Insider Trading At The Bench?

Insider TradingHow close is too close when it comes to judges and their clerks? That’s the question that the Commission staff and interns discussed at our recent weekly meeting. One of our interns mentioned a story he had read in the New York Times about a clerk, a judge and a curious ethical dilemma.

The Rise Of Ethical Dilemmas

In New York City, Judge Naomi Buchwald oversaw a jury’s acquittal of Rengan Rajaratnam on insider-trading charges. As our intern noted, there were some curious aspects of the case but none more so than this one: After the case, Judge Buchwald descended from the bench to personally congratulate the winning attorney. Why? Because he used to be her clerk.

Now, I don’t pretend to know much about the background of any of the parties (or judges or attorneys) in this case. I do know that the attorney had clerked for Judge Buchwald over 20 years ago. I also know that both the judge and the attorney fully disclosed their previous working relationship and no objections were made. And I know that the Wall Street Journal didn’t think this situation odd enough to make it even the lead item in their list of prosecution grievances. The Journal even reported that legal experts “saw no ethical conflict.”

After reading this, we at the Commission decided to dig a little deeper. We’ve spent a lot of time with law students this past year, particularly with our superlative law student interns this summer. Many of these students are clerking or will be doing so soon. So we decided to look into the case law and ethics opinions and find out this: In a situation where a former clerk appears before her judge, when is close considered too close?

What Are The General Rules For Disqualified Federal Judges ?

We started with the general rule for disqualification of federal judges. According to 28 U.S. Code § 455:

“(a) Any justice, judge, or magistrate judge of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned. (b) He shall also disqualify himself in the following circumstances: (1) Where he has a personal bias or prejudice concerning a party…”

This federal rule has been echoed by most states, including Illinois (Supreme Court Rule 63(C)). But what the rule doesn’t lay out is the answer to the question we wanted to know: Does presiding over the case of a former law clerk creates a “personal bias” or reasonable appearance of impartiality warranting a judge’s disqualification?

We next turned to courts and ethics committees to determine their baseline for impartiality with regard to a clerk and judge. Here’s what we found out:

  • The United States Supreme Court prohibits former law clerks, like all former Court employees, from participating in cases pending or being considered for filing before the Court for two years after the end of their employment.
  • Though New York once required judges to recuse themselves when a former law clerk came before them within a year of his or her employment, now judges must only disclose the conflict. Decisions to accept or deny a request for recusal are at the judges’ discretion.
  • In the 1977 Southern District of Florida case Smith v. Pepsico, Inc., the “admittedly close” relationship between a judge and a former clerk was not enough for a reasonable person to call into question the judge’s impartiality, even though the clerk had been employed for a two-year period ending just two years earlier. Judge Roettger determined that, because a trial judge being a former law partner of a firm now appearing in litigation before the court was insufficient for recusal, the same result must follow with regard to a former clerk.
  • Less conventional cases involving law clerks’ relationships to present cases, like United States v. Martinez (in which the judge’s current clerk had actually initiated the proceedings as an Special Assistant United States Attorney) and Uniloc USA, Inc. v. Microsoft Corp. (in which the judge’s current clerk had previously received some grant money and roughly $12 in publishing royalties from Microsoft), also resulted in the judges opting not to recuse themselves.

Since our law students are all Illinois-based, we next looked to our own laws and ethics opinions to seek advice. While there is again no definitive answer, we did find some interesting cases. For example, we found in cases involving an attorney who assisted a judge with a letter to the ARDC six years prior, a judge whose sister-in-law is the secretary at one of law firms appearing before him, and an attorney who was a judge’s associate in private practice three years prior, the judges were not disqualified. Judges were disqualified, but parties could of course waive the disqualification, in cases involving a judge’s spouse’s attorney during an ongoing divorce and a judge’s son-in-law participating as an attorney.

So it appears our eyebrow-raising was for naught. Because here’s the reality: A clerkship is a worthwhile experience for any rising attorney. In towns and cities around this country, a law clerk might very well find himself before the judge for whom he once worked. And isn’t that what we want? Judges to mentor and teach law students and attorneys how to be successful, ethical, professional members of the bar. And it’s a difficult line to draw if we argue that a clerk can never appear before a judge, particularly in a state like ours with our heavily interconnected bench and bar. But we’re not the last word on this. Let’s hear from you. Should judges be disqualified from presiding over cases with their former clerks? And if not, why not? Do we need a bright-line rule? Take it away.

John Edwards, our intern from Loyola University Chicago School of Law, contributed to this post.

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Michelle Silverthorn

Michelle Silverthorn

After spending seventeen years living in the Caribbean, Michelle undertook a number of around-the-world detours before ending up at the doorstep of the Commission, including four years as a general litigator in New York and Chicago. She remembers pretty much everyone she’s met in her travels but she would especially like to meet again the passengers on a January 2001 flight from Miami to JFK. At the pilot’s request, they donated enough money for Michelle, who had her wallet stolen, to get back to college safely. She would very much like to tell them all thanks.
Michelle Silverthorn

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