Opinion ID: 409093
Heading Depth: 1
Heading Rank: 2

Heading: The Recusal Statute

Text: 44 We now turn to the question of the proper interpretation of section 455. Section 455 provides in part that(a) Any justice, judge or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned. 45 (b) He shall also disqualify himself in the following circumstances: 46 .... 47 (4) (When) he knows that he, individually or as a fiduciary, or his spouse ... has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding .... 48 .... 49 (d) For the purposes of this section the following words or phrases shall have the meaning indicated: 50 (4) financial interest means ownership of a legal or equitable interest, however small .... 51 .... 52 (e) No justice, judge, or magistrate shall accept from the parties to the proceeding a waiver of any ground for disqualification enumerated in subsection (b). Where the ground for disqualification arises only under subsection (a), waiver may be accepted provided that it is preceded by a full disclosure on the record of the basis for disqualification. 53 Another provision of section 455 excludes specified mutual fund investments from the definition of financial interest. 9 54 After the plaintiff class had been certified and the time had run during which class members could opt out, Judge Muecke was notified by the defendants that his wife owned stock in several of the plaintiff class members. The defendants contended that Mrs. Muecke's stock ownership constituted a financial interest in the subject matter in controversy or in a party to the proceeding and that Judge Muecke was under a per se duty to recuse himself. After extensive briefing, oral argument, and an opinion from the Advisory Committee on Codes of Conduct of the Judicial Conference of the United States, Judge Muecke recused himself on the ground that his wife's stock ownership constituted a financial interest in a party to the proceeding within the meaning of section 455(b)(4). 55 In his opinion Judge Muecke correctly noted that in subsection (b)(4) of the statute, the phrase financial interest in the subject matter in controversy or in a party to the proceeding, unlike the phrase or any other interest, is not modified by the subsequent phrase that could be substantially affected by the outcome of the proceeding. Thus, subsection (b)(4) establishes two classes of disqualifying interests: first, financial interests in the subject matter in controversy or in a party to the proceeding; these interests require recusal whether or not the outcome of the proceeding could have any effect on the interests; second, other interests; these interests require recusal only if they could be substantially affected by the outcome of the proceeding. See In re New Mexico Natural Gas Anti-Trust Litigation, 620 F.2d 794, 796 (10th Cir. 1980). An interest is disqualifying whether it is held by the judge or his spouse. The issue before Judge Muecke, then, was whether his wife's stock ownership in several of the class members constituted a financial interest in a party to the proceeding or the subject matter in controversy. If such ownership constituted a financial interest in either, it is irrelevant, for purposes of recusal, whether that interest would be substantially affected by the outcome of the proceeding. 56 Judge Muecke held that ownership of stock in a class member constitutes a financial interest in a party to the proceeding. In so holding, Judge Muecke rejected the petitioner's arguments that, because the statute does not refer to class members and because general law does not treat class members and parties in an identical fashion, class members are not parties within the meaning of section 455. 515 F.Supp. at 1079. 57 Judge Muecke acknowledged that congressional silence on the question of the status of class members creates some difficulty in applying the statute: 58 Given that § 455 purports to adopt a per se rule regarding disqualification, it is amazing that the statute is not more specific as to when the per se rule would apply. The problems created by the language of § 455 are compounded by a dearth of legislative history on the questions before this Court. Section 455 might operate with some degree of success in the context of simple litigation. When applied to complex multidistrict class actions, however, the statute appears to break down. 59 .... 60 Despite the proliferation of class-actions in this country, there is no indication that Congress directly considered the question whether party under (b)(4) should be read to include class member. 61 Id. at 1079. 62 However, Judge Muecke found unpersuasive petitioners' argument that because general law does not treat class members and parties in an identical fashion for all purposes, class members are not parties for purposes of section 455. It is true that for certain procedural purposes, class members and parties are not treated identically. 10 But, these differences in treatment are a concession to the nature of class action suits and the purposes of Rule 23: if every class member had to be treated as a party in all circumstances, the purposes of Rule 23 might in some instances be frustrated. Thus, for example, the presence of non-diverse class members will not defeat federal diversity jurisdiction so long as the class representatives and the opposing parties are diverse; e.g., Friedman v. Meyers, 482 F.2d 435 (2d Cir. 1973); see also Snyder v. Harris, 394 U.S. 332, 340, 89 S.Ct. 1053, 1058-1059, 22 L.Ed.2d 319 (1969); 13 C. Wright & A. Miller, Federal Practice and Procedure § 1755 at 550 n. 82; some courts have held that class members are not subject to discovery under Fed.R.Civ.P. 33; e.g., Fischer v. Wolfinbarger, 55 F.R.D. 129 (W.D.Ky.1971); Wainwright v. Kraftco Corp., 54 F.R.D. 532 (N.D.Ga.1972); 11 and other courts have held that class members should not be treated as parties for purposes of counterclaims under Rule 13; e.g., Donson Stores v. American Bakeries Co., 58 F.R.D. 481 (S.D.N.Y.1973). 12 63 Whatever the rule may be with respect to treating class members as parties for certain procedural purposes, it is clear that class members and parties are treated in substantially the same manner in regard to the substantive benefits and burdens of judgment. Thus, Rule 23 provides that any class member who has not opted out shall be included in the judgment, whether favorable or not to the class member, Fed.R.Civ.P. 23(c)(2)-(3); a class member may appeal from an order approving a settlement to which the member objects, Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30 (3d Cir. 1971); a class member is bound as a party for res judicata purposes, see e.g., Brown v. Vermillion, 593 F.2d 321 (8th Cir. 1979); Smith v. Alleghany Corp., 394 F.2d 381 (2d Cir.), cert. denied, 393 U.S. 939, 89 S.Ct. 300, 21 L.Ed.2d 276 (1968); 3B J. Moore, Moore's Federal Practice P 23.60 at 23-468; 13 C. Wright & A. Miller, Federal Practice & Procedure § 1784 at 178 (According to traditional res judicata notions, a member of a class in a Rule 23 suit is considered to be a party by representation, and will be bound to the same extent as an actual party). 64 On some occasions, courts have expressly described class members as parties. In American Pipe & Construction Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974), the Supreme Court stated (u)nder the circumstances of this case, ... the claimed members of the class stood as parties to the suit until and unless they received notice thereof and chose not to continue. Id. at 550-51, 94 S.Ct. at 764-765. The Court held that the statute of limitations was tolled for all members of the class who would have been parties had the suit been permitted to continue as a class action. Id. at 554, 94 S.Ct. at 766. Similarly, in comparing the status of members of an organization that had filed suit to the status of class members in a class action, the Seventh Circuit stated that the (Supreme) Court's remarks plainly imply that the organization's members are not parties to an organizational representative suit. Yet class members are parties to class actions. See e.g., Zahn v. International Paper Co., .... Local 194, Retail, Wholesale & Department Store Union v. Standard Brands, 540 F.2d 864, 867 (7th Cir. 1976). 13 65 We need not decide the general question whether class members are in fact parties to a class action suit; for some purposes they are treated as such, and for other purposes they are not. Here, we need decide only if, for purposes of section 455, stock ownership in a class member constitutes an interest in a party to the proceeding. We agree with Judge Muecke's analysis in rejecting petitioner's argument that class members are not parties within the meaning of section 455: 66 The problem with plaintiffs' argument is that, where it counts, class members and parties are identical. There is no question that class members are included in the benefits and burdens of a judgment on an equal basis with parties. For this reason, there appears to be no reason in logic why a financial interest however small in a named party to a litigation should be grounds for recusal, but that the same interest in a class member should not be. Neither the degree of conflict, nor the appearance of impropriety is altered by a litigant's classification as party or class member. 515 F.Supp. at 1079. 14 67 A review of the statute's legislative history adds considerable support to Judge Muecke's ruling that, because the appearance of impropriety is similar whether the interest is in a named party or a class member, class members should be viewed as parties for purposes of recusal under the statute. 68 Prior to its amendment in 1974, section 455 provided that 69 Any justice or judge of the United States shall disqualify himself in any case in which he has a substantial interest ... or is so related or connected with any party or his attorney as to render it improper, in his opinion, to sit on the trial, appeal or other proceeding therein. 70 The movement to amend section 455 was spurred by the ambiguities and uncertainties of the above language. 120 Cong.Rec. 36268 (1974) (statement of Rep. Kastenmeier). Representative Kastenmeier, the House sponsor of the bill to amend section 455, pointed to two main problems under the statute prior to its amendment. First, the statute provided no guidance on the question of how to determine the substantiality of a judge's interest in a party; second, the sole arbiter of the question of the substantiality of the judge's interest was the very judge whose impartiality was being questioned. Id. The House Judiciary Committee described the purpose of the amendment as follows: (B)y setting specific standards, Congress can eliminate the uncertainty and the ambiguity arising from the language in the existing statute and will have aided the judges in avoiding possible criticism for failure to disqualify themselves. H.R.Rep.No.1453 at 6, 93rd Cong.2d Sess.1974; reprinted in 1974 U.S.Code Cong. & Ad.News 6351, 6355 (hereinafter cited as House Report). 71 At the time that Congress was considering the merits of the amended version of section 455, the American Bar Association (ABA) had adopted a new Code of Judicial Conduct. Canon 3(C)(1) of the ABA Code provided that 72 A judge shall disqualify himself in a proceeding in which his impartiality might reasonably be questioned, including but not limited to instances where 73 .... 74 (c) he knows that he, individually or as a fiduciary, or his spouse ... has a financial interest in the subject matter in controversy or in a party to the proceeding. 75 Financial interest was defined in the new code as a legal or equitable interest, however small .... Id., Canon 3(C)(3). 76 Although recusal is required under the ABA Code of Judicial Conduct where the judge has a financial interest in a party, however small, Canon 3(D) of the Code specifically provides that the parties may waive this ground for recusal if they agree in writing that the interest is insubstantial and the judge discloses the basis of his disqualification on the record. 15 The Reporter for the ABA committee which formulated the Code explained why the committee adopted a waiver provision: Because of the hardship to the litigants that could be brought about in some jurisdictions by the delay in obtaining another judge to replace a disqualified judge, the Committee decided that under specified circumstances a judge's disqualification based on economic interest ... could be waived. E. Thode, Reporter's Notes to the Code of Judicial Conduct 71 (1973). 77 The proposed amendment to section 455 was cast in terms very similar to Canon 3(C) of the ABA Code of Judicial Conduct. Indeed, one of the stated purposes of the amendment was to bring the statutory requirement of recusal into line with the ethical obligation imposed by the newly adopted ABA Code of Judicial Conduct. 120 Cong.Rec. 36269 (1974). However, there were significant differences between the ABA Code of Judicial Conduct and the proposed amendment to section 455. The most notable difference was the absence from the proposed amendment of a waiver provision similar to that contained in Canon 3(D). This difference was the subject of much of the congressional debate about the amendment and was the source of most of the opposition to the enactment of the new section 455. 78 The absence of a provision allowing waiver of a ground for disqualification by the parties when a judge holds an insubstantial interest in a party led to criticism from several quarters. The Judicial Conference of the United States expressed its disapproval of the proposed amendment. The Judicial Conference took the position that the amendment to section 455 was unnecessary in light of its recent adoption of a new judicial code. In addition, it objected to the fact that the proposed amendment did not allow waiver of disqualification when the judge's interest was insubstantial. The Judicial Conference expressed the view that a waiver provision would be in the best interests of the litigants and the administration of justice. House Report at 10-12; 1974 U.S.Code Cong. & Ad.News at 6360-61. 16 79 A number of members of Congress objected to the inflexible nature of the proposed amendment. Representative Dennis of Indiana condemned the proposal as unreasonable and unrealistic because it lacked a waiver provision. He pointed to the possible adverse consequences both before the House Judiciary Committee and on the floor of the House: 80 The necessary effect of this inflexible provision 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, even though both parties to the cause preferred him-because of his expertise, learning, and integrity-to any and all other available members of the judiciary. 81 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. 82 House Report at 15; 1974 U.S.Code Cong. & Ad.News at 6363. See also 120 Cong.Rec. at 36269. 83 Representative Smith of New York noted that the American Bar Association generally supports the bill, but feels that the disqualification for any financial interest is unreasonable. He also raised concerns over the possible effect such a sweeping rule of disqualification could have on the federal judiciary. After arguing in favor of a waiver provision, he stated: 84 I think this is very important in these days when judicial manpower in our Federal courts to which this will apply is being pushed to the outer limits, because in case after case in which the judge may have a very slight financial interest, as defined in the bill, the judges will not be able to sit and must under the bill disqualify themselves, even if the parties would like to have them sit. 85 120 Cong.Rec. at 36270. 86 Nevertheless, despite repeated objections to the lack of a provision allowing waiver where the judge's interest was insubstantial, Congress refused to follow the lead of the ABA and the Judicial Conference on this point. The Senate passed the bill after Senator Burdick, Chairman of the Subcommittee on Improvements in Judicial Machinery of the Committee on the Judiciary and sponsor of the bill in the Senate, told that body that (t)he most significant provision in these new standards would require a judge to disqualify himself in any case in which he has a financial interest, however small, in the proceeding. 119 Cong.Rec. at 33029 (1973) (remarks of Senator Burdick). Senator Burdick stressed the fact that the proposed amendment deviated from the ABA code in that the amendment did not allow for waiver of either financial interest or kinship within the third degree as grounds for disqualification. Senator Burdick explained that (t)he rationale ... (for not allowing waiver) is that these are ... instances in which the public at large would feel a judge most certainly should disqualify himself. Id. at 33030. 87 The House Judiciary Committee specifically noted that the ABA Code of Judicial Conduct allowed waiver where the judge had only a small financial interest in a party, whereas the proposed amendment to section 455 did not. The Committee explained that (w)hile the ABA canon on disqualification would permit waiver in these ... instances, the committee believes that confidence in the impartiality of federal judges is enhanced by a more strict treatment of waiver .... The statutes contain ample authority for chief judges to assign other judges to replace either a circuit judge or district court judge who becomes disqualified. House Report at 7; 1974 U.S.Code Cong. & Ad.News at 6357. The Committee also said (n)otwithstanding the views expressed (by the Judicial Conference) it is felt that the American people are entitled to ethical behavior on the part of all three branches of the Government, not merely the Executive or legislative branches. Id. at 6361. 88 Congress adopted a broad and sweeping per se rule despite warnings that it might lead to major disruption of litigation and to the loss of the judge with the most expertise in a given matter, even where the judge's financial interest in the party was insubstantial. It was aware that the rule would in at least some cases create the very type of hardships that petitioners plead here. Congress weighed these hardships against the importance of public confidence in the federal judiciary and struck the balance in favor of the latter. 89 Given that Congress's main concern in adopting section 455 was to promote public confidence in the impartiality of the judiciary, it is entirely consistent with congressional intent to hold that a financial interest in a class member requires recusal. While Congress did not consider or discuss the status of class members when it enacted section 455, we believe that Judge Muecke's construction of the statute effectuates the expressed congressional purpose in adopting the per se rule. 90 We conclude that the term party as used in section 455 must be given its broad customary meaning rather than the narrow construction suggested by plaintiffs, and hold that for purposes of the recusal statute, the term party includes class members. Thus, after five years of litigation, a multi-million dollar lawsuit of major national importance, with over 200,000 class plaintiffs, grinds to a halt over Mrs. Muecke's $29.70. A new judge must now be assigned to conduct further proceedings.