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Nicholson v. Thrifty Payless, Inc.

United States District Court, W.D. Washington, Seattle

February 5, 2015

BRENT NICHOLSON, et al., Plaintiffs,
THRIFTY PAYLESS, INC., et al., Defendants.


ROBERT S. LASNIK, District Judge.

This matter comes before the Court on "Defendants' Motion for Summary Judgment." Dkt. #88. Summary judgment is appropriate when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine issue of material fact that would preclude the entry of judgment as a matter of law. The party seeking summary dismissal of the case "bears the initial responsibility of informing the district court of the basis for its motion" ( Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)) and "citing to particular parts of materials in the record" that show the absence of a genuine issue of material fact (Fed. R. Civ. P. 56(c)). Once the moving party has satisfied its burden, it is entitled to summary judgment if the nonmoving party fails to designate "specific facts showing that there is a genuine issue for trial." Celotex Corp., 477 U.S. at 324. The Court will "view the evidence in the light most favorable to the nonmoving party... and draw all reasonable inferences in that party's favor." Krechman v. County of Riverside, 723 F.3d 1104, 1109 (9th Cir. 2013). Although the Court must reserve for the jury genuine issues regarding credibility, the weight of the evidence, and legitimate inferences, the "mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient" to avoid judgment. City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1049 (9th Cir. 2014); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Factual disputes whose resolution would not affect the outcome of the suit are irrelevant to the consideration of a motion for summary judgment. S. Cal. Darts Ass'n v. Zaffina, 762 F.3d 921, 925 (9th Cir. 2014). In other words, summary judgment should be granted where the nonmoving party fails to offer evidence from which a reasonable jury could return a verdict in its favor. FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).

Having reviewed the memoranda, declarations, and exhibits submitted by the parties and having heard the arguments of counsel, the Court finds as follows:

A. Judicial Estoppel

On April 22, 2010, plaintiff Brent Nicholson and his wife filed for bankruptcy protection under Chapter 11. Although the bankruptcy proceeding was filed by the individuals, it was clear that the bulk of the couple's assets and liabilities were tied up in the various LLCs Nicholson had created to own and develop properties. In an amended schedule of assets filed on June 18, 2010, Nicholson disclosed six of the LLCs that are plaintiffs in this litigation and reported that his interest in the LLCs had a current value of $0.00. With regards to these six projects, Nicholson explained that each of the entities was "completely underwater based on the value of the property and the amount of secured debt." Nicholson Dep., Ex. 408 at ΒΆ 14. Defendants had not yet issued termination notices as to these six projects and have not shown that the valuation analysis was defective at the time it was made.

Nicholson did not, however, disclose the existence of the other four plaintiff LLCs, namely San Pablo Cruise, Oakley Dokley, Holy Rose, or Sunnyboy, and did not assign a value thereto. At the time the June 18, 2010, schedule was filed, defendants had already issued termination notices as to the San Pablo and Oakley projects. Plaintiffs have not attempted to explain why they failed to disclose companies in which Nicholson had a substantial interest (85% ownership) or why they failed to disclose the potential claims San Pablo Cruise and Oakley Dokley had against Rite Aid.

On June 8, 2011, Nicholson filed a "Periodic Report" disclosing all ten of the plaintiff LLCs and the percentage interest he owned in each entity. No statements regarding the LLCs' values or the value of the debtors' interests in the entities were provided. Nicholson simply noted the date on which the LLCs had lost or soon would lose control of each property and stated that the LLCs would be filing a lawsuit against Rite Aid Corporation.[1] Defendants had terminated all of the leases at that point.

The Disclosure Statement issued to all creditors and other interested parties who would have to decide whether to accept or reject the debtor's proposed plan of reorganization again failed to disclose the existence of San Pablo Cruise, Oakley Dokley, Holy Rose, or Sunnyboy. Plaintiffs rely on a reference in the Disclosure Statement to the June 8, 2011, filing to fill the void, but offer no explanation for why these assets were not affirmatively disclosed in this important document. With regards to the six LLCs that were disclosed, Nicholson justified a valuation of $0.00 using the following analysis:

The values have been determined by the Debtors based on their opinion of the market value of the limited liability company interests. This opinion has been based on information supplied by real estate and business brokers, but the Debtors have not hired any appraisers to make the determinations. In general the calculation of the market value was made based on an analysis of the gross value of the underlying assets owned by each entity less the outstanding debt owned by the entity. The Debtors' percentage interest in that net value figure for the entity is then further discounted based on application of traditional marketability and minority interest adjustments because any person buying the Debtors' interest in a limited liability company would become only the owner of an economic interest and would have no right to participate in management of any of the entities.

Decl. of Richard G. Birinyi (Dkt. #92), Ex. 3 at 12. This valuation methodology appears to be faulty in a number of respects, one of which is relevant to the judicial estoppel analysis. Nicholson fails to disclose, much less take into consideration, the claims asserted in this litigation. The methodology simply tallies up the assets owned by each LLC minus its outstanding debts. The only reference to a potential claim is found in a separately-filed document, the June 8, 2011, report, that itself contains no information regarding the nature or value of the claim.[2]

The Liquidating Plan of Reorganization approved by the Honorable Karen A. Overstreet, United States Bankruptcy Judge, on August 8, 2011, again fails to disclose the existence of San Pablo Cruise, Oakley Dokley, Holy Rose, or Sunnyboy and the claims asserted in this litigation. Decl. of Richard G. Birinyi (Dkt. #92), Ex. 8. The plan recognizes that the six disclosed LLCs, defined as "Exempt Asset Entities" in Schedule 2.26 of the plan, may have undefined "Damage Claims" against third parties, but abandons those claims to Nicholson in exchange for 10% of his share of any "Net Entity Litigation Proceeds" obtained in litigation.[3]

"Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001). "In the bankruptcy context, the federal courts have developed a basic default rule: If a plaintiff-debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the action." Ah Quin v. County of Kauai Dept. of Transp., 733 F.3d 267, 271 (9th Cir. 2013). Such a rule generally comports with the Supreme Court's analysis in New Hampshire v. Maine, 532 U.S. 742 (2001), because the positions taken are inconsistent ("there is not a claim" vs. "there is a claim"), the bankruptcy court accepted the prior representation (by allocating resources, discharging debts, and/or reorganizing debtors in reliance thereon), and the debtor obtained an unfair advantage (creditors did not have a chance to assess and benefit from the undisclosed assets before discharge or reorganization). Ah Quin, 733 F.3d at 271. Barring litigation of claims that were not disclosed in bankruptcy also furthers the underlying goal of judicial estoppel, which is "to protect the integrity of the judicial process" by prohibiting parties from "playing fast and loose with the courts." New Hampshire, 532 U.S. at 749-50; Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990).

Plaintiffs argue that (1) there were no inconsistent statements because all ten LLCs and their potential claims were disclosed in the June 8, 2011, report; (2) Nicholson's valuation of his interests in the LLCs was reasonable; (3) neither the presiding judge nor the Liquidating Trustee was misled regarding the existence and nature of the claims asserted in this litigation; (4) a final decree has not been entered in the bankruptcy proceeding and the bankruptcy court retains jurisdiction to ensure that the purposes and intent of the plan are carried out; (5) plaintiffs have not obtained an unfair advantage in this ...

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