 Case number three presiding over cases that implicate financial dealings of the judge or members of the family and judges private financial activities Judge Ernst Lubitsch has a very difficult case in front of him the plaintiffs are a managers of a pension investment fund a concentrating in real estate General and limited partnerships the case is particularly difficult because the parties are divided into three separate groups There are a group of pension funds who all want their money back Because the real estate investments have declined in value and they want to get out of the fund as quickly as possible there's a second group of participants who think that the Properties have some value in some limited circumstances and what they want to have is the properties distributed Among each of them so that each would keep a certain share of the limited partnerships a third group of people believe that the managers of the fund are being quite panicky and That the real estate values have dropped only temporarily and if everybody just holds tight The fund will return to its own that old value and in fact Continue on the course that it had for many years of steadily increasing values The case is difficult because we don't know and Judge Lubitsch has no way of knowing At the time he rules what party he will benefit He can for example decide in favor of those who want to stand pat and say to them that you prevail in this particular case And then two years later when it appears that the real estate values have not increased at all the apparent winners Wind up being losers So he has no idea in the beginning at the time he rules and there's no way he can know who wins and who loses At the time we in encounter Judge Lubitsch. There have been a fair number of proceedings in the case He's ruled on motions to dismiss He's had ruled on a couple of motions for partial summary judgment He's ruled on several discovery matters, and he's held several pretrial conferences We're going to examine Some particular problems that Judge Lubitsch Also may have with respect to financial interests, but it's important to understand One aspect of the rule in particular and that is the Canon 3 Which covers this particular area Deals with interests that might be affected might substantially be affected and to some extent it may not be Required that Judge Lubitsch does in fact know in each case Who will win or who will lose as a result of his ruling? Now the first Situation that Judge Lubitsch encounters is this He's the party to a state court proceeding And it's a lawsuit that involves a fair amount of money. It's a commercial lawsuit It's been going along that track which everybody has believed would result in settlement But nonetheless everybody is preparing for trial One of the parties adverse to Judge Lubitsch Fires his lawyer and a new lawyer a man named Norman Torog is retained Torog is a partner in a firm which represents the milestone tire pension fund which is a defendant in the fund Q case Torog had self has played no rule on the fund Q case My question to you Pat is Can Judge Lubitsch continue to preside over the fund Q case and if so under what conditions if any I? Think he cannot continue to preside over it if Mr. Torog Takes on his new relationship as a lawyer for one of the defendants in the fund Q case It seems to me that the appearance of impartiality would be Severely impugned where a lawyer appearing or representing a party In a lawsuit before the judge is the opposing counsel in a separate lawsuit in which the judge has a Substantial financial interest now the fact that there is this conflict means it can be solved in two ways he can either recuse or Perhaps he can take some action To see that The new counsel who is presenting the conflict in the middle of this ongoing judicial proceeding Does not take on his new relationship One of the other has got to go I think on a utilitarian point of view if he can feels comfortable in Suggesting strongly that mr. Torrig not take on the responsibility or perhaps even ultimately ruling that he cannot represent him because of a conflict In terms of who will suffer the least that's a preferable solution to his having dropped having to drop out in the middle of a complicated lawsuit I agree with that and I agree. I think there are too many members of the public out there that have been through matrimonial Proceedings who remember how they felt about the lawyer that represented an adverse party that They would reasonably question the judge's impartiality Even of course Torrig here is not going to be in both suits, but his firm is going to be in both suits And if I were the judge Having gotten to this state stage in the game where you're this far into the case I would put the firm to An election I'd say you can you can't represent both Sides you either do away with the other representation and you can proceed here, or I'm not going to let you proceed here Would it make a difference to either of your answers if Judge Lubitsch had in fact Acquired the case perhaps 28 days before he had not ruled on any motions to dismiss or summary judgment hadn't had a pretrial conference He just said a few scheduling orders would that change your answer? It's really a matter of in Informal preference there. I can see many judges if they haven't gotten into a case simply not wanting to take on the just the angst of dealing with the Parties and suggesting disqualification of lawyers and going back to their chief judge or whoever the assignment judges and saying listen There's a problem here. Why don't you give this to somebody else? That may in fact be the way it would be handled in most cases where there wasn't a substantial investment already I don't think you would have to handle it that way, but it might be the easiest on everybody Yes, I if it were at the very beginning of the case. I just disqualify myself Perhaps we should mention here that under canon 3d Since the problem here is whether is the general one the general requirement that you have to disqualify in any Circumstances where your impartiality might reasonably be questioned It is something that's remittable So you could go through the procedure judge Lubich could go through the procedure of getting a waiver of this disqualification I have one last question with respect to this particular situation all of his problem has all of these problems have arisen Because judge Lubich has this case in in state court arising out of some commercial transaction Canon 5 I Has language which says that a judge should manage investments and other financial interests to minimize the number of cases in which the judge is disqualified I Have assumed and I think most of both of you have in your discussion that this lawsuit probably arose out of something that occurred Before judge Lubich went on the bench Let's assume for a moment it didn't it's assumed judge Lubich has been doing investments And he's been on the bench for many years and this commercial lawsuit arises out of some investment and business dealings that he had had after he got on the bench Does judge Lubich have a problem under a Canon 5 as he Failed to manage his investments and financial interests to minimize the number of cases in which he is disqualified I don't think there's anything in the facts that suggest that to me I mean the cannons do expressly Authorize a judge to have investments and to manage his own investments his or her own investments and There's nothing that suggests to me that this is the type of Enterprise or investment that could foreseeably give rise to a lot of disqualification a lot of litigation I Think it is a matter of predictability I I would look a scans at a judge Investing in some company that's known to be in terrible trouble and has already existing lawsuits by labor unions or Bankruptcy etc. I think there it might be an infringement of the Canon for him to rush in but as far as his Acumen in predicting whether or not what seems to be a neutral investment is going to run into some trouble down the line I don't think we can really hold him to task for that The second problem that judge Lubich faces is that His ex spouse with whom he's on very good terms Owns three fund Q limited partnership interests And that another limited share was bought for their twin children who are in this custody the former spouse These interests might well be affected although we don't know in what way by judge Lubich is ruling The twins children's interests are in are in irrevocable trust And the the trustee is the mother Children attend a college near judge Lubich is home and while school is in session. They spend three nights a week at that home Is judge Lubich disqualified and if so what can and disqualifies? well The Canon 3c1 as we all know Has a general prescription that you have to disqualify yourself where your impartiality might reasonably be questioned and then there are a whole series of specific examples of situations where you are bound to disqualify yourself and One of the specific situations deals with situations where the judge knows that a close relative such as a child Has an interest that may be substantially affected by the outcome of the proceeding The way I would analyze this. I think the wife The for the former wife is not a relative under the Canon. She is Indicates she's a good friend and there may be a question here under the general prescription He made the judge will want to ask himself is the friendship such that it might Circumstances we don't know here so the question really boils down to whether the children have a financial interest that might be Substantially affected by the outcome of the litigation And I think the answer there is yes and he probably Is should disqualify himself the The children only have a contingent Interest saying is it's a revocable trust and of course they're they're equitable owners only but the committee has advised that a beneficiary holder of an equitable interest under a trust Has a financial interest within the meaning of canon and also even where it's contingent it is considered to be an interest and It comes down to the question then whether Something the judge might do in this case might adversely affect could adversely affect the children's interest in the limited partnership And I think the answer my answer would be If I were in the judge's shoes that I would feel required to disqualify recuse myself in in this question It's There's a discussion as to the fact that the children spend three nights a week at the judge's home Which has some bearing on canon 3c1 C which talks about Minor child residing in the judge's household Is that really a red herring in this? That's something that the judge in Lubich's position really ought to worry about whether or not this will constitute Minor children living in the household. I noticed 3c1 See Well 3c1 says a judge shall disqualify himself in with in a proceeding in which sim partiality might reason to be questioned included But not limited to instances where and then we drop down to see where it talks about residing in the judge's household I guess I would think that while not specifically enumerated here The fact that they still are his children. They're still in school as I understand it They're not independently economically independent is the primary focus here And I don't think the fact that they don't live with him Is at all? Determinative in fact, I would put a slightly different nuance on Walt's reply as to the ex-spouse Seems to me the ex-spouse may be a friend where she's off living her own life And the children are grown and off living theirs And I would expect but I wonder if there isn't some carry over where you have an ex-spouse who's still the legal Custodian of children who may not have reached The majority age so that if that spouses finances even if it isn't technically the children's finances fail There will be repercussions on the children She might have to go back to work and wouldn't be home when they come home from school that sort of thing It's one of those in-between judgments, but I think all things considered in this hypothetical. He should it is a recusal situation suppose these interests were not limited partnerships, but there were dead instruments debentures Secured notes of some kind with the fixed rate of return Would that make a difference to your answers? And assume also that that whatever the judge rules there will be adequate funds to pay a fixed rate Return least those investments Judge Lubic is a beneficiary of King and Vidor's pension fund that fund is heavily invested in a real estate fund managed by Victor Fleming Fleming's fund is undergoing exactly The same problems as fund Q is and they are likely to go to court to try to resolve the problems They will not File their case in a judge Lubic's court But if it is filed it will be filed in another federal court within the circuit in which Judge Lubic sits Would Judge Lubic be disqualified from hearing the fund Q case Pat Probably not if it's primarily a factually oriented case One would have to know more more about the similarities and differences between The the two funds, but it sounds to me as though it's a very fact specific Situation and so I would think knowing what I know now here that he wouldn't have to disqualify Himself and what if he were instead a circuit judge hearing the matter and it becomes different if again The only facts on review on appeal are again whether or not he made the correct factual dispositions Then I think Probably not each case would be decided on its own facts if for instance there were a a Long-standing rule of law in the circuit court that was simply saying we will find the facts And if they are a B and C we will apply this long-standing Non-controverted rule to them that would be all right now on the other hand if we were in a new area of the law And having found facts a B and C down here when I went up to the circuit court They said we are now going to announce the rule of law for the circuit As a new rule of law or an extended rule of law if facts a B and C are found Then this particular legal principle will apply then I think he might have to worry a bit Because he won't know whether or not in his own pension fund Fund Facts a B and C will be found, but if they are he is deciding what might be a very financially important Rule of law that will apply So if if it's if it's a new area of the law and if the if the law Factor that's involved in the appeal is important I think you'd be safer to disqualify if it's one of those things where you look at the findings of the fact By the district court below and you apply a well-established rule of law to it. He probably would well I agree I think you really need to know more that than we know here to pass judgment on the on the question But I think it is clear that you can have a disqualifying interest That is not involved at all in the controversy before you but may be Nevertheless disqualifying because the presidential value Or binding effect of what you do Will affect that interest Judge Lubic Married again and His present spouse has a great deal of money and she spends a great deal of time with an investment club Generally speaking she's always refused to tell Judge Lubic where the funds are being invested and what she tells him is is what you don't know won't hurt you and He's had the unusual experience and sometimes disconcerting experience of finding out Only at the time the tax returns are filed that they've invested in this or or another sort of Company Is Judge Lubic disqualified when unknown to him the investment club Puts money into a program which offers to purchase interest in the fund Q real estate ventures Well, the the cannon says you got to disqualify when you know that your spouse Has an interest in the controversy or one that might be substantially affected by the outcome of the proceeding so You have to know in order to trip the cannon on the other hand the cannon imposes an Affirmative duty where you're talking about a spouse or children that live in the household of the judge The judge has a duty to keep himself informed About the financial interest and other interest of those people close to him now The committee has said that Has taken recognition of the fact that you can't always Find out what you might like to know And that the duty of inquiry is the duty to use reasonable inquiry to find out what your wife's interests are and He seems to here to have asked her And I don't know if she won't tell him I don't know what he can do you have any suggestion Pat No, if it was a bona fide not a conspiratorial answer Like you say do you really want to know if she simply says this is my business and none of yours I suppose you might renew it periodically not too often for the marital state, but If he does that I think That's all he can do Assume for a minute that fun cues a general fun cue is the general partner in all of the real estate Investments, which is not the facts that we originally operated on Would the judge be advised to require that that Griffith Company give him a list of all the limited partners Since he knows that his spouse is not going to tell him whether he's invested or not Should he just enter an order saying Give me a list of all the original investors He could do that Disclosure sheets that disclose whether there are parties that have an interest in the Non-named party's one but people who never left an interest in the outcome His wife and the discussing economic situations and his wife doesn't really spend a lot of time concerned a lot of time or Effort trying to find out what is on Judge Lubich's docket Discussing economic conditions I Unless she tells me more Because some people Makes them know that some action Without Spouses who look at the TV at 6 o'clock at night and often Remark has to figures appearing there on there's that jerk again or oh boy if I have to hear him say one more thing like that again And I I think without more of those things Simply have to reject Well, thank you very much. I do want to say one thing about about Judge Lubich is I I prepared what I thought is the the Worst possible scenario and I don't think any judge is ever gonna face all of these in one case At least I hope not but It does stress. I think the importance of reading thoroughly Each section of the canon and bearing in mind always That despite the specific standards which govern a variety of forms of disqualification Ultimately after you determine that for example, none of them apply You always have to remember as Walt Stapleton pointed out There is an overriding Criterion which requires that a judge disqualify himself or herself in a proceeding in which the judges impartiality might reasonably be questioned Which includes but is not limited After all of the technical analysis is done of the application can 3c The judge must always return back to 3c1 and ask the final question as to whether that is Guidance on ethical questions is available in the Code of Conduct for United States judges and judicial employees The commentary to it and in the advisory opinions All are published in a read loosely binder entitled codes of conduct for United States judges and judicial employees Which is volume two of the guide to judiciary policies and procedures This program is part two of a series on judicial ethics Part one is a video lecture in which the Honorable Walter K. Stapleton presents an overview of ethical rules in the federal judicial system And the role of the Codes of Conduct Committee To order part one contact information services at the Federal Judicial Center