A federal appeals court has upheld a lower court's decision to remove a special master who had been appointed to oversee redevelopment of an industrial site in Union City. The Ninth U.S. Circuit Court of Appeals also upheld a court order capping the former special master's compensation and ordering him to repay $113,000.
The decision was a victory for Union City, which had contended the former special master stymied the city's redevelopment efforts at the site.
The case's history is so extensive that the Ninth Circuit compared it to Jarndyce v. Jarndyce, the convoluted case that bogs down for decades in the Court of Chancery in Charles Dickens's Bleak House.
In 1978, Pacific States Steel Corporation closed its plant in Union City, "leaving a parcel of contaminated land and a bankrupt medical plan for retired steelworkers and their dependents," according to Circuit Judge M. Margaret McKeown. The pensioners filed a class action lawsuit. Federal District Court Judge Marilyn Hall Patel decided the best approach was to clean up and redevelop the Pacific States Steel site and use the proceeds of development to fund the medical benefits. Judge Patel appointed a special master in 1984, but she replaced him because he failed to make much progress. In 1990, she appointed Palo Alto attorney Bruce Train, and his associates Theodore Sorensen and Hans Lemcke, as a new special master.
In 1995, Train proposed, and Patel approved, a plan in which Train formed an administrative services company and a development company to handle the site development and raise money for the medical plan. Train also reached agreements with Union City's redevelopment agency for funding development of part of the site, where homes were eventually built.
But over the next several years, the project seemed to go no further. The sticking point amongst all the parties involved was the amount of Train's compensation, according to the Ninth Circuit. Patel began to have misgivings, so she suspended Train and commenced an investigation.
In December 2000, Judge Patel terminated Train as special master. She followed up that action in early 2001 with a lengthy order describing Train's transgressions: Rejecting valid redevelopment agency offers while holding out for more compensation for himself; misappropriating creditors' funds and Pacific States Steel funds; overbilling for a legal assistant; lying and disloyalty to the court; and generally failing to accomplish the assigned task. Patel capped the special master's compensation at $3.6 million (the three men had already received $1.2 million apiece, but they sought an additional total of $39 million) and she ordered Train personally to pay back $113,000 that he had overbilled or diverted for his personal use. Patel also ordered Train to pay $24,000 in attorneys' fees.
Train appealed to the Ninth Circuit. A three-judge panel of the Ninth Circuit called the situation unusual because it amounted to an officer of the court appealing an order of the court. The Ninth Circuit held that Train had the right to appeal, but that he could not appeal Patel's orders because they did not qualify as a "final judgment."
"Although the matter of Train's compensation has been resolved, development of the property under a different special master and the allocation of funds among the various parties will continue," Judge McKeown wrote.
If Train wants to appeal, he will have to wait for final resolution of the case, the Ninth Circuit held. "We are aware that these proceedings are nearly 20 years old and may continue for some time. But according to Judge Patel's report, Train helped create this quagmire by failing to carry out his responsibilities. We also note that adherence to the procedural rules governing appeals does not leave Train wholly uncompensated in the interim, as Judge Patel's disgorgement orders still permit Train to keep more than $1 million."
The Ninth Circuit also rejected Train's argument that Judge Patel should be removed from the case. The Ninth Circuit found the conduct of which Train complained — such as private consultation with real estate experts — was consistent with the judge's administrative role.
"[W]e believe that Judge Patel carefully balanced Train's interest in receiving due process with her responsibility for supervising the special master's efforts and, above all, seeing that the plant site is developed and the pension fund paid," the court ruled.
Cordoza v. Pacific States Steel Corporation, Nos. 01-16638 and 02-15110, 03 C.D.O.S. 1473. Filed February 20, 2003.
For Bruce Train, Hans Lemcke and Theodore Sorensen: Robert Goodin, (415) 392-7900.
For Cordoza: Arthur Lazear, (510) 763-5700.
For Union City: Charles Reese, (510) 835-9100.
As amicus curiae for the district court: Tamar Pachter, (415) 642-1331.
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