Link: http://courtofappeals.mijud.net/documents/OPINIONS/FINAL/COA/20070308_C268550_51_268550.OPN.PDF
Underlying Case or Transaction: Probate
Key Concepts: (1) judicial estoppel and (2) causation
Petitioners appealed a probate court order granting summary disposition in favor of respondent law firm on the basis of judicial estoppel and the law firm appealed the denial of summary judgment based on causation. The court of appeals affirmed.
Brian Kelly ("decedent") died unexpectedly. He had a complex estate plan including several trusts. Two of the petitioners (Dennis and Sean Kelly) were trustees of the Family Trust ("trust"), which was a contingent beneficiary of an IRA that decedent had opened with Charles Schwab. The IRA was funded by six mutual funds, which were very volatile and the value of the IRA diminished dramatically before the funds could be distributed to the beneficiaries.
The basis of petitioners' claims was that the law firm allegedly delayed in advising or assisting them in effectuating the transfer of the IRA to the petitioners' control. Allegedly, the delay caused a significant diminution in value of the IRA. The complaint alleged that when decedent died on August 20, 2000, the value of the IRA was $675,000, but because of the law firm's delay the petitioners could not obtain access to the IRA until April 2001, by which time the value of the IRA had decreased by approximately $470,000.
The law firm moved for summary disposition on the grounds that petitioners' damages were speculative, the statute of limitations had expired, the petitioners were judicially estopped from asserting a different, higher value for the IRA than the value the petitioners had previously asserted in their First Annual Account of Fiduciary, which had been accepted by the Emmet County Circuit Court, and on the ground that there was no genuine issue of material fact regarding whether the respondents had caused petitioners' damages.
Regarding judicial estoppel, the law firm asserted that the petitioners had previously been sued by their siblings due to the decrease in the value of the IRA. During that proceeding, the petitioners had filed an accounting for the trust. That accounting, which was approved by the circuit court, asserted that the value of the IRA on the date the decedent died was $393,112.22. Therefore, the law firm argued, petitioners were estopped from disputing the value of the IRA as established in the accounting.
The probate court granted the law firm's motion, ruling that the petitioners were judicially estopped from claiming that the value of the decedent's IRA was more than $393,116.22 on the date of his death. This ruling effectively eliminated a large portion of the petitioner's claimed damages. While the probate court granted the portion of the law firm's summary disposition motion based on estoppel, the probate court denied the portion of the law firm's motion based on causation.
On appeal, the court affirmed the probate court's ruling on judicial estoppel. The court first explained the elements and rationale of judicial estoppel: "The purpose of judicial estoppel is to protect the integrity of the judicial process. The doctrine of judicial estoppel is sometimes described as the doctrine against the assertion of inconsistent positions. Judicial estoppel is widely viewed as a tool to be used by the courts in impeding those litigants who would otherwise play fast and loose with the legal system. It is intended to protect the courts from being manipulated by chameleonic litigants who seek to prevail, twice, on opposite theories. Judicial estoppel must be cautiously applied. It is an extraordinary remedy that should only be invoked when a party's inconsistent behavior would otherwise result in a miscarriage of justice. Michigan has adopted the prior success model of judicial estoppel, which prevents a party who has successfully and unequivocally asserted a position in a prior proceeding from asserting an inconsistent position in a subsequent proceeding. The mere assertion of inconsistent positions is not sufficient to invoke judicial estoppel. In order for the doctrine to apply, there must be some indication that the court in the earlier proceeding accepted the party's position as true, and the claims in the earlier proceeding and the subsequent proceeding must be wholly inconsistent." [Citing Opland v Kiesgan, 234 Mich App 352 (1999) and Paschke v Retool Industries, 445 Mich 502 (1994)].
The court then described how the facts of this case warranted a finding that the petitioners were judicially estopped from asserting a higher value for the trust than what they had previously asserted. In the prior action, the petitioners had been sued by their siblings for mismanaging the trust. One of the issues in that case was the value of the IRA on the date of the decedent's death. The petitioners had filed an accounting for the trust placing the value of the IRA on that date at $393,116.22. The siblings filed objections to the accounting, but the court accepted the petitioners' accounting.
The court of appeals explained that judicial estoppel applied here because: (1) the petitioners asserted the lower value for the IRA in the prior action; (2) the court in that action accepted the lower value; and (3) the higher value claimed in this litigation was wholly inconsistent with the lower value claimed in the previous litigation. The result of the court of appeals' ruling was that the damages the petitioners could seek was limited to the difference between the value the petitioners had previously successfully asserted and the subsequent diminution in value.
The court then addressed the law firm's causation argument. The probate court had denied the law firm's motion on this ground. On appeal, the court affirmed the probate court's denial of summary disposition.
Petitioners claimed that the law firm's delay in helping them gain access and control over the decedent's IRA caused the decrease in the value of the IRA. The petitioners also claimed that the law firm orchestrated the transfer of the funds in the IRA to the trust in a manner which would have caused a substantial tax liability to the estate.
The court noted that it was clear that the petitioners were relying on the skill and knowledge of the law firm regarding the handling of the decedent's estate and specifically the IRA. Petitioners claimed that they informed the law firm that the mutual funds in the IRA were very volatile on August 21, 2000. The law firm's own records showed that the firm was having discussions with the brokerage for the IRA as early as September 8, 2000. Petitioner's expert testified that within 48 hours of learning that an asset in the estate is volatile, a reasonable and prudent probate lawyer would have undertaken to transfer the funds into more conservative holdings. The funds were not transferred for more than three months after the decedent's death. Viewing the evidence in the light most favorable to the petitioners, the court of appeals held that the law firm knew the funds in the IRA were volatile. The evidence also showed that a reasonable attorney would have taken steps within 48 hours to transfer the funds into safer investments, yet the law firm did not do so. Therefore, the petitioners had established a question of fact regarding causation.
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