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In re Wisdom

United States District Court, D. Idaho

December 20, 2017

In re ALLEN L. WISDOM, Debtor,
v.
JEREMY J. GUGINO, Appellee. ALLEN L. WISDOM Appellant,

          MEMORANDUM DECISION AND ORDER

          DAVID C. NYE U.S. DISTRICT COURT JUDGE.

         I. INTRODUCTION

         This matter comes before the Court on Debtor-Appellant Allen L. Wisdom's appeal from the United States Bankruptcy Court for the District of Idaho. The appeal is fully briefed and ripe for the Court's review. Having fully reviewed the record herein, the Court finds the parties have adequately presented the facts and legal arguments in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court finds that the decisional process would not be significantly aided by oral argument, the Court decides this appeal without oral argument. For the reasons set forth below, the Court hereby AFFIRMS the Bankruptcy Court.

         II. BACKGROUND

         On April 19, 2011, Wisdom filed for chapter 7 bankruptcy in the District of Idaho. Case No. 1:11-bk-01135-JDP.[1] Judge Jim D. Pappas was assigned the case. Id. Among other things, Wisdom claimed an exemption in his life insurance policies. On May 24, 2011, Appellee Jeremy J. Gugino, acting as a chapter 7 trustee, objected to this exemption. Id., Dkt. 23.[2] On June 29, 2011, Judge Pappas ruled that the Bankruptcy Court would not permit Wisdom to claim an exemption in his life insurance policies. Id., Dkt. 28.

         On June 5, 2012, Gugino filed his Final Report in Wisdom's bankruptcy case.[3] Id., Dkt. 144. Shortly thereafter, Wisdom objected to the Final Report arguing, in part, that Gugino employed fraud to liquidate the life insurance policies in violation of his fiduciary duties and that Gugino improperly used the Court's appointment authority to fraudulently liquidate exempt assets. Id., Dkt. 150. On September 11, 2012, Judge Pappas issued a memorandum decision approving Gugino's Final Report and rejecting Wisdom's arguments. Id., Dkt. 156. Wisdom then appealed to the District of Idaho. Case No. 1:12-cv-530-BLW. Chief District Court Judge B. Lynn Winmill affirmed Judge Pappas's decision on April 18, 2013. Id., Dkt. 13. The Ninth Circuit Court of Appeals would eventually affirm Judge Pappas and Judge Winmill on May 11, 2016. Id., Dkt. 21.

         Meanwhile, in December of 2013, Wisdom filed an adversary proceeding[4] against Gugino, Francis Stern and Anthony Pantera (attorneys), New York Life Insurance Company, and Doe Surety. Case No. 1:13-ap-06045-TLM. Wisdom's claims in the adversary proceeding related to Wisdom's underlying bankruptcy case. Judge Pappas was originally assigned to the case. Id. However, Judge Pappas sua sponte recused himself on February 5, 2014.[5] Id., Dkt. 19. Chief Bankruptcy Judge Terry L. Myers was then assigned to the case.

         At a status conference on March 24, 2014, Wisdom made an oral motion to have Judge Myers recuse himself. Id., Dkt. 24. Judge Myers gave the parties an opportunity to brief the motion. Id. Wisdom argued that Judge Myers should recuse himself because Gugino was Judge Myers's term law clerk seven years prior, and, therefore, Judge Myers had a conflict of interest. Id., Dkt. 39. Wisdom also asserted that Gugino never had the authority to take any official acts as a chapter 7 trustee because he never filed a bond with the court as required by 11 U.S.C. § 322(a). Id.

         Judge Myers denied the recusal motion in a detailed opinion and concluded that Wisdom's arguments as to Gugino's authority to act as chapter 7 trustee had no bearing on the recusal motion. Id., Dkt. 59, 60. Wisdom then filed a motion for leave to appeal Judge Myers's decision. Id., Dkt. 62. On December 10, 2014, Judge Winmill denied that motion, noting that there was nothing in the record that suggested Judge Myers was required to recuse himself. Case No. 1:14-cv-279-BLW, Dkt. 8. Wisdom appealed Judge Winmill's decision to the Ninth Circuit. Case No. 15-35013. On March 26, 2015, the Ninth Circuit summarily affirmed. Id., Dkt. 14.

         While the adversary proceeding was ongoing, the bankruptcy case continued to advance. On June 3, 2014, Wisdom filed a Motion asking the Court to order Gugino to turnover funds Gugino had allegedly obtained by fraud, i.e., the life insurance policies (“the first turnover motion”). Case No. 11-bk-1135, Dkt. 199. On June 23, 2014, before ruling on the pending motion, Judge Pappas recused himself from any further proceedings concerning Debtor's first turnover motion for the same reason he recused himself in the adversary proceeding. Id., Dkt. 203. When Judge Myers was assigned to the case, Wisdom filed another motion to have Judge Myers recuse himself. Id., Dkt. 214. On September 26, 2014, Judge Myers denied the recusal motion and the first turnover motion. Id., Dkt. 217. Judge Myers noted that the recusal motion was identical to the recusal motion Wisdom filed in the adversary proceeding-which he had already denied and Wisdom had appealed. He also noted that the turnover motion echoed the arguments made in Wisdom's objection to the Trustee's Final Report-arguments that Judge Pappas had previously rejected and were then on appeal.

         In October of 2014, Wisdom appealed Judge Myers's decision in the bankruptcy case denying the recusal motion and the turnover motion. Id., Dkt. 220. The appeal went to the District Court and Judge Edward J. Lodge was assigned the case. Case No. 1:14-cv-497-EJL. On appeal, Wisdom argued that Judge Lodge should recuse himself from the case because he “has a stake in the outcome of th[e] appeal” and was participating in a “systematic fraud that has prevailed in the District of Idaho Chapter 7 bankruptcy system.” Id., Dkt. 4. Judge Lodge declined to recuse himself and affirmed Judge Myers's decision on the recusal motion. Id., Dkt. 10. However, he dismissed the appeal on the first turnover motion, without prejudice, because “the arguments raised in th[e] appeal concerning the Turnover Motion [were] the same as those pending on appeal in the matter before the Ninth Circuit.” Id. at 9-10.

         In August of 2015, Gugino moved for summary judgment in the adversary proceeding. Case No. 1:13-ap-6045, Dkt. 117. Judge Myers granted this motion in March of 2016. Id., Dkt. 160. In May of 2016, Wisdom appealed this decision. Id., Dkt. 166. The appeal went to the District Court and was assigned to Judge Lodge. Case No. 1:16-cv-251-EJL. Wisdom again moved to have Judge Lodge recuse himself. Judge Lodge denied this motion and affirmed the grant of summary judgment in March of 2017. Id., Dkt. 12. Wisdom has appealed this decision to the Ninth Circuit. Id., Dkt. 15. This appeal is currently pending.

         Meanwhile, in May of 2016, the Ninth Circuit issued its decision affirming Judge Pappas's approval of Gugino's Final Report in the bankruptcy case. Despite the Ninth Circuit's affirmance, Wisdom filed another turnover motion that challenged Gugino's liquidation of the life insurance policies (“the second turnover motion”). Case No. 1:11-bk-1135, Dkt. 241. Judge Pappas reviewed the motion and “conclude[d] that the allegations of, and the relief requested in, the [second turnover motion] potentially raised issues of fact and law closely related to the matters previously brought before the Court for resolution in connection with Debtor's Motion for Order to Turn Over Estate Funds to Debtor Obtained by Fraud and Surcharge Trustee.” Id., Dkt. 245. As Judge Pappas had recused himself from considering this first turnover motion, Judge Pappas also recused himself from considering the second turnover motion. Id.

         After Wisdom filed a request that the Bankruptcy Court appoint a new judge to hear the pending motion, the Court assigned Judge Myers to the case. Id., Dkt. 249. Wisdom again moved for Judge Myers to recuse himself. Id., Dkt. 251. Judge Myers again denied the recusal motion. Id., Dkts. 253, 254. Then, on April 17, 2017, Judge Myers denied the second turnover motion. Id., Dkt. 281. Wisdom appealed this denial and the denial of the recusal motion. Id. at 285. The appeal went to the District of Idaho and Judge Winmill was assigned the case. Case No. 1:17-cv-254-DCN. Judge Winmill then transferred the appeal to the undersigned on August 2, 2017. Id., Dkt. 6. This is the appeal that is currently before the Court.

         III. STANDARD OF REVIEW

         District courts review bankruptcy court decisions in the same manner as would the Ninth Circuit. See George v. City of Morro Bay (In re George), 177 F.3d 885, 887 (9th Cir. 1999). Thus, the Court reviews the bankruptcy court's conclusions of law de novo and the bankruptcy court's factual findings for clear error. Id.

         The Court reviews a bankruptcy court's denial of a motion to recuse for an abuse of discretion. Hale v. United States Trustee (In re Basham), 208 B.R. 926, 930 (B.A.P. 9th Cir. 1997). “A bankruptcy court abuses its discretion if it applies the law incorrectly or if it rests its decision on a clearly erroneous finding of a material ...


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