A Wall Street Journal investigation found that federal judges around the nation have violated U.S. law and judicial ethics by overseeing nearly 700 court cases involving companies in which they or their family owned stock.
As a result of the Journal’s reporting, judges in more than 300 cases have notified courts that they presided in the lawsuits improperly and that the cases are eligible to be reopened.
How many judges broke the law?
In the most expansive investigation of judicial stockholdings in the U.S., the Journal revealed that 131 federal judges improperly heard 685 court cases between 2010 and 2018 in which they or their family members owned shares of companies that were plaintiffs or defendants in the litigation. Two of the judges sat on appellate courts; the other 129 were district judges, also called trial judges. The Journal’s review examined civil cases.
About two-thirds of federal district judges disclosed holdings of individual stocks, and nearly one of every five of those who did improperly heard at least one case involving a company in which they or their families owned a stake.
What’s the law?
Nothing bars judges from owning stocks, but a 1974 federal law prohibits any “ownership of a legal or equitable interest, however small,” in a party to a case before a judge. That law and the Judicial Conference of the U.S., the federal courts’ policy-making body, require judges to avoid even the appearance of a conflict.
The ban on holding even a single share of a company while presiding in a case involving the firm means judges must be vigilant about their assets, including informing themselves about stockholdings of spouses and minor children.
The Judicial Conference requires courts to use conflict-checking computer software to help identify cases where judges should bow out. Judges needn’t disqualify themselves from cases involving banks where they have mortgages or checking or savings accounts, nor do they need to recuse because of any mutual-fund holdings.
How pervasive is the problem?
The Journal found judges failing to disqualify themselves as required in every region of the country. They included judges appointed by nearly every president from Lyndon Johnson to
When there were contested motions in cases involving companies the judges had a financial stake in, two out of three of their rulings on the motions were in favor of those companies.
Dozens of judges or their families not only owned shares in companies in their courtrooms but traded the shares while the judges were presiding in the cases.
Legal experts said the activity the Journal found amounts to a pervasive disregard for the judicial conflict-of-interest laws. Indiana University Law Professor
said that, in isolation, a violation could be viewed as an oversight. But the Journal’s overall findings raise “a more systemic problem of judges chronically neglecting their duty to disqualify in such cases.”
How did The WSJ do it?
The Journal reviewed hundreds of financial disclosure forms filed annually from 2010 to 2018 with the Administrative Office of the U.S. Courts. The forms, filed by federal trial and appellate judges, aren’t online. The Journal used the courts’ data as obtained and digitized by the Free Law Project, a nonpartisan legal-research nonprofit.
Then the Journal compared judges’ stockholdings to tens of thousands of court dockets, finding 685 violations. Scholars who reviewed the Journal’s analysis said its methodology was sound.
What have judges said?
Judges offered a variety of explanations for the violations. Some blamed court clerks. Some said their lists of companies to avoid had misspellings that foiled the conflict-screening software. Some said they had only nominal roles in the cases, such as confirming settlements, though there is no legal exemption for such roles.
Some judges misunderstood the law, saying erroneously that they didn’t have to recuse themselves because their stock was held in accounts run by professional money managers.
One judge who had 36 recusal violations, after initially saying he “never really paid much attention” to his stockholdings and wasn’t familiar with the ethics law, told the Journal: “I am embarrassed that I did not properly understand and apply the stock ownership rule.”
What has been the fallout?
After being alerted to violations by the Journal, 63 judges have directed court clerks as of Oct. 6 to notify parties in 365 lawsuits that they should have disqualified themselves and that cases could be reassigned and reopened.
One of those cases was a violation in a New York federal court involving
Exxon Mobil Corp.
Lawyers for the losing party that had sued a unit of the oil company now have asked an appeals court to toss out the ruling and order a review by a new judge because of “the inevitable appearance of partiality that results from these unfortunate circumstances.” The court clerk said the judge’s Exxon holdings didn’t have a bearing on his ruling in favor of the company.
In another case, in an Alabama federal court, a judge ruled against two homeowners in a foreclosure case against Wells Fargo & Co. The judge had bought Wells Fargo stock about two weeks after receiving the case. “This is outrageous,” one of the homeowners said when told the judge held the bank shares. “How am I supposed to know she owns stock in Wells Fargo?”
The homeowners asked the court to reopen the case. The court has assigned a new judge to their suit. The court clerk said the judge’s stockholding didn’t affect her decisions in the case.
What can you do in your case?
If a judge notifies a court clerk of a recusal violation, parties have the option to ask the court to rehear the case with a different judge.
If you have a pending case involving a company, you can ask your lawyer to contact the Administrative Office of the U.S. Courts for the latest financial disclosure forms of the judge to determine whether he or she has any conflicts or violations. But disclosures are filed only annually.
If anyone requests to see judges’ financial disclosures, the judges are told who asked. Some lawyers say this creates a disincentive for them to ask, out of concern about annoying judges in whose courtrooms they frequently appear.
Write to Michael Siconolfi at firstname.lastname@example.org, Coulter Jones at Coulter.Jones@wsj.com and Joe Palazzolo at email@example.com
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