In re United States

158 F.3d 26, 1998 U.S. App. LEXIS 26018, 1998 WL 698567
CourtCourt of Appeals for the First Circuit
DecidedOctober 13, 1998
DocketNo. 98-1765
StatusPublished
Cited by69 cases

This text of 158 F.3d 26 (In re United States) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re United States, 158 F.3d 26, 1998 U.S. App. LEXIS 26018, 1998 WL 698567 (1st Cir. 1998).

Opinions

SELYA, Circuit Judge.

After Chief Judge Cerezo of the United States District Court for the District of Puer-to Rico set a firm trial date in a case presently pending before her, United States v. Lorenzo Munoz-Franco, 14 F.Supp.2d 167 (D.Puerto Rico 1998) the government moved at the eleventh hour to disqualify the judge from further involvement. The judge denied the motion following a three-day evidentiary hearing. The government then sought a writ of mandamus from this court directing Judge Cerezo to recuse herself. We provisionally stayed the impending trial, set an expedited briefing schedule, and entertained oral argument. We now conclude that the government failed to prove what it had alleged visa-vis the judge, and therefore deny the petition.

At the outset, it is important to note the narrowness of the government’s position: it does not contend that the judge has any actual bias or prejudice in this case and it does not seek her recusal under 28 U.S.C. § 144 (1994). It likewise eschews the mandatory bases for disqualification limned in 28 U.S.C. § 455(b) (1994). Instead, the government premises its mandamus petition (and the underlying recusal motion) exclusively on 28 U.S.C. § 455(a) (1994), which provides:

Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

[28]*28In cases involving section 455(a), the recu-sal determination inevitably turns on the facts. See Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 865, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988). Consequently, we describe the pertinent events in some detail. We then discuss the applicable law and, finally, undertake an analysis of the recusal question.

I. BACKGROUND

United States v. Munoz-Franco stems from the May 1990 failure of Caguas Central Federal Savings Bank (Caguas), reputed to be the largest bank failure in the history of Puerto Rico. The government tells us, without demurrer by the respondents, that Cag-uas’s collapse resulted in aggregate losses exceeding $120,000,000.

The defendants in Munoz-Franco include two former Caguas officials, namely, Lorenzo Muñoz Franco (Muñoz), Caguas’s chief executive officer, and Francisco Sánchez Arán (Sánchez), Caguas’s chief lending officer.1 The indictment charges Muñoz and Sánchez with misapplying bank funds, making false entries in banking records, and participating in a conspiracy to perpetrate these offenses and to commit bank fraud. See 18 U.S.C. §§ 371, 657, 1006, & 1344 (1994). In its narrative portions, the indictment describes a “loan-kiting” scheme that purportedly involved the misapplication of real estate loan proceeds to shore up other (failing) commercial loans, thereby creating the illusion that the latter loans were performing well. The government alleges that one object of the scheme — which supposedly persisted for almost the entire decade between 1980 and 1990 — was to stave off regulatory intervention and keep Muñoz and Sánchez in power.

The transaction upon which the government bases its recusal initiative took wing in 1986 when the judge’s husband, Benny Frankie Cerezo, sought to borrow funds from Caguas. Mr. Cerezo approached Arturo So-mohano, Caguas’s senior vice-president for commercial lending, and explained that he wished to obtain a loan so that he could develop a twenty-eight acre farm and subdivide it into house lots. The record is teneb-rous as to whether Mr. Cerezo furnished appraisal reports in support of the loan application, but we do know that he at least provided Caguas with the cover letters from two appraisal reports prepared in 1984. Both letters subscribed that the acreage had a value of $200,000 or more.

Despite the fact that Mr. Cerezo’s checking account was overdrawn,2 Somohano approved the application and the Cerezos obtained a $150,000 loan from Caguas in the autumn of 1986 at two points over prime, secured by a first mortgage on the farm. The loan contract and related documents were signed by Mr. Cerezo (individually and on behalf of his wife, via power of attorney). The promissory note called for eleven monthly interest payments and repayment of the loan principal on the first anniversary. Between November 1986 and November 1987 (when the loan matured), the Cerezos made at most three interest payments.

As the note neared maturity, Mr. Cerezo requested a loan of $557,000 as additional financing for his shoe business. He initially made this request in a Spanish-language letter to Muñoz, dated October 26, 1987. The salutation of the letter read “Estimado amigo Lorenzo” (“Esteemed friend Lorenzo”), but the body of the letter employed formal verb forms (conjugated for use with “usted” rather than with the more familiar “tu”). Muñoz referred the letter to Somohano and, three days later, Mr. Cerezo wrote directly to So-mohano, making essentially the same request and indicating that the earlier letter to Mu-ñoz had been sent in error. Caguas never approved the $557,000 loan.

Upon maturity, the Cerezos failed to repay the farm loan. During the initial post-default [29]*29period, which extended from November 1987 (when the note matured) until May 1990 (when control of the note passed into the hands of third parties, see infra), the record does not reflect that either Muñoz or Sán-chez had anything to do with Caguas’s collection efforts. We review what transpired.

Over the first eight months of the post-default period, Caguas sent Mr. Cerezo three collection letters, each of which demanded immediate payment. Somohano sent a copy of the second letter to Judge Cerezo at the Cerezos’ home address because he was concerned that, as a cosigner by power of attorney, she might not have been aware that the loan even existed. The letters did not accomplish their intended purpose. Mr. Cere-zo informed Caguas that he did not have liquid funds sufficient to repay the debt. He proposed several alternatives, such as working out a plan to sell the farm or reviving his application for a loan to finance the expansion of his shoe business (combining the existing loan with the new loan). Because So-mohano terminated his employment with Caguas shortly after sending the second collection letter, these suggestions were considered by Pedro Suau, Caguas’s assistant vice-president for commercial lending. Suau countered with a proposal to rewrite the farm loan for $185,000 in order to cover the accrued interest and create a reserve for interest payments over the following six months. Mr. Cerezo displayed no enthusiasm for this proposal and faxed a letter to Suau in October 1988, with a copy to Muñoz, urging approval of his $557,000 loan request. Neither the $557,000 “shoe business expansion” loan nor the $185,000 refinancing of the farm loan ever materialized.

By February 1989, the Cerezos owed a total of $185,873.57 in principal plus accrued interest on the delinquent farm loan.

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Cite This Page — Counsel Stack

Bluebook (online)
158 F.3d 26, 1998 U.S. App. LEXIS 26018, 1998 WL 698567, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-united-states-ca1-1998.