In re Chen

RULING DENYING PETITION FOR WRIT OF MANDAMUS

          STEFAN R. UNDERHILL United States District Judge.

         Xin Chen petitioned for a writ of mandamus, asking that I order United States Bankruptcy Judge James J. Tancredi to recuse himself from presiding over a bankruptcy court adversary proceeding to which Chen is a party. See Doc. No. 1. She also sought a stay of the bankruptcy proceedings. See Id. At a hearing held on April 17, 2017, I orally denied Chen's petition. See Doc. No. 12. In this ruling, I set forth in detail the reasons for my decision.

         I. Standard of Review

         District courts are empowered to order a bankruptcy judge's recusal via a writ of mandamus, but “such a remedy is rarely granted.” In re Ad Hoc Comm. of Tort Victims, 327 B.R. 138, 141 (S.D.N.Y. 2005). When the bankruptcy judge already has ruled on a motion to recuse, district courts apply “the standard of review applied by the Second Circuit to mandamus actions seeking recusal of a district judge.” Id. (citing, e.g., In re Savage & Associates, P.C., 2005 WL 578919, at *1 (S.D.N.Y. Mar. 9, 2005); Tese-Milner v. Holland, 1997 WL 1048898, at *3 (E.D.N.Y. Nov. 26, 1997)). Under that “exacting standard, ” In re IBM, 45 F.3d 641, 643 (2d Cir. 1995) (Newman, J.), “the exceptional remedy of mandamus only will be invoked where the petitioner has demonstrated that its right to such relief is ‘clear and indisputable.'” In re Basciano, 542 F.3d 950, 955-56 (2d Cir. 2008) (quoting In re Drexel Burnham Lambert, 861 F.2d 1307, 1312 (2d Cir. 1988)).

         In reviewing a bankruptcy judge's denial of a recusal motion for purposes of evaluating a mandamus petition, I first consider “the manner in which the [bankruptcy] judge decided not to recuse himself, employing an ‘abuse of discretion' standard of review.” See Id. at 957. Second, I determine whether there have been “actions by the judge which might be viewed by ‘an objective, disinterested observer' as evidencing bias.” Id. The fundamental question is, “[w]ould a reasonable person, knowing all the facts, conclude that the [] judge's impartiality could reasonably be questioned?” Diamondstone v. Macaluso, 148 F.3d 113, 120-21 (2d Cir. 1998).

         II. Background

         Jie Xiao-Chen's former husband-and his company, LXEng, LLC (“LXEng”), both filed for Chapter 7 bankruptcy relief in this district in July 2013. In re LXEng, No. 13-bk-51144 (Bankr. D. Conn. July 23, 2013); In re Xiao, No. 13-bk-51186 (Bankr. D. Conn. July 30, 2013). At the time of the filings, Xiao and LXEng were defendants in a suit brought by Dow Corning in the United States District Court for the Eastern District of Michigan. See Dow Corning Corp. v. Xiao, No. 11-cv-10008 (E.D. Mich.). In early July 2013, a few weeks before filing for bankruptcy, Xiao transferred approximately $1.6 million to Chen as part of a divorce settlement. See Pet. Writ Mandamus, Doc. No. 1, In re Chen, No. 17-cv-00615 (D. Conn. Apr. 13, 2017).

         The Chapter 7 Trustee of the LXEng estate, Richard Coan, and the Chapter 7 Trustee of the Xiao estate, Ronald Chorches (collectively, “the Trustees”), separately sued Chen, alleging that the divorce settlement was a fraudulent transfer in violation of 11 U.S.C. § 548. See Coan v. Chen, No. 15-ap-05027 (Bankr. D. Conn.); Chorches v. Chen, No. 14-ap-05019 (Bankr. D. Conn.). Both cases are currently pending in this district before Judge Tancredi. Trial in Coan v. Chen is scheduled to begin April 18, 2017, see Doc. No. 87, Coan v. Chen, No. 15-ap-05027 (Bankr. D. Conn.), and trial in Chorches v. Chen-which has been consolidated for trial with another adversary proceeding, Dow Corning Corp. v. Xiao, No. 14-ap-05054 (Bankr. D. Conn.)-is expected to occur sometime in May 2017.

         At the time that Chorches filed suit against Chen, he also filed an Application for Prejudgment Remedy (“PJR Application”) and a Motion for Prejudgment Disclosure of Assets (“Disclosure Motion”). United States Bankruptcy Judge Alan H. W. Shiff-from whom the case subsequently was transferred to Judge Tancredi-issued an Order for Hearing and Notice on the PJR Application and Disclosure Motion on April 10, 2014. Docs. Nos. 4 & 5, Chorches v. Chen, No. 14-ap-05019 (Bankr. D. Conn.). Judge Shiff certified notice of the hearing on the PJR Application to Chen by first class mail on April 12, 2014. Doc. No. 10, id. On April 21, 2014, Chen transferred $50, 000 to a Bank of China account in her mother's name, and on May 5, 2014, she transferred an additional $250, 000 to a Bank of China account in her mother's name. See Ex. A to Obj. Pet. Writ Mandamus, Doc. No. 9, In re Chen, No. 17-cv-00615 (D. Conn.).

         On May 5, 2014, Judge Shiff granted the PJR Application and the Disclosure Motion, Docs. Nos. 13 & 14, Chorches v. Chen, No. 14-ap-05019 (Bankr. D. Conn.), and the court mailed notice of the orders to Chen on May 7, 2014. See Docs. Nos. 15 & 16, id. On May 6, 2014, Chen transferred $50, 000 to a Bank of China account in her father's name, and on May 12, 2014, she transferred $1, 000, 000 to accounts in her parents' names at the Bank of China. See Ex. A to Obj. Pet. Writ Mandamus, Doc. No. 9, In re Chen, No. 17-cv-00615 (D. Conn.). Chen subsequently testified under oath at a deposition that she placed the $1.6 million received as part of the divorce settlement into four financial institutions in the United States. See id.

         On June 10, 2014-after counsel had appeared for Chen-Judge Shiff entered a Stipulated Order on the PJR Application. Doc. No. 30, Chorches v. Chen, No. 14-ap-05019 (Bankr. D. Conn.). Two years later, Chorches filed a Motion to Modify Stipulated Order and to Compel Defendant to Produce Proof of Compliance, in which he asked the bankruptcy court to require Chen to produce evidence of her compliance with the Stipulated Order, and to allow Chorches to attach $1, 180, 970 from Chen's assets (the sum he had previously sought in the PJR Application). Doc. No. 91, id. Judge Tancredi (now presiding over the case) held a hearing on the motion on October 20, 2016, Doc. No. 95, id., after which he entered an Order Modifying Stipulated Order that authorized Chorches to “attach sufficient property and/or assets of [Chen] to secure the sum of $1, 180, 970.” Doc. No. 97, id.

         On February 21, 2017, Chorches first learned of Chen's transfer of $1.35 million to her parents in China. Obj. Pet. Writ Mandamus, Doc. No. 9, In re Chen, No. 17-cv-00615 (D. Conn.). On May 2, 2017, Chorches filed a Motion for Injunctive Relief in which he sought an injunction to compel Chen to bring the $1.35 million within the territorial jurisdiction of the bankruptcy court. Doc. No. 119, Chorches v. Chen, No. 14-ap-05019 (Bankr. D. Conn.). Chen filed an objection on March 15, 2017, in which she claimed to have transferred the funds to avoid a different creditor-Xiao's original bankruptcy attorney, Carlos Cuevas-without any awareness of the adversary proceeding against her.^[1] Doc. No. 129, id. The bankruptcy court held an evidentiary hearing on the Motion for Injunctive Relief on March 20, 2017, which was then continued until March 28, 2017.^[2]

         During the hearing on March 20, 2017, Judge Tancredi entered a Preliminary Order Restraining International Travel. See Doc. No. 142, id. (“Travel Order”). In the order, Judge Tancredi noted that Chorches had “previously established probable cause for a prejudgment remedy upon his Complaint, ” and that he had “also shown that there is good and compelling cause to restraining the Defendant's travel.” Id. at 1. Judge Tancredi reasoned that “substantial funds that are the subject matter of this action, and [that] may be recoverable by the Trustee, have already been dispatched by [Chen] during the pendency of this action to China, where [Chen] has roots, family and where her former husband . . . conducts business and frequents.” Id. Thus, pursuant to 11 U.S.C. § 105(a), ^[3] Judge Tancredi directed Chen to “immediately surrender and deliver any and all passports or travel papers to her legal counsel . . . to be held in escrow by his firm.” Id. at 2. Judge Tancredi scheduled a “further hearing” on the Travel Order for March 28, 2017, “to seek its vacation, modification or other relief.” Id.

         On March 24, 2017, Chen filed a motion to recuse Judge Trancredi from presiding over Chorches v. Chen, Doc. No. 148, id.; a motion to recuse was not filed in the other adversary proceeding to which she was a party, Coan v. Chen, No. 15-ap-05027 (Bankr. D. Conn.). In her motion, Chen stated that recusal was required due to Judge Tancredi's “bias and/or prejudice concerning [her], ” as evidenced by his decision to “enjoin [her] from international travel . . . without due process . . . and without hearing any testimony from her during the hearing.” Mot. Recusal, Doc. No. 148, at 1, Chorches v. Chen, No. 14-ap-05019 (Bankr. D. Conn. Mar. 24, 2017). She argued that “there has never been any evidence that [she] is a flight risk” (citing for support that “[s]he owns a home in New Jersey” and that “[h]er children go to school in New Jersey”), and that “[t]here was not a shred of evidence presented during the hearing that would warrant restraining [her] from international travel, especially given the fact that her mother is sick with cancer in China.” ...