Nolan v. Judicial Council of Third Circuit

Decision Date29 July 1972
Docket NumberCiv. No. 769-72.
Citation346 F. Supp. 500
PartiesJoseph M. NOLAN, Plaintiff, v. The JUDICIAL COUNCIL OF the THIRD CIRCUIT, Defendant.
CourtU.S. District Court — District of New Jersey

Martin L. Haines, Dimon, Haines & Bunting, Mt. Holly, N. J., for plaintiff.

Stuart E. Schiffer, Atty., Dept. of Justice, Washington, D. C. (Harlington Wood, Jr., Acting Asst. Atty. Gen., and Harland F. Leathers, Atty., Washington, D. C., on brief), for defendant.

THOMSEN, District Judge.*

Plaintiff challenges on various grounds the validity of the following resolution adopted by the Judicial Council of the Third Circuit on February 10 and reaffirmed on April 12, 1972:

"RESOLVED that in all bankruptcy proceedings this Council holds as incompatible the continued representation as attorney for the trustee by any lawyer or his firm who represents a third party who submits a plan for reorganization in the bankruptcy; and that the recusal by the attorney only from commenting on proposed reorganization plans is not an adequate immunization from the appearance of a conflict of interest."

The resolution was adopted with the immediate objective of causing the resignation or removal of plaintiff as attorney for the trustee in a Chapter X reorganization proceeding in this court.

The late Judge Robert Shaw had been handling the bankruptcy proceeding and had been communicating with Chief Judge Seitz of the Court of Appeals for the Third Circuit with respect thereto. Chief Judge Seitz sent Judge Shaw a copy of the resolution, which Judge Shaw showed to plaintiff and gave him an opportunity to resign. Plaintiff refused, and filed the original complaint in the instant case on May 2, seeking relief by way of declaratory judgment, injunction, mandamus, or prohibition against enforcement of the resolution. Later that day Judge Shaw entered an order terminating the services of plaintiff as attorney for the trustee, without any formal notice or hearing, because Judge Shaw considered the resolution to be an order which he was bound to "carry into effect". 28 U.S.C.A. § 332(d).

After Judge Shaw had entered and later vacated a stay of his May 2 order, plaintiff filed an amended complaint herein, adding a fifth count in which he alleged the entry of the May 2 order and sought judgment: (1, 2) declaring the acts and the resolution of the Council to be in excess of its statutory and constitutional authority; (3) enjoining the Council from causing to be enforced the order of the District Court discharging him as attorney for the trustee; or alternatively, (4) "should the Court find that the Judicial Council has the power to make rules relating specifically to pending litigation, then plaintiff seeks a determination that Section 332 of Title 28 of the United States Code is unconstitutional to the extent that said statute delegates such powers to the Judicial Council, without providing for the definite standards required by the Constitution or the rudimentary requirements of due process." Plaintiff also requested that a three-judge district court be impanelled.

On May 24 plaintiff filed in the Supreme Court a motion for leave to file a petition for writ of prohibition and/or mandamus and a petition for writ of prohibition and/or mandamus, raising similar questions.

On May 31 plaintiff entered an appeal to the Court of Appeals for the Third Circuit from the May 2 order of Judge Shaw terminating plaintiff's services as attorney for the trustee.

On June 9 the Chief Justice of the United States designated me to hold a district court in the District of New Jersey to handle the instant case.

The Judicial Council, represented by attorneys in the Department of Justice, has moved to dismiss the action in this court for lack of jurisdiction to grant the relief prayed and because the complaint does not state a claim on which relief can be granted, or, in the alternative, for summary judgment. The Judicial Council attached several exhibits to its motion, which will be treated as a motion for summary judgment.

At a hearing on the jurisdiction of this court to grant any of the relief sought by plaintiff, the parties stipulated that the following material may be considered a part of the record in this case so far as the several items or any portions thereof may be relevant to any issue herein: (1) the present record on the motion and petition filed by plaintiff in the Supreme Court;1 (2) a report of the Securities and Exchange Commission;2 (3) a letter from the attorney for the Judicial Council, stating that the Council does not operate under any formal rules, and that no material which is not currently in the record of this action was before the Council when it discussed and dealt with the matter at issue in this case; (4) the entire record in the Court of Appeals for the Third Circuit on the appeals numbered 18804-18809 and XX-XXXX-XX-XXXX,3 insofar as said records or any part thereof may be relevant and material to any issue in the instant case or in the appeal which has been taken to the Court of Appeals for the Third Circuit from the May 2 order of Judge Shaw in the bankruptcy proceedings.4

Plaintiff also filed at that hearing a set of 56 interrogatories to the defendant Council. The attorney for the Council asked for a protective order under Rule 26(c), F.R.Civ.P., that no discovery be had or that discovery be stayed for 30 days after the ruling on the question of the jurisdiction of this court to grant any relief herein. In view of the stipulation summarized above, the interrogatories are not necessary to develop the facts relevant and material to the question of jurisdiction; no answers or objections thereto need be filed unless and until ordered by this court.

Plaintiff has filed an affidavit, setting forth certain facts which he wishes the court to consider on the question of jurisdiction raised by defendant's motion. It has been considered, along with the other material submitted by the parties, from all of which the following facts appear.

I

On June 3, 1965, Imperial "400" National, Inc. (Imperial), a chain of motels, filed a petition in this court for an arrangement under Chapter XI of the Bankruptcy Act; the petition was later amended to comply with Chapter X. Thomas J. O'Neill, Esq., was appointed trustee for Imperial on February 21, 1966, and three days later plaintiff was appointed attorney for the trustee.

Some of the problems in the reorganization proceeding are discussed in two Third Circuit opinions, both titled "In re Imperial `400' National, Inc.", and reported in 429 F.2d 671 (1970) and 432 F.2d 232 (1970), respectively. The Third Circuit was impressed, as was Judge Shaw, with the apparent success of the reorganization, 432 F.2d at 237, 242, but felt that the cost of administration had been great, and reduced the interim fees to the trustee and to plaintiff. Id. at 238, 240 et seq. The Third Circuit stated that approval of a plan of reorganization was "not immediately foreseen", that the trustee had submitted no plan of his own, and that he and his attorney had opposed prompt consideration of plans submitted by various creditors.5 Id. at 238, n. 15. "We suggest that the trustee and his counsel make a greater effort to work with the creditors and other interested parties in an effort to terminate this lengthy reorganization proceeding with dispatch." Id. at 240.

In April 1971 plaintiff advised Judge Shaw that Schiavone Construction Co., Inc., a client of plaintiff's law firm, was interested in exploring the possibilities of filing a plan of reorganization in the Chapter X proceeding; that his firm had represented Schiavone for some years; that he had arranged an initial meeting between officers of Schiavone and counsel for the creditors' committee; that he had attended that meeting, a subsequent meeting with the attorney for the creditors' committee and a meeting with the co-owners' committee and their attorney; that Schiavone had been furnished all the financial information it had requested, which was of the same nature as that previously furnished to all other proponents; and that Schiavone would like to enter into serious negotiations with the trustee, the creditors' committee and the co-owners' committee.

Judge Shaw suggested that plaintiff refrain from further participation in any such negotiations and that the trustee himself handle this phase of the Chapter X proceeding. Schiavone was represented in the negotiations by a firm other than plaintiff's law firm. Plaintiff asked Judge Shaw to review the matter and suggested that Judge Shaw call a hearing at which any interested party might voice objections on the record to any procedure decided upon by the court.

On April 21, 1971, Judge Shaw wrote a letter to the trustee and to plaintiff, sending copies to counsel for all interested parties, summarizing his conference with plaintiff and stating:

"If a good plan of reorganization which is more fair, equitable and feasible than any heretofore submitted may be available by participation of Schiavone Construction Co., I do not think stockholders, creditors and other parties in interest should be deprived of the benefit of such plan by reason of the fact that Mr. Nolan represents that corporation in other matters. * * *
"Since the Trustee, Mr. O'Neill, is a competent and well qualified attorney and has no conflict of interest with respect to Schiavone Construction Co., I direct that Mr. O'Neill handle all negotiations and offer all assistance in the preparation of the proposed plan that it is appropriate to offer and in keeping with what has been done with respect to other proponents and that Mr. Nolan refrain completely from any participation therein.
"* * *
"If it is felt by any interested party that this is not the appropriate way to proceed to gain the financing of Schiavone Construction Co., the Court will entertain and consider objections which, if any, should be promptly presented."

No objection to this arrangement was...

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