Justices’ Stock Ownership in Amici Could Raise Red Flags (Corrected)

Photographer: Chris Kleponis/Bloomberg News

Stock owned by U.S. Supreme Court justices in companies that file friend-of-the-court briefs could raise questions about whether recusal is appropriate in such cases.

Justice Stephen G. Breyer participated Feb. 27 in a case that could damage the U.S. technology industry despite acknowledging ownership of as much as $100,000 in Cisco stock in his last public disclosure. Cisco signed on to an amicus brief siding with Microsoft in the case.

That disclosure covered calendar year 2016 and was released in June of last year. Given that the justices only report such financial information once a year, it’s possible that Breyer has sold this stock.

Whether the stock was held by Breyer at the time the case was granted would be disclosed in the financial report to be released this year.

The case—United States v. Microsoft—asks when these companies must turn over customer data stored abroad to U.S. law enforcement agencies.

The U.S. technology sector will suffer adverse effects “if it becomes the conduit through which U.S. law enforcement can seize the private communications of every U.S. service provider’s customers, no matter where in the world those customers are located or their data is stored,” Microsoft told the justices.

Such situations are problematic, Fix the Court, a non-profit transparency advocate, said in a Feb. 27 statement. Regardless of intent, dealing in the stock of an amicus just looks bad.

Judicial ethics scholar Leslie W. Abramson told Bloomberg Law that the court itself has repeatedly said that the appearance of impropriety in the judiciary is just as harmful as actual impropriety. Abramson is with the University of Louisville Brandeis School of Law, Louisville, Ky.

Justices “should not own stock in individual public corporations, particularly those that regularly appear as parties in the Court. Period,” another judicial ethics scholar, Arthur D. Hellman, at the University of Pittsburgh Law School, told Bloomberg Law.

Divided on Business

Stock ownership by the justices isn’t new. Retired Justice Sandra Day O’Connor regularly “removed herself from cases regarding telecommunications firms on account of her stock-owning,” according to an article from the nonpartisan National Constitution Center.

Only three justices currently on the court have holdings in individual stocks as opposed to mutual funds, according to the most recent public disclosure. Those are Chief Justice John G. Roberts Jr. and Justices Breyer and Samuel A. Alito Jr.

Nevertheless, the issue of stock ownership is more problematic today than before, Hellman said.

The court “is taking more business-related cases” than previously, and the court “is often closely divided” on issues that affect those businesses, Hellman said.

Financial Interest

Congress has developed rules to assist lower federal court judges when they encounter these conflicts.

Federal law lists situations in which judges must recuse themselves, Abramson said. That includes whenever the judge “has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be affected substantially by the outcome of the proceeding,” the law says.

The Judicial Conference—”the national policy-making body” for the lower federal courts—interprets identical language in its own code of conduct to apply “to an ownership interest in any corporation, whether or not the corporation appears as an amicus.”

“An example of when an ownership interest in an amicus could result in disqualification would be when the amicus is in the same industry as the party and the value of industry stock generally could be substantially affected by the decision in the pending case,” the Judicial Conference said.

But even “in those situations where an ownership interest could be substantially affected, one might doubt that a judge’s impartiality might reasonably be questioned if the interest is minimal,” it said.

‘Reasonably Questioned’

Even when a judge doesn’t have a direct financial interest, the law has a fall-back position, Abramson said. A judge shall recuse himself or herself “in any proceeding in which his impartiality might reasonably be questioned,” the law says.

That inquiry focuses on the appearance of impropriety, rather than actual impropriety, Abramson said.

The question is whether it is “reasonable” to think that a justice might be swayed based on the views of the amici, he said.

Abramson didn’t seem to think that was so here. Justices are free to ignore the arguments of participating amici, he said.

Customer Confidence

The issue may be academic, however.

Congress—and even the Judicial Conference—can’t impose ethical rules on the justices given that each branch of government acts independently from the others, the justices say.

The justices therefore aren’t technically bound by these rules.

Roberts said in 2011 that the justices do consult these rules when considering their own conflicts.

Still, they aren’t required to explain their reasons for their recusal decisions, and mostly don’t.

Capital Gains

“In the past, Justices sometimes held onto stocks because if they sold them, they’d be hit with heavy capital gains taxes,” Hellman said.

That’s not a problem today, though.

About “a decade ago, Congress passed a law that allowed judges to defer the capital gains taxes on stock they sold to remove conflicts of interest,” Hellman said.

Presumably, that’s led to some stock selling by the justices in recent years, Fix the Court said. “For example, Roberts sold his Verizon shares in June 2015 and his HP shares in Aug. 2016 (Verizon and HP are on the Cisco brief), and Breyer sold his IBM shares in Jan. 2016 (IBM has its own brief).”

So, overall “we’re trending in the right direction but not there yet.”

(An earlier version of this story asserted that Breyer currently owns Cisco stock. In fact, that assertion was based on the most recent public disclosures from 2016. The story has been corrected to reflect the possibility that Breyer has sold the stock and to identify the source of the information.)

To contact the reporter on this story: Kimberly Strawbridge Robinson in Washington at krobinson@bloomberglaw.com

To contact the editor responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com