*** Judges in Ethics Lapse
- Daily NewsSunday, April 02, 2000
Judges in Ethics Lapse
Had financial holdings
in defendants firms
By GREG B. SMITH
Daily News Staff Writer
our New York federal judges presided over recent cases that involved companies in which they had a substantial financial interest, a Daily News investigation found.
In at least two cases, judges issued rulings in favor of the companies whose stock they owned. Their investments ranged from $50,000 to $150,000 in businesses such as General Electric, Ford and AT&T.
The apparent conflicts of interest came to light in a News review of court records and financial disclosure reports that federal judges are required by law to file.
As a result of The News' investigation, one jurist — Manhattan Federal Judge Whitman Knapp — stepped down last week from an ongoing trial.
Another judge admitted his error in not recusing himself from a case that has since been settled and vowed to be more diligent.
Judge Knapp owned stock in Duke Energy, which was charging that the government had overbilled it.
On June 12, 1998, Manhattan Federal Judge Whitman Knapp got a new case: a group of big utilities alleged it was grossly overbilled by the government for decontamination of nuclear power plants. The suit was potentially worth billions of dollars to the companies and could have increased stock values to their shareholders, including Knapp.
The day Knapp got the case, he owned up to $50,000 of stock in plaintiff Duke Energy and a bond worth up to $100,000 in the New York State Power Authority, another plaintiff.
Knapp should have known that, because on June 30, 1998 — 18 days after the suit landed in his courtroom — he signed a form acknowledging ownership of Duke stock and the power authority bond. Asked whether he read the form, Knapp replied: "Heavens, no! It wouldn't have any meaning to me."
Judge John Martin
Judge Martin owned a Ford Motor note worth up to $50,000 and ruled in favor of Ford in a class-action suit.
Manhattan Federal Judge John Martin owned a Ford Motor note worth up to $50,000 while ruling in favor of Ford in a class-action suit that could have cost the auto maker millions.
Eleanor Werbowsky sued Ford on behalf of customers who lease cars from the company, claiming Ford should reimburse them for interest earned on security deposits. The company stood to lose millions.
The case was filed in 1995 before Manhattan Federal Judge John Keenan, who recused himself because he owned Ford stock. It was reassigned in March 1996 to Judge Kevin Duffy, who rejected Ford's motion to toss out the case.
But the tide turned for Ford in 1997, when the case was reassigned to Martin because Duffy was was about to retire.
Martin mentioned to lawyers for both sides that he had leased a car, but he failed to reveal that he owned the Ford note worth up to $50,000, which was cited on a financial disclosure form he signed in May 1998.
That was one month after he denied Werbowsky's motion for summary judgment against Ford. In the April 1, 1998, ruling, Martin also suggested that the auto maker — which hadn't requested that he throw out the case — might want to do so. Because of a related case moving through the courts, Werbowsky dropped her suit before Martin ruled on it.
In a letter to The News, Martin said, "the only time ownership of a note could possibly give grounds for disqualification is when the amount in controversy is so substantial that the outcome of the proceedings could affect the collectability of the note." He admitted that the case "did involve a substantial amount" but added, "There was nothing to suggest that a judgment for the plaintiff's would force Ford into bankruptcy or otherwise jeopardize its creditors."
Martin insisted he did not need to recuse himself from the case and criticized The News' questions about potential conflict. "It would be a disservice to the public to suggest that federal judges are sitting on cases in which they own stock in order to enrich themselves," he wrote.
Judge Richard Casey
Manhattan Federal Judge Richard Casey owned $25,000 in AT&T notes while sitting on a breach-of-contract case, J&J Stores vs. AT&T. He got the case Nov. 2, 1998, and kept it through August, when he signed a settlement order.
During that time, he received two letters from the parties in the case but took no action. He never recused himself or disclosed his ownership interest.
A second conflict of interest arose last year. Casey owned 264 shares of General Electric stock worth up to $50,000 when he got the case of Cigna Insurance vs. GE in July.
For three months, during which he extended the time for GE to respond to the suit, Casey presided over the case. In September, he said, he discovered the conflict and recused himself. Through his clerk, Casey said he had the case reassigned as soon as he learned of his interest in GE. But he said he never realized the conflict in the AT&T case.
"Certainly if such a case were to come before me, I would not hesitate to recuse myself," Casey wrote.
Judge Barrington Parker Jr.
Judge Parker acknowledges that he twice sold short up to $50,000 in Cannondale Corp. stock, while presiding over Circle Francesco Mos vs. Cannondale USA.
White Plains Federal Judge Barrington Parker Jr. notes in his financial disclosure forms that his stocks are managed by others and that he plays "no role in the selection [purchase or sale] of any security."
However, in April 1997 he signed a form acknowledging that he twice sold up to $50,000 in Cannondale Corp. stock over the year, making a modest profit. At the time, Circle Francesco Mos vs. Cannondale USA was pending before his court.
Parker said Cannondale USA is "an entirely different corporation" from Cannondale, though a Cannondale spokesman said the companies are referred to interchangeably as Cannondale and Cannondale USA. If a person owns stock in Cannondale Corp., the spokesman said, he or she has a financial interest in Cannondale USA.
Parker said that "to avoid the appearance of a conflict, I had my money manager immediately liquidate my position in Cannondale Corp." He sold the stock Feb. 7, 1997 — two months after getting the case.
At Cannondale's request, he tossed out the suit July 23, 1998.
J.A.I.L. (Judicial Accountability Initiative Law)
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