COA affirms summary judgment for Keystone Construction on judicial estoppel grounds

A man who failed in his divorce agreement to claim an ownership interest in the Indianapolis company he worked for is now judicially estopped from asserting that interest in a lawsuit, the Indiana Court of Appeals has ruled.

According to Jason Ellis, in early 2003, Ellis joined Keystone Construction Company as a “partner” with a 20 percent ownership interest. Though Ellis’ partnership and ownership were never formalized in writing, Ersal Ozdemir, Keystone’s founder, told others Ellis was his partner and labeled him as a partner and director in internal corporate records. Ellis also received dividends from Keystone in addition to his salary. The court notes in a footnote that Keystone disputes many of the facts designated by Ellis in opposition to Keystone's motion for summary judgment, and that it is construing all factual inferences in favor of Ellis as the non-moving party.

Ozdemir’s younger brother, Huseyin Ozdemir, was also brought into Keystone as a shareholder and became the financial officer.  As Keystone grew, Ersal Ozdemir told his partners an attorney was preparing the ownership agreements, but those documents were never signed.

Then in 2010, Huseyin Ozdemir sent his brother an email demanding that Ersal Ozdemir purchase his shares of Keystone for $2.5 million, an amount the younger brother believed represented his share of Keystone’s $7.5 million value. Huseyin Ozdemir also revisited the issue of the lack of a partnership agreement, but the older brother claimed he had always owned 100 percent of the company.

Meanwhile, Ellis and his then-wife entered into a dissolution agreement which purported to disclose “all the property and interest, both real and personal, now held by” the couple. However, the agreement did not mention any ownership interest or share of Keystone.

Huseyin Ozdemir resigned from Keystone a short time later, and the remaining partners then had a meeting to discuss formalizing Ellis’ ownership. During that meeting, Ersal Ozdemir denied ever telling Ellis he would be a partner or would hold a 10 to 20 percent ownership interest.

Ellis then also resigned and sent a letter seeking access to Keystone’s financial and corporate records, claiming his rights as a shareholder. Keystone responded with a complaint seeking declaratory judgment that Ellis was not a shareholder or partner. Ellis then filed seven counterclaims, alleging breach of fiduciary duty and contract, fraud and construction fraud, promissory estoppel, conversion and unjust enrichment.

After initially being denied summary judgment, Keystone renewed its previously denied motion on the grounds of newly discovered evidence. Specifically, Keystone sought summary judgment on the grounds of judicial estoppel, as Ellis’ dissolution agreement did not mention an ownership interest in Keystone.

The Hendricks Superior Court granted that motion, leading to the instant appeal in Jason Ellis v. Keystone Construction Corp., 32A01-1607-PL-1477. Ellis argued the trial court erred in accepting the judicial estoppel argument, but pointing to the burden-shifting test in Morgan County Hospital v. Upham, 884 N.E.2d 275, 280 (Ind. Ct. App. 2008) and Robson v. Texas E. Corp., 833 N.E.2d 461, 465 (Ind. Ct. App. 2005), Indiana Court of Appeals Judge Paul Mathias wrote Ellis failed to prove his omission of his ownership interest in the dissolution agreement was not a good-faith mistake.   

“…(H)ere, both Ellis and Brooke (Ellis) admitted in their affidavits that they knew about Ellis’s claimed ownership interest in Keystone, yet intentionally left this out of the Settlement Agreement which purported to divide the marital assets,” Mathias wrote Tuesday. “While this evidence might prevent a claim of fraud between the parties, we do not consider this as evidence of good faith as it pertains to the court. To the contrary, it was an intentional act to keep from the dissolution court a potentially large marital asset.”

Further, because Ellis is judicially estopped from asserting an ownership interest in Keystone, the appellate court also found all of his other claims necessarily fail.

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