Community Bank Loses Its Bid to Disqualify Judge, Block Payment of Damages

The federally funded Los Angeles Community Development Bank has lost a battle in its fight to block a multimillion-dollar judgment awarded to a former borrower after a five-week trial.

The recent ruling could be serious for the bank, which is now restructuring and must raise tens of millions of dollars in mostly private capital in order to continue operating in the long term.

Superior Court Judge William J. Birney in March found the bank breached its contractual responsibility to Summit Industries, and “directly caused the total loss” of the business, which manufactured counter tops and sinks, awarding its owner $7.2 million.

The bank, created to make loans to businesses in the city’s most blighted pockets, vowed to appeal the judgment. But before doing so, it pulled off its boxing gloves and tried a more unconventional tactic, attempting to get Birney disqualified from the case.

The contents of the bank’s motion against Birney were sealed to protect his privacy and the matter shipped off to a San Bernardino County Superior Court judge, who on Friday denied the bank’s motion.

Although efforts to disqualify judges for conflict of interest are not uncommon in criminal cases, they are somewhat rare in civil litigation. Even in criminal cases, the motions generally occur long before the end of trial. In this case, the bank’s attorneys made no motion to protest Birney’s selection before or during the five-week trial.

Birney on Monday signed the judgment for $9.2 million--which includes interest. The bank has 60 days to appeal the judgment. Meanwhile, Summit attorney Robert S. Lewin has requested an additional $3 million in attorney’s fees.

The Summit case is one of five filed against the bank by former borrowers, exposing the bank to more than $50 million in potential liability. It has about $10 million in funding from which to pay the judgment, if the case is ultimately upheld, but that money must also go to cover loan loss reserves and the bank’s administrative expenses.