Baseball Crank
Covering the Front and Back Pages of the Newspaper
November 1, 2005
LAW: Smearing Judge Alito

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.

UPDATE: The Washington Post says Alito had been asked about Vanguard issues 12 years earlier at his hearing, and promised to recuse himself, and that the White House ascribes the non-recusal to a failure to flag the case on the Third Circuit's computerized conflicts system. I still fail to see why this is anything but an honest and very minor mistake, given the fact that this was a routine slam-dunk case with no possibility of affecting Alito's finances.

Posted by Baseball Crank at 6:59 AM | Law 2005 | Comments (6) | TrackBack (2)
Comments

Alito vowed to recuse himself from Vanguard issues when he was confirmed by COngress in 80s. He didn't keep his promise.

Posted by: aiko at November 1, 2005 10:21 AM

maybe it's the part where he promised in writing not to rule on anything involving Vanguard--and then he did it, and didn't sound particularly apologetic about it once it was pointed out.

How does one take any new promises seriously in any upcoming hearings?

Posted by: torridjoe at November 2, 2005 4:03 AM

The big deal isn't the alleged conflict of interest--it's the failure to comply with his prior agreement.

It's not a smear to ask about that. It's a perfectly legitimate question. Moreover, a question is not the same thing as a wild accusation.

And it must be nice to have so much money that a $400,000 investment in a company slips one's mind.

Posted by: Geek, Esq. at November 10, 2005 2:42 AM

And the excuse "It's a technicality! It's an oversight!" rings false because as a judge, it's his job to know the law. A Supreme Court justice should be squeaky clean.

Posted by: Greuben at November 10, 2005 11:07 AM

It's impossible to be "squeaky clean" today - there are too many intrusive federal regulations being vomited forth daily. Everyone is guilty of breaking more than one law or regulation. Maybe Alito will help stop the flow of some of them so we can understand and grasp our own laws.

Posted by: Tim at November 10, 2005 12:46 PM

The Judicial Conference's checklist is NOT the law. It is advisory at best, and woefully ignorant at worst. (Much like getting advice from the IRS regarding a deduction, only to find that advice doesn't hold up in court.) See the Federal Judicial Center's contrasting conclusion from their study on Recusal. www.thomspaine.org/index.html#footnote1

The Canons in the current Code of Conduct require a judge to be above reproach. The issue is not whether there is bias, but the APPEARANCE of bias. NO one, even from the foaming Left, should be able to bring a complaint against a judge. Sadly, we're finding most judges don�t know the Code, let alone live by it. Worse, when faced with it, they ignore it. (See Judge Kozinski's vehement dissent in a dismissed complaint. www.thomspaine.org/news.html#kozinski

Posted by: "T.C." Paine at November 11, 2005 8:12 PM
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