Financial Conflicts of Interest in Federal Appeals

A report from the Center for Public Integrity, issued this morning and available at http://www.publicintegrity.org/2014/04/28/14630/federal-judges-plead-guilty, addresses financial conflicts of interest in the United States Courts of Appeal.  Both a federal statute and Canon 3C of the Code of Conduct for United States Judges contain rules prohibiting any judge from sitting on cases in which the judge has a financial interest in one of the litigants.  According to the Center’s report, the Center reviewed financial disclosure reports filed, pursuant to mandatory disclosure rules, by 255 of the 258 Circuit Court judges over the past three years.  The report says that the Center’s analysis “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.”  Those cases involved a total of sixteen judges.  The Center’s report also “found about 20 more cases that seemed questionable, but did not require automatic disqualification of judges.”

In 2006, the Judicial Conference of the United States adopted a policy that requires all federal courts (except the Supreme Court of the United States) to set up an automatic screening process to identify conflicts of interest using a database of financial conflict information provided by the judges themselves.  There is also a backup procedure, the Center’s report states.  “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.”  Despite those safeguards, the Center found that, in a few cases, financial conflicts have slipped through.  According to a statement from the Administrative Office of the United States Courts that is quoted in the Center’s report, the 26 cases of conflict cited by the Center “represented just 0.02 percent of the 109,000 total cases decided in the U.S. Courts of Appeals over the last three years.”  The Center’s report states, however, that the number of conflict cases may in fact be greater, for various reasons.

As the report notes, at the appellate level, “the judges do not rule on cases by themselves.  They typically sit with at least two other judges on each case.”  Moreover, in some of the conflict cases, the judge involved did not vote in accordance with his or her financial interest.  Nonetheless, financial conflicts should not occur, and certainly are not condoned.  The Administrative Office, however, did tell the Center that the conflicts identified by the Center were “mistakes that can be attributed to human error,” according to the report. 

The Center advised the courts of its findings, and as a result the sixteen judges had letters that disclose the financial conflict of interest sent to the parties in all 26 cases.  The parties may have the ability to reopen the appeals due to the conflicts.

The Center identified only one conflict case involving a judge of the Third Circuit.  In Koronthaly v. L’Oreal USA, Inc., 374 Fed. Appx. 257 (3d Cir. March 26, 2010), Judge Roth was a member of the panel and wrote the opinion for the court.  Last month, Judge Roth contacted the Clerk’s Office and advised that she had recently learned that, while the case was pending, a revocable trust in her name owned stock in Procter & Gamble Co., the parent of Procter & Gamble Distributing, LLC, a party to the appeal.  The Clerk’s Office had not flagged this as a possible recusal for Judge Roth.  As a result, at Judge Roth’s direction, the Clerk’s Office notified the parties about the conflict and offered them the opportunity to respond to Judge Roth’s disclosure, pursuant to Advisory Opinion No. 71 of the Judicial Conference’s Committee on Codes of Conduct, which prescribes this procedure for conflicts discovered after a judge has already participated in a matter despite a conflict.  The parties were asked to submit any such responses by April 7.  According to the Center, a PACER search reveals no response by any party by that deadline, or thereafter.

One other Third Circuit case identified by the Center involved a visiting judge.  In that case, Farina v. Nokia, Inc., 625 F.3d 97 (3d Cir. 2010), a putative class action that had been dismissed by the district court, Judge Alarcon of the Ninth Circuit was a member of the panel and voted with the other panelists to affirm the dismissal.  According to a letter that was sent to the parties to the appeal earlier this month by the Third Circuit Clerk’s Office, Judge Alarcon had overlooked Nokia  when reviewing the docket for recusal purposes.    After the conflict surfaced, the Clerk’s Office wrote the parties to that appeal a letter similar to that sent in Koronthaly.  Counsel for plaintiff, the losing party, responded that plaintiff would take no action in response to the conflict disclosure, and that plaintiff considered the matter closed.      

No system is perfect.  The Center has shown that to be true of the process for identifying financial conflicts in the federal Circuit Courts.