COAST AUTOMOTIVE GROUP, LTD., a Delaware Corporation d/b/a/ TSE MOTOR CARS v. VW CREDIT, INC., a Corporation

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 00-5200
___________
COAST AUTOMOTIVE GROUP, LTD.,
a Delaware Corporation d/b/a/ TSE MOTOR CARS,
Appellant
v.
VW CREDIT, INC., a Corporation; VOLKSWAGEN OF AMERICA,
a Corporation; AUDI OF AMERICA, a Corporation; MARGE YOST;
MICHAEL RUECKERT; STEPHEN JOHNSON
___________
On Appeal from the United States District Court
for the District of New Jersey
District Court Judge: The Honorable Garrett E. Brown, Jr.
(D.C. Civil No. 97-2601(GEB)
___________
Argued on December 7, 2001
Before: MANSMANN, ROTH, and FUENTES, Circuit Judges
(Opinion Filed: January 29, 2002)
________________________
OPINION OF THE COURT
________________________ FUENTES, Circuit Judge:
This is an appeal by Plaintiff Coast Automotive Group, Ltd. ("Coast") from a
grant of summary judgment in favor of Defendant VW Credit, Inc and several of its
employees. (collectively "VCI"). Coast’s primary contention on appeal is that the
District Court improperly invoked judicial estoppel to dismiss its claims. Because we
conclude that the District Judge failed to apply the standards for the use of judicial
estoppel in accordance with this Court’s decision in Montrose Med. Group Participating
Sav. Plan et al. v. Bulger, 243 F.3d 773 (3d Cir. 2001), we vacate as to claims dismissed
on the basis of judicial estoppel. However, we hold that the District Court did not err in
any of its other findings, and therefore affirm the grant of summary judgment on claims
dismissed on a basis independent of judicial estoppel.
I
Coast owns new vehicle dealership franchises in Toms River, New Jersey. VCI
provided Coast with floor plan financing beginning in 1991. Under a series of Master
Security Agreements ("Agreements"), VCI advanced funds to Coast for the purchase of
vehicle inventory and Coast granted VCI a security interest in the vehicles, the proceeds
from sale of the vehicles, and in other assets of Coast. Coast paid interest on the
advances to VCI, and the agreements stated that when Coast sold a vehicle from
inventory, the principal on the advance would be "promptly and fully paid off" to VCI.
The agreements dictated that Coast would hold any unpaid and past due indebtedness "in
trust" for VCI, but they did not specify a deadline or time period for payment of
principal. The agreements contained default provisions under which VCI had the right to

-- 1 of 9 --

terminate the Agreement, refuse to advance additional funds, and accelerate and declare
all debt immediately due if Coast defaulted on its obligations.
On December 12, 1995, VCI called Coast into default and, under the default
provisions, terminated its credit line with Coast and accelerated the remaining
outstanding balance of Coast’s debt to VCI, a debt totaling over $6 million. VCI also
filed a complaint in the Superior Court of New Jersey, Chancery Division against Coast,
Coast President Tamim Shansab, and others. VCI alleged that Coast had failed to pay off
48 vehicles in a timely fashion, and VCI sought to force Coast to repay its total debt and
enjoin Coast from disposing of VCI’s collateral. Three days later on December 15, 1995,
Coast filed a Chapter 11 petition in the United States Bankruptcy Court for the District of
New Jersey.
On December 13, 1995, at a hearing in the New Jersey Superior Court matter, the
court engaged in a colloquy regarding Coast’s debt status with Coast’s counsel Richard
S. Mazawey:
THE COURT: Well, isn’t the company out of trust as they say?
MAZAWEY: Yes it is, Judge, at the present.
...
MAZAWEY: And, what we’re saying is, is that due to the diligent notice
and the good faith of the Defendant, in light of that
circumstance, in light of there being a short fall in trust,
which we disagree, your Honor, as to the extent of the short
fall.
THE COURT: I know, but if you say there’s 300,000 but it’s a mill
well that still leaves a million-one.
MAZAWEY: Well, in actuality, Judge, there’s just about 700,000...
VCI App. at 304-05. In a hearing in the Bankruptcy Court on January 18, 1996, Shansab
testified concerning the state of Coast’s indebtedness to VCI in response to questioning
by the Bankruptcy Judge, the Honorable Stephen A. Stripp:
THE COURT: You didn’t you didn’t testify because you weren’t
whether the Debtor was in default to VCI on the floor
plan line when VCI took the action that it took in State
Court, was it?
SHANSAB: Was I in default, sir?
THE COURT: Yes.
SHANSAB: Yes.
...
THE COURT: ...What was the nature of the default?
SHANSAB: Principal payments had not been made on units. ...
THE COURT: Have you ever heard the term, "out of trust?"
SHANSAB: Yes, Your Honor
...
THE COURT: What does it mean to you?
SHANSAB: It means that you have sold a car and you have not r
payment in time.
THE COURT: Is that what transpired? Was that part of the default
the Debtor with respect to this working capital line?
SHANSAB: To the floor plan line you mean?
THE COURT: Floor plan line.
SHANSAB: Yes, Your Honor.
THE COURT: And how much were you out of trust?
SHANSAB: The day I sat down with the with the gentleman from
the calculations that we came up with were in the 700,000
range.
VCI App. at 324-25. The next day, Shansab and his bankruptcy counsel Gary Marks
made further statements regarding Coast’s debt status under cross-examination by VCI
counsel Stephen Ryan:
RYAN: Okay. In fact, you’d sold some cars to customers, Coa
received payment from third party finance sources or from the

-- 2 of 9 --

buyer directly for those purchases, is that right?
SHANSAB: That is correct.
RYAN: Coast didn’t make any payment to VCI for the sale of t
cars did it?
THE COURT: Isn’t it stipulated that there is $700,000 out of trus
Marks?
MARKS: I believe that was Mr. Shansad’s [sic] testimony yeste
don’t know that they have stipulated to that amount, but that
was his testimony.
THE COURT: All right.
RYAN: Judge, we would stipulate that there are out of trust
that is what I’m trying to establish
THE COURT: Well, it is stipulated. So let’s not waste time going
that are stipulated. He stipulates that he is out of trust.
RYAN: You were out of trust with VCI before you filed your p
in Bankruptcy?
SHANSAB: That is correct.
VCI App. at 330-31.
Several months later, in a deposition for the New Jersey Superior Court
proceedings on July 23, 1996, Shansab attempted to explain that his prior testimony to
the Bankruptcy Court was based on information provided to him by VCI and did not
reflect his personal understanding that Coast had defaulted or was "out of trust":
STEWART: Do you understand "out of trust" to mean you sold a ca
you have not remitted payment in time? Is that your
understanding of "out of trust," sir?
SHANSAB: My understanding is that I have a line of credit with
I don’t believe I’ve ever been out of trust.
STEWART: Do you recall testifying under oath on January 18, 199
... [Shansab reviews a transcript of the Bankruptcy Court testimony] ...
SHANSAB: To me out of trust in this case is when you can’t trus
lender, and in this case I’m certainly VCI is certainly out of
trust with me.
STEWART: Sir, is this the answer that you gave to Judge Stripp?
Shansab the bankruptcy testimony]... You said that right? ...
SHANSAB: This happened under extreme pressure, and at that time
no information as to what VCI’s actions had been up to that
point, and, you know, when I testified here, all I had to rely
on was what Steve Johnson and VCI had been telling me up
to that point.
STEWART: Based on what Steve Johnson had been telling you up to
point, did you understand that you were out of trust?
SHANSAB: I have never been out of trust, period...
...
STEWART: Sir, the sworn testimony that you gave to Judge Stripp
respect to out of trust, that’s not accurate, is it?
SHANSAB: I didn’t say that, Mr. Stewart. I said that everythin
rely on at that point is the word of a Steven Johnson from
VCI...
...
STEWART: Did you state anywhere in your testimony to Judge Stri
you were relying upon the information provided by Steve
Johnson?
SHANSAB: I don’t believe that that question ever came up...
...
STEWART: But you did testify to Judge Stripp under oath that th
calculations that you came up with Steve Johnson, that it was
that you were out of trust in the $700,000 range?
SHANSAB: I never calculated that. That was Steven Johnson -- I
answered the question that we came up with that. I never sat

-- 3 of 9 --

down with Steven Johnson and came up with that calculation
like that...
I did not sit down with Steven Johnson, go over any fi
He sat down, went over his own figures.
Coast App. at 602a-606a.
On January 21, 1997, Coast filed an adversary proceeding in the Bankruptcy Court
against VCI, several VCI employees, and VCI’s parent companies Volkswagen of
America (VOA) and Audi of America (AOA). Because Coast demanded a jury trial, the
case was referred to the District Court for the District of New Jersey. Coast’s Complaint
contained 16 claims against VCI, all stemming from the basic allegation that VCI’s call
of Coast into default was wrongful and constituted a breach of the Agreements.
VCI filed a motion for summary judgment on all claims against it on November
11, 1997. Among other filings in response to VCI’s motion, Coast submitted a
Certification of Tamim Shansab in which Shansab reiterated the explanation of his
Bankruptcy Court testimony that he provided in his state court deposition. See Coast
App. at 135a-139a (Certification of Tamim Shansab).
In an order issued on April 24, 1998, the District Court granted VCI summary
judgment on Counts 1-13 and 16 of Coast’s complaint. Judge Brown invoked the
doctrine of judicial estoppel to find Coast had defaulted on its obligations under the
Agreements. The parties did not brief judicial estoppel, nor did the issue arise in oral
argument before the District Court. Yet the court applied judicial estoppel to bar Coast
from claiming that it was not in default because Shansab and Coast’s counsel had
represented in the bankruptcy hearing and the state court hearing that it was in default
and "out of trust."
The court concluded that "[t]he record clearly indicates that Coast had defaulted
on the agreements by failing to make payments to VCI and was consequently ’out of
trust.’" Coast Automotive Group v. VW Credit, Inc. et al., Civ. No. 97-2601(GEB), at 5-
6 (D.N.J. Apr. 24, 1998) (hereinafter "Coast I") (citing Shansab’s testimony before the
Bankruptcy Court and counsel’s statements to the Bankruptcy Court and the New Jersey
Superior Court). In a footnote, the court considered Shansab’s explanation of his
Bankruptcy Court statements in his state court deposition and in the summary judgment
certification, but decided that because Shansab contradicted himself on the meaning of
"out of trust," such inconsistent statements could not be used to create material issues of
fact sufficient to preclude summary judgment. Id. at 6 n.2.
In finding that Coast defaulted under the Agreements, the court stated:
Thus, under default provisions in the agreements, VCI was entitled to
declare all of Coast’s indebtedness payable on demand. Plaintiff avers that
Coast had a grace period in which to make its payments under the
agreements, and that in the past, Coast had made payments on principal
advanced between 5 to 28 days from the date of a vehicle’s sale. However,
as the record clearly indicates, plaintiff had defaulted on the agreements
with VCI and plaintiff may not now contradict its prior assertions and
stipulations in an attempt to defeat summary judgment.
"Coast I" at 6 (emphasis added). In a footnote appended to end of this passage, the court
explained that it made this finding of default under the doctrine of judicial estoppel:
The doctrine of judicial estoppel "serves a consistently clear and undispu
jurisprudential purpose: to protect the integrity of the courts." See
McNemar v. Disney Store, Inc., 91 F.3d 610, 616 (3d Cir. 1996), cert.
denied 117 S.Ct. 958 (1997). This doctrine, which "is an equitable doctrine
invoked by a court at its discretion," see id. at 617, precludes a party from
assuming a position in a legal proceeding that contradicts or is inconsistent
with a previously asserted position. See Ryan Operations G.P. v. Santiam-
Midwest Lumber Co., 81 F.3d 355, 358 (3d Cir. 1996). While judicial
estoppel is not intended to eliminate all inconsistencies, it is designed to
prevent litigants from "playing fast and loose with the courts." See id.
Thus, as plaintiff had stipulated in the Bankruptcy proceedings that Coast
was out of trust, plaintiff may not assert a contrary position before this
Court at this time.

-- 4 of 9 --

Coast I at 6 n.3 (emphasis added).
The judicial estoppel finding of default served as the basis for dismissal of several
of Coast’s claims, while summary judgment was granted on other claims on a basis
independent of judicial estoppel. In a second summary judgment order on October 6,
1999, the District Court granted VCI summary judgment on the remaining two claims
against VCI Counts 14 and 15. See Coast Automotive Group v. VW Credit, Inc. et al.,
Civ. No. 97-2601(GEB), at 6 (D.N.J. October 6, 1999) (hereinafter "Coast II"). In
dismissing these discrimination claims, the court relied heavily on the finding in its
previous order that based on the application of judicial estoppel, Coast had defaulted on
the Agreements and therefore VCI had the right to accelerate Coast’s debt and terminate
future lending under the default provisions.
VCI filed a motion for certification of the two summary judgment orders as a final
judgment under Federal Rule of Civil Procedure 54(b). The court granted this motion on
January 26, 2000, and denied Coast’s motion to stay this order on February 25, 2000.
This appeal followed, and because the summary judgment orders were properly certified
as a final judgment, we have jurisdiction under 28 U.S.C. 1291.
II
A.
Coast primarily argues on appeal that the District Court erred in applying judicial
estoppel sua sponte and without making the necessary findings and analysis under the
settled law of this Court. While we exercise plenary review over grants of summary
judgment, we examine the use of judicial estoppel for abuse of discretion. "Though a
district court’s ultimate decision to invoke the doctrine is reviewed only for abuse of
discretion... a court ’abuses its discretion when its ruling is founded on an error of law or
a misapplication of law to the facts.’" Montrose Med. Group Participating Sav. Plan v.
Bulger et al., 243 F.3d 773, 780 (3d Cir. 2001) (Becker, J.) (quotations omitted).
In Montrose, we reiterated and explained the requirements which must be met
before a district court may properly invoke judicial estoppel:
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, 243 F.3d at 777-78. A district court may not invoke judicial estoppel without
conducting these three inquiries. Id. at 780 n.4 (discussing third element). In Montrose
we also held that "a party has not displayed bad faith for judicial estoppel purposes if the
initial claim was never accepted or adopted by a court or agency." Id. at 778. We further
elaborated on the bad faith requirement and explained that a specific finding of bad faith
must be made:
Inconsistencies are not sanctionable unless a litigant has taken one or bo
positions "in bad faith--i.e., with intent to play fast and loose with the
court." Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d
355, 361 (3d Cir.1996). A finding of bad faith "must be based on more
than" the existence of an inconsistency, Klein v. Stahl GMBH & Co.
Maschinefabrik, 185 F.3d 98, 111 (3d Cir.1999) (emphasis added); indeed,
a litigant has not acted in "bad faith" for judicial estoppel purposes unless
two requirements are met. First, he or she must have behaved in a manner
that is somehow culpable. See Ryan Operations, 81 F.3d at 362 (stating that
judicial estoppel may not be employed unless "’intentional self
contradiction is ... used as a means of obtaining unfair advantage’" (quoting
Scarano v. Central R. Co. of N.J., 203 F.2d 510, 513 (3d Cir.1953)
(emphasis added))); id. ("An inconsistent argument sufficient to invoke
judicial estoppel must be attributable to intentional wrongdoing." (emphasis
added)); see also In re Chambers Dev. Co. Inc., 148 F.3d 214, 229 (3d
Cir.1998) (quoting this language from Ryan Operations).
Second, a litigant may not be estopped unless he or she has engaged in

-- 5 of 9 --

culpable behavior vis-a-vis the court.... Accordingly, judicial estoppel may
not be employed unless a litigant’s culpable conduct has assaulted the
dignity or authority of the court.
Montrose, 243 F.3d at 780-81 (emphasis added).
With regard to the third prong tailoring application of the doctrine to the specific
harm we stated:
Observing that judicial estoppel "is often the harshest remedy" that a cou
can impose for inequitable conduct, we have held that a district court may
not invoke the doctrine unless: (1) "no sanction established by the Federal
Rules or a pertinent statute is up to the task of remedying the damage done
by a litigant’s malfeasance;" and (2) "the sanction [of judicial estoppel] is
tailored to address the harm identified." Klein v. Stahl GMBH & Co.
Maschinefabrik, 185 F.3d 98, 108, 110 (3d Cir.1999) (internal quotation
marks and citations omitted).
Montrose, 243 F.3d at 784.
Finally, we expressed particular concern in Montrose with the sua sponte
application of judicial estoppel:
We have held that a district court need not always conduct an evidentiary
hearing before finding the existence of bad faith for judicial estoppel
purposes... but two precepts are nevertheless clear. First, a court
considering the use of judicial estoppel should ensure that the party to be
estopped has been given a meaningful opportunity to provide "an
explanation" for its changed position. Cleveland v. Policy Management
Sys., 526 U.S. 795, 807 (1999). Second, though a court may sometimes
"discern" bad faith without holding an evidentiary hearing, it may not do so
if the ultimate finding of bad faith cannot be reached without first resolving
genuine disputes as to the underlying facts.
Montrose, 243 F.3d at 780 n.5.
B.
In this case, the District Court applied judicial estoppel against Coast sua sponte
and without the complete analysis required by this Court. At most, the court found only
that the inconsistency prong of the judicial estoppel test was satisfied, as the court held
that Shansab stated to the Bankruptcy Court that Coast was "out of trust" and in default,
and that his later statements insufficiently explained that testimony. The court
concluded that Coast could not argue on summary judgment that it was not in default,
and therefore many of Coast’s claims failed because VCI properly exercised its rights
under the default provisions in the Agreement. However, to invoke judicial estoppel, a
court must do more than merely find that a party advanced inconsistent positions to the
court. The District Court here failed to engage in the requisite analysis and make the
necessary findings that Coast changed its position in bad faith and that the application of
judicial estoppel was specifically tailored to address the harm caused by Coast’s alleged
inconsistencies. Additionally, in raising the issue sua sponte, the court failed to allow the
parties to brief the issue and inform the court’s analysis, as suggested by the Supreme
Court and by this Court. Therefore, we conclude that the District Court abused its
discretion by invoking the doctrine sua sponte.
The court made no finding that Coast changed its position in a bad faith attempt to
"assault the dignity or authority" of the court. In its brief footnote explaining its
invocation of judicial estoppel, the court indeed quoted our statement in Ryan Operations
that judicial estoppel is designed to prevent litigants from "playing fast and loose with the
courts." Coast I at 6 n.3 (quoting Ryan Operations, 81 F.3d at 358). We have noted that
"playing fast and loose with the courts" is a factor in a finding of bad faith. See
Montrose, 243 F.3d at 780-81; Ryan Operations, 81 F.3d at 358. However, simply
quoting this language without any explanation or analysis of how Coast’s actions rose to
the level of "playing fast and loose" is insufficient to invoke the harsh sanction of judicial
estoppel. No finding of culpability, intentional self contradiction, or intentional

-- 6 of 9 --

wrongdoing was made. We counseled in Montrose that a mere finding of inconsistency,
without more, fails to fulfill the bad faith requirement. See id. at 781. Furthermore, the
court also made no explicit finding that Shansab’s and counsel’s prior statements were
accepted or adopted by the court. The District Court failed to apply the law to the facts
here, and therefore abused its discretion.
Secondly, the District Court did not consider whether its application of judicial
estoppel was tailored to the harm caused by Coast and whether "no lesser sanction would
adequately remedy the damage done by litigant’s misconduct." Montrose, 243 F.3d at
784. The court failed to assess whether a strong instruction to the jury that it should
consider the prior inconsistent statements or some other measure short of judicial
estoppel could have addressed the harm. We express no opinion whether the court’s
application was in fact narrowly tailored, but we find that the court itself should have
conducted such an inquiry and provided its reasoning in the first instance.
Finally, the District Court invoked judicial estoppel to dismiss many of Coast’s
claims even though the parties did not brief the issue nor did it arise at oral argument.
The parties were not on notice that judicial estoppel would be applied, and Coast was not
allowed the opportunity to argue lack of bad faith or contest any other factor in the
application of the doctrine. In Montrose, we warned that courts should be wary of just
such a sua sponte application of the doctrine. See Montrose, 243 F.3d at 780 n.5.
Further, as we stated in Montrose:
Judicial estoppel "is an ’extraordinary remedy’" that should be employed
only "’when a party’s inconsistent behavior would otherwise result in a
miscarriage of justice.’" Ryan Operations G.P. v. Santiam-Midwest
Lumber Co., 81 F.3d 355, 365 (3d Cir.1996) (quoting Oneida Motor
Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 419 (3d Cir.1988)
(Stapleton, J., dissenting)).
Montrose, 243 F.3d at 784. Especially because judicial estoppel is such a harsh remedy
as this case demonstrates and should be used only in limited circumstances, the court
should have invited briefing and argument before deploying the doctrine to dismiss many
of Coast’s claims.
We understand that the District Court did not have the benefit of this Court’s
decision in Montrose when it issued its summary judgment orders here. However,
Montrose was based squarely on other decisions of this Court which also required the
same analysis and were available at the time of the District Court’s ruling. See, e.g.,
Ryan Operations, 81 F.3d at 361 (requiring finding that positions taken by party to be
estopped are inconsistent and that the party changed her position in bad faith). Indeed,
the District Court quoted from Ryan Operations but otherwise failed to follow its
requirements. Because judicial estoppel is an "extraordinary remedy," it should not be
invoked sua sponte without the detailed, multi-step analysis Montrose specifically
requires. We find that the court erred in applying judicial estoppel in this case.
III
While we conclude that the District Court abused its discretion in applying judicial
estoppel, we find no error in the District Court’s consideration of any of the other issues
decided on summary judgment. Therefore, we only vacate on those claims for which the
judicial estoppel finding of Coast’s default formed the sole basis for dismissal. Those
claims on which the District Court granted summary judgment to VCI on other grounds
are affirmed. Below we briefly explain the District Court’s reliance on judicial estoppel
with respect to each of Coast’s claims.
A. Claims Dismissed on Basis of Judicial Estoppel
We find that seven of Coast’s claims -- Counts One, Four, Six, Seven, Thirteen,
Fourteen, and Fifteen -- were dismissed on the basis of the default finding, and we
therefore vacate the grant of summary judgment on those claims.
The dismissal of Count One, Breach of Contract, most clearly depended on the
judicial estoppel finding. The court invoked judicial estoppel in its discussion of this
Count, and the court’s finding of default formed the only stated basis for granting
summary judgment to VCI on this contract claim. See Coast I at 5-7. We vacate the
grant of summary judgment as to the breach of contract claim.

-- 7 of 9 --

In dismissing Count Four, Lender Liability, the District Court stated:
As this Court has granted summary judgment on plaintiff’s contract, good
faith and fair dealing, and fiduciary duty claims, the Fourth Count of
plaintiff’s complaint alleging lender liability will also be dismissed as
plaintiff has failed to show any breach of duty by the defendants’ actions.
Coast I at 8 n.5. Because the court dismissed the contract and good faith/fair dealing
claims on the basis of judicial estoppel, this statement suggests that its dismissal of the
lender liability claim was based on judicial estoppel as well. We vacate as to this claim.
On Count Six, Conversion and Concealment of Assets, the court stated that:
the security agreements executed between the parties provided the
defendants with the paramount right to possess the collateral in the event of
a default, and that Coast would deliver such collateral to the defendants.
Thus, as a default had occurred, pursuant to the agreements between the
parties, defendants were entitled to a right of possession.
Coast I at 10-11 (emphasis added). Because this holding as to the conversion claim
depended on the finding of default, we vacate.
Count Seven alleged negligent supervision by VCI of its employees. The court
stated that this count alleged acts of industrial espionage and tortious interference similar
to those contained in other counts (namely Counts 8 and 9, discussed below). The court
stated that "such claims must fail for the same reasons as previously indicated." Id. at 17
n.10. However, the court also stated that "as this Court has found that defendants did not
breach the agreements, plaintiff’s negligent supervision claim must also fail." Id.
(emphasis added). Thus, this claim was dismissed on the basis of the judicial estoppel
default finding, which formed the basis for deciding that VCI did not breach the
Agreements. We vacate as to this claim.
In discussing Count Thirteen, Breach of Implied Contract and Duty of Good Faith,
the court held that "the duty of good faith cannot be invoked by plaintiff to preclude
defendants from exercising their rights under the agreements upon Coast’s default."
Coast I at 8 (emphasis added). Default thus formed the sole basis for dismissal. We
vacate as to this claim.
Finally, Counts Fourteen and Fifteen alleged discrimination by VCI under federal
and state law respectively, on the basis of Shansab’s status as a native of Afghanistan.
Coast alleged that VCI terminated Coast’s line of credit because of Shansab’s race. In its
second summary judgment order, in which it dismissed these claims, the court reviewed
its first order, and specifically recounted its judicial estoppel finding of default. See
Coast II at 2-3. The court expressly relied on the default finding to hold that Coast could
not make a prima face case of discrimination in both its federal and state claims because
it could not prove that Coast was qualified to continue to receive credit. Id. at 20-21.
The court stated at length that its finding of default barred Coast in its discrimination
claim. Id. The court also noted that even if Coast could make out a prima facie case,
VCI had a race-neutral reason for its action: that Coast was in default, as decided in
Coast I by judicial estoppel. Id. at 21-22. The court concluded that Coast’s
discrimination claims were "bereft of any evidence that VCI intentionally discriminated
against Coast... when it exercised its rights under the parties’ agreements and foreclosed
on its collateral." Id. at 22 (emphasis added). Because the District Court’s dismissal of
these discrimination claims was based heavily on the judicial estoppel finding of default,
we vacate as to these claims.
B. Claims Dismissed on Grounds Independent of Judicial Estoppel
The District Court dismissed nine of Coast’s claims against VCI without reliance
on the judicial estoppel analysis. We do not find any error in the court’s treatment of the
following claims, and therefore we affirm the grant of summary judgment to VCI on
these claims.
With regard to Count Two, Breach of Fiduciary Duty, the court concluded that "no
independent fiduciary duty is generally owed from a lender to a borrower" and that
"plaintiff has failed to show that defendants owed plaintiff a separate duty of care outside
of its obligations under the various loan agreements." Coast I at 8. Although this
discussion occurred in the same section in which judicial estoppel was invoked, the court

-- 8 of 9 --

did not rely on the default finding for dismissal. We therefore affirm as to this claim.
The court held on Count Three, Fraud, that "a mere alleged breach of contract
without more does not create the existence of a fraud claim" and that plaintiff failed to
plead fraud with particularity under Federal Rule of Civil Procedure Rule 9(b). Id. at 9-
10. Default played no role, and we find no error, so we affirm. On Count Five, Trespass,
the court similarly did not rely on the default finding but stated that "if an individual has
a cognizable right to enter the property, no action for trespass may lie" and that here
"defendants had a contractual right to enter Coast’s premises in order to inspect and
safeguard its collateral, as well as to review Coast’s books and records." Id. at 10. To be
invoked, the contractual right to enter Coast’s premises, inspect, and review did not
require default by Coast. We affirm the dismissal of the trespass claim.
Count Eight was dismissed because Coast did not meet the elements of "industrial
espionage." The court construed Count Nine as alleging tortious interference with
prospective economic advantage, and found that Coast presented no evidence to support
several of the elements of that claim. The court dismissed Count Ten, Unwarranted
Issuance of Subpoenas, because Coast presented no evidence that subpoenas were issued
wrongly. On none of these counts did the court rely on the default finding, and we find
no error in its consideration of these claims. Id. at 16-17. We therefore affirm as to these
claims.
The court found that the bankruptcy remedy of Equitable Subordination, which
Coast requested in Count Eleven, was not warranted here because Coast’s bankruptcy
case had been dismissed, Coast lacked standing to bring such a claim, and because the
equitable remedy was not justified on the facts of this case. Id. at 11-12. Default played
no role, and we find no error. We affirm the dismissal of Count Eleven.
The court found that Coast presented no evidence of agreement to support its
claim of Conspiracy between VCI and codefendants AOA and VOA. Id. at 12. Again,
default played no role, and we affirm. Finally, the court dismissed Count Sixteen,
Violation of 42 U.S.C. 1982, because 1982 does not protect contract rights such as
those asserted to be violated here, and therefore Coast could not state a claim under
1982. We affirm.
IV
For the foregoing reasons, we hold that the District Court abused its discretion in
invoking judicial estoppel to find that Coast defaulted on the Agreements. We vacate the
District Court’s grant of summary judgment in favor of VCI on claims decided on the
basis of the court’s application of judicial estoppel: Counts One, Four, Six, Seven,
Thirteen, Fourteen, and Fifteen of Coast’s Complaint. We affirm the grant of summary
judgment in favor of VCI on the remainder of Coast’s claims: Counts Two, Three, Five,
Eight, Nine, Ten, Eleven, Twelve, and Sixteen. We remand to the District Court for
further proceedings.
_____________________________
TO THE CLERK OF THE COURT:
Kindly file the foregoing Opinion.
/s/ Julio M. Fuentes
Circuit Judg

-- 9 of 9 --