Smearing Judge Alito: A Bogus Ethics Rap
By Dan McLaughlin Posted in User Blogs — Comments (15) / Email this page » / Leave a comment »
From the diaries . . .
Given the difficulty of persuading the American people that they would be justified in filibustering Samuel Alito based solely on his judicial philosophy, it's not surprising that some on the Left are looking to smear him instead with bogus ethical charges. Witness this latest attempt, from AmericaBlog:
Another ethically challenged Bush appointee according to the Washington Post:
Three years ago Alito drew conflict-of-interest accusations after he upheld a lower court's dismissal of a lawsuit against the Vanguard Group. Alito had hundreds of thousands of dollars invested with the mutual fund company at the time. He denied doing anything improper but recused himself from further involvement in the case.
Hundreds of thousands of dollars and it didn't raise ethical concerns for him. So how much did he have to have invested with Vanguard before it became a conflict-of-interest? This should get an enormous amount of scrutiny.
Via the Blogometer. ThinkProgress takes the same tack:
Supreme Court nominee Samuel J. Alito and Justice Antonin Scalia share more than just ideology; they also share a resistance to removing themselves from cases where they have a conflict of interest.
In 2002, Alito dismissed a case in favor of a company where he was heavily invested [Philadelphia Inquirer, 12/15/03]:
Judge Samuel A. Alito Jr., a member of the U.S. Court of Appeals for the Third Circuit, has been accused of a conflict of interest by a woman whose suit he and two other appeals judges dismissed . . . According to Alito's 2002 financial-disclosure statement, the judge held investments worth $390,000 to $930,000 in 11 Vanguard funds in July 2002, when he ruled on a lawsuit filed by Shantee Maharaj of Wayne against Vanguard.
Alito argued that he didn't need to recuse himself because the case was so small that it wouldn't even affect Vanguard:
They have $600 billion invested with them. The idea that a case like this would affect [their investments] is just ludicrous.
Despite his own arguments, Alito eventually recused himself but continued to insist he had done nothing wrong.
Now, my first reaction was that this was a case of economic illiteracy by these critics. After all, a mutual fund isn't like another company; mutual funds are managed by an investment advisor, and so an investor in the fund is more in the position of a client or customer of the advisor. Normally, if the investment advisor gets sued, therefore, it's of no direct concern to the fund investor, who has invested with rather than in the fund company.
I went and did some digging, though, and it turns out that the charge isn't illogical, just silly. The original Philly Inquirer story explains why the unusual nature of the Vanguard funds made this different from the usual claim against a mutual fund company:
Alito said he believed his Vanguard holdings did not constitute a conflict because they were investments in mutual funds. As such, he said, he was merely an investor in Vanguard, not an owner of the company.
Flym [Maharj's lawyer] said the judge, in fact, is an owner because Vanguard is owned by its investors.
In its corporate literature, Vanguard says: "The shareholders and owners are essentially one and the same at Vanguard. Vanguard shareholders own the Vanguard funds, which are independent investment companies that jointly own the Vanguard Group. The Vanguard Group provides management, administrative and marketing services to the funds."
The Judicial Conference of the United States has developed a checklist to help federal judges avoid conflicts. The instructions on that checklist say:
"Shares in some mutual funds may convey an ownership interest in the mutual fund management company in which case that company should be included on the [judge's] conflicts list."
Alito cited a separate advisory from the Administrative Office of U.S. Courts that says judges are not required to disqualify themselves from cases involving their mutual-fund management companies.
Now, it appears that Judge Alito may well have forgotten that fact, as I did. But the notion that the case involved any kind of malfeasance is nonetheless absurd. Even if the plaintiff had won her case, the economic impact on Vanguard would be negligible, and certainly not enough to affect the judgment of a shareholder of one of its many funds; the case involved a dispute over $170,000, compared to hundreds of millions of dollars in the Vanguard funds, barely a blip on Vanguard's radar screen. And even leaving aside the fact that the recusal standard is not as clear-cut as the critics suggest, the case fit the classic profile of a losing battle where a plaintiff with no case on the merits tries to gin up something like an ethical complaint against the judge to keep the case going:
Maharaj contended in her suit that Vanguard had improperly released funds from her late husband's retirement account in 1998 to pay a Massachusetts judgment. Vanguard said it was ordered by a Massachusetts judge to release the money.
Maharaj's claim against Vanguard was dismissed in 2001 by a U.S. District Court judge in Philadelphia.
Alito and his colleagues - Judges Julio M. Fuentes and Jane R. Roth - upheld the dismissal order.
An opinion issued by Alito said that Maharaj could not litigate in federal court because her claim already had been rejected by Massachusetts state court.
[snip]
Acting as her own lawyer, Maharaj, 48, has spent the last seven years, since her husband's death in 1996, battling unsuccessfully in the courts in Philadelphia and Massachusetts.
After the appeals court rejected her suit last year, Maharaj requested the financial-disclosure reports of the judges who had ruled on her case.
On learning of Alito's Vanguard holdings, Maharaj contacted a professor at Northeastern University School of Law in Boston, where she had studied law in the early 1980s, and asked for help.
The professor, John G.S. Flym, assisted Maharaj in researching and drafting a conflict-of-interest motion that was filed with the appeals court in Philadelphia last month.
The motion requested a new hearing, with Alito barred from participation.
The article goes on to note that the litigation initially arose from a business dispute involving Maharaj's husband and a Massachusetts court's conclusion that the husband had fraudulently transferred assets to the couple's Vanguard account to avoid paying a judgment. The lower court decision notes that the Massachusetts court had enjoined Maharaj from further litigation. The United States Court of Appeals for the First Circuit had upheld an order compelling Maharaj to pay attorneys' fees as far back as 1997. After Judge Alito recused himself in an excess of caution, the plaintiff lost again before the new panel. In short, the ethics complaint falls under the heading of "grasping at straws".
Nobody's perfect, and judges do make small oversights. But Alito had no actual conflict of interest - the amount of money involved, in proportion to the size of the Vanguard Funds' holdings generally, meant that the case could not have affected a Vanguard investor, regardless of how large or small the investor's stake in Vanguard Funds was. Nor was it unreasonable for him to act as if Vanguard was covered by the general policy of the federal courts regarding mutual funds, although this assumption turned out to be incorrect. Nor, as it turned out, was there any merit whatsoever to the underlying lawsuit, brought by a litigant who'd spent years trying to avoid paying a legitimate judgment. In short, the critics are all wet.
The substance of this diary is the smear. Is it reasonable for the quoted blogs to draw the conclusion that Alito is "ethically challenged" based on this? Does it require an "enormous amount" of scrutiny?
And certainly, if the charge they are making is that the Judge was ruling in favor of his bottom line, the impact of the judgement on that bottom line is a rather pertinent bit of information, whether or not it was pertinent to the rules for recusal, is it not? It may not matter for recusal but it is certainly central to the smear.
This matter is a far cry from the charge of ethical bankruptcy these leftblogs are trying to make of it, don't you think?
I do think it is overblown, in the way that political rhetoric tends to be overblown.
I think the label of "smear" is overblown as well, considering that the substance of the charge is true - Judge Alito should have recused himself under the law, but didn't. However, that's a debate not worth having. Call it a smear if you like.
Oh I will call it a smear because that is what it is.
They are saying this is an indication of ethical failing, and that he ruled with his wallet. The substance of the charge is not "Alito didn't follow a recusal rule rapidly enough"
They are charging that he deliberately broke the rules in favor of his bottom line.
That's called a smear. You either agree that this is what he did, or you do not.
that this focus on something so de minimus and relatvely obviously unintentional smacks of desperation by those who attempt to assert it as a problem.
He joined in a unanimous opinion with 2 other judges. It does sound as though he should not have done that, but he did eventually recuse himself.
but the plaintiff lost again after Alito's recusal!
Talk about a non-issue.
i've been looking around for how the case was eventually decided. If what you say is true, then the ethics allegation is just water under the bridge. I can't see how the democrats can make a case out of this. Possibly, it could be shown that Alito decided the case without any bias what so ever his ruling eventually being affirmed by the Court.
As a Certified Financial Planner(tm), I'm not surprised that Judge Alito thought he was merely investing in a Vanguard fund as opposed to being an owner of Vanguard. Very, very few people actually read the prospectus besides plaintiff's attorneys, the SEC, and financial planners.
To make this even more bogus, Vanguard has been in the forefront of shareholder democracy and is one of the cleanest mutual fund companies to be found.
FWIW
John
Whether Alito was required by the rules to recuse himself is debatable. The larger problem is that he promised the judiciary committee that he would recuse himself from any case invovling Vanguard, and then he did not. That alone will provide sufficient shelter to any senator who wishes to vote against him (even though we all know that would not be the real reason for the vote.)
not true. Unless you can provide a cite from Alito's testimony before the Senate substantiating your claim, consider yourself booted. The clock is starting now...
I'm in the industry as well, and if this is anyone's idea of a detrimental issue let them have at it. It is very easy to reverse the charge here and claim that Judge Alito is protecting investors interests.
Trying to tie Vanguard into an unsavory or questionable legal action isn't going to get too far. Vanguard is the gold standard in the industry.
I don't work there, never have, but have funds there. Vindicating the judge's actions in this case is simple and may be useful in examining opposition motives.
When Samuel A. Alito Jr. appeared before the Senate Judiciary Committee 15 years ago as a nominee for the appellate bench, he promised in writing to disqualify himself from "any cases involving the Vanguard companies," a stock and mutual fund firm in which he had substantial personal investments.
I know we can't trust the liberal WaPo, blah blah blah.
I have not taken the position that this is a major deal, but the fact is, when you promise the Judiciary Committee that you're going to do something, and then you don't do it, it's going to create an issue. If he were to promise the Judiciary Committee this time around that he would recuse himself in a certain class of cases, for example, would you say this previous misstep makes him more or less credible on that score?
It's completely understandable that a judge would forget a promise he made 12 years earlier. But even if he forgot the promise, he didn't forget that he was a Vanguard shareholder. So why would he think in 1990 that his status as a shareholder required recusal, but then think differently in 2002? It's somewhat puzzling. Perhaps he evolved in office.
The Code of Judicial Conduct says that a judge shall disqualify himself in any case where he has "an economic interest in the subject matter in controversy." The term "economic interest" is defined as "ownership of a legal or equitable interest, however small."
So if a judge owns shares of IBM, he can't hear a case against IBM, period. It makes no difference if the lawsuit is big enough to make a difference in IBM's stock price.
There is an exception for ownership of shares in a mutual fund, but as you say, Judge Alito didn't simply own shares, he was a part-owner of the company itself. As quoted above, the federal judiciary's conflicts checklist explicitly recognizes this distinction.
On the law, then, there doesn't seem like much question that he was supposed to recuse himself. As for the proposition that the judge could have reasonably believed that he was simply an owner of shares in an ordinary mutual fund, I don't really have a quibble with that, even though federal judges are specfically alerted to be aware of the possibility. Until today, I didn't know myself that there are mutual funds organized in this fashion, and securities is my business.