IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT Fifth Circuit
FILED
_____________________ March 15, 2007
Charles R. Fulbruge III
No. 06-30105 Clerk
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.*
*
The opinion reported at 477 F.3d 295 (5th Cir. 2007) is
withdrawn, and the following opinion is substituted therefor.
1
DENNIS, Circuit Judge.
In this case, we review decisions by the
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
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
due to it. The defendant, Peoples State, removed
the case to the United States District Court for
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
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
entities granted various, separate security
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
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
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
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
consideration of the nominal amount of $10.00
(“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
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
November 30, 2001, because the parties thought
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.
Following a December 2002 ruling of the
bankruptcy court that $322,208.62 of the auction
7
proceeds was attributable to the non-titled
movables of Alba and Pearl, General Electric
realized its error and demanded that Peoples State
return this amount, but Peoples State refused.
General Electric then sued Peoples State in March
2003 in a 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]
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
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
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
9
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
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
10
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)
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
11
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
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,
12
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
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
13
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
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.
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
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
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
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
15
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
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
10
Here, too, we apply Louisiana law, for the same reasons
asserted in the footnote above.
16
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
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
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.
17
Bankruptcy courts that General Electric’s claim
for payment of a thing not due is not precluded
under either doctrine.
1. Res Judicata12
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
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).
18
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
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.
Peoples State argues that General Electric
should have asserted its claim of a security
19
interest in the Alba and Pearl movables at any of
the bankruptcy proceedings, namely the ranking
adversary proceeding, in opposition to the Order
of Abandonment, Auction and Accounting, or the
Marshaling Adversary Proceeding.
However, 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. So, 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
13
The ranking adversary proceeding was held in August 2001.
14
The Order of Abandonment, Auction and Accounting was
issued in October 2001.
20
State to assert at the time of those proceedings.
See Blair v. City of Greenville, 649 F.2d 365, 368
(5th Cir. 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, though the marshaling adversary
proceeding post-dated the auction and the
distribution of the proceeds thereof,15 the same
claim or cause of action as the one presented in
the case at bar was not involved. In January
2002, before the parties discovered in December
2002 that some of the auctioned movables belonged
to Pearl and Alba (as opposed to Ark-La-Tex),
General Electric brought what it characterized as
a petition to marshal assets.16 In this petition,
15
The marshaling adversary proceeding was instituted in
January 2002, whereas the auction occurred in November 2001.
16
Marshaling of assets is an equitable doctrine designed
to promote fair dealing and justice. Meyer v. U.S., 375 U.S.
233, 237 (1963). It “rests upon the principle that a creditor
having two funds to satisfy his debt may not, by his application
of them to his demand, defeat another creditor, who may resort to
21
it asked the bankruptcy court to require Peoples
State to share with General Electric the proceeds
from the sale of a piece of Ark-La-Tex’s immovable
property, upon which Peoples State held a
mortgage. Because General Electric held no
security interest in the immovable, however, it
was not entitled to petition, as a junior secured
creditor, for the proceeds of that particular
asset. As the Trustee correctly pointed out when
defending against General Electric’s marshaling
claim, since General Electric had no contractual
security interest in the immovable, its petition
to have Peoples State share the proceeds of its
sale with General Electric was actually an ill-
only one of the funds.” Id. at 236 (quoting Sowell v. Federal
Reserve Bank, 268 U.S. 449, 456-57 (1925)). In other words,
“[i]ts purpose is to prevent the arbitrary action of a senior
lienor from destroying the rights of a junior lienor or a
creditor having less security.” Id. at 237. A junior lienholder
may only invoke this doctrine if it will not operate as a
detriment upon other creditors. John W. Stone Oil Distributor,
Inc. v. M/V Mr. W. Bruce, 752 F.2d 184, 187 (5th Cir. 1985).
22
conceived request for relief under the doctrine of
constructive trust for which it had no grounds.
Therefore, when the bankruptcy court rejected
General Electric’s so-called marshaling of assets
claim, its judgment did not operate as a res
judicata bar to General Electric’s suit to be
restored to the auction proceeds of Alba and
Pearl’s movables that were paid in error to
Peoples State. The ill-fated marshaling or
constructive trust action was based upon an
entirely different, and misconceived, transaction,
set of facts, or claim from those presented in
General Electric’s current, legitimate claim of
payment of a thing not due in which it seeks to
recover the auction proceeds that had been paid to
Peoples State because of the parties’ mutual
error. Accordingly, we see no error in the
bankruptcy and district courts’ judgments
23
enforcing General Electric’s claim under Louisiana
Civil Code article 2299 against Peoples State to
be restored to the amount not owed that was paid
to Peoples State.
2. Compulsory Counterclaim17
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
17
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.
24
due is not precluded under the principles of res
judicata, neither is it barred as a forfeited
compulsory counterclaim.
D. Judicial Estoppel18
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,
18
“[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).
25
750 (2001) (citing Edwards v. Aetna Life Ins. Co.,
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).
26
Peoples State argues that two courses of
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,19 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
19
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.
27
auction belonged to Alba and Pearl, is “clearly
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.20 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.
20
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.
28
Second, Peoples State argues that General
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 (quoting John S.
Clark Co. v. Faggert & Frieden, P.C., 65 F.3d 26,
29
29 (4th Cir. 1995)(explaining that the 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).
30
Analysis
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
31
120, 126 (La. 1975); Barnett v. Bd. of Tr. for
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)
32
justifiable reliance by the promisee; and (4) a
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.21 Additionally, General
Electric’s acceptance was, if anything, a legal
position, not the typical factual
misrepresentation found in detrimental reliance
cases.22
21
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.”).
22
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.
33
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),
App.4th Cir. 6/16/04), 878 So.2d 786; Barnett v. Board of
Trustees for State Colleges and Universities, 809 So.2d 184.
34
673 So. 2d 1209. Peoples State, as a
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
35
had this evidence been marginally relevant, the
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
36
liability upon another natural or juridical person
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
37
a group of affiliated corporations constitutes a
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
38
separate juridical persons (Ark-La-Tex, Alba, and
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
39
personalities of corporate and juridical entities
in this case.
Conclusion
For these reasons, we affirm the judgment of
the district court.
AFFIRMED.
40