In re Initial Public Offering Securities Litig.

• Decision Date: 28 November 2001
• Docket Number: No. 21 MC 92(SAS).,21 MC 92(SAS).
• Citation: 174 F.Supp.2d 70
• Parties: In re INITIAL PUBLIC OFFERING SECURITIES LITIGATION.
• Court: U.S. District Court — Southern District of New York

174 F.Supp.2d 70

In re INITIAL PUBLIC OFFERING SECURITIES LITIGATION.

No. 21 MC 92(SAS).

United States District Court, S.D. New York.

November 28, 2001.

COPYRIGHT MATERIAL OMITTED

Plaintiffs' Liaison Counsel: Melvyn I. Weiss, Esq., Ariana J. Tadler, Esq., Peter G.A. Saferstein, Esq., Milberg Weiss Bershad Hynes & Lerach LLP, New York City, Stanley D. Bernstein, Esq., Robert Berg, Esq., Rebecca Katz, Esq., Bernstein, Liebhard & Lifshitz, LLP, New York City, for plaintiffs.

Additional Members of Plaintiffs' Executive Committee: Daniel W. Krasner, Esq., Fred Taylor Isquith, Esq., Thomas Burt, Esq., Wolf, Haldenstein, Adler, Freeman & Herz, LLP, New York City, Richard S. Schiffrin, Esq., David Kessler, Esq., Schiffrin & Barroway, LLP, Bala Cynwyd, PA, Howard Sirota, Esq., Saul Roffe, Esq., Sirota & Sirota, LLP, New York City, Jules Brody, Esq., Aaron Brody, Esq., Stull, Stull & Brody, New York City.

Plaintiffs' Steering Committee: Peter D. Bull, Esq., Joshua M. Lifshitz, Esq., Bull & Lifshitz, LLP, New York City, Steven E. Cauley, Esq., Randall K. Pulliam, Esq., Cauley Geller Bowman & Coates, LLP, Little Rock, AK, Christopher Lovell, Esq., Lovell & Stewart LLP, New York City, Stephen A. Weiss, Esq., David R. Buchanan, Esq., Mark Farkas, Esq., Seeger Weiss, LLP, New York City, Robert I. Harwood, Esq., Frederick W. Gerkens III, Esq., Wechsler Harwood Halebian & Feffer LLP, New York City.

Liaison Counsel for Defendants (Underwriters): Gandolfo V. DiBlasi, Esq., Sullivan & Cromwell, New York City.

Liaison Counsel for Defendants (Issuers): Jack C. Auspitz, Esq., Morrison & Foerster LLP, New York City.

Additional Counsel: see Appendix.

OPINION AND ORDER

SCHEINDLIN, District Judge.

I. INTRODUCTION

These actions represent a consolidation of unique proportions. Since January 2001, plaintiffs have filed more than 1,000 class actions in the Southern District of New York related to the Initial Public Offerings ("IPOs") of over 263 companies (the "Securities Actions"). In the broadest terms, the complaints allege that certain companies issuing stock to the public ("issuers"), their directors and officers, and those investment banks underwriting the IPO process ("underwriters"), violated federal law by manipulating the stocks' prices. Because these actions share some common issues, Chief Judge Michael B. Mukasey consolidated them for pretrial purposes and assigned the cases to this Court on August 9, 2001. See Order, In re Initial Public Offering Sec. Litig., 21 MC 92 (Aug. 9, 2001) ("Transfer Order").

Of the more than 1,000 defendants, thirty-eight of the underwriters (the "Moving Defendants") now seek this Court's disqualification on various grounds raised under 28 U.S.C. § 455(a)-(b).¹ For the reasons that follow, the Moving Defendants' motion is denied.

II. THE GOVERNING STATUTE

The disqualification of federal judges is governed by 28 U.S.C. § 455, which Congress enacted in two stages — the first in 1974, the second in 1988. Specifically, in 1974, Congress passed subsections (a)-(e), the relevant portions of which reads:

(a) Any justice, judge, or magistrate of the United States shall disqualify [her]self in any proceeding in which [her] impartiality might reasonably be questioned.

(b) [She] shall also disqualify [her]self in the following circumstances:

(1) Where [she] has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding; ...

(4) [She] knows that [she], individually or as a fiduciary, or [her] spouse or minor child residing in [her] household, has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding; ...

(5) [She] or [her] spouse, or a person within the third degree of relationship to either of them, or the spouse of such a person:

(i) Is a party to the proceeding, or an officer, director, or trustee of a party;

(ii) Is acting as a lawyer in the proceeding;

(iii) Is known by the judge to have an interest that could be substantially affected by the outcome of the proceeding;

(iv) Is to the judge's knowledge likely to be a material witness in the proceeding.

28 U.S.C. § 455(a)-(b).

Section 455 thus provides two separate grounds for disqualification. Subsection (a) sets out a general standard requiring a judge to disqualify herself "in any proceeding in which [her] impartiality might reasonably be questioned," 28 U.S.C. § 455(a), while subsection (b) lists a number of specific instances in which recusal is mandated. For example, if the judge "served as lawyer in the matter in controversy," she must disqualify herself from the proceedings. 28 U.S.C. § 455(b)(2).

In the words of the Supreme Court, "[t]he 1974 revision made massive changes" to the law of disqualification. Liteky et al. v. United States, 510 U.S. 540, 546, 114 S.Ct. 1147, 127 L.Ed.2d 474 (1994).² Subsection (a) was the more significant change because it added "an entirely new `catchall' recusal provision." Id. at 548, 114 S.Ct. 1147. By contrast, most of the revisions codified in subsection (b) "merely rendered objective and spelled out in detail the `interest' and `relationship' grounds of recusal that had previously been covered by § 455." Id.

Fourteen years later, Congress amended section 455 by adding subsection (f), which states:

Notwithstanding the preceding provisions of this section, if any ... judge ... to whom a matter has been assigned would be disqualified, after substantial judicial time has been devoted to the matter, because of the appearance or discovery, after the matter was assigned to him or her, that he or she individually or as a fiduciary, or his or her spouse or minor child residing in his or her household, has a financial interest in a party (other than an interest that could be substantially affected by the outcome), disqualification is not required if the justice, judge, magistrate, bankruptcy judge, spouse or minor child, as the case may be, divests himself or herself of the interest that provides the grounds for the disqualification.

28 U.S.C. § 455(f) (emphasis added). As the plain language, i.e., "Notwithstanding", and legislative history of the subsection show, Congress did not intend to otherwise alter the statute by enacting subsection (f). The Moving Defendants correctly explain:

Section (f)'s legislative history ... includes the statement that the provision was `directed at a specific problem that has arisen ... in class action cases,' H.R.Rep. No. 100-889 (Aug. 26, 1988), reprinted in 1988 U.S.C.C.A.N. 5982, 6029, and illustrates `the problem' by citing and describing In re Cement and Concrete Antitrust Litigation, 515 F.Supp. 1076, 1080 (D.Ariz.1981), in which the judge was required to recuse because his wife owned stock in some of the parties .... Congress not only had a `specific problem' in mind, it had a specific case in mind.

Moving Defendants' Reply Memorandum of Law in Further Support of Motion for Recusal Pursuant to 28 U.S.C. § 455 ("Reply Mem.") at 7-8.

III. LEGAL STANDARD

The trial judge herself must rule on a motion to recuse under section 455. See In re Drexel Burnham Lambert, Inc., 861 F.2d 1307, 1312 (2d Cir.1988) ("Discretion is confided in the district judge in the first instance to determine whether to disqualify [herself]."); see also Schurz Communications, Inc. v. FCC, 982 F.2d 1057, 1059 (7th Cir.1992) (Posner, J.) ("Section 455 clearly contemplates that decisions with respect to disqualification should be made by the judge sitting in the case, and not by another judge.") (quoting United States v. Balistrieri, 779 F.2d 1191, 1202-03 (7th Cir.1985)); Lambert v. Blackwell, No. 96 Civ. 6244, 2001 WL 410639, at *2 n. 2 (E.D.Pa. Apr. 20, 2001) ("It is well-established, if not entirely intuitive, that the resolution of such a motion is entrusted to the judge who is the subject of the motion.") (citation omitted).

The Second Circuit has explained that the reasons for this discretion are "plain":

The judge presiding over a case is in the best position to appreciate the implications of those matters alleged in a recusal motion. In deciding whether to recuse [her]self, the trial judge must carefully weigh the policy of promoting public confidence in the judiciary against the possibility that those questioning [her] impartiality might be seeking to avoid the adverse consequences of [her] presiding over their case. Litigants are entitled to an unbiased judge; not to a judge of their choosing.

In re Drexel Burnham Lambert, Inc., 861 F.2d at 1312 (citation omitted).

Indeed, even if the parties do not move for recusal, section 455 creates an independent duty requiring federal judges to evaluate in every case whether they should disqualify themselves. See 28 U.S.C. § 455 (stating that "[a]ny justice, judge, or magistrate of the United States shall disqualify [her]self in any proceeding" if certain conditions exist) (emphasis added); United States v. Cerceda, 139 F.3d 847, 852-53 (11th Cir.1998) (holding that "[a] judge is under an `affirmative, self-enforcing obligation to recuse himself sua sponte whenever the proper grounds exist'"); Aronson v. Brown, 14 F.3d 1578, 1581 (Fed.Cir.1994) ("Section 455 is `self-enforcing' in that it is self-executing."); Alexander v. Primerica Holdings, Inc., 10 F.3d 155, 162 (3d Cir.1993) (holding that section 455 "commands the judge to disqualify [her]self sua sponte"); Taylor v. O'Grady, 888 F.2d 1189, 1200 (7th Cir. 1989) ("Recusal under Section 455 is self-executing; a party need not file affidavits in support of recusal and the judge is obligated to recuse herself sua sponte under the stated circumstances."); In re Manoa Fin. Co., 781 F.2d 1370, 1373 (9th Cir.1986) (per curiam) (holding that "section 455 is stated in terms of a self-enforcing obligation upon the judge").

If section 455 applies, the judge must recuse herself. But if it...