RICHARD K. GOTTLIEB v. MICHAEL KEST

Filed 7/10/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

APPEAL from judgments of the Superior Court of Los Angeles County, Susan Bryant-Deason, Judge. Reversed.

Tesser & Ruttenberg and Brian M. Grossman for Plaintiff, Cross-defendant and Appellant.

Raymond L. Asher for Defendant, Cross-complainant and Respondent.

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In this action, plaintiff alleged that defendant, a coparticipant in a real estate venture, breached the parties' agreement to fund the project, causing plaintiff to lose the deal. Defendant filed a cross-complaint against plaintiff and plaintiff's companies, contending they had fraudulently obtained funds from him to pursue the deal. Plaintiff answered the cross-complaint. But plaintiff's companies, which had no assets, defaulted. The ensuing default judgment recited that plaintiff had personally committed acts of fraud in securing funds from defendant.

The trial court granted summary judgment in favor of defendant on the complaint based on the doctrine of judicial estoppel, which protects the integrity of the judicial process by preventing a party from taking inconsistent positions in separate cases. In a prior bankruptcy case, plaintiff did not list any legal claims as assets, an omission seemingly at odds with the filing of this action. We conclude that, in accordance with the principles of judicial estoppel, the summary judgment must be reversed because the bankruptcy court did not adopt or accept the truth of plaintiff's omission, eliminating any threat to judicial integrity.

On the cross-complaint, the trial court entered judgment against plaintiff based on the doctrine of collateral estoppel, which precludes a party from relitigating issues actually decided in a prior proceeding. The trial court reasoned that the default judgment entered against plaintiff's companies precluded him from litigating his individual liability because he was in privity with them. Although a default judgment may have collateral estoppel effect in certain circumstances, there was no privity here because plaintiff's interests in defending the cross-complaint differed significantly from the interests of his companies, namely, the companies could not afford counsel and had no assets. Accordingly, we reverse the judgment on the pleadings.

I

BACKGROUND

On March 2, 2001, plaintiff Richard Gottlieb filed this action against Michael Kest, individually and as the trustee of the Kest Children's Trust (Trust). Kest later filed a cross-complaint against Gottlieb and others.

A. The Complaint

On June 19, 1998, William Stoll entered into an agreement to buy 146 acres of raw land located in Las Vegas, Nevada, from Nevada Ready Mix Corporation. The purchase price for the property, known as the â€