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Class Action Defense Cases-In re Literary Works: Second Circuit Rejects Ethics Committee Recommendation For Recusal From Hearing Class Action Settlement Appeal Based On Judges Membership In Class Action

Judge Who Learns He is Member of Class Action need not Recuse Himself from Hearing Appeal of Class Action Settlement if Financial Interest is Small and He Promptly Divests Himself of that Interest Second Circuit Holds

Prior to hearing oral argument in an appeal from a class action settlement, but after the three-judge panel had completed a substantial amount of work in preparing for oral argument, the Second Circuit panel learned that two of the judges may be members of the class action. In re Literary Works in Electronic Databases Copyright Litig., ___ F. 3d ___ (2d Cir. November 29, 2007) [Slip Opn., at 2 and n.1]. The Circuit Court requested that the Committee on Codes of Conduct of the Judicial Conference opine as to whether the panel should recuse itself from hearing the appeal; by letter dated March 22, 2007, the Committee concluded that recusal was required. Id. The Panel advised the Committee of additional facts not previously known

A class action was filed “on behalf of freelance authors whose work has been reproduced without their express consent on a variety of electronic databases, including but not limited to LexisNexis and Westlaw.” Literary Works, at 4. The class action was certified and ultimately settled. Notice of the class action settlement was given to class members by mail and publication, and required members of the class action submit proofs of claim by September 30, 2005. Id. The class action settlement received final approval on September 27, 2005, id., and on October 21, 2005, several of the class members who had objected to the settlement filed an appeal, id., at 5. Months after the claims period had expired, the three-judge panel received the briefing on the appeal and in March 2007, “after extensive pre-argument preparation,” two of the judges learned that they may be members of the class because “there was a high probability that we held copyrights in works, such as law review articles and speeches, reproduced on defendants’ databases.” Id. At oral argument, the panel members disclaimed any financial interest in the settlement; no one advised the Panel that the claims period already had expired so they “were at that point ineligible to recover anything in the class action in any event.” Id.

The two judges potentially impacted by the class action settlement then asked the Committee on Codes of Conduct of the Judicial Conference whether recusal was required. Literary Works, at 5. The Committee responded that it believed the judges should not continue to serve on the Panel, id. In part, the Committee reasoned that the assurances given at oral argument were “insufficient to cure [the] putative disqualification because [the judges] had devoted substantial time to the case before that date.” Id., at 6. Shortly after receiving this recommendation, the judges advised the Committee “of the added fact that the case had been assigned to us after the claims period had expired – and therefore, even had we not affirmatively renounced any interest in the outcome, we would have been ineligible to participate in any recovery.” Id. The Committee responded that this fact was immaterial to its conclusion that recusal was required. Id. The threshold question for the Second Circuit then was “whether to follow the Committee’s opinion.” Id.

The Circuit Court first held that “curative divestment should generally be possible when recusal is mandatory under § 455(a) or (b) if a reasonable person would not have known the circumstances warranting recusal prior to his divestment of the offending interest.” Literary Works, at 13. In this regard, the Court found that “reasonable person would not have known that we were class members” before March 2007, “when our pre-argument preparation led us to that conclusion.” Id. But the more insightful aspect of the Second Circuit’s opinion is found at pages 13 and 14:

…[The Committee] conclude[s] that curative divestment is possible only if made immediately upon assignment of the case to the judge…; once a judge has spent substantial time on a case, he may not “opt-out.” No consideration is given by the Committee to when the judge learns of the potential conflict. We believe the Committee has it backwards. Plainly, § 455(f) is meant to conserve judicial resources. We do not see how this purpose is served by requiring recusal of a judge who, unaware of the conflict, has devoted substantial time to a case, but permitting a judge who has not worked on the case to continue to serve on an appeal, at a time when reassignment entails few or no costs.

In the end, while acknowledging that the Committee was entitled to “a certain quantum of deference,” the Second Circuit concluded that recusal was not required under the particular circumstances of this case. Literary Works, at 15-16. The Circuit Court’s decision on the merits will be discussed in a separate article.

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