Midland Mut. Life Ins. Co. v. Sellers, Bankruptcy No. C-2-89-0522.

• Court: U.S. District Court — Southern District of Ohio
• Writing for the Court: KINNEARY
• Citation: Midland Mut. Life Ins. Co. v. Sellers, 101 B.R. 921 (S.D. Ohio 1989)
• Decision Date: 23 June 1989
• Docket Number: Bankruptcy No. C-2-89-0522.
• Parties: The MIDLAND MUTUAL LIFE INSURANCE COMPANY, Petitioner, v. The Honorable Barbara J. SELLERS, Judge, United States Bankruptcy Court, Southern District of Ohio, Eastern Division, Respondent.

101 B.R. 921 (1989)

The MIDLAND MUTUAL LIFE INSURANCE COMPANY, Petitioner, v. The Honorable Barbara J. SELLERS, Judge, United States Bankruptcy Court, Southern District of Ohio, Eastern Division, Respondent.

Bankruptcy No. C-2-89-0522.

United States District Court, S.D. Ohio, E.D.

June 23, 1989.

COPYRIGHT MATERIAL OMITTED

John M. Adams, William M. Todd, Jack R. Pigman, Scott E. North, Randall W. Knutti, Teri G. Rasmussen, Polly J. Harris, Porter, Wright, Morris & Arthur, Prof. Howard P. Fink, The Ohio State University College of Law, Columbus, Ohio, for petitioners The Midland Mut. Life Ins. Co., AmeriFirst Bank, and Comerica Bank.

John M. Newman, Jr., David G. Heiman, John W. Zeiger, Jones, Day, Reavis & Pogue, Columbus, Ohio, for intervenor-respondents Cardinal Industries, Inc. and Cardinal Industries of Florida, Inc.

Russell A. Kelm, Daniel R. Swetnam, John A. Gleason: Schwartz, Kelm, Warren & Rubenstein, Columbus, Ohio, for intervenor-respondent Buckeye Federal Sav. & Loan Ass'n.

Leon Friedberg, Benesch, Friedlander, Coplan & Aronoff, Columbus, Ohio, Stuart Hirshfield, John F. Collins, Lori L. Jones, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, for intervenor-respondent Official Committee of Unsecured Creditors of Cardinal Industries, Inc.

OPINION AND ORDER

KINNEARY, District Judge.

This matter comes before the Court to consider the petition of The Midland Mutual Life Insurance Company ("Mutual") for a writ of mandamus against the Honorable Barbara J. Sellers who is a judge of the United States Bankruptcy Court for the Southern District of Ohio. The Court has the authority to consider the petition pursuant to 28 U.S.C. § 1651 (1982).

Cardinal Industries, Inc. and Cardinal Industries of Florida, Inc. ("Cardinal") manufacture standardized modular housing units for use in various structures, such as apartments, motels, retirement villages, and single-family residences. Cardinal, along with several wholly-owned subsidiaries, is a vertically integrated business which plans, builds, and manages such structures. On May 15, 1989, the two Cardinal corporations filed petitions under Chapter 11 of the Bankruptcy Code. Cardinal continues to operate its businesses as a debtor-in-possession.

Cardinal or one of its affiliates serves as general partner in approximately 1000 limited partnerships. These partnerships hold title to the real property for the projects developed under its direction. Given Cardinal's desire to reorganize, it seeks to enjoin creditors from foreclosing upon the real property held by the partnerships. It hopes that injunctive relief would permit it to marshall its assets and the partnerships' real property, in an effort to undertake an integrated plan of reorganization. In order to gain such relief, Cardinal filed on May 23, 1989, an adversary proceeding against a putative defendant class for relief pursuant to the automatic stay and ancillary equitable relief provisions. 11 U.S.C. §§ 105(a), 362(a) (1982 & Supp. IV 1986). The two named defendants were Buckeye Federal Savings and Loan Association ("Buckeye") and AmeriFirst Bank ("AmeriFirst").

In the action, Cardinal seeks a declaratory judgment that the section 362(a)(2) stay applies to all actions against the partnerships and the titles they hold, the violations of which the court may prohibit under section 105(a). In the alternative, Cardinal seeks an injunction under section 105(a) against actions of putative class members against the partnerships by expanding the scope of the automatic stay.

On May 23, 1989, Cardinal filed a motion for a temporary restraining order, temporarily certifying a defendant class and restraining the class from pursuing actions against the partnerships or their property. The bankruptcy court held a hearing on the motion the following day. Cardinal, one of two putative representatives, and non-party putative class members argued before the court.

On May 25, 1989 the court declined to certify a class, citing concerns over the breadth of the proposed class, but issued a temporary restraining order to bar actions against the partnerships or partnership property. It was set to expire after ten days (excluding weekend days and holidays). On June 2, Comerica filed a motion to dissolve the restraining order. On June 7, though, Cardinal filed an unopposed motion to extend the temporary restraining order, which the court granted on June 9 ("the June 9 order"). The court held no hearing and gave no notice to parties prior to the June 9 order. The extension was to last until June 23.

During the pendency of the temporary restraining order, the parties undertook negotiations to reach a settlement. On May 31, Cardinal attempted to address the court's concerns with the adequacy of the class by amending its complaint. Cardinal named Buckeye, AmeriFirst, Crossland Savings ("Crossland"), Comerica Bank ("Comerica"), Crown Savings Association ("Crown"), Florida Federal Savings Bank ("Florida Federal"), and Mutual as representatives of a narrower class than that propounded in the complaint, a class of all mortgagees and secured lenders of the partnerships.

On June 2, Cardinal met with six of seven defendants it named in the amended complaint to discuss a possible settlement. Cardinal drafted proposed settlement papers and distributed them to all named defendants on June 4.¹ On Monday, June 5, the defendants discussed the proposed terms and agreed to meet with Cardinal's attorneys the next day. Midland felt that such discussions were improper and withdrew from the negotiations. AmeriFirst's counsel spoke against settlement by telephone at the June 5 conference and did not participate at later negotiations.

On June 6, Cardinal met with the five remaining defendants to continue settlement talks. After the day's session, Comerica withdrew from the negotiations.² The four remaining defendants, Buckeye, Crossland, Crown, and Florida Federal, reached a compromise on the evening of June 7.³ The non-settling defendants refused to participate in it. On June 8, lawyers for Cardinal and two of the settling defendants filed the settlement papers, see supra note 1, with the court. These attorneys gave the court a copy of the papers, summarized the contents of the papers, and asked the judge to sign an order ("the June 8 order") temporarily certifying a defendant class and setting the date for a settlement hearing on June 19. The order also provided for notice to putative class members and incorporated by reference an alternative schedule to be followed if the court or the district court were to reject the settlement terms.

Midland filed this petition for a writ of mandamus and/or prohibition on June 15, 1989, seeking review of the June 8 and June 9 orders. On June 19, the Court granted temporary relief to Midland by enjoining Judge Sellers from conducting the settlement hearing scheduled for June 19. On June 20, the Court held an evidentiary hearing at which it heard testimony concerning certain allegations which Midland now lodges against Judge Sellers and the harm purportedly stemming from the June 8 and 9 orders.

Midland believes that Judge Sellers entered into a collusive scheme with Cardinal and the settling defendants to reach a compromise in the case to the detriment of other putative class members. Judge Sellers, it contends, engaged in ex parte contact with these parties pursuant to the scheme. This scheme and ex parte contact tainted the June 8 and 9 orders. Accordingly, Midland maintains that the Judge's misconduct warrants the Court's intervention to set the two orders aside.

It also argues that the June 8 and 9 orders deprive it of due process because the Judge signed them without notice or hearing. Midland states that if given an opportunity to be heard, it would have argued vigorously against extending the restraining order and certifying the class. Finally, it argues that the orders are clearly erroneous and the irreparable harm that they cause is so great that this Court must dissolve them. It notes that the lengthy course of appeal would not provide it an adequate remedy.

Cardinal denies any impropriety on the part of Judge Sellers. It claims that she did not undertake ex parte discussions of the case, nor is there any evidence of a collusive scheme among the settling parties and the judge to compromise the case to the detriment of class members who were not present. It claims that Midland had actual notice of the June 8 order, having participated in settlement negotiations at which the proposed order, among other papers, see supra note 1, was exhibited and discussed. Finally, it contends that notice of the May 25 temporary restraining order was adequate for the June 9 extension.

Having received evidence in this matter and having considered the thorough briefs filed by each interested party, the Court now considers the petition for the writ of mandamus and/or prohibition filed by Midland. The Court will consider first whether Midland can seek mandamus relief, despite possible alternative means for relief. The Court will then determine whether Midland is entitled to relief, given the facts in this case.

I.

In general, the remedy of mandamus⁴ is an extreme one, to be used only in extraordinary situations. Kerr v. United States District Court, 426 U.S. 394, 402, 96 S.Ct. 2119, 2123, 48 L.Ed.2d 725 (1976). It is available only when no other adequate means of relief is available. Allied Chem. Corp. v. Daiflon, Inc., 449 U.S. 33, 35, 101 S.Ct. 188, 190, 66 L.Ed.2d 193 (1980). "Only exceptional circumstances, amounting to a judicial usurpation of power, will justify the invocation of this extraordinary remedy." Id. Moreover, petitions for writs of mandamus or prohibition "may not be used in the federal courts as a substitute for readily available appeal procedure." National City Bank v. Battisti, 581 F.2d 565, 568-69 (6th Cir.1977) (citing Will v. United States, 389 U.S. 90, 97, 88 S.Ct. 269, 274, 19...