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Defendant’s Unsuccessful About-Face Results in $5 Million Judgment

Litigants arguing that their adversary should be judicially estopped from pursing a particular position in litigation face a relatively high burden to invoke the doctrine successfully.  Two recent decisions from Justice Borrok help illustrate the specific circumstances under which courts are most likely to estop a litigation pursuant to this doctrine.

Judicial estoppel precludes flip-flopping:  it “prevents a party who assumed a position in a prior proceeding and secured a ruling in his or her favor from advancing a contrary position in another action, simply because his or her interests have changed.”[1]  In lay terms, judicial estoppel thwarts a party’s efforts to turn a prior winning argument on its head just because a change in posture has turned the (formerly) winning argument into a losing one. 

In Divine Capital, LLC vs. Legado Investment Group,[2] Justice Borrok denied a motion seeking summary judgment on the basis of judicial estoppel.  There, Plaintiffs sought recovery of a $4 million investment they had entrusted to Defendants for a proposed assisted living facility.  Defendants had executed two contracts regarding the investment—one with each plaintiff, respectively—and at issue was which of the two contracts governed the investment.[3]  Plaintiffs sought partial summary judgment on their breach of contract claim, contending that Defendants were in breach of (what they alleged to be) the governing contract; Plaintiffs further contended that Defendants should be judicially estopped from arguing that the other contract was the governing contract, given that Defendants previously had taken the position that the contract Plaintiffs were now alleging to be the governing contract was the governing contract.[4]  In his ruling, Justice Borrock acknowledged that Defendants had indeed taken the prior position alleged, but in denying summary judgment, he found he had not “relied on . . . the prior position[.]”[5] 

Justice Borrock made the important distinction that “[i]n general, judicial estoppel only applies in cases where the court has relied on or adopted a party’s prior inconsistent position . . . [i]n other words, judicial estoppel does not apply where the court in the prior proceeding did not unambiguously adopt the prior inconsistent position in some manner.”[6]  Justice Borrock found that the movants in Divine Capital “failed to establish that the Court relied on” the prior position against which judicial estoppel was alleged, and therefore, “judicial estoppel does not apply[.]”[7] 

By contrast, in Polaris Venture Partners, the Court did find that the requirements for invoking judicial estoppel were satisfied.  There, Plaintiffs sought summary judgment on damages, having already previously obtained summary judgment on liability for Defendants’ breach of a Stock Transfer Agreement.[8]  Before the Plaintiffs brought their damages summary judgment motion, the Delaware Chancery Court had conducted a “detailed analysis” of the underlying shares at issue in the damages claim; Plaintiffs relied on the Chancery Court’s valuation of the shares when bringing their motion.[9]  In opposition to the damages Plaintiffs sought, Defendant Ad-Venture Capital Partners, L.P. (“Ad-Venture”) argued that the Chancery Court’s valuation was inaccurate because it did not take into account how certain “prior transactions” impacted the shares’ value.[10]

Justice Borrok raised the doctrine of judicial estoppel in his consideration of Ad-Venture’s stance on the prior transactions.  He observed that previously, before the Chancery Court, Ad-Venture had taken the position “that the prior transactions were unique and distressed transactions that were unrelated to the fair value of [the] shares.”[11]  He further observed that the Chancery Court had adopted Ad-Venture’s reasoning in determining that the prior transactions were “an unreliable indicator of fair value.”[12]  Therefore, he found that Ad-Venture was judicially estopped from arguing those transactions should have been included in the prior valuation.  According to Justice Borrok, Ad-Venture could not now “take a contrary position in these proceedings that the prior transactions should be accounted for in a damages analysis before this court.”[13]  Granting Plaintiffs’ motion, Justice Borrok ordered the entry of a $5.2 million judgment, plus interest, against Ad-Venture.[14]

Taken together, Polaris Venture Partners and Divine Capital demonstrate that a party’s mere reliance on a now contrary position is not sufficient to invoke the doctrine of judicial estoppel.  Rather, another tribunal must have actually relied on that position in order for judicial estoppel to apply.  These cases remind litigators and businesses in the Commercial Division to be cognizant of their overall litigation strategy.  When evaluating litigation posture and positions, decisionmakers should consider and evaluate long-term impacts beyond merely the litigation at hand.  They must think about whether they may ever want to take an adverse position in the future, even in a completely separate litigation before a different tribunal.  By taking the long view of litigation strategy, parties can avoid being subject to a multi-million dollar judgment like that awarded in Polaris Venture Partners – the $5 million flip-flop.

[1] Polaris Venture Partners VI, L.P. v. Ad-Venture Capital Partners, L.P. (“Polaris Venture Partners”), 2021 BL 160541, at *2 ( N.Y. Sup. Ct. Apr. 27, 2021) (citing Becerril v. City of N.Y. Dep’t of Health & Mental Hygiene, 110 A.D.3d 517, 519 (1st Dep’t 2013)).  

[2] 2019 NY Slip Op. 30411(U) (Feb. 21, 2019).

[3] Id. at *1.

[4] Id. at **4-5.

[5] Id. at *5.

[6] Id. (emphasis added).

[7] Id. at **5-6.

[8] Polaris Venture Partners, 2021 BL 160541, at *1.

[9] Id. at *2.

[10] Id.

[11] Id.

[12] Id. (citation omitted).

[13] Id.

[14] Id.