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Karoly v. Schwab

United States District Court, Third Circuit

December 31, 2013

JOHN P. KAROLY, JR., Appellant,
WILLIAM G. SCHWAB, Chapter 7 trustee for CLEARVIEW BUILDERS, INC. Appellee,


MALACHY E. MANNION, District Judge.

Pending before the court is the appellee's William G. Schwab as Chapter 7 trustee for Clearview Builders, Inc., motion to dismiss the appellant's appeal from judgment from the Bankruptcy Court. (Doc. No. 12). The appellee makes three central arguments in his brief in support of dismissing the instant appeal: (1) judicial estoppel bars the appellant's claim; (2) the bankruptcy's determination was based on a weighing of credibility and no clear error is evident; and (3) the appellant's credibility has been impeached, so his testimony should be discounted. (Id.). (Doc. No. 13). The appellant filed a response, (Doc. No. 16), and a brief in opposition, (Doc. No. 17) on June 21, 2013. The motion is now ripe for the court's ruling.


This court has jurisdiction under 28 U.S.C. ยง 158(1)(a). Given the limited nature of the motion to dismiss, only the necessary facts will be discussed. The parties agree that the central issue on appeal is whether the Bankruptcy Court's order denying the appellant's Motion for an Order Determining Ownership of Proceeds Escrowed By the Trustee Following the Sale of Certain Property in Milford Township. (Doc. No. 10). That motion was denied and the trustee therefore did not turn over those funds to the appellant. (Id.).

The appellant, a former attorney, represented the debtor in various civil and criminal proceedings in 2005-2007. (App. 335-360). They had no written fee agreement for this representation. (App. 217). During that time, the debtor had insufficient funds to pay for the appellant's services, so he signed over a 24-acre Milford Township property, known as the "Glen Lane Property, " to the appellant. (App. 217). The appellant now alleges the property was owned by Phoenix Soil, LLC, a company owned by the debtor. Subsequently, that property was taken by the Chapter 7 trustee in default against the debtor and a series of companies he owned. (App. 33-34). The appellant filed a Proof of Claim for outstanding fees and money owed by the debtor on November 19, 2007. (App. 35-66).

The Chapter 7 bankruptcy trustee then filed a motion to sell the Glen Lane Property, (App. 81), that was approved by the bankruptcy court on February 21, 2007, after the appellant and the debtor withdrew their objections. (App. 93). The funds were placed into escrow and the appellant's claim to the proceeds was preserved. (Id.). The trustee then filed an objection to the appellant's proof of claim. (App. 67-70).

On September 20, 2011 the bankruptcy court held a one-day trial on the issue of the trustee's objection to the appellant's Proof of Claim. (App. 315-317). The appellant was granted partial summary judgment on the Proof of Claim. (App. 652). The appellant then filed a Motion for an Order Determining Ownership of the Proceeds Escrowed by the Trustee following the sale of the Glen Lane Property. (App. 653-56). On November 7, 2013, and December 6, 2013, the bankruptcy court held oral arguments on the issue and denied the appellant's motion. (App. 747-48, 755). This appeal followed.

The appellee has also included a transcript of a court hearing from January 4, 2006 where the appellant appeared on behalf of the debtor in the Pennsylvania Court of Common Pleas for Bucks County ("the Buck's County Case"). (Doc. No. 12, Exh. 1). In that transcript, the appellant notes that another individual may be the owner of Phoenix Soil, LLC. (Id.). The appellee claims that this would judicially estop the appellant from arguing that the debtor now owned the company.


A. Judicial Estoppel is Not Appropriate

The appellee claims that because the appellant represented the debtor in a prior action and told the court "it gave the Court a hint that [this other person] is the legal owner of [Phoenix Soil, LLC] per this individual's recollection, but that recollection is two year's old stale, " (Doc. No. 12, Exh. 1), the appellant should be estopped from now arguing that the debtor owned that same corporation. (Doc. No. 10). As an initial matter, although the document is a public record, it was not before the bankruptcy court and the appellee points to no place in the record where this information was presented. "Items not before the Bankruptcy Court and not considered by it in rendering its decision may not be included in the record." In re Neshaminy Office Bldg. Assocs., 62 B.R. 798, 802 (E.D.P a. 1986). Moreover, "[a]n appellee who believes that other parts of the record are necessary must, within 14 days after being served with the appellant's designation, file with the clerk and serve on the appellant a designation of additional parts to be included." Rule 6 Fed. Rules Of App. P. The appellee did not file this additional document in a timely fashion, so it need not be considered.

Even if the court could consider this transcript, judicial estoppel is not appropriate.

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 Med. Group Participating Savings Plan v. Bulger , 243 F.3d 773, 777 (3d. Cir. 2001)(emphasis added). Here, the appellant was not a party - he represented the debtor in the instant matter. Second, his position is in regard to the evidence before the court, not an equivocal statement about ownership of the company. The evidence presented, not included in the transcript, may well have established that the other individual appeared to be the owner. In sum, the court declines to estop the appellant at this stage of the proceeding. ...

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