Claimants Can't Have Their Cake and Eat It Too

In a rarely seen application of the judicial estoppel doctrine in the third-party coverage context, on Aug. 1, 2024, the Eleventh Circuit Court of Appeals estopped the holder of an intentional tort judgment from garnishing the proceeds of the judgment debtor’s liability policy, which applied only to negligence.

In Compulife Software Inc. v. Zurich, 2024 WL 3618439 (11th Cir. Aug. 1, 2024), Compulife sued insurance agent Binyomin Rutstein and several codefendants for misappropriation of trade secrets, an intentional tort. Compulife successfully urged the court at a nonjury trial to find Rutstein and his codefendants liable jointly and severally for each other’s misconduct. 

After securing a judgment against Rutstein for all damages caused by Rutstein and his codefendants, Compulife filed a garnishment action against Rutstein’s errors and omission insurer, Zurich. In the garnishment proceeding, Compulife asked the court to focus on Rutstein’s conduct alone in assessing whether the conduct qualified as a “negligent act, error, or omission” within the insuring agreement. The trial court did so, but nonetheless determined that Rutstein’s separate conduct was intentional, not negligent. Compulife appealed.

The Appeal

On appeal, the Eleventh Circuit summarily agreed with the trial court’s conclusion that Rutstein’s conduct was intentional. The court then raised, sua sponte, judicial estoppel as an additional basis to affirm summary judgment for Zurich. The judicial estoppel doctrine, held the court, prevented Compulife from obtaining insurance coverage by arguing that Rutstein’s tortious conduct was merely negligent. 

As explained by the court, “[j]udicial estoppel generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.” Compulife, 2024 WL 3618439. Citing Robinson v. Tyson Foods, 595 F.3d 1269, 1273 (11th Cir. 2012), the court reviewed the following three factors that typically control whether judicial estoppel applies:

(1) whether a party’s present position is clearly inconsistent with the earlier position;

(2) whether the party succeeded in persuading a court to accept the earlier position so that judicial acceptance of the inconsistent position in a later proceeding would create the perception that either the first or second court was misled; and

(3) whether the party advancing the inconsistent position would derive an unfair advantage.

The court found that all three Robinson factors were present. First, Compulife’s present position that Rutstein’s conduct was accidental conflicted with its earlier position that Rutstein was jointly and severally liable with his codefendants for an “intentional tort.” Second, Compulife succeeded on its earlier position by persuading the trial court that “Rutstein acted in a manner that made him liable for an intentional tort.” Accepting Compulife’s current position that Rutstein’s conduct was “at most negligent” would “create the perception that the court was misled concerning Rutstein’s liability.” Third, Compulife sought to derive an unfair advantage from advancing these inconsistent positions in the tort and coverage actions.

With consistent positions, Compulife would be unable to collect from Zurich because either: (1) Rutstein acted willfully, and so he is liable but not covered by the negligence-only policy, or (2) Rutstein acted negligently and so he is covered, but he is not liable for an intentional tort. Only by advancing inconsistent positions can Compulife have its cake and eat it too—holding Rutstein liable for an intentional tort and collecting on his negligence-only liability policy. This unfairness is the very consequence that the doctrine of judicial estoppel seeks to avoid.

Missing from the court’s opinion was any discussion of the level of intent necessary for a defendant to misappropriate trade secrets. In a separate opinion issued the same day in the appeal stemming from the underlying tort judgment, however, the Eleventh Circuit rejected the argument of Rutstein and his codefendants that principles of comparative fault should have limited the amount of the court’s judgment against each of them, reasoning “[j]oint and several liability’s whole purpose is to treat the defendants as equally responsible, regardless of their fault.” [Compulife Software, Inc. v. Newman, 2024 WL 3611013, at *10 (11th Cir. Aug. 1, 2024)].

This article originally appeared on Butler Weihmuller Katz Craig.

About the Author:

Fay Ryan is a partner at Butler Weihmuller Katz Craig. fryan@butler.legal