Coast Automotive Group, Ltd. v. VW Credit, Inc.

Opinions of the United

2002 Decisions States Court of Appeals

for the Third Circuit

1-30-2002

Coast Auto Grp Ltd v. VW Credit Inc

Precedential or Non-Precedential:

Docket 0-5200

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

No. 00-5200

___________

COAST AUTOMOTIVE GROUP, LTD.,

a Delaware Corporation d/b/a/ TSE MOTOR CARS,

Appellant

v.

VW CREDIT, INC., a Corporation; VOLKSWAGEN OF AMERICA,

a Corporation; AUDI OF AMERICA, a Corporation; MARGE YOST;

MICHAEL RUECKERT; STEPHEN JOHNSON

___________

On Appeal from the United States District Court

for the District of New Jersey

District Court Judge: The Honorable Garrett E. Brown, Jr.

(D.C. Civil No. 97-2601(GEB)

___________

Argued on December 7, 2001

Before: MANSMANN, ROTH, and FUENTES, Circuit Judges

(Opinion Filed: January 29, 2002)

________________________

OPINION OF THE COURT

________________________

FUENTES, Circuit Judge:

This is an appeal by Plaintiff Coast Automotive Group, Ltd. ("Coast")

from a

grant of summary judgment in favor of Defendant VW Credit, Inc and several

of its

employees. (collectively "VCI"). Coast's primary contention on appeal is

that the

District Court improperly invoked judicial estoppel to dismiss its claims.

Because we

conclude that the District Judge failed to apply the standards for the use

of judicial

estoppel in accordance with this Court's decision in Montrose Med. Group

Participating

Sav. Plan et al. v. Bulger, 243 F.3d 773 (3d Cir. 2001), we vacate as to

claims dismissed

on the basis of judicial estoppel. However, we hold that the District

Court did not err in

any of its other findings, and therefore affirm the grant of summary

judgment on claims

dismissed on a basis independent of judicial estoppel.

I

Coast owns new vehicle dealership franchises in Toms River, New

Jersey. VCI

provided Coast with floor plan financing beginning in 1991. Under a

series of Master

Security Agreements ("Agreements"), VCI advanced funds to Coast for the

purchase of

vehicle inventory and Coast granted VCI a security interest in the

vehicles, the proceeds

from sale of the vehicles, and in other assets of Coast. Coast paid

interest on the

advances to VCI, and the agreements stated that when Coast sold a vehicle

from

inventory, the principal on the advance would be "promptly and fully paid

off" to VCI.

The agreements dictated that Coast would hold any unpaid and past due

indebtedness "in

trust" for VCI, but they did not specify a deadline or time period for

payment of

principal. The agreements contained default provisions under which VCI

had the right to

terminate the Agreement, refuse to advance additional funds, and

accelerate and declare

all debt immediately due if Coast defaulted on its obligations.

On December 12, 1995, VCI called Coast into default and, under the

default

provisions, terminated its credit line with Coast and accelerated the

remaining

outstanding balance of Coast's debt to VCI, a debt totaling over $6

million. VCI also

filed a complaint in the Superior Court of New Jersey, Chancery Division

against Coast,

Coast President Tamim Shansab, and others. VCI alleged that Coast had

failed to pay off

48 vehicles in a timely fashion, and VCI sought to force Coast to repay

its total debt and

enjoin Coast from disposing of VCI's collateral. Three days later on

December 15, 1995,

Coast filed a Chapter 11 petition in the United States Bankruptcy Court

for the District of

New Jersey.

On December 13, 1995, at a hearing in the New Jersey Superior Court

matter, the

court engaged in a colloquy regarding Coast's debt status with Coast's

counsel Richard

S. Mazawey:

THE COURT: Well, isn't the company out of

trust as they say?

MAZAWEY: Yes it is, Judge, at the present.

...

MAZAWEY: And, what we're saying is, is that due to

the diligent notice

and the good faith of the Defendant, in light of that

circumstance, in light of there being a short fall in

trust,

which we disagree, your Honor, as to the extent of the

short

fall.

THE COURT: I know, but if you say there's

300,000 but it's a million-four,

well that still leaves a million-one.

MAZAWEY: Well, in actuality, Judge, there's just

about 700,000...

VCI App. at 304-05. In a hearing in the Bankruptcy Court on January 18,

1996, Shansab

testified concerning the state of Coast's indebtedness to VCI in response

to questioning

by the Bankruptcy Judge, the Honorable Stephen A. Stripp:

THE COURT: You didn't you didn't testify

because you weren't asked

whether the Debtor was in default to VCI on the

floor

plan line when VCI took the action that it took in

State

Court, was it?

SHANSAB: Was I in default, sir?

THE COURT: Yes.

SHANSAB: Yes.

...

THE COURT: ...What was the nature of the

default?

SHANSAB: Principal payments had not been

made on units. ...

THE COURT: Have you ever heard the term, "out

of trust?"

SHANSAB: Yes, Your Honor

...

THE COURT: What does it mean to you?

SHANSAB: It means that you have sold a

car and you have not remitted

payment in time.

THE COURT: Is that what transpired? Was that

part of the default here of

the Debtor with respect to this working capital

line?

SHANSAB: To the floor plan line you mean?

THE COURT: Floor plan line.

SHANSAB: Yes, Your Honor.

THE COURT: And how much were you out of

trust?

SHANSAB: The day I sat down with the with

the gentleman from VCI,

the calculations that we came up with were in the

700,000

range.

VCI App. at 324-25. The next day, Shansab and his bankruptcy counsel Gary

Marks

made further statements regarding Coast's debt status under cross-

examination by VCI

counsel Stephen Ryan:

RYAN: Okay. In fact, you'd sold some

cars to customers, Coast had

received payment from third party finance sources or

from the

buyer directly for those purchases, is that right?

SHANSAB: That is correct.

RYAN: Coast didn't make any payment to

VCI for the sale of those

cars did it?

THE COURT: Isn't it stipulated that there is

$700,000 out of trust, Mr.

Marks?

MARKS: I believe that was Mr. Shansad's

[sic] testimony yesterday. I

don't know that they have stipulated to that amount,

but that

was his testimony.

THE COURT: All right.

RYAN: Judge, we would stipulate that

there are out of trust sales and

that is what I'm trying to establish

THE COURT: Well, it is stipulated. So let's

not waste time going over facts

that are stipulated. He stipulates that he is out of

trust.

RYAN: You were out of trust with VCI

before you filed your petition

in Bankruptcy?

SHANSAB: That is correct.

VCI App. at 330-31.

Several months later, in a deposition for the New Jersey Superior

Court

proceedings on July 23, 1996, Shansab attempted to explain that his prior

testimony to

the Bankruptcy Court was based on information provided to him by VCI and

did not

reflect his personal understanding that Coast had defaulted or was "out of

trust":

STEWART: Do you understand "out of trust"

to mean you sold a car and

you have not remitted payment in time? Is that your

understanding of "out of trust," sir?

SHANSAB: My understanding is that I have a

line of credit with VCI, and

I don't believe I've ever been out of trust.

STEWART: Do you recall testifying under

oath on January 18, 1996?

... [Shansab reviews a transcript of the Bankruptcy Court testimony]

...

SHANSAB: To me out of trust in this case is

when you can't trust your

lender, and in this case I'm certainly VCI is

certainly out of

trust with me.

STEWART: Sir, is this the answer that you

gave to Judge Stripp? [reads

Shansab the bankruptcy testimony]... You said that

right? ...

SHANSAB: This happened under extreme

pressure, and at that time I had

no information as to what VCI's actions had been up to

that

point, and, you know, when I testified here, all I had

to rely

on was what Steve Johnson and VCI had been telling me

up

to that point.

STEWART: Based on what Steve Johnson had

been telling you up to that

point, did you understand that you were out of trust?

SHANSAB: I have never been out of trust,

period...

...

STEWART: Sir, the sworn testimony that you

gave to Judge Stripp ... with

respect to out of trust, that's not accurate, is it?

SHANSAB: I didn't say that, Mr. Stewart. I

said that everything I had to

rely on at that point is the word of a Steven Johnson

from

VCI...

...

STEWART: Did you state anywhere in your

testimony to Judge Stripp that

you were relying upon the information provided by

Steve

Johnson?

SHANSAB: I don't believe that that question

ever came up...

...

STEWART: But you did testify to Judge

Stripp under oath that the

calculations that you came up with Steve Johnson, that

it was

that you were out of trust in the $700,000 range?

SHANSAB: I never calculated that. That was

Steven Johnson -- I've

answered the question that we came up with that. I

never sat

down with Steven Johnson and came up with that

calculation

like that...

I did not sit down with Steven

Johnson, go over any figures.

He sat down, went over his own figures.

Coast App. at 602a-606a.

On January 21, 1997, Coast filed an adversary proceeding in the

Bankruptcy Court

against VCI, several VCI employees, and VCI's parent companies Volkswagen

of

America (VOA) and Audi of America (AOA). Because Coast demanded a jury

trial, the

case was referred to the District Court for the District of New Jersey.

Coast's Complaint

contained 16 claims against VCI, all stemming from the basic allegation

that VCI's call

of Coast into default was wrongful and constituted a breach of the

Agreements.

VCI filed a motion for summary judgment on all claims against it on

November

11, 1997. Among other filings in response to VCI's motion, Coast

submitted a

Certification of Tamim Shansab in which Shansab reiterated the explanation

of his

Bankruptcy Court testimony that he provided in his state court deposition.

See Coast

App. at 135a-139a (Certification of Tamim Shansab).

In an order issued on April 24, 1998, the District Court granted VCI

summary

judgment on Counts 1-13 and 16 of Coast's complaint. Judge Brown invoked

the

doctrine of judicial estoppel to find Coast had defaulted on its

obligations under the

Agreements. The parties did not brief judicial estoppel, nor did the

issue arise in oral

argument before the District Court. Yet the court applied judicial

estoppel to bar Coast

from claiming that it was not in default because Shansab and Coast's

counsel had

represented in the bankruptcy hearing and the state court hearing that it

was in default

and "out of trust."

The court concluded that "[t]he record clearly indicates that Coast

had defaulted

on the agreements by failing to make payments to VCI and was consequently

'out of

trust.'" Coast Automotive Group v. VW Credit, Inc. et al., Civ. No. 97-

2601(GEB), at 5-

6 (D.N.J. Apr. 24, 1998) (hereinafter "Coast I") (citing Shansab's

testimony before the

Bankruptcy Court and counsel's statements to the Bankruptcy Court and the

New Jersey

Superior Court). In a footnote, the court considered Shansab's

explanation of his

Bankruptcy Court statements in his state court deposition and in the

summary judgment

certification, but decided that because Shansab contradicted himself on

the meaning of

"out of trust," such inconsistent statements could not be used to create

material issues of

fact sufficient to preclude summary judgment. Id. at 6 n.2.

In finding that Coast defaulted under the Agreements, the court

stated:

Thus, under default provisions in the agreements, VCI

was entitled to

declare all of Coast's indebtedness payable on demand.

Plaintiff avers that

Coast had a grace period in which to make its payments under the

agreements, and that in the past, Coast had made payments on

principal

advanced between 5 to 28 days from the date of a vehicle's sale.

However,

as the record clearly indicates, plaintiff had defaulted on the

agreements

with VCI and plaintiff may not now contradict its prior

assertions and

stipulations in an attempt to defeat summary judgment.

"Coast I" at 6 (emphasis added). In a footnote appended to end of this

passage, the court

explained that it made this finding of default under the doctrine of

judicial estoppel:

The doctrine of judicial estoppel "serves a

consistently clear and undisputed

jurisprudential purpose: to protect the integrity of the

courts." See

McNemar v. Disney Store, Inc., 91 F.3d 610, 616 (3d Cir. 1996),

cert.

denied 117 S.Ct. 958 (1997). This doctrine, which "is an

equitable doctrine

invoked by a court at its discretion," see id. at 617, precludes

a party from

assuming a position in a legal proceeding that contradicts or is

inconsistent

with a previously asserted position. See Ryan Operations G.P.

v. Santiam-

Midwest Lumber Co., 81 F.3d 355, 358 (3d Cir. 1996). While

judicial

estoppel is not intended to eliminate all inconsistencies, it is

designed to

prevent litigants from "playing fast and loose with the courts."

See id.

Thus, as plaintiff had stipulated in the Bankruptcy proceedings

that Coast

was out of trust, plaintiff may not assert a contrary position

before this

Court at this time.

Coast I at 6 n.3 (emphasis added).

The judicial estoppel finding of default served as the basis for

dismissal of several

of Coast's claims, while summary judgment was granted on other claims on a

basis

independent of judicial estoppel. In a second summary judgment order on

October 6,

1999, the District Court granted VCI summary judgment on the remaining two

claims

against VCI Counts 14 and 15. See Coast Automotive Group v. VW Credit,

Inc. et al.,

Civ. No. 97-2601(GEB), at 6 (D.N.J. October 6, 1999) (hereinafter "Coast

II"). In

dismissing these discrimination claims, the court relied heavily on the

finding in its

previous order that based on the application of judicial estoppel, Coast

had defaulted on

the Agreements and therefore VCI had the right to accelerate Coast's debt

and terminate

future lending under the default provisions.

VCI filed a motion for certification of the two summary judgment

orders as a final

judgment under Federal Rule of Civil Procedure 54(b). The court granted

this motion on

January 26, 2000, and denied Coast's motion to stay this order on February

25, 2000.

This appeal followed, and because the summary judgment orders were

properly certified

as a final judgment, we have jurisdiction under 28 U.S.C. 1291.

II

A.

Coast primarily argues on appeal that the District Court erred in

applying judicial

estoppel sua sponte and without making the necessary findings and analysis

under the

settled law of this Court. While we exercise plenary review over grants

of summary

judgment, we examine the use of judicial estoppel for abuse of discretion.

"Though a

district court's ultimate decision to invoke the doctrine is reviewed only

for abuse of

discretion... a court 'abuses its discretion when its ruling is founded on

an error of law or

a misapplication of law to the facts.'" Montrose Med. Group Participating

Sav. Plan v.

Bulger et al., 243 F.3d 773, 780 (3d Cir. 2001) (Becker, J.) (quotations

omitted).

In Montrose, we reiterated and explained the requirements which must

be met

before a district court may properly invoke judicial estoppel:

Judicial estoppel may be imposed only if: (1) the

party to be estopped is

asserting a position that is irreconcilably inconsistent with

one he or she

asserted in a prior proceeding; (2) the party changed his or her

position in

bad faith, i.e., in a culpable manner threatening to the court's

authority or

integrity; and (3) the use of judicial estoppel is tailored to

address the

affront to the court's authority or integrity.

Montrose, 243 F.3d at 777-78. A district court may not invoke judicial

estoppel without

conducting these three inquiries. Id. at 780 n.4 (discussing third

element). In Montrose

we also held that "a party has not displayed bad faith for judicial

estoppel purposes if the

initial claim was never accepted or adopted by a court or agency." Id. at

778. We further

elaborated on the bad faith requirement and explained that a specific

finding of bad faith

must be made:

Inconsistencies are not sanctionable unless a litigant

has taken one or both

positions "in bad faith--i.e., with intent to play fast and

loose with the

court." Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81

F.3d

355, 361 (3d Cir.1996). A finding of bad faith "must be based

on more

than" the existence of an inconsistency, Klein v. Stahl GMBH &

Co.

Maschinefabrik, 185 F.3d 98, 111 (3d Cir.1999) (emphasis added);

indeed,

a litigant has not acted in "bad faith" for judicial estoppel

purposes unless

two requirements are met. First, he or she must have behaved in

a manner

that is somehow culpable. See Ryan Operations, 81 F.3d at 362

(stating that

judicial estoppel may not be employed unless "'intentional self

contradiction is ... used as a means of obtaining unfair

advantage'" (quoting

Scarano v. Central R. Co. of N.J., 203 F.2d 510, 513 (3d

Cir.1953)

(emphasis added))); id. ("An inconsistent argument sufficient to

invoke

judicial estoppel must be attributable to intentional

wrongdoing." (emphasis

added)); see also In re Chambers Dev. Co. Inc., 148 F.3d 214,

229 (3d

Cir.1998) (quoting this language from Ryan Operations).

Second, a litigant may not be estopped unless he or

she has engaged in

culpable behavior vis-a-vis the court.... Accordingly, judicial

estoppel may

not be employed unless a litigant's culpable conduct has

assaulted the

dignity or authority of the court.

Montrose, 243 F.3d at 780-81 (emphasis added).

With regard to the third prong tailoring application of the

doctrine to the specific

harm we stated:

Observing that judicial estoppel "is often the

harshest remedy" that a court

can impose for inequitable conduct, we have held that a district

court may

not invoke the doctrine unless: (1) "no sanction established by

the Federal

Rules or a pertinent statute is up to the task of remedying the

damage done

by a litigant's malfeasance;" and (2) "the sanction [of judicial

estoppel] is

tailored to address the harm identified." Klein v. Stahl GMBH &

Co.

Maschinefabrik, 185 F.3d 98, 108, 110 (3d Cir.1999) (internal

quotation

marks and citations omitted).

Montrose, 243 F.3d at 784.

Finally, we expressed particular concern in Montrose with the sua

sponte

application of judicial estoppel:

We have held that a district court need not always

conduct an evidentiary

hearing before finding the existence of bad faith for judicial

estoppel

purposes... but two precepts are nevertheless clear. First, a

court

considering the use of judicial estoppel should ensure that the

party to be

estopped has been given a meaningful opportunity to provide "an

explanation" for its changed position. Cleveland v. Policy

Management

Sys., 526 U.S. 795, 807 (1999). Second, though a court may

sometimes

"discern" bad faith without holding an evidentiary hearing, it

may not do so

if the ultimate finding of bad faith cannot be reached without

first resolving

genuine disputes as to the underlying facts.

Montrose, 243 F.3d at 780 n.5.

B.

In this case, the District Court applied judicial estoppel against

Coast sua sponte

and without the complete analysis required by this Court. At most, the

court found only

that the inconsistency prong of the judicial estoppel test was satisfied,

as the court held

that Shansab stated to the Bankruptcy Court that Coast was "out of trust"

and in default,

and that his later statements insufficiently explained that testimony.

The court

concluded that Coast could not argue on summary judgment that it was not

in default,

and therefore many of Coast's claims failed because VCI properly exercised

its rights

under the default provisions in the Agreement. However, to invoke

judicial estoppel, a

court must do more than merely find that a party advanced inconsistent

positions to the

court. The District Court here failed to engage in the requisite analysis

and make the

necessary findings that Coast changed its position in bad faith and that

the application of

judicial estoppel was specifically tailored to address the harm caused by

Coast's alleged

inconsistencies. Additionally, in raising the issue sua sponte, the court

failed to allow the

parties to brief the issue and inform the court's analysis, as suggested

by the Supreme

Court and by this Court. Therefore, we conclude that the District Court

abused its

discretion by invoking the doctrine sua sponte.

The court made no finding that Coast changed its position in a bad

faith attempt to

"assault the dignity or authority" of the court. In its brief footnote

explaining its

invocation of judicial estoppel, the court indeed quoted our statement in

Ryan Operations

that judicial estoppel is designed to prevent litigants from "playing fast

and loose with the

courts." Coast I at 6 n.3 (quoting Ryan Operations, 81 F.3d at 358). We

have noted that

"playing fast and loose with the courts" is a factor in a finding of bad

faith. See

Montrose, 243 F.3d at 780-81; Ryan Operations, 81 F.3d at 358. However,

simply

quoting this language without any explanation or analysis of how Coast's

actions rose to

the level of "playing fast and loose" is insufficient to invoke the harsh

sanction of judicial

estoppel. No finding of culpability, intentional self contradiction, or

intentional

wrongdoing was made. We counseled in Montrose that a mere finding of

inconsistency,

without more, fails to fulfill the bad faith requirement. See id. at 781.

Furthermore, the

court also made no explicit finding that Shansab's and counsel's prior

statements were

accepted or adopted by the court. The District Court failed to apply the

law to the facts

here, and therefore abused its discretion.

Secondly, the District Court did not consider whether its application

of judicial

estoppel was tailored to the harm caused by Coast and whether "no lesser

sanction would

adequately remedy the damage done by litigant's misconduct." Montrose,

243 F.3d at

784. The court failed to assess whether a strong instruction to the jury

that it should

consider the prior inconsistent statements or some other measure short of

judicial

estoppel could have addressed the harm. We express no opinion whether the

court's

application was in fact narrowly tailored, but we find that the court

itself should have

conducted such an inquiry and provided its reasoning in the first

instance.

Finally, the District Court invoked judicial estoppel to dismiss many

of Coast's

claims even though the parties did not brief the issue nor did it arise at

oral argument.

The parties were not on notice that judicial estoppel would be applied,

and Coast was not

allowed the opportunity to argue lack of bad faith or contest any other

factor in the

application of the doctrine. In Montrose, we warned that courts should be

wary of just

such a sua sponte application of the doctrine. See Montrose, 243 F.3d at

780 n.5.

Further, as we stated in Montrose:

Judicial estoppel "is an 'extraordinary remedy'" that

should be employed

only "'when a party's inconsistent behavior would otherwise

result in a

miscarriage of justice.'" Ryan Operations G.P. v. Santiam-

Midwest

Lumber Co., 81 F.3d 355, 365 (3d Cir.1996) (quoting Oneida Motor

Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 419 (3d

Cir.1988)

(Stapleton, J., dissenting)).

Montrose, 243 F.3d at 784. Especially because judicial estoppel is such

a harsh remedy

as this case demonstrates and should be used only in limited

circumstances, the court

should have invited briefing and argument before deploying the doctrine to

dismiss many

of Coast's claims.

We understand that the District Court did not have the benefit of

this Court's

decision in Montrose when it issued its summary judgment orders here.

However,

Montrose was based squarely on other decisions of this Court which also

required the

same analysis and were available at the time of the District Court's

ruling. See, e.g.,

Ryan Operations, 81 F.3d at 361 (requiring finding that positions taken by

party to be

estopped are inconsistent and that the party changed her position in bad

faith). Indeed,

the District Court quoted from Ryan Operations but otherwise failed to

follow its

requirements. Because judicial estoppel is an "extraordinary remedy," it

should not be

invoked sua sponte without the detailed, multi-step analysis Montrose

specifically

requires. We find that the court erred in applying judicial estoppel in

this case.

III

While we conclude that the District Court abused its discretion in

applying judicial

estoppel, we find no error in the District Court's consideration of any of

the other issues

decided on summary judgment. Therefore, we only vacate on those claims

for which the

judicial estoppel finding of Coast's default formed the sole basis for

dismissal. Those

claims on which the District Court granted summary judgment to VCI on

other grounds

are affirmed. Below we briefly explain the District Court's reliance on

judicial estoppel

with respect to each of Coast's claims.

A. Claims Dismissed on Basis of Judicial Estoppel

We find that seven of Coast's claims -- Counts One, Four, Six, Seven,

Thirteen,

Fourteen, and Fifteen -- were dismissed on the basis of the default

finding, and we

therefore vacate the grant of summary judgment on those claims.

The dismissal of Count One, Breach of Contract, most clearly depended

on the

judicial estoppel finding. The court invoked judicial estoppel in its

discussion of this

Count, and the court's finding of default formed the only stated basis for

granting

summary judgment to VCI on this contract claim. See Coast I at 5-7. We

vacate the

grant of summary judgment as to the breach of contract claim.

In dismissing Count Four, Lender Liability, the District Court

stated:

As this Court has granted summary judgment on

plaintiff's contract, good

faith and fair dealing, and fiduciary duty claims, the Fourth

Count of

plaintiff's complaint alleging lender liability will also be

dismissed as

plaintiff has failed to show any breach of duty by the

defendants' actions.

Coast I at 8 n.5. Because the court dismissed the contract and good

faith/fair dealing

claims on the basis of judicial estoppel, this statement suggests that its

dismissal of the

lender liability claim was based on judicial estoppel as well. We vacate

as to this claim.

On Count Six, Conversion and Concealment of Assets, the court stated

that:

the security agreements executed between the parties

provided the

defendants with the paramount right to possess the collateral in

the event of

a default, and that Coast would deliver such collateral to the

defendants.

Thus, as a default had occurred, pursuant to the agreements

between the

parties, defendants were entitled to a right of possession.

Coast I at 10-11 (emphasis added). Because this holding as to the

conversion claim

depended on the finding of default, we vacate.

Count Seven alleged negligent supervision by VCI of its employees.

The court

stated that this count alleged acts of industrial espionage and tortious

interference similar

to those contained in other counts (namely Counts 8 and 9, discussed

below). The court

stated that "such claims must fail for the same reasons as previously

indicated." Id. at 17

n.10. However, the court also stated that "as this Court has found that

defendants did not

breach the agreements, plaintiff's negligent supervision claim must also

fail." Id.

(emphasis added). Thus, this claim was dismissed on the basis of the

judicial estoppel

default finding, which formed the basis for deciding that VCI did not

breach the

Agreements. We vacate as to this claim.

In discussing Count Thirteen, Breach of Implied Contract and Duty of

Good Faith,

the court held that "the duty of good faith cannot be invoked by plaintiff

to preclude

defendants from exercising their rights under the agreements upon Coast's

default."

Coast I at 8 (emphasis added). Default thus formed the sole basis for

dismissal. We

vacate as to this claim.

Finally, Counts Fourteen and Fifteen alleged discrimination by VCI

under federal

and state law respectively, on the basis of Shansab's status as a native

of Afghanistan.

Coast alleged that VCI terminated Coast's line of credit because of

Shansab's race. In its

second summary judgment order, in which it dismissed these claims, the

court reviewed

its first order, and specifically recounted its judicial estoppel finding

of default. See

Coast II at 2-3. The court expressly relied on the default finding to

hold that Coast could

not make a prima face case of discrimination in both its federal and state

claims because

it could not prove that Coast was qualified to continue to receive credit.

Id. at 20-21.

The court stated at length that its finding of default barred Coast in its

discrimination

claim. Id. The court also noted that even if Coast could make out a

prima facie case,

VCI had a race-neutral reason for its action: that Coast was in default,

as decided in

Coast I by judicial estoppel. Id. at 21-22. The court concluded that

Coast's

discrimination claims were "bereft of any evidence that VCI intentionally

discriminated

against Coast... when it exercised its rights under the parties'

agreements and foreclosed

on its collateral." Id. at 22 (emphasis added). Because the District

Court's dismissal of

these discrimination claims was based heavily on the judicial estoppel

finding of default,

we vacate as to these claims.

B. Claims Dismissed on Grounds Independent of Judicial Estoppel

The District Court dismissed nine of Coast's claims against VCI

without reliance

on the judicial estoppel analysis. We do not find any error in the

court's treatment of the

following claims, and therefore we affirm the grant of summary judgment to

VCI on

these claims.

With regard to Count Two, Breach of Fiduciary Duty, the court

concluded that "no

independent fiduciary duty is generally owed from a lender to a borrower"

and that

"plaintiff has failed to show that defendants owed plaintiff a separate

duty of care outside

of its obligations under the various loan agreements." Coast I at 8.

Although this

discussion occurred in the same section in which judicial estoppel was

invoked, the court

did not rely on the default finding for dismissal. We therefore affirm as

to this claim.

The court held on Count Three, Fraud, that "a mere alleged breach of

contract

without more does not create the existence of a fraud claim" and that

plaintiff failed to

plead fraud with particularity under Federal Rule of Civil Procedure Rule

9(b). Id. at 9-

10. Default played no role, and we find no error, so we affirm. On Count

Five, Trespass,

the court similarly did not rely on the default finding but stated that

"if an individual has

a cognizable right to enter the property, no action for trespass may lie"

and that here

"defendants had a contractual right to enter Coast's premises in order to

inspect and

safeguard its collateral, as well as to review Coast's books and records."

Id. at 10. To be

invoked, the contractual right to enter Coast's premises, inspect, and

review did not

require default by Coast. We affirm the dismissal of the trespass claim.

Count Eight was dismissed because Coast did not meet the elements of

"industrial

espionage." The court construed Count Nine as alleging tortious

interference with

prospective economic advantage, and found that Coast presented no evidence

to support

several of the elements of that claim. The court dismissed Count Ten,

Unwarranted

Issuance of Subpoenas, because Coast presented no evidence that subpoenas

were issued

wrongly. On none of these counts did the court rely on the default

finding, and we find

no error in its consideration of these claims. Id. at 16-17. We

therefore affirm as to these

claims.

The court found that the bankruptcy remedy of Equitable

Subordination, which

Coast requested in Count Eleven, was not warranted here because Coast's

bankruptcy

case had been dismissed, Coast lacked standing to bring such a claim, and

because the

equitable remedy was not justified on the facts of this case. Id. at 11-

12. Default played

no role, and we find no error. We affirm the dismissal of Count Eleven.

The court found that Coast presented no evidence of agreement to

support its

claim of Conspiracy between VCI and codefendants AOA and VOA. Id. at 12.

Again,

default played no role, and we affirm. Finally, the court dismissed Count

Sixteen,

Violation of 42 U.S.C. 1982, because 1982 does not protect contract

rights such as

those asserted to be violated here, and therefore Coast could not state a

claim under

1982. We affirm.

IV

For the foregoing reasons, we hold that the District Court abused its

discretion in

invoking judicial estoppel to find that Coast defaulted on the Agreements.

We vacate the

District Court's grant of summary judgment in favor of VCI on claims

decided on the

basis of the court's application of judicial estoppel: Counts One, Four,

Six, Seven,

Thirteen, Fourteen, and Fifteen of Coast's Complaint. We affirm the grant

of summary

judgment in favor of VCI on the remainder of Coast's claims: Counts Two,

Three, Five,

Eight, Nine, Ten, Eleven, Twelve, and Sixteen. We remand to the District

Court for

further proceedings.

_____________________________

TO THE CLERK OF THE COURT:

Kindly file the foregoing Opinion.

/s/ Julio M. Fuentes

Circuit Judge