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In Re: Jim Slemons Hawaii, Inc., Debtor. v. Continental Investment Company

March 13, 2013

IN RE: JIM SLEMONS HAWAII, INC., DEBTOR.
JIM SLEMONS HAWAII, INC., APPELLANT/CROSS-APPELLEE,
v.
CONTINENTAL INVESTMENT COMPANY, LTD., APPELLEE/CROSS-APPELLANT,)
v.
U.S. TRUSTEE; SHM, INC., DBA CAR STEREO EXPRESS; TONY HAWAII CORP., APPELLEES.



Appeal from the United States Bankruptcy Court for the District of Hawaii Honorable Lloyd King, Bankruptcy Judge, Presiding. Bk. No. 09-01802

SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

MEMORANDUM*fn1

Argued and Submitted on February 21, 2013 at Pasadena, California

Filed - March 13, 2013

Before: JURY, MARKELL and TAYLOR, Bankruptcy Judges.

These cross-appeals arise from debtor Jim Slemons Hawaii, 3 Inc.'s second motion to recuse bankruptcy Judge Robert J. Faris 4 (Second Recusal Motion) from presiding over its bankruptcy case. 5 On October 12, 2011, this Panel affirmed Judge King's order 6 denying debtor's first motion to recuse Judge Faris (First 7 Recusal Motion) in Jim Slemons Haw., Inc. v. Office of the U.S. 8 Tr., et al. (In re Jim Slemons Haw., Inc.), BAP No. HI-10-1284. 9 A few months prior to our ruling, on June 20, 2011, debtor filed 10 its Second Recusal Motion. Judge King again decided the matter 11 and denied debtor's motion by order entered August 3, 2011 12 (Recusal Order #2). One day before the issuance of that order, 13 debtor filed an ex parte motion to reopen the Second Recusal 14 Motion asserting, among other things, that "new matters" had 15 arisen. Judge King denied debtor's motion to reopen by order 16 entered August 3, 2011. Debtor now appeals these orders (BAP 17 No. 11-1464).

18 Continental Investment Co., Ltd. (CIC) cross-appeals the 19 bankruptcy court's ruling with respect to Recusal Order #2 (BAP 20 No. 11-1475). CIC also appeals from the bankruptcy court's 21 order denying CIC's motion for reconsideration of portions of 22 Judge King's Memorandum Decision related to Recusal Order #2 23 (BAP No. 11-1468). For the reasons stated below, we DISMISS 24 CIC's cross appeal with respect to Recusal Order #2 for lack of 25 jurisdiction and AFFIRM the bankruptcy court's decisions in all 26 respects.

I. FACTS*fn2 AND PROCEDURAL BACKGROUND

Set forth below is a history of the relevant facts related to debtor's chapter 11*fn3 case and a summary of debtor's two motions for recusal and its allegations against Judge Faris.

Debtor filed its chapter 11 petition on August 10, 2009. Debtor was the lessee of several leases and sub-leases (Lease) with CIC, the lessor and fee owner of the underlying real property. The Lease was debtor's primary asset. The real property was expected to be condemned, in part, by the City and County of Honolulu in connection with the right of way for its new light rail system. Debtor, hoping to reap a profit from the condemnation action, listed a condemnation claim against the City of Honolulu in the estimated amount of $750,000 in Schedule B.

A. Employment of Debtor's Attorney

On September 28, 2009, Anthony P. Locricchio, filed an application to be employed as debtor's attorney. After objections by the United States Trustee's (UST) office were resolved,*fn4 the court approved Locricchio's employment as debtor's general counsel by order entered on January 1, 2010.

B. Post-petition Rent: The November 9, 2009 Order Shortly after the bankruptcy filing, on August 25, 2009, CIC moved for the timely payment of post-petition rent under § 365(d)(3) (Post-petition Rent Motion). On October 8, 2009, debtor opposed the motion on the ground that CIC lacked standing to bring the motion because the motion and memorandum in support occasionally referred to CIC as Consolidated Investment Company, Ltd. Debtor made no other arguments in opposition.

On the morning of October 19, 2009 - the day of the hearing on CIC's motion - debtor filed a pleading labeled as a motion (Rent Offset Motion) without notice of a hearing date. In the motion, debtor sought to (1) obtain a $85,000 credit against rent payments due CIC for the remainder of August and all of September; (2) pay the October rent; and (3) set an evidentiary hearing for the resolution of various disputes between debtor, CIC and others.

At the October 19, 2009 hearing, the bankruptcy court informed Locricchio that it had not read debtor's papers which were filed that morning because they were untimely. In granting 2 CIC's Post-petition Rent Motion, the bankruptcy court stated: 3 With regard to the motion for payment of rent, I'm I'm going to grant that motion and leave for another 4 day the question of - I understand the October rents going to be paid promptly, and I'll leave for another 5 day the - the question of whether the August and September rents have to be paid, and if they're not 6 what consequences the non-payment would have. Hr'g Tr. 10/19/09 16:24-25; 17:1-4.

8 The court granted CIC's motion by order entered on November 9, 9 2009 (November 9 Order). The order stated in relevant part: 10 IT IS FURTHER ORDERED ADJUDGED AND DECREED that Jim Slemons Hawaii, Inc. is directed to timely pay the 11 monthly rent or a pro rated amount of monthly rent for the post-petition period from the petition date, 12 August 10, 2009, to the present and continue to make payments pursuant to Section 365(d)(3), until further 13 Order of this Court.

14 The order included signature lines for Locricchio and Didion, 15 the UST, to indicate their approval as to the form of the order. 16 The signature lines were blank when the bankruptcy court signed 17 and entered the order. The BNC Certificate of Service showed 18 that after entry of the order it was served on debtor and 19 Locricchio. Debtor did not appeal the November 9 Order and it 20 became a final order in the case. As further discussed below, 21 this order forms the crux of the dispute with respect to 22 debtor's Second Recusal Motion. 23 C. CIC's Motion to Terminate The Lease 24 Under § 365(d)(4)(A) and (B), the deadline for debtor to 25 assume the Lease or move for an extension of time to assume was 26 early December 2009. Debtor neither filed a motion to assume 27 the Lease nor did it move to extend the time to assume the Lease 28 within the statutory time period.

On December 23, 2009, CIC filed a motion (Lease Termination Motion) seeking a declaration from the bankruptcy court that the Lease was terminated and an order directing debtor to surrender the premises.

On January 8, 2010, debtor filed an opposition, contending, among other things, that its Rent Offset Motion barred CIC from seeking to terminate the Lease until the court ruled on the various disputes. Debtor further asserted that its Rent Offset Motion made clear that it had assumed the unexpired lease under § 365(d)(4). Finally, debtor maintained that once CIC filed its Post-petition Rent Motion, it was barred from claiming that debtor had not assumed the Lease.

At the January 19, 2010 hearing, the court took the matter under advisement due to debtor's complaint that CIC gave debtor twenty-seven days notice instead of twenty-eight days. The court gave debtor until February 11, 2010, to file a supplemental memorandum and CIC's counsel was given to February 18, 2010, to file a reply.*fn5 Debtor requested a further extension to February 18, 2010, which the bankruptcy court granted, and the time for CIC's reply was extended to February 25, 2010.

In debtor's supplemental pleading filed on February 18, 2010, debtor accused the bankruptcy judge of being biased and stated that it would be filing a motion to disqualify him.

1 On February 22, 2010, before the filing of CIC's reply, the 2 bankruptcy court issued a Memorandum Decision, finding that the 3 Lease was rejected on December 9, 2009, by operation of law 4 under § 365(d)(4). The bankruptcy court rejected debtor's 5 argument that its Rent Offset Motion constituted a properly 6 noticed and timely motion to assume the Lease. The court also 7 observed that a debtor must pay post-petition rent under 8 § 365(d)(3) even if it later decided to reject the lease. 9 Finally, because debtor had mentioned in its papers that it 10 intended to file a motion for recusal, the bankruptcy judge 11 addressed the issue in the Memorandum Decision, concluding there 12 was no basis for his disqualification. 13 The court entered judgment for CIC on March 3, 2010 14 (Termination Judgment). 15 D. Debtor's First Recusal Motion 16 On February 23, 2010 -- one day after the court issued its 17 Memorandum Decision terminating debtor's Lease -- debtor filed 18 its First Recusal Motion to disqualify Judge Faris. Debtor 19 alleged that the judge overlooked CIC's procedural 20 irregularities and considered pleadings it should have stricken.

21 Specifically, debtor asserted that the court should have 22 stricken CIC's Lease Termination Motion because of the 23 insufficient notice (twenty-seven days instead of twenty-eight). 24 Debtor also alleged that CIC's counsel was part of a "bankruptcy 25 club," which was a social luncheon gathering of bankruptcy 26 attorneys that the bankruptcy judge regularly attended and which 27 excluded some attorneys from attending. Finally, debtor alleged 28 that the court rushed out its February 22 Memorandum on CIC's Lease Termination Motion due to the possible delay caused by debtor's notice of its yet-to-be-filed recusal motion.

Debtor's First Recusal Motion was set for hearing on April 26, 2010, before Judge King.*fn6 On April 7, 2010, debtor filed an ex parte motion to stay the hearing so that it could conduct an investigation into the court's internal procedures. The investigation would supposedly uncover whether Judge Faris had improperly back-dated his Memorandum Decision from February 24 to February 22 due to debtor's pending recusal motion. Judge King denied debtor's ex parte motion by Memorandum Decision and an order entered April 9, 2010.

At the April 26, 2010 hearing, Judge King denied debtor's First Recusal Motion. On May 5, 2010, Judge King issued a Memorandum Decision, finding that (1) Locricchio had not offered any evidence that if luncheon meetings were held and Judge Faris participated, the attendees precluded him, or any other attorney, from attending; (2) although debtor had insufficient notice of CIC's motion to terminate the Lease, the notice deficiency resulted in no prejudice to debtor because Judge Faris gave debtor the opportunity to file a supplemental pleading; (3) debtor failed to cite any case law that would require a court to deny a motion (versus continuing it) due to insufficient notice; and (4) Judge

Faris did not err by issuing his Memorandum Decision granting CIC's motion to terminate the Lease prior to the hearing on debtor's motion to disqualify him. Judge King concluded by stating that debtor's allegations of bias against Judge Faris lacked factual and legal support.*fn7

The bankruptcy court entered the order denying debtor's First Recusal Motion on May 5, 2010.*fn8

Debtor appealed the ruling to this Panel. The Panel summarily affirmed Judge King's decision denying debtor's First Recusal Motion in In re Jim Slemons Haw., Inc., BAP No. 10-1284, filed on October 12, 2011.*fn9 E. The May 24, 2010 "Ambush" Hearing

Meanwhile, Locricchio, debtor, CIC and the UST filed various motions.

On February 4, 2010, Locricchio filed an application for interim fees, requesting $39,647.40 for his services (Fee Application). On February 25, 2010, the UST objected on the grounds that Locricchio failed to follow the UST's guidelines for fee applications or discuss any of the factors in ยง 330(a) to assist the court in determining the reasonableness of the fees. CIC also ...


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