Health Services Acquisition Corp. v. Liljeberg

• Decision Date: 13 August 1986
• Docket Number: No. 86-3069,86-3069
• Citation: 796 F.2d 796
• Parties: HEALTH SERVICES ACQUISITION CORP., Plaintiff-Appellant, v. John A. LILJEBERG, Jr., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 796

796 F.2d 796

55 USLW 2167

HEALTH SERVICES ACQUISITION CORP., Plaintiff-Appellant, v. John A. LILJEBERG, Jr., Defendant-Appellee.

No. 86-3069.

United States Court of Appeals Fifth Circuit.

Aug. 13, 1986.

Curtis R. Boisfontaine, Sessions, Fishman, Rosenson, Boisfontaine, Nathan & Winn, Kathryn J. Lichtenberg, Levy, Marx, Lucas & Rosen, William M. Lucas, Jr., Joyce M. Dombourian, New Orleans, for plaintiff-appellant.

A.J. Schmitt, Jr., Melvin W. Mathes, Schmitt & Mathes, New Orleans, for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before CLARK, Chief Judge, GARZA, and JOHNSON, Circuit Judges.

CLARK, Chief Judge:

Appellant Health Services Acquisition Corporation (HSAC) appeals from the denial of its motion to vacate a judgment and to grant a new trial. Finding that the judge who rendered the judgment against HSAC had constructive knowledge of facts sufficient to create an appearance of impropriety under 28 U.S.C. Sec. 455(a), we reverse and remand.

I

On November 30, 1981, HSAC brought an action for declaratory judgment in district court against John A. Liljeberg, Jr. to determine the ownership of a corporation known as "St. Jude Hospital of Kenner, La., Inc." This corporation had a state certificate of approval permitting it to construct a hospital. A trial on the merits was held before Judge Robert F. Collins, who rendered judgment for Liljeberg. Judgment was entered on March 16, 1982. The Fifth Circuit affirmed.

On August 17, 1983, HSAC learned that Judge Collins was and had been a member of the Board of Trustees of Loyola University. Loyola had been negotiating with Liljeberg to sell him property on which he could build a hospital; however, Liljeberg's ability to build the hospital was dependent on his obtaining control of the certificate of approval.

Based on this information, HSAC filed a motion to vacate the judgment and for a new trial. Judge Collins denied the motion, stating that he had not been involved in negotiations between Loyola and Liljeberg and had no knowledge of these negotiations.

The Fifth Circuit reversed. Health Service Acquisition Corp. v. Liljeberg, 747 F.2d 1463, slip op. at 7 (5th Cir.1984) (unpublished). While recognizing that there was no question as to the actual impartiality of Judge Collins, the court noted that "the judiciary must be governed by the appearance, as well as the reality, of disinterested adjudication." Id. The court therefore remanded the case to the district court for a determination of when Judge Collins learned of Loyola's interest in the lawsuit. On remand, a hearing based solely on documentary evidence was held before another judge.

The district court made the following findings.

Judge Collins had been a member of the Loyola Board of Trustees from 1977 to 1983. During that time the Board met five times a year. The minutes of each meeting were prepared several weeks after the meeting. The minutes, along with an agenda for the upcoming meeting and materials relevant to issues to be considered at that meeting, were then mailed to each Board member.

The disposition of certain property owned by Loyola, known as the Monroe Tract, was discussed at Board meetings in early 1979. The first mention of the St. Jude Hospital was made in the minutes of the November 29, 1979 meeting; Board members were informed that Loyola representatives had discussed selling Loyola property to a group of developers interested in building the hospital. It was also mentioned that the Board wanted to have this property rezoned.

The St. Jude Hospital was discussed at the January 24, 1980 Board meeting, which Judge Collins attended. The Real Estate Committee (of which Judge Collins was not a member) presented a report to the Board on the negotiations between Liljeberg and Loyola. The report discussed two offers from Liljeberg to Loyola and stated that Loyola had expressed interest in continuing negotiations with St. Jude. The Real Estate Committee also had informed Liljeberg that Loyola would probably not be interested in the project until a state certificate of approval was secured. Following the report, the Board voted to refer Liljeberg's second offer to the Real Estate Committee for further study. Judge Collins was present at the time this report was read and heard the report, in which the names of Liljeberg and St. Jude Hospital were mentioned a number of times.

At the March 6, 1980 meeting the Real Estate Committee recommended rejection of Liljeberg's offer, noting that Liljeberg had not yet obtained a certificate. Judge Collins did not attend this meeting.

There was a subsequent lull in negotiations between Loyola and Liljeberg. However, at the September 25, 1981 meeting the Real Estate Committee indicated renewed activity regarding the possible construction of a hospital on the Monroe Tract. Judge Collins was present at this meeting.

At the November 12, 1981 meeting, which Judge Collins attended, there was speculation that the building of a hospital on the Monroe Tract would be a major investment advantage for Loyola. The Board approved a resolution calling for renewed negotiations with the St. Jude group and for efforts to have the surrounding area rezoned. Rezoning was discussed as a condition of the sale to Liljeberg and the building of the hospital.

Based on Judge Collins' attendance at meetings during which the sale to Liljeberg was discussed, Judge Collins had actual knowledge of Loyola's interest in the St. Jude Corp. at the time of those meetings on January 24, 1980 and September 25, 1981. However, Judge Collins had forgotten about Loyola's interest by the time the lawsuit came under his control in January 1982. Judge Collins did not obtain actual knowledge until March 24, 1982. At that time he reviewed material that had been sent to him in preparation for the March 25 meeting. This material informed the Board members that the Loyola Executive Committee had approved the sale of some 80 acres in the Monroe Tract to Liljeberg for the construction of a hospital.

Although the district court found that Judge Collins had actual knowledge of Loyola's interest in the litigation on March 24, 1982, it determined that Judge Collins was not required to recuse himself at that time because Loyola's interest terminated on March 19 when it entered the agreement to sell the property to Liljeberg. The agreement expressly stated that it was not contingent on Liljeberg's obtaining a certificate of approval in the pending litigation. Therefore the district court concluded that Loyola ceased to have any stake in the outcome of the litigation as of March 19. Since Judge Collins did not have actual knowledge of Loyola's interest during the time that he controlled the case and that interest still existed, the district court found that Judge Collins was not required to recuse himself.

The district court also found, however, that Judge Collins had constructive knowledge of Loyola's interest in the litigation at all relevant times during the lawsuit. Specifically, the court noted that Judge Collins knew that Loyola owned the Monroe Tract and was trying to sell it, that he had been present at the January 24, 1980 meeting during which the negotiations with Liljeberg and the importance of the certificate for the contemplated hospital were reported by the Real Estate Committee, that he had attended other meetings at which the negotiations for the sale of the Monroe Tract to developers of the St. Jude Hospital had been discussed and approved, and that there was written information sent to and available to him regarding the negotiations with Liljeberg and Loyola's interest in the disposition of the certificate. The court found that these facts provided a basis for imputing knowledge of Loyola's interest to Judge Collins and created an appearance of partiality under 28 U.S.C. Sec. 455(a).

Despite the finding of constructive knowledge, the district court held that Judge Collins was not required to recuse himself because the Fifth Circuit's remand had been limited to the question of actual knowledge. Since the court found that recusal would not be mandated by Judge Collins' actual knowledge, it denied HSAC's motion to vacate the judgment and grant a new trial. HSAC appeals.

II

28 U.S.C. Sec. 455 provides:

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

(b) He shall also disqualify himself in the following circumstances:

....

(4) [Where he] knows that he, individually or as a fiduciary, or his spouse or minor child residing in his household, has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding.

The goal of the disqualification statute is to promote public confidence in the judicial system by avoiding even the appearance of partiality. Chitimacha Tribe v. Harry L. Laws Co., 690 F.2d 1157, 1165 (5th Cir.1982), cert. denied, 464 U.S. 814, 104 S.Ct. 69, 78 L.Ed.2d 83 (1983). In particular, section 455(a) was intended to establish an objective test so that "disqualification should follow if the reasonable man, were he to know all the circumstances, would harbor doubts about the judge's impartiality." Potashnick v. Port City Construction Co., 609 F.2d 1101, 1111 (5th Cir.), cert. denied, 449 U.S. 820, 101 S.Ct. 78, 66 L.Ed.2d 22 (1980).

In the present case there can be no serious doubt that Judge Collins, as a member of the Loyola Board of Trustees, had an interest in the well being of Loyola University. ¹ Nor can it be doubted that that interest would be substantially affected by the outcome of the lawsuit between Liljeberg and HSAC since Loyola was negotiating with Liljeberg to sell him land on which to build a hospital and Liljeberg's ability to build the hospital was...