From: News and Views | Scandal Sheet |
Sunday, April 02, 2000
Judges in Ethics Lapse
Had
financial holdings
in defendants firms
By GREG B. SMITH
Daily News Staff Writer
 our
New York federal judges presided over recent cases that involved companies in which they
had a substantial financial interest, a Daily News investigation found.
In at least two cases, judges issued rulings in favor of the companies whose stock they
owned. Their investments ranged from $50,000 to $150,000 in businesses such as General
Electric, Ford and AT&T.
The apparent conflicts of interest came to light in a News review of court records and
financial disclosure reports that federal judges are required by law to file.
As a result of The News' investigation, one jurist — Manhattan Federal Judge
Whitman Knapp — stepped down last week from an ongoing trial.
Another judge admitted his error in not recusing himself from a case that has since
been settled and vowed to be more diligent.
In these and in other cases The News examined, there was no indication that the judges
sought to profit from their involvement. And in these cases — and in all but a
handful of cases nationally — the decisions had little or no effect on stock values.
The News found four instances in which judges appeared to have technically violated
— wittingly or unwittingly — the code of ethics.
Judges are duty-bound to follow a code of ethics that is supposed to ensure that
parties in lawsuits get an impartial hearing before the court.
The code states unambiguously that judges must disqualify themselves from cases if they
have “a financial interest in the subject matter in controversy or in a party to the
proceeding."
To avoid such conflicts of interest, judges are required to fill out annual disclosure
forms listing their assets, including stocks and bonds.
Judges must actively “keep informed" about their assets, and if a conflict is
present, immediately disqualify themselves.
If a judge discovers midway through a trial that he or she has a financial stake in a
company that's part of the case — no matter how small — the judge may stay on
the case if the parties agree, but must sell off that interest.
Doug Kendall, director of the Community Rights Counsel, a nonprofit group that monitors
judicial ethics, said the rules are quite explicit: Judges simply can't have a financial
interest in cases that appear before them.
“There's no brighter line rule of judicial ethics — you can't rule on a case
in which you have a financial interest," he said. “It's the bedrock of our legal
system, that you have the right to an impartial trier of fact."
Kendall said the Judicial Conference, which represents the federal bench and oversees
rules governing judges, routinely resists public disclosure.
But when an Internet company, APB.com, sued to post the judges' financial reports
online, the conference last month reversed itself and promised to allow the forms —
with revisions — to be posted.
The News reviewed the financial disclosure forms for all judges in the Eastern and
Southern districts of New York, which cover New York City, its northern suburbs and Long
Island.
In the vast majority of the thousands of cases, there were no apparent conflicts of
interest. In about a dozen cases, The News found that judges had owned stock in companies
with cases pending on their dockets but had sold the holdings within weeks.
Manhattan Federal Judge Thomas Griesa, who was chief judge during The News'
investigation, insisted that no jurists stayed on a case knowing they had a financial
interest in one of the parties.
"There is no instance where a judge did what was forbidden by statutes, which is,
a judge sat on a case knowing that he or she had a financial interest," Griesa said
during an interview this year.
But The News found instances in which judges had signed financial disclosure forms
listing their finances days before or during cases involving companies in which they held
an interest.
Told of The News' findings, Griesa responded: "We have a duty to keep informed. We
acknowledge that those are our duties, and we do the best we can. They're human beings
down here, and human beings make mistakes. There are very few mistakes, but there are
mistakes."
Judge Whitman Knapp
 |
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| Judge Knapp owned stock in
Duke Energy, which was charging that the government had overbilled it. |
On June 12, 1998, Manhattan Federal Judge Whitman Knapp got a new case: a group of big
utilities alleged it was grossly overbilled by the government for decontamination of
nuclear power plants. The suit was potentially worth billions of dollars to the companies
and could have increased stock values to their shareholders, including Knapp.
The day Knapp got the case, he owned up to $50,000 of stock in plaintiff Duke Energy
and a bond worth up to $100,000 in the New York State Power Authority, another plaintiff.
Knapp should have known that, because on June 30, 1998 — 18 days after the suit
landed in his courtroom — he signed a form acknowledging ownership of Duke stock and
the power authority bond. Asked whether he read the form, Knapp replied: "Heavens,
no! It wouldn't have any meaning to me."
Instead, he said, he relied on a clerk to compare his caseload to the numerous stocks
he controls as head of several trusts.
On Nov. 6, 1998, Knapp again signed a form acknowledging ownership of the Duke stock
and New York State Power Authority bond.
Five months later, on April 12, he rejected the federal government's motion to move the
case out of his court and into the Court of Claims — a change of venue that would
have spared the government having to pay monetary damages.
When The News brought the matter to his attention, Knapp reviewed his finances and
acknowledged that one of his clerks missed his ownership interest in Duke and the power
authority. He then immediately recused himself from the case — insisting that he
would never be influenced by a financial connection to a party in a pending case.
He said of the financial disclosure requirements, "that's just ridiculous to go
through all this rigamarole when in fact my interest in Duke was so remote that it
couldn't conceivably have any affect on me, even if I realized Duke was a plaintiff."
But he quickly added: "That's neither here nor there. You are correct, and I think
I've done what I should do to correct it."
Judge John Martin
|
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| Judge Martin owned a Ford
Motor note worth up to $50,000 and ruled in favor of Ford in a class-action suit. |
Manhattan Federal Judge John Martin owned a Ford Motor note worth up to $50,000 while
ruling in favor of Ford in a class-action suit that could have cost the auto maker
millions.
Eleanor Werbowsky sued Ford on behalf of customers who lease cars from the company,
claiming Ford should reimburse them for interest earned on security deposits. The company
stood to lose millions.
The case was filed in 1995 before Manhattan Federal Judge John Keenan, who recused
himself because he owned Ford stock. It was reassigned in March 1996 to Judge Kevin Duffy,
who rejected Ford's motion to toss out the case.
But the tide turned for Ford in 1997, when the case was reassigned to Martin because
Duffy was was about to retire.
Martin mentioned to lawyers for both sides that he had leased a car, but he failed to
reveal that he owned the Ford note worth up to $50,000, which was cited on a financial
disclosure form he signed in May 1998.
That was one month after he denied Werbowsky's motion for summary judgment against
Ford. In the April 1, 1998, ruling, Martin also suggested that the auto maker — which
hadn't requested that he throw out the case — might want to do so. Because of a
related case moving through the courts, Werbowsky dropped her suit before Martin ruled on
it.
In a letter to The News, Martin said, "the only time ownership of a note could
possibly give grounds for disqualification is when the amount in controversy is so
substantial that the outcome of the proceedings could affect the collectability of the
note." He admitted that the case "did involve a substantial amount" but
added, "There was nothing to suggest that a judgment for the plaintiff's would force
Ford into bankruptcy or otherwise jeopardize its creditors."
Martin insisted he did not need to recuse himself from the case and criticized The
News' questions about potential conflict. "It would be a disservice to the public to
suggest that federal judges are sitting on cases in which they own stock in order to
enrich themselves," he wrote.
Judge Richard Casey
Manhattan Federal Judge Richard Casey owned $25,000 in AT&T notes while sitting on
a breach-of-contract case, J&J Stores vs. AT&T. He got the case Nov. 2, 1998, and
kept it through August, when he signed a settlement order.
During that time, he received two letters from the parties in the case but took no
action. He never recused himself or disclosed his ownership interest.
A second conflict of interest arose last year. Casey owned 264 shares of General
Electric stock worth up to $50,000 when he got the case of Cigna Insurance vs. GE in July.
For three months, during which he extended the time for GE to respond to the suit,
Casey presided over the case. In September, he said, he discovered the conflict and
recused himself. Through his clerk, Casey said he had the case reassigned as soon as he
learned of his interest in GE. But he said he never realized the conflict in the AT&T
case.
"Certainly if such a case were to come before me, I would not hesitate to recuse
myself," Casey wrote.
Judge Barrington Parker Jr.
|
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| Judge Parker acknowledges
that he twice sold short up to $50,000 in Cannondale Corp. stock, while presiding over
Circle Francesco Mos vs. Cannondale USA. |
White Plains Federal Judge Barrington Parker Jr. notes in his financial disclosure
forms that his stocks are managed by others and that he plays "no role in the
selection [purchase or sale] of any security."
However, in April 1997 he signed a form acknowledging that he twice sold up to $50,000
in Cannondale Corp. stock over the year, making a modest profit. At the time, Circle
Francesco Mos vs. Cannondale USA was pending before his court.
Parker said Cannondale USA is "an entirely different corporation" from
Cannondale, though a Cannondale spokesman said the companies are referred to
interchangeably as Cannondale and Cannondale USA. If a person owns stock in Cannondale
Corp., the spokesman said, he or she has a financial interest in Cannondale USA.
Parker said that "to avoid the appearance of a conflict, I had my money manager
immediately liquidate my position in Cannondale Corp." He sold the stock Feb. 7, 1997
— two months after getting the case.
At Cannondale's request, he tossed out the suit July 23, 1998.
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