In Ralph Roberts Realty, LLC v Hadel, an unpublished Michigan Court of Appeals case, the Plaintiff and the defendant entered into several contracts, some written and some oral, whereby Plaintiff agreed to locate and acquire foreclosure properties for Defendant, with the properties to be titled in Defendant’s name. The contracts required Defendant to pay $5,000 for each transaction, together with 50% of the equity of the properties. Eight properties were acquired pursuant to written agreements before Plaintiff filed bankruptcy, and an additional five were acquired after Plaintiff filed bankruptcy without written agreements.
Plaintiff failed to disclose that it held any causes of action against Defendant in the bankruptcy proceedings and listed the eight contracts with a value of zero. After the Plaintiff’s Chapter 11 plan was confirmed, Plaintiff filed suit against Defendant for breach of the contract. Defendant asserted as defenses the doctrine of judicial estoppel and the statute of frauds. The trial court granted Defendant summary disposition and Plaintiff appealed.
The Michigan Court of Appeals affirmed. As to the eight contracts not properly disclosed in the bankrupty case, the court held that the Plaintiff was judicially estopped from pursuing those claims. The elements of judicial estoppel are: (1) the plaintiff is pursuing a position contrary to the one he asserted in the bankruptcy proceedings; (2) the bankruptcy court adopted the prior position either as a preliminary matter or as a final position; (3) Plaintiff’s omission was not the result of mistake or inadvertence. In determining mistake or inadvertence, the court will examine whether (1) plaintiff lacked knowledge of the basis for the undisclosed claims, (2) whether plaintiff had a motive for concealment, and (3) whether the evidence indicates the presence of absence of bad faith.
The court found that the evidence demonstrated that Plaintiff knew of the existence of the contracts and the potential claims, had a motive to conceal them because it reduced Plaintiff’s assets available to pay its creditors, and that Plaintiff made no attempt to advise the bankruptcy court of the omitted claims. Thus, dismissal of the eight pre-bankruptcy claims was proper.
The five contracts subsequent to the bankruptcy were all oral. Plaintiff claimed that they were not barred by the statute of frauds. However, the statute of frauds applies to any “interest” in land, and the claim for 50% of the equity of the properties was a sufficient interest in land to invoke the statute of frauds.