial estoppel must show (1) an unequivocal assertion of law or fact by a party in one judicial proceeding, (2) the assertion by that party of an intentionally inconsistent position of law or fact in a subsequent proceeding, (3) in order to mislead the court and obtain unfair advantage as against another party. In re Cohen, 131 B.R. 19 (Bank. E.D. Pa. 1991).
Krauss court, while noting that while the plaintiff's position was "inconsistent with his previous position in the bankruptcy proceeding" this was in and of itself "insufficient" for the purposes of granting summary judgment where there were questions of intent. Similarly, in Wheeler v. Metropolitan Property Casualty Ins. Co., Superior Court, judicial district of Fairfield, CV 328262 (January 6, 1998, Thim, J.) the court found that contentions of reliance on counsel, questions of intent, and the fact that the defendant did not participate in the prior proceeding made summary judgment inappropriate.
In this case there are unresolved and material questions of credibility and the intent of the Deitsches in making their probate and estate tax filings. There is also a question of Zeiler's reliance on the filings. Additionally, there is the question of Sara Deitsch's ownership of the Israeli companies since the set-off of David Deitsch's debt alleged by Zeiler would not be consideration for the sale of her interests. Therefore, summary judgment is denied as to the judicial estoppel argument.
The plaintiffs' contention that summary judgment is warranted pursuant to the defendants' unclean hands also must fail because of the unresolved material questions of fact involving intent, motive and Sara Deitsch's interests.
IV. Deitsch Motion for Summary Judgment
The defendants' motion for summary judgment is based on a number of assertions about which they claim there is no material fact at issue. The Deitsches contend that there is no evidence that Sara Deitsch had debts owed to Zeiler or promised to pay David's debts. Second, it is contended the set-off alleged by Zeiler is barred by the statute of limitations, or by the statute of frauds. Third, Zeiler submitted his loan claims to the Beth Din proceeding and those that were found valid by the Beth Din were paid off. Additionally, the Deitschs contend their counterclaim of breach of contract is supported by facts as to which there are no material issues.
The short answer is that there are many disputed facts related to the Deitsch motion not the least of which involve the existence and validity of loans from Zeiler to David Deitsch, and the motion must be denied.
V. Conclusion
The two motions for summary judgment are denied.