Opinion
Bankruptcy Case No. 00-00081, Adversary Proceeding No. 02-00009
November 18, 2002
ORDER
At the October 19, 2002 Scheduling Conference, in the above captioned Adversary Proceeding, the Court raised concerns regarding its possible conflicts of interest in presiding over this Adversary Proceeding. Because the record at that point did not provide sufficient information for the Court to determine whether or not its concerns were well founded, the Court ordered the parties to file briefs addressing its concerns. Specifically, the Court requested that the parties delineate the relationship, if any, between the claims asserted in this Adversary Proceeding and this Court's previous approval of the Settlement Agreement between GMHP Associates, Ltd. and The Doctor's Clinic ("TDC") in a Bankruptcy Case separate and distinct from that in which this Adversary Proceeding is incorporated. See Bankruptcy Case No. 98-00005. The Court also requested that the parties address the degree of potential involvement in this Adversary Proceeding of Dr. Chris Perez who is my first cousin and, therefore, within the third degree of relationship to myself.
On October 30, 2002, the plaintiff filed its Response to this Court's Requests for Briefs ("Plaintiff's Response"). With regard to the relationship between the claims asserted in this Adversary Proceeding and the Settlement Agreement between GMHP Associates, Ltd. and TDC in Bankruptcy Case No. 98-00005, the plaintiff states, in pertinent part, the following:
With respect to the TDC Settlement, the Trustee's focus has been on the prior conduct and/or omissions of the GMHP directors and/or officers in puffing GMHP in the position of having to settle claims against TDC for the final amounts approved.
But upon further reflection, this Court's concern about having to rule again on at least certain aspects of the TDC Settlement may come to pass. Further discovery may reveal that the directors and officers of GMHP should not have agreed to the TDC Settlement. However, even under that scenario, the claims would be against the directors and officers and not on trying to overturn the TDC Settlement.
Nevertheless, we do see that the directors and officers may then contend that their conduct was appropriate because this Court approved the settlement. Under that scenario, this Court may be asked to determine whether or not that conduct was proper, given what further discovery has revealed.
Plaintiff's Response at 3.
Regarding the issue of Dr. Chris Perez's potential involvement in this Adversary Proceeding, the plaintiff states, in pertinent part, as follows:
With respect to the claims involving GMHP's substantial losses because of its dealings with TDC, Dr. Perez is probably a major witness. Discovery has indicated that he was the primary person of TDC with whom GMHP CEO Frank Rosario was negotiating to obtain a 50% equity interest in TDC, the reason given by Mr. Rosario for so extensively extending credit to TDC without any significant safeguards. Dr. Perez is expected to testify about those negotiations and the credit received. Whether or not such credit should have been given or continued are the major issues related to those claims.
Plaintiff's Response at 4.
On November 5, 2002, defendant, American Home Assurance Company ("American Home"), filed its Response to Plaintiff's Response to this Court's Request for Briefs (American Home's Response"). Therein, American Home states that it "was not involved in the TDC bankruptcy or in any course of conduct between Debtor/Plaintiff's directors/officers and TDC or Dr. Chris Perez. Therefore, AMERICAN HOME has no independent knowledge of either issue." American Home's Response at 2. However, based on the information contained in the Plaintiff's Response, American Home believes that "the propriety of the TDC bankruptcy settlement with GMHP will be at issue." American Home's Response at 3. Furthermore, American Home acknowledges that "Dr. Perez is, potentially, a `major witness'." Id.
On November 6, 2002, defendant GMHP Health Insurance, Ltd., Frank B. Rosario, Timothy J. Morton, Antonio Limtiaco, and Paul Roberts (the "GMHPHI defendants"), filed their Response to this Court's Request for Briefs ("GMHPHI Defendants' Response"). Regarding the relationship between the claims in this Adversary Proceeding and the Settlement Agreement between GMHP Associates, Ltd. and TDC in Bankruptcy Case 98-00005, the GMHPHI defendants state, in pertinent part, as follows:
The fact is that GMHP would have received less or nothing under Chapter 7 Liquidation of TDC, and thus it had no real choice in accepting the settlement. Whether the Defendants' decision to accept the settlement was reasonable or not presumes competing options to choose from, which was not the case here. Thus, it is highly unlikely that the Court would need to determine whether the decision to accept the settlement was reasonable. Such a remote, speculative possibility should not constitute grounds for disqualification.
GMHPHI Defendants' Response at 2.
However, regarding the potential involvement of Dr. Chris Perez in this Adversary Proceeding, the GMHPHI defendants state that "if the Trustee does intend to proceed with the mismanagement claim, then . . . it must acknowledge that Dr. Chris Perez would be an important witness since he would provide testimony as to the advantages that both TDC and GMHP hoped and intended would flow from their relationship." Id. at 2-3.
Pursuant to 28 U.S.C. § 455(a), "any . . . judge . . . of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned." This Section also lists a number of instances where recusal is mandatory regardless of whether or not any reasonable question of impartiality exists. See 21 U.S.C. § 455(b). Among those instances is that in which the judge becomes aware that there is someone within the third degree of relationship to the judge who is likely to be a material witness in the proceeding. See 11 U.S.C. § 455(b)(5)(iv).
Both the plaintiff, who is responsible for formulating and prosecuting its claims, as well as defendant American Home, have indicated that the Court may, indeed, be required to rule on the propriety of the Settlement Agreement between GMHP Associates, Ltd. and TDC in Bankruptcy Case 98-00005. Thus, despite the GMHPHI defendants' contention to the contrary, the Court believes that there is more than a "remote, speculative possibility" that its "impartiality might reasonably be questioned" in this regard.
Furthermore, all the parties have indicated, and the Court believes, that Dr. Chris Perez is "likely to be a material witness in the proceeding."
Accordingly, because Section 455(a) requires the recusal of any judge whose impartiality might reasonably be questioned and, because Section 455(b) requires the recusal of any judge who is within the third degree of relationship to any person who is likely to be a material witness in the proceeding, I HEREBY RECUSE myself from the above captioned Adversary Proceeding.
All currently pending Trial dates are HEREBY VACATED and all document submission deadlines are HEREBY HELD IN ABEYANCE, pending appointment of a new judge to the case by the United States Court of Appeals for the Ninth Circuit.