Opinion ID: 680577
Heading Depth: 3
Heading Rank: 2

Heading: Adamson's Affidavit

Text: 12 To support factual allegations made in its defense, First Bank submitted the affidavit of James Adamson. Appellants claim the affidavit was unsigned, not notarized, and submitted in bad faith. The bad faith claim is founded on the notion that Adamson said he did not know about the bankruptcy. Appellants submitted an affidavit showing that Adamson did know that a bankruptcy had been filed, and allege that Adamson erroneously said there were two corporate accounts when there was only one. 13 None of Appellants' contentions has merit. Adamson's signed and notarized affidavit was filed shortly after the original, unsigned affidavit. In the updated affidavit, Adamson does not say he did not know of the bankruptcy. Rather, he says he did not know that the bankruptcy had been converted to a chapter 7 case until Dodson notified the bank and requested that the accounts be frozen. As to the number of accounts, Appellants present no testimony rebutting Adamson's figure. Moreover, no prejudice appears to have resulted from Adamson's error, if any. C. Judge Ross's Ex Parte Contact 14 On March 3, 1991, Judge Ross, the bankruptcy judge, called First Bank's attorney and the trustee's attorney regarding the hearing on First Bank's and the Olsens' cross-motions for summary judgment. Judge Ross asked counsel whether they would appear in person or by telephone. Appellants argue that this ex parte contact was improper and that Judge Ross should have recused himself as a result. 15 We disagree. Recusal must be predicated on an allegation of bias or prejudice stemming from an extrajudicial source. United States v. Hernandez-Escarsega, 886 F.2d 1560, 1581 (9th Cir.1989), cert. denied, 497 U.S. 1003 (1990); Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst v. Louisiana Hydrolec, 854 F.2d 1538, 1548 (9th Cir.1988). Because Appellants failed to request recusal at the trial level, reversal is only appropriate if plain error, involving substantial prejudice, occurred. United States v. Bosch, 951 F.2d 1546, 1548 (9th Cir.1991), cert. denied, 112 S.Ct. 2975 (1992). Appellants allege no bias or prejudice stemming from the phone call. Any other prejudice alleged by Appellants came from Judge Ross's judicial acts. Hernandez-Escarsega, 886 F.2d at 1581; Nilsson, 854 F.2d at 1548. Thus, reversal is unwarranted. 16 D. Trustee's Failure to Collect/Statute of Limitation 17 Appellants claim the trustee's failure to collect assets or hold a creditors' meeting caused the Olsens' dispute with the bank. Dodson was appointed in late 1987. He requested on May 3 or 4, 1988, that the accounts be frozen. Appellants also contend that the March 7, 1991, order of the district court that the Olsens comply with discovery requests was filed after any statute of limitation on an action to collect the accounts had expired and was thus too late. 18 We are unpersuaded. The law does not require that the trustee obtain a court order that the Olsens relinquish the accounts before the trustee approaches the bank. The trustee's failure to collect assets or hold a creditors' meeting does not affect the liability of the bank or destroy the bankruptcy court's jurisdiction. Rather, the accounts became assets of the bankruptcy estates when the bankruptcies were filed. No statute of limitation bars the interpleader action. Moreover, the bankruptcy court was justified in requiring the Olsens to answer questions regarding the extent of their ownership of account funds. 19 Appellants' argument might be construed to be an objection to the entry of default against them for their failure to comply with discovery requests. The bankruptcy court held that, because the Olsens refused to produce evidence that some of the funds in the accounts were theirs, all of the funds belonged to the estates. The district court affirmed. Considering that the Olsens were patiently forewarned by the bankruptcy court; ordered, on penalty of default, to produce the information; and for a period of at least 15 months continuously refused to answer discovery requests, the district court's affirmance was proper. See Adriana Int'l Corp. v. Thoeren, 913 F.2d 1406, 1408, 1412-14 (9th Cir.1990), cert. denied sub nom. Lewis & Co. v. Thoeren, 498 U.S. 1109 (1991); Malone v. USPS, 833 F.2d 128, 130-33 (9th Cir.1987), cert. denied sub nom. Malone v. Frank, 488 U.S. 819 (1988); United Artists Corp. v. La Cage Aux Folles, Inc., 771 F.2d 1265, 1270-71 (9th Cir.1985); G-K Properties v. Redevelopment Agency of San Jose, 577 F.2d 645, 647-49 (9th Cir.1978). 20 E. Failure of Trustee to Answer Interpleader Action 21 Appellants argue that the trustee answered the interpleader complaint too late, over two years after the complaint was filed. (The docket reflects that the trustee answered one year and a few days after the complaint was filed, however.) They also complain that the trustee's answer was not filed within the limitation period. These arguments are meritless. 22 F. Dismissal of the Complaint Against First Bank 23 Appellants argue the district court erred in its decision in favor of First Bank. The bank responds that it acted reasonably. When given notice by the trustee, it froze the accounts and gave immediate, oral notice to the Olsens. 2 The bank later gave written notice. The bank required Dodson to prove his authority. A number of the Olsens' checks were dishonored as a result of the freeze, yet the Olsens did not ask the bankruptcy court to lift the freeze from the accounts. Rather, the Olsens complained to the bank. The bank could not resolve the dispute between the Olsens and the trustee, so the bank filed the interpleader. 24 We reject the Olsens' argument. Cases in which a bank claims a right of set-off to accounts (that are otherwise part of a chapter 7 estate) are analogous. In those cases, as well as this case, freezing the accounts properly maintained the status quo until the account's owner could be determined. E.g., In re Edgins, 36 B.R. 480, 483-84 (9th Cir.Bankr.1984); In re Williams, 61 B.R. 567, 572-76 (N.D.Tex.1986). 25 Moreover, the Olsens caused the problem with the accounts by failing to surrender the accounts to the trustee, see 11 U.S.C. Sec. 521(4), and by continuing to use the accounts for personal funds. After the Olsens used the accounts for several months after conversion of the bankruptcies to chapter 7 cases, the bank could no longer know whose money was in the accounts. Had the bank complied with the trustee's request, the bank would have been open to liability to the Olsens if compliance were error. Had the bank complied with the Olsens' requests, it would have been open to liability under 11 U.S.C. Sec. 542, which requires entities possessing chapter 7 estate assets to give them to the trustee. 26 Finally, the Olsens made no effort to prove that they (rather than the estates) owned any of the funds in the accounts. The Olsens continued to refuse to produce documents, respond to interrogatories, or otherwise to give testimony supporting their assertions that part of the funds were personal. In the end, the bankruptcy court justifiably established facts against them. For these reasons, the Olsens were not ultimately prejudiced by the bank's reliance on the trustee's statements as to the source of the funds in the accounts.