Petition — Quinault Pacific Corp. v. Aetna Business Credit, Inc.

Supreme Court brief1980

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Supreme Court, U.

FILED

SEP2 198C

MICHAEL RODAK, JR.,

80-344

No.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

QUINAULT PACIFIC CORPORATION,

INTERNATIONAL PAPER COMPANY,

WHITE LUMBER SALES, INC., and

GOLD REY FOREST PRODUCTS, INC., Petitioners,

versus

AETNA BUSINESS CREDIT, INC.

and JOHN C. PENNINGTON, TRUSTEE, Respondents.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION

WINFORD KENT BISHOP

Attorneys for Petitioners

1835 First National Bank Tower

Two Peachtree Street, N.W.

Atlanta, Georgia 30383

Telephone No. 404/658-1110

QUESTIONS EVOKING THE

SUPERVISORY POWER

1. Whether a reasonable federal judge would have a

doubt about the parameters of judicial behavior under Art.

III, Fifth Amendment Due Process, Code of Judicial Con-

duct for United States Judges, and 28 U.S.C.A. Sec. 455,

after reading the five published decisions of the court of

appeals in which a first panel held that “(t]he occurrence of

ex parte conferences . . . alone do not demonstrate collu-

sion” 581 F2d 520, 521, but then vacated the decision

“{blecause of the allegations of judicial misconduct con-

tained in the petition for rehearing... ;” and in whicha .

second panel enumerated allegations of ex parte discus-

sions between a judge and adversary parties regarding

orders and opinions the latter had been secretly delegated

to prepare, 607 F.2d 117 (second paragraph, second sen-

tence), but then vacated the decision without explanation,

613 F.2d 117, upon a second FRAP 40(a) rehearing petition

that “state[d] with particularity the point of law or fact

_.. the court ha[d] overlooked or misapprehended .. . ;”

and in which a third panel “reinstate[d]” the vacated

opinion and then held the appeal not to be “frivolous,” 616

F.2d 893; and whether this doubt would have the following

consequences:

(a) Pose an unreasonable risk of debasement of

federal judicial behavior notwithstanding a grow-

ing public demand for accountability and integ-

rity of lower Federal judges;

(b) Embrace a lower standard of judicial behav-

ior than that prevailing in the STATE OF FLOR-

IDA which publicly reprimanded two Supreme

Court justices under Canon 3A(4) of the Florida

Code of Judicial Conduct for similar conduct but

without ex parte work sessions (In re Dekle, 308

So.2d 5 (Fla. 1975); In re Boyd, 308 So.2d 13 (Fla.

1975));

with popular Florida state officials and citizens

fomenting fractious strains upon the fabric of

Federalism;

(d) And inasmuch as (i) Canon 3A(4) of the Code

of Judicial Conduct of the STATE OF GEORGIA

is no different from Florida’s and (ii) the Georgia

Code of Judicial Conduct applied specifically to

federal referees in bankruptcy, frustrate an im-

portant Georgia state interest in requiring mem-

bers of the State Bar of Georgia (of which this

bankruptcy judge is one, of which this Court can

take judicial notice from files at Administrative

Office of United States Courts) to live by a higher

standard of behavior, where the five decisions do

not identify a federal interest which would dic-

tate a lower federal judicial standard;

And therefore whether this case calls for an exercise of the

Court’s power of supervision.

2. Whether four months of ex parte work sessions con-

ducted by a bankruptcy judge with one side to a vigorously

contested, pending matter (decision unannounced) which

produced a 40-page opinion and numerous orders in their

favor that were researched, drafted, edited and typed in

law offices for adversary parties, which contacts were

without notice to or knowledge of opposing side, and

whether breakfast between the judge and trustee prior to

the second session of a hearing upon the same matter,

constitute a departure from the accepted and usual course

of judicial proceedings.

3. Whether silent condonation by an Art. III district

judge owing a duty of supervision over an Art. I bank-

ruptcy judge and aware of supported charges of ethical

violations; affirmance of 40-page respondent-prepared

bankruptcy order opinion based on “clearly erroneous”

standard; and a statement on the record that “I don’t care

to know anything about... bankruptcy. .. . ;” constitute a

departure from the accepted and usual course of judicial

proceedings.

4. Whether a proper exercise of the supervisory power

disqualifies the bankruptcy and district judges and vitiates

all orders and decisions of the district judge and court of

appeals which accord “clearly erroneous” treatment to

findings of fact signed by the bankruptcy judge.

UNSETTLED FEDERAL QUESTIONS

5. Whether principles of Comity, Federalism and Fifth

Amendment Due Process require Art. I and Art. III federal

judges to adhere — not to lenient federal judicial ethics, but

— to exacting standards of ethical conduct binding upon

judges of State courts, in those geographical areas where

the actions of federal judges impact upon those several

States.

6. Whether a litigant has standing to raise at trial or on

appeal a violation by Art. III and Art. I judges of the Vode

of Judicial Conduct for United States Judges, adopted by

the Judicial Conference of the United States, April 1973.

QUESTIONS PRESENTING CONFLICT BETWEEN

FIFTH CIRCUIT AND OTHER CIRCUITS

7. Whether it is relevant for purposes of 28 U.S.C.A. Sec.

455, Fifth Amendment Due Process, Code of Judicial Con-

duct for United States Judges that facts of disqualification

constitute “extra-judicial” acts.

8 Whether a trial judge’s automatic adoption of a pre-

vailing party’s findings of fact ts accentable.

9. Whether “fraud .. ., misrepresentation, or other mis-

conduct of an adverse party” (Fed.R.Civ.P. 60(b)(3)) must

be “prejudic(ial); 607 F.2d 117, 118, before a trial judge

will relieve an opposing party from a final order of a

bankruptcy judge approving a settlement between a

trustee and a creditor.

10. Whether the standard of appellate review upon a

trial judge’s findings of fact adopted via ex parte work

sessions should be the “clearly erroneous” standard under -

Fed.R.Civ.P. 52.

Il. TABLE OF CONTENTS AND AUTHORITIES

I. QUESTIONS PRESENTED FOR RE-

WEE ava KERR SAG Creer eet ees i

ill

II.

Il.

IV.

VI.

VII.

B. Unsettled Federal Questions.......

C. Questions Presenting Conflict Be-

tween Fifth Circuit and Other Cir-

Rial Ww cated atta tanker ys aud.

TABLE OF CONTENTS AND

AUTHORITIES....................

REFERENCES TO FIVE RE.

PORTED OPINIONS AND ORDERS

IN COURTS BELOW...............

GROUNDS ON WHICH JURISDIC-

TION OF SUPREME COURT IS IN.

RG ete tis Pee ee ions,

CONSTITUTIONAL PROVISIONS,

STATUTES, REGULATIONS IN.

VOLVED IN THE INSTANT CASE ..

STATEMENT OF CASE............

A. Pre-Bankruptcy Facts.............

Newly Discovered Substantive Facts

Post-Bankruptcy Facts............

Facts of Judicial Disqualification .. .

Manner in Which Facts of Judicial

Disqualification Were Learned and

Petitioners’ Resulting Dilemma ....

F. Aetna’s $70,000 Settlement with

WI SS uate eee ee,

So QO 8

SUPREME COURT SHOULD IN.

VOKE ITS INHERENT POWERS OF

SUPERVISION TO PROTECT THE

INTEGRITY OF FEDERAL

COURTS AND TO DETER ILLE-

PE Cece saic¥an Cache,

A. Nature of General Supervisory

SR ea ee eee ery

ili

ill

VIL.

. Nature of Special Supervisory Power

In-and Over Court of Bankruptcy...

. Nature of Ethical Precepts Binding

on Court of Bankruptcy...........

Improper Conduct in Court of Bank-

1. Background: Uneven Criticism of

Mechanically-Adopted Findings

¢ Send ee

2. Ghost-Written Findings of Fact

Ser TNO 5 okay dace week neeees

3. Ex Parte Work Sessions.........

4. Social Relations: Herein of Break-

PPPS ee kr

5. Misrepresentations of Material

DOE os boo ccd vane ennnaeeeens

6. Intentional Distortions of Fact...

7. Assistance to Aetna to Assure

Victory on $600,000.00 Counter-

claims in Plenary Action .......

Irrelevance of Petitioners’ Missteps

to Exercise of Supervisory Powers ..

Extent of Remedies...............

FEDERALISM AND COMITY RE-

QUIRE FEDERAL COURTS TO

ADOPT ETHICAL PRECEPTS ES-

TABLISHED BY STATE COURTS

FOR STATE JUDGES, AT LEAST IN

JUDICIAL CIRCUITS IN WHICH

NB Se ee

De cen suse eee

I 6 6c cos bcc suseeee nes

Federalism and Comity ...........

IX.

XII.

XIII,

II.

Sg eee ee aa 26

E. Conclusion of Interests Analvsis.... 27

PROCEEDINGS BEFORE BANK-

RUPTCY JUDGE WHOSE IMPAR-

TIALITY MIGHT REASONABLY BY

QUESTIONED DEPRIVED PETI-

TIONERS OF FIFTH AMENDMENT

DUE PROCESS AND WAS VIOLA-

TION OF 28 USCA SEC. 455........ 28

A. Type of Constitutional Deprivation. . 28

1. Lack of Impartial Tribunal...... 28

2. Lack Of Fair Noticd............ 28

ae a 8 | ere 21

RPRPNURMEIEIOY vc cerns descasweess 30

. CERTIFICATE OF SERVICE....... 31

APPENDIX (Under Separate Cover)

TABLE OF CONTENTS

TO APPENDIX

APPENDIX (Under Separate Cover)

Part One: “Fed. R. Civ. P. 60 (b) Case”

Page (Appendix)

Opinion (Jn re Georgia Paneling Supply, Inc.,

616 F.2d 893 (5th Cir. 1980)) entered May 8,

1980 and delivered upon purported ren-

dering of judgment by the United States

Court of Appeals for the Fifth Circuit whose

decision is sought to be reviewed. ......... l

Other such opinions and orders rendered by

the United States Court of Appeals for the

Pacem Coveuit it CaO GOOD. o.oo ccc ccc is 2

Il.

IV.

VI.

A. Order (/n re Georgia Paneling Supply,

Inc., 613 F.2d 137 (5th Cir. 1979)) entered

gO. rr re ee

B. Opinion (Jn re Georgia Paneling Supply,

Inc., 607 F.2d 117 (5th Cir. 1979)) en-

tered November 19, 1979. ............

Other such opinions and orders rendered by

the United States Court of Appeals for the

Fifth Circuit in a related, prior case. ......

A. Order (Jn re Georgia Paneling Supply,

Inc., 588 F.2d 93 (5th Cir. 1978)) entered

SR Ce RIOR, \e-va o ga 6 ee uae ha

B. Opinion (Jn re Georgia Paneling Supply,

Inc., 581 F.2d 520 (5th Cir. 1978)) entered

I, CO 6 5 5 4 ecco keeew deans

Other such orders rendered by the United

States District Court for the Northern Dis-

trict of Georgia in the Case. .............

A. Order entered June 26, 1978. .........

B. Order entered August 26,1977. .......

C. Order entered July 22, 1977...........

D. Order entered June 15,1977. .........

Other such orders and opinions rendered by

the United States Bankruptcy Judge/Referee

in Bankruptcy in the case.

A. Order entered December 20, 1977. .....

B. Order entered September 23, 1977.

C. Order entered September 16, 1977.

D. Opinion entered January 5, 1978. .....

Other such order rendered by the United

States District Court for the Northern Dis-

trict of Georgia in a related, prior case, to

wit: order entered April 15, 1977..........

Vili

VIl.

VIL.

Il.

III.

Other such order by the United States Bank-

ruptcy Judge/Referee in Bankruptcy in a

related, prior case, to wit: order entered

CU Cac eee saline tn eae

Judgment of the United States Court of Ap-

peals for the Fifth Circuit sought to be re-

viewed and order of said Court on rehearing.

A. Judgment entered July 22, 1980, dated

May 8, 1980 (and issued as mandate,

Sy ey er ee cocoa ia aes

B. Judgment entered June 20, 1980, dated

November 19, 1979 (issued as mandate)

and retracted by letter of July 22, 1980

Go a-ak bend wee eee ees

C. Order denying Petition for Rehearing

and Petition for Rehearing En Banc en-

eres ree

Part Two: “Fee Award Case”

Opinion (Jn re Georgia Paneling Supply, Inc.,

617 F.2d 293 (5th Cir. Table 1980)) entered

May 9, 1980 and delivered upon purported

rendering of judgment by the United States

Court of Appeals for the Fifth Circuit whose

decision is sought to be reviewed. .........

Other such opinions and orders rendered by

the United States Court of Appeals for the

Fifth Circuit im the case. ......icccccccss

A. Order (In re Georgia Paneling Supply,

Inc., 6138 F.2d 312 (5th Cir. Table 1979))

entered December 28, 1979. ..........

B. Opinion (Jn re Georgia Paneling Supply,

Inc., 607 F.2d 1004 (5th Cir. Table 1979))

entered November 9, 1979. ...........

Other such orders rendered by the United

States District Court for the Northern Dis-

trict of Georgia in the case. ..............

Vili

IV.

VI.

Order entered August 30,1978. .......

Order entered October 13, 1978. .......

Order entered February 20,1979. .....

Other such orders and opinions rendered by

the United States Bankruptcy Judge/Referee

in Bankruptcy in the case. ..............

AMMO AD

Order entered September 8, 1977. .....

Order entered September 12, 1977.

Order entered September 16, 1977.

Order entered September 23, 1977. ....

Order entered February 28,1978. .....

Order entered June 7, 1978. ..........

Memorandum entered September 11,

aaa as dasecrescceens

EE ee er ere

Other such orders and opinions rendered by

the United States District Court for the

Northern District of Georgia in a related

pending case not on appeal...............

Order entered July 25, 1978 in Pen-

nington, Trustee v. Aetna Business

Credit, Inc., et al., Civil Action No. C75-

1540A (filed August 1975). ...........

Order entered March 30, 1978 in Pen-

nington, Trustee v. Aetna Business

Credit, Inc., et al., Civil Action No. C75-

1540A (filed August 1975) ............

. Order entered September 30, 1976 in

Pennington, Trustee v. Aetna Business

Credit, Inc., et al., Civil Action No.C75-

1540A (filed August 1975). ...........

Judgment of the United States Court of Ap-

peals for the Fifth Circuit sought to be re-

viewed and order of said Court on rehearing.

101

103

105

137

142

143

152

163

II.

A. Judgment entered July 22, 1980, dated

May 9, 1980 (and issued as mandate,

Pe SE Sc ka kev esvenee<:

B. Judgment entered June 20, 1980, dated

November 9, 1979 (issued as mandate)

and retracted by letter of July 22, 1980

RS oe ol ua wea cus

C. Order denying Petition for Rehearing

and Petition for Rehearing En Banc en-

tered Jume 3, 1960. .... 2... cece cccees

163

164

167

Part Three: Constitutional Provisions, Statutes,

Regulations etc. Involved in These Cases

Constitutional Provisions................

A. Article I, Sections 1 and 8 Se ere

B. Article III, Sections 1 and2...........

C. Article The Fifth (Fifth Amendment) ...

D. Article The Sixth (Sixth Amendment). . .

GR ane ge LE Cen ere Mata He ae re Ae

5. ae Ue, Fs i oo oc vt ewewenss

2. 28 U.S.C. Sec. 144 (1970)...........

3. Bankruptcy Act of 1898, as amended

Sections 41, 60b, 67, 70 (11 U.S.C.

Sec. 69, 96b, 107, 110)

4. Bankruptcy Code of 1978...........

Section 252 (28 U.S.C.A. Sec. 1481)

5. 18 U.S.C. Sec. 401 (1970)...........

6. 18 U.S.C. Sec. 402 (1970)...........

DD. Gopermie BEMOWNe 6 wiv cies cesses

1. Georgia Code Annotated Sec. 109A-

See 64-4400 00465400 NESE

2. Georgia Code Annotated Sec. 109A-

PEE eS Pee err T pete are

169

171

172

173

175

176

190

191

Ill.

IV.

Regulations, Rules, Ethical Precepts.......

NE PUI ove cercccccccepoces

1. Code of Judicial Conduct ...........

2. Canons of Judicial Ethics

I I wiirg, dhe dekde oes

3. Rules and Regulations for the Organi-

zation and Government of the State

Bar of Georgia (241 Ga. 643 (1978) et

GEE) oc cc cc csrentorrcnervoreecees

(1) EC 1-4, DR 1-102

(2) EC 7-35, DR 7-102, DR 7-110

(3) EC 8-5, EC 8-6, Georgia Standard

(4) DR 4-101 B, Georgia Standard 28

Bankruptcy Rules of Procedure

I ce as a biotdse denied be 6,0.0:8:9

. Local Rules of the United States District

Court for the Northern District of Geor-

es ca awe ocee en kek eeseuvews

Rules 91.8, 351.1

Rules 71.34, 71.54

Federal Rules of Appellate Procedure . . .

Rule 4(a), 6(a), 35, 40(a)

Federal Rules of Civil Procedure .......

Rule 38, 54 (b), 60(b)

Federal Rules of Evidence.............

Rule 408

Pleading and Motion Filed by Aetna Busi-

ness Credit, Inc. in Related Lower Court

PEE OL OEE EE COPPER TM

Counterclaim, filed October 25, 1977 in

Pennington v. Aetna Business Credit,

Inc., Civil Action No. C75-1540A (N.D.

Gi, AEE Di Deng vc cence scecess:

192

206

207

212

214

215

219

221

222

Motion for Reconsideration, {filed Janu-

ary 19, 1978 (14 days after “Opinion” in

60(b) Motion), in Hampton Lumber Sales

Co. v. Aetna Business Credit, Inc., Civil

Action No. C74-1679A (N.D. Ga., August

ee ict ia, k naee ange caintiap ec

EEE CRE

Chronological Events from Official

Bankruptcy in ords of Georgia Paneling

Supply, Inc., Bankrupt No. B74-1628A

and Referee’s Calendars for September

19, 1977 and February 14, 1978 .......

Critique of Jn re Dekle and In re Boyd,

308 So.2d 5, 13 (Pla. 1975).............

. Affidavit of Sandra Jean Thomason,

SS eee

Part Four: Analytical Tables

Table I (Analysis of Stipulation Between

Freeman & Hawkins and Appellants)...

Table II (Analysis of Trustee's Applica-

tion for Fee Award)................

Table III (Analysis of Aetna’s Applica-

tions for Fee Awards) ........... canes

Table IV (Comparative Analysis of Fee

Pe a

AUTHORITIES

CITATIONS

In re Boyd, 308 So.2d 13 ‘Fla. 1975) i, 20, 26, 25

In re Broome, 245 Ga. 227, S.E.ed

Central Soya Co. Inc. v. Bundrick,

137 Ga. App. (1975), 222 SE2d. ...

Chapman v. California, 386 U.S. 18

rr re rr ee ee

Chicago and Southern Airlines v. Wa-

terman Steamship Corp., 333 U.S.

RS ee mere nme eet ae

Commonwealth Coatings Corp. uv.

Continental Casualty Co., 393 U.S.

Re oa a re lain

Davis v. Board of School Commis-

stoners, 517 F.2d 10 (5th Cir. 1975)

16, 24,

17, 20,

In re Dekle, 308 So.2d 5 (Fla. 1975) i, 20, 25, 29

Ensminger v. Powers, 108 U.S. (11

DP ID on ain ccs weve

Eric Railroad Co. v. Tompkins, 304

8 er ne

Gilbertson v. United States, 168 F.

oo ee eee

Gray v. Barlow, 241 Ga. 347, 245

I CIT). wc ccc ces

Grizzard_v. Davis, 131 Ga. App. 577,

206 S.E.2d 853 (1974) ............

G. M. Leasing Corp. v. United States,

514 F.2d 935 (10th Cir. 1975).....

Hannah v. Plumer, 380 U.S. 460

SN La Gs ood aude cme eet

Hazel-Atlas Co. v. Hartford Empire

Co., 322 US. 238 (1943) .........

Kelson v. Uniied States, 503 F.2d

2201 (10th Cir. 1074)............

Martelli v. City of Somoma, 357

os ore

Mathews v. Eldridge, 424 U.S. 319

SN ST iat a aso at anaes velar

McNabb v. United States, 318 US.

EERE eam Ar ae ee

Mitchell v. Sirica, 502 F.2d 375 (D.C.

Cir.) Cert. denied 94 S.Ct. 3232

RI ee ee Re ial a PA atala ete ciate

Muniz v. Hoffman, 422 U.S. 454

Reed nares BEE

Mutual Life Ins. Co. v. Johnson, 293

oe FE arr er

xill

13, 20,

In re Murchison, 349 U.S. 133 (1955)

Nardone v. United States, 308 U.S.

Ei ee

North Carolina National Bank v. Lu-

mermans Mutual Casualty Co., 335

F.2d 486 (4th Cir. 1964)..........

Nudd v. Burrows, 91 U.S. 426 (1875)

Protective Committee v. Anderson,

me Ue. S06 (IGST) gw. vores ccce.

Ramey Construction Co. v. Apache

Tribe of Mescalero Reservation, 616

F.2d 464 (10th Cir. 1980).........

Rapp v. Van Dusen, 350 F.2d 806 (3rd

RM EY fo Ske oS os ONG bdo cece

Roadway Express, Inc. v. Piper, —_

U.S. __, 48 U.S.L.W. 4836 (1980). .

Ross v. Roberts, 344 F.2d 742 (3rd Cir.

RRS re ape ee a eee

Sibbach v. Wilson & Co., 312 U.S. 1

SNE aU Win wae a eek oe Soke

Smith v. State, 239 Ga. 477, 238

fk ET) og) nn

Swift v. Tyson, 16 Pet. 1 (1842).....

Thermtron Products, Inc. v. Her-

mansdorfer, 423 U.S. 336 (1975). . .

Thiel v. Southern Pacific Co., 328

Rea Mee MO o ws be edb werk ces

Tumey v. Ohio, 273 U.S. 510 (1927). .

United States v. Bray, 546 F.2d 851

fo | eee

United States v. Cresent Amusement

Co., 323 U.S. 173 (1944) .........

United States v. El Paso Natural Gas

‘ (Co., 376 U.S. 651 (1964) .........

United States v. Forness, 125 F.2d 928

United States v. Payner, __ U.S. __,

48 U.S.L.W. 4829 (1980) .........

Universal Oil Products Co. v. Rost

Refining Co., 328 U.S. 575 (1946)

Xiv

24, 28

18, 24

15, 24

Ward v. Village of Monroeville, 409

Sok ee CRG Sed cane meee 28

Webbe v. McGhie Land title Co., 549

F2d 1358 (10th Cir. 1977)........ 18

UNITED STATES CONSTITUTION

PT Re Serer re eer a passim

PS gg Se Se OG ee ee passim

Fifth Amendment ............... vr i, li, iii

STATUTES

Federal Statutes

Bankruptcy Act of 1898, Sec. 60(b) (11

Sees BP oc boa ed + wee dhs 5

28 U.S.C. Sec. 144 (1970) .............. 14

ae BE so ov ena ek cee Ll, 28,

15, 27,

28 U.S.C. Sec. 1254 (1) (1970) ......... 1

Georgia Statutes

Ga. Code Ann. Sec. 20—704........... 2

Ga. Code Ann. Sec. 109A-1—103....... 23

OTHERS

Bankruptcy Rule 505 ................ 18

Bankruptcy Rule 810 ................

Bankruptcy Rule 901 ................ 16

Bankruptcy Rule 920 ................ 16

Canons of Judicial Ethics............. 17, 22

B. Cardozo, The Nature of the Judicial

Freee (el. + sos v oes seas xed eee 30

Code of Judicial Conduct for United

ee I oo ve eee 14, 17, 20,

“Comment, Disqualification for Interest

of Lower Federal Court Judges: 28

U.S.C. Sec. 455” 71 MICH L. REV. 538

Grae, Geel sc xthacnecees tous 28, 29

p. 2

p. 9

p. 10

p. ll

p. 18

p. 20

Cowans, “Problems of Ethics for Ref-

erees,’ Proceedings of Second Seminar

For Newly Appointed Referees in

Bankruptcy, (1975)................. 21

Drake, “Contested Matters and Ex Parte

Proceedings”, Proceedings of Fifth

Seminar for Newly Appointed Referees

in Bankruptcy, (1968) .............. 20

Hiller, “Problems of Judicial Ethis for

Referees in Bankruptcy,” Proceedings

of Fifth Seminar for Newly Appointed

Referees in Bankruptcy, (1968) ....... 17, 20, 22

Federal Rules of Appellate Procedure 6 i, 20

Federal Rules of Appellate Procedure 40 i

Federal Rules of Civil Procedure 52 .... iii

Washabaugh, “Contested and Noncon-

tested Matters”, Proceedings of Semi-

nars for Newly Appointed Referees in

Bankruptcy, (1964)................. 19

CORRECTIONS

September 18, 1980

Before first line, add: “(“Paneling”) in July, 1973. Aetna acquired

2 security inter-”

Second full paragraph, line 1: “September 8, 1977” should read

“September 1, 1977”

Also in second ful] paragraph, line 5, a period should appear after

“day.” After “day” a line is omitted: “Seven days later, September

8, the judge signed an order”

At end of Footnote 16A, add: “Aetna’s brief was filed in Hampton

Lumber Sales Co. v. Aetna Business Credit, Inc., No. C 74-1679A

(August 22, 1974), on January 19, 1978.”

Footnote 18A should read: “See App. 249-251, 253.

Footnote 19A, add after “EC 8-6” and before “of Rules and

Regulations”: “(d) Standard 60, D.R. 4-101, Standard 28.”

Footnote 20 omits the first page reference: “25.”

First full paragraph, line 1: “This rule” should read "B.R. 505.”

After first quotation, add: “|Emphasis added. |”

Xvi

Ill. REFERENCES TO FIVE REPORTED OPIN-

IONS AND ORDERS IN COURTS BELOW

Fifth Circuit Case No. 79-1076, sometimes referred to

herein as “the Fed. R. Civ. P. 60(b) case”, is reported at Jn

re Georgia Paneling Supply, Inc., 616 F.2d 893 (5th Cir.

1980), reinstating|sic] 607 F.2d 117 (5th Cir.), vacated 613

F.2d 137 (1979). Said case resulted from a FRAP 6(a)

petition for appeal which was allowed at 588 F.2d 93 (5th

Cir. 1978), vacating 581 F.2d 520 (5th Cir. 1978).

IV. GROUNDS ON WHICH JURISDICTION OF SU-

PREME COURT IS INVOKED

A. The apparent date of the judgment sought to be

reviewed in the 60(b) case is May 8, 1980. However, a

letter dated July 22, 1980 indicates that entry of original

judgment was made erroneously upon vacated November

19, 1979 judgment. The error was corrected July 22, 1980

by issuance of May 8, 1980 judgment. See App. 76-79.

B. The date of the order denying petitioners’ petition for

rehearing and petition for rehearing en banc in the 60(b)

case is June 3, 1980.

C. The statutory provision believed to confer on the

Supreme Court jurisdiction to review the judgment by writ

of certiorari is 28 U.S.C. Section 1254 (1) (1970).

V. CONSTITUTIONAL PROVISIONS, STATUTES,

REGULATIONS INVOLVED IN THE CASES

Sources are referenced in the preceding Table of Con-

tents at pages x-xii which is a lengthy table of contents to

“Part Three: Constitutional Provisions, Statutes, Regula-

tions Involved”, located in Petitioners’ Joint Appendix,

App. 169, to which petitioners respectfully call attention.

VI. STATEMENT OF THE CASE

A. Pre-Bankruptcy Facts

Aetna made a loan! to Georgia Paneling Company, Inc.

'Contrary to Aetna’s assertions below, the law of North Carolina —

which is made applicable to the Aetna-prepared documents — holds

that such accounts receivable financing constitutes a “loan”. North

Carolina National Bank v. Lumbermens Mutual Casualty Co., 335 F.2d

486 (4th Cir. 1964).

(“Paneling”) in July, 1973. Aetna acquired a security inter-

est in Paneling’s inventory, accounts receivable, proceeds,

and perfected it. For the life of the loan, Aetna kept track

of advances, payments and credits on a “Mlonth] T[o]

D\ate] Transaction Summary” in the name of “GA PANEL-

ING CO”. From inception to date of bankruptcy there was

always an unpaid balance. Further loan documents were

signed in October, 1973 to reflect an increase in the loan

amount and on January 7, 1974 purportedly to reflect a

decrease in the interest rate.

Aetna’s pre-loan investigative audit examined assets

owned by a sister corporation, the bankrupt, which had

signed a lease-purchase agreement for a warehouse along

a railroad spur. Aetna required the bankrupt to sign a

separate set of Aetna-prepared loan documents each time

Paneling did so, but Aetna, as drafter, took the position

initially and consistently that there was “just one loan.”

With the opening of the warehouse in August, 1973, the

bankrupt could order boxcars of goods from suppliers, such

as the corporete petitioners, at a lower price. In 1974

Aetna wired advances in respect of the Paneling loan

directly to the bankrupt’s bank account from which sup-

pliers were paid.’

Contractual arrangements were made with Roberts to

sell goods under the corporate name, Georgia Paneling

Company of Forest Park, Inc. (“Forest Park”), at an on-

going building materials store in an Atlanta suburb which

generated substantial cash flow. Roberts owned the equip-

ment (not Paneling, as petitioners were told by the bank-

rupt). The bankrupt transferred inventory to Paneling

which consigned it to Forest Park. Upon sale a memoran-

2 Under Georgia law, should a contract be deemed ambiguous, it is

construed most strongly against the drafter. Ga Code Ann. Sec. 20-704

(5). Cf. CA. May Marine Supply Co. v. Brunswick Corp., 557 F.2d 1163

(5th Cir. 1977). Aetna has never shown what North Carolina law

provides; consequently, if an ambiguous contract, Georgia law would be

applied. Jd.

’Aetna’s opinion for the court distorts the facts in stating there was

“no evidence” that a loan was made to Paneling. Aetna in writing its

own appellate brief to the Fifth Circuit conceded there was “conflicting

evidence” (pp.14-15) and the Fifth Circuit had earlier so found. 581 F.2d

520, 521. Aetna’s bankruptcy opinion mentioned that Paneling signed

loan documents in June, 1973 and that the bankrupt signed loan

documents in June 1973, October 1973 and January 7, 1974. The

inference is that Paneling signed the first loan documents, only. This

inference is refuted by the fact that Paneling too signed loan documents

Footnotes continued on next page

dum was created and remitted to Paneling. On credit sales

Paneling prepared an invoice that was transmitted to

in October, 1973 and January 1974. Aetna’s Duke produced the October

Paneling note. Ignored also was the fact that Forest Park signed loan

documents in January, 1974, for the first time.

Against this backdrop is Aetna’s June 25, 1973 letter to Paneling:

{Letterhead of Aetna Business Credit, Inc., Highpoint, North

Carolina]

June 25, 1973

Mr. Edward C. May, Setretary and Treasurer

Georgia Paneling Co., Inc.

122 Oak Street

Roswell, Georgia

Dear Ed:

Enclosed please find legal documents necessary to begin a

financing arrangement with Aetna Business Credit, Inc. I have

two sets of documents, one each for Georgia Paneling Co., Inc.

and Georgia Paneling Supply Co., Inc. In addition, you will find

cross-corporate guarantys|sic| and personal guaranty form for the

principal shareholders covering the debt of either corporation. As

a practical matter, either set of documents might be mutually

exclusive, i.e., loan limit is $250,000.00. Due to the transfer of

goods between corporations, we have no choice in the structuring

of these documents, but we would prefer to use one corporation

and one bank account for distribution of proceeds, if this is

convenient for you.

Mr. Tom Duke will be by your office to assist you in the

execution of the documents (especially the cross-corporate guar-

antys. They may appear to be a bit confusing).

x * *

Very truly yours,

AETNA BUSINESS CREDIT, INC

Charles R. White,

Vice President

At the May 3, 4, 1977 deposition of Charles R. White he explained

the letter by stating there was “just one loan” That statement raised

the question as to which corporation the loan was made. His affidavit

in a related plenary action a month later, the MTD transaction summa-

ries furnished thereafter, indicate plainly that the loan was to Panel-

ing. There could not have been one loan with joint obligors because

Aetna chose to use two separate sets of its own prepared loan

documents.The tenor of printed documents is construed against the

author. C. A. May Marine Supply Co. v. Brunswick Corp., supra n. 2.

The fact that 1974 advances were made into the bankrupt’s bank

account is not indicative of what happened in 1973. C&S never would

furnish those documents, despite repeated requests. Nevertheless, “just

Footnotes continued on next page

Aetna. Customers’ checks in payment of credit invoices

were physically transmitted to Aetna. On cash sales a

memorandum was remitted to Paneling and the cash was

transferred to the bankrupt. At the end of each month,

Paneling, the bankrupt, Forest Park, and Roberts settled

accounts according to various agreements.

The Forest Park store burned down December 31, 1973

(not January 19, 1974 as sworn by the bankrupt in the

Statement of Affairs). On January 7, 1974, Aetna required

Forest Park, for the first time, to sign a complete set of

loan documents, purporting to grant a security interest in

the destroyed equipment. T. R. Locke, president of the

companies, signed the 20 or more loan documents without

reading them, satisfied with a decrease in the interest

rate.‘ .

one loan” was made to Paneling; and the MTD transaction summaries

conclusively establish that the loan was never paid off. It began as

Paneling’s loan and ended unpaid as Paneling’s loan.

Aetna could foreclose against the bankrupt only as a guarantor of

Paneling but the guaranty was not secured. Therefore, corporate action

by the bankrupt would seem required, although no further corporate

action would have been necessary had the loan been made to the

bankrupt.

Another distortion was that all inventory and accounts receivable

were owned by the bankrupt. In fact, discovery documents in Pen-

nington v. Aetna show that Paneling owned both. See Balance Sheets

for Paneling at March 31, 1973, March 15, 1974. The bankruptcy

judge's abrupt termination of the 60(b) hearing and failure to follow

through with the tentatively-scheduled November 9, 1977 hearing

prevented petitioners from establishing this testimony.

4 Aetna also wrote for the bankruptcy judge that the fire took place

December 31, 1973; and that petitioners knew it, discussed it among

themselves at the time, and were aware that fire insurance proceeds

were owned and transmitted to Aetna by the bankrupt. Therefore, the

evidence was not new nor did petitioners act with due diligence.

The truth is that the petitioners believed the bankrupt’s verified

Statement of Affairs which stated that the fire occurred January 19,

1974, which was after the January 7, 1974 loan documents were

executed. The depositon of Quinault Pacific Corporation’s A. R. Johnson

in Pennington v. Aetna establishes that he had no contact with the

bankrupt from December 26, 1973 to late January, 1974. Therefore,

Quinault could not have known about the fire until late January and

that was after the fire date ultimately given in the Statement of Affairs

six months later. Furthermore, Johnson's testimony is that the discus-

sions concerned the bankrupt’s nonpayment of his invoice. He did not

recall the year of any other discussions which were incidental.

The truth is that while petitioners knew the fire insurance proceeds

had been paid to Aetna, petitioners were not aware that (a) the

equipment was owned by Roberts, (b) Forest Park provided considera-

ble cash flow to the bankrupt, (c) the January 7, 1974 loan documents

Footnotes continued on next page

Earlier in December, 1973, after a comprehensive audit,

Aetna had become very dissatisfied with the Paneling loan

and decided to liquidate it. Aetna was aware of the fire and

the bankrupt’s receipt of a $60,560 check because the

bankrupt and Roberts, beneficially, were insured by

Aetna’s parent company, a major casualty insurer. $26,000

of the check represented Roberts’ equipment, and Aetna

knew it. Apina claimed $34,560 of the check as proceeds of

inventory and threatened criminal prosecution if payment

for or on account of inventory was cashed or deposited by

the bankrupt. When the bankrupt delayed remitting the

check, Aetna wrote on February 13, 1974 stating that a

recent audit showed a “negative” net worth for the com-

bined. sister corporations, Paneling’s total debt was

$229,000;'and Aetna wanted to liquidate the loan.

Paneling and the Bankrupt were desperate for cash

($171,000 in December advances had been reduced to

$71,000 in January); and upon Aetna’s verbal promise (a)

to return $26,000 so that Forest Park could be reopened

and (b) to resume a normal lender-borrower relationship,

the bankrupt remitted the $60,560 check and Paneling

$60,339 of customers’ checks. The record contains Roberts’

affidavit to use the proceeds to reopen Forest Park and

Locke’s to give the $26,000 to Roberts if it should come to

the bankrupt. |

Aetna reneged and ultimately paid off Roberts’ debt to

the First National Bank. As a consequence, the bankrupt

was unable to procure the reopening of Forest Park or to

pay its debts in the ordinary course of business and ren-

dered irretrievably insolvent. Commencing February 24,

1974, the beginning of the four-month voidable preference

period’, Aetna collected ultimately $5,000 to $10,000 more

were without consideration and fraudulent. They were unaware of

these facts because all that was important under their misapprehended

date of fire (Jan. 19, 1974), was that the bankrupt was (seemingly)

benefited at the expense of Forest Park. When the real fire date (Dec.

31. 1973) was learned, a question of the validity of the January 7, 1974

loan documents, including the so-called “cross-collateralization agree-

ment” naturally surfaced; and inquiry into the whole transaction dis-

closed the interest of Roberts and the harm done to the bankrupt rather

than benefit.

5 Bankruptcy Act of 1898, Sec. 60b. Other sections involved are

Sections 67 and 70.

than the $229,000 owed on February 13. Aetna did so by

pumping just enough money into the bankrupt that its

major suppliers, the corporate petitioners, would keep sell-

ing it goods which Paneling in turn sold to the public

whose checks in payment were transmitted to Aetna and

collected.

B. Newly Discovered Substantive Facis.

Fearing dismemberment of the bankrupt upon Aetna’s

notorious foreclosure of June 3, 1974, petitioners caused an

involuntary petition in bankruptcy to be filed June 24,

1974 and a receiver to be appointed July 29, 1974 to

preserve the books and records. The receiver represented

that he could not locate any books and records. At the first

meeting of creditors, September 10, 1974, the receiver was

appointed trustee. The trustee claimed all along he had no

important books or records. Petitioners examined what

was represented as his books and records at offices of

trustee’s co-counsel.

Aetna represented at a settlement hearing, May 18,

1976, that the facts were “simple” and, among them, Aetna

had made a loan to the bankrupt. In a December, 1976

response to discovery in a related plenary action, Aetna

represented that its books and records pertaining to the

bankrupt’s sister corporations were irrelevant to a charge

that Aetna’s bad faith should estop it too to deny it was an

unsecured creditor subordinated to petitioners’ claims

against the bankrupt. After Aetna’s discovery of petitioners

had been handled by agreement of counsel, Aetna refused

to produce any documents in said plenary action. Peti-

tioners filed a motion to compel discovery in April 1977. At

a chambers conference with the district judge who refused

to order sanctions, Aetna promised to produce documents

to petitioners but did not comply even in part until April

27, 1977. Aetna delivered the rest in dribs over a period of

30 days, or by late May 1977. From this information

petitioners were at last able to discern the true facts of

substantive fraud. Their 60(b) motion was filed May 31,

1977. At a deposition in mid-June 1977 of a former Aetna

vice president, petitioners obtained the last critical, mate-

rial evidence unproduced and hence concealed by Aetna:

Paneling’s October, 1973 Aetna-prepared promissory note.

Petitioners learned that the trustee had in fact obtained

copies of invoices covering the last six months of business

operations. Analysis showed that 80 percent in dollar

value were on Paneling’s letterhead and 20 percent on the

bankrupt’s. Petitioners learned that Aetna’s MTD transac-

tion summaries were carried in the name of “GA PANEL-

ING CO” and the receiver-trustee had been receiving them

from Aetna since bankruptcy. Petitioners learned that the

bankrupt had committed perjury by representing in the

Statement of Affairs that the Forest Park fire had occurred

January 19, 1974 (rather than December 31, 1973 as

Aetna’s unjustifiably-withheld audits disclosed). Locke,

who had verified the statement, had personally guaranteed

all of Paneling’s indebtedness to Aetna. Only then did

petitioners have cause to examine the consideration for the

January 7, 1974 Forest Park loan documents (none) and

then the identity of the owner of the previously destroyed

equipment. Locke had sworn that all equipment was

owned by Paneling; inquiry in May 1977 disclosed Roberts

to be the owner of Forest Park’s. Only then did petitioners

conceptualize that Aetna’s conduct had harmed the bank-

rupt (deprived it of cash flow from Forest Park) rather

than benefited it (paid bankrupt’s loan at expense of Forest

Park).

Furthermore, petitioners discerned that cross-

collateralization agreement allegedly signed January 7,

1974 was not executed until after March 8, 1974, an Aetna

audit noting the lack thereof. Petitioners then had reason

to inquire into the bankrupt’s guaranty of Paneling’s loan

to learn it was unsecured.

These facts constitute the basis for an estoppel in favor

of the trustee for Aetna’s bad faith conduct toward the

bankrupt preventing Aetna from setting up its perfecied

security interest against the trustee, even if the loan were

to the bankrupt and not Paneling. Cf. Central Soya Co.,

Inc. v. Bundrick, 137 Ga. App. 63, 222 S.E. 2d 852 (1975);

Pennington, Trustee v. Aetna Business Credit, Inc., No. 75-

1540A (N.D. Ga. March 30, 1978) (Order denying Aetna’s

Motion for Summary Judgment); Jn re Samuels & Co.,

Inc., 526 F.2d 1238 (5th Cir. 1976) (en banc), cert. denied

429 US. 834.

Cc. Post-Bankruptcy Fects.

At the time newly discovered substantive evidence was

obtained and petitioners were re-analyzing the Aetna-

Paneling-bankrupt-Forest Park-Roberts relationship, peti-

tioners’ appeal from the bankruptcy judge’s June 17, 1976

order approving a $350 settlement between Aetna and the

trustee over petitioners’ protests for Aetna’s harassment of

the bankrupt had just been affirmed on April 15, 1977 by

the district judge. Petitioners had urged on appeal that the

bankruptcy judge should have deferred to the district judge

before whom the plenary action was pending (cf. Chicago

& Southern Airlines, Inc. v. Waterman Steamship Co., 333

U.S. 103 (1948)), or that an evidentiary hearing should

have been held in bankruptcy court prior to approval

(Protective Committee v. Anderson, 390 U.S. 414 (1968)).

Petitioners were in a dilemma about how to set aside the

settlement by reason of the newly-discovered evidence.

They decided to move the district judge on May 16, 1977 to

allow them an extension of time to file an appeal to the

court of appeals. At the same time petitioners were aware

that the maximum one year period under Fed. R. Civ. P.

60(b) (2), (3) for setting aside a judgment for newly discov-

ered evidence or adversary party misconduct would expire

June 17, 1977. Under this pressure they moved the district

judge on May 31, 1977 to vacate his April 15th affirmance

under Rule 60(b).

The district judge denied the motion to extend time to

appeal, set a hearing date on the 60(b) motion (July 19,

1977), and held that petitioners’ right of appeal would be

preserved by his ruling on the 60(b) motion. Order of June

15, 1977. At the 60(b) hearing, the district judge deter-

mined to address in the first instance several procedural

issues in the case. On July 22, 1977 he denied the 60(b) (2),

(3), (6) motion because he perceived (erroneously) that

more than one year had expired as to grounds (2), (3) and

no extraordinary circumstances had been shown for

ground (6). Petitioners filed a second Fed.R.Civ.P. 60 mo-

tion to rectify the district judge’s misapprehension of fact,

resulting in his order of August 26, 1977 remanding the

60(b) (2), (3) motion to the bankruptcy judge for an eviden-

tiary hearing.

D. Facts of Judicial Disqualification®

(It should be borne in mind that petitioners were un-

aware of the italicized facts of judicial disqualification

until February 28, 1978, with the exception of one peti-

tioner viewing the breakfast meeting referenced below.)

On September 8, 1977 Aetna’s attorney, C. Edward

Dobbs, submitted an application to the bankruptcy judge ex

parte calling for a hearing on an assessment of attorneys’

fees against petitioners for bad faith appeal and 60(b)

motion. The bankruptcy judge signed an order that day

calling for a joint hearing on petitioners’ remanded 60(b)

motion and Aetna’s fee motion for September 19, 1977 at

8:00 A.M. The bankruptcy judge received Aetna’s attorney

because he was one of the referee’s few hand-picked no-

asset trustees who had handled over 200 no-asset cases for

the referee which the referee would have had to handle

alone without a trustee.

Informed of Aetna’s fee motion, the trustee’s co-counsel,

Freeman & Hawkins (by D. L. Cronkright, partner) sub-

mitted the next day, Friday, September 9, a similar appli-

cation ex parte to the bankruptcy judge who signed a

Cronkright-prepared order Monday, September 12, giving

notice of a hearing on the same date and time as the two

previous motions. The referee received the trustee, co-

counsel because the trustee was another of the referee's no-

asset trustees who had served as such in a large number of

cases.

Prior to the September 19, concurrent hearing on peti-

tioners’ remanded 60(b) motion and respondents’ motions

for fee award (no amount specified), the bankruptcy judge

initiated contact with Cronkright;’ and with the trustee they

researched’, drafted and typed two other pre-hearing orders

denying petitioners’ motions,’ excluded petitioners’ coun-

sel,!° one motion of which sought a continuance because of

6 See generally App. 242-253.

7 “The judge asked me to take an order”: Depo. D. L. Cronkright,

March 3, 1978, 85.

8 R.(79-1076) Vol. Il 204-207.

9 “Mr. Cronkright and I prepared that order, or prepared a draft. We

brought it to the Judge.” 2d. Supp. R. (78-3370) Vol. II 57.

10 “Q |By petitioners’ counsel] Well, did you call me or my office prior

to going to see Judge Norton with Cronkright? A |By the trustee] Well,

I'm sure we didn't because you weren't there.” Depo. J. C. Pennington,

March 3, 1978, 24.

an unrelated jury trial on September 19, which petitioners’

counsel was scheduled to try.''.

Prior to the second day (September 20, 1977) of the

concurrent hearing, the bankruptcy judge had breakfast

with the trustee.'? An employee of petitioner International

Paper Company personally observed them having break-

fast.

The presentation of petitioners’ case under rule 60(b)

was frustrated by constant interruptions by respondents

which were condoned by the bankruptcy judge.'"

Reserving decision on the 60(b) motion and calling for

briefs of evidence whether there was any material fact in

dispute,'* the bankruptcy judge secretly contacted Aetna’s

lawyer with respect to an order opinion denying the 60>)

motion.'©

The 40-page opinion was drafted by Aetna’s lawyer.'**

The 40-page opinion was typed in the offices of Aetna’s lau

firm.'® The 40-page opinion was discussed ex parte by the

'! Indeed, District (now Circuit) Judge Albert J. Henderson, Jr's law

clerk interrupted the hearing regarding counsel's availability for trial

Supp. R. (79-1076) Vol. IV. 92.

'2 Cf."... Lhave had breakfast with him before. and it could have been

that day. . .” (Depo. J. C. Pennington, March 3, 1978, 27) with “I don't

have breakfast in Atlanta, Georgia, with anybody Bankrupte,

Judge, 2d. Supp. R. (78-3370) Vol. I 65.)

'S Supp. R.(79-1076) Vol. IV. 60, 61, 89, 96, 32, 106

Supp. R.( 79-1076) Vol. V. 227, 228, 245

'4 Supp. R. (79-1076) Vol. *”. 302

'° Bankruptey Judge did not deny this charge made to him by peti

tioners’ counsel in open court. 2d. Supp. R. (78-3370) Vol. IL 25

'© “Mr. Dobbs’ office typed an opinion for this Court.” 2d Supp. R. | 7s-

3370) Vol. LL. 25.

164 Compare use of the following adverbs in the January 5. 1978

opinion: “First” (App. 46), “Secondly” (App. 46), “Thirdly” (App. 47)

“Fourthly” (App. 47), “Fifthly (App. 49), “Sixthly” App. 50). “Seven

thly” (App. 50); “Finally” (App. 51, 56, 59, 42, 44) with use of the

following adverbs opening paragraphs in Aetnas January 19. 1978

Brief in Support of Motion for Reconsideration: “First” (App. 235)

“Secondly” (Id.), “Thirdly” (Id.), “Fourthly” (Id). “Fifthiy” do. “Six

thly” (App, 236), “Seventhly” (Id.), “Eighthly” (Id). “Ninthiv” (Id)

“Tenthly” (Id.), “Eleventhly” (Id.), “Next” (Id.). “Finally” ‘App. 238)

Aetna’s Brief was designated to the district judge for inclusion in the

record on appeal to Fifth Cir. but the district judge disallowed it: upon

petitioners’ Motion to Supplement the Record on Appeal, Fifth Cir

denied same April 4, 1979

bankruptcy judge and Aetna’s lawyer.'" The 40-page opin-

ion was edited and revised by trustee’s co-counsel.'®

Aetna and the trustee never produced any competent

evidence to substantiate their contentions, only unauthen-

ticated exhibits.

The 40-page opinion set a date for the continued hearing

upon respondents’ motion for fee awards.

The foregoing acts were accomplished prior to the filing

of the December 20, 1977 order of the bankruptcy judge,

although the 40-page opinion was not filed until January

5, 1978.'*4

At the end of the first day (February 14, 1978) of

continued fee hearing, the bankruptcy judge ruled orally

that he “certainly” would not hold petitioners’ counsel

liable for respondents’ attorneys’ fees, although he would

hold petitioners liable for some part.'? At that time, no

specific amount had been sought in any document of re-

cord.

At the second day (March 6, 1978) of the continued

hearing, having received (February 28, 1978) respondents’

time records, by clerical error, seeking almost $40,000.00

of attorneys’ fees but clearly proving numerous instances

of misbehavior by the bankruptcy judge, the trustee,

trustee’s co-counsel and Aetna’s lawyer, petitioners’ counsel

had a legal and ethical duty to,!% and did confront the

bankruptcy judge, who was enraged, prompting him to

admit “we even discussed it |the draft 40-page opinion, ex

parte |\.”*°

The bankruptcy judge’s June 7, 1978, order holds peti-

tioners’ counsel jointly and severally liable with peti-

tioners for $36,331.50 of attorneys’ fees to the trustee,

acting as his own attorney,2" to trustee's co-counsel and to

17 “Iwle even discussed it .. ” See note 16.

'5 “Review and editing of proposed Order for Judge Norton's signature

provided by Ed Dobbs.” R. (78-3370) Vol. 1 177 et seq., 212 et seq.; R.(79-

1076) Vol. | 84-112, 39-45, 46-80; Depo. D. L. Cronkright, 92-93.

185A See App. at 207-212.

19 2d. Supp. R. Vol. I. 103.

198 Counsel's duties are set forth in (a) EC 1-4, DR 1-103, DR 1-102

(A): and in (b) EC 7-35, DR 7-102 (5), (8); and in (c) Canon 8, EC 8-5,

EC 8-6: of Rules and Regulations for Organization and Government of

State Bar of Georgia, 241 Ga.643 et seq. App. at 207-212.

2” 2d. Supp. R. Vol. II 36, 65.

20A Contra, In re First Colonial Corp of America, 544 F.2d 1291 at 1299

(5th Cir. 1977)

Aetna, including the time referenced above.

Previously announcing on the record that “I don’t care to

know anything about . . . bankruptcy. . . .”,2! the district

Judge entertained an ex parte application by the bankruptcy

Judge (and possibly respondents) to open depositions in a

pending plenary action, Pennington v. Aetna Business

Credit, Inc., et al., No.C75-1540A (N.D.GA.. filed August,

1975), in order to furnish alleged support for the bank-

ruptcy judge’s award of attorneys’ fees against petitioners,?2

after which district judge affirmed the award, tossing off

petitioners’ charges of partiality as “not exemplary, but

neither was it clearly erroneous”2’ after having had full

details brought to his attention months before.234

At oral argument on April 14, 1980 upon the fee appeal

(Case No. 78-3370), before a third panel of the United

States Court of Appeals for the Fifth Circuit to grapple

with the 60(b) case, the second to hear the fee award case.

respondents’ counsel made admissions in judico that (a)

Aetna had drafted the order opinion for the bankruptcy

judge and (b) the judge and trustee had breakfasted to-

gether the day in issue. Considering petitioners’ evidence,

this left no doubt but that the bankruptcy judge had

perpetrated misrepresentations of material fact and Aetna

had made misleading statements in its briefs to the first

and second panels of the Fifth Circuit. They also lend

themselves to the reasonable inference that the fee award

order of June 7, 1978 and supporting memoranda of Sep-

tember 11, 1978 and November 14, 1978 were likewise

prepared by respondents. Ide referred to preparation of the

40-page opinion by his firm as a matter of “common

practice in that bankruptcy court.” As shown at another

place, this assertion is untrue. Infra at 20. This would

suggest too that Aetna’s liasion with the bankruptcy judge

was knowingly and wilfully calculated to assist Aetna to

recover $600,000.00 in general, special and punitive dam-

ages against the corporate petitioners sought in its October

25, 1977 counterclaim filed in the plenary action. App.

222. .

Supp. R.(79-1076) Vol. LI. 34.

*2 Order, July 25, 1978, in Pennington v. Aetna, App. at 142.

“3 Order, August 30, 1978, at App. at 86.

234 R. (79-1076) Vol. I. 39-45, 46-80, 84-112; R.(78-3370) Vol. I at 177

and at 212.

E. Manner in Which Facts of Judicial Disqualifica-

tion Were Learned and Petitioners’ Resulting

Dilemma

The fee hearing and the remanded 60(b) hearing came

on for hearing concurrently on September 19, 1977 before

the bankruptcy judge. His schedule allowed two (2) hours

for both matters.238 The litigation, even at that point, was

complex. He was fully aware that petitioners believed

their claims well founded in fact and at law. Objective

evidence of close personal and professional relationships

among the bankruptcy judge, the trustee and Aetna’s coun-

sel were of gnawing concern to petitioners. Accordingly, on

September 19, 1977, they filed “Motion to Reassign Case”

to another bankruptcy judge. Observing the bankruptcy

judge and trustee at breakfast the following day did not

dissipate their concern”*.

Respondents interpreted the motion as a motion to dis-

qualify the bankruptcy judge*®. Except for counsel’s desire

not to enrage the bankruptcy judge, his upbringing to

handle sensitive issues euphemistically and his knowledge

of Mitchell v. Sirica, 502 F.2d 375, (D.C: Cir.), cert. denied

94 S. Ct. 3232 (1974), he might have so styled it. But if he

had, it would have been denied and affirmed on appeal on

the evidence available to him at that time. /d. Ironically,

the bankruptcy judge denied the motion to reassign on

Sept. 23, 1977, while at the same time (as the facts learned

Feb. 28, 1978, support) secretly engaging in continuous ex

parte contacts with respondents.

In February 1978 upon acquiring knowledge of judicial

disqualification, the 60(b) case was on appeal to the dis-

trict court. Petitioners could not raise his disqualification

in bankruptcy court and have any effect on the 60(b)

determination. They had to raise the issue on appeal in the

district court. They did so. This approach is approved in

23B Ultimately, some 8 hours were used on the 60(b) motion and 23

hours were expended on the fee award rather than the 2 hours initially

allotted. Petitioners believe this warranted their Motion to Reassign,

although part of the fee award was based on filing the motion.

24 Petitioners’ research disclosed such conduct alone was not sufficient

to disqualify, Mitchell v. Sirica, 502 F.2d 375 (D.C. Cir.1974), cert.

denied, 94 S.Ct. 3232 (1974).

25 2d. Supp. R. (78-3370) Vol. I at 35; Supp. R.(79-1076) Vol. VI at 35.

(Transcript February 14, 1978.)

Davis v. Board of School Commissioners, 517 F.2d 1044,

1051 (5th Cir. 1975).

The evidence of disqualification was learned February

28, 1978 during a recess in the continued hearing on the

fee application. The next date scheduled was March 6,

1978. On February 28, petitioners were advised that total

fees sought could be close to $40,000. Petitioners were in

great peril: they believed the bankruptcy judge was not a

man of integrity and would deny any motion for recusal

with or without a 28 U.S.C. Sec. 144 affidavit (which

would simply divert attention to the lawyer and a docu-

ment). He could enter a huge award of attorneys fees

against petitioners (but had said he would not against

petitioners’ counsel February 14, 1978). T 103. Prevailing

law indicated that while disqualification could be raised by

mandamus, it would be denied where appeal lay. Finally,

28 U.S.C.A. Sec. 455 is self-enforcing on its face and the

Fifth Circuit had ruled it self-enforcing on the part of the

judge. Davis v. Board of School Commissioners, 517 F2d

1044, 1051 (5th Cir. 1975). If a party could establish that a

judge’s conduct raised a question of partiality, the judge

would be obliged to disqualify himself sua sponte. Al-

though the bankruptcy judge undoubtably would not do so,

his failure would be reviewable on appeal and the diver-

sion of an affidavit would be averted?®.

For the foregoing reasons, petitioners confronted the

bankruptcy judge with as much tact as humanly possible

on March 6, 1978 with the charge that he had violated

Canon 3A (4) of the Code of Judicial Conduct for United

States Judges, T 20, hoping against hope thai he would not

hurl a huge fee award against them. The bankruptcy judge

was enraged. T36, 65. He stated that he was on trial; that

an accusation had been made against him. T19, 22. He did

not disqualify. He never mentioned disqualification in any

document of record. By contrast, the District Judge recog-

nized that the issue of the bankruptcy judge's disqualifica-

tion was before him in his orders of August 30, 1978, and

October 13, 1978, affirming the fee award. The Fifth

Circuit recognized that the issue of judicial disqualification

26 In the 69 years that 28 U.S.C. Sec.144 has been on the books, only a

few affidavits have been found legally sufficient, according to peti-

tioners’ research.

under 28 U.S.C.A. Sec. 455 was before it. Initially in the

60(b) case the Fifth Circuit held the misbehavior to be

extrajudicial. 581 F2d at 521. Subsequently, the (first)

panel vacated the opinion “|blecause of allegations of judi-

cial misconduct.” 588 F2d 93. Petitioners interpret this as a

change of position on the issue of extrajudiciality.

F Aetna’s $70,000 Settlement with Hampton

After the first vacation, 588 F.2d 93, and before the

second panel opinion, 607 F.2d 117, Aetna paid Hampton

$70,000.00 to drop all litigation against Aetna including

the 60(b) motion, Hampton’s plenary action against Aetna

for conversion of $39,000 of goods, Hampton's intervention

against Aetna, in return for which Aetna would dismiss its

$600,000 counterclaim against Hampton and its $36,000

joint and several fee award against Hampton. The remain-

ing petitioners urged the Fifth Circuit to remand for a

hearing at which they would be allowed to show that

Aetna did not perceive petitioners had injured Aetna. Cf.

Lloyd v. Thomas, 195 F2d 486 (7th Cir. 1952); Fed. R.

Evidence 408.

VII. SUPREME COURT SHOULD INVOKE ITS IN-

HERENT POWER OF SUPERVISION TO PRO-

TECT THE INTEGRITY OF THE FEDERAL

COURTS AND TO DETER ILLEGALITY

A. Nature of General Supervisory Power

“(T]he supervisory power serves the ‘two-fold’ purpose of

deterring illegality and protecting judicial integrity.’

United States v. Payner, —_ U.S. —, 48 USLW 4829 at

4832, n8 (1980). While the supervisory power has been

applied most notably in criminal cases, see, e.g., McNabb

v. United States, 318 U.S. 332 (1943); Nardone v. United

States, 308 U.S. 338 (1939), it has been utilized by an Art.

ill court to curb an Art. I bankruptcy court's excessive use

of power to interfere with state court proceedings, Callo-

way, Trustee v. Benton, 336 U.S. 132 (1949), and to restrict

an erroneous exercise of Art. III judicial power in civil

cases. Thermtron Products, Inc. v. Hermansdorfer, 423 U.S.

336 (1975); Thiel v. Southern Pacific Co., 328 U.S. 217

(1946). Deprivation of an impartial judge can never be

considered harmless error. Chapman v. California, 386

U.S. 18, 23 (1966)

B. Nature of Special Supervisory Power In and Over

Court of Bankruptcy

“Court of bankruptcy” was created by Congress in the

Bankruptcy Act of 18982? as an Art. I court, and was

defined as an Art. III district judge2® and, upon reference,

an Art. I referee in bankruptcy®’. The latter was appointed

to a six year term by a majority of the district judges for

the district®'. The referee could be removed from office for

incompetency, misconduct or neglect of duty by that same

majority*’. On petition for review by the district judge, the

latter could hear evidence in assessing the correctness of

the referee's findings of fact®®. The referee had no power of

contempt, but could certify facts thereof to the district

court for disposition®*. Supervisory power was complete.

Effective October 1, 1973, Bankruptcy Rules of Proce-

dure were approved by the Supreme Court®® under ena-

bling legislation which permitted substantive changes in

the Act of 1898%°. It designated the referee as “bankruptcy

judge” when contested proceedings were commenced by

complaint*’. The referee was given power to assess a fine

up to $250 for a criminal contempt committed in his

presence, but more serious conduct deserving of a larger

fine had to be certified to the district court.’’ The referee

could be removed as under prior law.” Except for the

bankruptcy judge’s November 14, 1978 memorandum and

the district judge’s February 20, 1979 order affirming the

former, all judicial acts in the instant case took place after

the effective date of the 1973 Bankruptcy Rules but before

the Nov. 6, 1978 enactment of the Bankruptcy Code of

1978. The latter provided that on date of enactment.

27 Act of July 1, 1898, c. 541, 30 Stat. 544 (1898).

28 U.S. Const. Art. I, Sec. 8. cls. 4. 18.

“9 Act of July 1, 1898, C. 541, Sec. 1/10), 30 Stat. 544 (1898).

3° Gilbertson v. United States, 168 F. 672 (7th Cir. 1909)

. Act of July 1, 1898, c. 541, Sec. 34, 30 Stat. 655 (1898)

32 Td.

33 Id. Sec, 23

34 Id. Sec. 41

35 411 U.S, 991 (1973).

36 28 U.S.C. Sec. 2075 (1970).

37 BR. 901(7)

39 BR. 920.

49 Act of July 1, 1898, c. 541, Sec. 34, 30 Stat. 544 (1898).

November 6, 1978, referees were to be henceforward called

bankruptcy judges regardless of their function.*! While a

bankruptcy judge could still be removed for incompetency,

misconduct or neglect of duty, the judicial council for the

circuit alone could remove him.** The 1898 Act was re-

pealed effective October 1, 1979*? but the Bankruptcy

Rules of Procedure are to be followed until March 31, 1984

unless inconsistent with the 1978 Code.*# The 1978 Code

allows the bankruptcy judge to punish contempts commit-

ted in the judge's presence so long as the conduct does not

warrant imprisonment.*® During the transition period, the

district courts will continue to review findings of fact and

conclusions of law of bankruptcy judges.*® After April 1,

1984 review will be by a panel of three bankruptcy judges

with ultimate review by the court of appeals.*’ At present

district courts possess some supervisory power over bank-

ruptcy judges.

C. Nature of Ethical Precepts Binding on Court of

Bankruptcy

Adopted by the American Bar Association in 1924, the

Canons of Judicial Ethics came to represent the norm for

all judicial behavior. Commonwealth Coatings Corp. v.

Continental Casualty Co., 393 U.S. 145 (1968). In 1967 the

National Conference of Referees in Bankruptcy adopted a

resolution affirming that referees were subject to the

Canons. R. L. Hiller, “Problems of Judicial Ethics for

Referees in Bankruptcy,’ Proceedings of Fifth Seminar for

Newly Appointed Referees in Bankruptcy (1968) at p. 4.

A new Code of Judicial Conduct was adopted by the

American Bar Association in 1972 and by the Judicial

Conference of the United States in April, 1973.4* On De-

cember 5, 1974 Canon 3(C) was enacted into law as new 28

USCA Sec. 455 (expanding the scope of a 1911 statute).*%

41 Act of November 6, 1978, Pub. L. No. 95-598, Sec. 213, 92 Stat. 2549

(1978) (to be codified as 28 U.S.C. Sec. 451).

42 Id. Sec. 201.

43 Td. Sec. 402(a).

44 Id. Sec. 404(a).

45 Jd. Sec. 241.

46 Id. Sec. 405.

47 Jd. Sec. 201.

4® Judicial Conference of the United States, Reports of Procedure, April

5-6, 1973, pp. 9-10.

49 Act of December 5, 1974, Pub.L. No. 93-512, 88 Stat. 1609 (1974)

The Code of Judicial Conduct for United States Judges and

28 USCA Sec. 455 were fully binding on the Art. III judges

and Art. I referee in bankruptcy at all material times in

the instant case. The Bankruptcy Code of 1978 struck

“referees in bankruptcy” from Sec. 455,5° effective Novem-

ber 6, 1978, because on that, the effective date of the Code,

the title of referee was officially changed to bankruptcy

judge.®! As such, they were “judges”, albeit Art. I judges.

This rule reflected a new ethical consensus following

upon the Code of Judicial Conduct. Only Rule 505 (b)(1)

which incorporated and superseded Sec. 39b(1) of the 1898

Act had any predecessor under the Act.®? The rule became

effective October 1, 1973.°°

D. Improper Conduct in Court of Bankruptcy.

1. Background: Uneven Criticism of Mechanically-

Adopted Findings of Fact.

Despite Second Circuit Judge Jerome Frank’s 1942 con-

demnation of district judge’s mechanically “finding” facts

filed in the clerk’s office and submitted to the judge, United

States v. Forness, 125 F.2d 928, 942-43 (2d Cir. 1942), the

Supreme Court through Mr. Justice Douglas took a more

lenient position two years later in United States v. Crescent

Amusement Co., 323 U.S. 173 (1944), and 20 years later on

appeal from the District Court of Utah, Willis W. Ritter,

Judge, United States v. El Paso Natural Gas Co., 376 USS.

651 (1964). Thereafter, judge Ritter was reversed several

times by the Tenth Circuit for the same or similar conduct.™

The lack of strong condemnation by the Supreme Court

led to loose practices in district courts which many circuit

courts tried to halt. Roberts v. Ross, 344 F.2d 747 (3rd Cir.

1965). The strongest language to date is from Ramey

50 Act of November 6, 1978, PL. No. 95-598, Sec. 213, 92 Stat. 2549

(1978).

51 Id Sec. 214 (to be codified as 28 U.S.C. Sec. 455).

52 Bankruptcy Act Comment to B.R. 505, Collier Pamphlet Ed., Bank-

ruptcy Act and Rules, Part 2, 1976, p. 892.

53 411 U.S. 911 (1973).

54 Kelson v. United States, 503 F.2d 1291 (10th Cir. 1974); G. M

Leasing Corp. v. United States, 514 F.2d 935 (10th Cir. 1975). Cf United

States v. Ritter, 540 F.2d 459 (10th Cir. 1976); United States v. Bray, 546

F.2d 851 (10th Cir. 1976); Webbe v. McGhie Land Title Co., 549 F.2d

1358 (10th Cir. 1977).

Construction Co. v..Apache Tribe of Mescalero Reservation,

616 F.2d 464 (10th Cir. 1980) calling the procedure “inde-

fensible and almost universally condemned” |Emphasis

added] 616 F.2d at 469 (n7).

Beginning in 1964 the National Conference of Bank-

ruptcy Referees sponsored seminars for newly appointed

referees in bankruptcy, modeled after seminars held for

newly appointed district judges. One referee wrote at

length of the necessity of a referee preparing his own

findings and conclusions:

“It should be remembered that referees in bank-

ruptcy are not supplied with law clerks. .

... Hence, briefs and requests for findings of fact

and conclusions of law should be required of

counsel in complicated cases, not for the purpose

of being peremptorily adopted or rejected, but as

aids in arriving at one’s own. [Cite]

“ .. I have no difficulty in following Judge

Wright's admonition that the correct adjudicating

process cannot take place unless I make findings

of fact and conclusions of law of my own.

“(T]he qualifying standards of [referees’| right to .

be designated judges of the court of bankruptcy

derive from the judicial quality of the conduct of

their hearings, and from their conscientiousness

and erudition in the preparing of legal opinions

and their findings of fact and conclusions of law.”

W. Washabaugh, Jr., “Contested and Non-Contested Mat-

ters,” Proceedings of Seminars for Newly Appointed Ref-

erees in Bankruptcy (1964) at pp. 253-54, 256. [Emphasis

added. |

2. Ghost-Written Findings of Fact for Referee.

Under the second sentence of new Canon 3A(4) of the

Code of Judicial Conduct [App 193] as well as the first

sentence of the second paragraph of old Canon 17 of the

Canons of Judicial Ethics [App. 207], a brief of argument

presented to the bankruptcy judge by one party cannot be

concealed from opposing counsel. Similarly Local Rule 91.8

of the Northern District of Georgia provides that (a) when

a district judge announces his ruling in open court, (b) the

prevailing party's counsel shall submit a proposed order

within two days, and (c) simultaneously send service copy

to opposing counsel.

A judge cannot obtain legal advice except upon notice to

the parties. The proven and admitted facts in the instant

case that the orders and opinions of the bankruptcy judge

were the secret work product of ghost-writer Dobbs and

editors Cronkright and Pennington clearly violate judicial

ethics. In re Dekle, 308 So.2d 5 (Fla. 1975); In re Boyd, 308

So.2d 13 (Fla. 1975).

3. Ex Parte Work Sessions.

Ex parte conferences are highly disfavored under old

Canon 17 (first paragraph) and are condemned under new

Canon 3A(4) (first sentence). Referees in banruptcy were

aware of the condemnation of ex parte conferences:

“All conferences at side-bar or in chambers

should be with counsel for all parties in atten-

dance at the same time. It is a breach of judicial

etiquette, indeed of judicial ethics, especially in an

adversary situation, to meet or confer with one

side only.”

R. Hiller, “Problems in Judicial Ethics for Referees in

Bankruptcy,” Proceedings of Fifth Seminar for Referees in

Bankruptcy (1968) at 7.

Finally from a referee, now bankruptcy judge in and for

Northern District of Georgia:

“Ex parte orders are orders signed and filed with-

out notice of hearing to adverse parties Because

of procedural due process requirements % notice,

and an opportunity to be heard, it can generally

be said that we cannot decide on an ex parte basis

any matter involving substantial adverse inter-

est or interests.”

W. Homer Drake, “Contested Matters & Ex Parte Proceed-

ings,” Proceedings of Fifth Seminar for Newly Appointed

Referees in Bankruptcy (1968) at 252. Rather than prove

Aetna’s assertion at a court of appeals’ rehearing that the

instant shenanigans were common practice in the North-

ern District of Georgia, a bankruptcy judge of the very

district has repudiated it in writing! Georgia state courts

also condemn ex parte conferences. Grizzard v. Davis, 131

Ga. App. 577, 206 S.E.2d 853 (1974).

Art. III courts have not condemned ex parte conferences

as they should have. Possibly part of the reason is Mitchell

uv. Sirica, 502 F.2d 375 (D.C. Cir.) (en banc), cert. denied 94

SCt 3232 (1974). Regarding the instant case, the first

.panel of the Fifth Circuit to hear the FRAP 6(a) petition

for allowance of appeal observed:

“The occurrence of ex parte conferences .. . alone

do not demonstrate collusion.” 581 F.2d 520, 521.

The panel cited Martelli v. City of Sonoma, 359 F. Supp.

397 (N.D. Cal. 1973), which was decided one month after

the Judicial Conference of United States adopted the Code

of Judicial Conduct for United States Judges, April, 1973.

The subsequent vacating of 581 F.2d 520 may have meant

that the panel withdrew the holding.

4. Social Relations: Herein of Breakfast Meeting

New Canon 5A [App 199] and new Canon 5C (Financial

Activities) (4)(b) [App. 205] were developed from old Canon

33 which was quoted with approbation by the Supreme

Court in Commonwealth Coatings Corp. v. Continental

Casualty Co., 393 U.S. 145 at 149-150 (1968), in disqualify-

ing the third arbitrator for not disclosing a connection to

the winning party. Referees have recognized that social

relations can be improper:

“Public social appearances with members of the

bar invite attention and misunderstanding. I do

not think it necessary to abandon all personal

friendships when one becomes a referee, but it is

imperative that no attorney gets the impression

that in front of you certain attorneys cannot lose.

Eating with an attorney is more questionable than

eating with a number of attorneys. Any social

appearance with attorneys engaged in litigation

before you is a grave error. *** “I think my conclu-

sions are obvious.” [Emphasis added. ]

D. Cowans, “Problems of Ethics for Referees,’ Proceedings

of Second Seminar for Referees in Bankruptcy (1965) at pp.

20-21, 23.

Without peradventure of doubt breakfast by the referee

and trustee on September 20, 1977 immediately before the

continued hearing of the 60(b) motion was improper, and

highly so.

5. Misrepresentations of Material Fact.

The referee was not under oath. Nevertheless new

Canons 1 and 2A [App. 192] provide a binding ethical

precept: an honorable judiciary. The referee stated on

March 6, 1978 that “I don’t have breakfast in Atlanta,

Georgia with anybody. .. .”, (T65) but the trustee’s co-

counsel stated in oral argument, April 14, 1980 at a court

of appeals’ rehearing that the referee and the trustee had

breakfasted together September 20, 1977 immediately be-

fore a 60(b) hearing. Also, the referee denied that Aetna’s

lawyer drafted a 40-page opinion in the 60(b) case. Aetna’s

counsel, R. W. Ide III, stated at the same oral argument,

April 14, 1980, that the referee called his firm and asked it

to prepare an order-opinion denying the 60(b) motion; and

the firm complied. The pernicious effect of these misrepre-

sentations is analyzed in the fee petition.

6. Intentional Distortions of Fact

“One of the worst forms of judicial behavior is the

subtle distortion of the facts, just enough that

certain rules of law as the referee conceives them

will apply.”

R. L. Hiller, “Problems of Judicial Ethics for Referees in

Bankruptcy,” Proceedings of Fifth Seminar for Referees in

Bankruptcy (1968) at 6. The 40-page opinion written by

Aetna’s attorney in the 60(b) case and the 37-page simi-

larly-written opinion contains numerous distortions of

fact. One is illustrative; others are given in footnote form

in Statement of the Case.

The most serious substantive distortion concerns peti-

tioners’ basic claim, to wit: Aetna is estopped to deny that

it is a receiver of a voidable or fraudulent conveyance from

the bankrupt; the estoppel is an equitable estoppel; and it

works on Aetna’s receipt whether or not under an other-

wise duly perfected security interest under Ga. Code Ann.

Section 109A-9—101 et seq., and any underlying indebted-

ness. The equitable estoppel is invoked as a matter of law

because of Aetna’s bad faith toward the bankrupt. The bad

faith conduct takes two forms: One type of conduct is

reneging on a promise to transmit that portion ($26,000) of

a third party check ($60,560) representing fire insur-

ance procee. , upon equipment owned by Roberts which

had been employed in the cash-intensive operation at

Forest Park.

A second type of bad faith conduct was requiring Forest

Park to sign a new set of loan documents dated January 7,

1974, which purportedly granted to Aetna a security inter-

est in Forest Park’s equipment when that equipment (a)

was not owned by Forest Park but by Roberts, (b) had been

previously (December 31, 1973) destroyed by fire, all of

which was known to Aetna, which intended to use the

purported security interest to justify its secretly conceived

plan not in fact to transmit fire insurance proceeds regard-

ing the equipment to the bankrupt (for re-transmission to

Roberts) as Aetna said it would. The impact of both acts of

bad faith fell on the bankrupt rendering it hopelessly

insolvent. It is not essential that the loan be to Paneling.

In the 60(b) opinion, Aetna wrote for the bankruptcy

judge that petitioners had sought damages from Aetna for

its lack of good faith, that Ga. Code Ann. 109A-1-103 was

directory, not mandatory, and did not create a cause of

action for bad faith. The estoppel arguinent was not men-

tioned nor was Central Soya Co., Inc. v. Bundrick, 137 Ga.

App. 63, 222 S.E.2d 852 (1975). That the bankruptcy judge

and Aetna were aware of petitioners’ real argument not

only appears from the September 19, and 20, 1977 hearing

transcripts and petitioners’ brief filed October 11, 1977

pursuant to direction, but the argument had been made to

the district judge in Pennington v. Aetna in defense to

Aetna’s motion for summary judgment. See Order, March

30, 1978, denying Aetna a summary judgment. App. 142.

7. Assistance to Aetna to Assure Victory on $600,000.00

Counterclaim in Plenary Action.

As reprehensible as the referee's actions to cause a

$36,000 transfer payment from petitioners to respondents,

is the effort to cause ultimately a $600,000 transfer pay-

ment from petitioners to Aetna. A comparsion of Aetna’s

counterclaim filed October 25, 1977 with Aetna’s lawyer's

40-page bankruptcy opinion shows that the latter helps to

establish by the doctrine of stare decisis, if not collateral

estoppel or merger and bar (i.e. res judicata), the material

contentions of the counterclaim. A plainer case of fraud, on

both courts and petitioners, is hard to imagine.

E. Irrelevance of Petitioners’ Missteps to Exercise

of Supervisory Powers

.. . [T]he supervisory power . . . is applied in

part to protect the integrity of the court rather

than to vindicate the constitutional rights of the

defendant... .”

United States v. Payner, __U.S. __, 48 U.S.L.W. 4829 at

4832 (n8) (1980). Petitioners’ constitutional right is to an

impartial judge, Tumey v. Ohio, 273 U.S. 510 (1927): Chap-

man v. California, 386 U.S. 18 (1966) (dictum).

Where impairment of one’s constitutional rights permits

a due exercise of supervisory power, United States v. Pay-

ner, supra, the power is directed to eradicating the illegal

conduct which impairs the integrity of the federal court.

Beneficial impact on one’s constitutional rights is inciden-

tal. In the same vein petitioners’ alleged missteps in the

instant case are irrelevant to the Court's exercise of super-

visory power since petitioners have not engaged in illegal

conduct.

F. Extent of Remedies

This Court has ruled similar conduct voids previous

proceedings. Ensminger v. Powers, 108 U.S. (11 Wall) 292

(1883); Hazel-Atlas Co. v. Hartford Empire Co., 322 US.

238 (1943); Universal Oil Products Co. v. Root Refining

Co., 328 U.S. 575 (1946).

VII. FEDERALISM AND COMITY REQUIRE FED-

ERAL COURTS TO ADOPT ETHICAL PRE.

CEPTS ESTABLISHED BY STATE COURTS

FOR STATE JUDGES, AT LEAST IN JUDI-

CIAL CIRCUITS IN WHICH SAID STATES LIE.

A. Introduction.

Nothing in United States v. El Paso Natural Gas Co.. 376

U.S. 651 (1964) or United States v. Crescent Amusement

Co., 323 U.S. 173 (1944), indicates that the findings and -

conclusions at issue were submitted to the trial judges ex

parte. By contrast, Florida state courts seemingly will not

allow a state judge mechanically to adopt party-prepared

findings and conclusions whether or not submitted ex

parte. In re Dekle, 308 So.2d 5 (Fla. 1975); In re Boyd, 308

So.2d 13 (Fla. 1975). United States judges and Florida

judges, alike, are bound to follow an identical Code of

Judicial Conduct. A conflict thus appears between judicial

enforcement of the ethical precepts in the federal judiciary

and in the State of Florida. The precepts of the State of

Georgia would appear to be nearly as stringent as

Florida's. /nfra.

B. Hypothesis.

Quaere: a federal district judge in Florida should rule

that a Florida civil rights statute, sponsored by the Florida

governor and his majority political party, violated the

Equal Protection Clause of the Fourteenth Amendment.

Assume further that the district judge’s opinion was en-

tered after a jury verdict consistent with the position

taken by the governor, causing the jury verdict to be set

aside. Take as given that the opinion was written by an

individual whose civil rights were affected by the Florida

statute, or by his attorney. Now suppose that the true

authorship of the opinion should be disseminated to the

public by the mass media.

C. Federalism and Comity.

It would be an understatement to say there would be

public agitation. Citizens of Florida and their duly elected

officials would cry “foul,” for their own state judges would

be removed from office for such conduct. Cf. In re Dekle,

supra, and In re Boyd, supra. Georgia citizens, after noting

that a referee in bankruptcy is subject to its Code, 231 Ga.

A-14 (1973), would do likewise. Cf. Jn re Broome, 245 Ga.

227, _. SE2d __, (1980); Gray v. Barlow, 241 Ga. 347, 245

SE2d 229 (1978); Smith v. State, 239 Ga. 477, 238 SE2d 30

(1977).

Discord and disharmony have been studiously avoided

by all federal officials since the founding of the republic,

with exception for civil war and misguided federal judicial

doctrine. On the latter subject, the doctrine of Swift v.

Tyson, 16 Pet. 1 (1842), was first ameliorated by a doctrine

of comity, Mutual Life Ins. Co. v. Johnson, 293 U.S. 335

(1934), and then repudiated by Erie Railroad Co. v.

Tompkins, 304 U.S. 64 (1938). Today, in diversity actions

the substantive law is state law. In federal question cases,

state law is the substantive law unless the issue is gov-

erned by federal statute or an intent has been expressed by

Congress to preempt the field.

On the subject of adjectival law, the Conformity Act of

1872 was followed in actions at law until 1938 when the

Federal Rules of Civil Procedure were approved pursuant

to the Rules Enabling Act. Since Sibbach v. Wilson & Co.,

312 U.S. 1 (1941), the question has been whether a federal

rule violates the Rules Enabling Act by affecting the

substantive rights of the aggrieved. It is now clear, how-

ever, that a federal court is to follow a federal rule even if

it will produce a different outcome than following a state

procedural rule, so long as the federal interest outweights

the state’s interest. Hannah v. Plumer, 380 U.S. 460 (1965).

Petitioners’ research has not uncovered any case assess-

ing a federal judge’s behavior under state law, although

Georgia's Code of Judicial Conduct (as others adopted

without change from the original) purports to do so. 231

Ga. A-13. Dictum in Nudd v. Burrows, 91 U.S. 426 (1875),

states that “[t]he personal conduct and administration of

the judge in the discharge of his separate function” is

outside the Conformity Act of 1872. Yet the case concerned

the propriety of a trial judge’s comments to the jury about

the weight of the evidence, and not acts of dishonor.

D. Good Behavior.

Art. III, Section 1 provides that “judges . . . shall hold

their offices during good behavior. ...”, but the expression

is not defined. Nor is it defined in Art. I, Section 3,

pertaining to impeachment, the method by which judges

(as well as presidents) are removed from office for bad

behavior. The Federalist, No. 78 (Hamilton) suggests that

lack of arbitrariness (p. 510) and adherence to “truth and

propriety” (p. 507), “integrity” (p. 511), “fit character” (p.

511) and “dignity” (p. 511) are components of “good behav-

ior” The Federalist, No. 79 contemplates that federal

judges will “behave properly.” (p. 513).

One reason federal judges were given life tenure for good

behavior was the perceived inadequacy of State judges.

Hamilton in urging that Congress should establish inferior

federal courts rather than rely on state courts to adjudge

“causes arising out of the national constitution” might be

saying at p. 528 that a state judge’s bending to “a local

spirit” in matters of national importance is a form of

behavior to be guarded against — “bad behavior” if you

will. However, what may be involved in the instant case is

a federal judge who is subject to “a local spirit.” In Florida,

the State judges are required to exercise independence to a

much higher degree than Federal judges. This is the re-

verse of the danger perceived by Hamilton.

A comparison of Federalist No. 65 pertaining to the

nature of impeachment under Art. I with Federalist No. 78

pertaining to Art. III judges suggests that “high character”

is expected of federal judges but not necessarily other

government officials. Should this expectation be different

if the Art. I official is a judicial officer, as a magistrate, a

referee in bankruptcy or a bankruptcy judge? The answer

is, Negative, because the standard for removing a referee

at the critical dates involved was “incompetency, miscon-

duct, or neglect of duty” (Sec. 34, Act of 1898) which might

be a higher standard than good behavior. For example, the

Federalist No. 79 opposed a provision to remove federal

judges for “inability;” arguably a federal judge cannot be

removed for incompetency. It is not apparent that every

“neglect of duty” is bad behavior. Since referee's findings of

fact are accorded the clearly erroneous rule, they should be

held to the same ethical precepts as Art. III judges.

E. Conclusion of Interests Analysis.

Most federal judges are lawyers first licensed by the

states in which they reside. They would be presumed to

have grown up with the Canons of Legal Ethics and/or the

Code of Professional Responsibility regarding the public

role of counsel. They would also be familiar with the

Canons of Judicial Ethics and/or the Code of Judicial

Conduct. While some of their brother lawyers became state

court judges, they were appointed federal judges. This turn

of events should not permit the latter to uphold the Su-

preme Law of the Land with a more casual, ethical atti-

tude than brother state judges. Since state judges adjudge

causes arising under the federal judicial power, they

should have standards no lower than federal judges.

Where ethical standards are higher, the federal judges

should be held to those higher standards so that the

supremacy of federal law will be anchored in superior

ethics as well as superior national importance. The nation

does not need or deserve the strain posited by:the hypo-

thetical and posed by the wrong interpretation of the

instant case.

IX. PROCEEDING BEFORE BANKRUPTCY JUDGE

WHOSE IMPARTIALITY MIGHT REASONABLY

BE QUESTIONED DEPRIVED PETITIONERS

OF FIFTH AMENDMENT DUE PROCESS AND

WAS VIOLATION OF 28 U.S.C.A. SEC. 455

A. Type of Constitutional Deprivation

1. Lack of Impartial Tribunal.

The Supreme Court has stated in dictum that — “[O]ur

prior cases have indicated that there are some constitu-

tional rights so basic to a fair trial that their infraction

can never be treated as harmless error. ..”

— at which point a footnote cites to: “Tumey v. Ohio, 273

U.S. 510 (impartial judge)” Chapman v. California, 386

U.S. 18 at 23 and n8 (1966). Another indication of the

indispensable requirement of an impartial decisionmaker

is Commonwealth Coatings Corp. v. Continental Casualty

Co., 393 U.S. 145 (1968), which reversed a First Circuit

affirmance of an arbitration award on the ground that a

pecuniary interest of a third arbitrator, chosen by each

litigant’s arbittator, invalidated the proceedings, quoting

old Canon 33 ofthe Canons of Judicial Ethics.

The issue is whether petitioners are required under

Tumey v. Ohio, supra, to establish that the bankruptcy

judge is actually partial. The answer is, No, because par-

tiality bespeaks judgment governed by bias or prejudice.

Tumey v. Ohio merely involved a state justice of the peace

whose compensation would be affected in small degree by

the judgment he would render in respect of Tumey. No bias

or prejudice was alleged or proven. Although no pecuniary

interest can be proven, petitioners’ proof of other facts —

taken in connection with admisssions in judico — should

suffice to establish mandatory disqualification. Rapp v.

Van Dusen, 350 F.2d 806 (3rd Cir. 1965). Cf. Ward v.

Village of Monroeville, 409 U.S. 57 (1972); In re Murchison,

349 U.S. 133 (1955). See, generally, Comment, Disqualifi-

cation for Interest of Lower Federal Court Judges: 28 USC

Sec. 455, 71 Mich. L. Rev. 538 (Jan. 1975).

2. Lack of Fair Notice.

Roadway Express, Inc. v. Piper, US , 48

USLW 4836 (1980), establishes that attorneys’ fees may be

awarded by an Art. III court against a litigant or his

attorney and states: |

“Like other sanctions, attorneys’ fees certainly

should not be assessed lightly or without fair

notice and an opportunity for a hearing on the

record.” 48 USLW at 4840. [Emphasis added].

Petitioners’ attorney did not receive fair notice because (a)

no motion was filed to seek an award against him person-

ally, (b) an oral motion by Aetna to seek award against

him personally was orally withdrawn in the same hearing

in which made, (c) the bankruptcy judge at the end of the

same hearing announced orally his decision to award some

amount of attorneys’ fees against petitioners but said “cer-

tainly” that petitioners’ counsel was not included. Thus

petitioners’ counsel had no opportunity to hire his own

counsel or timely to advise corporate petitioners of the

wisdom of their hiring other counsel or co-counsel.

Moreover, petitioners as a group did not receive fair

notice of the large amount sought against them prior to

commencement of the proceedings. The first day of hearing

was September 19, 1977. The second day of hearing was

February 14, 1978 when the bankruptcy judge announced

his decision to hold them liable. After the second day and

before the third day of hearing, March 6, 1978, time slips

were furnished which when combined with motion papers

indicated the sum was close to $40,000.00. Petitioners

could not request a jury trial, a discretionary right in

bankruptcy.

B. Jury Trial Right

Petitioners seek a jury trial “to guard against bias or

mistake.” Muniz v. Hoffman, 45 L.ed.2d at 335-336 (1977).

Jury trial in bankruptcy under the Act of 1898 was not

unknown. Petitioners’ request this Court to extend this

right under the Fifth Amendment, even if it should not

rule the judge disqualified. That the process due requires a

jury trial is reached upon an analysis suggested in

Mathews v. Eldridge, 424 U.S. 319 (1975).

X. CONCLUSION

As a captain of a ship, or a teacher in a classroom, a

judge sets the moral tenor for his courtroom. Default of

leadership encourages discord, occasionally misbehavior.

For 190 years this Court has exercised the judicial power

of the United States on the highest ethical plane. The

Court, and the Nation, have survived judicial decisions

altering fundamental aspects of everyday life. Without an

enforcement arm of its own, the Court has enjoyed compli-

ance with its decisions, often voluntary, assuring a Rule of

Law throughout the land.

The instant case is not so much distasteful as opportu-

nity to express the Court’s view of judicial ethics; inculca-

tion by example has not met with complete success as

evidenced by 1974 legislation, recent bills and increasing

numbers of such cases coming to the Court.

As corporate citizens, petitioners are somewhat unwit-

ting actors in this drama. They question the expenditure of

large sums to vindicate basically a problem of the public

weal; but they, too, realize that corporate citizenship has

its obligations. Perhaps the coincidence of corporate in-

volvement has made possible the presentation of these

petitions.

Petitioners urge the Court to grant the writ to vindicate

the integrity of federal courts from the ambiguities of the

written word. As with those published decisions, so too

with this Court: “The sentence of today will make the

right or wrong of tomorrow.” B. Cardozo, The Nature of the

Judicial Process (1921) at 21.

Respectfully submitted,

WINFORD KENT BISHOP

Med che

Attorney for Petitioners

1835 First National Bank Tower

Two Peachtree St., N.W.

Atlanta, Georgia 30383

404/658-1110

Shane Michael Geeter, Esq.

of Counsel

XI. CERTIFICATE OF SERVICE

I hereby certify that I have served three copies of the

foregoing Petition for Writ of Certiorari to the United

States Court of Appeals for the Fifth Circuit and Peti-

tioners’ Joint Appendix upon each respondent by deposit-

ing same in the United States Mail, sufficient postage

prepaid, properly addressed to counsel at their last known

addresses.

D. L. Cronkright, Esq., Counsel for Trustee

Bird Scherffius Flexner & Cronkright, PC.

233 Peachtree Street, Harris Tower

Atlanta, Georgia 30303

C. Edward Dobbs, Esq., Counsel for Aetna Busi-

ness Credit, Inc.

Kutak, Rock & Huie

1100 Standard Federal Building

Atlanta, Georgia 30303

This __o7 day of _ Let olla 1980.

W. Kent Bish6p

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.