Free Order on Motion for Recusal - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 Angelo S. Tullo, et al., 13 Defendants. 14 15 16 Currently before the Court is Defendant Angelo S. Tullo's ("Defendant Tullo") 17 18 the Court issues the following Order. 19 I. 20 Defendant Tullo has been charged with several counts including conspiracy, wire 21 fraud and money laundering. On June 5, 2006, Magistrate Judge Lawrence O. Anderson held 22 a hearing to address Defendant Tullo's request to enter a plea of guilty and made Findings 23 and Recommendations (Dkt.#118). The Court adopted such findings in accepting Defendant 24 Tullo's guilty plea. (Dkt.#123). On May 21, 2007, the Court held a status hearing with 25 Defendants Tullo and Molter to raise the relevance, if any, of civil proceedings previously 26 27 28 Defendant Margaret Molter ("Defendant Molter") has joined in Defendant Tullo's Motion. (Dkt.#191).
Case 2:04-cr-00539-MHM Document 248 Filed 09/07/2007 Page 1 of 6
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

United States of America, Plaintiff, vs.

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No. CR 04-0539-PHX-MHM ORDER

Motion for Recusal Pursuant to 28 U.S.C. § 455. (Dkt.#186).1 After reviewing the papers,

Background

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before this Court in which Defendant Tullo's name and alleged misconduct was asserted by Plaintiff Pamela Thompson ("Ms. Thompson") in her complaint. See Thompson v. George Paul, et al., CIV 05-0990-PHX-MHM ("Thompson"). After a discussion with the Parties, the Court granted Defendant Tullo's counsel leave to assert a motion for recusal "if a more specific basis exits." (Dkt.#181). On June 6, 2007, Defendant Tullo filed the instant Motion to recuse based upon the allegations asserted in the Thompson matter.2 A. The Thompson Litigation

On April 1, 2005, Pamela Thompson filed a civil complaint in this District asserting claims of: (1) violation of section 10(b) of the Securities and Exchange Act; (2) Abuse of Process; (3) Wrongful Institution of Civil Proceedings; (4) Fraudulent Misrepresentation; (5) Negligent Misrepresentation; (6) Third Party Professional Negligence; (7) Tortious Interference with Contractual Relations; (8) Intentional Infliction of Emotional Distress; and (9) Negligent Infliction of Emotional Distress. Ms. Thompson's claims were asserted against Lewis and Roca LLP, George Paul, Karen Paul, Tom Morgan, Scott Dewald and Deborah Jamieson (the "L&R Defendants") (Complaint "Compl." ¶¶6-10) as well as Capitol Detective Agency. (Id. at ¶11). Ms. Thomson's allegations arose out of her resignation as Chief Financial Officer, Secretary, and Treasurer of YP.net in May, 2002. (Id. ¶17). Ms. Thompson's resignation was allegedly motivated by ethical and professional concerns regarding accounting and disclosure practices of YP.net and Defendant Tullo, the Chief Executive Officer of YP.net. Id. Upon receiving Ms. Thompson's resignation, YP.net, represented by the L&R Defendants, sued Ms. Thompson and Ms. Thompson countersued. (Id. ¶26). Ms. Thompson asserted that the L&R Defendants, on behalf of Defendant Tullo, instituted the baseless litigation to harass Ms. Thompson and to prevent her from disclosing information to law enforcement regarding the criminal investigation of Mr. Tullo. (Id. ¶¶26-32). On April 22, 2004, the parties entered settlement negotiations. (Id. ¶37). Ms.

Defendants Tullo and Molter are set to be sentenced by this Court on November 5, 2007. (Dkt.#243). -2Case 2:04-cr-00539-MHM Document 248 Filed 09/07/2007 Page 2 of 6

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Thompson alleged that she relied on certain false statements made by the L&R Defendants when accepting YP.net's settlement offer, comprising of YP.net's common stock. (Id. ¶38). For instance, an alleged false statement made by the L&R Defendants was that there was no criminal investigation targeted at Defendant Tullo. (Id. ¶37). Ms. Thompson asserted that due to the L&R Defendants' conduct and false misrepresentation, Ms. Thompson was unable to sell her YP.net stock before the government indicted Mr. Tullo, and consequently, the value of Ms. Thompson's stock plummeted. (Id. ¶¶44,45). On December 5, 2005, the Court issued its order granting in part and denying in part the L&R Defendants' motion to dismiss Ms. Thompson's claims. The Court's ruling was made based upon the standard of Rule 12(b)(6) of the Federal Rules of Civil Procedure. Specifically, the Court ordered that dismissal with prejudice was proper regarding Ms. Thompson's claims of: (1) violation of Section 10(b) of the Securities and Exchange Act; (2) Fraudulent Misrepresentation; (3) Negligent Misrepresentation; (4) Third Party Professional Negligence; and (5) Tortious Interference with Contractual Relations. Further, the Court dismissed without prejudice Ms. Thompson's claims of: (6) Abuse of Process; (7) Wrongful Institution of Legal Proceedings; and (8) Negligent Infliction of Emotional Distress. The Court denied the motion to dismiss regarding Ms. Thompson's Intentional Infliction of Emotional Distress claim. Lastly, the Court held that "in the interests of judicial economy, convenience, fairness, and comity, on balance, favor declining to exercise supplemental jurisdiction over the remaining state law claims pursuant to this Court's discretion under 28 U.S.C. § 1367(c)." (Dkt.#33). The Court subsequently denied Ms. Thompson's motion for reconsideration on February 6, 2006, finding that it had previously addressed the arguments raised and that the arguments were again without merit. (Dkt.#48). Final judgment was entered on March 20, 2006. (Dkt.#54). II. Analysis Defendant Tullo makes his request for recusal pursuant to 28 U.S.C. § 455(a) which provides that "[a]ny justice, judge or magistrate judge of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned." The -3Case 2:04-cr-00539-MHM Document 248 Filed 09/07/2007 Page 3 of 6

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Ninth Circuit employs an objective test, "`whether a reasonable person with knowledge of all the facts would conclude that the judge's impartiality might reasonably be questioned.'" Clemens v. United States District Court for the Central District of California 428 F.3d 1175, 1178 (9th Cir. 2005) (quoting Herrington v. County of Sonoma, 834 F.2d 1488, 1502 (9th Cir. 1987)). The "reasonable person" means a "well informed, thoughtful observer" not a

"hypersensitive or unduly suspicious person." Id. "Section 455(a) asks whether a reasonable person perceives a significant risk that the judge will resolve the case on a basis other than the merits." Id. (citing In re Mason, 916 F.2d 384, 385 (7th Cir. 1990)). Because an analysis under § 455 (a) is fact driven, an analysis under the statute "must be guided, not by comparison to similar situations addressed by prior jurisprudence, but rather by an independent examination of the unique facts and circumstances of the particular claim at issue." Id. (citing United States v. Bremers, 195 F.3d 221, 226 (5th Cir. 1999)). It is also important to note that a judge has "as strong a duty to sit when there is no legitimate reason to recuse as he does to recuse when the law and facts require." Id. at 1179 (citing Nichols v. Alley, 71 F.3d 347, 351 (10th Cir. 1995)). In the instant case, Defendant Tullo asserts that this Court should recuse based upon the "tangentially-related"Thompson litigation, referenced above. (Defendant Tullo's Motion, Dkt.#186, p.1). Specifically, Defendant Tullo contends that he "has a concern that, because he is not a party to the Thompson . . . litigation and had no representation in that matter, factual allegations about his conduct and activities were placed before the Court which places him in a negative light and may impact the Court's assessment of him in shaping the upcoming sentencing decision." (Id. p.2). Defendant Tullo further notes that the pleadings filed by Ms. Thompson which the Court reviewed "are replete with negative comments about [him], many of which imply or directly allege ethical or criminal misconduct by him unrelated to the conduct of which he is accused in the case at bar." (Id.). Defendant Tullo is correct that the some of the pleadings filed in Thompson litigation possess sharp allegations against Defendant Tullo. For instance, such allegations include, but are not limited to: (1) Defendant Tullo "had fraudulently obtained approximately 19.2 -4Case 2:04-cr-00539-MHM Document 248 Filed 09/07/2007 Page 4 of 6

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million dollars from his ponzi scheme and had forged numerous signatures and documents" (Defendant's Motion, Exhibit, Complaint ¶ 19); (2) "the [L&R Defendants] began a campaign on behalf of [Defendant] Tullo to harass [Ms.] Thompson from disclosing data in her possession that certain law enforcement agencies might be interested in reviewing" (Id. ¶ 27); and (3) "[b]ased upon information and belief, the [L&R Defendants] acted as the agent for [Defendant] Tullo and, and under [Defendant] Tullo's direction, the [L&R Defendants] did the following: a) ... concealed the criminal investigation that was targeted at [Defendant] Tullo; b) . . . initiated the YP litigation against [Ms.] Thompson . . . d) harassed [Ms.] Thompson to prevent her from being a witness against [Defendant] Tullo in the criminal matter . . . (Id. ¶ 36). Defendant Tullo is also correct that because he was not a party to the Thompson litigation he was not able to answer or contest the allegations asserted in Ms. Thompson's civil complaint or pleadings. However, while the Court appreciates that the allegations levied against Defendant Tullo in the Thompson litigation sharply call into question his conduct, the Court finds that because they are allegations, alone, they do not support this Court's recusal for Defendant Tullo's sentencing in his criminal case. Importantly, because of the Court's dismissal of the majority of Ms. Thompson's claims upon Rule 12(b)(6) Fed.R.Civ.P. review and ultimate dismissal, the case never progressed into the discovery stage of litigation. Accordingly, the Court was never presented with any evidence to support Ms. Thompson's allegations against Defendant Tullo. Importantly, allegations of a complaint, by their very nature, are

conclusory and do not provide any type of evidentiary value. See Hernandez v. Spacelabs Medical, Inc., 343 F.3d 1107, 1112 (9th Cir. 2003) (a party cannot defeat summary judgment with allegations in the complaint, or with unsupported conjecture or conclusory statements). While a Rule 11 Fed.R.Civ.P. obligation existed upon counsel for Ms. Thompson regarding the assertion of allegations grounded or likely to be grounded with evidentiary support, such obligation does not somehow transform the allegations of the complaint referencing Defendant Tullo into allegations or statements of ultimate fact that potentially taint this Court's view. Rather, because of the stage of the litigation at which the Thompson litigation -5Case 2:04-cr-00539-MHM Document 248 Filed 09/07/2007 Page 5 of 6

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was dismissed and the absence of any presentation of evidence to the Court performed during discovery, this Court finds that a reasonable person, i.e., a "well informed, thoughtful observer" would deem this Court's exposure to allegations in the Thompson litigation to be insignificant. Clemens, 428 F.3d at 1178. As such, this Court finds no basis to recuse in the criminal sentencing of Defendant Tullo and finds that its duty to preside over such proceedings as a neutral and impartial decision-maker cannot reasonably be questioned. Accordingly, IT IS HEREBY ORDERED denying Defendant Tullo's Motion for Recusal Pursuant to 28 U.S.C. § 455. (Dkt.#186). DATED this 1st day of September, 2007.

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