Goss v. Crossley (In re Hawaii Corp.)

6 B.R. 341, 1980 U.S. Dist. LEXIS 12505
CourtDistrict Court, D. Hawaii
DecidedJuly 23, 1980
DocketCivil No. 79-0037, also known as Bankruptcy No. 76-0512(29)
StatusPublished
Cited by1 cases

This text of 6 B.R. 341 (Goss v. Crossley (In re Hawaii Corp.)) is published on Counsel Stack Legal Research, covering District Court, D. Hawaii primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Goss v. Crossley (In re Hawaii Corp.), 6 B.R. 341, 1980 U.S. Dist. LEXIS 12505 (D. Haw. 1980).

Opinion

DECISION ON DEFENDANTS’ MOTION FOR RECUSAL

MARTIN PENCE, Senior District Judge.

On March 28, 1978 the Trustee, John T. Goss, applied to this judge, who, because of the disqualification of bankruptcy Judge John Chinen, Chief Judge King, and Judge Wong, was then handling all matters involved in the Chapter X proceedings, for authorization to prosecute this present action. In his application, the Trustee set forth that he had “substantially completed an investigation into the areas pertaining to fraud, misconduct, mismanagement, and irregularities” involving the former officers and directors and accountants of the bankrupt. The Trustee set forth that special counsel and special CPAs retained by the estate for matters relating to the investigation had advised Trustee that they believed [343]*343“that the estate has meritorious claims against” the three defendant accounting firms involving possibly “several million dollars” in direct and consequential damages. The Trustee then stated that he had “determined, in the interest of the estate, that a law suit should be filed to recover the damages on behalf of the estate.” The Trustee also stated that the costs of litigation might be approximately $500,000 and that he recognized that “in this case, as in all litigation, there is an element of risk that the case will be decided adversely to the Trustee.” Although Chapter X, Rule 10-610 provides that the Trustee may, with or without court approval, prosecute any action on behalf of the estate, since Supervisory Committees’ Note to Rule 10-610 states that it is nevertheless “quite appropriate and desirable for a trustee to obtain prior court approval before instituting actions on behalf of the estate, particularly actions resulting from the trustee’s investigation . . .,” all that was sought was that the court, after considering the representations, “approve the trustee’s intended course of conduct.” The Trustee then stated that he believed “that this application should be a sealed pleading . . . so as to reduce the prejudice to the estate which might develop if the matters set forth in this application or at the hearing were made a matter of public record generally”. This judge thereafter authorized the Trustee to prosecute the action, and sealed the pleadings. The seal was lifted on June 4, 1980.

The instant complaint was filed December 15, 1978, and the case was then placed on Judge King’s calendar but it was almost immediately assigned to the calendar of Senior Judge A. Sherman Christensen of the District of Utah, who was handling a companion complaint filed by THC Financial Corp. (THCF) against many of the same defendants in the instant case. Nevertheless, the initial hearings on motions and stipulations were heard by Judge King although from time to time this judge also approved stipulations. It was not until March 1979 that Judge King signed the order reassigning this case from Judge Christensen to this judge, the THCF case having been settled. Thereafter, most of the hearings on motions, etc., were heard by this judge, even though on August 7,1979 it was Judge Pregerson of the Central District of California who designated the case as one for complex litigation and approved Pretrial Order No. IB. (This judge had approved Pretrial Order No. 1A.) Thereafter, except for occasional approval of stipulations, all the proceedings in this case have been handled by this judge.

This judge ruled on motions to dismiss counterclaims, motions compelling inspection of documents, motion for voluntary dismissals of certain defendants, pretrial orders, motions for reconsideration of orders, and handled a multitude of other stipulations and orders prior to the filing of the instant motion for recusal on May 15, 1980, all without any indication from any party that they might have any question as to this judge’s impartiality.

It was not until over three months after the Court of Appeals for the Ninth Circuit had, on January 2, 1980, handed down its opinion in In re Pacific Homes, 611 F.2d 1253 (9th Cir. 1980) that counsel for the defendants filed the instant motion claiming that the impartiality of this judge “might reasonably be questioned” because (1) this judge was supervising the Chapter X proceedings involving The Hawaii Corporation, Debtor; (2) this judge “is required to have close and frequent contact with John T. Goss, Trustee of the Estate of The Hawaii Corporation, and with his counsel”; (3) “of necessity, many of such contacts between Judge Pence and the Trustee and his counsel are private, in chambers, and in camera ”; (4) this judge “approved the employment by the Trustee of special counsel to investigate the performance by the Accountants of services for the debtor and its subsidiaries and approved the payment of substantial fees to such special counsel for services in that connection”; (5) this judge “approved the engagement of Ernst & Whinney to review the work of the Accountants and to advise said special counsel for the Trustee and approved the payment [344]*344of substantial fees for services in that connection”; (6) this judge “authorized the commencement of this action and the continued employment of special counsel by the Trustee for the purpose of prosecuting this litigation against the Accountants and has authorized the payment of substantial fees to said special counsel for such services. The Application for such authorization and the order thereon are sealed and are not available for examination by the Accountants or others”; (7) “fees of special counsel for the Trustee in this litigation have been paid, and it is anticipated that they will continue to accrue and be paid in the future, at the rate of nearly $20,000 per month”; (8) “such substantial expenditures of money for fees of special counsel and expert advisers could be advantageous to the estate of the Debtor only if the litigation is expected to produce a recovery for the estate substantially in excess of the moneys expended by the estate in pursuing the litigation; and by hindsight such substantial expenditures will have been justified only if the Trustee succeeds in effecting a recovery by reason of this litigation which substantially exceeds such expenditures”; (9) “it seems self-evident that, in the common perception, a judge might be thought to desire that his judgment in approving such expenditures by the estate, in the expectation that they would prove to be beneficial to the estate, would prove to have been correct”; and (10) “in such circumstances, the impartiality of the judge who had approved the expenditures, when sitting as judge in the case for the prosecution of which the expenditures had been made, might reasonably be questioned, particularly when the proceedings respecting such approval are sealed.”

As frankly stated by movants, this suggestion and alternative motion (for recusal) were “prompted by” 1 dicta in In re Pacific Homes. In that case:

[T]he sole issue is whether, under the Bankruptcy Act of 1938, a bankruptcy judge in a Chapter X bankruptcy proceeding has jurisdiction to hear a plenary action for negligence, breach of fiduciary duties, mismanagement, and waste brought by a Chapter X trustee where the defendants . . . filed a timely objection to the jurisdiction of the bankruptcy referee.
The district court held that the bankruptcy judge had jurisdiction despite the appellant’s objection, and this appeal is from its order denying a motion to withdraw reference of the case ....

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Matter of Hawaii Corp.
59 B.R. 410 (D. Hawaii, 1986)

Cite This Page — Counsel Stack

Bluebook (online)
6 B.R. 341, 1980 U.S. Dist. LEXIS 12505, Counsel Stack Legal Research, https://law.counselstack.com/opinion/goss-v-crossley-in-re-hawaii-corp-hid-1980.