[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 05-12105 JUNE 29, 2006
________________________ THOMAS K. KAHN
CLERK
D. C. Docket No. 03-00977-CV-BBM-1
TEMIDAYO AJAKA,
FEHINTOLA AJAKA,
Plaintiffs-Counter-Defendants-Appellants,
versus
BROOKSAMERICA MORTGAGE CORPORATION,
RESIDENTIAL FUNDING CORPORATION,
Defendants-Counter-Claimants-Appellees,
HOMECOMINGS FINANCIAL NETWORK, INC.,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(June 29, 2006)
Before ANDERSON, BARKETT and BOWMAN *, Circuit Judges.
BARKETT, Circuit Judge:
Temidayo Ajaka sued BrooksAmerica Mortgage Corporation
(“BrooksAmerica”), Residential Funding Corporation (“RFC”), and
HomeComings Financial Network, Inc. (“HomeComings”) — collectively, the
“Defendants” — for rescission and damages under the Truth in Lending Act
(“TILA”), 15 U.S.C. §§ 1601 et seq. The district court granted summary judgment
in favor of the defendants because Ajaka failed to timely disclose the TILA claims
as contingent assets in his pending Chapter 13 bankruptcy action. Ajaka appeals
and we reverse.
BACKGROUND
On April 14, 2000, Ajaka borrowed $35,000 from BrooksAmerica, secured
by a second mortgage on his primary residence. The annual percentage rate for the
home equity loan was 19.7483%.1 Two years later, on August 2, 2002, Ajaka filed
a Chapter 13 bankruptcy proceeding in the U.S. Bankruptcy Court for the Northern
District of Georgia, Atlanta Division. In re Ajaka, No. 02-97844-mhm (Bankr.
N.D. Ga.). There is no dispute that at the time he filed for bankruptcy, he was not
*
Honorable Pasco M. Bowman, II, United States Circuit Judge for the Eighth Circuit,
sitting by designation.
1
Because of the high interest rate on the loan, the Home Ownership and Equity
Protection Act of 1994 (“HOEPA”), 15 U.S.C. §§ 1602(aa) and 1639, applied.
2
aware of any potential TILA claim arising out of the loan and the various
disclosures appertaining thereto.2 The Chapter 13 reorganization plan was
confirmed on December 7, 2002. Again, there is no dispute that, at the time the
plan was confirmed, Ajaka was not aware of his potential TILA claim. Under
Chapter 13, a creditor has 180 days to object to confirmation of the reorganization
plan on the basis of fraud. See 11 U.S.C. § 1330(a).
On January 3, 2003, Ajaka met for the first time with Charles Baird, his
counsel on this appeal. During that meeting, Ajaka was informed, for the first time,
that he may have a viable claim under TILA, although it was unclear at that point
against whom the claim could be asserted. Baird also told Ajaka that his
bankruptcy schedules would have to be amended to reflect the TILA claim. While
Baird advised Ajaka that he would need to disclose his TILA claim as an asset in
the bankruptcy proceeding, Ajaka testified in his deposition that he had little — if
any — knowledge of the “nature and effect” of his TILA claim in January 2003, or
against whom he would assert it.
Two weeks later, on January 18, 2003, Baird sent a rescission demand on
behalf of Ajaka to BrooksAmerica, the original holder of the note and security
2
Although Ajaka testified in his deposition that he met with legal aid, who advised him
of potential irregularities with the loan, before he filed for bankruptcy, no one disputes that he
was unaware of his possible TILA claim, and of its possible effect on his bankruptcy, until
January 3, 2003, a date the relevance of which we explain shortly.
3
deed.3 Pursuant to 15 U.S.C. § 1635(b), BrooksAmerica was required to respond to
the demands within twenty days after receipt of the letter, which it did by advising
Ajaka on or around February 13, 2003, that it had assigned its interest in the note
and security deed to another company. However, the letter did not inform Baird of
the name of the entity to whom BrooksAmerica assigned the mortgage.
BrooksAmerica also stated that it had provided Ajaka with the proper disclosures
under TILA and that Ajaka did not have the right to rescind.
Because the deed records did not show an assignment of the note and
security deed, Ajaka claims that Baird was unable to immediately determine the
assignee against whom a TILA claim would be asserted. In addition, Ajaka claims
that because BrooksAmerica failed to provide him with notice of the assignment,
he was never made aware of the assignment or to whom it was assigned. Ajaka
claims that in a follow-up communication, Baird requested the name of the
assignee from BrooksAmerica, but did not receive an answer.
On or about March 26, 2003, Baird informed Ajaka’s bankruptcy attorney
that a TILA claim should be listed as a potential asset in the bankruptcy
proceeding. Approximately two days later, Baird forwarded a statutory rescission
3
For loan transactions involving security interests in a debtor’s primary residence, the
debtor can demand that the creditor rescind the mortgage if certain material disclosures are not
made. See 15 U.S.C. § 1635(a). If the creditor does not take steps to do so within twenty days,
the debtor can bring suit in federal court to enforce his right of rescission. Id. § 1635(b).
4
demand letter to RFC, convinced that either HomeComings or RFC had taken
assignment of the mortgage. RFC received the letter on April 2, and was required
to respond to the demands within twenty days of receipt. On April 11, 2003, Ajaka
filed the instant action, alleging a TILA violation by the Defendants.4
On April 21, 2003, still within the time period for filing an objection to
confirmation of Ajaka’s Chapter 13 reorganization plan, RFC, which had not yet
been served with the complaint and summons in Ajaka’s TILA action, filed a
complaint for declaratory judgment and equitable relief as part of the bankruptcy
proceeding. RFC alleged that (1) Ajaka’s TILA claim was barred by judicial
estoppel; (2) Ajaka’s TILA claim was without merit; and (3) even if Ajaka had a
right to rescind, he should be required to immediately repay the proceeds of the
loan, so as to return the parties to the status quo ante.5 Nonetheless, and in any
event, there is no question that, due to RFC’s filing, all of the creditors were on
notice of the potential TILA claim by April 21, 2003, if not before. As such, all of
Ajaka’s creditors had more than six weeks from the time they learned of his TILA
4
Under TILA, the general rule is that “An obligor’s right of rescission shall expire three
years after the date of consummation of the transaction or upon the sale of the property,
whichever occurs first . . . .” 15 U.S.C. § 1635(f). As such, Ajaka’s right to rescind would have
expired on April 14, 2003.
5
Although the bankruptcy court stayed consideration of RFC’s claims pending resolution
of this case, it is not at all clear how the bankruptcy court would have the authority to declare
that a lawsuit in the district court should be judicially estopped.
5
claim to the expiration of the 180-day period for objecting to confirmation of his
Chapter 13 reorganization plan and, if they so desired, seeking conversion of
Ajaka’s bankruptcy from Chapter 13 to Chapter 7.
On June 20, 2003, after that time period expired, Ajaka filed a formal
amendment to the bankruptcy action that included disclosure of his TILA claim as
a contingent asset. The amendments also reclassified the home equity mortgage
from a secured debt to an unsecured debt, assuming Ajaka was successful on his
TILA claim. After discovery, the Defendants filed their motions for summary
judgment in this case—Ajaka’s TILA action—claiming, inter alia, that Ajaka’s
TILA claim was barred by judicial estoppel because he failed to disclose it in the
bankruptcy proceeding. The district court granted the motions for summary
judgment on that ground and this timely appeal followed.
DISCUSSION 6
Judicial estoppel, also sometimes referred to as “equitable estoppel,” is an
6
We review the district court’s grant of summary judgment de novo, and the district
court's findings of fact for clear error. Nat’l R.R. Passenger Corp. (Amtrak) v. Rountree Transp.
& Rigging, Inc., 422 F.3d 1275, 1282 (11th Cir. 2005). Summary judgment is appropriate when
“there is no genuine issue as to any material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986) (internal citations omitted). We review the district court’s application of judicial estoppel
for abuse of discretion. Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1284 (11th Cir. 2002).
In examining the record, we review the evidence in the light most favorable to the non-moving
party—in this case, Ajaka. See Wilson v. B/E Aerospace, Inc., 376 F.3d 1079, 1085 (11th Cir.
2004). That is, courts must construe the facts and draw all inferences in the light most favorable
to the nonmoving party and “when conflicts arise between the facts evidenced by the parties, we
credit the nonmoving party’s version.” Evans v. Stephens, 407 F.3d 1272, 1278 (11th Cir. 2005).
6
equitable doctrine invoked at a court’s discretion. New Hampshire v. Maine, 532
U.S. 742, 750 (2001). Under this doctrine, a party is precluded from “asserting a
claim in a legal proceeding that is inconsistent with a claim taken by that party in a
previous proceeding. [It] is an equitable concept intended to prevent the perversion
of the judicial process.” Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1285
(11th Cir. 2002) (citation and internal quotation marks omitted). Judicial estoppel
is intended to be a flexible rule in which courts must “take into account all of the
circumstances of each case in making our determination.” See Palmer & Cay, Inc.
v. Marsh & McLennan Cos., 404 F.3d 1297, 1307 n.17 (11th Cir. 2005).
Although not inflexible or exhaustive, we begin with a consideration of two
primary factors in determining whether to apply judicial estoppel. “First, the
allegedly inconsistent positions must have been taken under oath in a prior
proceeding, and second, they must have been calculated to make a mockery of the
judicial system.” Id. (internal quotation marks omitted). “These factors are not
exhaustive, however . . . .” Id.; Burnes, 291 F.3d at 1285-86 (holding that “courts
must always give due consideration to all of the circumstances of a particular case
when considering the applicability of this doctrine”). One “pertinent factor[ is] . . .
whether the present position is clearly inconsistent with the earlier position and
whether the party successfully persuaded a court to accept the earlier position, so
7
that judicial acceptance of the inconsistent position in a later proceeding creates the
perception that either court was misled.” Id.; see also New Hampshire, 532 U.S. at
751 (“A third consideration is 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.”).
There is no question that Ajaka failed to timely amend his Chapter 13
reorganization plan to reflect his contingent TILA claim, and that he therefore
“took inconsistent positions . . . under oath in a prior proceeding.” A debtor
seeking shelter under the bankruptcy laws must disclose all assets, or potential
assets, to the bankruptcy court. 11 U.S.C. §§ 521(1), 541(a)(7). “The duty to
disclose is a continuing one that does not end once the forms are submitted to the
bankruptcy court; rather, a debtor must amend his financial statements if
circumstances change.” Burnes, 291 F.3d at 1286. Because there is no question that
Ajaka failed to assert his TILA claim as an asset in the bankruptcy proceeding, the
first prong of our judicial estoppel test is satisfied. See id. at 1285 (finding similar
failure to disclose in bankruptcy proceeding to satisfy the first factor).
As such, and as the parties recognize, this appeal rises and falls on Ajaka’s
intent. If Ajaka’s failure to timely incorporate the TILA claim into his bankruptcy
proceeding was “calculated to make a mockery of the judicial system,” then
8
judicial estoppel should bar him from taking advantage of such capriciousness
here.7
Although our case law recognizes that there is no requirement that the party
invoking judicial estoppel show prejudice, see Burnes, 291 F.3d at 1286, prejudice
serves an important role in the applicability of the doctrine in this context, for it is
difficult to impute an intent “to make a mockery of the judicial system” where the
complaining party was aware of the inconsistency in sufficient time and in a
position to properly raise an objection in the original proceeding. Put another way,
judicial estoppel is meant to prevent litigants from deliberately changing positions
after the fact to gain an unfair advantage.
This case is rather different. As noted above, because of RFC’s adversary
action in the bankruptcy court, filed in response to Ajaka’s rescission demand, all
of Ajaka’s creditors, including the Defendants, were aware no later than April 21,
2003, that Ajaka had a colorable TILA claim. At that time, nothing would have
prevented the Defendants from seeking revocation of the confirmation of Ajaka’s
Chapter 13 reorganization plan pursuant to 11 U.S.C. § 1330(a), after which the
7
When considering a party’s motive and intent and whether it justifies applying judicial
estoppel, we require that the intent be “cold manipulation and not an unthinking or confused
blunder . . . .” Johnson Serv. Co. v. Transamerica Ins. Co., 485 F.2d 164, 175 (5th Cir. 1973).
“The doctrine of judicial estoppel applies in situations involving intentional contradictions, not
simple error or inadvertence.” Burnes, 291 F.3d at 1286 (citing Am. Nat’l Bank of Jacksonville
v. FDIC, 710 F.2d 1528, 1536 (11th Cir. 1983) (explaining that judicial estoppel applies to the
“calculated assertion” of divergent positions)).
9
Defendants could have sought conversion of Ajaka’s bankruptcy to Chapter 7. See
11 U.S.C. § 1307(c). That is to say, although Ajaka did not himself amend his
bankruptcy schedules to reflect the TILA claim until June 20, after the 180-day
period under § 1330(a) had expired, all creditors were already aware of the TILA
claim resulting directly from Ajaka’s attempts to sue the appropriate parties, and
therefore could have challenged Ajaka’s failure to previously amend his schedules
within the context of the ongoing bankruptcy proceeding.
Our decision in Burnes, on which the Defendants rely, provides a helpful
contrast: In Burnes, the debtor filed a Chapter 13 bankruptcy petition six months
before he filed a discrimination charge with the EEOC against his employer,
which, unlike the situation here, was not a party to his bankruptcy proceeding.
Almost one year later, but while his bankruptcy remained pending, the debtor filed
an employment discrimination suit against his employer in federal district court.
The debtor did not amend his bankruptcy schedules or statement of financial affairs
to include his lawsuit. Later, the debtor converted his bankruptcy case from
Chapter 13 to Chapter 7. At that time, the debtor filed new, updated schedules, and
again failed to include the pending discrimination lawsuit on his amended
schedules. Then, the debtor received a “no asset” discharge. Neither the Chapter 7
trustee, nor any of the debtor’s creditors, ever knew about the employment
10
discrimination lawsuit. The defendant employer moved for summary judgment in
the district court on the basis of judicial estoppel, and the district court granted the
motion. We affirmed. We noted that creditors rely on a debtor's disclosure
statements in determining whether to contest or consent to a no asset discharge and
that Bankruptcy courts also rely on the accuracy of the disclosure statements when
considering whether to approve a no asset discharge. Accordingly, “the importance
of full and honest disclosure cannot be overstated.” Burnes, 291 F.3d at 1286.
Here, in contrast, Ajaka’s creditors did know, within the time period during
which they could seek revocation of the confirmation of Ajaka’s Chapter 13
reorganization plan, about Ajaka’s potential TILA claim.8 Also, there is significant
evidence in this case that Ajaka did not intend to conceal his TILA claim from his
creditors. As noted above, Baird, acting on Ajaka’s behalf, informed Ajaka’s
bankruptcy attorney on March 26, 2003, that the schedules should be amended to
reflect the TILA claims; this was before any defendant in this case raised the
8
We note that we find Ajaka’s claim that he received no benefit from failing to
immediately amend his bankruptcy schedules somewhat unconvincing. Although his TILA
rescission claim, if successful, would result in the conversion of his loan from secured debt to
unsecured debt, which would likely be a detriment to Ajaka vis-a-vis his bankruptcy estate,
Ajaka also asserts claims for several thousand dollars’ worth of post-rescission damages that, if
successful, would unquestionably be additional assets. Nevertheless, because we are convinced
that there is insufficient proof of Ajaka’s intent to support the district court’s grant of summary
judgment to the Defendants, the fact that there may in fact have been a motive to conceal the
TILA claim until after the expiration of the 180-day period prescribed by § 1330(a) is not
dispositive.
11
prospect of judicial estoppel. The record in this case is silent as to why the
bankruptcy attorney delayed in amending the schedules. Moreover, the bankruptcy
attorney did amend Ajaka’s schedules to include the TILA claim, approximately
three months after being advised to do so and less than two months after the
lawsuit was filed in which it was first asserted. These facts when taken together,
are sufficient in our view to conclude that there exists a question of material fact as
to whether Ajaka had the motivation and intent to manipulate the judicial system
under the circumstances presented here. Accordingly, the district court erred in
granting summary judgment to the Defendants.
REVERSED and REMANDED for further proceedings.
12