Judicial Estoppel Used To Prevent A Potential Shareholder From Claiming An Ownership Interest in a Corporation

The Indiana Court of Appeals issued an opinion on Tuesday applying the legal doctrine of judicial estoppel to prevent a defendant from litigating the issue of his claimed ownership in a multi-million-dollar construction company because he failed to list his claimed ownership as an asset in his previously executed divorce settlement agreement, which had been filed with the dissolution court and entered into the court’s dissolution decree. After resolving his divorce and then later resigning from the construction company, the defendant demanded certain corporate records from the company, asserting legal rights as a claimed shareholder, or owner, of the company. The company filed a complaint against the defendant seeking declaratory judgment that the defendant was not a shareholder of the construction company. After several years of litigation, the construction company learned of the defendant’s failure to list his claimed ownership in his dissolution settlement agreement and subsequently filed a renewed motion for summary judgement against the defendant based upon the doctrine of judicial estoppel.

The doctrine of judicial estoppel serves to protect the integrity of the judicial system by preventing parties from asserting a position that is inconsistent with that party’s prior position in the same or a previous proceeding. Judicial estoppel is not a technical defense to prevent meritorious claims, and it differs from equitable estoppel, which focuses on the parties’ relationship with each other, as opposed their relationship with the court. Courts have used the doctrine under a variety of contexts, including most notably in bankruptcy cases in which a plaintiff-debtor intentionally fails to list property as an asset in the bankruptcy estate.

For the doctrine to apply, a party must have intentionally made a misrepresentation in bad-faith. Once a party shows that another party had knowledge and a motive to conceal, the burden of proof shifts to that party to show that the nondisclosure at issue was in good faith. In this case, the Indiana Court of Appeals upheld the trial courts’ grant of summary judgment in favor of the construction company because the defendant was unable to show that a genuine issue of material fact existed with regards to his nondisclosure in his divorce after the construction company established that he intentionally withheld disclosing a potentially large martial asset in his divorce, contrary to the integrity of the judicial system.

You can find the full Court of Appeals’ opinion here: http://www.in.gov/judiciary/opinions/pdf/09051701pdm.pdf.

Corey Meridew of Camden & Meridew, P.C. practices in the areas of civil litigation, civil torts, utility law, property law, and business litigation. For more information, or to speak with Corey call 317-770-0000 or complete our online contact form today.

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