Federal judges aren’t supposed to hear cases in which they have a financial stake. Dozens do it anyway
When Linda Wolicki-Gables and her husband appealed a lawsuit all the way to the second-highest court in the nation against Johnson & Johnson over a malfunctioning medication pump that had been implanted in her body, the couple had no idea that one of the judges who decided their case had a financial stake in the giant multinational company.
Eleventh U.S. Circuit Court of Appeals Judge James Hill owned as much as $100,000 in Johnson & Johnson stock when he and two other judges ruled against the Gables’ appeal in the precedent-setting case.
The Center for Public Integrity also found that Hill ruled on three other appeals in which he owned stock in companies that came before him, violating clear rules governing the federal courts. In all four instances, the court ruling favored his financial interest. In a statement released by the court, Hill said he was not aware of those stock holdings at the time due to the complexity of his family’s trusts.
The Center uncovered the conflict by examining the three most recent years of financial disclosure reports filed by 255 of the 258 judges who sit on the nation’s 13 appellate circuits. In all, the Center identified 24 cases where judges owned stock in a company with a case before them. In two other instances, the judges had financial ties with law firms working on cases over which they presided.
After the Center notified the judges of its findings, 16 judges had letters sent to the parties in all 26 of those cases disclosing the financial conflicts of interest uncovered by the Center in the months-long investigation. The letters are the first step in possibly reopening the cases.
The violations occurred even though clear rules regarding conflicts of interest exist. Federal judges may not sit on cases in which they have a financial interest, according to a federal law. A similar rule is also in place in the code of conduct established by the court system. Judges have been warned before about not participating in such cases. Following a Washington Post investigation in 2006, the courts even added a computerized screening process to help judges avoid such conflicts.
Yet the problems continue.
The Center’s findings point to a larger issue of accountability—or lack thereof—in the federal court system. Judges face no formal punishment for breaking these rules.
Appellate judges can affect a company’s stock price—or even an entire industry sector—with their rulings. They are also far more likely to own stock than the average American, making it all the more important for them to avoid the perception that their holdings could influence their rulings.
Some judges don’t own individual stocks at all, to avoid the risk of conflicting with their cases. Many judges are extremely careful in reviewing their holdings. Yet the Center’s findings show that some judges do not keep track of their own investments, even with the help of computerized databases. Sometimes they have failed to do so repeatedly, like Hill.
“Come on, guys, this is your obligation,” said Youngblood, the Gables’ attorney. “You tell us all the time about ignorance being no excuse.”
William G. Ross, a Samford University law professor in Alabama who specializes in judicial ethics, said such failures undermine public confidence in the judiciary.
“Considering the importance of judicial integrity and avoidance of conflicts of interest, I don’t think it is asking too much of a judge to expect him or her to know what his or her holdings are,” he said. “Even judges with significant portfolios should be familiar with their own holdings.”
Wealthy, powerful and unknown
The Center found that 59 percent of all federal appellate judges reported owning stock, despite the risk that the companies in which they have a financial stake could come before them. By comparison, the proportion of American families who directly own stock is much lower, just 15 percent as of 2010.
That imbalance has grown over the past half-century, according to Ross, the Samford University professor. Like most highly paid professionals in America, federal judges have much larger and more diverse portfolios than they would have had 30 or 40 years ago, he said.
Not all judges invest in the stock market. In fact, 41 percent of the judges the Center reviewed have eschewed individual stocks altogether, in some cases to deliberately avoid what one judge called the “mousetrap” of corporate stock ownership, opting instead for generally safer, if less lucrative, investments such as mutual funds, bonds or real estate. Such investments are also less likely to interfere with a judge’s day job.
The easiest fix to the conflict of interest problem would be to ban judges from owning stock, but that would be “an overreaction,” said Stephen Gillers, a New York University law professor who specializes in legal ethics.
“It would be a high price to demand of people who go on to the bench that they limit their investments to government securities and mutual funds,” he said.
For their work on the bench, federal appellate judges earn $211,200 a year, even in retirement, a salary far greater than the average American family, which pulls in roughly $52,000 a year. Still, that’s relatively low compared to what a top-notch lawyer can make in the private sector.
Appellate judges’ wealth is matched by their power. Appointed for life, federal judges are an elite population removed from the general public by demographics, academic achievement and professional status. Most of them are male, most of them are white, and most are 65 or older. Roughly one in five federal appellate judges graduated from an Ivy League law school, according to the Center’s analysis of Federal Judicial Center data.
That says nothing of their influence on the bench. A three-judge panel of appeals court judges can uphold or strike down a president’s signature health care law, determine how universities admit students and even change the way the Internet works. In the coming months, they will likely play a major role in determiningwhether same-sex marriage becomes legal nationwide.
“They are the final arbiters in all but the tiny handful of cases that the Supreme Court takes,” said Arthur Hellman, a University of Pittsburgh law professor and an expert on the federal court system.
They’re also on deck to fill vacancies on the U.S. Supreme Court.
But despite their considerable influence, appeals court judges are largely anonymous to the American people—even to many lawyers. News stories sometimes neglect to name the judges who participate in panels that strike down or uphold multimillion-dollar verdicts.
“They are largely unknown,” said Hellman, noting that most Americans couldn’t identify which circuit their state is in. “And even a pretty savvy lawyer would be hard-pressed to identify more than two or three of the judges.”
Still, even their less-influential decisions that never make headlines can mean the world to the parties involved.
Ruling where they shouldn’t
After becoming a judge, 9th U.S. Circuit Court of Appeals Judge Jay Bybee received free legal counsel defending him for actions in his prior job, where he signed the so-called “torture memos” for the Bush administration’s Justice Department. The memos justified the controversial interrogation method of “waterboarding. ”
Bybee received more than $78,000 worth of legal defense services from 2009 through 2012 from Davis Polk & Wardwell LLP. Despite the help, he did not step aside in a 2010 case of a Guatemalan woman who sought asylum under the Convention Against Torture even though she was represented by a lawyer from the firm. The three-judge panel, including Bybee, affirmed the Justice Department’s denial of asylum, thus ruling against the firm that helped him. He acknowledged his failure to recuse himself in a letter sent to the parties in the case after the Center brought it to the court’s attention.
His case was one of two conflicts that the Center uncovered involving financial ties to law firms that tried cases before them.
Stock ownership accounted for the other 24 conflicts that sparked letters from the courts to litigants. Judges who own even one share of stock in a company that appears before them in court are required to disqualify themselves, according to the law. Some of the judges in those cases owned as little as $1,900 while others may have owned as much as $100,000, or possibly more because some did not report value ranges for their stocks.
In addition to the 26 conflicts acknowledged by the judges, the Center found about 20 more cases that seemed questionable, but did not require automatic disqualification of judges.
Federal judges are required to monitor their financial portfolios so that they know when to recuse themselves from particular cases. But interviews with judges suggest that they aren’t always familiar with the stocks they own and the financial transactions they make.
“I don’t pay much attention to those stocks because it’s handled by a stockbroker,” said 11th U.S. Circuit Court of Appeals Judge Peter Fay, one of the 16 judges the Center found who wrongly participated in a case. “I don’t know what he’s doing. … I sit down at the end of the year and say, ‘Help me fill out this form.’”
For some judges, their list of investments may fill up just a few lines on their annual financial disclosure form. Other judges, however, have much more complicated financial portfolios.
One appeals court judge, Helene White of the 6th U.S. Circuit Court of Appeals, filed a financial disclosure in 2012 that included 40 pages of financial holdings and transactions.
The Center found five examples in which White’s holdings overlapped with her caseload. The judge ruled in favor of her financial interests in two of them. Through letters to the involved parties, she admitted to failing to recuse herself in all five of the cases.
One letter said that White did not realize she owned up to $50,000 in Priceline.com stock when she sat on a three-judge panel in 2012 that affirmed a judgment in favor of the company and other travel businesses. The suit had accused the travel companies of violating local tax laws by not charging occupancy taxes on customers who book hotel rooms online. The ruling set a precedent that could affect cases from other cities nationwide.
“I’m not sympathetic to their forgetting to check,” said Tom Fitton, president of the conservative-leaning Judicial Watch, an organization that promotes transparency in government. “It’s not that hard to do.”
However small the investment—and however unintentional the errors may have been—conflicted judgments loom large for litigants like the Gables. And they reflect poorly on a court system that’s expected to uphold the law.
“Clearly it raises questions about impartiality and threatens to damage public perception of judges as fair and impartial,” said Nan Aron, the president of Alliance for Justice, a liberal advocacy group that focuses on the judicial system.
Charles Geyh, an Indiana University law professor who specializes in judicial ethics, agreed that the conflicts present a “perception problem” for the federal courts. But he questions whether a reasonable person would think a judge’s decision on the bench would be swayed because they owned stock in a party—especially if the investment is small.
“It looks bad,” Geyh said. But unless a judge is a repeat offender, “I’m hesitant to refer to it as a significant problem.”
Federal court officials downplayed the Center’s findings.
David Sellers, a spokesman for the Administrative Office of the U.S. Courts, said in an email that while federal judges take their ethical responsibilities seriously, the more than two dozen conflicts identified by the Center are mistakes that can be attributed to human error.
“It appears that a very small number of judges inadvertently were involved in cases in which they had a financial conflict,” he wrote.
And the judges do not rule on cases by themselves. They typically sit with at least two other judges on each case.
Sellers noted that the two dozen conflicted cases represented just 0.02 percent of the 109,000 total cases decided in the U.S. Courts of Appeals over the last three years. Some experts agreed that it’s important to analyze the Center’s findings in a larger context.
However, the Center’s search was not exhaustive. Center reporters manually searched key words from judges’ three most recent annual disclosure reports against a legal database of case rulings from 2010 to 2012. In one instance, the search led reporters to a 2014 case, as well. The analysis may undercount the actual number of times when judges’ financial ties overlapped with their work on the courts.
In addition, other conflicts could be hidden from view because more than 100 of the 258 judges had some information redacted from their financial disclosure reports in 2012, including information about gifts they received, income they earned and investments they held.
A safety net with holes in it
Guillermo Ramirez died at age 58 last year after a long fight with cancer that his family believes he contracted from a DuPont chemical he applied to his Florida strawberry fields. DuPont recalled the fungicide, Benlate, and paid him for his lost crops but said the chemical wouldn’t harm people.
Ramirez sued the company after he was diagnosed with the cancer that started in his kidneys and eventually spread throughout his body.
He did not know that Judge Joel Dubina, one of the three judges assigned to the case when it got to the 11th U.S. Circuit Court of Appeals, owned up to $15,000 worth of stock in DuPont. The panel unanimously affirmed a jury verdict in favor of DuPont in 2011.
Now his family, including his 33-year-old daughter Veronica R. Juan, is reeling from the Center’s discovery.
“To them it might not have been a big deal, but for us?” Juan said. ”There are days we feel we just can’t function correctly because he was such a great person to all of us.”
It is puzzling to her how the judge didn’t disclose the information before taking the case. The conflict, even if it was an accidental oversight as Dubina said it was, seems all the more frustrating to Juan given the large amount of information her parents had to gather for the case, all while her father was seriously ill—so weak he could barely walk.
“He did everything possible to get all the information that was needed and for him to be just let down?” she said. “Who is to say what could have happened if that person wasn’t there?”
Conflicts of interest such as Dubina’s aren’t supposed to fall through the cracks—not in a federal court system equipped with computer databases designed to backstop judges who might fail to identify conflicts on their own.
In September 2006, the Judicial Conference of the United States, a group of judges who oversee and set policy for the U.S. Courts, adopted a mandatory policy requiring all federal courts—except the U.S. Supreme Court—to conduct automated screenings to help flag potential conflicts of interest.
The automated system, which courts began implementing in 2007, followed a number of stories in The Washington Post that identified instances in which federal judges ruled on cases despite having a financial interest in one of the parties.
The Judicial Conference policy now requires each court to enter judges’ financial conflicts into a database that stores case information, including parties and attorneys. Judges, according to the policy, must provide the court with a list of their financial conflicts. The list must be regularly updated to ensure that nothing is missed as judges make investment transactions during the year.
Each court is required to screen for conflicts “on a regular schedule, including screening new matters as they are filed,” the policy states. And when the database flags a conflict, the court must notify the judge.
The decision on whether to recuse is ultimately up to the judge. Ethics guidelines for federal judges are very clear in some areas, such as stock ownership. Beyond the bright-line, one-share rule on stock ownership, a judge must step aside from any proceeding “in which his impartiality might reasonably be questioned.”
Typically, court officials try to prevent judges from getting such cases in the first place by using the database to bypass judges for assignments when their financial interests match up with cases. Doing so makes it unnecessary for judges to decide themselves whether to recuse.
If a conflict is missed by the database, an additional screening step requires judges in all courts to check for potential conflicts after they are randomly assigned to a case.
But the system for flagging conflicts through both automated and manual screening is “not foolproof,” as the 4th Circuit’s conflict-screening plan states. After all, the automated database is only as good as the information the judges feed into it.
Ruling in the gray zone
Beyond the clear conflicts, where a U.S. statute and the code of conduct for judges lay out definitive rules, is a sea of gray. It is generally up to the judges to decide if the outcome of the case could affect their investment, a system lacking transparency and any outside oversight.
The Center found about 20 cases in which judges had financial ties to the parties before them but there was no clear-cut violation of the rules. Those include five instances in which a married couple on the 5th Circuit, Judges Thomas Reavley and Carolyn King, ruled on cases in which parties in the cases were energy companies that paid the couple royalties for extracting minerals from their property.
“I don’t think that’s a problem for him or for me,” said King. “I don’t think there are any recusal issues here.”
Judges are not required to step aside in cases in which they own bonds in one of the parties or receive royalties from a litigant. The investments don’t represent an ownership stake in the company. Gains for the judge would be unlikely if the company’s value soars, though their investments could suffer if the company suffered financially.
However, according to the judicial code of conduct, judges may need to step aside in those cases “if the outcome of the proceeding could substantially affect the value” of the judges’ financial holdings. In other words, it depends on the extent to which the court’s decision could cause the investment to increase or decrease in value.
Judicial ethics experts said bonds and royalties pose little risk for conflicts. Unlike stocks, they would require recusal only if a “reasonable person”—not one of the litigants involved in the case—would question a judge’s impartiality. To meet that threshold, experts said, the bond investments or royalty income would have to be substantial.
Tenth Circuit Judge Bobby Baldock reported earning up to $50,000 in royalties from ConocoPhillips in 2011 and ruled on a case involving the company that was sued by its union for allegedly violating a collective bargaining agreement. The decision favored both the company and union in some aspects. The judge said the royalty payment did not require him to recuse himself, according to 10th Circuit Clerk of Court Betsy Shumaker. She said he reviewed the ethical guidelines after the Center asked about the case and is “very comfortable” with his conduct.
In some cases, it’s also acceptable for judges to rule on cases in which they had a clear financial stake as long as they sell the holding—even after filing a ruling, as the Center found in one example.
Ninth Circuit Judge Kim Wardlaw ruled on two such cases in 2011 and 2012 but sold the stocks, according to Clerk of Court Molly Dwyer. In one of the cases, though, she sold the stock a day after the decision was filed. The ruling went against the company.
“In both cases Judge Wardlaw promptly divested herself of the interest before these cases became final, thereby avoiding the inefficiencies caused by selecting a third judge so late in the process where that judge could not affect the outcome,” Dwyer said. She noted that all the judges on both cases had already voted the same way.
With both of those cases, Wardlaw gained money from the stock sales, according to her disclosure reports.
No information in the public records of the case show that she disclosed the holdings or their subsequent sale to those involved in the case . “Under the particular circumstances of those cases, she did all she was required to do,” Dwyer said .
Breaking the rules to prevent conflicts of interest can be a blow to a judge’s reputation. “For most people, that’s the worst thing you can tell them,” said King, the 5th Circuit judge.
But that doesn’t mean judges face any serious consequences. In fact, judges who fail to recuse themselves from cases in which they have a financial interest don’t face any formal punishment.
Anyone can file a complaint under the Judicial Conduct and Disability Act if they believe a judge engaged in misconduct. Of the 1,352 complaints closed in 2012 against judges on all types of federal courts nationwide, though, only one led to any corrective action, court statistics show.
When courts learn about a judge’s missed disqualification after a judgment has been handed down, the courts must notify the parties involved in the case. The parties then have an opportunity to object. The court, without the disqualified judge, decides the legal consequences, if any.
Sometimes a case can be reheard with a new panel of judges.
The 26 cases the Center found moved into that legal limbo when the courts sent out letters. It’s not clear what could happen, as the conflicted judges were not the sole deciding vote in the cases. Still, the people behind the cases, such as the Gables and the Ramirez family, are left waiting and wondering.
Youngblood, the attorney who represented the Gables against Johnson & Johnson, said he’d like their case to be reheard, even if he’s not optimistic it would be reversed.
“I didn’t like the ruling. I mean, who likes a ruling that goes against them?” he said. “But I didn’t think the ruling was a fair one even though they tried to make it work according to their legal quotations and citations. I didn’t think it made sense.”
Francisca Ortega Ramirez wanted her three children to help her decide whether to ask to reopen the case of her husband.
Her daughter, Veronica Juan, who translated from Spanish for her, said no amount of money could replace Guillermo Ramirez, but a financial settlement could have given him some peace of mind before he died. She said her father was worried about how his wife would fare without him.
Even if the case were reopened, it’s a long shot that the family would win. But Juan said her father would have wanted a fair chance at winning—without a conflicted judge—even if it meant the decision didn’t go his way.
“What is fair is fair,” she said. “He was always a fair man.”
Photo courtesy of the Daily Beast