South Carolina Lawyer
Vol. 13, No. 4, Pg. 32.
Safeguarding the truth in court: the doctrine of judicial estoppel
32Safeguarding the truth in court: the doctrine of judicial estoppelBy John S. Nichols"Where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position." Zimmerman v. Central Union Bank, 194 S.C. 518, 532, 8 S.E.2d 359 (1940). Such was the first indication that the South Carolina appellate courts recognized the doctrine known as judicial estoppel. Fifty-seven years would pass before the Supreme Court of South Carolina would take the opportunity to expressly adopt the doctrine. Hayne Federal Credit Union v. Bailey, 327 S.C. 242, 489 S.E.2d 472 (1997).
34Judicial estoppel is a rule of fairness as well as a rule of integrity. The doctrine precludes a party from adopting a position in conflict with a position the party took earlier in the same or related litigation. Id. Its purpose is not to protect the parties from allegedly dishonest conduct by the adversary; instead, the doctrine acts to ensure the integrity of the judicial process. Hayne; Hawkins v. Bruno Yacht Sales, 342 S.C. 352, 536 S.E.2d 698 (Ct. App. 2000). Judicial estoppel therefore sustains the truth-seeking function of the courts and guarantees the protection of the judiciary from the perversion created by a party's inconsistent and untruthful averments. Quinn v. The Sharon Corp., 343 S.C. 411, 540 S.E.2d 474 (Ct.App. 2000)(concurring opinion of Anderson, J).
Five recent South Carolina appellate court opinions have examined the application of judicial estoppel. This article will discuss each of these cases and illustrate how the courts currently view the doctrine in its application in this state.
Hayne Federal Credit Union v. Bailey
Hayne Federal Credit Union v. Bailey was a mortgage foreclosure action. Bailey paid cash for a home that he titled in his son's name. When the son died in 1987, the son's will devised all of his property to his own wife. Bailey did not make a claim against the son's estate as to the property.
In 1988, Bailey's wife filed for divorce, and her petition referred to the property as "the marital dwelling." In his answer, Bailey stated he had no legal interest in the property and that the property was owned by the son, who allowed Bailey to live there.
In 1990, the daughter-in-law applied for a $17,000 loan from her employer, Hayne Federal Credit Union. The loan was to be secured by a mortgage on the property. The credit union required an attorney to certify title, so the daughter-in-law's attorney did a title search, certified that the mortgage was a first lien on the property, and found the dauther-in-law to be the fee simple owner. The credit union approved the loan and recorded its mortgage.
Sometime later, the daughter-in-law declared bankruptcy. Bailey filed a claim with the bankruptcy trustee, asserting ownership of the property. In April 1994 Bailey's claim in the bankruptcy court was settled for about $12,000. The settlement statement declared that "the trustee will transfer the estate's interest in the real property by trustee's deed, without warranties, to (Bailey) subject to a first mortgage to (the credit union) and (Bailey) will pay to the trustee $11,000 (sic) lump sum." The bankruptcy court approved the settlement.
In August 1994, the credit union brought a foreclosure action. Bailey answered and counterclaimed, asserting he owned the property by virtue of a resulting trust. He claimed in his pleadings that he instructed the initial closing attorney to place title in the son's name "as an accommodation and for protection against the claims of potential lien and judgment creditors."
The matter was referred to a special referee. At the trial, Bailey testified "the real reason I put the house in my son's name was to keep my wife from getting it..." He further indicated that he had been advised not to have any houses in his own name in the event he remarried. The referee found that Bailey owned the property and cancelled the credit union's lien on the property.
On appeal, the Credit Union argued, among other things, that judicial estoppel precluded Bailey from claiming ownership of the property. The Supreme Court agreed Bailey's own fraud defeated his claim to a resulting trust. The Court also agreed with the credit union's assertion that Bailey was precluded from claiming ownership of the property because he swore in a prior divorce proceeding that he had no legal interest in the property and that the son owned the property. The court noted that judicial estoppel applies only to inconsistent statements of fact, and not to conclusions of law or assertions of legal theories, and held:
We now explicitly adopt the doctrine of judicial estoppel as it relates to matters of fact (not law). In order for the judicial process to function properly, litigants must approach it in a truthful manner. Although parties may vigorously assert their version of the facts, they may not misrepresent those facts in order to gain advantage in the process. The doctrine thus punishes those who take the truth-seeking function of the system lightly. When a party has formally asserted a certain version of the facts in litigation, he cannot later change those facts when the initial version no longer suits him. It is certainly conceivable that parties may want to present novel legal theories, which may require changing one's previous legal theory. However, the truth-seeking function of the...