Failed bid to disqualify judge in Rhodes case stirs emotions

An unsuccessful attempt on Friday by attorneys for developer James Rhodes to disqualify a judge from the Chapter 11 case involving his former company injected a rare emotional element into bankruptcy proceedings, which normally revolve around numbers, contract clauses and statutes.

The trustee in charge of winding down the remains of Rhodes Cos. and several affiliates is expected to sue Rhodes for millions of dollars that creditors claimed were siphoned off for the developer's own benefit prior to the bankruptcy filing nearly three years ago.

Early in the case, creditors filed a report prepared by the consulting firm AlixPartners that said Rhodes had taken numerous steps to benefit himself financially, such as transferring $7 million to other companies outside the reach of the creditors, paying millions more to his former and current wives, buying luxury cars and spending on other nonbusiness purposes.

Rhodes' attorneys maintain all money movement was proper and properly recorded. In anticipation of a creditor's lawsuit, Rhodes' attorney, Kevin Anderson, asked U.S. Bankruptcy Court Judge Linda Riegle to step down from the case, citing statements she made in a prior hearing.

Those comments betrayed an "open and blatant animosity towards Rhodes and his business practices," Anderson alleged, adding that Riegle had all but egged on the trustee to sue Rhodes.

In denying the request at a Friday hearing, Riegle starting by saying, "You may not like me. You may not respect me," before pausing for several moments. Resuming in a quivering voice, she said, "I've been doing this for 24 years, and I have always, always, always applied the law to the facts."

At another point, she continued that "much as I might prefer to pass this case on for my own workload and sanity ... (that) would not be fair to my colleagues."

She later apologized for becoming emotional and attributed it to a recent unspecified illness.

Because there's no pending trustee lawsuit against James Rhodes, there's no body of evidence yet in the record that would lead her to build a prejudice, she said. At the earlier hearing, she said only that even if Rhodes might have been dishonest with creditors "in a white lie sense, (that) doesn't mean he was dishonest in a legal sense."

Abid Qureshi, an attorney representing the Rhodes Cos., said he doesn't share Anderson's view and that nothing in Riegle's demeanor was propelling the trustee to sue.

"I don't think there is anything (Riegle) has said that even comes close to predetermining the outcome," Qureshi said.

Contact reporter Tim O'Reiley at toreiley@review or 702-387-5290.