Court Allows 'Unrecusals' For Judges

By Laura Ernde

Daily Journal Staff Writer

When Wal-Mart's lawyers appealed to the California Supreme Court in early 2008 to let them build a new store in Stockton, Chief Justice Ronald M. George was forced to step aside because he owned shares in the retail giant.

Fast-forward about a year and a half, when the court circulated a proposed decision known as a calendar memo among the justices. George looked into the matter and realized Wal-Mart was among the shares he sold in January when he divested himself of all his stock.

"I concluded that there was no basis for me to be recused at this point," he said, and officially "unrecused" himself in a Nov. 10 order.

The maneuver was made possible by a change in policy the court has recently adopted to minimize disqualifications.

Instead of following its tradition of "once recused, always recused," the court decided to loosen its guidelines and allow justices to come back onto a case if their financial conflict has disappeared.

If the policy had been in place two years ago, it might have avoided an unprecedented quadruple recusal in a series of cases known as the Lockheed litigation. The plaintiffs' appeal of a multimillion-dollar toxic tort case had to be dismissed in November 2007 because four of the seven justices owned stock in the defendant oil companies.Lockheed Litigation Cases, S132167.

While the court normally replaces disqualified justices with alternates from the Court of Appeal, George felt that having four substitutes would not give trial courts, lawyers and the public assurance that the decision wouldn't have come out a different way under the full court.

Since then, George has made a concerted effort to reduce financial conflicts of interest on the court. He routinely circulates memos listing overlapping investments so the justices can keep them in mind when they buy or sell stock.

George sold all of his own stock, partly to cut down on the number of cases he had to disqualify himself from and partly because he was fed up with the ups and downs of the market.

Justices Joyce L. Kennard and Carol A. Corrigan have also sold stocks that were held by their colleagues.

The idea to change the recusal policy came from stories last year about the U.S. Supreme Court's policy of allowing justices to sell their stock to avoid conflicts. Chief Justice John Roberts Jr. sold his stock in Cisco Systems Inc. and Citigroup Inc. in 2007 to rejoin cases the court heard that year.

Congress encouraged the practice in 2006 by passing a law allowing the justices to sell shares for conflict-of-interest reasons without paying taxes on their gains as long as they roll the money over into a mutual fund or other approved investment.

The California Supreme Court researched the issue and found that the state justices could also avoid conflicts by selling stock, although they aren't exempt from capital gains taxes.

Court watcher Gerald Uelmen said he doesn't think the policy will solve the problem and could create new ones.

"It just seems to me problematic," said Uelmen, a professor at Santa Clara University School of Law. "If a justice unrecuses himself by dumping the stock, it could create the appearance that they see a decline in the price coming as a result of a decision or might even participate in bringing about that decline and were motivated to dump the stock while the price was still higher."

But legal ethics expert Diane Karpman of Los Angeles called it a "brilliant solution to a huge problem" because it allows the justices to continue investing in stocks with less chance it will impinge on their responsibility to the public.

"If the entire bench is tainted by stock ownership, then plaintiffs cannot receive justice," she said. "Big issues are on the horizon involving drugs, toxic waste, medical devices and a host of yet-to-be-perceived problems."

The change doesn't apply to recusals made for personal reasons, such as a relative with ties to a firm coming before the court, George said.

Code of Civil Procedure Section 170 says that a judge has a "duty to decide any proceeding in which he or she is not disqualified." That could be read to mean the justices must hear a case if they sell their stock and eliminate the conflict, but George did not want to pass judgment.

"It's always up to the individual justice," he said.

The court hasn't kept tabs on how often the new policy has been invoked, but the Wal-Mart case was the most recent example.

In that case, the court will decide an issue involving the time limit for challenging a project under the California Environmental Quality Act. Stockton Citizens for Sensible Planning v. City of Stockton, S159690.

So far, the courts have rejected Wal-Mart's argument that the citizens' group missed the deadline to object to construction of a new Wal-Mart Supercenter. The 3rd District Court of Appeal held 2-1 that an approval by Stockton's community development director, which wasn't made public, did not start the clock running on the statute of limitations.

Bill Kopper, a Davis attorney who represents the Stockton Citizens for Responsible Planning, said as long as George's stock ownership was the only reason for his recusal, he has no problem with the chief justice now hearing the case.

The existence of a calendar memo indicates the justices are close to setting the case for oral argument, after which a decision will be due within 90 days.