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Certificate of Satisfaction to Borrower does not bar claim against Guarantors under judicial estoppel or collateral estoppels
U.S. Bank Nat. Ass’n v. Zarrabi, et al.
Defendants Zarrabi and Yazdani were Guarantors (“Guarantors”) on a loan Plaintiff U.S Bank National Association (“U.S. Bank”) sought to collect the portion of the loan remaining after the settlement of the loan with the borrower. The Guarantors argued that the deficiency claim was collaterally estopped and judicial stopped based on U.S. Bank’s execution of a certificate of satisfaction as to the encumbrance under Illinois law. The trial court rejected the arguments, finding in U.S. Bank’s favor. The Guarantors appealed.
The Court of Appeals for the Fourth Circuit reviewed the trial court’s decision rejecting the Guarantors’ arguments. The Court noted that collateral estoppel acted to preclude relitigation of issues that were previously the subject of a lawsuit, which were decided against whom the issue preclusion was asserted if that party had the opportunity to fully and fairly litigate the issue. The Courts apply a five-prong test when considering collateral estoppel:
Judicial estoppel is controlled by federal law in the federal court as it affects the integrity of the court system, and the issue is reviewed under the abuse of discretion standard. To apply judicial estoppel, the “party to be estopped must be advocating a position inconsistent with one taken in prior litigation. Second, the prior inconsistent position must have been accepted by the court.” Finally, the party to be estopped must have intentionally misled the court in order to gain an unfair advantage in the proceedings.
The Court affirmed the trial court, noting that both Virginia law, where the contract was executed, and Illinois law, the choice of laws contract provision, permitted the execution of a certificate of satisfaction without prejudice to the U.S. Bank’s right to seek recovery of the deficiency, even if there was a modification of the terms with the borrower. The contract specifically provided for this contingency.
The court held that there was no evidence of error in the trial court’s holding and affirmed the judgment in favor of U.S. Bank.
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