Byrd v. Maricopa Cty Sher Of, et al

Filing 156

ORDER: On or before 09/01/11, each side shall file a notice stating whether or not it waives the conflict described above. See order for complete details. Signed by Judge Neil V Wake on 8/25/11. (NKS)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Charles Edward Byrd,
Plaintiff,

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vs.

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Joseph M. Arpaio, et al.,
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Defendants.
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No. CV04-02701-PHX-NVW
ORDER

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This case has been pending before me for several years, and there have been extensive

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proceedings, including a full trial and appeal. A final pretrial conference is set for September

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14, 2011.

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Since the previous trial, a legal dispute arose in which the law firm of Fennemore

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Craig PC — which represents Mr. Byrd — represents a plaintiff against a limited liability

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company and a limited partnership in which I and my wife have indirect interests. Though

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there is no claim or possibility of personal liability to me and my wife, we have beneficial

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interests in the entities and therefore have an ultimate financial interest in the litigation.

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I have no actual or potential bias against Fennemore Craig and I currently preside over

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cases in which Fennemore Craig’s clients have waived the potential conflict. Because this

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case predated the LLC/LP dispute described above, I did not recognize the potential conflict

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in this case until recently.

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A more complete description of the LLC/LP litigation, and my and my wife’s

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interests, is as follows:

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THE INVESTMENT ENTITIES AND MY INTEREST IN THEM

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I and my wife are both (a) members of Apache Peak Investments, LLC, an Arizona

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limited liability company, and (b) shareholders of Whetstone Development Company, an

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Arizona corporation. Apache Peak Investments, LLC is a partner of Whetstone Partners,

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LLP, an Arizona limited liability partnership. I am not a general partner of Whetstone

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Partners, LLP. My involvement in it is only indirect, through my ownership interest in one

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of its constituent partnerships, Apache Peak Investments, LLC. Whetstone Partners has an

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interest, either as owner, Trust Beneficiary, or Beneficiary of a Deed of Trust, in

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approximately 13,000 acres of land located in Benson, Cochise County, Arizona. This land

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is commonly known as the “Whetstone Ranch.” Along with other property, approximately

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1,700 acres (the “WDC Investment Property”) of the Whetstone Ranch was optioned by

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Whetstone Partners, LLP to WDC Investment Company, LLC. WDC Investment Company,

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LLC is currently wholly owned by Whetstone Development Company.

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I do not act as a manager, officer, or director of any of these entities. I have never

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acted in a management capacity for any of them. As shareholders, we have less than a 1%

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percent interest in Whetstone Development Company, the sole member of WDC Investment.

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Therefore, we indirectly hold the same percentage interest in WDC Investment Company.

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By virtue of our membership in Apache Peak Investments, LLC which in turn is a member

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of Whetstone Partners, LLP, we also have ultimately less than 1% beneficial interest in

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Whetstone Partners, LLP.

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SAGE LITIGATION

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WDC Investment Company entered into a contract to assign its option rights in the

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WDC Investment Property to Sage Whetstone, LLC, a Delaware limited liability company.

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On April 30, 2008 Sage Whetstone filed a Complaint in the U.S. District Court, District of

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Arizona (Complaint No. CIV-08-275-JMR) against both WDC Investment Company, LLC,

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and Whetstone Partners, L.L.P. arising out of the contract for the option rights. Fennemore
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Craig PC represents Sage Whetstone, LLC in the litigation. The Complaint contains four

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counts, which are as follows:

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1. Count One: (Breach of Contract – Covenant of Good Faith and Fair

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Dealing). The contract provided that certain documents would be imposed as encumbrances

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(the “Encumbrance Documents”) upon the WDC Investment Property. Sage Whetstone

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alleges that the Encumbrance Documents tendered to Sage Whetstone in connection with the

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contract were “not commercially reasonable, and seek to deprive Sage Whetstone from

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receiving the benefits reasonably contemplated and expected to flow to it under the

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Agreement.” Therefore, Sage Whetstone asserts that it is entitled to damages for breach of

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contract.
2. Count Two: (Recision of Contract). Sage Whetstone alleges that the parties

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understood that “a material basis of the Agreement was the participation of a financially

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responsible, experienced, national scope homebuilder and developer such as Pulte [Homes].”

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Because Pulte Homes withdrew from a contract to purchase a separate parcel within the

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Whetstone Ranch, Sage Whetstone claims it is entitled to recision of the contract.

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3. Count Three: (Breach of Contract – Return of Deposit). Sage Whetstone

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alleges that “if the parties do not agree on Encumbrance Documents, Sage Whetstone can

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terminate the Agreement, and the refundable deposits paid by Sage Whetstone then shall be

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repaid to Sage Whetstone.” Sage Whetstone alleges that it did not agree to the Encumbrance

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Documents, and therefore, is entitled to the return of its refundable earnest money deposit

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in the amount of $1, 600,000.00.

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4. Count Four: (Unjust Enrichment). Sage Whetstone alleges that it has “paid

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for services and consultants whose work has increased the value of the land.” Sage

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Whetstone further alleges that WDC Investments and Whetstone Partners have failed “to pay

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Sage Whetstone for the value of the benefits received,” and that such failure to pay for the

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value of these benefits is not justified. Therefore, Sage Whetstone alleges that it is entitled

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to payment of damages arising from WDC Investments’ and Whetstone Partners’ unjust

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enrichment in connection with Sage Whetstone’s planning and consulting services. No
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specific amount is prayed for under this count. However, Sage Whetstone alleges that it

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expended approximately $4,430,000.00 in connection with “the Master Planned Community”

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it intended to construct upon the property.

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5. Answer and Counterclaim. The Defendants in this action have filed an

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Answer and Counterclaim and have asserted both that nothing is owed to Sage Whetstone,

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LLC and that Sage Whetstone, LLC is liable to the Defendants pursuant to A.R.S. § § 33-420

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for their filing of a wrongful lis pendens.

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STANDARDS OF JUDICIAL DISQUALIFICATION

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The standards for judicial disqualification are set out in 28 U.S.C. § 455. I find no

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grounds for disqualification under 28 U.S.C. § 455(b), which are non-waivable. However,

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the general disqualification of 28 U.S.C. § 455(a) requires a judge to disqualify himself “in

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any proceeding in which his impartiality might reasonably be questioned.” Section 3.6-3 of

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the Guide to Judiciary Policies and Procedures summarizes general principles of

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disqualification where a lawyer appearing before the judge is representing an opposing party

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in other litigation adverse to the judge:

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§ 3.6-3 Lawyer Representing Party Opposing Judge in Other Litigation
(a) A judge should recuse from cases handled by a law firm, one of whose members
or associates represents a party adverse to the judge in other litigation. Similarly, a
judge who joins a class action arising from former employment with the Department
of Justice should recuse (subject to remittal) from cases handled by a DOJ attorney
directly involved in the class action or the underlying administrative decisions leading
to it.
(b) Recusal is not required when a lawyer or law firm previously represented an
adverse party in litigation to which the judge or the judge’s minor child was a party,
after the matter has been finally closed.
(c) Judge should recuse, subject to remittal, from cases in which the bankruptcy
trustee’s counsel is an attorney in a firm whose partner is suing the judge in unrelated
litigation.
(d) When a former law firm is involved in litigation that may result in the judge’s
personal liability, the judge should recuse (absent remittal) where the following
persons appear: lawyers who are parties against the law firm; law firms representing
plaintiffs against the law firm; lawyers who are lay and expert witnesses against the
law firm; specific lawyers representing the law firm; other members of the firms
representing the law firm.
(e) A judge should recuse from matters handled by a law firm representing a
developer, where the judge’s property value would be diminished substantially by the
development, the judge has publicly opposed it, and the matter is in litigation (though
the judge is not a party).
(f) A judge’s impartiality cannot reasonably be questioned because a party moved, in
unrelated litigation, to add as a defendant a company in which the judge had a
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financial interest, but then withdrew the motion.

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I have previously concluded that my ultimate financial interests in Whetstone

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Development Company, the sole member of WDC Investment Company, LLC, and

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Whetstone Partners, L.L.P. are sufficient to implicate 28 U.S.C. § 455(a), as interpreted by

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section 3.6-3 of the Guide to Judiciary Policies and Procedures. However, though my

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impartiality might reasonably be questioned in matters in which Fennemore Craig PC are

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counsel, I have no actual bias or prejudice for or against the firm or any of its lawyers, or for

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or against any of its clients in the matters before me.

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Disqualification under 28 U.S.C. § 455(a) is subject to waiver if “preceded by a full

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disclosure on the record of the basis for disqualification.” 28 U.S.C. § 455(e). I have

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consulted with the office of the General Counsel of the Administrative Office of the Courts,

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which provides advice to federal judges on matters of judicial ethics and disqualification, and

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I am advised that my disqualification in this case is subject to waiver. I will therefore require

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the parties to file a statement by September 1 indicating whether or not they waive the

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potential disqualification.

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Regarding Plaintiff’s “Motion for Additional Time to Respond to Defendants’

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Motions in Limine and Motion to Continue the Pretrial Conference Set for September 14,

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2011” (Doc. 155): If I continue to preside over this case after September 1, I will grant

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Plaintiff a reasonable extension. Otherwise, the next judge will address that motion.

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IT IS THEREFORE ORDERED that, on or before September 1, 2011, each side shall
file a notice stating whether or not it waives the conflict described above.
DATED this 25th day of August, 2011.

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