Opposition Brief — Duck v. Bank of America, N. T. & S. A.
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IN THE
Supreme Court of the Anited
Octoper Term, 1988
uf
No. 88-918 (Y)
CuarLes Duck, Trustee of the Bankruptcy Estate of
GeEorGE M. Jewett and Laura E. JEweLt,
and GeorGce R. JEweLt,
Petitioners,
v.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Respondent.
No. ss.934\2/)
IRENE O"CONNELL KRUSE,
Petitioner,
v.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Respondent.
OPPOSITION TO PETITIONS FOR
WRIT OF CERTIORARI
TO THE CALIFORNIA COURT OF APPEAL
FIRST APPELLATE DISTRICT, DIVISION ONE
Davip B. FLINN WARREN CHRISTOPHER*
LELAND, PARACHINI, BERTRAND M. Cooper
STEINBERG, FLINN, KAREN R. GROWDON
“MATZGER & MELNICK CARMEN R. LUEGE
333 Market Street O”’MELVENY & MYERS
27th Floor 400 South Hope Street
San Francisco, CA 94105 Los Angeles, CA 90071
Telephone: (415) 457-1800 Telephone: (213) 669-6000
Attorneys for Respondent
* Counsel of Record .' yWv
i
TABLE OF CONTENTS
PAGE
TABLE OF AUTHORITIES. .........--ccccscoccccccecccccsscccssecccscees ii
STATEMENT OF THIE CASE 2.0...ccccccccscccscscosccsncsccsscscsesese 2
l. Facts Underlying Petitioners’ Claims Of Judicial
Fs a alt ES I RS a 2
2. GT Ee A OTT 5
REASONS FOR DENYING THE WRITB....................... 6
l. The Judgment Below Is Not Final .............2..0...000+-- 6
2. Petitioners Did Not Raise The Questions Present-
ed In The State Court Proceedings 7
3. The Case Does Not Present Important Questions
Of Law 9
4. The Lower Court’s Decision Does Not —
With Decisions Of This Court i
5. The Lower Court’s Decision Neither Interprets
Nor Applies Federal Law On Judicial Dis-
ee aiilsaiaiatts ccciscaniisvinssntieatasiainintnscininasinaiancs 11
6. Alleged Error In The Lower Court’s Decision
Does Not Justify Review By This Court ................--. 12
Saver aan TUITE catctvncicussihisicthaensasheentcandseiannentassennidomenepeempiassdesens 13
TABLE OF AUTHORITIES
CASES PaGe&( S$)
Adickes v. S.H. Kress and Co., 398 U.S. 144 (1970) ... 8
Aetna Life Insurance Co. v. Lavoie, 475 U.S. 813
[) ) EEE 8,9, 10
Agins v. City of Tibuoan, 447 U.S. 255 (1980) .........-+. 11
Beck v. Washington, 369 U.S. 541, Reh. denied, 370
US. DGS ( TDG) veccconcccccccsassnsssncssansensasnisaivenniaansnnens 8
Berger v. United States, 255 U.S. 22 (1921) -....:csescees 12
Board of Directors of Rotary International v. Rotary
Club of Duarte, 481 U.S. 537 (1987) ......:ccccccceeeeeeens 8
Cardinale v. Louisiana, 394 U.S. 437 (1969) ...........00. 8
Chambers v. Mississippi, 410 U.S. 284 (1973) .........000: s
Cincinnati Street Railway Co. v. Snell, 179 U.S. 395
6) ) EE 6
Cox Broadcasting Corp. v. Cohn, 420 US. 469
€ 1975 } ..ncceccssssesstinticemniea 7
Flynt v. Ohio, 451 U.S. 619 (1981) ou... eeecesceeseeeersenenes 7
Gospel Army v. Los Angeles, 331 U.S. 543 (1947)....... 6
Herndon v. Georgia, 295 U.S. 441 (1935) cc ceecceeerees 8
Hill v. California, 401 U.S. 797 (1971) cece ccceesseeerennes 8
Jewell Ridge Coal Corp. v. Local No. 6167, United
Mine Workers of America. 325 U.S. 897 (1944) ..... 11
Kaufman v. Court of Appeal, 31 Cal. 3d 933, 184 Cal. -
Rarer. FOZ ( 19629 ssccniscnendcacctetecsceshiattnhneansiilindinkinassane §. 11
Killian v. United States, 368 U.S. 231 (1961), Reh.
decdad, FOE US. STS t USED ccossttsckossutsabintersttiinaieae &.9
Kruse v. Bank of America, 202 Cal. App. 3d 38, 248
Cal. Reser. 207 ( RGDB D nnissccrcsctecsntncdscatsssactiananmmmatante 2
Laird v. Tatum, 409 U.S. 824 (1972 )....cceceececeeceeeeeeeees 11
Liljeberg v. Health Services Acquisition Corp., \O8
DC e, ZED 6 CSG D nesncinncdinnsesenningsstenaerddiatialacunanammanaines lO. 11
MacNeil Bros. Co. v. Cohen, 264 F.2d 186 ( Ist Cir.
$999 ) .corcsrdcoscansnentansscdinnnicapneansaiimamiaalas 12
Martin-Trigona v. Gouletas, 634 F.2d 354 (7th Cir.)
cert. denied, 449 U.S. 1025 (1980) ooo 12
O’Dell v. Espinoza, 456 U.S. 430 (1982). cee. 6
Oxley Stave Co. v. Butler County, 166 US. 648
( BOT ) nnccconssnscsncnccsnsesbedehabientaaaaiaamaan 8
ili
Cases
Patterson v. Colorado ex rel Attorney General, 205
ae
Popkin v. Eastern Air Lines, Inc., 236 F Supp. 645
(E.D. Penn. 1964) Reeteiietacieneunsdiestceiss
Ross v. Moffitt, 417 U.S. 600 (1974) ooo ccccceceeeeees
Tumey v. Ohio, 273 U.S. S10 (1927) oooccccccccccoccecceeeeeeee
— States v. Gigax, 605 F.2d 507 (10th Cir.
EES EEE
United States v. Sibla, 624 F.2d 864 ( 9th Cir. 1980) ..
Webb v. Webb, 451 U.S. 493 (1981) ooo ee
Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449
il tee
STATUTES
California Code of Civil Procedure
ESL aaa
i TIlidiiadineetieerneneenensenstanneneconsncces
SECONDARY MATERIALS
R. Stern, E. Grossman and S. Shapiro, Supreme
Court Practice § 4.1 (6th ed. 1986) 00...
B. California Procedure, Courts § 80 ( 3rd ed.
l ELLE ALLE ALES AID
PaGe(s)
IN THE
Supreme Court of the Hnited States
Octoser TERM, 1988
No. 88-918
Cuarces Duck, Trustee of the Bankruptcy Estate of
Georce M. Jewett and Laura E. JEwe Lt,
and GeorGeE R. JEWELL,
Petitioners,
v.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Respondent.
No. 88-934
IRENE O'CONNELL KRUSE,
Petitioner,
Vv.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Respondent.
OPPOSITION TO PETITIONS FOR
WRIT OF CERTIORARI
TO THE CALIFORNIA COURT OF APPEAL
FIRST APPELLATE DISTRICT, DIVISION ONE
Respondent Bank of America N.T. & S.A.* (“the Bank”)
respectfully requests that this Court deny the petition for writ of
* Bank of America N.T. & S.A. owns less than a 100% interest in the
following of its subsidiaries: Banco Colombo Americano, Bank of America
Australia Limited, Bank of America S.A.E.. Bank of America ( France) S.A..
( Footnote Continued)
et eee
—_—
2
certiorari filed by Charles Duck, bankruptcy trustee of the
estate of George M. Jewell and Laura E. Jewell, and by George
R. Jewell (the “Jewells”) and the petition for writ of certioran
filed by Irene O'Connell Kruse (“Kruse”). Both petitions seek
review of the opinion of the California Court of Appeal, First
Appellate District, Division One filed on May 18, 1988, and
modified on June 17, 1988.
STATEMENT OF THE CASE
On May 18, 1988, the California Court of Appeal issued its
opinion in Kruse v. Bank of America (as later modified and )
reported at 202 Cal. App. 3d 38, 248 Cal. Rptr. 217 (1988)).
That opinion reversed the trial court judgment in favor of
petitioners. The decision was rendered by a panel composed of
Justices John T. Racanelli, William A. Newsom and Norman )
Elkington. |
The Court of Appeal found that Kruse and the Jewells had |
not established by substantial evidence the causes of action
alleged in their pleadings. The decision to reverse the judgment
was entirely based on established state law principles and did
not raise any federal issues or constitutional questions.
Petitioners seek the aid of this Court by legal maneuvers
aimed at creating a constitutional question where none in fact
exists. Notably, petitioners’ briefs contain only a sketchy
account of the facts and procedures giving rise to the alleged
constitutional questions— perhaps because those facts reveal the
frivolous nature of the petitions.
|. Facts Underlying Petitioners’ Claims Of Judicial
Disqualification.
Petitioners first raised the issue of judicial disqualification
after the Court of Appeal rendered its decision. While petition-
ers’ motions for rehearing were pending before the Court of |
Appeal, Kruse filed a motion requesting that Justice Racanelli |
and Justice Newsom recuse themselves. Kruse claimed that,
( Footnote Continued)
BA Servicios, S.A.. East Kemprtville Tin Corporation. and The Electronic
Payments Exchange. Inc. Bank of America N.T. & S.A. is itself wholly owned
by BankAmerica Corporation. all of the subsidiaries of which are wholly |
owned.
3
while the appeal was pending, Justice Racanelli owned Bank
stock and Justios Newsom had a “customline” of credit with the
Bank. The purported factual basis of those assertions was the
belated recollection of Kruse’s counsel that at an unrelated
hearing involving the Bank in April 1986 Justices Racanelli and
Newsom disclosed, respectively, stock ownership in and a loan
from the Bank. After Kruse filed her motion for recusal, the
Jewells immediately filed their own request based entirely on
the declaration filed by Kruse’s counsel.
Only days later, Kruse filed an additional brief raising
more unsubstantiated accusations. This time Kruse theorized
that Winslow Christian, the Bank's Director of Litigation, had
recommended Justice Racanelli, Justice Elkington and Justice
Newsom to be appointed to the Court of Appeal. Kruse also
speculated that Justice Racanelli may have been influenced by
a hope that Warren Christopher, the Bank’s counsel who
argued the appeal, might somehow obtain a federal judicial
appointment for the Justice if Governor Dukakis won the
presidential election. Appendix A. On June 17, 1988, the Court
of Appeal declined petitioners’ recusal requests as well as the
petitions for rehearing, and the court issued its modified
“-- ki : titorial cl
Kruse and the Jewells then filed petitions for review in the
California Supreme Court essentially requesting review of the
Justices’ refusal to disqualify themselves. Kruse also filed an
application to take evidence on the disqualification issue. On
June 30, 1988, Justice Racanelli submitted a declaration to the
California Supreme Court establishing beyond dispute that he
had never owned Bank stock. Appendix B. Obviously, that
declaration put to rest the issue of Justice Racanelli’s dis-
qualification. '
* By statute, a judge's ownership of less than !% of a party's stock, or of
such stock worth less than $1,500, is not a disqualifying interest. California
Civil Procedure Code §§ 170.1(a)(3), 170.5(b). Justice Racanelli’s State-
ments of Economic Interest filed pursuant to California Government Code
§ 87200 for the years 1986 and 1987 do not indicate any ownership of Bank
stock. ( Under Califorma Government Code § 87203 appellate court judges
4
As to Justice Newsom’s loan from the Bank, since the 1984
revisions to the California judicial disqualification statutes, a
loan is no longer a disqualifying financial interest. California
Civil Procedure Code Section 170.1; 2 B. Witkin, California
Procedure, Courts § 80 (3rd ed. 1985).2 See also Code of
Judicial Conduct, Canon 5C(4)(b) (a loan is not a dis-
qualifying interest if obtained in the “regular course of business
on the same terms generally available to persons who are not
judges”). Since the evidence presented did not establish any
ground for disqualification, the California Supreme Court de-
nied petitioners’ requests for review, as well as the application
to take evidence, finding that petitioners had “not made a
prima facie showing of conflict of interest or bias much less a
deprivation of due process.”
Faced with the absence of any basis in the record for
disqualifying Justice Racanelli or Justice Newsom, Kruse now
makes entirely new accusations concerning Justice Newsom. In
her petition Kruse claims that David Flinn, the Bank’s trial
attorney in this case, is the family lawyer for Justice Newsom,
and that this constitutes ground for disqualification. That again
exemplifies petitioners’ creation of innuendo without any fac-
tual basis.
As a threshold matter, we note that the alleged
lawyer/client relationship between Justice Newsom and Flinn
constitutes entirely new matter never raised below. Neither
Justice Newsom nor the California Supreme Court has had an
opportunity to consider that matter. To the extent this Court is
inclined to consider it, however, the Bank wishes to correct
Kruse’s false allegations.
Kruse’s conclusion that Flinn was Justice Newsom’s at-
torney is simply not supported by the evidence on which Kruse
relies. Her argument springs from two “facts”: (1) Justice
Newsom’s apparent ownership of stock in Squaw Valley Im-
provement Corporation, as reflected in his 1982 Statement of
Economic Interest, and (2) Flinn’s representation of that
corporation as reflected in its Statement of Domestic Stock
Corporation filed with the California Secretary of State in June
1982. Kruse unjustifiably assumes from those two documents
2 Although Justice Newsom’s Statements of Economic Interest revealing
the existence of the creditline were available for inspection at all times,
petitioners waited until after the Court of Appeal rendered its decision to raise
the disqualification issue.
5
that Flinn represented the Corporation when Justice Newsom
was one of its stockholders.? That assumption is wrong. In
May of 1982, Justice Newsom, in an arms-length transaction,
sold all his shares of Squaw Valley Improvement Corporation
to two sisters and a brother. Appendix C.4 In June of 1982,
after the sale, Justice Newsom’s sisters employed Flinn to
dissolve the corporation. It was only after Justice Newsom’s
sale of shares that Flinn’s law firm commenced representation
of the corporation. Flinn is not and never has been counsel for
Justice Newsom. Appendix C.
2. The Facts Of The Case.
This case arose out of a complex lending relationship
between the Bank, the Jewells and the O’Connell Company (of
which Kruse was sole shareholder). The litigation commenced
in 1981 when the Jewells and the O’Connell Company, faced
with financial collapse, filed claims against the Bank alleging
fraud, breach of the covenant of good faith and fair dealing and
other torts. The California Court of Appeal, applying state law,
found that petitioners did not establish at trial their claims of
tortious conduct on the part of the Bank.
3 Even if Mr. Flinn had been Justice Newsom’s lawyer, there would be
no ground for disqualification under California Civil Procedure Code § 170.1.
See also Popkin v. Eastern Air Lines, Inc., 236 F Supp. 645 (E.D. Pa. 1964).
But if Kruse truly believes these allegations constitute a ground for dis-
qualification, she should have raised that issue first with Justice Newsom
himself by seeking to vacate the decision under California Civil Procedure
Code § 473. See Kaufman v. Court of Appeal, 31 Cal. 3d 933, 184 Cal. Rptr.
302 ( 1982).
* Because the record contains no evidence on this new issue, the Bank
proffers in the Appendix David Flinn’s declaration explaining his involvement
with Squaw Valley Improvement Corporation.
5 Justice Newsom’s name appears in the 1982 Statement of Domestic
Corporation filed by Squaw Valley only in the prestamped address placed
upon the document by the Secretary of State. Justice Newsom appears as the
addressee of the form simply because the Secretary of State records for 1981
showed Justice Newsom’s office as the “corporate office.” Appendix C.
6
The complex facts underlying petitioners’ original claims
against the Bank are irrelevant to this Court’s decision on the
petitions for certiorari. Those facts raise no federal issues or
questions of constitutional dimension. Suffice it to note that
Kruse’s statement of facts is quite misleading. For an accurate
explanation of the underlying facts, this Court can look to the
summary contained in the opinion of the California Court of
Appeal, attached as Appendix A to Kruse’s Petition for Certior-
ari.
REASONS FOR DENYING THE WRITS
1. The Judgment Below Is Not Final.
Under 28 U.S.C. Section 1257, Supreme Court review of
state court decisions is available only with respect to “final
judgments or decrees.” This Court has often applied the
precept that a decision reversing a case and remanding it for
further proceedings is “totally wanting in the requisite finality
required to support a writ of error from this court.” Cincinnati
Street Railway Co. v. Snell, 179 U.S. 395, 397 (1900). See also
O'Dell v. Espinoza, 456 U.S. 430 (1982); Gospel Army v. Los
Angeles, 331 U.S. 543 (1947). Here the Court of Appeal
reversed the judgment, and that had the effect of remanding the
case to the trial court for further judicial proceedings.* Accord-
ingly, petitioners are not seeking review of a “final” judgment
or decree.
Petitioneis may argue that this Court has granted certiorari
to review interlocutory decisions. Those grants, however,
* Pending before the trial court is the Bank's motion for immediate entry
of judgment, or alternatively for summary judgment. The trial court's
disposition of those motions will likely give rise to further proceedings in
either the trial or appellate court in California.
7
represent the exception, not the rule. For review of an
interlocutory decision, the case must fall under one of the four
exceptions to the finality requirement articulated in Cox Broad-
casting Corp. v. Cohn, 420 U.S. 469 (1975).
The petitioners do not even address the finality issue, much
less assert any of the Cohn exceptions. Both Kruse and the
Jewells, however, suggested to the trial court that the fourth
Cohn exception applies to their situation.’ That fourth ex-
ception permits interlocutory review when, among other things,
(1) “reversal of the state court on the federal issue would be
preclusive of any further litigation on the relevant cause of
action” and (2) failure to consider the state court decision
immediately “might seriously erode federal policy.” Cox Broad-
casting Corp. v. Cohn, 420 U.S. at 482-483. Petitioners cannot
establish either prerequisite.
Resolution of the questions presented here will not pre-
clude further litigation. Disqualifying the justices who decided
the instant case would only have the effect of remanding the
case back to the California appellate courts. Moreover, imme-
diate resolution is not required to prevent erosion of federal
policy. As this Court stated in Flynt v. Ohio, 451 U.S. 619, 622
(1981), in applying the fourth exception, it is important that
the “exception [should not] swallow the rule.” This case gave
rise tO no state court opinion at all interpreting federal law
which will seriously erode federal policy, much less to such a
decision requiring immediate consideration by this Court. Not
falling under the fourth or any other CoAn exception, petition-
ers’ requests for review should be denied.
2. Petitioners Did Not Raise The Questions Presented In
The State Court Proceedings.
Petitioners cannot satisfy the requirement that a substantial
federal question must have been properly raised in the state
court proceeding. See, e.g., Webb v. Webb, 451 U.S. 493, 494-
7 Petitioners obtained a stay of proceedings in the trial court to pursue
their petitions for certiorari. The Bank opposed the stay on the ground that
this Court was not likely to issue a writ of certiorari because of lack of finality
of the decision below. Petitioners filed a reply in which they suggested that
the fourth Cohn exception applied.
8
498 (1981); Hill v. California, 401 U.S. 797, 805-806 (1971);
Cardinale v. Louisiana, 394 U.S. 437, 439 (1969). The Jewells’
Petition for Certiorari in this Court raises for the first time a due
process issue under the Fourteenth Amendment. Never during
the state court proceedings did the Jewells frame a federal
constitutional question. The Jewell’s Petition for Review in the
California Supreme Court stated the question only as follows:
“Should a decision in a landmark lender liability case be
allowed to stand when the decision was wrongly decided by
two justices who should have disqualified themselves?” Appen-
dix D. As this Court has found, “[a]ll questions of judicial
qualification may not involve constitutional validity.” Tumey v.
Ohio, 273 U.S. 510, 523 (1927). See also Aetna Life Insurance
Co. v. Lavoie, 475 U.S. 813, 821 (1986).
In the court below, the Jewells did not brief or address.the
due process implications of the alleged disqualification issue.
Their failure to do so waived their constitutional claim. Cham-
bers v. Mississippi, 410 U.S. 284, 290-291 n.3 (1973); Beck v.
Washington, 369 U.S. 541, 553, reh’g denied, 370 U.S. 965
(1962). Having failed to raise the constitutional issue before
the California Supreme Court, the Jewells cannot now seek
redress in this Court for any alleged due process violation.®
Likewise, Kruse’s petition for certiorari raises an issue not
presented in the state court proceedings: the alleged (but
mistaken) “newly discovered” lawyer/client relationship be-
tween Justice Newsom and the Bank’s trial counsel. Neither
the California Court of Appeal nor the California Supreme
Court had an opportunity to consider (much less resolve) the
essential factual predicate of the question presented, and so this
Court should not review the issue. See Adickes v. S. H. Kress
and Co., 398 U.S. 144, 158 n.16 (1970); Killian v. United
8 The Jewells did not overcome this jurisdictional impediment by citing
United States Supreme Court cases to the California Supreme Court on the
disqualification issue. Such citations do not satisfy the jurisdictional require-
ment. See Herndon v. Georgia, 295 U.S. 441, 442-43 (1935); Board of
Directors of Rotary International v. Rotary Club of Duarte, 481 U.S. 537, 107
S.Ct. Rptr. 1940, 1948 n.9 (1987). Neither do passing references to
“constitutional dimensions” w.ihout actually briefing the constitutional point.
See Oxley Stave Co. v. Butler County, 166 U.S. 648 (1897); Webb’s Fabulous
Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 159 2.5 (1980).
a
9
States, 368 U.S. 231, 243 (1961), reh’g denied, 368 U.S. 979
(1962).
3. The Case Does Not Present Important Questions of Law.
Kruse asserts that the case presents a question of first
impression: the degree or kind of interest on the part of a judge
which violates due process. The mere lack of a Supreme Court
ruling on a question has never been recognized as a basis for
the grant of certiorari. More importantly, Kruse’s character-
ization of the questions presented as an issue of first impression
is misleading.
As the Jewells recognize in their petition, on more than one
occasion this Court has explained the relationship between the
due process clause of the Fourteenth Amendment and judicial
disqualification. In Tumey v. Ohio, 273 U.S. 510, 523 (1927),
for example, this Court stated:
All questions of judicial qualification may not involve
constitutional validity. Thus matters of kinship, per-
sonal bias, state policy, remoteness of interest, would
seem generally to be matters merely of legislative
discretion. [citation omitted] But it certainly violates
the Fourteenth Amendment, . . . to subject [a per-
son’s] liberty or property to the judgment of a court
the judge of which has a direct, personal, substantial,
pecuniary interest in reaching a conclusion against
him in his case.
And more recently in Aetna Life Insurance Co. v. Lavoie, 475
U.S. 813, 822 (1985), this Court, reaffirming settled principles,
explained that:
{[W]hat degree or kind of interest is sufficient to
disqualify a judge from sitting ‘cannot be defined with
precision.” [citation omitted.] Nonetheless, a reason-
able formulation of the issue is whether the ‘situation
is one which would offer a possible temptation to the
average .. . judge to. . . lead him not to hold the
balance nice, clear and true.’ [citation omitted }.
Kruse also contends that the court should decide the issue
of the effect of disqualification of a single appellate justice when
10
the decision is rendered by a three judge panel. Whether or not
this issue is one of first impression, this case is an inappropriate
vehicle to review it because Kruse’s claims of prejudice are
predicated upon unsettled facts never raised below.
4. The Lower Court’s Decision Does Not Conflict With
Decisions Of This Court.
The Jewells, unlike Kruse, acknowledge that this Court has
set forth the due process standards requiring judicial dis-
qualification. They merely claim that the Court of Appeal did
not follow those standards when it refused to disqualify Justices
Newsom and Racanelli.
The refusal of Justices Newsom and Racanelli to recuse
themselves comports with decisions of this Court. Recently this
Court rejected the view that “the slightest pecuniary interest”
constitutes a violation of the Due Process Clause. Aetna Life
Insurance Co. v. Lavoie, 475 U.S. at 825-826 n.3. Instead, the
Court held that recusal is required where there is “a direct,
personal, substantial, pecuniary interest.” Applying that prin-
ciple leads to the inevitable conclusion that Justices Racanelli
and Newsom did not violate the due process clause by refusing
to disqualify themselves. Justice Racanelli has never owned
any Bank stock and Justice Newsom’s small creditline does not
constitute “a substantial pecuniary interest” so as to cause the
judge “not to hold the balance, nice, clear and true.” Aetna Life
Insurance Co. v. Lavoie, 475 U.S. at 822.
The Jewells suggest that the affidavits they filed question-
ing the justices’ qualifications should suffice for recusal regard-
less of their truthfulness. Contrary to the Jewells’ assertion,
Liljeberg v. Health Services Acquisition Corp., ___. US.
108 S.Ct. 2194 ( 1988), does not support such a conclusion. In
Liljeberg the trial judge in fact had a disqualifying interest in
the litigation. Liljeberg, 108 S.Ct. at 2196, 2203. The rule
suggested by the Jewells would result in a clear abuse. Every
losing appellant could disqualify appellate justices and vacate
® Liljeberg is also distinguishable in that it involved interpretation of 28
U.S.C. § 455 and not the due process clause of the Fourteenth Amendment.
11
an adverse decision by simply filing affidavits questioning the
justices’ qualifications. Under the rule proposed by the Jewells,
the justices would have to recuse themselves regardless of the
truthfulness of the allegation. Certainly the Court in Liljeberg
did not intend to create such an artifice.
5. The Lower Court’s Decision Neither Interprets Nor
Applies Federal Law On Judicial Disqualification.
Both Kruse and Jewells seek certiorari because the Justices,
in refusing to recuse themselves, relied on the California
Supreme Court decision in Kaufman v. Court of Appeal, 31 Cal.
3d 933, 184 Cal. Rptr. 302 (1982), which, according to
petitioners, wrongly interpreted federal law. Kaufman rejected
the claim that a California appellate justice cannot decide the
issue of his own disqualification. Instead, Kaufman held that
an appellate justice in California should decide individually
whether the facts require recusal, and that the higher court only
determines whether bias rendered the appellate proceeding
unfair.
Contrary to petitioners’ position, Kaufman neither inter-
prets nor applies federal law; instead, it establishes the Califor-
nia rule (which the court mentioned was comparable to the
federal rule). This Court does not grant certiorari to review
questions of state law. See Agins v. City of Tibuoan, 447 U.S.
255, 260-261 n.6 (1980); Paterson v. Colorado ex rel. Attorney
General, 205 U.S. 454, 461 (1907).
Petitioners suggest that the Kaufman rule violates due
process, but the federal practice is fully consistent with Kauf-
man. Faced with a motion for recusal federal appellate judges
individually decide whether disqualification is required. In
Jewell Ridge Coal Corp. v. Local No. 6167, United Mine
Workers of America, 325 U.S. 897 (1944), Justice Jackson
stated that it is “the responsibility of each Justice to determine
for himself the propriety of withdrawing in any particular
circumstances.” Justice Jackson noted that the majority of the
Court lacked the power to exclude any of its duly commissioned
Justices from sitting or voting in any case. Almost thirty years
later Justice Rehnquist, when faced with a motion for dis-
qualification, individually decided the disqualification issue.
12
See Laird v. Tatum, 409 U.S. 824 (1972). In refusing to recuse
himself, Justice Rehnquist considered and weighed facts within
his own knowledge. Challenged for disqualification, federal
circuit judges follow the same procedure. See, ¢.g., MacNeil
Bros. Co. v. Cohen, 264 F.2d 186, t89 (Ist Cir. 1959); Martin-
Trigona v. Gouletas, 634 F.2d 354, 355 n.1 (7th Cir.) cert.
denied, 449 U.S. 1025 (1980).
Petitioners misleadingly rely on cases like Berger v. United
States, 255 U.S. 22 (1921), United States v. Sibla, 624 F.2d
864 (9th Cir. 1980) and United States v. Gigax, 605 F.2d 507
(10th Cir. 1979) for the proposition that a judge challenged for
bias can only decide the legal sufficiency of the affidavit and not
the truthfulness of the allegations. Those cases, however,
involved a unique statutory procedure applicable only to trial
judges. Under both federal and California law trial judges pass
only upon the sufficiency of the affidavit. If the affidavit is
sufficient, the judge must refer the matter to another judge for
determination of the merits. See 28 US. C. § 144; Cal. Civil
Proc. Code § 170.3.
6. Alleged Error In The Lower Court’s Decision Does Not
Justify Review By This Court.
The Jewells suggest error in the decision below without
specifying the nature of the error. Jewell’s Petition pp. 15-16.
Kruse argues that the Court of Appeal erred by failing to
review the case in light of the actual legal theories upon which
she relied. Kruse’s Petition at pp. 13, 17. Kruse’s claim boils
down to arguing that the court simply misinterpreted her
position. While undoubtedly such a sentiment is shared by
most unsuccessful appellants, it certainly does not justify review
by this Court. As the Justices of this Court have explained:
The Supreme Court is not, and never has been, pri-
marily concerned with the correction of errors in lower
court decisions .. . . The function of the Supreme Court
is, therefore, to resolve conflicts of opinion on federal
questions that have arisen among lower courts, to pass
upon questions of wide import under the Constitution,
laws, and treaties of the United States, and to exercise
13
supervisory power over lower federal courts. If we
took every case in which an interesting legal question is
raised, or our prima facie impression is that the deci-
sion below is erroneous, we could not fulfill the Con-
stitutional and statutory responsibilities placed upon
the Court.
R. Stern, E. Grossman and S. Shapiro, Supreme Court Practice
§ 4.1, at 190-191 (6th ed. 1986), citing Address of Chief Justice
Vinson before American Bar Association, September 7, 1949.
See also Ross v. Moffitt, 417 U.S. 600, 616-17 (1974). Petition-
ers’ belief that the court below erroneously applied state law is
not a proper ground for certiorari.
CONCLUSION
For all the foregoing reasons, petitioners’ requests for
certiorari should be denied.
DATED: December 22, 1988
Respectfully submitted,
WARREN CHRISTOPHER
BERTRAND M. Cooper
KarREN R. GROWDON
CARMEN R. LUEGE
O”’MELVENY & Myers
Davin B. FLINN
LELAND, PARACHINI,
STEINBERG, FLINN,
MatTzGer & MELNICK
By Warren Christopher
Attorneys for Respondent
00
i
APPENDIX
Plaintiff-Respondent and Cross-Appellant
Irene O’Connell Kruse’s Amendment to
Request That The Justices of Division One
Grant Rehearing and Recuse Themselves,
And Memorandum of Points and Authorities
in Support of Request sindibsaiphaniaabieahinenetiones
Declaration of John T. Racanelli Addressed
To California Supreme Court ....................0..00+.
Affidavit of David B. Flinn......................000000...
Petition for Review of Decision of the Court
a Appeal, First Appellate District, Division
cisnssthasincenntinntatineiatedusititieninonnmmsiibatsimenaiiges
PAGE
24
APPENDIX A
Civil No. A033064/A039161
COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
IRENE O"CONNELL KRUSE
Plaintiff, Respondent, and Cross-Appellant,
v.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Defendant, Appellant, and Cross-Respondent.
Appeal from the Judgments of the
Superior Court of the State of California
County of Sonoma
Honorable Laurence K. Sawyer, Judge
PLAINTIFF-RESPONDENT AND CROSS-APPELLANT
IRENE O’CONNELL KRUSE’S AMENDMENT TO
REQUEST THAT THE JUSTICES OF DIVISION ONE
GRANT REHEARING AND RECUSE THEMSELVES,
AND MEMORANDUM OF POINTS AND
AUTHORITIES IN SUPPORT OF REQUEST
LuKENS, Cooper, Perry & DaumMOND Frepericx E. WATSON
WituiaM M. LUKENS A Professional Corporation
Caro. G. Perry Frepericx E. WATSON
MARTHA ROSENBERG L111 Civic Drive, Suite 300
The Alcoa Building Suite 1200 Walnut Creek, California 94596
One Maritime Plaza Telephone: (415) 947-0393
San Francisco, California 94111
Telephone: (415) 433-2261
Kuourie & Crew
EUGENE Crew
MICHAEL N. KHOURIE
101 California, Suite 1500
San Francisco, California 94111
Attorneys for Plaintiff, Respondent
and Cross-Appellant Irene O’Connell Kruse
2
C. The Relationship and Long Acquaintance Between the
Members of the Court, and Counsel for the Bank, is a
Factor to Be Considered on the Issue of Impartiality:
Martindale-Hubbell discloses that Mr. Warren Christ-
opher, a senior partner of O'Melveny & Myers, who argued the
appeals for the Bank, and former Justice Winslow Christian of
this Court, were law school classmates at Stanford, and mem-
bers of the Law Review, graduating together in 1949. In 1959,
Mr. Christopher became special counsel to Governor Brown,
Sr. From 1964 through 1966, Winslow Christian was the
executive secretary to Governor Brown, Sr., and we are in-
formed and believe that in that position Mr. Christian recom-
mended judicial appointments to the Governor, and one of the
appointments made in 1964 by Governor Brown was the
appointment of Justice Racanelli to the Santa Clara County
Superior Court bench.
In 1966, Governor Brown appointed Winslow Christian
and Norman Elkington to the Court of Appeal for the First
Appellate District, and it is perhaps a reasonable inference that
Winslow Christian, as executive secretary, recommended his
own appointment, and the appointment of Justice Elkington. It
thus appears to be a reasonable inference that both Justice
Elkington and Justice Racanelli may have received their
appointments to the Court of Appeal and the Santa Clara
County Superior Court, respectively, as a result of recommen-
dations by Mr. Winslow Christian.
Justice Racanelli was appointed to the Court of Appeal by
Governor Brown, Jr., in 1977, and a year later Justice Newsom
was appointed to the Court of Appeal by Governor Brown, Jr.,
in 1978. We have at this time no information as to whether
former Justice Winslow Christian recommended, or played any
role in the appointment of, Justices Racanelli and Newsom to
the Court of Appeal, but we submit it would not be unreason-
able to assume that former Justice Christian may have played
some part in recommending the appointments of Justices
Racanelli and Newsom to the Court of Appeal, in view of Mr.
Christian's former position as executive secretary to Governor
Brown, Sr. during which time he may have recommended the
appointment of Justice Racanelli to the Superior Court bench in
1964.
3
In 1984, Justice Christian resigned from the bench, and
accepted a position as Director of Litigation in the Office of the
General Counsel of the Bank of America, and has maintained
his offices in the headquarters of the Bank in San Francisco,
since that time. As Director of Litigation of the Bank, Mr.
Christian has been in direct charge of this case and these
appeals, and it was Mr. Christian who undoubtedly selected his
law school classmate Mr. Christopher, and his lawfirm
O”’Melveny and Myers, to act as appellate counsel for the Bank,
in the briefing and argument of these appeals. The selection of
Mr. Christopher makes it necessary for this Court to consider
certain other facts, concerning political and governmental activ-
ity and experience of the members of this Court, and counsel
for the Bank, in order to comply with the principle that “a
judge faced with a potential ground for disqualification ought
to consider how his participation in a given case looks to the
average person on the street.” (United Farm Workers, supra,
170 Cal.App.3d at 104). Those facts to be considered are as
follows:
Mr. Christopher, for many years has been, and still is, very
prominent and influential in Democratic party political circles,
and has held state and federal governmental offices during
Democratic administrations. As previously mentioned, he was
special counsel to Governor Brown, Sr., in 1959. From 1961-
1965, during the Kennedy and Johnson administrations, Mr.
Christopher was legal counsel in the office of the Under-
secretary of State. He was appointed as a United States Deputy
Attorney General in 1967 during the Johnson administration,
and served in that position until 1969, resigning then during the
Republican Nixon administration. Mr. Christopher was ap-
pointed Deputy Secretary of State in 1977, during the Carter
administration, and served until 1981, resigning then during the
Republican Reagan administration.
Mr. Christopher is a member of the board of directors of
First Interstate Bancorp., the parent company of First Interstate
Bank. Mr. Christopher was Vice Chairman of Governor Brown
Sr.’s commission on the Los Angeles Riots, 1965-1966, during
the same time that former Justice Winslow Christian was
executive secretary to Governor Brown, Sr. During the Ken-
4
nedy administration, Mr. Christopher was Chairman of the
United States delegation to the U.S.-Japan Cotton Textile
Negotiations in 1961, and during that same year attended the
Geneva Conference on Cotton Textiles. During the Kennedy-
Johnson administrations, Mr. Christopher was special repre-
sentative of the Secretary of State for Wool Textile meetings, in
London, Rome, Tokyo, during the years 1964-1965. From
1975 to 1977, Mr. Christopher was the chairman of the
American Bar Association standing committee on the federal
judiciary. (The foregoing information appears in the 1987-
1988 edition of “Who’s Who in American Law,” at page 136).
In a reprint of a “Judicial Profile” dated October 6, 1981,
originally published in the Los Angeles Daily Journal, and
based on an interview with Justice Racanelli, it is stated:
“ .. Racanelli’s interest in judicial administration
seems to be only a continuation of his interest in bar
association work and party politics when he was an
attorney. While in practice in Santa Clara County,
Racanelli sat on the County Bar Association’s Board
of Directors and the County’s Democratic Central
Committee.”
Further, in this Court’s consideration of how Justice Raca-
nelli’s participation in these appeals looks to the average person
on the street, we submit that there should be taken into
consideration the comments of an attorney quoted in the same
Judicial Profile, as follows:
“ .. If Racaneili has been politically active in judicial
administration, a few attorneys also claim he has been
political in his decision-making. A deputy attorney
general who handles civil work said he is ‘much more
suspicious of intrusion of political motives in what
( Racanelli) does.’. . .”
Since January of 1981, Justice Racanelli has been the
administrative presiding Justice of the Court of Appeal for the
First Appellate District, charged with overseeing the operation
of the entire appellate court in San Francisco. We submit that
the average person on the street might reasonably conclude that
it is a somewhat remarkable coincidence that Division One was
assigned to handle the appeai in the Sanchez-Corea v. Bank of
5
America, and In Re the Estate of Barberis (i.e. Barberis v. Bank
of America), and Division One was also assigned to handle the
present appeals in Kruse/Jewell v. Bank of America. We
submit the average person on the street might therefore reason-
ably assume that Justice Racanelli, as the administrative pre-
siding Justice for this Court, may have had something to do
with the assignment of those three appeals to Division One.
The Bank of course prevailed om all three of those appeals in
this Court, based upon an opinion by this Division in Sanchez-
Corea that was identical, and a carbon copy, of the decision of
this Division, on the present appeals, in that both Sanchez-
Corea and the present appeals, this Division totally ignored the
rules of appellate review, and did not view the evidence in the
light most favorable to the prevailing party plaintiff that had
recovered judgment against the Bank, and instead viewed the
evidence in the light most favorable to the respondent Bank,
and concluded that the evidence was insufficient to support the
judgments against the Bank, and therefore reversed the judg-
ments. In Sanchez-Corea, where the plaintiff was fortunate
enough to obtain hearing in the Supreme Court, the Supreme
Court applied the usual and proper standard and rules of
appellate review, and in an opinion that presented a day and
night difference and contrast to the opinion of this Division,
held that there was abundant substantial evidence to support
the judgment for fraud perpetrated upon the borrower-
customer plaintiffs, by precisely the same Bank Regional Credit
Office head (Timmerman) using precisely the same modus
operandi as was used against Mrs. Kruse and the Jewells in the
present case.
We submit that the average person on the street, aware of
the foregoing facts, might reasonably assume that in participa-
ting in the decision on the present appeals, Justice Racanelli
may have had difficulty putting completely out of his mind, the
fact that his past very frequent assignments to sit pro tem on the
Supreme Court, which apparently arose from his reputed close
friendship with former Chief Justice Rose Bird, may well have
ended, and that therefore, if Governor Dukakis is elected
president, Mr. Christopher might be influential in obtaining for
Justice Racanelli either appointment to the federal bench, or
appointment to governmental position and post in a Dukakis
administration.
6
We respectfully emphasize again, that the test to be
applied by this Court is not whether in fact there is any such
possibility of such events taking place; rather, the much more
stringent test to be applied is whether the average person on the
street might reasonably think that Justice Racanelli could
consciously or subconsciously be influenced to favor the Bank in
his decision on the present appeals, and public confidence in the
integrity and absolute impartiality of the judiciary demands
disqualification, where the average person on the street might
entertain a reasonable doubt as to impartiality.
In summary, the three Justices comprising the panel that
decided the present appeals, and reversed judgments totalling
approximately $22 million against the Bank of America, were
Justices Racanelli, Elkington and Newsom. Justices Racanelli
and Newsom have in the past announced that they were
disqualified to sit on a Bank of America appeal, because of
stock ownership and loans. Despite this, it appears reasonable
to assume that Justice Racanelli had some hand in the assign-
ment to Division One, of three appeals involving the Bank of
America, in all of which the Bank prevailed. Justices Racanelli
and Elkington received appointments to the Superior Court and
Court of Appeal, respectively, during the time that Mr. Wins-
low Christian was executive secretary to Governor Brown, Sr. .
Mr. Christian was formerly a Justice of this Court, and thus a
fellow Justice of Justice Elkington for 12 years, and Justice
Racanelli for 7 years, and former Justice Christian has been the
Director of Litigation for the Bank of America, handling these
cases and appeals and Mr. Christian presumably selected Mr.
Christopher and the O’Melveny firm, to act as appellate counsel
for the briefing and argument, and Mr. Christopher has such
political influence as to possibly be able to obtain appointments
to the federal bench or positions in the federal government, for
Justices Racanelli and Newsom, and possibly Justice Elkington,
if Governor Dukakis is elected President. Lastly, Justices
Racanelli and Newsom have failed to disqualify themselves or
even to disclose their disqualification, to counsel on these
appeals, and Justice Elkington though aware of the said
disqualification of his fellow Justices, has failed to cause his
colleagues to disclose their disqualification, or to act on his own
initiative, to disclose their disqualification.
7
We submit that the average person on the street, knowing
all of the foregoing facts, would entertain a reasonable doubt of
the ability of Justices Racanelli, Elkington, and Newsom, to be
completely impartial in the decision of these appeals, and that
therefore, to avoid even the appearance of impropriety, as well
as to comply with the Canons of Judicial Ethics governing
disqualification, and to maintain the confidence of the public in
the integrity and impartiality of the judiciary, all three Justices
are disqualified, and must be considered disqualified.
APPENDIX B
First District State of California John T. Racanelii
Division One Court of Appeal Presiding Justice
State Building-Civic Center
San Francisco
June 29, 1988
Chief Justice Malcolm M. Lucas
Associate Justices
Supreme Court, State of California
State Building, Civic Center
San Francisco, Ca 94102
Re: Kruse v. Bank of America, S006208
A Motion to Take Evidence has been filed by Petitioner
Kruse in conjunction with her pending Petition for Review in
the above captioned matter. Said motion is based in part on the
declarations of petitioner’s counsel and two other declarants
relevant to a claim of disqualification based on my alleged
ownership of stock in the Bank of America.
I submit the enclosed declaration and attached exhibits
with reference to said motion for the court’s consideration.
Respectfully,
John T. Racanelli
9
DECLARATION OF JOHN T. RACANELLI
I, John T. Racanelli declare as follows:
1. I participated as a member of the panel of Division
One of the First Appellate District that heard and decided
the appeals in Kruse v. Bank of America.
(A033064/A039161.)
2. The Petition for Review filed by Irene O’Connell
Kruse on June 27, 1988 (S006208) contains allegations
essentially similar to those presented to the Court of
Appeal in her petition for rehearing that I was disqualified
because of an asserted ownership of stock in the Bank of
America.
3. In a companion Motion to Take Evidence, petition-
er Kruse has submitted declarations from William M.
Lukens, Calvin F. Gunn and Dolly Ares attesting that on
April 29, 1986, I stated in open court before an argument
that I owned stock in the Bank of America.
4. I do not now own, nor have I ever owned, any
stock in the Bank of America in any amount whatever. To
my knowledge, no other person or entity holds, or has ever
held, any stock in the Bank of America in my behalf, either
in my name or any other name or designation.
5. My annual Statements of Economic Interests, filed
under oath with the Clerk of the Court, First Appellate
District, accurately reflect that I do not own and have
never owned any Bank of America stock.
6. I have never publicly stated or claimed, either in
open court on April 29, 1986, or at any other time and
place, that I owned stock in the Bank of America.
7. I presently own, and for some time have owned, a
Visa credit card issued in the ordinary course of business
by the Bank of America. Prior to the 1984 repeal and
replacement of Code of Civil Procedure section 170, it was
my usual practice, in proceedings involving the Bank of
America as 4 party, to disclose the debtor-creditor
relationship resulting from my periodic use of the Visa
card. Though I have no independent recollection of
10
statements made in connection with oral argument on
April 29, 1986, it is likely that—consistent with my past
practice— I made a similar disclosure of ownership of a
Bank of America Visa card.
8. I have attached the following certified copies of
court records for the First Appellate District, Division One:
Certified copies of the minutes of April 29, 1986 and April
30, 1986 (Exhibits A and B, respectively) and certified copies
of the computerized docket entries for Johnson v. Daon Corpo-
ration (A0279361 and Alexander v. Alexander (A023629)
(Exhibits C and D, respectively). Those minutes and comput-
erized docket entries reflect the following:
a) There was no oral argument in Johnson v. Daon
Corporation (A027936), the matter for which Gunn attests
he appeared and made an oral argument (Exhs. A, C);
b) No action was taken on April 29, 1986, in
Alexander v. Alexander ( A023629), the matter for which
Ares attests she appeared. However, a written request for
continuance was filed by Ares on April 30, 1986, and
granted by the court that same day (Exhs. B, D).
I declare under penalty of perjury that the foregoing is true
and correct.
Executed this 29th day of June 1988 in San Francisco,
California.
John T. Racanelli
EXHIBIT A
San Francisco, April 29, 1986
Division One
COURTROOM PROCEEDINGS
The court met in its courtroom at the State Building, 350
McAllister Street, San Francisco, CA at 9:00 a.m. Present:
Racanelli, P.J., Elkington, J.. Newsom, J., P. Keeley, Deputy
Clerk.
A029660 — People v. Deigade. Cause called and argued
by James Kyle Gee for appellant and Gene Kaster for Re-
spondent. Cause ordered submitted.
A027188 — People v. Watkins. Cause called and argued
by Deborah Tuttleman for appellant and Ann K. Jensen for
respondent. Cause ordered submitted.
A026704 — Wright v. Toomajian. Cause called and ar-
gued by Orville L. Wright for appellant and Geoffrey A. Mires
for respondent. Cause ordered submitted.
A025332 — Margaret Inda Smyklo v. Alexander Smykio.
Cause called and argued by Alexander Smyklo, appellant in
pro per and S. Simone Campbell for respondent. Cause
ordered submitted.
A026709 — Frank Barberis v. Bank of America. Cause
called and argued by William M. Lukens for appellant and
Kristan D. Whitten for respondent. Cause ordered submitted.
At this ime Holmdahl, J., joins the bench for the remain-
der of cases argued.
A026551 — People v. Smith. Cause called and argued by
Paul Wolf for appellant and Mark S. Howell for respondent.
Cause ordered submitted.
At this time Racanelli, PJ., leaves the bench for the
remainder of the cases argued.
A030691 — People v. Carpenter, Jr. Cause called and
argued by Catalina Lozano for appellant and Jeff Bryant for
respondent. Cause ordered submitted.
12
A026959 — Sierra Mortgage v. Bi’Anny Corp., Stephen
Lopes et al. Cause called and argued by Wade H. Hover for
appellant Stephen Lopes. Leo M. Cook, attorney for respond-
ent, did not appear. Cause ordered submitted.
Court adjourned in tribute to the late Justice Murray
Draper.
Oral argument having been waived, the following cases are
deemed submitted:
A023402 — Rodrigues et al. v. Lewis et al.
A028446 — People v. Slater.
A028289 — Bouzos et al. v. City of Berkeley et al.
A027936 — Johnson et al. v. Daon Corp. et al.
A030075 — Buckenmeyer v. Parmelee et al.
Court recessed until Wednesday, April 30, 1986 at 9:00
a.m.
Minutes of the First Appellate District, microfilm roll 59;
printed in Advance Sheet No. 15 (June 3, 1986), pp. 70-71.
13
EXHIBIT B
San Francisco, April 30, 1986
Division One
A023629 — Mabel G. Alexander v. Richard E. Alexander.
The request for continuance of oral argument is granted. The
cause heretofore scheduled for hearing on Tuesday, April 29,
1986 at 9:00 a.m. is taken off calendar and rescheduled for
hearing on Tuesday, May 27, 1986 at 9:00 a.m. Racanelli, P.J.
A027435/A033676 — George S. Krusi v. Bear, Stearns &
Co. The request that same panel hear related appeals is denied.
The request to augment the record is treated as a request to
take judicial notice and as such, is granted. Judicial notice will
be taken of the transcript of the hearing held March 7, 1984.
Elkington, Acting, P_J.
A032599 — Thomas E. Flowers etc. v. San Francisco
Residential Rent Stabilization & Arbitration Board; Golden
Gateway Center et al., Real Parties in Interest.
A032602 — John L. Farr, etc. v. San Francisco Residen-
tial Rent Stabilization and Arbitration Board; Stonestown
Properties, Inc. et al. The stipulated motion for consolidation
of the above-entitled appeals is granted for purposes of brief-
ing, oral argument and decision in Division One. Racanelli,
P.J.
A034789 — In re Helmut August Hanken. The petition
for writ of habeas corpus and continuance of bail pending
determination of the proceeding is denied. Racanelli, P.J.
A034794 — Joseph Wilfred Boulet v. Superior Court,
Alameda County; People, First Appellate District. The peti-
tion for writ of prohibition is denied. Racanelli, P_J.
Minutes of the First Appellate District, microfilm roll 59;
printed in Advance Sheet No. 15 (June 3, 1986), pp. 74-75.
14
EXHIBIT C
COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOR THE FIRST APPELLATE DISTRICT
DIVISION: 1
Case No. A027936
TITLE
JOHNSEN, ALBERT C., Et Al.
vs.
Daon Corporation, Et Al.
SUPERIOR COURT INFORMATION
County: Santa Clara
Superior Court No.: 483580
Superior Court Judge: H. B. Thompson
Notice of Appeal Date: July 5, 1984
ATTORNEYS—LITIGANTS
Gunn, CaLvIn F.
2345 Yale St.
P.o. Box 60369
Palo Alto, CA 94306
JOHNSEN, ALBERT C., Et Al. Plaintiff- Appellant
Devuimy, GUITY
Mills Bidg., Suite 924
220 Montgomery St.
San Francisco, CA 94104
JOHNSEN, ALBERT C. Plaintiff-Appellant
Carrot, Davip
PO Box 5080
Costa Mesa, CA 92626
Daon Corporation, Etc. Defendant-Respondent
15
DOCKET ENTRIES
July 11, 1984
Supreme Court Order Filed Transferring Case.
July 11, 1984
Notice of Appeal Lodged/ Received.
Fee Paid Attys Gunn and Deyhimy
December 18, 1984
Record On Appeal Filed.
R3
Under 5.1 Ruling
January 2, 1985
Note:
Kelly of Atty Ruben’S Office Called Re: Not Receiving the
Record Due To Incorrect Address of
January 2, 1985
Note:
P.o. Box 5030 When the Correct Address is P.o. Box 5080
January 18, 1985
Filed Letter From:
Richard Ruben Dated 1-2-85 Re His Correct Address.
Atty Screen Has Been Corrected.
January 24, 1985
Apellant’S Appendix and Opening Brief Filed.
2 Volumes of Appendix
March I, 1985
Respondents Brief Filed.
March 15, 1985
Motion Filed.
To Augment Record From Atty David Carroll of Drummy,
Garrett King & Harrison For Resp. daon Corp.
16
March 15, 1985
Previous Entry Continued.
Tet 4-1-85
April 1, 1985
To Court.
Motion To Augment Record. To Martha (From Resp.
Daon Corp. )
April 15, 1985
Case Fully Briefed.
No Arb Received.
May 14, 1985
Order Filed.
Mot. to Augment Record Granted. Record Deemed Aug.
To Include A Tx of Proceed. held 8-9-82 and Exh. n
May 14, 1985
Previous Entry Continued.
To Plifs. and Appell. firs: Amended Complaint Attachd
To Motion To Aug. (Jt)
March 28, 1986
Calendar Notice Sent. Calendar Date:
Tuesday, April 29, 1986 At 9:00 a.m. (N,E,H) Pak
April 9, 1986
Request for Oral Argument Filed By:
Atty Carroll For Rspdt Daon Corp. only If Appits Req.
oral Argument. ( Pak)
April 29, 1986
Argument Waived, Cause Submitted.
Pak
June 26, 1986
Opinion Filed.
judgment of Trial Ct Dismissing the Ist, 2nd, 3rd
And 7th Causes of Appit’s Second Amended Complaint
17
June 26, 1986
Previous Entry Continued.
Is Reversed. The Case Is Remanded To the Trial Ct For
Proceedings Consistent With the Views
June 26, 1986
Previous Entry Continued.
Expressed Herein. (See Dissenting Opinion )
Np (Pak)
August 26, 1986
Remittitur Issued.
Jt
CASE DISPOSITION INFORMATION
Disposition Date: June 26, 1986
Disposition: Reversed & Remanded To Trial Cour
W/ Directions.
Opinion Type: Sign Npub
Disposition Final: (Y = Yes — Blank = No) Y
Notation: Newsom J (A) Elkington Apj (C) Holmdahi (D)
JUDGES PANEL INFORMATION
Judge Name: Newsom, William A. (J)
Role: Authoring
Judge Name: Elkington, Norman (J)
Role: Participa
Voted: Concur
Judge Name: Holmdahl, John (J)
Role: Participa
END OF DOCKET CARD INFORMATION
18
EXHIBIT D
COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOR THE FIRST APPELLATE DISTRICT
DIVISION: 1
Case No. A02369
TITLE
ALEXANDER, MABEL G.
vs.
ALEXANDER, RICHARD E.
SUPERIOR COURT INFORMATION
County: San Francisco
Superior Court No.: 723984
Superior Court Judge: L H. Grant
Notice of Appeal Date: July 28, 1983
ATTORNEYS—LITIGANTS
Ares, DOLLY
110 N. Third St.
San Jose, CA 95112
ALEXANDER, RICHARD E. Defendant- Appellant
De Hart, Goria, Deputy
6000 State Building
San Francisco, CA 94102
ALEXANDER, MABEL G. Plaintiff- Respondent
19
DOCKET ENTRIES
August 2, 1983
Notice of Appeal Lodged/ Received.
Fee Paid Atty Ares
August 31, 1984
Record On Appeal Filed.
CIRI ‘
September 28, 1984
Stipulation of Extension of Time Filed To: tt?
Aob To November |, 1984 Granted.
November |, 1984
Stipulation of Extension of Time Filed To: tt+
Aob To December |, 1984 Granted.
November 30, 1984
Appellant’S Opening Brief Filed.
January 2, 1985
Stipulation of Extension of Time Filed To: ++
Rb To March I, 1985 Granted.
March 7, 1985
Respondent Notified Pursuant To Rule 17(B).
April 2, 1985
Respondents Brief Filed.
April 25, 1985
Appellant’S Reply Brief Filed.
April 25, 1985
Case Fully Briefed.
March 28, 1986
Calendar Notice Sent. Calendar Date:
Tuesday, April 29, 1986 At 9:00 a.m. (N, R, E)
Pak
20
Apni 3, 1986
Request For Oral Argument Filed By:
Atty Ares For Appit Richard Alexander. (Pak)
April 30, 1986
Filed Letter From:
Req. continuance of Oral Argument From Dolly Ares
Office, Atty For Appit. ( Pak)
April 30, 1986
Order Filed.
Cont. of Oral Argument Granted. Cont. To Tuesday,
May 27, 1986 At 9:00 a.m. ( Pak)
May 27, 1986
Cause Argued and Submitted.
Jt
August 20, 1986
Opinion Filed. |
The Judgment Is Reversed. Costs Are Awarded To
Appellant. Np ( Pak)
September 30, 1986
Petition For Review In Supreme Court Received.
A.g. Gloria De Hart.
Jt
September 30, 1986
Petition For Review Filed In Supreme Court.
Pak
November 42, 1986 —
Petition For Review Denied In Supreme Court.
Respondent. (N, R, E) (Pak)
November 12, 1986
Remittitur Issued.
Pak
21
CASE DISPOSITION INFORMATION
Disposition Date: August 20, 1986
Disposition: Reversed In Full.
Opinion Type: Sign Npub
Disposition Final: (Y = Yes — Blank = No) Y
Notation: Newsom J (A) Racanelli Pj (C) Elkington J (C)
JUDGES FANEL INFORMATION
Judge Name: Newsom, William A. (J)
Role: Authoring
Judge Name: Racanelli, John T. ( Pj)
Role: Participa
Voted: Concur
Judge Name: Elkington, Norman (J)
Role: Participa
Voted: Concur
22
APPENDIX C
AFFIDAVIT OF DAVID B. FLINN
I, Davip B. FLINN, under penalty of perjury, declare as
follows:
Petitioner IRENE O’CONNELL KRUSE commences her “State-
ment of the Case” of the Petition for Writ of Certiorari with the
statement that the undersigned and his law firm “have long
acted as the attorneys on behalf of the family corporation of
Justice William A. Newsom, who participated on the pane! of
three Justices who reversed Petitioner’s judgment.” That state-
ment is completely untrue. Neither I, nor the law firm of
Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, has
ever represented Justice Newsom.
In May of 1982 Justice Newsom, in an arm’s length
negotiated transfer, sold all of his shares of Squaw Valley
Improvement Corporation to two sisters and a brother. Prior to
the sale, the corporation was represented by Lawrence Silver of
the law firm of Feldman, Waldman & Kline of San Francisco.
Throughout the entire sale transaction Justice Newsom was
represented by Edwin Shiver of San Francisco.
In June of 1982, after the sale, the corporation, then
controlled by Justice Newsom’s sisters and brother, employed
the undersigned and his law firm, Leland, Parachini, Steinberg,
Flinn, Matzger & Melnick, to dissolve the corporation and
distribute the assets amongst the three shareholders, and only
then (after Justice Newsom’s withdrawal), did the undersigned
and his law firm commence representation of the corporation.
( The corporation was liquidated and dissolved. )
The form entitled “Statement by Domestic Stock Corpo-
ration” attached as Exhibit G to the Petition is a standard
California form which is mailed annually by the California
Secretary of State to each corporation. The portion at the top
which reads “Squaw Valley Improvement Corporation, Wil-
liam A. Newsom, Jr., 350 McAllister Street, San Francisco, CA
94102” is a prestamped address placed upon the form by the
Secretary of State from the prior year’s filing. Thus, the
inclusion of Justice Newsom upon the form is solely as ad-
23
dressee of the form, since the Secretary of State records from
1981 showed his office as the “corporate office.” The new
shareholders changed the place of business of the corporation
to the office of my law firm, and only the new shareholders
acted as officers and directors. Justice Newsom had no further
involvement with the corporation and thus neither I, nor my
firm, represented the corporation at a time that Justice Newsom
was a shareholder.
Dated: December 19, 1988.
DAVID B. FLINN
David B. Flinn
Sworn to and subscribed before
me this 19th day of December,
1988.
HELEN D. CARLSON
Notary Public
24
APPENDIX D
Ist Civil Nos.
AO 33064, AO 39161
IN THE
Supreme Court of the State of California
(Sonoma County
IRENE O’CONNELL KRUSE,
Court No. 112439)
Plaintiff and Respondent,
GeorGE R. JEWELL
and CHARLES DUCK,
Trustee of the Bankruptcy Estate
of GEORGE M. JEWELL
and Laura E. JEWELL,
Cross-Complainants and
Respondents,
Vv.
BANK OF AMERICA, N.T. & S.A.
Defendant, Cross-Defendant
and Appellant.
PETITION FOR REVIEW
OF DECISION OF THE COURT OF APPEAL,
FIRST APPELLATE DISTRICT, DIVISION ONE
A. Barry CAPPELLO
THomas G. FOLey, Jr.
FRANCES E. KOMOROSKE
LeILta J. NOEL
CAPPELLO & FOLEY
831 State Street,
Santa Barbara, CA 93101
Telephone (805) 564-2444
Attorneys for Cross-Complainants
and Respondents GeorGce R.
JEWELL and CHARLES Duck,
Trustee of the Bankruptcy
Estate of GeorGE M. JEWELL
and Laura E. JEWELL
25
TOPICAL INDEX
TABLE OF AUTHORITIES
Be REET atnrentiennsceusunencncncccccsecnccccssoacese
Il. ISSUE PRESENTED FOR REVIEW...............
Ill. STATEMENT OF THE CASE
Be I TTT dncincnccsencnncncsescssscsscsseesees
B. Statement of Facts
OPINION WAS WRONGLY DE-
IV. THE
CIDED BY TWO JUSTICES WHOSE DI-
RECT FINANCIAL TIES TO THE APPEL-
LANT BANK OF AMERICA MANDATED
~~
-
>
The Opinion Refused to Consider
the Existence of the Fiduciary
Relationship Between the Jewells
and the Bank
The Opinion Ignored the Substantial
Evidence of the Long-Term Loan
Commitment and the Bank's
ES SE
The Opinion Ignored Substantial
Evidence and Legal Authority
Which Demonstrated the Jewells’
Reliance Was Justifiable ....................
The Opinion Refused to Consider
the Law or the Facts Which Demon-
strated the Bank’s Acts Were the
Proximate Cause of the Jewells’ In-
The Allegedly Internally Inconsistent
Verdicts Can Be, And Should Have
Been, Reconciled by the Court of
Iai licaiasitechbitheresniatcipsatiteniinensenpenentons
39
39
45
49
50
' Page references have been revised to conform to the pagination of this
Appendix.
26
TABLE OF AUTHORITIES
CASES PAGE
Adams v. Minor (1898)
Se ie ati aiiiicicnicipmminininensindinninnians 40
Adoption of Alexander S. ( 1988)
44 Cal.3d 857 [245 Cal. Rptr.1] 47
Aetna Life Insurance Co. v. Lavoie ( 1986)
475 U.S. 813 [106 S.Ct. 1580; 89 L.Ed.2d 823] ...... 8,9, 10,42
Allen v. Sundean ( 1982)
137 Cal.App.3d 216 [186 Cal.Rptr. 863] ................ 50
Barbara A. v. John G. (1983)
145 Cal. App.3d 369 [ 193 Cal.Rpir. 422] ................ 46
Barrett v. Bank of America ( 1986)
183 Cal. App.3d 1362 [229 Cal. Rptr. 16] ................ 45,50
Bixler v. First National Bank of
(Ore.App. 1980) 619 P.2d 895 20... cece ceeeeceseeees 47
Brewer v. Simpson (1960)
$3 Cal.2d 567 [2 Cal. Rptr. 609 J oo... eeeeeeceeeeeee 50
Coastland Corp. v. Third National Mortgage Co.
CS Be De iethetnteecccccncccccsesccccese 47
Crystal Springs Trout Co. v.
First State Bank of Froid ( Mont. 1987)
ppg, EEE OR EL Se 47,50
Estate of Sanders ( 1985)
40 Cal.3d 607 [221 Cal. Rptr. 432 J... 45,48
First National Bank in Lenox v. Brown
fo Bi ES & | 5 ee 45
Hobart v. Hobart Estate Co. (1945) ~
| | eee 48
Isthmian Lines, Inc. v. Schirmer
Stevedoring, Co. (1967)
255 Cal.App.2d 607 [63 Cal.Rptr. 458] .................. 46
Kaufman v. Court of Appeal (1982)
31 Cal.3d 933 [184 Cal. Rptr. 302 J... 5,11,42
Khanna v. Microdata Corporation ( 1985 )
170 Cal.App.3d 250 [215 Cal. Rptr. 860] ................ 46
CASES PAGE
K-Line Builders, Inc. v. First Federal
Savings & Loan Ass’n ( Ariz.App. os
6TTP ania A oe 47
Landes Construction Co., Inc. v.
Royal Bank of Canada (9th Cir. 1987)
RE EEE SSL ENS VEE ev TOT OO 47
Liljeberg v. Health Services Acquisition Con
(June 17, 1988) ___ U.S. ____ [88 Daily
es HI actin tcnenccahteccectnncncescctexsseseseses 10,41
Lindsay-Strathmore Irrigation District v.
Superior Court (1920)
I rs ID Bs snccsncscscscsensenssccesecccnssanes 43
Moody v. Shuffleton (1928)
ee I Oe CPOE B ccccscccncccccccceccsceseccssnscceeceees 40
In Re Murchison (1955)
349 U.S. 133 [75 S.Ct. 623; 99 L.Ed. 942] .............. 41,42
National Farmers’ ization v.
i" Bank (10th Cir. 1984)
irate inne titeetentineiersnennnecnececeseansesaseones 47
Public Utilities Commission v. Pollak (1952)
343 US. 451 [72 S.Ct. 813; 96 L.Ed. 1068} ............ 42
Sanchez-Corea v. Bank of America (1985)
38 Cal.3d 892 (215 Cal.Rptr. 679] ...........ecceceseeeees 4,5,47
Seeger v. Odell (1941)
tie bE TL Gtl SS” | 7» | Beene ener 48
Skeels v. Universal C.I.T. Credit Corporation
(38 Cit. 1966) FSS P26 B66 .nccccccccsecrcescscccssesescccesse 48
v. Superior Court (1977)
19 al.3d 182 Rha EE ae 39
Tatum v. Southern Pacific Co. ( 1967)
250 Cal.App.2d 40 [58 Cal.Rptr. 238] .................... 43
Wait v. First Midwest Bank/ Danville (Ill.App. 1986)
FE acrtiiaeidiinastlanseniddddininisinttiannaninctencnses 47
Ward v. Village of Monroeville Ohio ( 1972)
409 U.S. 57 [93 S.Ct. 80; 34 L.Ed.2d 267] .............. 42
28
CASES PAGE
STATUTES
BE GEG. BOBS. BD? ccccecececcsnsnsenttinititbestetsanssnstnmnenssiatmsaneets 41,42
California Code of Judicial Conduct ee 40,41,42
California Code of Judicial Conduct Canon 6.............. 44
California Code of Judicial Conduct Preamble............ 43
California Rule of Court 29( a)(3) 39
California Rule of Court 976( b) .... 33
Government Code section 68081 .... dane 47
Government Code section 82034...... 40
MISCELLANEOUS
ABA Code of Judicial Conduct Canon 3....................... 41
Corbin om Comtracts (1963 ) .........ccccccceeeeeececeeneneeeeeenennne 46
Prosser & Keaton, The Law of Torts
Co 9S 9 eee 50
29
TO THE HONORABLE CHIEF JUSTICE OF CALIFOR-
NIA AND THE ASSOCIATE JUSTICES OF THE SU-
PREME COURT OF CALIFORNIA:
George R. Jewell and Charles Duck, trustee of the bank-
ruptcy estate of George M. Jewell and Laura E. Jewell, cross-
complainants and respondents (the “Jewells”), respectfully
petition for review following the decision of the Court of
Appeal, First District, Division One ( per Racanelli, PJ.), filed
on May 18, 1988 and modified June 17, 1988.
I
INTRODUCTION
The farm credit crisis of the 1980's, brought about in part
by questionable practices of agricultural lenders, resulted in the
foreclosure of thousands of acres of agricultural land through-
out the country. The reaction by Midwestern farmers included
murders of bankers and suicides, while California farmers
reacted in a more civilized way by resorting to the courts. This
case represents the first of those decisions favorable to farmers
which has worked its way through the California judicial
system.
That journey was abruptly blocked by an appellate court,
two of whose justices have direct, undisclosed financial ties to
the appellant Bank of America, California's largest agricultural
lender. Those ties include the ownership by one justice of Bank
of America stock during the pendency of this appeal, a fact
admitted by him in open court and corroborated by independ-
ent attorneys. It also includes a substantial loan from the Bank
of America to another justice which was obtained during the
pendency of this appeal, a fact substantiated by the justice's
Form 721 Statement of Economic Interests.
The two justices, in disregard of their duty to disqualify
themselves to avoid having their impartiality questioned, re-
fused respondents’ requests to recuse themselves. In the face of
these obvious conflicts, the court instead issued two published
opinions which reversed a multi-million dollar jury verdict
against the Bank of America in a decision being described by
30
the commentators as “extraordinary”, “highly unusual”, and
“very surprising”. The appearance, if not the fact, is unmistak-
able: These justices were not impartial. That appearance was
later confirmed by the comments of the justices and their staff
to the press.
The court’s total disregard of traditional standards of
appellate review was proof in and of itself of its lack of
impartiality. By selectively disregarding evidence, judging
witnesses’ credibility, crediting the Bank’s version of the facts
over those supporting the judgments, and otherwise performing
the functions of the jury, the appellate court stepped far beyond
the bounds of propriety in stretching to reach a decision
extremely favorable to a party to whom it had financial ties.
~ This decision provided an immediate benefit to the Bank of
America in relieving it of a multi-million dollar judgment; more
importantly, it discourages future challenges to the Bank’s
improper practices.
Conduct such as the appellate court’s destroys the public’s
perception of the independence and integrity of the judiciary,
and raises serious questions over its ethics. This Court is
therefore respectfully petitioned to grant review to uphold the
traditionally high ethical standards of the California courts.
II
ISSUE PRESENTED FOR REVIEW
This case presents one issue for review: Should a decision
in a landmark lender liability case be allowed to stand when the
decision was wrongly decided by two justices who should have
disqualified themselves?
Ill
STATEMENT OF THE CASE
A. Procedural History.
The Jewells filed these actions against the Bank in 1981; a
three-month jury trial began on April 22, 1985. During trial it
was discovered the Bank had wilfully suppressed evidence
OO Eee
31
damaging to its case; that evidence was ordered disclosed.
( V.37:3476-87.') After eight days of deliberations, verdicts
were rendered on July 19, 1985. (R.A. 152-53.)
The jury awarded the bankruptcy estate of George and
Betty Jewell $12.75 million in compensatory damages and $19
million in punitive damages. (R.A. 154.) George R. was
awarded $4.5 million in compensatory damages and $1 million
in punitive damages. (R.A. 155.) Special interrogatories
indicated the jury found in favor of the Jewells for actual fraud,
constructive fraud, and bad faith breach based on the denial of
the existence of a contract.2 (R.A. 150-51.)
The Bank moved for judgment notwithstanding the verdict
and new trial; the trial court denied the former, but condi-
tionally granted the latter if the Jewells did not consent to a $15
million reduction in the punitive damage awards. (R.A. 343-
47.) The Jewells consented to the remittitur, the Bank ap-
pealed, and the Jewells cross-appealed. (R.A. 348-50, 351-59,
360-67.)
On May 18, 1988, the Court of Appeal filed its initial
opinion, certified for publication, which overturned the Jewells’
judgments. That opinion ignored virtually all rules of appeilate
review and was seemingly motivated by a desire to reach a
decision favorable to the Bank. The linchpin to the Jewells’
case, their fiduciary relationship with the Bank, was totally
disregarded, as was the substantial evidence supporting the
jury’s findings that the Bank had committed three separate torts
in ten distinct instances over a four-year period. In response to
these and many other factual and legal errors, the Jewells filed
a petition for rehearing on June 2, 1988.
On June 11, 1988, the Jewells for the first time learned
from counsel for respondent Mrs. Kruse that Presiding Justice
Racanelli had stated on April 29, 1986 at oral argument of an
' Excerpts from the reporter's transcript are cited by volume and page
number, “R.A.” is respondent’s appendix.
2 The basis for these findings was a series of acts by the Bank over a four--
year period which constituted actual and constructive fraud in 1976; actual
and constructive fraud in 1977; actual fraud, constructive fraud, and bad faith
breach of contract ia 1978-79; and actual fraud, constructive fraud, and bad
faith breach of contract in 1980.
32
unrelated Bank of America case that he owned stock in the
Bank of America. (Ex. A. at p.2.) It was also then learned that
Justice Newsom had paid off or otherwise discharged loans to
the Bank of America and then negotiated for and obtained a
new custom line of credit from the Bank in excess of $10,000 in
1987 while this appeal was pending. (Jd. at pp. 8, 11, 14, 17.)
An investigation was begun, and a request made that the two
justices disqualify themselves and grant rehearing if Mr. Lu-
kens’ allegations were true.
The response of the justices, their staff attorneys, and the
Bank to these serious charges of impropriety was highly
troubling. In the media, Justice Racanelli enigmatically stated
to The Recorder in an article published June 15, 1988 that he
had “no reportable stocks or bonds” in the Bank of America,
implying he owned some interest. (Ex. B.) Justice Newsom
declined all comment. ( Jbid.)
The court’s attorneys did comment; one stated that Justice
Racanelli “has never owned Bank of America stock,” and
claimed that “Mr. Lukens misunderstood what was said or
misrecollected” the events of April, 1986. (Jbid.) However,
two independent attorneys present at the April, 1986 oral
argument have corroborated Mr. Lukens’ statement that the
two justices did in fact admit to their financial ties to the Bank
of America. (Exs. C and D.)
The principal court attorney for the First District was
quoted in The Recorder article as stating that Justice Racanelli
did not learn that this appeal was assigned to his panei until
February, 1987, and that:
“If he owned stock, he obviously would have dis-
qualified himself. Judges recuse themselves for the
slightest of reasons. Even the appearance of impro-
priety. I am sure there was none of that here.” ( Ex.
B.)
That is not true; as the docket sheet from Division One,
District One indicates, this case was before this panel on
October 24, 1985. (Ex. E.) One December 4, 1985, this panel
sent Mr. Lukens a notice regarding his filing fee (Ex. F), and
on July 22, 1986, Justice Racanelli himself granted the Bank of
America an extension to file its opening brief. (Ex. G.)
33
The day after The Recorder article, the requests for
disqualification were denied along with the petitions for rehear-
ing. A new, modified opinion with over 100 changes was
issued; it was also certified for publication despite the fact that
it, like the prior opinion, failed to meet the requirements of
California Rule of Court 976(b). (App. A.)
B. Statement of Facts
The Jewells jointly owned and operated a highly successful
business in Sebastopol which grew, brokered, transported, and
packed apples. (R.A. 419, 891; V.25:4202.) The Jewells had -
been customers of the Bank of America since the late 1930s,
and they developed a close friendship with Bill Sullivan, the
local branch manager. (V.9:1911, V.10:2250-34, V.24:4166,
4200-lb. )
The Jewells were unsophisticated in financial matters and
relied extensively on Sullivan for advice and guidance in that
area. (V.10:2250-88, V.24:4200-lb, 4200-2, 4200-5.) The
Jewells believed Sullivan to be the Bank of America, and
whatever he told them, they “banked on.” (V.11:2335,
V.24:4200-4, 4200-5, V.25:4211, 4216.)
The Bank first exploited this fiduciary relationship in 1976
when it induced the Jewells to borrow $150,000 from the Bank
to save the James E. O’Connell Company (“O’Connell”) from
an impending foreclosure sale which would have exhausted the
Bank’s security for its loans to O’Connell. (R.A. 556, 565;
V.16:3154-56, V.25:4217-18, 4225.) Sullivan failed to disclose
to the Jewells the severe financial problems O’Connell was
facing and the fact the Bank would not loan any more money to
it. (R.A. 542; V.11:2283, 2290-92, V.15:2987-88, V.25:4218.)
This intentional concealment was documented by an internal
memo by Sullivan. (R.A. 824.)
3 These facts are necessarily severely abridged because of space limita-
tions; a more detailed rendition is located in the Jewells’ Respondents’ Brief
filed April 3, 1987.
Gd
Months later O’Connell faced another financial crisis and
the Jewells loaned it another $114,000 which they borrowed
from the Bank, still operating under the assumption that
Sullivan would advise them if they should not do so. (R.A.
504-13; V.25:4237-39, V.26:4440-41.) The two loans caused a
severe strain to the Jewells’ working capital, a fact reflected in
internal Bank documents which questioned the Jewells’ ability
to repay the Bank. (R.A. 548-55, 557, 565; V.11:2315-19,
2323, V.25:4232-34.)
Despite this knowledge, Sullivan’s superiors at the Bank
decided to induce the Jewells to borrow from the Bank to pay
off O’Connell’s delinquent loans to the Bank, a fact documented
in its internal memos. (R.A. 565, 573.) When George
questioned why the Bank wanted him to pay off O’Connell’s
delinquent loans, Sullivan said his superiors at Regional Credit
Administration (“Regional”) had asked that George do this,
but that if any problems arose because of it, the Bank would
work with the Jewells to solve them. (V.12:2541; V.25:4235-
37.)
The promised assistance included a long-term loan to
consolidate the Jewells’ short-term debt; the Jewells promised
not to encumber their ranch so it would be available as security
for that loan. ( V.10:2069-70, V.11:2376, V.12:2426, V.13:2641-
44, V.25:4236-37, 4277-79, V.26:4346.) The Jewells believed
that by doing as their friend Sullivan asked, Sullivan was
committing to help them; based on this belief, the Jewells
borrowed $150,000 from the Bank and gave it to the Bank to
pay off O’Connell’s delinquent loans. (R.A. 577, 578;
V.11:2372-76; V.25:4236-37. )
The Jewells’ financial condition quickly degenerated as a
result of their “favor” to Sullivan, a fact reflected in the Bank’s
documents. (R.A. 573, 658, 891.) The burden imposed by
their large loans to O’Connell prevented them from paying
back from their own operations the funds they had borrowed
from the Bank for O’Connell. (V.11:2350-51; V.25:4235-37;
V.33:5805-07, 5812-13.) This set in motion a spiral of debt
which forced the Jewells to borrow more funds from the Bank
for O’Connell in the futile hope O’Connell could thereby
recover and repay the Jewells. (V.12:2446, V.25:4242-43,
4250, V.26:4454.)
LEE FN TTT ES LT
35
When it became necessary to construct a new dehydrator
for the O’Connell plant, Sullivan agreed to make a $1 million
long-term loan to be secured by the new plant. (R.A. 659;
V.25:4250-52, V.26:4346.) This agreement was evidenced by
Betty’s notes from a meeting with Sullivan, which were found in
his files. (R.A. 659; V.25:4250-52, V.37:6581-82.) As a result
of discussions with Sullivan at this meeting, the Jewells believed
the Bank would make a long-term loan on the O’Connell plant
or, if necessary, the Bank would make a long-term loan directly
to the Jewells secured by their ranch. (V.12:2508-10,
V:25:4250-52, 4277-79, V.26:4346. )
Sullivan later informed George that the Bank would not
fund the O’Connell project if Dan O’Connell managed it.
(V.25:4248-49, 4253-54; V.26:4370-71.) George refused to
remove Dan O’Connell from his own family’s business and
instead went to the Bank’s main competitor, the Production
Credit Association (“PCA”), for financing. (V.25:4254.)
Sullivan soon lured the Jewells back with statements that
Regional regretted its refusal to loan them the funds.
(V.25:4258, V.26:4391.)
Regional was actually motivated by its concern that the
PCA might get a security interest in the Jewell’s ranch, but to
the Jewells, Sullivan’s statements meant the Bank would fund
the O’Connell plant. (R.A. 599; V.10:2069-70, V.12:2474-75,
V.25:4259.) The Bank made a $209,000 equipment loan to the
Jewells for that plant; in exchange it asked the Jewells for deeds
of trust on their property. (R.A. 606-17; V.12:2480-81,
V.25:4259.) The Jewells resisted encumbering their own prop-
erty for O’Connell since they “did not owe the industry that
much.” ( V.25:4259-60. )
The fact that the Bank made an equipment loan on a
project indicated to the Bank’s assistant manager that the Bank
would make a long-term loan on that project. (R.A. 606-17;
V.20:3600-09, 3600-10.) A Bank vice-president also testified it
would be unusual for the Bank to make an equipment loan for
a project without providing a long-term loan. ( V.23:2977-78.)
In addition, it was standard Bank practice to loan funds for
major construction projects only after permanent financing had
been arranged. (V.21:3641, 3701, V.23:3959-60, 4047,
36
V.30:5141.) The Bank knew that the funds it was advancing the
Jewells were being used for O’Connell; this also implied the
long-term loan was forthcoming. (R.A. 644-46, 655-56, 712-
30, V.23:4049-50/lb, V.34:5864-66, 5878-79. )
Sullivan’s practice of advancing construction funds on the
basis of oral assurances that long-term loans would eventually
be approved was repeated by him on at least two other
projects: The $17.7 million Sebastopol Cooperative Cannery
(“Co-op”) and the $900,000 “Fresh Pack” plant which George
R. built for packing and storing high quality apples. (R.A. 461,
862-71; V.7:1423, V.9:1990, V.13:2741, V.19:3303-07,
V.32:5553, V.25:4265.) This was an unorthodox way of financ-
ing major construction projects, yet Sullivan routinely followed
it and even advanced sums which exceeded his lending limit.
(R.A. 634-43, 647, 862-71; V.13:2754-56, V.14:2777, 2782-86,
V.20:3600/9-10, V.22:3858.) The Co-op and Fresh Pack plants
eventually got the long-term loans promised by Sullivan.
( V.9:1964-65, V.32:5553.)
As the O’Connell project advanced, various representatives
of the Bank repeatedly visited the site and offered nothing but
encouragement to the Jewells. (R.A. 454; V.32:5526-27.)
Sullivan’s support was unflagging, and his superior Norm
Jensen also expressed his enthusiasm to the Jewells. ( V.9:1985-
88, V.12:2526-28, V.23:4051/14, V.25:4248, 4263, .4265, 4281-
83, V.26:4455-56, 4500/7, V.32:5519, 5525-27, V.36:6418-19. )
No one from the Bank ever said or did anything which
discouraged the Jewells from going forward with the project or
which indicated that the long-term loan might not be approved.
(V.4263, 4265-66). As a result, the Jewells believed that
“further up in the Bank everything was in accord.” ( V.25:4282-
83, V.26:4500/7.)
This belief was not unreasonable; the Bank’s own policy
manual prohibited “entering into detailed discussions or nego-
tiations with customers regarding complex, controversial, or
unusual transactions” without prior approval by Regional.
(R.A. 887.) The manual also directed the Bank’s employees to
“[e]xercise care in such discussions to ensure that the customer
does not interpret the discussions as a commitment.” ( [bid. )
ore "
37
Internal Bank documents evidenced the Bank’s intent to
make the loan, as well as the fact the Jewells were relying on
the loan to help them repay the debt they were incurring on the
O’Connell project. (R.A. 437, 454, 631, 644, 645, 648-49, 813;
V.9:1987-88, V.10:2250/27, V.12:2511-12, 2527). Other docu-
ments indicate Regional knew Sullivan was advancing large
sums to the Jewells for the O’Connell project and that these
could only have been repaid with a long-term loan. (R.A. 404-
05, 589-91, 606-17, 631, 632-33, V.9:1797, V.23:3989. )
Despite this knowledge, the long-term loan was denied on
the pretense the O’Connell plant was “special purpose” and the
Bank loaned funds only for multi-purpose buildings. (R.A.
424; V.22:3773, 13878-79.) The plant was in fact multi-
purpose; in addition, the Jewells’ Fresh Pack plant, which did
obtain a long-term loan, was a special-purpose building. (R.A.
424, 663; V.9:1791, V.22:3878-79. )
Sullivan argued these points to Regional in an impassioned
memo, criticizing the Bank for disregarding its own policies and
for failing to tell him it would not approve the O’Connell loan.
(R.A. 438-40, 652-54; V.13:2656-57.) Unable to change Regio-
nal’s mind, Sullivan abruptly and permanently left the Bank.
(R.A. 677-78; V.13:2615-16, 2656-57, 2660. )
Sullivan was replaced as branch manager by Roger
“Rocky” Bunch, whose self-proclaimed mission from his first
day in Sebastopol was to get deeds of trust on the Jewells’
ranch. (V.17:3171/90-92, 3171/95-96, 3171/99, V.30:5255,
V.45:8056-57.) From that day on, Bunch resorted to every
conceivable means to entice, persuade, humiliate, or frighten
the Jewells into turning the deeds over to him. (V.26:4330,
V.30:5 193-94, V.30:5248-50, V.37:6589-90.) Bunch’s “job and
duty to the Bank [was] to try to get deeds of trust from any
source I can if I possibly can” since “anything that George
controlled, it would be [my] job to try to get that for the bank.”
( V.18:3300/ 10. )
On October 30, 1979, an application for a $1.9 million
long-term loan for the O’Connell plant was submitted which
specified all the terms and conditions of the long-term loan
Sullivan had been promising the Jewells; these included a 20-
year term, 12 percent interest, and the O’Connell plant as
38
security. (R.A. 669-75.) The application also noted that the
Jewells had borrowed $1.3 million from the Bank to construct
the plant in reliance on the fact the Bank would finance it.
(R.A. 673.) No one from the Bank would take responsibility
for the application. (V.17:3171/55-56, V.20:3600/19,
V.31:5395-98. )
Bunch’s mission to get the Jewells’ deeds of trust became
an obsession; virtually every time the Jewells met with Bunch,
he asked for them. (R.A. 695; V.17:3171/101, 3171/95-96,
3171/106-107.) The Jewells refused, since Bunch never agreed
to the long-term loan which Sullivan had promised and on
which the Jewells had substantially relied. (V.17:3171/97,
V.25:4294, V.26:4336.) The Jewells were, however, fully pre-
pared to give the Bank the deeds of trust if it honored its
promise to give them the long-term loan on their own ranch
which they desperately needed, but the Bank did not.
(V.17:3171/136, V.25:4294-95, V.26:4470. )
Bunch’s determination paid off; in the summer of 1980, he
announced to the Jewells the Bank would loan them no more
money, but offered to assist them with a plan to liquidate their
assets under the Bank’s supervision. (V.25:4299, V.30:5248-
50.) The proceeds were to go to the Bank, which would first
pay the 100 apple growers who had sold apples to the Jewells
and who were at that point the Jewells’ greatest concern, then
the PCA, and, lastly, itself. (V.30:5191, 5198-99, 5248.) The
Jewells reluctantly agreed to the plan, after months of threats,
humiliation, and intimidation, which culminated in George's
emotional collapse at a joint Bank-PCA meeting. ( V.26:4326-
27, V.29:4970, V.30:5193-94, V.32:5561, V.37:6589-:90. )
In reliance on Bunch’s assurances of assistance, the Jewells
turned over everything they owned to the Bank. V.26:4328,
4336, V.30:5242, 5250-51, 5264-66, V.32:5562, V.37:6591.)
The Bank kept virtually all the proceeds of the sales of the
Jewells’ properties, as well as their deeds of trust. ( V.26:4332,
V.29:5016, V.30:5262-63, V.31:5339. )
After three years of litigation, thousands of dollars of
attorneys’ fees, and an order from the Bankruptcy Court, the
Bank was forced to return the proceeds and deeds of trust to the
Jewells. (V.29:5014, V.31:5370, V.37:6524-25.) It was undis-
39
puted the Jewells would never have given their deeds of trust if
they had known the Bank would not honor its commitment to
pay their growers and the PCA, a fact the Bank conceded.
( V.26:4334, 4338; V.30:5264-65, V.37:6591-92.)
As soon as the PCA learned the Bank had “double-
crossed” it by taking the Jewells’ deeds of trust, the PCA moved
against the Jewells. (R.A. 457, 803, 805; V.29:5001-5005,
5019-5020, V.34:5997-98.) George told Dan O’Connell, and
the O’Connells filed a lawsuit to prevent the Bank from forcing
the Jewells to foreclose on the O’Connell property. ( V.24:4099;
V.26:4338; V.29:5050-52.) George and Betty then filed a
voluntary bankruptcy petition, their son followed them several
months later and the 100 apple growers are still waiting, eight
years later, to be paid. (R.A. 805; V.30:5123, V.31:5475/19,
V.32:5573.)
IV
THE OPINION WAS WRONGLY DECIDED BY
TWO JUSTICES WHOSE DIRECT FINANCIAL TIES TO
THE APPELLANT BANK OF AMERICA MANDATED
THEY BE DISQUALIFIED
A. Presiding Justice Racanelli Owned Stock in the Bank of
America During the Pendency of this Appeal and Failed to
Disclose It.
California Rule of Court 29(a)(3) mandates review of a
decision of an appellate court “where, because of dis-
qualification or other reason, the decision of the court of appeal
lacks the concurrence of the required majority of qualified
justices.” At least one and perhaps two of the three justices
who issued the opinion should have disqualified themselves
from hearing this appeal. As a result, their decision is
necessarily void, and review should be ordered. (Solberg v.
Superior Court (1977) 19 Cal.3d 182, 190.)
What evidence there is on Justice Racanelli’s stock own-
ership in the Bank of America would lead a reasonable person
to conclude he should have disqualified himself from hearing
Bal
this case. At the same time this appeal was pending before
District One, Division One, Justice Racanelli owned, by his
admission in 1986, some stock in the Bank of America.
Whether Justice Racanelli still owns stock in the Bank has
not been answered satisfactorily; he merely stated on June 15,
1988 he had no reportable interest. (Ex. B.) According to
Government Code section 82034, an interest which is less than
$1,000 need not be reported. Despite this, California Code of
Judicial Conduct Canon 3 requires disqualification if a judge
has amy financial interest in a party. As a result, Justice
Racanelli should have disqualified himself, even if his interest
did not have to be reported on his Form 721.
It is no defense that Justice Racanelli has since disposed of
his Bank of America stock, if that is in fact what occurred.
Almost 100 years ago, this Court decided another case in which
a judge owned stock in a bank which was a party to a lawsuit,
yet believed he was not disqualified because he had disposed of
the stock. (Adams v. Minor (1898) 121 Cal. 372.) This Court
responded:
We do not think that the belief of the judge one way
or the other would change the fact of his dis-
qualification. He might honestly believe and hold that
he was qualified, but that would not qualify him any
more than he could acquire jurisdiction by deciding
that he had it. Nor do we think that removing the
cause of disqualification after the case was submitted
to him for decision would operate to remove the
qualification. The code says if he is interested no
“justice, judge, etc. . . . shall sit or act as such.” This
does not mean that he may hear the evidence in a-case
in which he is interested and may decide it, after
sitting and acting in it, provided he remove the cause
of disqualification before he enters judgment. As we
all know, the decision of questions arising during the
course of the trial often determines the final judgment
itself. The statute must be held to mean what it says,
and it is that he shall not sit or act as judge in an
action in which he is interested. (Jd. at 375; accord.
Moody v. Shuffieton (1928) 203 Cal. 100, 103-05.)
41
Disqualification rules are strictly interpreted; they mandate
disqualification of judges who do not even know of the facts
which create the appearance of impropriety. Less than two
weeks ago, the U.S. Supreme Court decided the landmark
decision of Liljeberg v. Health Services Acquisition Corp. (June
17, 1988) _. U.S. —_. 88 Daily Journal D.A.R. 7756, in
which it vacated a final order by a District Court judge because
of the judge’s possible conflict of interest, even though the judge
was unaware of the conflict.
The Supreme Court based its decision on 28 U‘S.C.
§ 455(a)4; it, like California Code of Judicial Conduct Canon 3,
is based on ABA Code of Judicial Conduct Canon 3. The
statute’s violation is established when “a reasonable person,
knowing all the circumstances, would expect that the judge
would have actual knowledge” of the facts which create the
appearance of partiality; in that situation the judge’s “impar-
tiality might reasonably be questioned.” (Liljeberg, supra at
7759.)
The Supreme Court noted that the purpose of section
455(a) is to “promote public confidence in the integrity of the
judicial process”; it is therefore irrelevant “whether or not the
judge actually knew of facts creating an appearance of impro-
priety, so long as the public might reasonably believe that he or
she knew.” While the risk of injustice to the parties should be
considered, much more significant is “the risk of undermining
the public confidence in the judicial process.” (Jd. at 7760.)
The Court cautioned that it “must continuously [be borne] in
mind that to perform its highest function in the best way ‘justice
must satisfy the appearance of justice.’” (bid., quoting In Re
Murchison (1955) 349 U.S. 133, 136, 75 S.Ct. 623, 625.)
In weighing whether the drastic sanction of vacating a final
order on which the parties have relied should be imposed, the
Supreme Court found that doing so would prevent “a substan-
tive injustice in some future case by encouraging a judge or
litigant to more carefully examine possible grounds for dis-
qualification and to promptly disclose them when discovered.”
(Id. at 7761.) The Court concluded that in all cases, the
* It provides: “Any justice, judge, or magistrate of the United States shall
disqualify himself in any proceeding in which his impartiality might reason-
ably be questioned.”
42
“guiding consideration is that the administration of justice
should reasonably appear to be disinterested as well as be so in
act.” (bid. quoting Public Utilities Commission v. Pollak
(1952) 343 U.S. 451, 466-67, 72 S.Ct. 813, 823; accord, Aetna
Life Insurance Co. v. Lavoie (1986) 475 U.S. 813, 823, 106
S.Ct. 1580, 1580.)
California Code of Judicial Conduct Canon 3, like 28
U.S.C. $455(a), requires judges to disqualify themselves in any
proceeding in which “their impartiality might reasonably be
questioned.” Despite this clear mandate and in complete
disregard of the public’s perception of their action, Justices
Racanelli and Newsom refused to disqualify themselves, appar-
ently in reliance on Kaufman v. Court of Appeal (1982) 31
Cal.3d 933, 939-40. (App. A.)
Neither Kaufman nor any other California case, statute,
rule, or canon authorizes that action. Kaufman held that —
California follows the Federal rule in allowing a challenged
justice to decide whether he sould disqualify himself, but that
decision is obviously reviewable by this Court. It is also
reviewable by the U.S. Supreme Court since the issue has
Constitutional dimensions. (Aetna Life Insurance Co. v.
Lavoie, supra at 825, 1587, quoting in Re Murchison (1955)
supra at 136, 625; see also, Ward v. Village of Monroeville Ohio,
(1972) 409 U.S. 57, 60, 93 S.Ct. 80, 83).
Whatever interests Justices Racanelli and Newsom had in
the Bank of America should have been disclosed to allow the
parties and their counsel the choice of proceeding with that
panel. This Court demands no less of itself; those justices who
are shareholders in the Bank of America routinely disqualify
themselves from considering cases involving the Bank of Amer-
ica. (Ex. H).
The same is true of the Federal courts; U.S. District Court
Judge William A. Ingram, who unknowingly and indirectly
owned $80 worth of stock of Intel, but later disposed of it,
recently disqualified himself from deciding the landmark com-
puter copyright case of NEC Corp. v. Intel Corp. (Ex. L.)
However, Judge Ingram did so only after he had earlier refused
to disqualify himself, which prompte a request by NEC to the
43
Ninth Circuit Court of Appeal to intervene; at that point Judge
Ingram disqualified himself and vacated all his rulings in the
case.
Certainly the public deserves no less from Division One,
District One, and especially from its Presiding Justice, the
highest ideals of both personal and official conduct. ( Pre-
amble, California Code of Judicial Conduct.) Public per-
ceptions of justice are hardly furthered when justices who are
reasonably thought to be biased by virtue of financial ties to a
party decide in a case, particularily Case as far-reaching and
significant as this. (Lindsay-Strathmore Irrigation District v.
Superior Court (1920) 182 Cal. 315, 334; Tatum v. Southern
Pacific Co. (1967) 250 Cal. App.2d 40, 42.)
B. Justice Newsom Negotiated and Obtained a Substantial
New Loan from the Bank of America While this Appeal
Was Pending.
It appears from Justice Newsom’s Form 721 that he had a
car loan from the Bank of America during 1985 and two other
small unsecured loans from the Bank in 1986 and 1987 which
were each paid off in those years. (Ex. A at pp. 8, 11, 14.)
Justice Newsom apparently thereafter negotiated and obtained,
sometime between January and December, 1987, a substantial,
new, unsecured “Customline credit” loan from the Bank in an
amount in excess of $10,000. (Jd at p. 17.) Justice Newsom
held this loan as of February 29, 1988; he heard oral argument
in this case on February 25, 1988. (Jd. at p. 16.)
The Bank claims that its loan to Justice Newsom is
“virtually indistinguishable from a credit card charge account”.
( Bank’s Opposition to Petition for Disqualification, p. 9, fn. 2.)
It is submitted that it could appear to a reasonable person
highly unusual for a person with an income of that of an
associate appellate court justice to have a credit card from the
Bank of America with a limit in excess of $10,000. Whether
such a credit arrangement is in fact “a loan from a lending
‘a 44
institution in its regular course of business on the same terms
generally available to persons who are not judges”, as author-
ized by Canon 5C (4)(b), is a matter which cannot be
determined by virtue of Justice Newsom’s refusal to comment.
However, even if the loan were technically permitted by
Canon 5C (4)(b), its propriety must still be weighed against
the admonition in the Commentary to Canon 5C which states
that judges should “refrain from engaging in business and from
financial activities that might interfere with the impartial per-
formance of their judicial duties.” It must also be weighed
against the paramount concerns of Canon 3C, which requires
judges to disqualify themselves in any proceeding in which their
impartiality might reasonably be questioned. It is submitted that
a reasonable person would find it highly unseemly that a judge
who had the power to decide a major case which substantially
affected the financial interests of a lender was negotiating with
that lender to obtain a large, unsecured loan while the case was
pending before him.
In any event, if Justice Newsom felt his old loans were
significant enough to disclose it at the April, 1986 oral argument
of a minor Bank of America case, then certainly it would have
been more important to disclose his new, increased loan in this
landmark decision. His failure to even mention it in this
proceeding raises serious doubts about his impartiality and
leaves the public with the distinct impression that perhaps
justice is not blind.
C. The Bias of the Court is Evident From The Opinion’s
Intentional Rejection of Established Principles of Appel-
late Review.
The decision in this case was, to say the least, shocking.
Lenders’ counsel and the commentators were as surprised as
the parties and their counsel that an appellate court would
reverse jury verdicts and a new trial order on the basis on an
alleged lack of substantial evidence. William Burke, bank
counsel and authority in lender liability, described the decision
as “highly unusual.” (Ex. J.) Professor Schecter of Loyola
Law School, another authority in the field, described it as “very
surprising” since “the appellate court is in essence saying that
45
no reasonable jury could have come to the conclusion that this
jury came to. This is extraordinary.”5 ( [bid. )
Reversals based on a lack of substantial evidence are rare;
this is so because of the weii-established rules which presume
the judgment to be correct, prevent reviewing courts from
weighing evidence and re-examining questions of fact, and
require that the evidence and the inferences based thereon be
viewed in the light most favorable to the prevailing party. All
of these rules were completely disregarded, along with both
substantial evidence and legal authority which supported the
verdicts. No rational explanation exists for this result, other
than a lack of impartiality by the court which rendered the
decision.
1. The Opinion Refused to Consider the Existence of
the Fiduciary Relationship Between the Jewells and
the Bank.
The Opinion cavalierly dismissed what was probably the
most central issue in the case: The Bank’s exploitation of its
admitted fiduciary relationship with the Jewells.6¢ (App. A at
17.) Had it not done so, it would have been compelled to find
in favor of the Jewells for three reasons.
First, there is no question that the Bank had a duty to
disclose facts to the Jewells which it failed to disclose and that it
took undue advantage of the Jewells by using them “as tools
with which to alleviate the results of its own prior poor loan
judgment” by paying off O’Connell’s delinquent loans. ( First
National Bank in Lenox v. Brown (lowa 1970) 181 N.W.2d
178, 184.) That shifted the burden of proof to the Bank to
prove its good faith and lack of undue influence, a burden the
Bank never met; it also constituted constructive fraud. (Estate
of Sanders (1985) 40 Cal.3d 607, 616.)
5 Almost as surprising was the modified opinion which omitted some
issues which had been raised sua sponte by the court, changed substantially
the court’s interpretation of the facts, and substituted new legal authority for
old. Despite these concessions that the original opinion was both factually
and legally erroneous, the ultimate decision to reverse remained unchanged.
® The opinion ignored both the facts and the law on fiduciary relation-
ships, including cases such as Barrett v. Bank of America (1986) 183
Cal.App.3d 1362, in which the Bank of America was found liable for acts
strikingly similar to those of this case.
46
Second, the existence of the fiduciary relationship required
the Jewells’ reliance to be measured by a different standard
than that used in the opinion. (Barbara A. v. John G. (1983)
145 Cal. App.3d 369, 382.) As discussed infra, the Jewells met
the correct standard.
Third, since the judgment was based on the three separate
torts of actual fraud, constructive fraud, and bad faith breach, it
had to be affirmed if any one of the three was supported by
substantial evidence and unaffected by error. (Khanna v.
Microdata Corporation (1985) 170 Cal. App.3d 250, 258.) The
constructive fraud claim was fully supported both legally and
factually; thus, the judgments should have been affirmed.
2. The Opinion Ignored the Substantial Evidence of the
Long-Term Loan Commitment and The Bank’s
Breaches.
The opinion claims the parties never got beyond the
negotiating stage, and that therefore no contract ever arose.
(App. at 28-31.) While this issue was never raised at trial and
there was necessarily no evidence on it, what was proven at trial
clearly disproves it.
First, it is only when the evidence clearly shows an agree-
ment is subject to further negotiations that it will not be
enforced on the basis the parties were merely negotiating.
( Corbin on Contracts (1963) $95, pp. 397, 401-02.) There was
no such evidence.
Second, the fact that one party to the agreement begins
performance with the knowledge of the other proves the
contract was consummated. (Jd. at 407.) Here, the Jewells did
everything the Bank asked of them and substantially relied on
the fact the Bank would perform.’
’ For this reason, the Jewells have consistently argued that it will be an
idle act to reverse the judgments since the Jewells can prevail at retrial on the
alternative theories of implied contract and estoppel. ( /sthmian Lines, Inc. v.
Schirmer Stevedoring, Co. (1967) 255 Cal.App.2d 607, 610.) The modified
opinion concedes this point. (App. A at former fn. 14, p.29.)
47
The opinion also claims there was a lack of substantial
evidence of the loan commitment, yet that evidence was
overwhelming. Many recent decisions have upheld oral loan
commitments on evidence much less substantial than this.®
There was thus no basis in the law or the facts for the opinion to
conclude no commitment was made.
Similarly, there was absolutely no basis for the opinion to
find no breach by the Bank of that commitment. The opinion’s
basis for this finding was the Jewells’ alleged refusal to pledge
their ranch as security for a long-term loan. However, the
evidence was undisputed that the Jewells were fully prepared to
do so as soon as the Bank gave them the long-promised, long-
term loan, yet the Bank never did so.
Finally, the opinion includes the incredible statement that
the Bank’s conduct in refusing to return the sales proceeds from
the Jewells’ property, along with their deeds of trust, was not a
breach.'° (App. A at 31-33.) It is beyond comprehension how
a court could state in a published opinion that when a party
® For example, the visits by Sullivan's superiors, the Bank documents
discussing the commitment, the loan application itself, the parties’ course of
dealing, the evidence relating to similar funding of the Co-op and the Jewells’
Fresh Pack plants, Betty Jewell’s notes from the December, 1978 meeting,
and the Bank's practice of not advancing funds for construction projects in the
absence of a long-term commitment all supported the Jewells’ statements that
a commitment had been made.
* See, Landes Construction Co., Inc. v. Royal Bank of Canada (9th Cir.
1987) 833 F.2d 1365; National Farmers’ Organization v. Kingsley Bank ( \0th
Cir. 1984) 731 F.2d 1464; Coastland Corp. v. Third National Mortgage Co.
( 4th Cir. 1979) 611 F.2d 969; Crystal Springs Trout Co. v. First State Bank of
Froid (Mont. 1987) 732 P.2d 819; Wait v. First Midwest Bank/ Danville
( ILApp. 1986) 491 N.E.2d 795; X-Line Builders, Inc. v. First Federal Savings
& Loan Ass'n ( Ariz.App. 1983) 677 P.2d 1317; Bixler v. First National Bank
of Oregon (Ore.App. 1980) 619 P.2d 895.
‘© In stretching to reach this conclusion, the opinion had to consider, and
resolve, highly technical bankruptcy issues which had never come up at trial
and on which there was no evidence. (App. A at 32-33.); by doing so, the
opinion erred both legally and factually, and violated Government Code
$68081. (See, Adoption of Alexander (1988) 44 Cal.3d 857, 864-65.) The
opinion had to also disregard such highly damning evidence as Bunch’s boasts
that there “was never any doubt in our mind” that the Bank would have to
return the property it had in effect stolen from the Jewells. Similar conduct by
the Bank has earned this Court’s censure in cases such as Sanchez-Corea v.
Bank of America (1985) 38 Cal.3d 892, 908-09, another case in which
Division One, District One again sided with the Bank of America.
48
makes a promise, fails to perform, denies it ever had a duty to
perform, fights in court for years to prove it had no duty to
perform when it knew full well it did, loses that fight, and then,
when mandated by court order, belatedly and begrudgingly
performs, that is not a “breach” of the original promise. It is
submitted that only bias could produce such a result.
3. The Opinion Ignored the Substantial Evidence and
Legal Authority Which Demonstrated the Jewells’
Reliance Was Justifiable.
Reliance in a fiduciary relationship is measured by special
standards; facts that would ordinarily require investigation may
not excite suspicion, and the same degree of diligence is not
required. (Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412,
440; Estate of Sanders, supra, at 619.) The opinion ignored
this in concluding the Jewells’ reliance was not justifiable
because they allegedly knew the promised loan was beyond
Sullivan’s lending limit. (App. A at 21.)
The Jewells proved their reliance was justifiable given their
fiduciary relationship with the Bank, their intelligence, and
information. (Seeger v. Odell (1941) 18 Cal. 2d 409, 415.)
The Jewells dealt exclusively with Sullivan, and felt it was
inappropriate to confer with Sullivan’s superiors. ( V.25:4282. )
In addition, the Jewells got nothing but positive support from
Sullivan, who had in the past regularly provided the funds he
promised, even if they exceeded his lending limits. Sullivan’s
superiors also expressed their support to the Jewells; this
signified Regional approval to the Jewells. This type of belief
was precisely what the Bank’s policy manual warned against.
Given the Bank’s decision to place Sullivan in the role of
vice president and branch manager, his assurances to the
Jewells were the equivalent of “factual representations of an
apparently knowledgeable agent for his principal”. Skeels v.
Universal C.I.T. Credit Corporation (3rd Cir. 1964) 335 F. 2d
846, 851.) In such a situation, it was entirely reasonable for the
Jewells to rely on them.
a 49
4. The Opinion Refused to Consider the Law or the
Facts Which Demonstrated the Bank’s Acts Were
the Proximate Cause of the Jewells’ Injuries.
The opinion is wrong in stating there was no substantial
evidence the Jewells’ injuries were proximately caused by their
involvement in O’Connell, that the Jewells’ ultimate destruction
was inevitable, and that the law on proximate cause is contrary
to the Jewells’ position. First, there was overwhelming evi-
dence that but for Sullivan’s initial inducement of the Jewells in
becoming involved with O’Connell and later staying involved,
the Jewells would not have suffered the damages they did. This
evidence ranged from Sullivan’s own admission he had
“participated” in the Jewells’ “difficult situation” ( V.12:2509-
10), to an internal Bank document which noted in November,
1980 that the Jewells’ problems began with their 1976 in-
volvement with O’Connell (R.A. 891). Simple common sense
also provides support; had the Jewells not gotten involved in
O’Connell, O’Connell would have collapsed and there would
have been no subsequent drain on the Jewells’ finances.''
Second, there was nothing at trial which proved that the
Jewells’ destruction was inevitable. The opinion seized on a
number of factors which allegedly contributed to the Jewells’
demise, yet all but one of them directly resulted from the
Jewells’ involvement in O’Connell and would not have occurred
but for it. (App. A at 19.) The one remaining factor, the
bankruptcy of one of the Jewells’ debtors, was a very minor
cause of their problems and could have easily been absorbed if
the Jewells had not had the burden of O’Connell. ( V.26:4500-
8.)
Third, the opinion is wrong in stating that if other factors
also contributed to the Jewells’ economic problems, then the
Back was relieved of liability. (App. A at 19.) The law is clear
that if several factors contribute to the occurrence of an event, a
11 Other evidence included the testimony of Jewells’ expert witnesses that
after the Jewells paid off the delinquent O'Connell loans in 1977, they could
not pay back the Bank from their own operations because of their in-
volvement with O’Connell, and were left with insufficient operating funds as a
result of that involvement. (V.11:2350-51, V.25:4235-37, V.33:5805-06,
5812-13.) In addition, the Bank's own documents reflect its concern over the
Jewells’ finances as a result of their involvement in O'Connell. (R.A. 557,
658, 660, 648, 887, 888, 896.)
50
defendant is not absolved if his conduct was a substantial
factor, or if the other factors were within the scope of the
Original risk to which the defendant subjected the plaintiff.
(Prosser & Keaton, The Law of Torts ( 15th ed. 1984) $41, pp.
266, 268; $44, p. 303.) Since the later risks the Jewells’
encountered were within the scope of the original risk to which
the Bank subjected them, then necessarily the Bank is liable.
(See, Crystal Springs Trout Co. v. First State Bank, supra, at
824.)
Fourth, the opinion’s legal and factual analysis of the
Jewells’ eventual destruction is inaccurate. It is not true that a
defendant is not liable if the plaintiffs’ damages were “inevi-
table or due to unrelated causes”, and the authority the opinion
cites does not so hold. In addition, since the issue never came
up at trial, there was minimal evidence on it; what little there
was directly contradicts the opinion’s statement. '2
5. The Allegedly Internally Inconsistent Verdicts Can
Be, And Should Have Been, Reconciled by the Court
of Appeal.
It is the duty of appellate courts to reconcile superficially
inconsistent findings. (Brewer v. Simpson (1960) 53 Cal.2d
567, 583; Allen v. Sundean (1982) 137 Cal. App.3d 216, 224.)
This can easily be done in the instant case, yet the court simply
flung up its hands in mock despair over its alleged inability to
do so.
The jury could have found both that Sullivan, as the bank’s
agent, intended to the make the long-term !oan, but that his
superiors did not. That would still result in liability to the Bank
since “a principal may be liable when he intentionally mis-
informs or withholds information from the agent and the agent
thereupon innocently misrepresents.” (Barrett v. Bank of
America, supra at 1369-70.) Had not the court been searching
for opportunities to reverse the judgment, it could have per-
formed this simple task of reconciling the verdicts.
‘2 By taking the Jewells’ deeds of trust, the Bank started a domino effect
which caused the Jewells’ creditors to scramble for assets; bankruptcies and
lawsuits were then filed to prevent foreciosures. But for that original act of
the Bank, the Jewells would not have been forced into bankruptcy.
51
Vv
CONCLUSION
For the reasons stated, this petition for review should be
granted and this cause set for argument.
DATED: June 27, 1988
Respectfully submitted,
CAPPELLO & FOLEY
By: A. BARRY CAPPELLO
A. BARRY CAPPELLO
Attorneys for Respondents
Charles Duck, Trustee of
Bankruptcy Estate of
George M. and Laura E.
Jewell, and George R. Jew-
ell
52
VERIFICATION
STATE OF CALIFORNIA, COUNTY OF
I have read the foregoing
and know its contents.
kK] CHECK APPLICABLE PARAGRAPH
I am a party to this action. The matters stated in the
foregoing document are true of my own knowledge except
as to those matters which are stated on information and
belief, and as to those matters I believe them to be true.
I am C an Officer C) a partner O
a : of
a party to this action, and am authorized to make this
verification for and on its behalf, and I make this veri-
fication for that reason. C) I am informed and believe and
on that ground allege that the matters stated in the
foregoing document are true. () The matters stated in the
foregoing document are true of my own knowledge except
as to those matters which are stated on information and
belief, and as to those matters I believe them to be true.
I am one of the attorneys for
a party to this action. Such party is absent from the county
of aforesaid where such attorneys have their offices, and I
make this verification for and on behalf of that party for
that reason. I am informed and believe and on that
ground allege that the matters stated in the foregoing
document are true.
Executed on a , at
California.
I declare under penalty of perjury under the laws of the
State of California that the foregoing is true and correct.
Type or Print Name Signature
53
ACKNOWLEDGEMENT OF RECEIPT
OF DOCUMENT
(other than summons and complaint)
Received copy of document described as
on 19
Type or Print Name Signature
54
PROOF OF SERVICE
STATE OF CALIFORNIA, COUNTY OF
SANTA BARBARA
I am employed in the county of SANTA BARBARA,
State of California. I am over the age of 18 and not a party
to the within action; my business address is: 831 State
Street, Santa Barbara, CA 93101.
On June 27, 1988, I served the foregoing document
described as PETITION FOR REVIEW OF DECISION
OF THE COURT OF APPEAL, FIRST APPELLATE
DISTRICT, DIVISION ONE on
in this action by placing a true copy thereof enclosed in a
sealed envelope addressed as follows:
see attached list
(BY MAIL) I caused such envelope with postage thereon
fully prepaid to be placed in the United States mail at
Santa Barbara, California.
Executed on June 27, 1988, at Santa Barbara, California.
(BY PERSONAL SERVICE) I caused such envelope to
be delivered by hand to the offices of the addressee.
Executed on
19 at
California.
(State) I declare under penalty of perjury under the
laws of the State of California that the
above is true and correct.
(Federal) I declare that I am employed in the office of a
member of the bar of this court at whose
direction the service was made.
PATRICIA LYNCH
Type or Print Name Signature
55
Proof of Service List for Jewell v. Bank of America
David B. Flinn -
Steven B. Mains
Jeffrey Lowenthal
LELAND, PARACHINI, STEINBERG, FLINN, MATZGER & MELNICK
333 Market Street, 27th Floor
San Francisco, California 94105
William Lukens
LUKENS, Perry DRUMMOND & COOPER
One Maritime Plaza
San Francisco, California 94111
Frederick N. Watson
Attorney at Law
1111 Civic Drive, Suite 300
Walnut Creek, California 94596
Warren Christopher
Karen Growdon
O’MELVENY & MYERS
400 South Hope Street
Los Angeles, California 90071-2899
Honorable Laurence K. Sawyer
Superior Court of Sonoma County
600 Administration Drive
Hall of Justice
Santa Rosa, California 95401
Court of Appeal
4154 State Building
350 McAllister Street
San Francisco, CA 94102
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.