Freed v. Inland Empire Insurance Company

• Decision Date: 07 May 1959
• Docket Number: No. C-157-55.,C-157-55.
• Citation: 174 F. Supp. 458
• Parties: David L. FREED, Daniel G. Freed and Peter Freed, d/b/a Freed Finance Company, a partnership, Plaintiff, v. INLAND EMPIRE INSURANCE COMPANY, an Idaho corporation, Defendant, Leo O'Connell, Commissioner of Insurance of the State of Idaho, Defendant and Intervenor, G. A. Bushnell, Receiver of Trans-Pacific Insurance Company, Intervenor. CONTINENTAL BANK & TRUST COMPANY, Receiver of Inland Empire Insurance Company, Petitioner, v. LEWIS, ROCA, SCOVILLE & BEAUCHAMP, a partnership, Respondent.
• Court: U.S. District Court — District of Utah

174 F. Supp. 458

David L. FREED, Daniel G. Freed and Peter Freed, d/b/a Freed Finance Company, a partnership, Plaintiff, v. INLAND EMPIRE INSURANCE COMPANY, an Idaho corporation, Defendant, Leo O'Connell, Commissioner of Insurance of the State of Idaho, Defendant and Intervenor, G. A. Bushnell, Receiver of Trans-Pacific Insurance Company, Intervenor.

CONTINENTAL BANK & TRUST COMPANY, Receiver of Inland Empire Insurance Company, Petitioner, v. LEWIS, ROCA, SCOVILLE & BEAUCHAMP, a partnership, Respondent.

No. C-157-55.

United States District Court D. Utah, Central Division.

May 7, 1959.

Calvin L. Rampton and David K. Watkiss (of Pugsley, Hayes, Rampton & Watkiss), Salt Lake City, Utah, for petitioner.

John P. Frank, Phoenix, Ariz., pro se, and for other respondents.

CHRISTENSON, District Judge.

In June, 1956 the law firm of Lewis, Roca, Scoville & Beauchamp, hereinafter referred to as claimants or partners, filed a claim against the receiver herein based upon a judgment recovered in cause No. 85,446 in the Superior Court, Maricopa County, Arizona, on October 6, 1955. From an order of this Court approving such claim as a general rather than a preferred one, the claimants successfully prosecuted an appeal, the Circuit Court holding that the claim should have been allowed as a preferred claim. Lewis, Roca, Scoville & Beauchamp v. Inland Empire Ins. Co., 10 Cir., 1958, 259 F.2d 318.

Thereafter, believing that such order complied with the mandate, this Court allowed the claim as preferred but withheld immediate payment pending the disposition of a petition for judgment against the claimants for alleged damages of $300,000 filed by the receiver in the meantime in reliance upon the doctrine of Alexander v. Hillman, 296 U.S. 222, 56 S.Ct. 204, 80 L.Ed. 192. This petition of the receiver, in the nature of a counterclaim, was based upon allegations of fraud and breach of fiduciary duty claimed to have been committed by members of the partnership in the course of their representation as officers, directors and attorneys of Inland Empire Insurance Company prior to the receivership herein. Freed v. Inland Empire Ins. Co., D.C.D.Utah 1958, 166 F.Supp. 873.

In ruling on a petition for writ of mandamus directed to this Court, the Circuit Court held that it was within the intent of the mandate on the former appeal, in view of the prior stipulation of the parties concerning procedure, that immediate payment be made. Lewis, Roca, Scoville & Beauchamp v. Christenson, 10 Cir., 1959, 263 F.2d 536. Accordingly, payment of the preferred claim forthwith was directed by this Court without reference to the receiver's pending petition for judgment against the claimants.

While the claimants had argued in the mandamus proceedings that this court had no jurisdiction to entertain the petition for judgment against them, the Circuit Court expressly declined to pass upon this question, stating (at page 538), "We decline to determine in this proceeding any issues relating to the receiver's `petition for judgment'."

After payment of the claim, the claimants not having answered or otherwise responded to the receiver's petition for judgment against them, the receiver filed a "Petition for Default Judgment or Order Requiring Responsive Pleading" with reference to its claim against the partners. Due notice was given to the partners of the time of the hearing of this motion. At the time set, no one appeared for them but one of them had addressed a letter to the clerk of the court containing "suggestions", among other things, that the court lacked jurisdiction and that the petition of the receiver did not state a claim upon which relief could be granted. The Court at the time noticed for the hearing refrained from entering any default, but on May 2, 1959, did enter the following "Order Requiring Responsive Pleading":

"The petition for default judgment or order requiring responsive pleading filed by the Continental Bank & Trust Company, receiver for Inland Empire Insurance Company in the above proceeding came on regularly for hearing before the Court on the 9th day of February, 1959 at the hour of 9:30 a. m. and was thereafter continued for hearing to the hour of 2:00 p. m. on the 12th day of February, 1959. The court having heard the arguments of counsel and having considered the matter, and it appearing to the court that the law firm of Lewis, Roca, Scoville & Beauchamp of Phoenix, Arizona on or about the 18th day of June, 1956 filed a general claim with the receiver of Inland Empire Insurance Company and it further appearing that on or about the 22 day of October, 1958 Continental Bank & Trust Company as receiver of Inland Empire Insurance Company filed a document entitled Petition for Judgment against the said Lewis, Roca, Scoville & Beauchamp, which petition for judgment was in effect a counterclaim; and it further appearing to the court that the said law partnership of Lewis, Roca, Scoville & Beauchamp has not made an answer or other responsive pleading to said petition for judgment, but it further appearing to the court that it would not be in the interest of justice and equity to enter the default at the present time without further notice to said partnership but that the said Lewis, Roca, Scoville & Beauchamp should be afforded a further opportunity to answer or otherwise plead to the petition for judgment, if it now be so advised, both with respect to any factual question on which it believes the jurisdiction of this court may depend, and with reference to the merits of said counterclaim.

"Now, Therefore, It Is Hereby Ordered that Lewis, Roca, Scoville & Beauchamp, a partnership, be and they are hereby granted until 20 days after notice of the entry of this Order in which to answer or otherwise plead to the counterclaim entitled Petition for Judgment heretofore filed in the above entitled matter by Continental Bank & Trust Company as receiver for Inland Empire Insurance Company.

"It Is Further Ordered that in default of an answer or other pleading within the time herein allowed, the default of Lewis, Roca, Scoville & Beauchamp, a partnership, will be entered and Continental Bank & Trust Company as receiver for Inland Empire Insurance Company will be permitted to introduce evidence before the court in support of said counterclaim, including evidence concerning the circumstances under which the original claim of said partnership was filed herein as going to the question of the court's jurisdiction to entertain a counterclaim thereto.

"It Is Further Ordered that notice of the entry of this Order shall be made by Continental Bank & Trust Company as receiver for Inland Empire Insurance Company by mailing a certified copy of this Order by registered mail to the said Lewis, Roca, Scoville & Beauchamp."

Within twenty days allowed on this order, the following papers were served and filed by the partnership:

"Affidavit of Prejudice of Judge and Certificate of Good Faith and Application," executed by John P. Frank, one of the partners.

"Affidavit" by Paul M. Roca, another partner.

Unsigned "Motion to Dismiss Petition for Judgment" and unsigned memorandum in support thereof.

"Motion to Certify to the Court of Appeals."

The allegations of the above mentioned affidavits will be further referred to hereinafter. For the present, it may be noted that they are concerned primarily with what the attorney for the receiver more than two years ago is claimed to have said about what the judge was supposed to have said about the prosecution of the present or a similar petition by the receiver. The attorney for the receiver has filed an affidavit denying that the claimed statement was made by him.

It is provided in 28 U.S.C. § 144 as follows:

"§ 144. Bias or prejudice of judge.

"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. June 25, 1948, c. 646, 62 Stat. 898 As amended May 24, 1949, c. 139, § 65, 63 Stat. 99.

The law is well settled that if application, affidavit and certificate are sufficient to meet the requirements of this statute, the judge has no alternative but to recuse himself or to refer the question of his qualification to another judge; but if the application and affidavit are insufficient on their face to invoke such action, it is not only the judge's right but his duty to proceed with the case. Scott v. Beams, 10 Cir., 1941, 122 F.2d 777; In re Federal Facilities Realty Trust, D.C. N.D.Ill.E.D.1956, 140 F.Supp. 522.

It is not for the judge to pass upon the truth or falsity of the averments of the affidavits. Scott v. Beams, supra. Hence, the affidavit of the attorney for the receiver denying the claimants' assertions may not be considered in determining the legal sufficiency of the "Affidavits of Prejudice". Nor, for the purpose of this discussion, will we look to the matters within knowledge of the judge or even other matters of record that may throw light upon the truth or falsity of the averments of the claimants. We will look solely to the affidavits of the partners as they appear in the file.

The only "facts" set out or claimed in Mr. Frank's affidavit to support his conclusions or belief that "the judge has a personal bias and prejudice against the partnership" may be summarized as follows:

1. That on...