September 30, 2013 6:02pm PT by Alex Ben Block
Creditors in ThinkFilm Bankruptcy Ask Judge to Step Aside
The lead creditors locked in a bankruptcy battle with film financier David Bergstein want the federal judge running the case to recuse himself after The Hollywood Reporter posted covertly recorded audio of Bergstein planning to exploit information about the judge's alleged predilection for prostitutes.
Aramid Entertainment Fund and Screen Capital International, lead creditors in the long-running involuntary bankruptcy cases involving Capitol, ThinkFilm and three other companies, filed the motion on Monday. They're asking federal Judge Barry Russell to effectively remove himself from the case.
"Bergstein is heard on the tape accusing Judge Russell of illegal personal conduct," reads the motion, "suggesting he has abused his office, and speculating as to how Bergstein can best use the information to force the court to rule in his favor."
THR posted the audio on Aug. 19.
The motion filed Monday links Bergstein's implied threats with Russell's rulings in Los Angeles on June 12, which were favorable to Bergstein and his former business partner Ronald Tutor after a long run of rulings unfavorable to the two investors. The Aramid motion says Russell "effectively reversed" his prior rulings "and ignored the appellate approval of its prior rulings."
Alex Weingarten, an attorney for David Bergstein, called the ruling a "Hail Mary."
"Aramid's fraudulent and malicious bankruptcy strategy is flailing. … Faced with the reality that they have lost, Aramid's motion is a desperate Hail Mary -- a desperate act aimed at distracting from the fact that they have lied to the Court and the public. After years and millions of dollars in legal fees it has nothing to show for its efforts.
"Moreover," says Weingarten, "David Molner [of Aramid] had the tape he is using here for well over a year already. He engineered its release to the public and then filed this motion only after he started losing in bankruptcy court."
While the existence of the tape was known, Aramid, like Bergstein, was under a court order not to make it public until earlier this month when a federal judge in New Jersey ruled that it was not confidential.
"Further," says Weingarten, "it is telling that neither of Aramid's other law firms in the [bankruptcy] cases [Stroock & Stroock & Lavan or Levene Neale] filed this motion. Presumably they knew better than to put their names and reputations on something like this."
The motion was filed for Aramid and Screen Capital by the law office of William E. Crockett in Woodland Hills, Calif.
The rulings that Aramid says were suddenly reversed by Russell involved Screen Capital's right to pursue litigation claims on behalf of the court-appointed trustee in the case to recover money and assets (movies) that were owned by the bankrupt companies. "It is the timing," adds the motion, "and the fact of this court's re-interpretation, as well as the diametrically opposed conclusions the court reach on the same issue, that are significant."
In the motion, Aramid and Screen Capital argue the recording has "destroyed" Russell's "ability to maintain the appearance of impartiality."
The determination of whether a judge should be recused, says the motion, is governed by "a plain and simple standard," that any justice "shall disqualify himself" if "his impartiality might reasonably be questioned."
The motion adds that it doesn't matter if Russell is guilty or not: "Proof of actual bias is not required for recusal." The motion quotes a statute that says only the "appearance of impartiality" is enough because the most important thing is the "overriding concern with appearances."
"The nature of Bergstein's comments," says the motion, "to an objective man on the street appears so noxious that the Court's willingness to view fairly the clams of any party will from here on out be reasonably questioned."
The motion says, "The situation is made worse" by the "history of Bergstein's conduct in this litigation and the timing of rulings by this court that have dramatically altered the potential outcome of the cases."
The motion cites a statement by Russell in court earlier in the case in which he said that Bergstein "cannot be trusted."
The motion says that Bergstein is "a man with a track record" of "paying little regard to the ethical and legal restraints inherent in the litigation process." It calls Bergstein a man who "has shown no compunction in bullying others through the threat and actual use of lawsuits and surveillance to get his way."
The motion raises questions about Russell's "dramatic reversal" in his July rulings "shortly before the tape became public." It adds that a reasonable person "would certainly question whether the court can set aside normal human reactions and emotions and act impartially."
The tape in question is one of several hundred submitted by Parmjit "Paul" Parmar, a former Bergstein business associate, in two cases, a civil matter in Los Angeles and a separate federal case in New Jersey. Parmar had been an investor in Bergstein's movies and businesses for more than six years before their relationship soured.
Parmar had a practice of taping all of his phone calls. Bergstein, arguing that the recording was illegal under California law, demanded the tapes not be made public. But Parmar says Bergstein knew he was being taped and produced e-mails showing they had discussed his recording of their conversations.
In a sworn affidavit in the federal case in New Jersey involving a company called Pineboard Holdings, Parmar said, "Bergstein told me that he is trying to reach out to a known prostitute Erica, who [sic] Bergstein claimed the Judge presiding over Bergstein's bankruptcy cases was seeing. Bergstein told me that he was going to have the prostitute give him evidence against the federal judge because Bergstein claimed the federal judge's rulings were 'killing him' and thus Bergstein needs to get rid of the federal judge without it looking like an extortion."
On Sept. 11, according to sources, Russell convened a closed-door meeting in his chambers involving all of the legal representatives in the bankruptcy cases to discuss the release of the tape and the allegations. There was no public disclosure, but a source says Russell denied any wrongdoing and said he would continue hearing the case.
The motion for Russell to recuse himself will be heard by Russell himself. If he elects to step out of the case, another judge would be appointed and that judge could change or reverse any of the prior rulings or make new rulings. Russell is one of the most respected and longest-serving federal judges on the U.S. bankruptcy court. He also is well-known in legal circles. If he refuses to step down, the creditors are expected to ask an appeals court to force Russell to step aside.
Separately, on Sept. 13, L.A. Superior Court Judge Yvette Palazuelos denied Bergstein's request to keep the tapes confidential. She ruled that the use of that information by Aramid and its executive David Molner is protected by California's free speech law.
There was no response to THR's request for comment from an attorney representing Ronald Tutor. An attorney for the trustee in the case declined comment. The public information officer for the U.S. District Court, Central California, said that Russell and the court would only respond through court filings.