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Ryan Operations G.P. v. Santiam-Midwest Lumber Co.

April 15, 1996

RYAN OPERATIONS G.P., A VIRGINIA GENERAL PARTNERSHIP AND NVR, L.P., A VIRGINIA LIMITED PARTNERSHIP, ON BEHALF OF ITS DIVISION, NVR BUILDING PRODUCTS CO.

v.

SANTIAM-MIDWEST LUMBER CO., AN OREGON CORPORATION; FURMAN LUMBER, INC., A MASSACHUSETTS CORPORATION; BRIGHT WOOD CORP., AN OREGON CORPORATION BRIGHT WOOD CORP., THIRD PARTY PLAINTIFF

v.

FORREST PAINT CO., INC., AN OREGON CORPORATION; GUARDSMAN PRODUCTS, INC., A DELAWARE CORPORATION, THIRD PARTY DEFENDANTS RYAN OPERATIONS G.P. AND NVR, L.P. AND ITS DIVISION, NVR BUILDING PRODUCTS CO., APPELLANTS



On Appeal from the United States District Court for the Western District of Pennsylvania

(D.C. Civ. No. 92-2480)

BEFORE: SLOVITER, Chief Judge, STAPLETON and SAROKIN, Circuit Judges

SAROKIN, Circuit Judge

Argued: December 4, 1995

OPINION OF THE COURT

This case raises issues concerning the application and scope of the doctrine of judicial estoppel. The district court, upon recommendation of a United States Magistrate Judge, granted summary judgment in favor of defendants on the theory that plaintiff, having failed to disclose its claims against defendants as a contingent asset in its Chapter 11 bankruptcy proceedings, was judicially estopped from seeking to recover on those claims. For the reasons that follow, we will reverse.

I.

Ryan Operations, plaintiff in this matter *fn1, is in the business of constructing homes. This action arises out of a commercial dispute between Ryan and the manufacturer and suppliers of primed Fingerjointed Ponderosa Pine wood trim that Ryan purchased between January 1988 and June 1991 and used in the construction of several thousand new homes. Ryan purchased the wood trim from Santiam-Midwest Lumber Co. ("Santiam") from January 1988 to March 1990, and from Furman Lumber, Inc. from March 1990 to June 1991. The trim was manufactured by Bright Wood Corporation.

In July 1989, Ryan began receiving complaints from homeowners that the paint and underlying primer were peeling off the Ponderosa Pine trim on their new homes. Ryan informed Santiam of the problem, and Santiam suggested that Ryan switch to a different brand of primer. Ryan did so, but the problems continued and the complaints increased. As a result, Ryan instituted a consumer repair program in the fall of 1991, pursuant to which it has repainted and/or replaced the wood trim on hundreds of houses. Ryan is currently engaged in the costly process of replacing the trim on Ryan homes in several states.

In April 1992, Ryan filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. In re NVR L.P., No. 92-11704-T (Bankr. E.D. Va. Apr. 6, 1992). The following month it filed its Schedule of Assets and Liabilities and Statement of Financial Affairs pursuant to Bankruptcy Code Section(s) 521. Although the Code requires the debtor to disclose all claims and causes of actions as contingent assets, Ryan did not mention any potential claims that it might have from the allegedly defective Ponderosa Pine trim.

In June 1992, the bankruptcy court entered an order authorizing Ryan to retain counsel to represent Ryan in lawsuits by and against it in the ordinary course of business. Among the "Routine Claims" that Ryan listed for the bankruptcy court were a class of "homeowners claims," nonspecifically defined as claims "by or against contractors or suppliers or relating to or arising out of the provision of services or material to the Debtors." App. 189-90. The court authorized Ryan to pursue and/or defend itself against such claims.

Subsequently, in December 1992, while the bankruptcy proceeding was still pending, Ryan filed suit in district court against Bright Wood, Santiam and Furman Lumber, alleging various breach of warranty claims arising out of the sale and manufacture of the Ponderosa Pine trim and seeking to recover the costs incurred in its consumer repair program.

In July 1993, without ever having been specifically informed of the pending lawsuit or the potential for recovery, the bankruptcy court confirmed Ryan's reorganization plan. Ryan emerged from bankruptcy the following month.

In September 1994, defendant Bright Wood moved for summary judgment on judicial estoppel grounds, arguing that Ryan's failure to inform the bankruptcy court of its warranty claims against Bright Wood precluded Ryan from pursuing those claims in the district court. Santiam, Furman, and the third-party defendants (who manufactured the primers used on the wood trim) joined in Bright Wood's motion. Upon recommendation of a United States Magistrate Judge, the district court granted summary judgment against Ryan on March 21, 1995, on the ground of judicial estoppel alone. From that ruling, Ryan appeals.

II.

The district court had jurisdiction pursuant to 28 U.S.C. 1332(a)(1). We have appellate jurisdiction pursuant to 28 U.S.C. 1291.

III.

We exercise plenary review over the district court's order granting summary judgment. Mark v. Borough of Hatboro, 51 F.3d 1137, 1141 (3d ...


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