Federal Judges and Conflicts: They Are Not So Good at Conflicts Checks

The Wall Street Journal did parties in federal court as well as ethics professors a magnificent service. Through what must have been painful research, reporters James V. Grimaldi, Coulter, Jones, and Joe Palazzolo combed through federal judges’ financial disclosure statements and then compared the judges’ case dockets with the companies listed in their disclosures. As it turns out, 138 judges had conflicts, i.e., they or their family owned (or in some cases traded in) the stock of companies that had cases before the judges. “Federal Judges Heard Cases Despite a Financial Interest,” Wall Street Journal, September 29, 2021, p. A1.

These conflicts were not close calls. The rule is, from 1792 to the present, federal judges may not preside over cases in which they stand to benefit. For example, one federal judge from New Jersey, traded Wells Fargo stock while presiding over a case in which Wells Fargo was the defendant in a foreclosure recovery case brought by the homeowner who had lost his property. Judge Brian Martinotti granted Wells Fargo’s motion to dismiss in July 2019, denied the plaintiff’s motion for reconsideration in March 2020, and did not disclose his Wells Fargo stock trades until after the Wall Street Journal notified him of the conflict on August 11, 2021. One federal judge in Texas presided over 138 cases in which he or his family owned stock in one of the parties. He wins the prize for the most failures to either check or disclose his stock holdings.

If any of these judges have ever worked in a law firm, they know the drill. You never take on a new client without going through the firm’s records to check for conflicts. Federal judges have clerks, staff, law clerks, and data bases. Their annual financial disclosure forms list all their stock holdings and those of their family members. If you have those companies on just a simple Word chart or Excel spreadsheet, it will take 30 seconds to type in a party’s name and see if it matches anything in your holdings.

The judges have their rationalizations: “I have preferred to stay unknowledgeable about it,” “A judge has to be on her toes, and obviously I was not,” and one humble judge, “I just blew it. I regret any question I’ve created or appearance of impropriety or a conflict of interest.” The judge needs help with sentence structure as well as conflicts. There was a grateful judge, “I dropped the ball. Thank you for helping me stay on my toes the way I’m supposed to.” FYI — Ballerina postures are not necessary — just check the list.

Judges checking for share ownership in the parties before them is not difficult nor should it slip from their minds. It is possible to not have the memory capacity to recall all of your stock holdings. Hence, the list and search functions. The funny thing is that federal judges are the ones throwing the book at companies such as McKinsey & Company for their failures to disclose their conflicts in federal judicial matters such as bankruptcy. Funnily enough, McKinsey offered the same defenses as the judges, “Who knew?”

That “Who knew?” is one of two possible answers when someone is caught with an ethical/legal lapse. The “I was stupid defense,” which is “Who knew?” is one CEOs use all the time. Even if they did actually know they roll the dice with a “Prove it” sort of attitude. The other option is to confess incompetence. There was a split decision in the courts on which one each judge opted to cling to as a defense.

The sad part is that the parties to these cases are lost in the headline hoopla. The judges could talk themselves blue explaining that their share ownership “would never affect their decisions.” That’s because federal judges are above all conflicts. They have super-human powers to resist those kinds of temptations. Doctors taking money from pharmas for favorable-results research make the same argument and assume the same saintly posture. Politicians, well, they are above all others. Just donate, sell me land at a discount, remodel my house, and/or buy my son’s paintings and fuhgeddaboudit! In a world of conflicts only those who lose out because of them have the skill to spot them.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
This entry was posted in News and Events. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.