Federal judge's rulings favored companies in which he owned stock

11:31 PM, Nov 20, 2012   |    comments
Judge Manuel Real of the U.S. District Court in Los Angeles was appointed to the bench in 1966. CREDIT: Photo by Virginia Lee Hunter
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By Jennifer Gollan and Shane Shifflett, California Watch

A federal judge has issued three key rulings over a four-year period that favored companies in which he owned stock, a California Watch analysis has found.

Measures are in place to prevent judges from violating federal conflict-of-interest laws. But Judge Manuel Real, a 46-year veteran of the bench appointed by President Lyndon B. Johnson, appears to have skirted those safeguards, records and interviews show.

Judges are supposed to disclose everything from their investments to their attendance at expenses-paid seminars. When a financial conflict arises, no matter how small, they are required to step aside, by federal law and the Code of Conduct for United States Judges.  

"This is what we call a 'bright line' rule, meaning that it gives clear and unambiguous guidance to judges and the public," said Steven Lubet, a Northwestern University law professor who specializes in judicial ethics.

But in at least three cases before the federal District Court for the Central District of California in Los Angeles, Real did not recuse himself:

  • In 2008, he awarded Microsoft Corp. $746,027 in damages and fees in a copyright infringement case against a computer sales and repair company. At the time, Real held Microsoft stock worth between $15,001 and $50,000, according to his financial disclosures.
  • In another 2008 case involving a contract dispute between Atlanta Cancer Care and biotech giant Amgen, Real dismissed the suit against Amgen. Real held between $15,001 and $50,000 of Amgen stock, too, which he transferred to someone else shortly after the case was appealed. 
  • The following year, Real dismissed a lawsuit against Verizon. After the plaintiff in the case appealed the decision to the 9th U.S. Circuit Court of Appeals, Real bought Verizon stock worth $15,001 to $50,000. The appeals court upheld Real's dismissal, but returned the case to Real for further deliberation. The parties reached an agreement in February 2011, and Real dismissed the case.

In all three cases, the company's stock rose at least a dollar per share during the two months following Real's ruling or dismissal.

"When there is money involved, it is human nature to protect your own interests," said John Schneider, a plaintiff in the Verizon case and a retired electrical contractor. "I would say he looked out for his financial interests before he looked out for mine. Judges should be above reproach."

Real, previously reprimanded for poor conduct on the bench, did not respond to repeated interview requests made via email or messages left with his courtroom clerk.

There is no indication that Real had a financial incentive in making his decisions, and many factors affect stock prices. But legal experts consulted by California Watch indicated that Real's rulings were, at a minimum, good news for the companies.

A judge who repeatedly fails to withdraw from cases can face sanctions ranging from a private reprimand to suspension from hearing cases. Beyond that, a judge can be referred to Congress for an impeachment hearing.

"If a judge is willfully disregarding the disqualification rules, there is precedent for saying he should be disciplined," said Charles Geyh, an expert in judicial ethics who teaches law at Indiana University. "In addition, where judges are not diligent in keeping track of their financial conflicts, where there is a pattern of incompetence, they could also be sanctioned."

Federal judges are required to report not only their financial holdings, but also those of their spouses to the federal court system. Since September 2006, they are supposed to use special conflict-checking software, which cross-references their stock holdings against their courtroom dockets, automatically flagging potential problems.

But technology is no panacea. Courts generally afford judges autonomy in who does the checks and how often. Some judges run checks before every case, while others do so intermittently, according to Central District of California communications specialist Gary Horimoto. The district is the largest of the 94 federal judicial districts, serving a population of more than 18 million people in Los Angeles, Ventura, Santa Barbara, San Luis Obispo, Orange, Riverside and San Bernardino counties.

"It is up to each judge to actually run these reports," said Molly Dwyer, clerk of court of the 9th U.S. Circuit Court of Appeals. "We are not policing the judges. ... We are accepting them at their word."

In the courtroom

Real, 88, was first appointed to the bench in 1966. He earns $174,000 a year and like other federal trial court judges enjoys what has effectively become life tenure, a benefit engineered by authors of the Constitution to protect the court's independence. One of Real's more notable decisions was a 1970 order to use mandatory busing to desegregate Pasadena schools.

Among judicial ethicists as well as attorneys who have argued cases before him, Real is known as an iconoclast, famous for a 1984 courtroom spat with Hustler magazine publisher Larry Flynt during which Real ordered Flynt gagged and handcuffed to his wheelchair.

Years later, the 9th U.S. Circuit Court of Appeals issued an opinion in which it criticized Real for his accounting of $33.8 million in disputed assets of the Philippines dictator Ferdinand Marcos.

Real faced a potential impeachment inquiry by Congress in 2006 over misconduct allegations, congressional documents show. He was accused of showing favoritism in a bankruptcy case toward a woman whose probation he supervised. In the end, Congress did not pursue the impeachment.

Arthur D. Hellman, a law professor at the University of Pittsburgh and leading authority on the federal courts, said few federal judges have received as much scrutiny from the 9th Circuit as Real, who has been taken off at least 20 cases over the past 25 years by the 9th Circuit.

'Software not infallible'

It is unclear how Real's multiple conflicts of interest could have escaped notice or slipped through the system. But around the nation, attorneys and legal scholars point to judges and judicial districts that are doing things right - examples that differ from some of California's practices.

One federal judge who pursues conflict checking with vigor is Chief Judge David R. Herndon of the Southern District of Illinois. A nominee of President Bill Clinton on the bench for 14 years, Herndon does not rely on software alone. He posts a list of his stock holdings online, updating it monthly, in the hope that litigants and lawyers will catch any conflicts he fails to see.

 "Software is not infallible; humans are not infallible," Herndon said.

In the Northern District of Iowa, the clerk's office screens for conflicts before assigning cases. The Iowa district also posts judges' stock holdings and other information on its website.

In California, Dwyer, the 9th Circuit court clerk, said privacy and security considerations keep California's disclosures offline. Among the information included in the filings are details such as addresses of rental properties judges own or the name of their spouse's employer.

"I don't think judges want their holdings known by everyone and their mother," Dwyer said.

Without such Web access, obtaining judges' financial filings is complicated. A written request must be sent to federal officials in Washington, and judges are warned about who is scrutinizing their disclosures. In some cases, under federal law, judges may black out key information, if it includes "revealing personal and sensitive information [that] could endanger" the judge or a family member. 

For example, in mid-2008, Real transferred 19 stocks ­- most of which were worth between $15,001 and $100,000 each, one worth up to $500,000 - to a recipient whose name has been blacked out. The companies ranged from Adobe Systems to UnitedHealth Group.

This story was edited by Amy Pyle and Mark Katches. It was copy edited by Nikki Frick and Christine Lee.

California Watch, the state's largest investigative reporting team, is part of the independent, nonprofit Center for Investigative Reporting.  For more, visit www.californiawatch.org

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