Wednesday, July 15, 2009 12:53 PM
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SEN. PATRICK LEAHY: Senator Kaufman is probably as knowledgeable as anybody on this committee, having run it for years before becoming a senator. I said before, judge, that senators are merely constitutional requirements or impediments to the staff. We know who really runs the place.
And, Senator Kaufman, it's over to you, sir.
SEN. TED KAUFMAN: Thank you, Mr. Chairman.
LEAHY: Oh, and I should make one announcement. You've been hearing from banging going on here. Apparently, the air conditioning went out which will probably come as welcome news to the -- some of the press who are freezing in the skyboxes up here. But it's not welcome news here with the crowd going on. And they are working on it, but I'm -- we're going to keep going as long as we can.
KAUFMAN: Thank you, Mr. Chairman.
I, you know, one of the toughest assignments. I've been here long enough to know the toughest assignment is to stand between the audience and lunch. So I'm going to try bear up better that.
SONIA SOTOMAYOR: Good afternoon, Senator. It's good to be talking to you again.
KAUFMAN: It's good to see you. And I want to kind of take a different tack. I think Senator Whitehouse and Senator Klobuchar talked a lot about your time as a prosecutor. I'd like to move on to kind of your time as a commercial litigator. You were a prosecutor for five years, then you decided to go into commercial practice.
And I just -- what kind of where the thoughts behind you deciding when you left the D.A.'s office to go into commercial practice?
SOTOMAYOR: Well, actually, it's a continuation of what I explained to Senator Klobuchar. I had, in the D.A.'s office, realized that in the criminal law system, we couldn't affect changes of opportunity for people. We were dealing with a discreet issue and applying the law to the situation at hand. But if there was going to be an increase of opportunity for all people, that that had to involve an increase in economic opportunity and in economic development for different communities.
SOTOMAYOR: And so that, in combination with my desire to broaden my own personal understanding of as many aspects of law as I could, I decided that I should change my focus and concentrate on commercial matters rather than criminal matters.
It also guided some of the -- much of the pro bono work I did thereafter, which also involved questions of finances and economic opportunities.
And so I served on the New York State mortgage board, and that -- the New York state mortgage office was involved in giving individuals affordable housing or loans for affordable housing. I was a board member of the New York City Campaign Finance Board.
Those activities were motivated in large measure because of my growing belief that economic opportunities for people were the way to address many of the -- of the -- of the growth needs of communities.
KAUFMAN: Can you tell us a little bit about your commercial practice? What actually were you dealing with as a litigator?
SOTOMAYOR: It was a wonderful practice, because, unlike some of my law school friends, I very much wanted to go into a small law firm where I could have hands-on practice.
Having been a prosecutor and having made all of the decisions -- individual decisions I made, I thought to myself, as I was leaving the D.A.'s office, I don't think I can go to those firms where I would be the fifth guy on the totem pole, that I wanted to have more hands-on experience.
So I went to a much smaller firm where I actually, until I became a partner, tended to work directly with the partner and would often counsel businesses. And I did a wide variety of commercial issues.
I was involved in grain commodity trading, people buying homegrown U.S. grains of all kinds, wheat, oat -- you can name them all -- and including orange peels as feed for animals, OK, and the contracts that they were involved in, in doing those trades.
Our firm represented a very impressive list of clients, including Ferrari, the car manufacturer. And I did a great deal of their work as it related to their dealer relationships and to their customer relationships.
And so I involved myself in those commercial transactions, which were different, different focus, different emphasis. I also represented -- not me, but the firm, but I counseled the client on many of its dealer relations issue of Pirelli Tire Corporation. These are names I suspect many people know.
SOTOMAYOR: And then the fashion designer -- and -- and I think there are many people who know how famous that fashion house design is -- had trademark questions. And I participated with the partner who founded that practice within the law firm, and she had a very untimely death.
Actually, she came from her home ill to vote on my partnership at the firm, and I became a partner. And a couple of months later, she passed away. But she had worked with me and -- and introduced me to the intellectual property area of law.
SOTOMAYOR: I worked on real estate matters. I worked on contract matters of all kinds, licensing agreements, financing agreements, banking questions. There was such a wide berth of issues that I dealt with.
KAUFMAN: And how did that practice help you on the district court and then on the court of appeals?
SOTOMAYOR: Actually, one of the lessons I learned from my commercial practice, I learned in the context, first, of my grain commodity training. But in my work, as it related to all commercial disputes, there were one main lesson. In business, the predictability of law may be the most necessary, in the sense that people organize their business relationships by how they understand the Court's interpret their contracts.
I remember being involved in any number of litigations, where, at the end of the litigation, as part of the settlement, I would draft up a settlement agreement between the parties. And quite often it involved creating an ongoing new business relationship; or a temporary continuation of a business relationship so they could wind down.
And I would draft up the agreement like a litigator, like the judge I try to be. "Say it in simple words", OK? And I would give it to my corporate partners, and I shouldn't say it this way. And I would get back stuff that sometimes I would look at and say, "What does this gobbledegook mean?"
And they would laugh at me and say, "It has meaning. This is how the courts have interpreted. It's very important to the relationship of the parties that they know what the expectations are in law about their relationship"
And then I understood why it was important to phrase things in certain ways. And it made me very respectful about the importance of predictability in terms of courts' interpretation of business terms, because that was very, very critical to organizing business relationships in our country.
KAUFMAN: One of the jobs of district court judges is kind of to avoid trial, kind of get people to settle before they get to trial. How did your commercial experience help you deal with that?
SOTOMAYOR: It's interesting because I remember one case with, and I can't give you details because it would be breaching confidentiality. But I remember a client coming in to me with a fairly substantial litigation.
And I looked at the client and I said -- I evaluated the case, and I said, "There's some novel theories here. I really think you can win, but there's a serious question about the cost to get there, because these are all the things that we would have to do to get there. And it's going to cost you..." It was millions of dollars that I estimated.
The client went to another lawyer who gave them a different evaluation, and they went with that other lawyer. My firm lost all that income, but the client came back afterwards, because the figure I put on the litigation was exactly what they spent, and more.
Settlements are, generally in the business world, economic decisions, balancing both the cost of litigation and the right of the issue, but it is, business has a different function than courts. Business function is to do business, to do their work, to sell products, to order relationships. And litigation are different.
SOTOMAYOR: As a judge, when I was a district court judge, most of my focus was on (inaudible) doing what I used to do as a lawyer, to talk to parties not about the merits of their case, but about the consideration of thinking about creative and new ways to approach a legal dispute so they could avoid the cost of litigation.
As a circuit court judge, I'm -- I'm very cognizant of the court -- of the costs of litigation and look at what parties are doing in the courts below with that -- bearing that in mind.
KAUFMAN: You know, you talked about your experience as a circuit court judge. How did your being a district court judge help you when you became a circuit court judge?
SOTOMAYOR: Well, no question that it made me more sensitive to the importance of facts, and looking at the facts the court has found and the facts that the parties are arguing, and looking at the record to understand what went on.
I often point to this example. When I sit on panels in our court, it's blessed by having judges with a wide variety of circumstances. And I know, for me, because I was a trial judge, I would read all the briefs in a case, I would read the district court decision, and the parties were arguing something and the district court didn't address it, my first question to my law clerks were, "You know, go back to the record and tell me why not."
Most judges address arguments that people are raising. And it would -- I would get to oral argument. And if I was the only judge with a trial experience, I would look at the parties and say, "Did you argue this before the district court?"
And I could see some of the antennas going up for those colleagues who hadn't had that experience, saying, "I hadn't thought of that. Let me go back to look, in fact, if that was the case," because there are all sorts of doctrines that don't permit parties to argue new things on appeal.
And so that is how the experience comes in, both the sensitivity to facts and the sensitivity to ensure that you're applying law to those facts.
KAUFMAN: I'm really glad you have this commercial experience, because, as I said in my opening statement, I'm concerned about business cases. I think they're really important. And I'm also concerned that the current court -- Supreme Court too often seems to disregard settled law and congressional policy choices when it comes to business cases.
And I think, in light of our economic crisis, Congress probably -- not probably -- will definitely pass a financial regulatory reform package. And I'd just like to make sure that the system is not undermined by the court, because they just don't -- they have a different view of what government regulation is all about.
Do you believe the Congress has the constitutional authority to regulate financial markets?
SOTOMAYOR: You've just raised the very first question that will come up when Congress passes an act. Because I can assure you, knowing every time Congress passes an act, there's a challenge by somebody.
SOTOMAYOR: As soon as it's applied to someone and in a way that they don't like, they're going to come into court. So I -- I can't answer that question.
KAUFMAN: I'm sympathetic to that. And I really should have phrased it -- I mean, just in general, not with regard to any case, anything at all, about Congress's constitutional authority to regulate financial markets?
SOTOMAYOR: Well, I can't answer that question, because it invites an answer to a potential challenge. What I can say to you is that Congress has certain constitutional powers. One of them is to -- to pass laws affecting interstate commerce.
And so the question will be the nature of whatever statute Congress passes, what facts it relies upon, and the remedy that it -- that it institutes. And so each -- the question would depend on the nature of the statute and what it's doing.
KAUFMAN: But Congress does basically have the ability to regulate markets?
SOTOMAYOR: Well, it has the ability to -- the Constitution term are to make laws that involve commerce between the states. But those are the words and, generally, that's been interpreted to mean pass laws that affect commercial interstate transactions.
KAUFMAN: To get to a more broader question about laws enacted by Congress, what's your -- what should a judge's role be in viewing the wisdom of the statute play in interrupting it? When Congress passes a law, what's basically, whether the judge thinks it's a good law or a bad law, the wisdom in passing it, what role does that play in the law?
SOTOMAYOR: I'm trying to think if there's any situation in which a judge who have occasion to judge in that way. Policy making -- making of laws is up to Congress. A judge's personal views as whether that choice is good or bad has no role in evaluating Congress' choice.
The question for us is always a different one which is what has Congress done, is it constitutional in the manner in which it's done it. But policy choices are Congress' choices. In all areas, deference has to be given to that choice.
KAUFMAN: How about regulations adopted by regulatory agencies?
SOTOMAYOR: Deference has been given in that area by the courts as well. Generally, one look at what Congress has said about that question because executive agencies have to apply and talk about regulations in light of what Congress has commanded. But those are also titled to deference in different factual situations.
KAUFMAN: Can I talk -- I'm going to talk a few minutes about securities law. What's the -- I mean, what kind of -- what characterizes securities law docket in the Southern District of New York in the Second Circuit?
SOTOMAYOR: Oh, everything. We are -- we are the home of New York City. Our jurisdiction is -- I'm sure that another state is going to complain, but we are the business capital of the world. That's how it's been described by others.
And so we deal with every variant of securities law as one could imagine from investment questions to misleading statements to investors to all -- whatever Congress has regulated, our circuit will have a case on it. Or I should say it usually starts with the district courts, and it'll perk up to the circuit court. But if you have a securities law, we'll likely eventually hear the arguments.
KAUFMAN: And this will be valuable when you're on the court -- when -- if you're confirmed.
SOTOMAYOR: I presume so because it has been a part of my work both as a district court and a circuit court judge.
KAUFMAN: You had a case with a suit against the New York Stock Exchange where the plaintiff sued the New York Stock Exchange for failure to effectively regulate the market. You ruled to give the New York Stock Exchange immunity from the suit even though you noted that the alleged misconduct appeared egregious.
In reaching that sort of decision, how do you reconcile the rationale for immunity with the fact that deprives plaintiffs of a remedy in situations where they've been wronged, as you said, egregiously wronged?
SOTOMAYOR: It is somewhat important to recognize the limited role that courts serve. And the issue of remedy also is one where one has to talk about remedy against whom and for what.
In the ways that these individuals were injured, they were injured by third parties who had done allegedly illegal acts against them. And the court's ruling did not affect their ability to take action against those individuals. And clearly, that's always difficult in some situations and the individual has been arrested, et cetera.
But there are still remedies that law provides in terms of whatever assets those individuals have, whatever criminal actions the government may take. Often, funds are created to reimburse victims.
The question here was whether an agency that in case law was seen to have a quasi-governmental function, whether you could sue that agency for conduct that -- for not regulating the other individuals adequately in helping to prevent the activity.
But regulation comes in different forms by the government or quasi-governmental agencies. And what they can do depends on the exercise of discretion under the laws as they exist at the time.
And so the immunity doctrine wasn't looking at the issue of how to recompense the individuals. It was looking at the functions -- quasi-functions of government. So there's a disparate (ph) perspective that was given to the judges in that case.
KAUFMAN: In another securities case that interests me, Press v. Quick & Reilly, in that case, you and your fellow panel members all deferred to the SEC's interpretation of its own regulation, even though you seemed somewhat skeptical of the interpretation. Tell us about how you came to the conclusion you did in that case? SOTOMAYOR: Well, there is a doctrine of Chevron deference. And it goes to the issue of, who makes the decisions? And that goes to policy questions.
To the extent that an agency interpretation is not inconsistent with congressional commands, expressed commercial commands, a judge can't substitute their own judgment of what policies should be or regulations should be, and -- but is commanded to give deference.
There are obviously in every situation a set of exceptions to when you don't, but you have to then apply a consideration of each of those exceptions in the particular circumstance before you.
There have been other situations in which I have ruled and said, no, the agency is not interpreting the statute in accordance with what the panel viewed was Congress's intent. Yesterday, I believe one of the other senators asked me about the Riverkeeper case.
SOTOMAYOR: And the Supreme Court came to a different view of -- of what the words Congress used meant. But the point is that the rule of courts is not to substitute their own judgments; it's to apply the principles of law in accordance with the acts that agencies are doing.
KAUFMAN: And one more securities question.
In recent years, it seems like regulators were often too lax when it came to ferreting out securities fraud. What role to private rights of action -- that is, cases brought by investors, rather than the government -- have in enforcing our securities laws?
SOTOMAYOR: The right Congress has given, presumably because Congress has made a policy choice, that is a way to ensure that individuals' injuries are remedied. That is -- it's a part of many of our securities laws and our antitrust laws.
Government doesn't have unlimited resources to pursue all individual injuries. And so, in some situations, Congress makes a choice to grant the private cause of action and some it doesn't. That's a legislative choice.
KAUFMAN: Turning to the antitrust law, what was your experience in antitrust law?
SOTOMAYOR: As a...
KAUFMAN: Both in practice and a judge, both of them.
SOTOMAYOR: I'm trying to think -- I don't remember having direct experience in antitrust law when I was in private practice. I don't think I did. And so I had very little -- I'm trying to think of any of my cases on the district court, and Major League Baseball strike was one of them, and it's the one that I am -- that I can think of.
I had antitrust cases there, as well. Often, the cases settled, actually, and so managing those cases was the prime function I had as a district court judge. If you'd give me a chance to look at my district court decisions again to see if -- and what other cases in the antitrust area I may have ruled upon on the district court, I can get back to you, Senator...
KAUFMAN: Great. SOTOMAYOR: ... either at the next round or in a written question. I just don't -- on the circuit court it's different. I have participated directly in writing opinions and joining panels on opinions, and so I've had at least two, if not three or four or five of those cases.
KAUFMAN: Yesterday, Senator Kohl asked about the Leegin case, which is striking in that it overturned 96 years of precedent and effectively legalized private agreements to prevent discount retailing. You said that both the majority and the dissent in that case had a reason to question the economic theory underlying the original precedent. I don't want you to contact -- comment on Leegin in particular.
But what's the role of the court in using economic theory to interpret acts of Congress?
SOTOMAYOR: Well, you don't use economic theory to determine the constitutionality of congressional action. That is a different question, I think, than the one that Leegin addressed.
What Leegin addressed was how the court would apply congressional act, the antitrust laws, to a factual question before it. And that's a different issue, because that doesn't do with questioning the economic choices of Congress. That goes to whether or not, in reviewing the action of a particular defendant, what view the court is going to apply to that activity.
SOTOMAYOR: In the Leegin case, the court's decision was, "Look, we have prior case law that says that this type of activity is always anti-competitive," and the court, in reconsidering that issue in the Leegin case, said, "Well, there's been enough presented in the courts below to show that maybe it's not in -- some activities anti- competitive. And so we're not going to subject it to an absolute bar; we're going to subject it to a review under rule of reason."
That's why I said it's not a question of questioning Congress' economic choices or the economic theories that underlay its decisions in a legislation. They weren't striking down the antitrust laws. What the Court was trying to do was it figure out how it would apply that law to particular set of facts before it.
KAUFMAN: In Illinois, Brick, a Supreme Court case dealing with antitrust, one of the classic cases, Justice White wrote, and I quote, "in considering whether to overturn precedent, we must bear in mind the considerations of stare decisis weigh heavily in the area of statutory construction where Congress is free to change this court's interpretation of its legislation."
Do you agree with Justice White?
SOTOMAYOR: I think that that, as you may know, the doctrine of stare decisis is not dependent on one fact.
SOTOMAYOR: The Court considers a variety of different factors including the administrative workability of a law, the reliance factor that society has put into that rule, that precedent, the cost to change it, whether the underlying doctrines in related areas -- the underlying framework of related areas would lead a court to question whether the prior precedent really has a framework that's consistent with an understanding in this area that has been developed in other cases.
And, finally, has there been a change in society that shows that the factual findings upon which the older case what premised may be wrong. And there's always the question, as part of that analysis and other factors the courts may think about as to whether the older rule has been affirmed by the court and how often, over what period of time.
To the extent that Justice White is talking about a factor that the court should put into that mix, the court has recognized in its stare decisis jurisprudence that all of the factors weigh into the decision. You think about why and under what circumstances you should alter the course of the court's interpretation as set forth in prior precedent.
KAUFMAN: You know, I'm concerned because recently there's been erosion in antitrust both in the courts and in enforcement. And it's made it much easier for financial institutions to become so massive they're, in effect, too big to fail. Should a court sitting in antitrust consider the systemic risks to the marketplace that is injected by a financial institution being too big to fail?
SOTOMAYOR: Well, the purpose is the -- of the antitrust theory is premised on ensuring competition in the marketplace. The question, like the one you pose, is one that would come to the court in the particular context and a challenge to some approach the court has used in this area. I, obviously, can't say absolutely yes...
KAUFMAN: No, no.
SOTOMAYOR: ... in a hypothetical. But obviously the court is always looking at what activity is claimed to be illegal under the antitrust laws and what effect it has to anti-competitive behavior.
SOTOMAYOR: And the question frequently in antitrust is, is a particular area subject to per se barring (ph) or is it subject to the rule of reason? And -- and the two have different approaches to -- to the question.
KAUFMAN: Thank you, Judge.
Thank you, Mr. Chairman.
LEAHY: Thank you very much, Senator Kaufman.
And as I mentioned before, it's almost 1 o'clock. We will take a break until 2 o'clock. At 2 o'clock, we will recognize first Senator Specter and then Senator Franken.
When their questions are finished, we will go into the traditional closed-door session, which will be held not in this room, but in the Senate Judiciary Committee room. Following that, we will come back in here. And if there are questions -- if there are senators who have further questions, they'll be recognized not to exceed 20 minutes each.
I would hope that if the questions has already been asked and answered, they may want to resist the temptation to do it again, but they have that right to take the full 20 minutes if they do. I realize a lot of the questions have been asked, but not everybody has asked the same question, and so they may want to, but they have that right, and that's what we'll do.
And we'll stand in recess until then.