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Santos v. Countrywide Home Loans

December 21, 2009



Because the spouse of one of my law clerks owns a small amount of stock in the parent corporation of one of the corporate defendants in this action, I must recuse myself from this case. This memorandum is written to explain why I have reluctantly come to that conclusion.

Under 28 U.S.C. § 455(b)(4), a "justice, judge, or magistrate judge of the United States" is required to disqualify himself if "[h]e knows that he, individually or as a fiduciary, or his spouse or minor child residing in his household, has a financial interest in the subject matter in controversy or in a party to the proceeding." With several itemized exceptions, including mutual funds the judge does not manage and government securities, § 455(d)(4) defines "financial interest" to include "ownership of a legal or equitable interest, however small, or a relationship as director, adviser, or other active participant in the affairs of a party." Accordingly, a judge must recuse himself from any case in which he owns stock in a corporate party or in a parent corporation of a corporate subsidiary party.

In addition to mandating recusal because of a judge's financial interests, § 455(b)(4) expressly extends the disqualification of a judge to include financial interests owned by the judge's spouse or minor children residing with the judge. Neither § 455(b)(4) nor its relevant legislative history, however, even suggest that a judge should be concerned if his staff, including his law clerks, have a financial interest in a party. If Congress felt that the appearance of impartiality could be threatened if a judge's law clerk has a financial interest in a party, it could have legislated accordingly when it made the pertinent amendments to § 455 in 1974 or in the more than thirty-five years that have followed. It has not, and such congressional inaction should not be so easily disregarded.

Not only is disqualifying law clerks from working on cases because of financial interests at odds with the express limitations in § 455(b)(4), expansion of such disqualification to law clerks would seem to be wholly unnecessary to preserve the impartiality of the judiciary. Disqualification of a judge under § 455(b)(4) preserves the appearance of impartiality because it assures the parties and the public that even a speculative or hypothetical financial interest held by the judge or his immediate family will not influence the judge's decision in a case. The rationale behind § 455(b)(4) does not apply to the work of a law clerk. Judges, not law clerks, decide cases.

Nonetheless, in 1995 the Judicial Conference of the United States went ahead and enacted the "Codes of Conduct for Judicial Employees" and extended the disqualifications of § 455(b)(4) to judges' staff attorneys and law clerks. Specifically, canon 3F(2) of the Code states:

Certain judicial employees, because of their relationship to a judge or the nature of their duties, are subject to the following additional restrictions: (a) A staff attorney or law clerk should not perform any official duties in any matter with respect to which such staff attorney or law clerk knows that: . . . (iii) he or she, individually or as a fiduciary, or the spouse or minor child residing in his or her household, has a financial interest in the subject matter in controversy or in a party to the proceeding.

This canon adopts the definition of "financial interest" set forth in § 455(d)(4) and states that "[a] judicial employee who is subject to canon 3F(2) should keep informed about his or her personal, financial and fiduciary interests and make a reasonable effort to keep informed about such interests of a spouse or minor child residing in the judicial employee's household." Code of Conduct for Judicial Employees, Canon 3F(4).

Given its adoption of the definition of "financial interest" that applies to any interest, "however small," not only did the Judicial Conference needlessly extend § 455(b)(4) to law clerks, it also carried forth the fiction that an individual's financial holdings will always be affected in any case involving a corporate party simply because the individual owns a minuscule amount of stock in that party. See S. Rep. No. 93-419 (1974) (Individual Views of Mr. Dennis of Indiana on S. 1064--Concurred in by Mr. Butler of Virginia), reprinted in 1974 U.S.C.C.A.N. 4093, 6362:

I have serious reservations on the merits of this bill. . . . on a [] utilitarian level, it is my judgment that the approach taken in this bill is unreasonable and unrealistic. . . . The necessary effect of [mandatory disqualification for any financial interest] is that, by legislative enactment, we could have a true Daniel come to judgment--or a Learned Hand upon the bench--and if the case involved, let us say, the Exxon Corporation, and the judge owned 20 shares of common stock, which he had inherited from his parents many years before and had never particularly thought of since, he absolutely could not sit . . . . To me, an inflexible provision of this kind does not make good sense, does not make for the highest quality of justice, and represents an over-reaction to a problem which, so far as the Committee has been advised, is largely non-existent.

In Maintaining the Public Trust: Ethics for Federal Judicial Law Clerks, which the Federal Judicial Center ("FJC") published in 2002, the FJC explains:

Like the judges they serve, law clerks should not perform official duties in matters in which they have a financial interest. [A law clerk's] work on cases in which she has a financial interest would be inconsistent with Canon 3F(2). Her judge can assign another law clerk to the matter.

Id. at 11. After my law clerk inquired into the precise restrictions canon 3F imposes, an ethics officer of the General Counsel's Office of the Administrative Office of the United States Courts advised that a law clerk with a financial interest in a party should be "screened" from the party's case, which "would mean that the screened clerk should not talk to the other clerks about the case."

The ethics officer recognized that there is not an advisory opinion directly mandating such screening, but analogized to other advisory opinions that address disqualification of law clerks. For example, section 3.5-1(f) of the Compendium of Selected Opinions suggests that a disqualified law clerk should be isolated from a case in which the law clerk has an ethical conflict: "A law clerk whose spouse is an associate in a firm should be isolated from any case handled by that firm, whether the spouse actually participates in the representation or not." In the Committee on Codes of Conduct's opinion, isolation of a disqualified law clerk is a simple and effortless solution: "[T]he disqualification of a judge is far more disruptive to the administration of justice than the disqualification of a law clerk. Most judges have more than one clerk, and the matter may be transferred easily to another clerk." Committee on Codes of Conduct, Advisory Op. No. 51.

In theory, isolating one law clerk from a case and assigning any work from that case to another law clerk may seem to be an easy solution to the conflict created by canon 3F. In practice, however, the physical design of my chambers and the way in which I have determined that I can most efficiently and judiciously manage my caseload renders isolation of one law clerk impracticable. Not only is it impossible to meaningfully isolate a law clerk from every aspect of a case, I have found that conferring with all of my law clerks on a matter enables me to more correctly reach a ...

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