Wells Fargo Bank, N.A. v. Oparaji (In Re Oparaji) , 698 F.3d 231 ( 2012 )

Case: 11-20871 Document: 00512011723 Page: 1 Date Filed: 10/05/2012
IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT Fifth Circuit
FILED
October 5, 2012
Lyle W. Cayce
No. 11-20871 Clerk
In the Matter of: TITUS CHINEDU OPARAJI,
Debtor
------------------------------
WELLS FARGO BANK, N.A., successor by merger to Wells Fargo Home
Mortgage, Incorporated, as servicing agent for Deutsche Bank National
Trust,
Appellant
v.
TITUS CHINEDU OPARAJI,
Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before REAVLEY, SMITH, and CLEMENT, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
Appellant Wells Fargo Bank, N.A. appeals the District Court’s Amended
Order granting Appellee Titus Oparaji’s motion for summary judgment on the
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No. 11-20871
theory of judicial estoppel. For the reasons explained below, we find that judicial
estoppel is not warranted. We REVERSE and REMAND for proceedings
consistent with this opinion.
I. FACTUAL AND PROCEDURAL BACKGROUND
On July 31, 2002, Titus Chinedu Oparaji (“Debtor”) executed a Balloon
Note and Deed of Trust in favor of Wells Fargo Home Mortgage, Inc. (“Wells
Fargo”) for the purchase of a home in Sugar Land, Texas (the “Property”). The
note had a principal balance of $180,850.00 and accrued interest at an annual
rate of 9.50%. On September 2, 2004, after failing to make multiple scheduled
payments, Debtor filed for relief under Chapter 13 of the Bankruptcy Code
(“First Bankruptcy”). Under the resulting bankruptcy plan, Debtor was required
to pay set sums of money to a trustee, who would then use portions of each sum
to satisfy Debtor’s pre-petition arrearage to Wells Fargo. Debtor was also
required to continue his ongoing, post-petition mortgage payments directly to
Wells Fargo.
Less than a year after filing the First Bankruptcy, Debtor fell behind on
his post-petition mortgage payments to Wells Fargo. On March 3, 2005, Wells
Fargo filed a motion for relief from the automatic stay that was in place so that
it could proceed with foreclosure of Debtor’s Property as provided in the Deed of
Trust. The Bankruptcy Court entered an Agreed Order on May 13, 2005,
conditioned the automatic stay as to Wells Fargo, and required Debtor to modify
his plan to provide for the post-petition mortgage arrearages owed to Wells
Fargo.
On May 20, 2005, pursuant to the court’s order, Debtor filed a motion to
modify his Chapter 13 plan to add the $2,599.81 in post-petition mortgage
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arrearages. Wells Fargo then filed an amended proof of claim asserting a total
arrearage amount of $15,209.17, including $2,599.81 in post-petition mortgage
arrearages and $6,225.10 in escrow shortages. The Bankruptcy Court approved
this Modified Chapter 13 Plan. On October 18, 2005, Wells Fargo again
amended its proof of claim to assert $9,948.67 in total arrearages, including
$2,599.81 in post-petition arrearages and $964.60 in escrow shortages.
Two years later, on May 22, 2007, Debtor filed another motion to modify
his Chapter 13 Plan to provide for the ongoing, post-petition mortgage payments
owed to Wells Fargo to be paid through the bankruptcy plan. Importantly, this
plan addressed only the ongoing mortgage payments owed to Wells Fargo. It did
not provide for prior post-petition mortgage payments that were already in
default at that time. The Bankruptcy Court approved this Second Modified
Chapter 13 Plan.
On December 23, 2008, Wells Fargo amended its proof of claim once more
to include delinquent taxes from 2006 in the amount of $7,399.02 that it had
advanced on behalf of Debtor. On April 14, 2009, Debtor filed a motion to modify
his Chapter 13 Plan to become current on his plan payments to the trustee. The
Bankruptcy Court approved this Third Modified Chapter 13 Plan. On October
5, 2009, the trustee filed a motion to dismiss the bankruptcy because Debtor was
in default of $7,809.18 in plan payments and the case had exceeded the statutory
time limit set by 11 U.S.C. § 1322(d). On November 12, 2009, the Bankruptcy
Court entered an order dismissing the First Bankruptcy without discharging
Debtor.
Throughout the First Bankruptcy, Debtor missed several post-petition
mortgage payments to Wells Fargo, thus causing his mortgage arrearages to
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increase substantially over time. In fact, during this time, Debtor failed to make
twenty post-petition mortgage arrearage payments to Wells Fargo. In addition,
Debtor failed to maintain hazard insurance or pay property taxes on the
Property. Pursuant to the Deed of Trust, Wells Fargo made these payments
totaling $38,694.50 on behalf of Debtor to protect its interest in the collateral.
Furthermore, following the dismissal of the First Bankruptcy, Debtor failed to
make four additional mortgage payments and failed to pay $13,817.17 in
property taxes.
On February 1, 2010, Debtor initiated the current bankruptcy (“Second
Bankruptcy”). In response, Wells Fargo filed a proof of claim that included
$86,003.25 in pre-petition arrearages to cover twenty-four missed mortgage
payments totaling $37,906.56 and escrow advances totaling $43,940.87 paid by
Wells Fargo for property taxes and hazard insurance on behalf of Debtor. Debtor
then initiated this lawsuit, challenging the amount of Wells Fargo’s claim and
seeking to prevent Wells Fargo from pursuing portions of that claim based on a
theory of judicial estoppel.
Both parties filed motions for summary judgment. The Bankruptcy Court
granted summary judgment in favor of Debtor, finding that Wells Fargo was
judicially estopped from filing a claim in the Second Bankruptcy for any amounts
that could have been, but were not, claimed in the First Bankruptcy. Wells
Fargo appealed this ruling to the District Court, which found that the
Bankruptcy Court did not abuse its discretion. Wells Fargo now appeals to this
Court, arguing that the District Court erred in affirming the award of summary
judgment in favor of Debtor on the judicial estoppel claim.
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II. STANDARD OF REVIEW
Here, we review the District Court’s decision under the same standard of
review that the District Court applied to the Bankruptcy Court’s decisions. See
Wells Fargo Bank of Tex., N.A. v. Sommers, 444 F.3d 690, 694 (5th Cir. 2006).
Thus, we review the grant of summary judgment de novo and the application of
judicial estoppel for abuse of discretion.
The decision to invoke the doctrine of judicial estoppel is typically
reviewed for abuse of discretion. In re Coastal Plains, Inc., 179 F.3d 197, 205
(5th Cir. 1999). A court abuses its discretion when it bases its decision on an
incorrect view of the law or a clearly erroneous assessment of the evidence. In
re Blast Energy Servs., Inc., 593 F.3d 418, 423 (5th Cir. 2010). However, “an
abuse of discretion does not mean a mistake of law is beyond appellate
correction.” Coastal Plains, 179 F.3d at 205 (citation omitted).
A grant of summary judgment is generally reviewed de novo. Hamilton
v. State Farm Fire & Casualty Co., 270 F.3d 778, 782 (5th Cir. 2001). This Court
has stated that it will affirm a grant of summary judgment only if, “viewing that
evidence in the light most favorable to the nonmoving party, there are no
genuine issues of material fact and the district court correctly applied the
relevant substantive law.” Id.III. DISCUSSION
The doctrine of judicial estoppel is “a common law doctrine by which a
party who has assumed one position in his pleadings may be estopped from
assuming an inconsistent position,” Brandon v. Interfirst Corp., 858 F.2d 266,
268 (5th Cir. 1988), particularly in situations where “intentional self-
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contradiction is being used as a means of obtaining unfair advantage in a forum
provided for suitors seeking justice.” Kane v. Nat’l Union Fire Ins. Co., 535 F.3d
380, 385 (5th Cir. 2008) (internal citation omitted). We have previously
emphasized that judicial estoppel is “intended to protect the judicial system[]
rather than the litigants[.]” Coastal Plains, 179 F.3d at 205 (emphasis in
original). As such, it serves the “clear and undisputed jurisprudential purpose”
of “protect[ing] the integrity of the courts.” Id. at 205 n.2 (citation omitted).
Because the integrity of the judiciary would not be threatened by allowing Wells
Fargo to proceed with its increased proof of claim in the Second Bankruptcy, we
find that the District Court abused its discretion in determining that judicial
estoppel was appropriately applied.
Courts in the Fifth Circuit generally consider three criteria when
evaluating a defense of judicial estoppel, including whether: (1) the party against
whom judicial estoppel is sought has asserted a legal position that is “plainly
inconsistent” with a position asserted in a prior case; (2) the court in the prior
case accepted that party’s original position, thus creating the perception that one
or both courts were misled; and, (3) the party to be estopped has not acted
inadvertently. Love v. Tyson Foods, Inc., 677 F.3d 258, 261 (5th Cir. 2012). The
District Court incorrectly determined that Wells Fargo asserted a legally
inconsistent position that was accepted by the Bankruptcy Court, thus resulting
in an unwarranted grant of judicial estoppel against Wells Fargo.1
1
By choosing not to address the issue in its briefing to this Court, Wells Fargo has waived the
issue of inadvertence. As a result, only the first two factors will be addressed.
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A. Clearly Inconsistent Legal Positions
Debtor alleges, and the lower courts agree, that Wells Fargo has adopted
a plainly inconsistent position in the Second Bankruptcy as compared to its
claims for post-petition arrearages in the First Bankruptcy. In order to come to
that conclusion, the District Court determined that creditors such as Wells
Fargo are legally required to include all accrued post-petition arrearages in each
amended claim they submit. In re Oparaji, 458 B.R. 881, 891-92 (S.D. Tex. 2011)
(“[s]ince [Wells Fargo’s] amended proofs of claim asserted claims for post petition
arrearages, the amendments should have accurately included all of the post
petition arrearages, not only some of them.”). The course of events leading up
to the filing of this case began in 2004, when Debtor filed the First Bankruptcy.
Over the next five years, Wells Fargo filed multiple proofs of claim and did not
include all of the post-petition arrearages owed to it by Debtor in each amended
proof of claim. As a result, the District Court found that Wells Fargo’s claims in
the First and Second Bankruptcies were inconsistent as a matter of law and
invoked the doctrine of judicial estoppel to prevent Wells Fargo from proceeding
with its increased claim. However, this interpretation of the relevant statute,
11 U.S.C. § 1305,2 is overly broad and constitutes an abuse of discretion subject
to reversal by this Court.
The District Court attempts to rationalize this holding by analogizing it
to a situation in which a debtor fails to disclose an asset in bankruptcy court.
Oparaji, 458 B.R. at 889-90. According to the District Court, both debtors and
creditors are bound by the requirement of full disclosure in a bankruptcy. The
2
11 U.S.C. § 1305(a) instructs that “[a] proof of claim may be filed by any entity that holds a
claim against the debtor . . .” (emphasis added).
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District Court acknowledged that “judicial estoppel is typically applied to bar
debtors from pursuing claims that they failed to disclose to their creditors,” but
nonetheless applied this requirement to Wells Fargo on the ground that “the
importance of full disclosure is not lessened in the case of a material non-
disclosure of a creditor.” Id. at 890 (quoting Coastal Plains, 179 F.3d at 208(internal quotations omitted) (emphasis added)). This argument fails to
appreciate the difference between a debtor who has failed to disclose an asset
and a creditor who has failed to include all accrued interest in each revised
claim. In the first instance, the creditor has no way of knowing about the
concealed asset except through the debtor’s disclosure. In the second instance,
however, the debtor has the ability and responsibility to keep track of his
outstanding debt.
More importantly, the District Court has not identified any statute or
judicial precedent that imposes a legal responsibility on Wells Fargo to seek the
full amount to which it is entitled in each amended claim. While debtors are
indisputably required to disclose all assets to the court, this requirement has not
been applied to creditors. Although the District Court conceded that “[t]here is
no dispute that Wells Fargo was not legally required to pursue its claims for
post-petition arrearages in the First Bankruptcy,” it nonetheless determined
that “if Wells Fargo chose to file [such] a claim . . . [it] was obligated to disclose
all arrearages.” Id. at 892.
The only case cited by the District Court in support of this novel theory
is In re Burford, 231 B.R. 913 (N.D. Tex. 1999). Burford, however, is
distinguishable. In Burford, the debtor claimed that the creditor was equitably
estopped from filing a post-petition claim because the creditor had not sought to
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collect that sum during the previous bankruptcy. Id. at 917. The debtor argued
that he relied, to his detriment, on a clause in an earlier confirmation order that
required the creditor to create a payment schedule that would “fully retire the
debt.” Id. at 920. The court agreed with the debtor and found that the creditor
was equitably estopped from claiming the increased amount since it had
previously represented that the debtor did not owe additional interest. Id. at
922. The facts supporting the application of equitable estoppel in Burford
cannot be analogized to the facts in this case since the court in Burford focused
primarily on the creditor’s explicit commitment to “fully retire the [tax] debt.”
Id. Furthermore, as Burford involved the application of equitable estoppel, the
debtor’s reliance on the creditor’s statement became a dispositive issue.3 Id. at
921.
In contrast, Debtor has neither sought relief under the doctrine of
equitable estoppel nor identified any similar commitments made by Wells Fargo
to fully retire Debtor’s debt. At best, Debtor has inferred a commitment by Wells
Fargo to retire the debt in full – a far cry from the explicit commitment made by
the creditor in Burford. The District Court’s holding thus runs counter to this
circuit’s expressed reluctance to apply judicial estoppel in situations where a
party’s alleged change of position is “merely implied rather than clear and
express.” See In re Condere Corp., 226 F.3d 642, 2000 WL 1029098, at *3 (5th
3
As we have previously explained:
“Judicial estoppel is distinct from equitable estoppel . . . which focuses on the
relationship between the parties and applies where one of the parties
detrimentally has relied upon the position taken by the other party in an earlier
proceeding. In those circumstances, the party that induced reliance is estopped
from subsequently arguing a contrary position.”
Texaco, Inc. v. Duhe, 274 F.3d 911, 923 n.16 (5th Cir. 2001).
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Cir. 2000) (“This circuit has never held that judicial estoppel is appropriate when
a party’s change of position is merely implied rather than clear and express.”).
In its opinion, the District Court essentially broadens the application of
§ 1305 by requiring creditors to claim the entirety of their accrued arrearages
if they choose to submit a claim at all. This unprecedented interpretation of
§ 1305 rendered Wells Fargo’s claim legally inconsistent and triggered the
application of judicial estoppel. However, as we find that Wells Fargo was not
required to include all of its post-petition arrearages in the amended claims,
those claims were not inconsistent as a matter of law. The District Court’s
erroneous determination that Wells Fargo’s claims were “plainly inconsistent”
constitutes an abuse of discretion and is therefore subject to reversal.
B. Judicial Acceptance
The second requirement for the application of judicial estoppel, judicial
acceptance, ensures that judicial estoppel is only applied in situations where the
integrity of the judiciary is jeopardized. Edwards v. Aetna Life Ins. Co., 690 F.2d
595, 599 (6th Cir. 1982). “Absent judicial acceptance of the inconsistent position,
application of the rule is unwarranted because no risk of inconsistent results
exists.” Id. Neither party disputes that Debtor’s bankruptcy was accepted by
the Bankruptcy Court for the purposes of judicial estoppel. The issue at hand
instead turns on whether the court later revoked this acceptance by dismissing
the bankruptcy. Since we hold that Wells Fargo did not assert legally
inconsistent positions in the proceedings below, we need not even reach this
issue. However, we will briefly address the reasons why the Bankruptcy Court’s
acceptance of Wells Fargo’s claims was revoked when Debtor’s bankruptcy was
dismissed without a discharge.
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Although none of the cases cited by the parties are directly on point, the
weight of existing precedent is in favor of Wells Fargo. Under 11 U.S.C. § 349(b),
“the pre-discharge dismissal of a bankruptcy case returns the parties to the
positions they were in before the case was initiated.” In re Sanitate, 415 B.R. 98,
104 (Bankr. E.D. Pa. 2009). Many courts have interpreted this statute to mean
that dismissal of a bankruptcy case restores the status quo ante. Id. at 105; see
also In re Crump, 467 B.R. 532, 535 (Bankr. M.D. Ga. 2010). As the Sanitate
court notes, “[t]hese broad readings are in harmony with Congress’ stated intent
that the purpose of this section is to ‘undo the bankruptcy case, as far as
practicable, and to restore all property rights to the position in which they were
found at the commencement of the case.’” 415 B.R. at 105 (quoting S. Rep. No.
989, 95th Cong., 2d Sess. 48-49 (1977)). Wells Fargo convincingly argues that,
since the Bankruptcy Court dismissed Debtor’s bankruptcy plan without
granting a discharge, the court’s acceptance of that plan was negated and the
parties were no longer bound by its terms.
Debtor’s arguments to the contrary fail to appreciate the nature of a
Chapter 13 plan as an “exchanged for bargain between the debtor and the
debtor’s creditors[.]” In re Hufford, 460 B.R. 172, 177 (Bankr. N.D. Ohio 2011).
As such, “when a debtor fails to fulfill their [sic] end of the bargain because of
the dismissal of their case, a resulting finding that their confirmed Chapter 13
plan is terminated serves to prevent a debtor from obtaining the benefit of those
terms in a plan which are [sic] advantageous to the debtor.” Id. Debtor broke
his agreement with Wells Fargo when his failure to make payments resulted in
the bankruptcy’s being dismissed without a discharge. He cannot now seek
relief under that same agreement and cannot convincingly argue that equity is
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on his side.
At its core, judicial estoppel is an “equitable remedy [that] must be applied
so as to avoid inequity.” Love, 677 F.3d at 273 n.12 (Haynes, J., dissenting). In
an attempt to justify its decision to apply judicial estoppel, the District Court
notes several possible motives behind Wells Fargo’s submission of the incomplete
arrearage claims in the First Bankruptcy. None of them, however, demonstrate
that Wells Fargo received a disproportionate benefit from its actions. The
District Court speculates that Wells Fargo wanted to “facilitate the success of
[Debtor’s] bankruptcy, believing that a successful bankruptcy plan would result
in a higher payoff to Wells Fargo.” Oparaji, 458 B.R. at 896. But, taken as true,
this still does not show that Wells Fargo gained an unfair benefit at Debtor’s
expense. At best, it shows that Wells Fargo sought to promote the success of the
bankruptcy for its benefit and the much greater benefit of Debtor. Thus, even
if the Bankruptcy court’s dismissal of the First Bankruptcy had not negated its
earlier acceptance, equity would still counsel against the application of judicial
estoppel.
IV. CONCLUSION
Because the District Court abused its discretion in finding that Wells
Fargo adopted inconsistent positions in Debtor’s bankruptcy proceedings and
that the Bankruptcy Court’s acceptance of Wells Fargo’s claims in the First
Bankruptcy was not negated by Debtor’s dismissal without a discharge, the
application of judicial estoppel is not warranted here. For this reason, we
REVERSE the decision of the District Court and REMAND for proceedings
consistent with this opinion.
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