Fuchsberg, Matter of

• Decision Date: 16 March 1978
• Parties: In the Matter of the Proceedings Pursuant to Section 22 of Article VI of the Constitution of the State of New York in Relation to the Honorable Jacob D. FUCHSBERG, Associate Judge of the Court of Appeals.
• Court: New York Court on the Judiciary

Page 639

426 N.Y.S.2d 639

In the Matter of the Proceedings Pursuant to Section 22 of

Article VI of the Constitution of the State of New York in

Relation to the Honorable Jacob D. FUCHSBERG, Associate

Judge of the Court of Appeals.

Court on the Judiciary.

March 16, 1978.

Harold R. Tyler, Jr., Rudolph W. Giuliani and Richard Parsons, New York City, counsel to the court.

Wachtell, Lipton, Rosen & Katz, New York City (Herbert M. Wachtell, George A. Katz and Allan A. Martin, New York City, of counsel) and Charles S. Desmond, New York City, for respondent.

PER CURIAM.

This court was convened by order of the Chief Judge of the Court of Appeals of the State of New York, dated September 6, 1977, pursuant to article VI of the New York State Constitution, to investigate, hear, and determine matters concerning respondent in respect of the sales, purchases and exchange of New York City notes and Municipal Assistance Corporation ("MAC") bonds owned by him.

The court appointed Harold R. Tyler, Jr., as its counsel, assisted by Rudolph W. Giuliani, Richard Parsons and Theodore Van Itallie. Respondent has been represented in these proceedings by Wachtell, Lipton, Rosen & Katz and Charles S. Desmond.

On October 12, 1977 the court denied a motion by counsel for respondent for an order rescinding the appointment of Mr. Tyler as counsel to conduct the proceedings. The order and decision of the court are attached as Appendix I.

At the request of this court and its counsel, the Chief Judge filed a supplemental Counsel to the court has in close consultation with the court conducted a thorough investigation of all the allegations against respondent, has examined respondent and his law clerk, Perry S. Reich, under oath, has interviewed all the material witnesses, and has furnished to the court not only the results of his investigation, but also the benefit of his advice and judgment. Respondent has furnished information and records concerning his financial transactions. The court has reviewed written submissions from counsel for respondent. It has also allowed respondent and his attorneys to appear before it to present orally all facts and arguments they deemed relevant.

order, dated November 16, 1977, expanding the scope of the inquiry to include, inter alia, investigation of allegations that respondent obtained the advice and assistance of experts on the law and others in proceedings before the Court of Appeals in a manner not consistent with the relevant Rules and Canons governing judicial conduct.

We observe that, unlike other Courts on the Judiciary which have been convened, our duty, in accordance with the order of the Chief Judge, is first to investigate and to ascertain the underlying facts. Not until there appears probable cause for removal or other discipline may the court proceed with the preferral of charges. We are acutely aware of our dual function and have pursued our obligation with due regard for the responsibilities inherent in both processes.

No essential issues of fact have developed from the inquiry. Respondent and his counsel have been given every opportunity to present their arguments with respect to those facts in the same manner as would have eventuated if a lengthy hearing had been had. Respondent and his counsel have waived the necessity of the service of charges and public hearing which might have involved notice to the Governor, to the Legislature and respondent's suspension from office (N.Y.Const. art. VI, § 22, subds. e, i). The letter of waiver reads as follows:

"During the course of the proceedings of January 16, 1978, there was discussion as to whether * * * the Court would be empowered to issue a report reviewing the investigation that has been made and articulating the reasons for its determination. * * *

"It was my thought at the time that I had indicated such a waiver (of confidentiality) on behalf of Judge Fuchsberg. * * * questions had been raised as to whether my wording of such intended waiver of confidentiality had been conditional or otherwise insufficient to permit the Court the latitude of rendering a report of this nature, should the Court be so inclined.

"To obviate any misunderstanding which may have resulted from my choice of language on the January 16 record, I wish hereby formally to set forth for the Court that the waiver to permit the Court to render such a report is intended to be entirely unconditional. This waiver is being expressed with Judge Fuchsberg's full approval."

Under the circumstances, the court has resolved to adopt the procedure of issuing this report of the facts and the conclusions it draws from those facts.

The issue now before this court is whether the facts justify the removal or other discipline of respondent for cause (22 NYCRR 580.3(b)). Respondent's conduct must be measured against the relevant Rules and Canons ¹ "in the general moral and ethical standards expected of judicial officers by the community." (Sarisohn v. Appellate Div., Second Dept., Supreme Ct.

of State of N. Y., (D.C.) 265 F.Supp. 455, 458; Bartlett v. Flynn, 50 A.D.2d 401, 404, 378 N.Y.S.2d 145, 148, app. dsmd. 39 N.Y.2d 942, 386 N.Y.S.2d 1029, 352 N.E.2d 897.)

I

We consider first respondent's ownership, purchase and sale of New York City notes and MAC bonds and his participation in cases arguably affecting the value of those holdings.

Prior to taking office as an Associate Judge of the Court of Appeals, respondent had purchased large amounts of New York City short-term notes. On January 1, 1975, the date he commenced his Court of Appeals term, respondent held $3.4 million in par value of such notes. After taking office, respondent redeemed notes as they matured and continued to make substantial investments in securities of the City and State of New York. For the most part, these investments were in short-term revenue anticipation and bond anticipation notes, maturing within one year of date of issue.

On July 2, 1975, respondent held $2,900,000 par value in New York City short-term notes. Between July 2, 1975 and December 28, 1976, respondent did not increase his holdings of New York City notes, but he continued to redeem notes as they matured. Such redemptions continued until November 14, 1975, on which date respondent held $1,500,000 par value of short-term city notes.

November 14, 1975 was the effective date of the Emergency Moratorium Act for the City of New York ("Moratorium Act"), which imposed a three-year "freeze" on redemption of, or actions to enforce short-term city obligations issued between November 14, 1974 and November 13, 1975. The entire $1,500,000 par value of notes respondent held on the effective date of the Moratorium Act had been issued during the previous year and were thus "frozen" by the act.

As a holder of "frozen" New York City notes, respondent was presented with two options. One was to exchange before December 29, 1975 his frozen notes (which under the act reduced the interest on the notes after maturity to 6%) for an equivalent par value of 8% MAC bonds due in 1986. The other was to hold the frozen notes. Respondent decided to exercise both options. In December, 1975, he exchanged $880,000 par value of frozen New York City notes for an equivalent par value of MAC bonds; he retained the remaining $620,000 of frozen notes.

On December 19, 1975, respondent undertook one further transaction with respect to his note holdings, namely, he sold $600,000 of 8.75% city notes due March 12, 1976 at 59.875, and purchased on the same day $600,000 of 7.55% city notes due February 13, 1976 at 59.625. Both the notes sold and those purchased were subject to the moratorium. The object of such sale and purchase, as stated by respondent, was to "record the depreciation" for tax purposes.

From December, 1975, through mid-December, 1976, respondent made no other purchases, sales or exchanges of city notes. On November 19, 1976, the Court of Appeals rendered its decision in Flushing Nat. Bank v. Municipal Assistance Corp. for City of N. Y., 40 N.Y.2d 731, 390 N.Y.S.2d 22, 358 N.E.2d 848 holding the Moratorium Act unconstitutional. It was not until February 8, 1977 that the remittitur, specifying the time schedule for the repayment of the formerly frozen notes, was handed down by the court (40 N.Y.2d 1094, 392 N.Y.S.2d 424, 360 N.E.2d 1106).

During the period between the "main decision" in Flushing Nat. Bank v. MAC (supra ) on November 19, 1976 and the decision on the remittitur on February 8, 1977, respondent made two additional purchases of New York City notes. On December 28, 1976 he purchased $835,000 par value of New York City short-term bond and revenue anticipation notes. On February 4, 1977, he purchased an additional $200,000 par value of New York City short-term bond anticipation notes. The purchases on both dates were of city notes that were subject to the Moratorium Act, and were During the period in which respondent's city note holdings were smallest $620,000 between December, 1975 and December, 1976 he made sizable investments in New York State short-term notes, as well as his already mentioned exchange for $880,000 in MAC bonds. At the middle of this period, in June, 1976, he owned approximately $3 million in State notes. Between the date respondent commenced his Court of Appeals term and May 31, 1977, his holdings of New York City and/or New York State securities averaged, in aggregate amount, approximately $3,000,000.

effected at prices below par value. The December 28 purchases of $835,000 par value of notes was effected at a principal cost of.$771,241 or 92% of par value. The February 4 purchase of $200,000 par value of notes was effected at a principal cost of $189,900 or 95% of par value.

New York City's fiscal crisis and the legislation intended to remedy it provoked a significant amount of litigation. Among such cases decided by the Court of Appeals were: Wein v. City of New York, 36 N.Y.2d 610, 370 N.Y.S.2d 550, 331 N.E.2d 514 (19...