Investment Conflicts for High Court
Tuesday, May 13, 2008
Supreme Court justices' personal investments are making it more difficult for the court to do business.
The court said yesterday that it could not raise a quorum to consider review of a wide-ranging class-action lawsuit that accuses more than 50 U.S. businesses of helping South Africa's former apartheid regime.
According to the court, only five of the nine justices could hear the case, and six are needed for a quorum. Chief Justice John G. Roberts Jr. and Justices Stephen G. Breyer and Samuel A. Alito Jr. have holdings in some of the companies named in the suit. Justice Anthony M. Kennedy's son works for another, Credit Suisse Group. He has recused himself in previous cases that involved the firm.
The case at hand is unusual, but recusals by the justices are becoming more common as the court's docket includes an increasing number of business cases.
Roberts's investments in Pfizer kept him out of a recent case involving the drug Rezulin. The eight remaining justices announced they were evenly split, which means the lower court ruling was affirmed without an opinion from the court.
Breyer sat out what was considered the court's most important business case of the term, concerning investor lawsuits. Roberts was involved only because he took action to get back into the case -- probably selling stock -- after announcing his recusal. Alito's holdings in Exxon mean eight justices will decide the decades-long punitive damages lawsuit over the Exxon Valdez oil spill.
While the reasons for recusals are never publicly disclosed, the justices' decisions match up with publicly disclosed investment statements.
The justices operate "inside this black box, because we never know exactly why they decided to recuse," said Amanda Frost, a professor at American University's Washington College of Law.
Ronald D. Rotunda, a law professor at George Mason University and an expert on the issue, said "what judges ought to do is sell their stock and invest in mutual funds." Congress in 2006 passed a law that allows judges and others to defer capital gains taxes on stock sold to avoid conflicts of interest.
But judges, who already complain that their salaries are lower than others in the legal field, have been reluctant to give up those sources of income. And recusals occur in just a tiny portion of the cases that come before the Supreme Court.
In the current case, the Justice Department and the government of South Africa urged the court to take the case at hand, American Isuzu Motors v. Ntsebeza. The U.S. Court of Appeals for the 2nd Circuit ruled that the massive lawsuit filed by apartheid victims, which accuses the companies of "aiding and abetting" the former South African regime, could go forward.
Solicitor General Paul D. Clement told the court that the ruling "represents a dramatic expansion of U.S. law." South Africa said the lawsuit could harm the policy of reconciliation and make U.S. companies reluctant to do business in the country.
But lawyers for the plaintiffs called the appeals court action an "unexceptional conclusion that those who aid and abet violations of international law" may be found liable under the Alien Tort Claims Act.
The case now goes back to the federal judge who initially heard and dismissed it. He could dismiss it again, this time deferring to the government's opposition. The appellate path to such a decision could lead again to the Supreme Court.
Staff researcher Madonna Lebling contributed to this report.