Peoples State Bank v. General Electric Capital Corp.

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
January 29, 2007

FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
_____________________

No. 06-30105

In the matter of: ARK-LA-TEX TIMBER CO.,
INC.,

Debtor.

PEOPLES STATE BANK,

Appellant,

versus

GENERAL ELECTRIC CAPITAL CORP.; ARK-LA-TEX
TIMBER CO., INC.; and JOHN CLIFTON CONINE,

Appellees.

Appeal from the United States District Court for
the Western District of Louisiana
________________________________________________

Before GARWOOD, DENNIS, and OWEN, Circuit
Judges.

DENNIS, Circuit Judge.

In this case, we review decisions by the

1
bankruptcy and district courts resolving the

competing claims of two secured creditors,

Peoples State Bank (“Peoples State”) and General

Electric Capital Corporation (“General Electric”),

to proceeds resulting from an auction of non-

titled movables1 formerly owned by a bankrupt

corporation, Ark-La-Tex, and its two related

juridical persons, Alba Source, L.L.C. and Pearl

Equipment Company. We affirm.

General Electric brought this suit in

Louisiana state court to recover sums delivered by

the auctioneer to Peoples State but allegedly not

due to it. The defendant, Peoples State, removed

the case to the United States District Court for

1
In civil law systems, “things” are divided into movables
and immovables, as opposed to the common law system where they
are divided into personal and real property. 2 A.N.
Yiannopolous, Louisiana Civil Law Treatise: Property, § 106
(2001). Movables are a residual category of things. Id. (citing
La. Civ. Code Ann. art. 475, which provides, “All things,
corporeal or incorporeal, that the law does not consider as
immovables are movables.”). The term “non-titled movables” in
this opinion merely refers to movables whose titles are not
required, under Louisiana law, to be registered.

2
the Western District of Louisiana. The district

court thereafter transferred the case to the

Bankruptcy Court that had ordered the auction sale

of the movables formerly owned by the bankruptcy

debtor and its affiliated juridical persons.

Facts and Procedural History

The issues in this case revolve around three

Louisiana juridical persons,2 Ark-La-Tex Timber

Company, a bankrupt Louisiana corporation, and its

two related3 Louisiana juridical persons, Alba

Source, L.L.C. (“Alba”) and Pearl Equipment

Company, (“Pearl”). In order to obtain financing

for their business ventures, each of these

entities granted various, separate security

2
A juridical person is an entity to which the law
attributes personality, such as a corporation or a partnership.
The personality of a juridical person is distinct from that of
its members. La. Civ. Code Ann. art. 24.
3
These juridical persons were related in that they had
common owners.

3
interests4 in their non-titled movables, such as

4
A security interest is “an interest in personal property
or fixtures created by contract which secures payment or
performance of an obligation.” See LA. REV. STAT. ANN. § 10:1-
201(35). It has also been defined as “an interest in movables or
‘fixtures’ that secures payment or performance of an obligation.”
See Editor’s Note, preceding La. Civ. Code Ann. art. 471.
Black’s Law Dictionary defines it as “[a] property interest
created by agreement or by operation of law to secure performance
of an obligation (esp. repayment of a debt).” BLACK’S LAW
DICTIONARY 1361 (7th ed. 1999). Security interests in Louisiana
are granted in movable property and governed by LA. REV. STAT. ANN.
§ 10:9-101 et seq.
To make a security interest effective between the parties,
it must be attached. See LA. REV. STAT. ANN. § 10:9-203. To be
attached under this statute, the security interest must be
enforceable against the debtor with respect to the collateral;
the security interest becomes enforceable when all three of the
following requirements are met: (1) value has been given; (2) the
debtor has rights in the collateral or the power to transfer
rights in the collateral to a secured party; and (3) one of the
following conditions is met: (A) the debtor has authenticated a
security agreement that provides a description of the collateral
and, if the security interest covers a life insurance policy, the
condition specified in R.S. 10:9-107.1(b) is met, and if the
security interest covers timber to be cut, a description of the
land concerned; (B)the collateral is not a certificated security
and is in the possession of the secured party under R.S. 10:9-313
pursuant to the debtor’s security agreement; (C) the collateral
is a certificated security in registered form and the security
certificate has been delivered to the secured party under R.S.
10:8-301 pursuant to the debtor’s security agreement; or (D) the
collateral is deposit accounts, electronic chattel paper,
investment property, letter-of-credit rights, or a life insurance
policy, and the secured party has control under R.S. 10:9-104, 9-
105, 9-106, 9-107, or 1-107.1 pursuant to the debtor’s security
agreement. Id.
To make a security interest effective as against third-
parties, it must be validly attached and thereafter perfected.
See LA. REV. STAT. ANN. § 10:9-308-16. Depending upon the type of
collateral secured, perfection may be achieved in a variety of
ways. For corporeals, like those at issue in the instant case,
perfection may be achieved via possession or by filing a
financing statement. See LA. REV. STAT. ANN. § 10:9-313; LA. REV.
STAT. ANN. § 10:9-310.
In the instant case, no one has contended that any of the

4
logging equipment, to their various creditors.

General Electric held the highest-ranking5

security interest in the non-titled movables owned

by Alba and Pearl. Although the first-ranking

priority as to the non-titled movables owned by

Ark-La-Tex changed several times, at the time of

its bankruptcy on May 7, 2001, Peoples State was

the highest-ranking secured creditor with respect

to its non-titled movables.

During the bankruptcy proceedings, on August

10, 2001, the bankruptcy judge issued an order

effectuating Ark-La-Tex’s purchase of all of the

membership interests in Pearl and Alba for the

consideration of the nominal amount of $10.00

security interests is not valid.
5
A creditor who holds the highest-ranking security interest,
also known as the senior security interest, in collateral is said
to have “priority” in that collateral. “Priority” is defined as
“[t]he status of being earlier in time or higher in degree or
rank; precedence. An established right to such precedence;
esp[ecially], a creditor’s right to have a claim paid before
other creditors of the same debtor receive payment.” BLACK’S LAW
DICTIONARY 1212 (7th ed. 1999).

5
(“the August 10, 2001 Order”). The parties formed

the erroneous impression that this order effected

a substantive consolidation6 of the three juridical

persons. The order did not and could not merge

the assets of Pearl and Alba into the bankruptcy

estate of Ark-La-Tex, however, because neither

juridical person had been placed into bankruptcy.7

On October 20, 2001, the Bankruptcy Judge issued

an order directing the movables (and other

collateral) of Ark-La-Tex only to be sold at an

auction. However, at the auction, held on

November 30, 2001, because the parties thought

6
A substantive consolidation is “one mechanism for
administering the bankruptcy estates of multiple, related
entities.” In Re Babcock and Wilcox Co., 250 F.3d 955, 958 (5th
Cir. 2001). BLACK’S LAW DICTIONARY defines it as “the merger of two
or more bankruptcy cases, usu[ally] pending against the same
debtor or related debtors, into one estate for purposes of
distributing the assets, usu[ally] resulting in the two estates
sharing assets and liabilities, and in the extinguishment of
duplicate claims and claims between the debtors.” BLACK’S LAW
DICTIONARY 304 (7th ed. 1999).
7
Under these facts, a substantive consolidation would have
been impossible to effect, because Alba and Pearl were not in
bankruptcy.

6
that the bankruptcy estate had been expanded to

include the assets of Pearl and Alba, their

movables were auctioned off together with those

owned by Ark-La-Tex. Thus, all of the non-titled

movables of the Ark-La-Tex, Alba, and Pearl were

sold at auction for a total of $433,908.62.

Peoples State ranked first among Ark-La-Tex’s

secured creditors with a claim exceeding that

amount against its non-titled movables.

Consequently, this entire amount was disbursed to

Peoples State, although, in truth, only $111,700

of the auction proceeds were attributable to Ark-

La-Tex’s non-titled movables; the remaining

$322,208.62 was attributable to non-titled

movables owned by Alba and Pearl.

In 2003, General Electric demanded that

Peoples State return the $322,208.62, but Peoples

State refused. General Electric then sued Peoples

7
State in Louisiana state court, and Peoples State

removed the case to the United States District

Court for the Western District of Louisiana.8 The

district court transferred the case to the United

States Bankruptcy Court for the Western District

of Louisiana.

The bankruptcy court, relying on Louisiana

Civil Code article 2299, which provides that “[a]

person who has received a payment or a thing not

owed to him is bound to restore it to the person

from whom he received it,” granted partial summary

judgment in favor of General Electric in the

amount of $322,208.62. The court reasoned that

8
The United States district court had jurisdiction under
28 U.S.C. § 1334(b) which provides that “district courts shall
have original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to
cases under title 11.” See 28 U.S.C. § 1334(b). Peoples State
was entitled to remove this case under 28 U.S.C. § 1452(a) which
allows a party to remove such a claim to the district court for
the district where the civil action is pending, provided that the
district court has jurisdiction of the claim or cause of action
under Section 1334. See 28 U.S.C. § 1452(a).
General Electric does not object to removal on this basis.

8
since this amount was attributable to non-titled

movables owned by Alba and Pearl, General

Electric, as their highest-ranking creditor

holding security interests in their non-titled

movables, was entitled to the proceeds of their

sale. However, the Bankruptcy Court reserved to

Peoples State the opportunity to show, at a trial

on the merits, that: (1) some or all of the

$322,208.62 in question was attributable to non-

titled movables that belonged to Ark-La-Tex; or

that (2) Peoples State relied to its detriment

upon the representations that General Electric had

made in the bankruptcy proceedings. If successful

on either showing, Peoples State would receive a

setoff in the appropriate amount. After a full

trial, however, the Bankruptcy Judge issued

judgment in General Electric’s favor, concluding

that: (1) Peoples State had failed to show that

9
Ark-La-Tex owned movables producing no more than

$111,700 of the proceeds from the auction; and (2)

Peoples State had failed to prove detrimental

reliance upon any representations by General

Electric. Peoples State appealed to the district

court, which affirmed for the reasons given by the

Bankruptcy Court in its rulings.

Peoples State argues before this court that:

(1) General Electric has not presented a prima

facie case of payment of a thing not due; (2)

General Electric’s damages were self-inflicted;

(3) General Electric’s claim is precluded by res

judicata and as a forfeited compulsory

counterclaim; (4) General Electric is barred from

its claim because of judicial estoppel; (5) the

bankruptcy court erred in finding that Peoples

State did not detrimentally rely upon

representations made by General Electric; and (6)

10
the bankruptcy court erred in refusing to admit

evidence or allow proof of a single business

enterprise. We affirm the judgment of the

district court, and like the district court, do so

essentially for the reasons assigned by the

bankruptcy court.

Discussion

In our review of the issues presented for

appeal, we analyze the following asserted errors

of the lower courts: (1) the grant of summary

judgment in favor of General Electric on its claim

of payment of a thing not due; (2) the judgment

rendered, after full trial, that Peoples State had

failed to prove ownership of more than $111,700

worth of the non-titled movables sold at the

auction and had failed to show the requisite

elements of detrimental reliance; and (3) the

evidentiary decision to exclude Peoples State’s

11
proffered evidence that the three juridical

persons comprised a single business enterprise.

I. Claims Addressed by Summary Judgment

We turn first to the claims upon which the

partial summary judgment was granted in favor of

General Electric.

Standard of Review

This court reviews the grant of summary

judgment de novo, applying the same standard as

the lower court. Gowesky v. Singing River Hosp.

Sys., 321 F.3d 503, 507 (5th Cir. 2003). Summary

judgment is appropriate “if the pleadings,

depositions, answers to interrogatories, and

admissions on file, together with the affidavits,

if any, show that there is no genuine issue as to

any material fact and that the moving party is

entitled to a judgment as a matter of law.” FED.

R. CIV. P. 56(C). A fact is material only when it

12
might affect the outcome of the suit under the

governing law, and a fact is genuinely in dispute

only if a reasonable jury could return a verdict

for the nonmoving party. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). The

evidence should be viewed in the light most

favorable to the non-movant. Duckett v. City of

Cedar Park, Tex., 950 F.2d 272, 276 (5th Cir.

1992). If the moving party meets the initial

burden of showing there is no genuine issue of

material fact, the burden shifts to the non-moving

party to produce evidence or designate specific

facts showing the existence of a genuine issue for

trial. Allen v. Rapides Parish Sch. Bd., 204 F.3d

619, 621 (5th Cir. 2000).

A. Payment of a Thing Not Due9

9
Both parties agree that Louisiana law applies to this
issue. We find no error in the Bankruptcy Court’s use of
Louisiana law. See Butner v. United States, 99 S.Ct. 914 (1979),
wherein the Court explained, “Congress has generally left the
determination of property rights in the assets of a bankrupt’s

13
 We agree with the District and Bankruptcy

courts that General Electric is entitled to be

restored to funds disbursed to Peoples State as

the payment of a thing not due. Accordingly, we

reject Peoples State’s arguments, each of which

asserts that General Electric failed to present a

prima facie case of payment of a thing not due.

Louisiana Civil Code article 2299 provides: “A

person who has received a payment of a thing not

owed him is bound to restore it to the person from

whom he received it.” La. Civ. Code Ann. art.

2299. Admittedly, Peoples State was the highest-

ranking creditor holding security interests in the

estate to state law. Property interests are created and defined
by state law. Unless some federal interest requires a different
result, there is no reason why such interest should be analyzed
differently simply because an interested party is involved in a
bankruptcy proceeding. Uniform treatment of property interests
by both state and federal courts within a State serves to reduce
uncertainty, to discourage forum shopping, and to prevent a party
from receiving ‘a windfall merely by reason of the happenstance
of bankruptcy.’ The justifications for application of state law
are not limited to ownership interests; they apply with equal
force to security interests.” Id. at 917-18.

14
movables of Ark-La-Tex and was entitled to the

$111,700 proceeds derived from their auction sale.

However, $322,208.62 of the auction proceeds were

derived from the sale of non-titled movables

belonging to Alba and Pearl. That amount was due

to General Electric, as the highest-ranking

creditor holding security interest in those

movables. In essence, Peoples State, by receiving

the entirety of the auction proceeds, received a

windfall of $322,208.62, which constituted a

payment of a thing not owed it. Therefore,

Peoples State must restore that amount to General

Electric, the juridical person from whom it

received the money.

B. Self-Inflicted Damages10

We do not accept Peoples State’s argument that

General Electric’s payment of a thing not due

10
Here, too, we apply Louisiana law, for the same reasons
asserted in the footnote above.

15
claim should be precluded because of General

Electric’s own negligence. Numerous Louisiana

cases hold that a mistaken payor’s negligence will

not bar his claim. See, e.g., Gootee Constr. v.

Amwest Sur. Ins. Co., 03-0144 (La.1993), 856 So.2d

1203; DeVillier v. Highlands Ins. Co., 389 So. 2d

1133 (La.App. 3d Cir. 1980); Pioneer Bank & Trust

Co. v. Dean’s Copy Prods., Inc., 441 So. 2d 1234

(La.App. 2d Cir. 1983); Jackson v. State Teacher’s

Ret. Sys., 407 So. 2d 416 (La.App. 1st Cir. 1981).

Additionally, this court, applying Louisiana law,

has ruled that “the right to reimbursement

conferred by article 2299 exists regardless of

whether such payment was made knowingly or through

error.” See Am. Int’l. Speciality Lines Ins. Co.

v. Canal Indem. Co., 352 F.3d 254, 273 (5th Cir.

2003).

C. Preclusion

16
 Peoples State argues that General Electric’s

claim for payment of a thing not due is precluded

under either res judicata principles or as a

forfeited compulsory counterclaim. The thrust of

its argument is that never, during any of the

bankruptcy proceedings,11 did General Electric

assert its rights, as the highest ranking creditor

of Alba and Pearl, to the $322,208.62 yielded by

the auction sale of these entities’ non-titled

movables. We agree with the District and

Bankruptcy courts that General Electric’s claim

for payment of a thing not due is not precluded

under either doctrine.

1. Res Judicata12

11
General Electric was involved in numerous proceedings in
the Debtor’s bankruptcy. For example, it participated in a
Ranking Adversary Proceeding, a Marshaling Proceeding, and
others.
12
In the absence of a federal governing statute or rule, the
res judicata effect of a federal judgment, such as those asserted
here, is determined by federal common law. See Semtek Int’l,
Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001).

17
 Preclusion of a claim under res judicata

principles requires four elements:

(1) the parties must be identical in the
two actions;
(2) the prior judgment must have been
rendered by a court of competent
jurisdiction;
(3) there must be a final judgment on the
merits; and
(4) the same claim or cause of action must
be involved in both cases.

Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d

559 (5th Cir. 2004). In essence, res judicata bars

the subsequent litigation of claims that have been

litigated or should have been raised in an earlier

suit. Id. In the case at bar, the fourth

requirement, i.e., that the same claim or cause of

action must be involved in both cases, is not met.

This Court has adopted the Restatement

(Second) of Judgment’s transactional test with

respect to this inquiry and requires that the two

actions be based on the same “nucleus of operative

18
facts.” Eubanks v. F.D.I.C., 977 F.2d 166, 171

(5th Cir. 1992). As we have explained, “[T]he

application of res judicata has been limited to

issues of fact or law necessary to the decision in

the prior judgment.” Rhoades v. Penfold, 694 F.2d

1043, 1048 (5th Cir. 1983). Making a determination

of whether the same nucleus of operative facts is

present requires that the court analyze “the

factual predicate of the claims asserted.”

Eubanks, 977 F.2d at 171.

The factual predicate of Ark-La-Tex’s

bankruptcy proceedings is not the same as General

Electric’s claim against Peoples State for payment

of a thing not due. General Electric’s claim of

payment of a thing not due came into existence

only after proceeds of the auction, at which the

property of Alba and Pearl was sold, were

delivered in full to Peoples State. Peoples State

19
argues that General Electric should have asserted

its claim of a security interest in the Alba and

Pearl movables at any of the earlier bankruptcy

proceedings, namely the ranking adversary

proceeding, in opposition to the Order of

Abandonment, Auction and Accounting, or the

Marshaling Adversary Proceeding. However, at the

time of the ranking adversary proceeding13 and the

Bankruptcy Court’s Order of Abandonment, Auction

and Accounting,14 the distribution of the November

2001 auction proceeds that gave rise to General

Electric’s claim had not yet occurred. Thus,

General Electric did not have a payment of a thing

not due claim against Peoples State to assert at

the time of those proceedings. See Blair v. City

of Greenville, 649 F.2d 365, 368 (5th Cir.

13
The ranking adversary proceeding was held in August 2001.
14
The Order of Abandonment, Auction and Accounting was
issued in October 2001.

20
1981)(res judicata does not preclude an action

based upon events occurring after the final

judgment that is touted as the bar to the claim).

Furthermore, General Electric’s claim could not

have been properly asserted at the marshaling

proceeding for another reason. General Electric

instituted the marshaling proceeding to require

Peoples State to use other funds, not at issue in

this case, to satisfy Ark-La-Tex’s debt to it

before applying the auction proceeds to that debt.

In sum, General Electric’s claim to be restored to

the things paid to Peoples State that were not due

it did not arise until that erroneous payment was

made subsequent to the foregoing bankruptcy

proceedings; therefore, that claim could not have

been adjudicated in any of those bankruptcy

proceedings.

21
2. Compulsory Counterclaim15

Nor is General Electric’s claim barred as a

compulsory counterclaim. Rule 13 of the Federal

Rules of Civil Procedure provides:

(a) Compulsory Counterclaims. A pleading
shall state as a counterclaim any claim
which at the time of serving the pleading
the pleader has against any opposing
party, if it arises out of the transaction
or occurrence that is the subject matter
of the opposing party’s claim and does not
require for its adjudication the presence
of third parties of whom the court cannot
acquire jurisdiction. . . .

FED. R. CIV. P. 13(a). For the same reasons that

General Electric’s claim of payment of a thing not

due is not precluded by res judicata, it,

likewise, is not barred as a forfeited compulsory

counterclaim. That is to say, at the time of the

earlier proceedings, General Electric had no claim

15
Federal law applies to determine this claim. See Hanna v.
Plumer, 380 U.S. 460 (1965). “The broad command of Erie [is]
identical to that of the Enabling Act: federal courts are to
apply state substantive law and federal procedural law.” Id. at
466.

22
of a payment of a thing not due with which to

counter any asserted claims of Peoples State.

D. Judicial Estoppel16

Peoples State’s next argument, that judicial

estoppel prevents General Electric’s recovery, is

also unavailing. We agree with the courts below

that General Electric’s claim is not barred by

judicial estoppel.

The doctrine of judicial estoppel prohibits

parties from deliberately changing positions

according to the exigencies of the moment; it is

designed to protect the integrity of the judicial

process. New Hampshire v. Maine, 532 U.S. 742,

750 (2001) (citing Edwards v. Aetna Life Ins. Co.,

16
“[G]enerally, this Circuit considers judicial estoppel ‘a
matter of federal procedure’ and therefore applies federal law. .
. . [T]he application of federal law concerning judicial
estoppel is appropriate in this case because both suits filed by
[the plaintiff] ended up in federal court and it is the federal
court that is subject to manipulation and in need of protection.”
Hall v. GE Plastic Pacific PTE Ltd., 327 F.3d 391, 395-96 (5th
Cir. 2003).

23
690 F.2d 595, 598 (6th Cir. 1982)); United States

v. McCaskey, 9 F.3d 368, 378 (5th Cir. 1993).

Judicial estoppel is an equitable doctrine invoked

by the court within its sound discretion. Id.

(citing Russell v. Rolfs, 893 F.2d 1033, 1037 (9th

Cir. 1990)).

Courts employ several factors in determining

whether to apply the doctrine: (1) whether the

party’s later position is clearly inconsistent

with its earlier position; (2) whether the party

has succeeded in persuading a court to accept that

party’s earlier position; (3) 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.

New Hampshire v. Maine, 532 U.S. 742, 750-51

(2001).

Peoples State argues that two courses of

24
conduct by General Electric support our invoking

judicial estoppel here. First, because General

Electric, in an earlier adverse bankruptcy

proceeding between it and another creditor of Ark-

La-Tex,17 contended that all of the non-titled

movables sold at the auction belonged to Ark-La-

Tex, Peoples State points out that General

Electric’s current position, i.e., that

$322,208.62 of the non-titled movables sold at the

auction belonged to Alba and Pearl, is “clearly

17
Ark-La-Tex had instituted a Ranking Adversary Proceeding
to determine the priority of its various creditors, including
Peoples State and General Electric. The court ultimately held
Peoples State to be the highest-ranking creditor of the Debtor.
Initially, a non-party to this suit, Citizens National, had held
this position but relinquished it to General Electric by entering
a subordination agreement with that entity. Subsequently, when
transferring its security interest to Peoples State, Citizens
National negligently failed to divulge the existence of the
subordination agreement. Therefore, General Electric lost its
first-ranking position and brought Citizens National into the
Ranking Adversary Proceeding through a third-party demand.
General Electric argued that Citizens National was liable to it
for the full amount of the auction proceeds that were delivered
to Peoples State. General Electric’s position was that all the
non-titled movables sold at the auction belonged to Ark-La-Tex
and that but for Citizens National’s negligence, it would have
held the first-ranking security interest in that property and
would have been able to recover the full proceeds.

25
inconsistent with its earlier position.” However,

the other two factors required for the invocation

of judicial estoppel are not fulfilled. General

Electric was not successful in persuading the

Bankruptcy Court to accept its earlier position

that all of the non-titled movables belonged to

Ark-La-Tex. The Bankruptcy Court ruled that

$322,208.62 of the non-titled movables sold at the

auction belonged to Alba and Pearl.18 Further,

allowing General Electric to assert its current

position will not result in an unfair advantage

for General Electric or an unfair detriment for

Peoples State. It will only place the parties in

the position they should have occupied immediately

following the auction.

Second, Peoples State argues that General

18
This is the only occasion on which ownership of the Alba
and Pearl non-titled movables was either at issue or adjudicated
in the prior Ark-La-Tex bankruptcy proceedings.

26
Electric never asserted, in any of the bankruptcy

proceedings, that the non-titled movables belonged

to the Alba and Pearl and proceeded on the

unspoken assumption that all of the non-titled

movables were owned by the Debtor. As such,

Peoples State argues that General Electric’s claim

is barred by judicial estoppel. Though this is an

accurate characterization of General Electric’s

behavior, this is not grounds for judicial

estoppel, because this is not a “position taken”

or an “argument made” by General Electric that

would trigger judicial estoppel. Furthermore, “it

may be appropriate to resist application of

judicial estoppel ‘when a party’s prior position

was based on inadvertence or mistake.’” New

Hampshire v. Maine, 532 U.S. 742, 753 (quoting

John S. Clark Co. v. Faggert & Frieden, P.C., 65

F.3d 26, 29 (4th Cir. 1995) (explaining that the

27
vice that judicial estoppel is designed to prevent

is the “cold manipulation” of the courts to the

detriment of the public)); Jethroe v. Omnova

Solutions, Inc., 412 F.3d 598 (5th Cir. 2005).

II. Claims Addressed at Full Trial

Next we turn to the Peoples State’s claim of

detrimental reliance, which was litigated at a

trial on the merits.

Standard of Review

The existence of a promise, and the

reasonableness vel non of reliance on a promise if

there was one, are essentially questions of fact.

Carter v. Huber & Heard, Inc., 95-142 (La. App. 3d

Cir. 5/31/95), 657 So.2d 409, 412. Therefore, the

standard of review is clear error. Elementis

Chromium L.P. v. Coastal States Petroleum Co., 450

F.3d 607, 613 (5th Cir. 2006).

Analysis

28
 Peoples State argues that the lower court

erred in ruling that Peoples State did not rely to

its detriment on representations made by General

Electric in the various bankruptcy proceedings.

The theory of detrimental reliance is codified

in Louisiana Civil Code article 1967, which, in

pertinent part, provides: “A party may be

obligated by a promise when he knew or should have

known that the promise would induce the other

party to rely on it to his detriment and the other

party was reasonable in so relying.” La. Civ.

Code Ann. art. 1967.

It is difficult to recover under the theory of

detrimental reliance, because such a claim is not

favored in Louisiana. May v. Harris Management

Corp., 04-2657 (La. App. 1st Cir. 12/22/05), 928

So.2d 140, 145, Wilkinson v. Wilkinson, 323 So.2d

120, 126 (La. 1975); Barnett v. Bd. of Tr. for

29
State Coll. & Univs., 00-1041 (La. App. 1st Cir.

6/22/01), 809 So. 2d 184, 189. Detrimental

reliance claims must be examined carefully and

strictly. May, 928 So.2d at 145 (citing Kibbe v.

Lege, 604 So. 2d 1366, 1370 (La. App.3d Cir.

1992)). The doctrine of detrimental reliance is

designed to prevent injustice by barring a party

from taking a position contrary to his prior acts,

admissions, representations, or silence. Id.

(citing Suire v. Lafayette City-Parish Consol.

Government, 04-1459 (La. 4/12/05), 907 So.2d 3,

58-59).

To establish detrimental reliance, a party

must prove the following by a preponderance of the

evidence: (1) a representation by conduct or word;

(2) made in such a manner that the promisor should

have expected the promisee to rely upon it; (3)

justifiable reliance by the promisee; and (4) a

30
change in position to the promisee’s detriment

because of the reliance. Suire, 907 So.2d at 59.

Peoples State cannot establish a cognizable

detrimental reliance claim here. First of all,

General Electric made no representation to Peoples

State. Instead, it, in error, tacitly accepted

that Ark-La-Tex owned the disputed property.

Typically, successful detrimental reliance claims

are based upon promises made to the claimant by

the other party.19 Additionally, General

Electric’s acceptance was, if anything, a legal

position, not the typical factual

misrepresentation found in detrimental reliance

cases.20

19
See Oliver v. Central Bank, 26,932 (La. App.2d Cir.
5/10/95), 658 So.2d 1316, 1323 (“Plaintiffs produced no evidence
to illustrate a promise made by Central Bank in their favor.”).
20
See, e.g., Morris v. Friedman, 94-2808 (La. 11/27/95), 663
So.2d 19, Miller v. Miller, 35,934 (La. App.2d Cir. 5/8/02), 817
So. 2d 1166; White v. Entergy Gulf States, Inc., 03-2074 (La.
App.4th Cir. 6/16/04), 878 So.2d 786; Barnett v. Board of
Trustees for State Colleges and Universities, 809 So.2d 184.

31
 Even assuming arguendo that General Electric’s

conduct constituted a representation, General

Electric had no expectation that its mistaken

acquiescence, evidenced solely by its legal

position, would be relied upon by Peoples State.

And even if it did, Peoples State was not

reasonable in so relying on that tacit acceptance

as conveying such a representation. In

determining justifiable reliance, courts generally

look to the reasonableness of that reliance.

Under Louisiana law, reasonableness is determined

by examining factual circumstances, one of which

is the commercial sophistication of the party

asserting the claim. Walter Craft Mgmt., L.L.C.

v. Mercury Marine, 361 F. Supp. 2d 518 (M.D. La.

2004); Academy Mortgage Co. v. Barker, Boudreaux,

Lamy & Foley, 96-0053 (La. App. 4th Cir. 4/24/96),

673 So. 2d 1209. Peoples State, as a

32
knowledgeable banking institution, is presumed to

be commercially sophisticated, and its reliance

upon a legal position, taken by General Electric

in earlier proceedings as constituting a

representation to it that Ark-La-Tex owned the

movables, is not reasonable.

III. Evidentiary Ruling

Finally, we turn to Peoples State’s argument

that the Bankruptcy Court erred in not allowing it

to introduce evidence that Pearl and/or Alba were

shell corporations of Ark-La-Tex, i.e., that the

three juridical persons constituted a single

business enterprise. According to the Bankruptcy

Court, such evidence was irrelevant to the issues

in the case at bar.

We find that the Bankruptcy Court did not

abuse its discretion in making this ruling. Even

had this evidence been marginally relevant, the

33
Bankruptcy Court reasonably could have excluded it

under Rule 403 of the Federal Rules of Evidence.

That rule provides:

Although relevant, evidence may be
excluded if its probative value is
substantially outweighed by the danger of
unfair prejudice, confusion of the issues,
or misleading the jury, or by
considerations of undue delay, waste of
time, or needless presentation of
cumulative evidence.

FED. R. EVID. 403. In the instant case, the

probative value of this evidence is substantially

outweighed by the danger of confusion of the

issues, and by considerations of undue delay and

waste of time.

Under Louisiana law, a juridical person’s

personality is distinct from that of its members.

See La. Civ. Code Ann. art. 24. Also, the

business affairs of a juridical person are its

own, thereby precluding the imposition of

liability upon another natural or juridical person

34
for the obligations of a juridical person. See

LA. REV. STAT. ANN. § 12:93(B). In some situations,

however, the corporate entity may be disregarded

to impose liability upon: (1) a shareholder of the

juridical person, i.e., “piercing the corporate

veil;” or (2) an affiliate of the juridical

person, i.e., “single business enterprise.” See

8 Glenn G. Morris and Wendell H. Holmes, Louisiana

Civil Law Treatise: Business Organizations §

32.01 (1999).

Typically, the veil piercing theory is

implemented to disregard the concept of corporate

separateness when a juridical person is used to

“defeat public convenience, justify wrong, protect

fraud, or defend crime.” Smith v. Cotton’s Fleet

Serv., Inc., 500 So.2d 759, 762 (La. 1987); see

also 1 Fletcher Cyc. Corp. § 41. Likewise, when

a group of affiliated corporations constitutes a

35
single business enterprise, a court may “disregard

the concept of corporate separateness and extend

liability to each of the affiliated corporations”

for the purpose of preventing fraud or achieving

equity. Brown v. Auto. Cas. Ins. Co., 93-2169

(La. App. 1st Cir. 10/7/94), 644 So. 2d 723, 727;

Lee v. Clinical Research Ctr., 04-0428 (La. App.

4th Cir. 11/17/04), 889 So.2d 317, 323; see also

1 Fletcher Cyc. Corp. § 41.30.

These justifications for disregarding a

corporate entity are not alleged or relied upon in

the instant case. Nowhere is there any allegation

or indication of any public inconvenience, wrong,

fraud, crime, or anything else of that nature;

neither is there a need to use these corporate

piercing doctrines to achieve equity.

This case is simply one in which three

separate juridical persons (Ark-La-Tex, Alba, and

36
Pearl) entered into valid, legal security

agreements with two different creditors (namely

Peoples State and General Electric). There is no

allegation or showing that either secured creditor

was damaged, disadvantaged, or delayed in the

enforcement of its rights against the affected

assets of the juridical entities by their inter-

corporate or juridical person practices or

business arrangements. Peoples State simply seeks

to utilize the single business enterprise theory

to create for itself an additional security

interest, for which it did not contract, in non-

titled movables of Pearl and Alba, in an effort to

prime the valid, first-ranking security interest

held by General Electric. Absent any allegation

of wrongdoing, we decline to implement such an

extraordinary disregard of the separate legal

personalities of corporate and juridical entities

37
in this case.

Conclusion

For these reasons, we affirm the judgment of

the district court.

AFFIRMED.

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