Opinion
96 Civ. 5567 (RPP), 96 Civ. 7527 (RPP), 96 Civ. 7936 (RPP)
September 4, 2001
OPINION AND ORDER
Defendant GalaxiWorld.com Limited ("Galaxi World") (formerly known as Gaming Lottery Corporation) moves pursuant to 28 U.S.C. § 455(a) for the Court to disqualify itself from further proceedings. The class of plaintiffs ("Plaintiffs") opposes the motion. For the following reasons, the motion is denied.
Gaming Lottery's name was Laser Friendly Corporation until July 28, 1995. In April 1996, Gaming Lottery announced it would divest itself of its subsidiaries engaged in the manufacture of paper related gaming products and reincorporate in Bermuda. In January 1997, Gaming Lottery reincorporated in the British Virgin Islands and divested itself of its three subsidiaries. In September 1998, the corporation renamed itself GLC Limited and relocated its corporate offices to Gibraltar. In October 1998, GalaxiWorld Limited, a wholly owned subsidiary of GLC Limited, launched its internet casino gambling website. On July 1, 1999, GLC Limited announced that it had changed its name to GalaxiWorld.com Limited.
BACKGROUND
This class action, filed in 1996, is brought pursuant to Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and 78t(a), and Rule 10b-5 of the Rules of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5, on behalf of purchasers of securities in Gaming Lottery, a Canadian corporation, during the period February 1, 1995, to May 24, 1996. (See Consolidated Amended Class Action Complaint, dated Jan. 13, 1997 ("Compl.") ¶ 35-36.) Defendants are alleged to have issued misleading public statements and financial reports between February 1, 1995, and May 24, 1996, causing the stock of Gaming Lottery to be overvalued. (Id.) As of January 10, 2000, fact discovery was to close on January 21, 2000, expert discovery was to close on February 21, 2000, a pre-trial order was due on March 15, 2000, and trial was scheduled for April 4, 2000.
A. Proskauer's Motion to Withdraw and Entry of Default Judgment Against GalaxiWorld in Favor of Plaintiffs
By order to show cause dated January 10, 2000, Proskauer Rose LLP ("Proskauer"), counsel for defendants GalaxiWorid, Jack Banks and Larry Weltman, moved pursuant to S. E.D.N.Y Civil Rule 1.4 to withdraw as attorneys of record for defendants and for payment of fees and expenses. Proskauer's motion to withdraw was based on GalaxiWorid's actions since the fall of 1999, when the proceeds of GalaxiWorld's insurance policy became exhausted and were no longer available to pay litigation fees and expenses. On November 15, 1999, GalaxiWorid had announced that it was to be taken private by Ostel Management Inc. ("Ostel"), a then-newly formed Nevis corporation owned by a Bermuda corporation whose principal office is in Monaco. (Affirmation of Edward Brodsky ("Brodsky Aff.") dated Jan. 10, 2000 ¶ 8.) Ostel had agreed to purchase the controlling block of the common shares of Galaxi World and to extend a tender offer for the remainder. (Id.) GalaxiWorld had ceased to do business in the United States and Canada. (Declaration of Sheldon Eisenberger ("Eisenberger Decl.") dated June 21, 2001, Ex. C at 16.) The going-private transaction was scheduled to close on January 21, 2000. (Brodsky Aff. ¶ 8.) By letter dated November 23, 1999, Banks, the President of Galaxi World, notified Proskauer to do no more work on behalf of GalaxiWorld without prior approval after December 15, 1999. (Id. ¶ 9.) By letter dated December 22, 1999, Banks informed Proskauer that defendant Weltman, who had been the Chief Financial Officer of Galaxi World, was no longer an officer of GalaxiWorld. (Id. ¶ 10.) On December 29, 1999, Banks advised Proskauer that it had a conflict of interest in representing both Mr. Weltman and GalaxiWorld, but Banks could not explain the conflict, saying that the December 29, 1999, letter had been written at the instruction of Ostel. (Id.) On January 3, 2000, Banks informed Proskauer that he had been instructed not to pay its outstanding invoices that had been previously approved for payment by Mr. Weltman, and that he would not be in further communication with Ostel until January 22, 2000, after the closing. (Id. ¶ 12.) Proskauer's attempts to discuss the cease work and nonpayment notices with Ostel Management were rebuffed by Banks and by a Texas law firm representing Ostel. (Id. ¶ 13.) Based on this conduct, Proskauer became fearful that it would not be paid for its services, since alter January 21, 2000, Galaxi World would be "owned by a private foreign company with no accountability," and Galaxi World's funds disbursed elsewhere, and Proskauer therefore feared that it would have lost any meaningful chance to recover the funds owed to it. (Id. ¶ 2, 17.)
S. E.D.N.Y. Civil Rule 1.4 provides:
An attorney who has appeared as attorney of record for a party may be relieved or displaced only by order of the court and may not withdraw from a case without leave of the court granted by order. Such an order may be granted only upon a showing by affidavit or otherwise of satisfactory reasons for withdrawal or displacement and the posture of the case, including its position, if any, on the calendar.
S. E.D.N.Y. Civ. R. 1.4 (2001).
Proskauer had given prior notice of the motion to defendant Banks, President of GalaxiWorld, on January 7, 2000.
By letter dated January 7, 2000, Proskauer notified Banks that it was obliged to move to withdraw as counsel and for payment of outstanding fees. (Id. Ex. I.) On January 10, 2000, Proskauer presented the Court with an order to show cause returnable on January 13, 2000, requesting such relief. The Court signed the order to show cause and, as requested, authorized service on Banks and Weltman by facsimile on January 10, 2000. In its memorandum in support of its application, Proskauer stated that "Galaxi World has had ample time to retain other counsel if that were what it wished to do, and Proskauer has in fact given notice that it cannot represent defendants under these circumstances and is obliged to withdraw as counsel." (Mem. of Law in Support of Proskauer's Motion dated Jan. 10, 2000, at 7.) On January 13, 2000, a hearing was held at which neither Banks, nor Weltman, nor GalaxiWorld through any representative appeared. Proskauer expressed fear that GalaxiWorld, under the direction of Ostel, would take the position that "we never have to pay these people," because "they will never find [our] assets and we are not worried about it." (Transcript of Jan. 13, 2000, hearing at 25 (unsealed July 19, 2000).) Accordingly, Proskauer requested that the judgment require payment by January 18, 2000, to allow the check to clear before the closing of the going-private transaction with Ostel on January 21, 2000. Plaintiffs' counsel objected to the relief requested as giving Proskauer a priority to GalaxiWorld's assets and asked for a default judgment on their case, in view of the defendants' failure to appear. Plaintiffs' counsel also requested that the Court order GalaxiWorld to reimburse Plaintiffs's counsel $1130 advanced to Mr. Weltman to defray expenses he was expected to incur in coming to New York for his deposition. Proskauer's motion to withdraw as counsel and for payment of fees was granted on default and Galaxi World was ordered to: (1) pay Proskauer's fees and expenses in the amount of $762,611.34 on or before January 18, 2000; (2) reimburse Plaintiffs' counsel the $1130 advanced to Mr. Weltman; and the Court entered a restraining order against any disposition of assets of GalaxiWorld until such payments were made and new counsel entered an appearance. The Court's Order of January 13, 2000, also explicitly warned GalaxiWorld that if it did not file an appearance on or before January 18, 2000, a default judgment in favor of Plaintiffs might be entered against Galaxi World.
In a letter dated January 19, 2000, defendant Banks stated that Galaxi World had not been given adequate notice of Proskauer's order to show cause and alleged that Proskauer had failed to represent GalaxiWorld properly in connection with settlement discussions. By Order dated January 19, 2000, upon the request from Banks, the judgment in favor of Proskauer was vacated and held in abeyance until January 25, 2000, to allow GalaxiWorld to appear and show cause why the judgment should not be entered. By memorandum endorsement dated January 20, 2000, upon a request from Proskauer, defendant Banks was ordered to appear in person at the January 25, 2000, hearing, and defendant Weltman was ordered to appear by telephone, to give testimony as material fact witnesses with respect to GalaxiWorld's allegations of misrepresentation by Proskauer in settlement discussions. On January 25, 2000, the hearing was held at which neither Banks nor Galaxi World appeared, although defendant Weltman appeared by telephone. At the hearing on January 25, 2000, the Court took into consideration all the materials submitted by the parties and all the testimony given and arguments presented including testimony that GalaxiWorld had not cooperated with Proskauer in settlement discussions, and found that GalaxiWorld was in default, that $569,536.48 in outstanding fees and expenses had been incurred on Defendants' behalf by and were due to Proskauer in this litigation, that Plaintiffs' counsel had received reimbursement for the advance paid to defendant Weltman to cover his cost of attending his deposition in New York, and that the Court continued the restraining order to ensure payment of any judgments entered. In an Order and Judgment dated January 26, 2000: (1) a default judgment was entered against GalaxiWorld in favor of Plaintiffs: (2) an inquest was ordered to be held on February 9, 2000, regarding the amount of damages to be awarded which were claimed by Plaintiffs to be $22,048,844; (3) GalaxiWorld was ordered to pay Proskauer fees and expenses for services rendered in In re Gaming Lottery Securities Litigation in the amount of $569,536.48; and (4) the restraining order was continued. On February 9, 2000, the inquest on damages was held, at which none of the defendants appeared or requested an adjournment. On February 16, 2000, judgment was entered against GalaxiWorld in favor of Plaintiffs in the amount of $22,084,844 as of May 24, 1996. On March 6, 2000, the January 27, 2000, judgment was amended only as to the fees owed Proskauer, which were increased to $654,412.58. By Order dated April 24, 2000, the Court found that Proskauer's claim giving rise to the March 6, 2000, Amended Judgment was plenary and severable. On May 3, 2000, a Second Amended Judgment was entered pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.")54(b) in favor of Proskauer against GalaxiWorld in the amount of $654,412.58. On May 11, 2000, an Amended Order and Judgment was issued, amending the judgment of February 16, 2000, and entering judgment pursuant to Fed.R.Civ.P. 54(b) with damages in the amount of $22,084,844 as of May 24, 1996, in favor of Plaintiffs against GalaxiWorld and continuing the restraining order on GalaxiWorld.
Mr. Weltman was allowed to appear by telephone because his wife was expecting to deliver their child at that time.
On March 14, 2000, GalaxiWorld and Jack Banks, by Sheldon Eisenberger, Esq., filed Notices of Appeal of the judgments dated January 26, 2000, and March 6, 2000, and GalaxiWorld (but not Banks) filed a Notice of Appeal of the of the judgment dated February 16, 2000. On May 11, 2000, GalaxiWorld and Banks filed a Notice of Appeal of the Second Amended Judgment dated May 3, 2000, and of the Order dated April 24, 2000. On May 19, 2000, GalaxiWorld filed a Notice of Appeal of the Amended Order and Judgment dated May 11, 2000.
On March 22, 2000, Mr. Eisenberger filed a notice of appearance on behalf of GalaxiWorld.
On January 10, 2001, the Second Circuit Court of Appeals affirmed the judgment in favor of Proskauer. See Silva Run Worldwide Ltd. v. Galaxiworld.com Ltd., ___ Fed. Appx. ___, 2001 WL 40902 (2d Cir. Jan 10, 2001). On May 10, 2001, the Second Circuit Court of Appeals vacated the default judgment in favor of Plaintiffs against GalaxiWorld and remanded the case to this Court for further proceedings. See Pecarsky v. Galaxiworld.com Ltd., 249 F.3d 167 (2d Cir. 2001).
B. Plaintiffs' Motion for Summary Judgment Against the Individual Defendants
On February 24, 2000, Mr. Eisenberger filed a notice of appearance on behalf of defendants Banks and Weltman. On February 25, 2000, at a pre-trial conference, the Court ordered that: (1) except with respect to the deposition of Mr. Scale (a Fifth Amendment witness) fact discovery was closed; (2) final expert witness reports would be exchanged on March 15, 2000; (3) a pre-trial order would be submitted to the Court by April 3, 2000; and (4) a trial date was set for May 1, 2000. On April 14, 2000, Plaintiffs moved for summary judgment on liability and damages against defendants Jack Banks and Larry Weltman as controlling officers of GalaxiWorld. By Opinion and Order dated February 27, 2001, summary judgment was granted to Plaintiffs against individual defendants Banks and Weltman for the period of May 3, 1995, through May 24, 1996, with damages of $10 million, subject to upward or downward adjustment upon submission of proofs of claim by the class of plaintiffs. On March 7, 2001, judgment was entered against those defendants. On March 13, 2001, Banks and Weltman filed a Notice of Appeal. That appeal is now pending.
C. The Enforcement Proceedings Orders
On August 18, 2000, the Court granted Proskauer's and Plaintiffs' motions to compel GalaxiWorld to produce documents relating to the location of its assets and to appear for a deposition. On October 18, 2000, the Court ordered defendant Banks and representatives of GalaxiWorld to appear at a hearing scheduled for November 2, 2000, at which neither Banks nor GalaxiWorld appeared or produced evidence. On November 6, 2000, the Court ordered that GalaxiWorld be held in contempt of court and fined $5,000 for each day from the date of entry of that order for failure to comply with the Court's Order of August 18, 2000, and ordered Banks and GalaxiWorld to appear and to show cause on November 14, 2000, why they should not be held in contempt for their failure to appear and give testimony and evidence in Plaintiffs' judgment enforcement proceedings. On November 14, 2000, defendants Banks, Weltman and GalaxiWorld moved by order to show cause for Plaintiffs to show why at a hearing to be held November 16, 2000, an order should not be entered: (1) staying the Order of Contempt; (2) reconsidering the Court's October 18, 2000, and November 6, 2000, Orders; (3) granting defendants a protective order requiring all depositions of defendants to be conducted in the place they reside; and (4) entering a Martindell protective order in the form previously submitted to the Court. On November 14, 2000, the hearing was reset to November 21, 2000. On November 21, 2000, neither GalaxiWorld nor Banks appeared at the hearing on the motion, but the Court gave Banks until November 27, 2000, to appear. On November 27, 2000, Banks did not appear and the Court held him in contempt and fined him $1,000 per day until he complies with the Court's October 18, 2000, Order. In an order entered December 5, 2000, the Court denied the motion of GalaxiWorld, Banks and Weltman, for the reasons stated at the November 21, 2000 hearing.
Proskauer had also initiated unsuccessful collection efforts against G.Cash Limited, which acted as a cashier for GalaxiWorld's ongoing internet gambling business. See In re Gaming Lottery Sec. Litig., No. 96 Civ. 5567 (RPP), 2000 WL 1801840 (S.D.N.Y. Dec. 7, 2000).
D. Galaxi World's Motion for Disqualification
On June 21, 2000, after remand to this Court following the Second Circuit's decision vacating the default judgment against GalaxiWorld in favor of Plaintiffs, GalaxiWorld moved upon the declaration of Mr. Eisenberger, the exhibits attached thereto, the accompanying memorandum of law, and all prior proceedings and pleadings had herein to request that the Court disqualify itself from further proceedings pursuant to 28 U.S.C. § 455(a). GalaxiWorld contends that the Court has been predisposed against it in its rulings. (Def.'s Mem. at 2-8.) GalaxiWorld further contends that the Court's comments during certain oral arguments on motions highlight the appearance of bias on the part of the Court and that "[e]ver since the withdrawal of Proskauer as counsel for defendants, the Court has exhibited strong negative bias towards defendants." (Id. at 8-12.) GalaxiWorld argues that "defendants cannot get a fair trial before this Court," and that its motion should be granted "because the Court's [im]partiality [sic] might reasonably be questioned." (Id. at 11.)
The memorandum in support of the motion states that it is "submitted on behalf of defendants GalaxiWorld.com Limited ("GLC"), Jack Banks and Larry Weltman in support of their motion that The Honorable Robert P. Patterson recuse himself from this case pursuant to 28 U.S.C. § 455 (a)." (Def.'s Mem. at 1.) Defendant GalaxiWorid's reply memorandum similarly states that it is submitted also on behalf of Banks and Weltman. (See Def.'s Reply Mem. at 1.) However, the Notice of Motion was filed on behalf of GalaxiWorld only. (See Notice of Motion dated June 21, 2001.) Plaintiffs correctly note that since summary judgment has been entered against defendants Banks and Weltman and they have filed a notice of appeal, those defendants are not properly before the Court. (See Pls.' Mem. at 18 n. 7.) Accordingly, although the briefs state that they are submitted on behalf of Banks and Weltman, the motion was brought by and therefore will be decided on behalf of GalaxiWorld only.
On July 17, 2001, Plaintiffs opposed the motion, arguing that: (1) Defendant's motion is procedurally defective; and (2) adverse judicial rulings are not a proper ground for a recusal motion. On July 31, 2001, Defendant submitted reply papers in further support of the motion.
In support of their opposition to GalaxiWorld's motion for disqualification, Plaintiffs submit information that was not before the Court at the time the rulings and remarks upon which GalaxiWorld bases its motion were made. That information is not relied upon in this Opinion and Order.
DISCUSSION
GalaxiWorld moves to request that the Court disqualify itself from further proceedings pursuant to 28 U.S.C. § 455(a). The statute provides that: "Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned." 28 U.S.C. § 455(a) (2001).
A. Procedural Objections
Plaintiffs argue that GalaxiWorld's motion is procedurally defective because: (1) the motion fails to satisfy the strict requirements of 28 U.S.C. § 144; (2) it is untimely; (3) GalaxiWorld has not submitted material allegations stated with particularity as required by § 144; and (4) the Court has no personal bias of an extrajudicial origin.
1. The procedural requirements of 28 U.S.C. § 455(a)
Two of Plaintiffs' procedural objections erroneously rely on the argument that a motion filed pursuant to 28 U.S.C. § 455(a) must satisfy the strict requirements of 28 U.S.C. § 144. Although Plaintiffs contend that: (1) GalaxiWorld's motion does not satisfy the requirements of § 144; and (2) GalaxiWorld has not submitted material allegations stated with particularity as required by § 144; Plaintiffs have not cited, nor has this Court found, any cases holding that motions filed pursuant to § 455(a) must comply with the procedural requirements of § 144. Rather, the Second Circuit has noted that 28 U.S.C. § 455 (a) is "wholly silent as to procedure." United States v. Wolfson, 558 F.2d 59, 62 n. 11 (2d Cir. 1977). The Sixth Circuit has similarly noted that "[t]here is no particular procedure that a party must follow to obtain judicial disqualification under § 455(a)," and that "[n]either the text nor the legislative history of § 455(a) contain any suggestion that the procedures of § 144 are applicable to disqualification under § 455(a)." Roberts v. Bailar, 625 F.2d 125, 128 n. 8 (6th Cir. 1980). Since there is no requirement that a motion filed pursuant to § 455(a) must comply with the procedural requirements of § 144, Plaintiffs' procedural objections on that ground are denied.
28 U.S.C. § 144 provides:
Whenever a party to any proceeding in a district court makes and files a timely and sufficient affidavit that the judge before whom the matter is pending has a personal bias or prejudice either against him or in favor of any adverse party, such judge shall proceed no further therein, but another judge shall be assigned to hear such proceeding. The affidavit shall state the facts and the reasons for the belief that bias or prejudice exists, and shall be filed not less than ten days before the beginning of the term at which the proceeding is to be heard, or good cause shall be shown for failure to file it within such time. A party may file only one such affidavit in any case. It shall be accompanied by a certificate of counsel of record stating that it is made in good faith.28 U.S.C. § 144 (2001).
Somewhat more recently, the Second Circuit stated that "[w]e have not decided whether the filing of an affidavit of bias is required as a procedural prerequisite for § 455." Apple v. Jewish Hosp. and Med. Ctr., 829 F.2d 326, 333 (2d Cir. 1987). "But when proffered, an affidavit is scrutinized for sufficiency." Id. Here, GalaxiWorld has submitted a declaration by counsel in support of its motion.
2. Untimeliness
Second, Plaintiffs contend that the motion is untimely. Courts have found a timeliness requirement contained in 28 U.S.C. § 455(a). "Although § 455 does not contain such a requirement, timeliness has been read into this section. . . ." Apple v. Jewish Hosp. and Med. Ctr., 829 F.2d 326, 333 (2d Cir. 1987). In general, one seeking disqualification must do so "at the earliest possible moment after obtaining knowledge of facts demonstrating the basis for such a claim" of disqualification. Id.; see also Gil Enters. Inc. v. Delvy, 79 F.3d 241, 247 (2d Cir. 1996). "Untimeliness . . . is . . . a failure to seek recusal when it should first have been sought, that is, as soon as the facts on which it is premised are known to the parties." United States v. Bayless, 201 F.3d 116, 127 (2d Cir. 2000). "[U]ntimeliness in making a motion for recusal can sometimes constitute the basis for finding an implied waiver." Id. The Second Circuit has written that, in the context of on-going litigation,
it is important to present recusal applications promptly for at least two reasons. First, a prompt application affords the district judge an opportunity to assess the merits of the application before taking any further steps that may be inappropriate for the judge to take. Second, a prompt application avoids the risk that a party is holding back a recusal application as a fall-back position in the event of adverse rulings on pending matters.
In re Int'l Bus. Mach. Corp., 45 F.3d 641, 643 (2d Cir. 1995) (noting that such considerations had no application in that case since the case was post-judgment and no action had occurred since 1970).
In the case at hand, GalaxiWorld contends that the judgments against Galaxi World entered in January 2000 and the Court's orders against GalaxiWorld in November 2000, and statements made by the Court on January 13, 2000, January 25, 2000, February 9, 2000, February 29, 2000, and November 21, 2000, "manifest the appearance of bias" against GalaxiWorld. (Def.'s Mem. at 1.) Although those rulings and statements were all made in 2000, Defendant GalaxiWorld did not move for disqualification until June 21, 2001, which is seven months after the last statement was made on November 21, 2000, and more than a year and half after the first incidents allegedly demonstrating the appearance of bias. Given the time that has elapsed, it is difficult to see how this motion for disqualification has been made "at the earliest possible moment after obtaining knowledge of facts demonstrating the basis for such a claim." Apple, 829 F.2d at 333. GalaxiWorld argues that the present stage of the proceedings is the appropriate time to address the motion for disqualification because the case has been relatively dormant since the Second Circuit's opinion reversing entry of the default judgment against GalaxiWorld, which was rendered on May 10, 2001. Although the motion for disqualification was not filed "at the earliest possible moment, " since expert discovery is not yet complete, motions for summary judgment may yet be filed and trial is to be scheduled, the motion will not be denied as untimely but will be decided on its merits to ensure that confidence in the integrity of the Southern District is not tarnished. See Liljeberg v. Health Serv. Acquisition Corp., 486 U.S. 847, 860 (1988) (noting that the purpose of § 455(a) is "to promote public confidence in the integrity of the judicial process").
It could be argued that GalaxiWorld was not properly before this Court from the date it filed its Notice of Appeal, March 14, 2000, until the Second Circuit's decision on May 10, 2001. In support of its motion, however, GalaxiWorld relies on rulings and statements that were made in November 2000 during the pendency of its appeal, when GalaxiWorld was before this Court with respect to Proskauer's and Plaintiffs' attempts to enforce their respective judgments against it.
3. The extrajudicial source doctrine
Third, Plaintiffs argue that GalaxiWorld's motion should be denied because the Court had no personal bias of an extrajudicial origin. Although the "extrajudicial source doctrine" applies to § 455(a), "[t]he fact that an opinion held by a judge derives from a source outside judicial proceedings is not a necessary condition for 'bias or prejudice' recusal. . . . Nor is it a sufficient condition" for such recusal. Liteky v. United States, 510 U.S. 540, 554 (1994) (emphasis in original). "[N]either the presence of an extrajudicial source necessarily establishes bias, nor [does] the absence of an extrajudicial source necessarily preclude bias . . . ." Id. Defendant GalaxiWorld does not rely on or allege an extrajudicial source for the Court's alleged bias or prejudice. Since the lack of an extrajudicial source does not preclude a finding of bias or prejudice, however, Plaintiffs' objection on that ground is not dispositive.
B. Substantive Analysis
"Section 455(a) requires a showing that would cause 'an objective, disinterested observer fully informed of the underlying facts [to] entertain significant doubt that justice would be done absent recusal.'"In re Aguinda, 241 F.3d 194, 201 (2d Cir. 2001) (quoting United States v. Lovaglia, 954 F.2d 811, 815 (2d Cir. 1992)). "Thus, the test to be applied is an objective one which assumes that a reasonable person knows and understands all the relevant facts." In re Drexel Burnham Lambert Inc., 861 F.2d 1307, 1313 (2d Cir. 1988) (emphasis in original). "Quite simply and quite universally, recusal [us required [under § 455(a)] whenever 'impartiality might reasonably be questioned.'" Liteky, 510 U.S. at 548.
The trial judge him-or herself must decide a motion filed pursuant to 28 U.S.C. § 455(a). "Discretion is confided in the district judge in the first instance to determine whether to disqualify himself." In re Drexel Burnham Lambert Inc., 861 F.2d at 1312. "In deciding whether to recuse himself, the trial judge must carefully weigh the policy of promoting public confidence in the judiciary against the possibility that those questioning his impartiality might be seeking to avoid the adverse consequences of his presiding over their case." Id. "A judge is as much obliged not to recuse himself when it is not called for as he is obliged to when it is." Id.
1. The Court's Rulings
GalaxiWorld argues that a reasonable person would conclude that the Court's partiality is questionable based on the Court's rulings, but adverse rulings per se do not amount to bias. See In re Int'l Bus. Mach. Corp., 618 F.2d 923, 929 (2d Cir. 1980) (noting that "we cannot agree that adverse rulings by a judge can per se create the appearance of bias under section 455(a)."). Rather, as the Supreme Court has stated, judicial rulings "can only in the rarest circumstances evidence the degree of favoritism or antagonism required. . . when no extrajudicial source is involved. Almost invariably, they are proper grounds for appeal, not for recusal." Liteky, 510 U.S. at 555.
GalaxiWorld acknowledges that the Supreme Court has held that "judicial rulings alone almost never constitute a valid basis for a bias or partiality motion, " but argues that the Court's rulings fall into the narrow exception noted by the Supreme Court because they allegedly "display a deep-seated favoritism or antagonism that would make fair judgment impossible." Id. In support of this argument, GalaxiWorld cites: (1) the Court's granting Proskauer's motion to withdraw as counsel and entry of judgment against GalaxiWorld in favor of Proskauer for unpaid fees, and the related decisions of the Court with respect to Proskauer's motion; (2) entry of a default judgment against GalaxiWorld with judgment of damages in the amount of $22,048,844 in favor of Plaintiffs against GalaxiWorld and the related decisions of the Court with respect to entry of the default judgment; and (3) the Court's granting on November 9, 2000, Plaintiffs' motion for contempt for GalaxiWorld's failure to comply with the Court's Order of August 18, 2000, which ordered GalaxiWorld to produce to Plaintiffs certain corporate documents that Plaintiffs had requested, and the related decisions of the Court with respect to the motion for contempt.
First, with respect to the Proskauer's motion to withdraw as counsel and the entry of judgment against GalaxiWorld on behalf of Proskauer for unpaid fees, Galaxi World does not explain, nor can the Court discern, how granting Proskauer's motion for an order permitting Proskauer to withdraw as counsel for the defendants and ordering payment of outstanding fees, displays "deep-seated favoritism." That decision was upheld by the Second Circuit Court of Appeals. See Silva Run Worldwide Ltd. v. Galaxiworld.com Ltd., — Fed. Appx. —" 2001 WL 40902 (2d Cir. Jan. 10, 2001). Additionally, in granting Proskauer's motion, the Court explained its reasons at the hearing on January 13, 2000, stating, "I listened to Mr. Brodsky [of Proskauer] and I think that his client is not cooperating with him and under those circumstances I have no excuse for not granting his application to withdraw as counsel and to fix his fees." (Eisenberger Decl. Ex. B at 31.) At the time Proskauer made its motion to withdraw as counsel and for payment of its fees, GalaxiWorld was about to be taken over by an offshore private company with whom Proskauer was unable to communicate and there remained no insurance to pay Proskauer's fees. The ruling presented a basis for appeal, which GalaxiWorld unsuccessfully pursued, but it does not display deep-seated favoritism or antagonism toward GalaxiWorld and it is not grounds for the Court to disqualify itself.
Mr. Brodsky had stated that his client had refused to give instruction since November 1999 and refused to respond to his telephone calls. (Transcript of Jan. 13, 2000 at 22-29 (unsealed on July 19, 2000)).
Second, with respect to the entry of default judgment and the related rulings, Defendant appealed the default judgment and award of damages against GalaxiWorld to the Second Circuit Court of Appeals. That court reversed the default judgment and award of damages. See Pecarsky, 249 F.3d at 174-75. In support of its motion for disqualification, GalaxiWorld argues that "as indicated by the Second Circuit, this Court acted to enter a default judgment against GLC more quickly than usual." (Def.'s Mem. at 12.) It is true that the Second Circuit, in reversing the entry of default judgment, noted that "consideration of other cases in which default judgments have been entered illustrates that the district court in this case ordered a default judgment more quickly than usual." Pecarsky, 249 F.3d at 172. However, the entry of the judgment here came at a time when GalaxiWorld was being taken over by an offshore private company which Proskauer believed would not pay GalaxiWorld's bills and when no insurance remained to pay any judgment. Entry of default judgment "more quickly than usual" under those circumstances would not cause a disinterested observer who was fully informed of the facts to entertain significant doubt that justice would be done absent recusal. The transcripts show that the Court was obviously trying to press GalaxiWorld and Ostel to bring in attorneys to defend the action. The Court's entry of default judgment presented grounds for appeal, which GalaxiWorld successfully pursued, but it does not display deep-seated favoritism or antagonism toward GalaxiWorld and it is not grounds for the Court to disqualify itself.
Galaxi World chose to forego the typical procedure upon entry of default judgment of moving before the district court to vacate the default judgment under Federal Rules of Civil Procedure 55(c) and 60(b) and proceed to defend the action with Banks and Weltman who were represented by the same counsel. See Pecarsky, 249 F.3d at 170 (discussing GalaxiWorld's "unusual" choice to pursue an appeal rather than seeking vacatur of the default judgment from the district court).
Third, GalaxiWorld complains that the Court "rubber stamped Plaintiffs' request for an order of contempt," and that "inexplicably the Court did not enter the Martindell order" that defendants had requested in their order to show cause of November 14, 2000. (Def.'s Mem. at 7.) Contrary to GalaxiWorld's contention that the order for contempt was "rubber stamped, " the Court heard extensive argument and reviewed substantive briefing from counsel on the issue. Most importantly, despite the Court's orders, neither defendant Banks nor a representative from GalaxiWorld appeared at the hearing, nor were any of the requested documents produced, as required in the Court's order. Also contrary to GalaxiWorld's contention, the Court clearly explained reason for denying defendants' request for a Martindell protective order its ruling at the November 21, 2000, hearing, at which Galaxi World's counsel was present, when the Court stated:
I am not going to grant the defendants a protective order requiring that all depositions of defendants be conducted in the place that they reside. And I am not going to enter a Martind[ell] protective order in the form previously submitted to the Court because I don't think th[at] a necessity has been shown for the entrance of a Martind[ell] protective order or was at the time when it was originally submitted because the nature of the inquiry being made of Mr. Banks at that time was an inquiry as to the disposition of the assets that had taken place subsequent to the period involved in his prosecution. There was no claim by anyone that those transfers were criminal acts.
(Eisenberger Decl. Ex. F at 40-41.) Here, an objective; disinterested observer who was fully informed of the fact that the Court had explained its reason for not entering the protective order, which was based on defendants' failure to make a sufficient showing of necessity, would not entertain significant doubt that justice would be done absent recusal. As with the other judicial rulings, this ruling may be grounds for an appeal but it is not grounds for disqualification. In sum, the rulings against GalaxiWorld, although adverse, do not display deep-seated favoritism or antagonism that would make fair judgment impossible.
2. The Court's Remarks
GalaxiWorld argues that the Court's statements at various hearings created an appearance of bias. However, "judicial remarks during the course of a trial that are critical or disapproving of, or even hostile to, counsel, the parties, or their cases, ordinarily do not support a bias or partiality challenge." Liteky, 510 U.S. at 555; see also United States v. Conte, 99 F.3d 60, 65 (2d Cir. 1996) (noting that "[e]vents occurring in the course of judicial proceedings generally do not constitute a basis for recusal"). The Supreme Court has stated:
Not establishing bias or partiality, however, are expressions of impatience, dissatisfaction, annoyance, and even anger, that are within the bounds of what imperfect men and women, even after having been confirmed as federal judges, sometimes display. A judge's ordinary efforts at courtroom administration — even a stern and short-tempered judge's ordinary efforts at courtroom administration-| remain immune.Id. at 555-56 (emphasis in original). The Supreme Court has also explained, by quoting Judge Jerome Frank, that "'[i]mpartiality is not gullibility. Disinterestedness does not mean child-like innocence. If the judge did not form judgments of the actors in those court-house dramas called trials, he could never render decisions.'" Id. at 551 (quoting In re J.P. Linahan. Inc., 138 F.2d 650, 654 (2d Cir. 1943)). "[O]pinions formed by the judge on the basis of facts introduced or events occurring in the course of the current proceedings, or of prior proceedings, do not constitute a basis for a bias or partiality motion unless they display a deep-seated favoritism or antagonism that would make fair judgment impossible." Id. at 555.
First, GalaxiWorld accuses the Court of "taking issue with Mr. Weltman's failure to appear in Court when his wife was having a baby, even though all parties had agreed to the adjournment." (Def.'s Mem. at 8.) However, as the transcript of the January 13, 2000, hearing makes clear, the Court was only informed that the parties had agreed to adjourn Mr. Weltman's deposition, not his appearance at the hearing on Proskauer's motion to withdraw as counsel:
I really think [Mr. Weltman] ought to have appeared. Didn't I order that he appear? We have had one excuse after another from Mr. Weltman. It seems to me he was supposed to appear in November and then he had an excuse then and I said any time before maybe it was January 20 but whatever date it was and you all agreed on that and then now he has unilaterally avoided that.
(Eisenberger Decl. Ex. B at 17-18.) Although counsel for Proskauer informed the Court that Plaintiffs had consented to the further adjournment of Mr. Weltman's deposition because his wife was expecting a baby and therefore his failure to appear at his deposition was not unilateral, the Court was raising the issue that Mr. Weltman was not present at the January 13, 2000. hearing. (Id.) Proskauer's order to show cause presented to the Court on January 10, 2000, and signed the same day, had ordered Mr. Weltman to appear at the January 13, 2000, hearing, and the Court stated that it had understood that, "[t]he Order to Show Cause indicated he was going to appear here. . . ." (Id. at 34.) The consensual adjournment of Mr. Weltman's deposition for some other date does not explain or excuse his failure to appear at the hearing on Proskauer's order to show cause. GalaxiWorld also complains that later during the same hearing, the Court stated, "I think maybe [Mr. Weltman] is never going to show. Maybe he has another wife that is pregnant." (Id. at 34.) This poor attempt at humor merely displays the Court's obvious frustration with the discovery cutoff extensions caused by Mr. Weltman's repeated delays in completing his deposition. Contrary to GalaxiWorld's assertions, however, the Court's observations that defendant Weltman had failed to appear at the January 13, 2000, hearing on Proskauer's order to show cause or had repeatedly rescheduled his deposition were "efforts at court administration, " and even if they reflect impatience with Mr. Weltman's failure to have appeared for deposition or at the hearing held on January 13, 2000, such statements do not establish the appearance of bias or partiality. Accordingly, an objective, disinterested observer fully informed of the underlying facts would not entertain significant doubt that justice would be done absent recusal.
Mr. Weltman's deposition had begun in April 1999 but could not be completed at that time because of a lack of documents concerning Mr. Weltman's testimony before the SEC and the Nebraska, Ontario, and Missouri gaming regulatory commissions. See Sept. 29, 1999, and Oct. 14, 1999, Letters from Plaintiffs; Oct. 15, 1999, Letter from Proskauer.) On October 14, 1999, Plaintiffs had requested that the Court compel defendant Weltman to attend his deposition in New York City, which was then scheduled for October 20-21, 1999, afler Plaintiffs were advised that Defendants had canceled the deposition. On October 18, 1999, that request was denied by memorandum endorsement upon a letter from Proskauer dated October 15, 1999, in which Proskauer offered the deposition to be held in December, rather than in October 1999. (See Memorandum Endorsement dated Oct. 18, 1999, upon Proskauer's Oct. 15, 1999, Letter.) On November 30, 1999, Weltman's deposition was again rescheduled, this time to January 2000, due to Proskauer's scheduling conflicts and because defendant Weltman had injured his back. At the January 13, 2000, hearing, it was reported to the Court that Mr. Weltman had again obtained an adjournment of his deposition which was rescheduled from January to February 2000, this time because his wife was expecting a baby.
Second, Galaxi World complains of the Court's belief that defendants' requests for additional time to engage new counsel were unreasonable, an assessment that the Second Circuit disagreed with in its decision on appeal. (Def.'s Mem. at 9.) GalaxiWorld identifies a remark made during the January 25, 2000, hearing, at which Mr. Weltman appeared by telephone. The Court stated:
Galaxi World had an obligation to appear today; under court order. And it was adjourned for week. And I'm not going to allow the people to just turn around and ask for 30 days and 30 days and 30 days. It's an old game. They have to learn to respect the Court.
(Eisenberger Decl. Ex. C at 92.) The Court was dealing with a four year old case in which the fact discovery cutoff had been repeatedly extended, trial was scheduled for April 4, 2000, and expert discovery was still to be completed. In its remark, the Court was expressing its frustration with GalaxiWorld's failure to obtain substitute counsel, despite the fact that GalaxiWorld had notified Proskauer in November 1999 that it should cease work and despite a court order to appear and a subsequent adjournment to permit GalaxiWorld to retain counsel, if only for the purpose of making a special appearance on behalf of the corporation. As with the Court's comments regarding Mr. Weltman's failure to appear, the statement is an effort at court administration and an objective, disinterested observer fully informed of the underlying facts would not entertain significant doubt that justice would be done absent recusal.
Third, GalaxiWorld complains about the Court's response to Mr. Weltman's suggestion, made on January 25, 2000, at a time when he was no longer an officer of Galaxi World and when no counsel had appeared for the defendants, that "all three parties here at the table . . . spend the next 30 days to try and settle this matter." (Id. at 93.) The Court responded: "From your own account, you weren't interested. From your own account, you elected to play it that way. You live by the sword, you die by the sword. Your string has run out." (Id. at 94.) The Court refused Mr. Weltman's request for an adjournment for possible settlement discussions based in part on Mr. Weltman's account earlier during that hearing of his instruction as an. officer of GalaxiWorld to Proskauer not to continue with settlement discussions, despite being advised by Proskauer to do so. (See id. at 63-64.) More importantly, Mr. Weltman's suggestion was a diversion from the subject the Court was dealing with, which was its efforts to encourage the retention of substitute counsel for the defendants, including suggesting that substitute counsel make only a limited appearance. (See id. at 92.) The Court's response was to redirect Weltman's attention to the issue of securing the appearance of an attorney for the defendants and not to allow time to be lost to that endeavor by the diversion of discussions of possible settlement by the principals. These remarks would not cause an objective, disinterested observer fully informed of these underlying facts to entertain significant doubt that justice would be done absent recusal.
Fourth, Galaxi World complains that on February 9, 2000, the Court "traded disparaging comments of defendants with Proskauer Rose's attorney." (Def.'s Mem. at 9.) In the comments cited in support of GalaxiWorld's claim, Proskauer's counsel had argued that it was "pointless to have two duplicative bifurcated proceedings, one here, one there, to address fee matters, " to which the Court replied: "Particularly when the defendant is now doing business out of Gibraltar." (Eisenberger Decl. Ex. D at 21.) This comment could not reasonably be interpreted as giving rise to the appearance of bias, since it is merely reflected the Court's agreement that Proskauer might have difficulty serving process on an offshore private company and bifurcated proceedings would waste time and resources. GalaxiWorld also cites the Court's agreement with the statement of Proskauer's counsel: "And tends not to show up at any hearing that anyone calls," to which the Court replied: "Or even have someone appear especially. All right." (Id.) The comment, based on GalaxiWorld's failure to appear at previous hearings, is again an effort at court administration to obtain the appearance of new counsel, even suggesting a special appearance, and under the circumstances would not cause an objective, disinterested observer fully informed of the underlying facts to entertain significant doubt that justice would be done absent recusal.
Fifth, GalaxiWorld argues that on February 29, 2000, the Court "assumed that any transactions involving defendants were improper." (Def.'s Mem. at 10 (emphasis in original).) However, that argument is not supported by the Court's remark on which GalaxiWorld relies. On February 29, 2000, the Court remarked that: "Well, I am not saying one way or the other, but just saying that you can't assume anything on these transactions." (Eisenberger Decl. Ex. E at 21.) Contrary to GalaxiWorld's assertions, rather than assume that any transactions were improper, the Court plainly stated that it would not make any assumptions regarding the propriety of the transactions: "you can't assume anything." That statement would not cause an objective, disinterested observer fully informed of the underlying facts to entertain significant doubt that justice would be done absent recusal.
Sixth, GalaxiWorld accuses the Court of sarcasm in asking the question during a hearing on the enforcement proceedings held on November 21, 2000, "You mean they are playing a game and they have taken their corporate documents and transferred them to a third party?" (Def.'s Mem. at 10.) This question was posed in response to GalaxiWorld's counsel's assertion, made without sworn statements in support, that GalaxiWorld was not m possession of its corporate documents relating to the disposition of the assets of its subsidiary, Specialty Manufacturing Inc., and the location of its assets which Plaintiffs had demanded during discovery. Questioning counsel's assertion that GalaxiWorld did not possess its own corporate documents would not cause an objective, disinterested observer fully informed of the underlying facts to entertain significant doubt that justice would be done absent recusal.
Finally, GalaxiWorld objects to the Court's statement during the hearing on the enforcement proceedings held on November 21, 2000, that GalaxiWorld's counsel had been "using" a former Gaming Lottery shareholder named Frank Citrano. (Id. at 10-11.) Citrano, who acknowledged being in touch with GalaxiWorld's counsel, sought a lifting of the Court's restraining order on a Galaxi World account at the Royal Bank of Scotland allegedly used to hold funds in the Ostel acquisition of Galaxi World so that he could receive a small portion of the account. GalaxiWorld had failed to produce the corporate documents relating to that transaction which had been requested by Plaintiffs and Proskauer. Without such documents, neither Proskauer nor Plaintiffs could review the corporate transaction in question to determine if it was a sham. The Court explained its remark in response to GalaxiWorld's counsel's exception, stating: "Yes. If you don't produce the documents they can't tell whether this isn't a sham transaction or not." (Eisenberger Decl. Ex. F at 15.) Such an observation, based on GalaxiWorld's failure to disclose its corporate records, would not cause an objective, disinterested observer fully informed of the underlying facts to entertain significant doubt that justice would be done absent recusal.
MY. Citrano, a Gaming Lottery shareholder whom the Court permitted to appear, had been seeking, over the objection of both the judgment creditors, the lifting of the Court's restraining order on an account in GalaxiWorld's name at the Royal Bank of Scotland m Gibraltar so that he could receive a small portion of the account. Eventually the dispute was resolved to Citrano's satisfaction. (See Affidavit of Robert C. Finkel dated July 17, 2001 Ex. Y.)
In sum, the remarks cited by GalaxiWorld that allegedly show bias and prejudice are efforts at court administration, or they question statements made by Galaxi World's counsel during conferences, or comment upon GalaxiWorld's delaying tactics, failure to appear despite court order, or refusal to reveal the location of its corporate documents. The judicial remarks in question, to the extent they are adverse to the positions of GalaxiWorld, are based on the facts placed before the Court and do not show deep-seated favoritism or antagonism. Thus, after consideration of the judicial rulings and statements relied on by GalaxiWorld in support of its motion for recusal pursuant to 28 U.S.C. § 455(a), the Court concludes that GalaxiWorld has not met its obligation to show that "an objective, disinterested observer fully informed of the underlying facts [would] entertain significant doubt that justice would be done absent recusal." In re Aguinda, 241 F.3d at 201 (internal quotation omitted). "A judge is as much obliged not to recuse himself when it is not called for as he is obliged to when it is." In re Drexel Burnham Lambert Inc., 861 F.2d at 1312. Here, the Court is obliged not to recuse itself. Accordingly, GalaxiWorld's motion pursuant to 28 U.S.C. § 455(a) to request that the Court disqualify itself from further proceedings is denied.
CONCLUSION
For the foregoing reasons, GalaxiWorld's motion pursuant to 28 U.S.C. § 455(a) to request that the Court disqualify itself from further proceedings is denied.