Saturday, May 15, 2010

A Judge Judging Himself: Another Opinion on Judicial Recusal

Last year I wrote about the unique challenge posed by a motion to recuse, in which the judge accused of being insufficiently impartial must rule on his own ability to hear the case. A judge judging himself: judicial recusal. I have come across yet another opinion from Texas on this sticky situation. Pease v. First National Bank of Giddings, Adv. No. 10-1011 (Bankr. W.D. Tex. 5/4/10).

What Happened

In the latest case, a pro se debtor thought he had scored a major coup. He sued a bank and recovered a default judgment for $8 million. However, the judgment had a few problems. First, the plaintiff did not serve the motion for default judgment on the defendants. Second, the motion sought unliquidated damages, which would have required a hearing. The bank was none too happy with the judgment, since it would have put it out of business. The bank moved promptly for reconsideration. This time the debtor did not appear. The court gamely recognized that it had made a mistake and vacated the judgment.

At this point, the case moved out of the procedural realm and into the pro se zone, a place where saying something makes it so. According to the court's opinion:

After the entry of the order setting aside the default judgment, a copy of the order was sent to the plaintiff. The plaintiff was evidently displeased with the ruling, as he filed a document entitled “Notice of Non Acceptance and Return of Order and Notice of Void Order” on May 3, 2010. The plaintiff attached a copy of the order, across the face of which the plaintiff had written “VOID” with the explanatory statement “Refusal for Cause, No Notice! No Security! Violation of Stay by Defendants!” He signed his name, under which he wrote “Surety in Fact” and dated it April 30, 2010. In the Notice, plaintiff states that the order must be void as a denial of his due process, and details his basis for that contention – that the expedited hearing was too expedited to be adequate notice under the Constitution. At the end of the pleading, the plaintiff states that the order of this court setting aside the default judgment “... is void and is hereby returned to the court.”
Opinion, p. 3.

While it is possible to understand the debtor's frustration at losing his victory over the bank, the specific language used suggests a magical view of the law where a judicial action may be invalidated merely by saying so. However, the debtor supplemented his response with one which was recognizable: a motion to recuse. This placed the court in the uncomfortable position of having to rule upon its own competency.

The court described the motion to recuse as follows:

On the same day, the plaintiff also filed this motion to recuse. In it, plaintiff recounts what he believes are multiple reasons why I should recuse myself. He recounts his version of the facts and the law in this case, and, in essence, asserts bias on my part because I do not agree with his version of the facts and the law. He also alleges bias based upon “extrajudicial sources and actions,” and for support, contends that “Judge Clark received and used false ex parte evidence, rumors and innuendo in the hearing to lift stay on February 1, 2010.” He then explains the basis for this contention, namely that the court heard evidence presented by the bank at that hearing “... although the Bank had never filed a claim against Plaintiff, nor submitted any nexus of debt between itself and the Plaintiff and sua sponte claimed that Plaintiff was responsible for his brother’s debt, even though the bank never sued his brother for the debt.” In other words, the plaintiff disagreed with this court’s ruling on the motion for relief from stay, and the basis of this court’s ruling. Plaintiff, in other words, finds bias from the fact that the court did not agree with the plaintiff’s version of the facts and the law.

For further support, the plaintiff claims bias from the fact that the court set aside the default judgment, and from what plaintiff describes as failing to “zealously guard the jurisdiction of the court.” He claims the court “knew from the filings that the Bank had trespassed on federal jurisdiction, and he made no move to hold the guilty parties in contempt, thereby ratifying the unlawful seizure and destruction of all of Plaintiff’s personal property.” This allegation is an evident reference to a pleading filed March 1, 2010, in which Plaintiff claimed “contempt of federal jurisdiction” in the main case. Plaintiff obviously finds prejudice from the fact that this court did not believe that any contempt had taken place. However, the pleading filed by plaintiff was entitled “Notice of Contempt of Federal jurisdiction.” On its face, the caption of the pleading was not a motion. No form of order was submitted with the pleading, meaning that, under the court’s electronic filing system, the motion would not have come to the court’s attention. The docket also reflects a “motion for expedited hearing” with regard to the notice of contempt, but the document actually filed on that date was a duplicate of the Notice. No order was uploaded with this document either. In the final paragraph of the Notice, plaintiff states “Petitioner prays for an expedited hearing on the matter of sanctions and requests that the trsutees of this court demand an accounting of the property held in trust and the taking, destruction, and devastation visited upon said property and that all actors be held responsible and accountable for their complete and total disregard and disdain for any authority other than that of their own making.”
Opinion, pp. 3-5.

The Court went on to quote the conclusion of the motion at length:

Because Judge Clark’s fias or prejudice prevents Plaintiff from receiving a fair hearing before the court, the judge should recuse himself and his order of April 28, 2010, is void because the Defendants are in violation of the automatic stay as of February 27, 2010 and have never questioned the debt prior to this, although the proposal to contract was offered in 2007. At no time has the debt ever been questioned and it is apparent from the record that the debt was liquidated by the Court record. What is the new trial about? The debt is well plead and the Defendant bank is liable for numerous constitutional violations over a five year period against the Plaintiff. Judge Clark is not on the side of the Texas Legislature concerning the underlying possession issue and has clearly departed from his previous rulings in order to give the Defendants the right to violate the automatic stay, re-instate the stay in order to create the illusion of emergency and then set aside an eight million dollar judgment without any supporting affidavits or protection fro the Plaintiff in the form of a supersedeas bond is clearly non-governmental. Either tyhe Judge or Mr. Powell or both needs to post a ten million dollar bond and restore me to possession of the property.
Opinion, p. 6.

Considering the Motion to Recuse

On a motion for recusal, the judge is placed in the interesting position of evaluating his own ability to consider the case. Judge Clark noted that "A motion to recuse is entrusted to the sound discretion of the judge to whom the motion is submitted."

The standard for recusal is "whether a judge's impartiality might reasonably be questioned." A judge must recuse himself if he has a bias or prejudice against a party or has knowledge of disputed evidentiary facts. However, the judge is presumed to be impartial and bias arising from proceedings occurring in court is only grounds for recusal if the judge has "a disposition so extreme that as to display a clear inability to render a fair judgment."

Thus, if the judge determines that a party is a liar, the obligation to recuse would depend on the source of that belief. If the judge makes this determination based upon evidence submitted in court, he may remain on the case so long as he is capable of giving the witness the benefit of the doubt in future hearings. On the other hand, if he decides that the witness is a liar because someone from his church told him so, then the judge would need to recuse himself.

Turning to the allegations of the motion, the court found that "the plaintiff’s principal bases for claiming bias and prejudice is that this court has not agreed with his version of the facts, or his vision of how the law works. These are not valid bases for finding bias or prejudice." Opinion, p. 7.

This was not a difficult case. However, it illustrates the unique nature of motions to recuse. On a motion to recuse, the judge is both a fact witness and the trier of fact. This works as long as the judge has the integrity and the clear-sightedness to recognize even the appearance of impropriety.

However, there is potential for abuse, as shown by the case of U.S. District Judge Thomas Porteous, who is now facing impeachment, for among other things, refusing to recuse himself in a case where he had received gifts and things of value from one of the attorneys appearing before him.

The current system assumes that cases of outright dishonesty, such as the Porteous case, will be extremely rare. On the other hand, most requests for recusal, such as the one in this case, are likely to be based on sour grapes. The difficult case will be where the judge's bias clouds his own perception of whether he is biased. In those cases, appeal or mandamus will be available to correct the mistake. As long as the procedure gets the result right in the vast majority of cases, it is probably good enough despite its unusual aspects.

Interestingly, there is an alternate procedure for recusing a judge under 28 U.S.C. Sec. 144. Under Sec. 144, a judge must cease hearing a proceeding upon the timely filing of an affidavit by a party asserting bias and a certificate of counsel. However, this statute has been held to be inapplicable to bankruptcy judges. In re Johnson, 408 B.R. 123 (Bankr. S.D. Ohio 2009).

While it is not designed as a recusal mechanism, the procedure for withdrawing the reference to the district court is another way to achieve the same result.

The Pro Se Zone

On a final note, it would be a mistake not to comment on the eccentric pleadings filed by the debtor in this case. The terms that he used, such as "proposal to contract" and "notice of contempt of federal jurisdiction" are typical of the sovereign citizen movement. This is the same debtor who attempted to pay for the filing fee for his appeal with a self-created "Certified Money Order." They believe that the U.S. Government and its monetary system are illegal and that they can create their own alternate authority and money. However, when they get into trouble, sometimes they run to the federal bankruptcy court, whose jurisdiction they seek but ultimately reject.

Back in 2003, Manuel Newburger from my firm was quoted in an article in the ABA Journal about this phenomenon. I was not able to find the article online, but I did find a blog article which repeated some of its content, which I will link to here. It is certainly a strange world out there when people can copyright their names and pay their debts in self-created currency.

Dealing with these issues is just one of the challenges of being a federal judge.

Monday, May 10, 2010

What Does Kagan Nomination Mean for Bankruptcy Practitioners?

President Obama announced today that he would nominate Solitor General Elena Kagan to the United States Supreme Court. If confirmed, Ms. Kagan will be the first Supreme Court justice without prior judicial experience since the Nixon administration. While much of America will be focusing on hot button issues such as abortion and gun control, bankruptcy lawyers will be wondering what she thinks about the hanging paragraph. However, her history does not provide much illumination.

Since Ms. Kagan was not a judge, she does not have a body of written opinions to peruse. Her academic writings dealt primarily with constitutional law issues.

As Solicitor General, her department has appeared in three bankruptcy cases this term: Espinosa, Lanning and Milavetz. However, she did not personally argue any of these cases. In Espinosa, the Solicitor General's office argued that the student loans were not discharged, a position the Supreme Court rejected. In Milavetz, her office contended that the Debt Relief Agency provisions were constitutional, a position adopted by the Supreme Court. Finally, in Hamilton v. Lanning, the Solicitor General's office agreed with the debtor that projected disposable income must be forward-looking, that is, that adjustments may be made based on changes in circumstance likely to occur. Of these three cases, Lanning is the only one in which there was not a clear governmental interest.

However, her record is not totally devoid of bankruptcy connections. While at Harvard Law, she had Liz Warren as a colleague. Anything that she picked up from Liz would serve her well on the Supreme Court.

Wednesday, May 05, 2010

Supreme Court to Determine Whether Ninth Circuit Can Hold Ownership Expense Deduction for Ransom

On April 19, the Supreme Court granted cert in In re Ransom, 577 F.3d 1026 (9th Cir. 2009), cert granted, 2010 U.S. LEXIS 3359 (2010). The issue in the case is:

Whether, in calculating the debtor's "projected disposable income" during the plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles.

The Ninth Circuit held that a debtor could only claim a vehicle ownership expense on the means test if she had a debt or lease payment. The Fifth Seventh Circuit and Eighth Circuits and the Sixth Circuit BAP have all ruled that the ownership expense is available regardless of whether there is an actual payment. In re Washburn, 579 F.3d 934 (8th Cir. 2009)(with dissenting opinion); Tate v. Bolen, 571 F.3d 423 (5th Cir. 2009); In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008); In re Kimbro, 389 B.R. 518 (6th Cir. BAP 2008).

The cases raise a fascinating issue under BAPCPA. The Means Test refers to the Local Standards, National Standards and Other Necessary Expenses referred to by the Financial Analysis Handbook within the Internal Revenue Manual. The standards themselves consist of tables of expenses. However, the manual itself provides guidelines for applying the standards and states that the deduction is only available if there is an actual payment. Thus, the issue is whether the availability of the deduction depends on how Congress wrote the statute (which references the standards) or the way the IRS would have applied the standards under the manual.

Since the stated goal of BAPCPA was "to ensure that debtors repay creditors the maximum they can afford," it would be ironic if the Supreme Court finds that the way the statute was actually drafted allows a more generous deduction than the IRS would have allowed.

I have an article discussing this issue in more detail coming out in the June ABI Journal.

Monday, May 03, 2010

Too Much CLE!

Last weekend had the convergence of three major CLE conferences in three different parts of the country. The American Bankruptcy Institute held its Annual Spring Meeting in Washington, D.C., the Commercial Law League held its Midwest Regional Meeting in Chicago and the National Association of Consumer Bankruptcy Attorneys held a confab on the West coast. I am a member of both CLLA and ABI and had the distinct pleasure of speaking at both conferences. In between my panels, I tried to absorb as much of the good CLE offerings as I could, but there was so much more I could have done.

I started my CLE marathon in Chicago on Thursday April 29. I heard excellent presentations on electronic evidence (scary stuff) and internet law sponsored by the Complex Litigation Committee. I also attended a judge’s panel on ethical issues in employment and retention, which was co-sponsored by the Chicago Bar Association featuring Bruce Black (Bankr. N.D.Ill), Carol Doyle (Bankr. N.D.Ill) and Jack Schmetterer (Bankr. N.D.Ill.). The panel featured some good information from the judges and offered 2.5 hour of ethics credit. However, I was left hungering for some more cutting edge issues.

I spent most of Friday preparing for my own panel. I was moderator of a panel featuring Judge Marvin Isgur (Bankr. S.D. Tex.), Judge Michael Lynn (Bankr. N.D. Tex.), Barbara Barron from my own firm and June Mann from Mann & Stevens. We had a two hour discussion on issues in discharge violations and home mortgage issues. The judges did most of the heavy lifting, making the moderator’s job extremely easy. The audience of creditors’ lawyers (with two trustees thrown in for good measure) asked a lot of good questions. The take away from this panel is that discharge violation cases are flying largely below the radar. While some plaintiffs’ lawyers are handling up to 400 new cases a month, the judges see about 1-2 cases per month, few of which are ultimately tried. On the other hand, problems with home mortgages in chapter 13, at least in the Southern District of Texas, are getting a lot of attention from the courts. Judge Isgur mentioned that he had multiple pending class actions before him. Although none of these classes have been certified yet, they have survived motions to dismiss.

Saturday morning I woke up early to fly to Washington. I arrived in time to hear a panel on the comparative benefits of chapter 11 and chapter 13 for insolvent professionals. The panel featured Judge Steven Rhoades of Detroit, Rebecca Connelly, standing chapter 13 trustee in Roanoke, Virginia, Peter Fessenden, standing chapter 13 trustee in Brunswick, Maine and Mark Williams with Norman, Wood, Kendrick & Turner. The presentation was thought-provoking and was benefitted by having Judge Eugene Wedoff and Prof. Nancy Rapoport in the audience.

I was on a panel on using social media to maintain a virtual presence, along with Prof. Nancy Rapoport as moderator, Andy Winchell, author of A Clean Slate and Karim Guirguis of ABI. Karim did a great job of pulling up relevant sites from the web in real time, including the ABI’s blog roll (which conveniently lists A Clean Slate and A Texas Bankruptcy Lawyer’s Blog near the top of its list), Nancy Rapoport’s Linked-In page and tweets about the Annual Spring Meeting. While I got to answer a few questions about blogging (including the ethics of writing about your own clients), I got several good ideas from the other speakers.

In particular, I want to increase my Linked-In presence. I had always thought of Linked-In as being a bit staid, a glorified on-line resume. However, either Andy or Karim made the point that in big firms the person with the biggest rolodex was the biggest rainmaker. Linked-In, with its interconnected networks, is like a giant on-line rolodex. I went back to my hotel room and accepted all of my pending invitations to join other people’s networks that I had been neglecting.

Andy also convinced me to try tweeting. I had never really seen the utility of sending random 140 character messages. However, Andy pointed it that Twitter’s real benefit is as a search engine and as a real-time source of breaking news. You can use Twitter to set up a feed on topics you are interested in or search Twitter for breaking news. When Michael Jackson died, it was all over Twitter hours before it was reported by the MSM.

My answer to the ethics question was that I limit what I write about cases or issues involving my clients. If I represent a client who is successful in a case involving an interesting issue, I may write about it (with an appropriate disclaimer about my interest). However, I try not to write about anything ongoing with my clients or anything that might focus unwanted attention on them. I have unwittingly broken this rule with regard to someone who I didn’t realize was a firm client, but it is something that I try to be sensitive to.

It was a rare delight to be able to participate in a panel where I was able to take away more than I contributed. We had a small audience, heavy on professors, but they were very active in the discussion and it was a lot of fun.

Sunday morning, I had a chance to listen to seven judges talk about effective advocacy points before I had to leave. They had several excellent points. One of the best was to tell a story. One of the judges (don’t remember which one), gave the example of a pleading which read like a trust indenture, setting out all the loan documents in great detail before ever telling what the pleading was about. They also made a great point about knowing your judge using a clip from one of the greatest lawyer movies ever, My Cousin Vinnie. Between the seven judges, some required hearings on all motions, while some allowed negative notice. Some of the judges allowed declarations to be used for direct testimony, but were unfamiliar with the concept of a proffer (the lawyer saying what the witness would testify to and the witness adopting that statement). The judges also appreciated any attempts to make their job easier, such as preparing a notebook with the two or three most important exhibits in a case with 24 binders of exhibits or using electronic presentation of evidence (something I have only recently attempted).

As I headed back to Austin, I returned with a wealth of materials but the feeling that I only sampled the offerings that were out there. It is a shame to have to choose between two good conferences or to mix and match like I did.