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In Clark, the district court held that a bankruptcy judge abused his discretion in failing to recuse himself from an adversary proceeding where the law firm representing the bankruptcy trustee hired the judge's fiancé during the pendency of the case.
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Case Number: 18-24578-CIV-MORENO
09-09-2019
Richard I. CLARK AS TRUSTEE FOR MATTHEW WORTLEY TRUST d/b/a X Co. Finance, et al., Appellants, v. Soneet R. KAPILA, TRUSTEE in Bankruptcy FOR TRAFFORD DISTRIBUTING CENTER, INC., Appellee.
Douglas Crane Broeker, Sweetapple, Broeker & Varkas, P.L., Miami, FL, Robert Jeffrey Hauser, Pankauski Hauser PLLC, West Palm Beach, FL, for Appellants. Michael Richard Bakst, Rilyn Anne Carnahan, Morris Gary Miller, Greenspoon Marder, P.A., West Palm Beach, FL, Paul A. Avron, Berger Singerman, Boca Raton, FL, for Appellee.
Douglas Crane Broeker, Sweetapple, Broeker & Varkas, P.L., Miami, FL, Robert Jeffrey Hauser, Pankauski Hauser PLLC, West Palm Beach, FL, for Appellants.
Michael Richard Bakst, Rilyn Anne Carnahan, Morris Gary Miller, Greenspoon Marder, P.A., West Palm Beach, FL, Paul A. Avron, Berger Singerman, Boca Raton, FL, for Appellee.
ORDER REVERSING AND REMANDING FOR NEW TRIAL
FEDERICO A. MORENO, UNITED STATES DISTRICT JUDGE
Appellant Richard I. Clark, as trustee for the Matthew Wortley Trust d/b/a X. Co. Finance, and appearing in various other capacities, appeals the final judgment and orders entered below in favor of the Appellee, Soneet R. Kapila, the trustee in Bankruptcy for Trafford Distributing Center, Inc. Specifically, Appellant appeals the bankruptcy court's (1) Findings of Fact and Conclusions of Law, (2) Final Judgment in Favor of Plaintiff (Appellee), and (3) Order Denying Motions for Rehearing, Motions to Alter or Amend Final Judgment and Findings of Fact and Conclusions of Law, Motions to Disqualify and for Leave to Take Discovery.
The main underlying bankruptcy case below is In re Trafford Distributing Center, Inc. , No. 11-23492 (Bankr. S.D. Fla. filed June 13, 2008). The adversary proceeding giving rise to this case is Kapila v. Richard I. Clark as Trustee for Matthew Wortley Trust d/b/a/ X. Co. Finance, et al. , Adv. No. 11-01996 (Bankr. S.D. Fla. filed Nov. 12, 2008).
Appellant argues, among other things, that the initial bankruptcy judge who presided over the case failed to timely recuse himself due to the fact that his fiancé had been recently hired by the law firm representing Appellee. Consistent with Judge Altonaga's recently issued order in a related appeal, this Court finds in favor of Appellant and holds that the initial bankruptcy judge should have recused himself before adjudicating the merits of this case. Accordingly, the Court vacates the final judgment and orders below, and remands the case for a new trial.
See Liberty Props. at Trafford LLC, et al. v. Kapila , No. 18-24579 (S.D. Fla. Aug. 9, 2019). While the main holding of Judge Altonaga's case is directly applicable to this case, that case stems from a different adversary proceeding: Kapila v. Liberty Props. at Trafford, LLC, et al. , Adv. No. 11-01997 (Bankr. S.D. Fla. filed Nov. 21, 2008).
I. BACKGROUND
A. The Relevant Adversary Proceeding
The relevant facts of this case begin on November 12, 2008, when Appellee initiated an adversary proceeding against Appellant seeking to determine the validity, priority, and amount of any lien Appellant may allegedly possess against the debtor's estate, Trafford Distributing Center, Inc., and, to the extent a lien does exist, to avoid and recover preferential and fraudulent transfers. On the same day that Appellee filed his complaint, Appellant wrote a demand letter to Appellee explaining he had "proof that this Trust through my Trust Account paid over $231,000 to Trafford under Factoring Agreements by which XCo purchased the receivables from Trafford." Appellant further noted that "[t]he trust is [now] owed $231,000 plus it intends to get paid from Heinz. XCo is the owner of the Heinz receivables and will be pursuing Heinz for the balance owed." A month before, Appellee had initiated adversary proceedings against H.J. Heinz Company in which it sought to directly recover the disputed Heinz receivable on behalf of the debtor.
See Kapila v. H.J. Heinz Co. , Adv. No. 08-01723 (Bankr. S.D. Fla. filed Oct. 21, 2008).
In response to the November 12 letter, Appellee filed an amended complaint seeking injunctive relief to prohibit Appellant from collecting on the Heinz receivable outside the context of the bankruptcy proceedings. Appellee claimed that the letter violated the automatic stay of the Bankruptcy Code, 11 U.S.C. § 362. Appellee also filed an emergency ex parte motion for a temporary restraining order based on the same letter, arguing that the "matter is not capable of being resolved by consent." On November 24, 2008, the bankruptcy judge, Judge John K. Olson, granted the motion. However, at a December 17, 2008 hearing, he dissolved the restraining order since Appellant, in the interim, had made both written and verbal affirmations that he would not be seeking to collect on the Heinz receivable outside the bankruptcy context. Upon hearing these promises, Judge Olson asked Appellee, "so what are we fighting about for purposes of today? ... With the concession that the litigation over the receivables and, indeed, perhaps collection efforts themselves, will be conducted here, and that the defendants in your litigation will take no action against Heinz except with leave of this Court ... what do you need an injunction for?"
In June 2009, Appellant submitted its Proof of Claim, asserting he owned the Heinz receivable pursuant to a Factoring Agreement between X Co. and the debtor. The following summer, Appellee moved for summary judgment, attacking the validity of Appellant's claim to the Heinz receivable and seeking an "an injunction to foreclose the Defendants from attempting to collect the Debtor's receivables." Despite evidence including the Factoring Agreement and receipts of wire transfers made from X Co. to the debtor, Judge Olson held that Appellant did not have a claim to the Heinz receivable since the lien was unperfected. He then entered a permanent injunction, based on the November 12 letter, prohibiting Appellant from collecting the receivable. Finally, and again based on the November 12 letter, he found that Appellant "willfull[y]" violated the automatic stay, and awarded attorney's fees and costs as a sanction. The judge did so even though Appellee conceded at the summary judgment hearing that "we did not seek summary judgment on the issue of whether or not there is any basis, as far as a stay violation here." Appellee, by way of attorney Michael R. Bakst of the Ruden, McClosky, Smith, Schuster & Russell, P.A. law firm, accordingly submitted an affidavit of fees and costs totaling $77,082.50.
Appellant sought reconsideration, and Judge Olson partially vacated his order regarding ownership of the Heinz receivable. He did not, however, revisit his entry of a permanent injunction or finding that Appellant willfully violated the automatic stay and therefore merited sanctions. On June 30, 2010, following a two-day bench trial, Judge Olson entered his Findings of Fact and Conclusions of Law and Final Judgment in Favor of Plaintiff. In the former, Judge Olson concluded that Appellant did not own the Heinz receivable in any of his capacities, and that the "multiple alleged trusts are [not] anything other than ex post facto fabrications designed to drain the bankruptcy estate." In the latter, Judge Olson repeated his earlier finding that Appellant willfully violated the automatic stay, and noted that he would again be awarding fees and costs as a sanction. Appellant responded, noting that Appellee's affidavit of fees "seems to be seeking all fees and costs incurred in connection with this Adversary, as well as other Adversaries," rather than seeking fees and costs associated only with the violation of the automatic stay—which, Appellant argued, meant efforts in connection with seeking the temporary restraining order.
B. Following Final Judgment, Defendants Move to Disqualify Judge Olson
In August 2010, Appellant discovered that during the summer of 2009, when motions for summary judgment were under consideration by Judge Olson, Appellee's counsel, the Ruden McClosky law firm, made contact with, negotiated with, and ultimately hired the judge's fiancé: George Fender. Upon learning these facts, the defendants across the multiple adversary proceedings, including Appellant, moved to disqualify the judge pursuant to 28 U.S.C. § 455(a), and 28 U.S.C. §§ 455(b)(5)(ii) & (iii). The defendants explained that "[t]he court ... appears to have an intimate relationship with Mr. Fender," noting that the two lived together while employment negotiations with the Ruden McClosky firm were taking place in the summer of 2009. Fender joined a relatively small bankruptcy practice group in the firm's West Palm Beach branch comprised of four attorneys led by Bakst, Appellee's lead counsel. Defendants argued that Fender "works closely with—essentially for—Mr. Bakst," and as proof pointed to cases where the two had served as co-counsel in the past. In one case, defendants noted, both Fender and Bakst represented the same trustee appearing in the present case. Making matters worse, defendants contended, was that Judge Olson would not just be adjudicating the merits of the adversary proceedings before him, he would also be deciding the amount of attorney's fees the Ruden McClosky firm may receive. Thus far, the firm sought more than $500,000 in fees "while Plaintiff's written demands before suit were $339,000." That the relationship between Judge Olson and Fender was "never disclosed by Mr. Bakst or the Court to undersigned counsel, nor to any of the Defendants in any of these related cases ... give[s] rise to the appearance of impropriety in violation of 28 U.S.C. § 455 and the Code of Judicial Conduct."
In a more than nine-page order, Judge Olson vehemently denied the recusal motion, explaining that neither he nor his fiancé had any interest substantially affected by the outcome of the proceedings. Judge Olson emphasized that Fender had joined the Ruden McClosky firm as a salaried employee, not equity partner, and was not staffed on the present case. Thus, the relationship, the judge believed, was tenuous at best. Having reviewed the applicable case law, the judge concluded: "fiery, impassioned oral argument [by the defendants] in the face of a glass mountain of precedent, with no acknowledgment of that glass mountain, and no hint at a good faith basis for a change in the law? This is normally sanctionable under Fed. R. Bankr. P. 9011(b)."
Defendants appealed to this Court. At a status conference, this Court said the following regarding the appearance of impropriety in this case:
At the relevant status hearing, this Court expressed reservation regarding its jurisdiction over the interlocutory appeal. See In re Am. Ready Mix, Inc. , 14 F.3d 1497, 1499 (10th Cir. 1994) (reviewing a bankruptcy appeal and holding that "[a]n order denying a motion to recuse or disqualify a judge is interlocutory, not final, and is [therefore] not immediately appealable.").
By the same token, I would have to be candid that I'm concerned with the allegations. It's a matter of public concern because it gets in the media [and] whenever something goes to the integrity of the judicial system, it's just not good, you know, and I'm not prejudging the matter. But because of the relationship between [the bankruptcy judge] and one of the lawyers in the firm, of counsel—we can quibble about what counsel means—and then you all haven't briefed the actual substance of it, but it's uncomfortable and it's something that I agree is a matter of great interest in order for people to be more satisfied that the decision was made totally unrelated to the relationship between the judge and the lawyer.
....
I will tell you, that's why I brought you in for status, it's uncomfortable, because no matter what it is, there's going to be a feeling that it's a tainted judgment....
Following the status hearing, Judge Olson recused himself and the appeal became moot.
C. Reassignment and Post-Judgment Motions
After Judge Olson recused himself, the case was reassigned to a second bankruptcy judge. At that point, defendants filed a Supplemental and Renewed Motion to Vacate Orders and Final Judgment on November 24, 2010. Before deciding the motion, however, the second judge recused himself. Judge A. Jay Cristol was eventually assigned to the case in 2011 and held a hearing on the renewed motion to vacate. At the hearing, the judge commented, in relevant part, that "[t]his court is not an appellate court for other bankruptcy judges. The remedy for that matter is an appeal." On October 2, 2014, four years after the renewed motion to vacate was filed, Judge Cristol denied it. That same day, defendants filed a Motion for Rehearing. In a substantive order, again another four years after the motion was filed, Judge Cristol denied it, writing, in relevant part, "[i]n denying the motions to vacate the Judgment, the Court previously stated it would not act as an appellate court to review the Judgment and Findings and Conclusions. The Court stated it believed the Defendants' remedies lie in an appeal...."
Appellee explains in his brief that the four-year delay from 2010 to 2014 in ruling on the renewed motion to vacate was due to defendants and Appellant initiating a separate state court proceeding against attorneys Bakst and Fender, which was subsequently dismissed. The four-year delay from 2014 to 2018 in ruling on the motion for rehearing, as Judge Altonaga explains in her related order, was also due to the initiation of a state court proceeding "related to many of the issues presented in the pending [motion for rehearing]." It was also ultimately dismissed.
Appellant now appeals the final judgment and relevant orders.
II. STANDARD OF REVIEW
In general, "[t]he bankruptcy court's factual findings are reviewed for clear error, and the legal conclusions ... are reviewed de novo. " In re Se. Bank Corp. , 97 F.3d 476, 478 (11th Cir. 1996) (citations omitted). This standard applies to the bankruptcy court's Factual Findings and Conclusions of Law. See In re Optical Techs., Inc. , 246 F.3d 1332, 1335 (11th Cir. 2001).
As for the denial of the motion for rehearing, the Court reviews the order for an abuse of discretion. In re Kellogg , 197 F.3d 1116, 1119 (11th Cir. 1999) ("Denials of motions ... for rehearing are reviewed for abuse of discretion."). To the extent Appellant is also appealing the initial denial of his motion to vacate, "[m]otions under ... rule [9024/60(b) ] are directed to the sound discretion of the district court. Appellate review therefore is limited to whether the district court abused its discretion in denying the Rule 60 motion." Griffin v. Swim-Tech Corp. , 722 F.2d 677, 680 (11th Cir. 1984). Likewise, since the central issue on appeal concerns the first bankruptcy court's decision to not recuse, the standard of review specifically for recusal decisions is abuse of discretion. In re Am. Ready Mix, Inc. , 14 F.3d 1497, 1500-01 (10th Cir. 1994). "An abuse of discretion can occur where the district court [or bankruptcy court] applies the wrong law, follows the wrong procedure, bases its decision on clearly erroneous facts, or commits a clear error in judgment." United States v. Brown , 415 F.3d 1257, 1266 (11th Cir. 2005).
III. ANALYSIS
Appellant makes three arguments on appeal. First, he argues that the first bankruptcy judge should have recused himself as soon as his fiancé was contacted by, and negotiated with, Appellee's counsel while motions for summary judgment were pending. As a result of these actions, Appellant contends there was an appearance of impropriety pursuant to 28 U.S.C. § 455(a). Appellant argues the appearance was so great that the only remedy is vacatur of the entire "tainted" proceeding. Second, Appellant argues that the Matthew Wortley Trust does, in fact, own the disputed Heinz receivable account under the plain language of the Factoring Agreement. Third, Appellant contends that he never violated the automatic stay, much less "willfully" did so, as Judge Olson found during summary judgment. Appellee, meanwhile, disagrees that there was any appearance of impropriety below, and that, even if such an appearance existed, the error was harmless. The first bankruptcy court's decision regarding ownership of the Heinz receivable, and whether there was a willful violation of the automatic stay, are correct on the merits.
Appellant, for one reason or another, does not seek reversal under 28 U.S.C. §§ 455(b)(5)(ii) & (iii), even though he did so in his original motion to recuse. Accordingly, those arguments are waived on appeal. See Carmichael v. Kellogg, Brown & Root Servs., Inc. , 572 F.3d 1271, 1283 (11th Cir. 2009).
Because the Court finds that the proceedings below are in fact tainted pursuant to Appellant's first argument on appeal, it need not address the latter two contentions.
A. Judge Olson Should Have Recused Himself Pursuant to 28 U.S.C. § 455(a)
Upon review, the Court holds that Judge Olson abused his discretion in failing to recuse himself as soon as his fiancé was contacted by and engaged in recruitment discussions with Appellee's counsel. By way of background, 28 U.S.C. § 455(a) mandates disqualification of a judge "in any proceeding in which his impartiality might reasonably be questioned." Id. This statute applies to bankruptcy judges, as well. See FED. R. BANKR. P. 5004 ("A bankruptcy judge shall be governed by 28 U.S.C. § 455."). The purpose of section 455(a), as the Supreme Court of the United States explained, is to "promote confidence in the judiciary by avoiding even the appearance of impropriety whenever possible." Liljeberg v. Health Servs. Acquisition Corp. , 486 U.S. 847, 865, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988). "Inherent in § 455(a)'s requirement that a judge disqualify himself if his impartiality might reasonably be questioned is the principle that our system of ‘justice must satisfy the appearance of justice.’ " Parker v. Connors Steel Co. , 855 F.2d 1510, 1523 (11th Cir. 1988) (quoting Offutt v. United States , 348 U.S. 11, 14, 75 S.Ct. 11, 99 L.Ed. 11 (1954) ). The test to determine whether a judge might reasonably be impartial is an objective one: "whether an objective, disinterested, lay observer fully informed of the facts underlying the grounds on which recusal was sought would entertain a significant doubt about the judge's impartiality." Id. at 1523.
So important is appearing impartial and its role in promoting public confidence in the judiciary that the same statute, section 455(a), appears in the Code of Conduct for United States Judges. The code states: "A Judge Should Avoid Impropriety and the Appearance of Impropriety in All Activities." Code of Judicial Conduct Canon 2 (2019).
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Just as Judge Altonaga opined in her related appeal, the Court finds that a reasonable observer, armed with the relevant facts of this case, would reasonably question the impartiality of Judge Olson pursuant to section 455(a). A review of the objective facts makes this evident (as does a reading of Judge Altonaga's order). Appellee's counsel, the Ruden McClosky law firm, negotiated with and hired the judge's fiancé, Fender, in the summer of 2009, when motions for summary judgment were pending. Upon being hired, Fender joined a relatively small bankruptcy practice group comprised of only four attorneys led by Bakst, Appellee's lead counsel. At the time, and even for some time after, neither Judge Olson nor Bakst disclosed this material fact to Appellant. Contrary to Judge Olson's order, it does not matter that Fender was not a partner or directly involved in representing the Appellee. What matters, instead, is that he worked for Bakst, a partner, who had suddenly found himself for the first time during the course of the proceedings in a prime position to affect Judge Olson's household income by way of offering a salary and other benefits, including raises, to the judge's fiancé. Other facts equally suggest that the judge did not appear impartial. Shortly after Fender joined the Ruden McClosky firm, Judge Olson ruled conclusively in Appellee's favor in his summary judgment findings and awarded attorney's fees and costs as a sanction for violating the automatic stay. That Judge Olson entered a permanent injunction in summary judgment and awarded sanctions, when just eight months before he had dissolved a temporary restraining order, augments the appearance of personal bias or prejudice.
The issue, pursuant to the plain language of the relevant statute, is whether Judge Olson's "impartiality might reasonably be questioned." 28 U.S.C. § 455(a). Upon careful review of the facts unique to this case, the Court holds that there is a reasonable basis for questioning the judge's impartiality. Consider: neither Judge Olson nor Appellee disclosed the hiring of Fender; Fender's hiring offered a "thing of value" to the judge with whom he was living and with whom he was engaged to be married; this thing of value was offered for the first time while motions for summary judgment were pending; shortly after Fender's hiring, the judge issued a permanent injunction and sanctions based on the same conduct for which he previously dissolved the temporary restraining order. These facts create the inescapable and obvious appearance of impropriety.
Furthermore, that this occurred in the bankruptcy context buttresses the notion that Judge Olson's impartiality appeared compromised. As Appellant notes, the present case comes amid a long history of concerns of favoritism in the bankruptcy bar. Congress has recognized the dangers inherit in a system in which trustees and their counsel regularly appear before the same bankruptcy court. In the debate on the Bankruptcy Reform Act of 1978, for instance, Congress noted: "There is an unusually close relationship between the bankruptcy judges and the bankruptcy bar, especially the debtors' and trustees' bars. They are in frequent contact with the judge as a result of the necessity for the judge's review of administrative actions of the trustee or debtor.... All of these contacts and relationships have led to a feeling among non bankruptcy practitioners that there is a ‘bankruptcy ring’ that has an inside track on all bankruptcy matters, including the judges' favoritism." H.R. Rep. No. 95-595, 95th Cong. 1st Sess. 88 reprinted in U.S. Code Cong. & Ad. News 1978, 5787, 6056; accord Dougherty v. Capitol Cities Commc'ns, Inc. , 631 F. Supp. 1566, 1571-72 (E.D. Mich. 1986). Here, the judge's fiancé did not just join any law firm. Instead, he joined the law firm representing the trustee—the same law firm that Judge Olson himself had approved earlier to represent the trustee in the main underlying proceeding.
"No man is allowed to be a judge in his own cause; because his interest would certainly bias his judgment, and, not improbably, corrupt his integrity." THE FEDERALIST NO. 10, at 59 (James Madison) (J. Cooke ed. 1961). Those words, though written in a different era, are just as true today as they were then. Judge Olson became the ultimate arbiter in a case in which his "own cause" was at stake, by extension through his fiancé, when he gained the ability to affect the financial situation of his household through an award of attorney's fees to the Ruden McClosky firm. Relatedly, his own cause was at stake when his fiancé initially sought employment with that firm. "The dignity and independence of the judiciary are diminished when the judge comes before the lawyers in the case in the role of a suppliant for employment. The public cannot be confident that a case tried under such conditions will be decided in accordance with the highest traditions of the judiciary." Pepsico, Inc. v. McMillen , 764 F.2d 458, 461 (7th Cir. 1985). The judge, an observer would note, transformed from independent judicial officer to suppliant for employment upon the contacting and recruiting of his fiancé while litigation was ongoing.
The cases Judge Olson cites in his recusal order supporting his position of non-recusal are irrelevant because, as Judge Altonaga explained, in none of those cases was a new thing of value added to the judge's household while litigation was pending. Short of outright payments, a job offer by a firm to a judge's spouse that affects the judge's household income—when that spouse joins a small practice, not "the catacombs of a large law firm"—may appear to be an illicit form of payment requiring recusal. Judge Olson was disqualified as soon as the firm offered a thing of value to him during the course of litigation. See Shell Oil Co. v. United States , 672 F.3d 1283, 1289 (Fed. Cir. 2012) (holding that because the district judge's wife owned a financial interest in certain plaintiff companies, the judge should have recused himself); Chase Manhattan Bank v. Affiliated FM Ins. Co. , 343 F.3d 120, 128 (2d Cir. 2003) ("Congress has ... provided that a known financial interest in a party, no matter how small, is a disqualifying conflict of interest....").
Judge Olson's initial written order is wrong for the chief reason that he failed to judge the case from the point of view of an objective observer. By doing so, he committed clear error. "The hypothetical reasonable observer is not the judge himself or a judicial colleague but a person outside the judicial system. Judges, accustomed to the process of dispassionate decision making and keenly aware of their Constitutional and ethical obligations to decide matters solely on the merits, may regard asserted conflicted to be more innocuous than an outsider would." United States v. DeTemple , 162 F.3d 279, 287 (4th Cir. 1998). That, unfortunately, is what occurred here.
B. Under the Liljeberg Factors, the Court Vacates Final Judgment
Having found that Judge Olson should have recused himself pursuant to section 455(a), the Court must decide the appropriate remedy. The Supreme Court has set forth three factors to consider in determining whether a judgment should be vacated for a violation of section 455(a) : "[1] the risk of injustice to the parties in the particular case, [2] the risk that the denial of relief will produce injustice in other cases, and [3] the risk of undermining the public's confidence in the judicial process." Liljeberg , 486 U.S. at 864, 108 S.Ct. 2194. Regarding the first factor, the Eleventh Circuit has added that "[f]irst, the reviewing court should consider whether the party seeking vacatur has pointed to particular circumstances that may indicate a risk of injustice to that party. Second, the court should consider the seriousness of the violation of section 455(a) that is involved." United States v. Cerceda , 172 F.3d 806, 813 (11th Cir. 1999) (footnotes omitted).
i. The Risk of Injustice to the Parties
The Court concludes that a review of all three factors mandates vacatur of the final judgment and orders on appeal. Appellant has carried his burden of showing a substantial risk of injustice. That Judge Olson suddenly found a violation of the automatic stay, and that it was willful—when no new evidence of a breach was presented, and when Appellee's counsel had conceded that he was not seeking a determination at that time on that exact issue—gives the Court pause. Only eight months before, Judge Olson dissolved the temporary restraining order (which was based on the same November 12 demand letter) after review of the numerous written and verbal affirmations by Appellant promising to not violate the stay. In fact, Judge Olson was left asking Appellee, "so what are we fighting about for purposes of today? ... With the concession that the litigation over the receivables and, indeed, perhaps collection efforts themselves, will be conducted here, and that the defendants in your litigation will take no action against Heinz except with leave of this Court ... what do you need an injunction for?" An objective observer armed with the facts above would reason that the only discernable difference between the order dissolving the temporary restraining order and the order suddenly granting the injunction and sanctions is the fact that the Ruden McClosky firm had hired the judge's fiancé in the interim.
The error was not harmless. See Parker , 855 F.2d at 1526 (applying the harmless error standard to vacatur judgments). In fact, the seriousness of the error and violation of section 455(a) was so great that the Court's only available remedy is to deprive the Appellee of his judgment. Judge Olson's order led to Appellant facing a nearly $80,000 fee award as a sanction for a "continuing" violation that arguably never even was a violation in the first place, much less continuing. As Appellant notes, the November 12 demand letter was ambiguous regarding whether Appellant would seek the Heinz receivable outside the relevant bankruptcy proceedings. Further, the violation was not continuous—the sanctions were based on the same November 12 demand letter that resulted in the imposition of the temporary restraining order in the first place.
The Court is not alone in finding that the appearance of impropriety and the seriousness of the violation of section 455(a) mandate near-total vacatur of the trial proceedings. Judge Altonaga found similarly in her related appeal. Just as in that case, although "it is burdensome to appellee[ ] for [the Court] to require a new trial ... it is not unfair." Chase Manhattan Bank , 343 F.3d at 132. The Court recognizes that the adversary proceeding below has unfortunately spanned more than ten years and numerous appeals. The record is extensive and the federal judiciary has devoted considerable time and resources to this case. But Congress has directed federal judges by law to recuse themselves in certain situations, like this one, and the Court must accept that guidance. "[F]ederal judges must early and often consider potential conflicts that may arise in a case and, in close cases, must err on the side of recusal. And if a judge must step aside, it is better to do it sooner instead of later." Murray v. Scott , 253 F.3d 1308, 1313 (11th Cir. 2001) (footnote omitted).
The Court agrees with Judge Altonaga that the most conservative course of action is to revert the proceedings back to the summary judgment phase, before any new bankruptcy court may make a finding regarding the alleged violation of the automatic stay. In this way, Appellant and Appellee need not return all the way to the starting blocks when resuming litigation.
ii. The Risk that the Denial of Relief Will Produce Injustice in Other Cases
The second factor the Court must analyze is whether the risk of denial of relief will produce injustice in other cases. "This factor weighs in favor of vacating the judgment when so doing would ‘encourag[e] a judge or litigant to more carefully examine possible grounds for disqualification and to promptly disclose them when discovered.’ " Cerceda , 172 F.3d at 815 (alteration in original) (quoting Liljeberg , 486 U.S. at 868, 108 S.Ct. 2194 ). The Court seeks in this Order to achieve that aim particularly where, as here, the proceedings below are centered around the bankruptcy context where the risk of favoritism may be high.
iii. The Risk of Undermining the Public's Confidence in the Judicial Process
The final factor requires an analysis of the risk undermining the public's confidence in the judicial process. For all the reasons set forth above, a failure to vacate the proceedings below will likely jeopardize the public's trust and confidence in the judiciary.
IV. CONCLUSION
"An independent, fair and impartial judiciary is indispensable to our system of justice." MODEL CODE OF JUDICIAL CONDUCT Preamble (2011). So is avoiding the appearance of partiality. The bankruptcy judge's personal and financial entanglement with the Ruden McClosky firm, through his fiancé, appeared to "compromise[ ] what Edmund Burke justly regarded as the ‘cold neutrality of an impartial judge.’ " United States v. Microsoft Corp. , 253 F.3d 34, 115 (D.C. Cir. 2001). Public trust and confidence in the judiciary depend upon the appearance of integrity and independence of judges, which must be carefully safeguarded. Only reversal and remand in this case will restore that appearance. Accordingly, it is
ADJUDGED that
(1) The bankruptcy court's (a) Findings of Fact and Conclusions of Law, (b) Final Judgment in Favor of Plaintiff, and (c) Order Denying Motions for Rehearing, Motions to Alter or Amend Final Judgment and Findings of Fact and Conclusions of Law, Motions to Disqualify and for Leave to Take Discovery are SET ASIDE .
(2) The case is REMANDED to the summary judgment phase for further proceedings consistent with this Order.
DONE AND ORDERED in Chambers at Miami, Florida, this 9th of September 2019.