Virginia Elec. & Power Co., In re

• Decision Date: 24 May 1976
• Docket Number: Nos. 76-1070,76-1168,s. 76-1070
• Citation: 539 F.2d 357
• Parties: In re VIRGINIA ELECTRIC AND POWER COMPANY, Petitioners. VIRGINIA ELECTRIC AND POWER COMPANY, Appellant, v. SUN SHIPBUILDING AND DRY DOCK COMPANY, Appellee, v. STONE AND WEBSTER ENGINEERING COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 357

539 F.2d 357

In re VIRGINIA ELECTRIC AND POWER COMPANY, Petitioners.

VIRGINIA ELECTRIC AND POWER COMPANY, Appellant, v. SUN SHIPBUILDING AND DRY DOCK COMPANY, Appellee, v. STONE AND WEBSTER ENGINEERING COMPANY, Appellee.

Nos. 76-1070, 76-1168.

United States Court of Appeals Fourth Circuit.

Argued April 8, 1976.

Decided May 24, 1976.

Douglas W. Davis, Richmond, Va. (R. Kenneth Wheeler, Robert F. Brooks, Thomas G. Slater, Jr., Sandy T. Tucker, John C. Thomas, Hunton, Williams, Gay & Gibson, Richmond, Va., on brief), for petitioners.

John J. Runzer, Philadelphia, Pa., Charles W. Laughlin, Richmond, Va. (Pepper, Hamilton & Scheetz, Philadelphia, Pa., Christian, Barton, Epps, Brent & Chappell, Richmond, Va., Laurence V. Senn, Mudge, Rose, Guthrie & Alexander, New York City, John S. Battle, Jr., Rosewell Page, III, Joseph L. S. St. Amant, Neil S. Kessler, Richmond, Va., McGuire, Woods & Battle, Charlottesville, Va., on brief), for respondents.

Before BOREMAN, Senior Circuit Judge, CRAVEN, Circuit Judge and HADEN, District Judge. ^*

CRAVEN, Circuit Judge:

Reluctantly and against his previously stated better judgment, the district judge recused himself from further participation in the trial of this action by VEPCO against defendant Sun Shipbuilding and Dry Dock Company. In the course of doing so, he also disqualified all other federal judges residing in Virginia. We are satisfied that the trial judge's decision was based upon a clearly erroneous finding of fact and a misapprehension of applicable legal principles. Accordingly, we hold that all Virginia judges are qualified to sit, and we vacate the order of recusal and remand with instructions that the district judge consider anew the propriety of his sitting in the case, guided by this court's interpretation of the appropriate legal standards.

I.

The underlying litigation involves VEPCO's attempt to recover from Sun Ship damages allegedly resulting from defendant's fabrication of pump supports for VEPCO's North Anna nuclear power station in Mineral, Virginia. VEPCO filed suit on November 8, 1974, claiming damages of $152 million. The case has become exceedingly complex, involving voluminous pleadings, third-party complaints and counterclaims, discovery depositions and 195,000 documents. During the year the trial court presided over this case, 24 orders on various motions were entered.

The trial judge is a customer of VEPCO, the plaintiff, and therein lies the problem. Under a fuel adjustment clause, VEPCO's customers have been directly surcharged an amount which VEPCO now claims as an element of its damages. Should VEPCO be successful, the utility might possibly be required to return to its customers that part of the award representing increased fossil fuel costs.

An audit of the district judge's utility bills by a professional accounting firm revealed that if VEPCO wins the lawsuit, and if it is awarded the entire amount claimed, and if the defendants satisfy the judgment, and if the Virginia State Corporation Commission decides that VEPCO must return to its customers that part of the award representing increased fuel costs, and when VEPCO makes such an adjustment, then the trial judge, as a customer of VEPCO, would get a refund estimated at between $70 and $100. ¹

The trial judge first perceived this situation to be a problem sua sponte in a letter to counsel dated May 21, 1975, some six and one-half months after the litigation began. The judge suggested that his status as a VEPCO customer and his "interest" in the hypothetical $100 refund might require his disqualification from the case. The judge did not offer to recuse himself, but instead merely called the matter "to the attention of counsel so they may take such action, if any, as they deem to be in the best interests of their respective clients." ²

Sun Ship waited almost four months to act. ³ After the judge's letter but before Sun Ship's motion, the trial court entered ten orders, including a lengthy and comprehensive discovery memorandum. Finally, on September 9, 1975, Sun Ship filed the following Motion for Disqualification:

Comes now the defendant and third-party plaintiff, Sun Shipbuilding and Dry Dock Company, by counsel, and moves that The Honorable D. Dortch Warriner, United States District Judge, disqualify himself from acting in this matter, on grounds of interest, and that no judge who is a customer, directly or indirectly, of the plaintiff, Virginia Electric and Power Company, be appointed in his place.

(Emphasis added.) There was not, and has never been, the slightest hint or suggestion that the trial judge bore any personal bias or prejudice against Sun Ship, that he had any direct or personal economic interest in VEPCO or any of the parties, or that he would be incapable of hearing the case impartially and without favor. The motion attacks only the judge's status as a customer of VEPCO. If it takes him out of the case, it also takes out all other Virginia judges. ⁴

The motion was argued before the court on November 24, 1975. The district judge delivered an oral opinion from the bench denying the motion and finding himself capable of "complete impartiality." ⁵ The judge did find, however, that the amount of the refund, speculative and remote though it might be, could not be considered de minimis. As a result, the judge was sensitive to any appearance of impropriety should he decide to stay on the case. The court concluded:

Since this Court is secure in the knowledge that there is no evil and since the Court has wrestled with the question of whether there is an appearance of evil and that has been the question that the Court has been concerned with for many weeks I have had to conclude that even the appearance of evil to require disqualification must be an appearance of evil with a rational basis to it.

The Court concludes that it would not be rational to assume that this Court or any court would be affected in its judgmental abilities on the basis of the facts developed by Sun Ship.

. . . (T)he Court simply cannot conceive of a judicial system working well if courts and judges must disqualify themselves on this basis.

Bench Opinion, Joint Appendix at 82-84.

On January 8, 1976, however, the court filed a written opinion which reached the opposite result, explaining that the "process of writing the opinion has brought about a change in the Court's conclusion." ⁶ The findings of fact remain unchanged in the written opinion, which displays the same confidence that the court could hear the case with "complete impartiality." What is different is the judge's perception of the legal effect of his status as a customer of VEPCO.

The judge drew upon three sources in developing a five-point test or standard for recusal. First, the judge relied upon Canon 3C of the ABA Code of Judicial Conduct, which provides in pertinent part:

Disqualification (1) A judge shall disqualify himself in a proceeding in which his impartiality might reasonably be questioned, including but not limited to instances where . . . (C) he knows that he, individually or as a fiduciary, or his spouse or minor child residing in his 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.

(Emphasis added.)

Next, the court considered the unamended version of 28 U.S.C. § 455, which reads:

Any justice or judge of the United States shall disqualify himself in any case in which he has a substantial interest, has been of counsel, is or has been a material witness, or is so related to or connected with any party or his attorney as to render it improper, in his opinion, for him to sit on the trial, appeal, or other proceeding therein.

(Emphasis added.)

After this suit was filed, an amendment to Section 455 became effective, but by its own terms the amended section "shall not apply to the trial of any proceeding commenced prior to the date of this Act . . . ." Section 3, Pub.L. 93-512, 88 Stat. 1609 (Dec. 5, 1974 ). Although the judge correctly ruled that the amended section was thus inapplicable to the case at bar, he felt that "the appropriate approach to the question would include consideration of the more lately expressed intent of Congress and thus the Court shall consider both the amended and unamended versions of Section 455 in rendering its decision." ⁷ The amended statute reads:

(a) Any justice, judge, magistrate, or referee in bankruptcy of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

(b) He shall also disqualify himself in the following circumstances:

(4) He knows that he, individually or as a fiduciary, or his spouse or minor child residing in his 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 :

(d) For the purposes of this section the following words or phrases shall have the meaning indicated:

(4) "financial interest" means ownership of a legal or equitable interest, however small, or a relationship as director, adviser, or other active participant in the affairs of a party.

(Emphasis added.)

From these three authorities the trial judge fashioned the following test for disqualification under the circumstances of the case at bar:

In light of the above authorities, the Court finds that it must be able to answer each of the following questions in the negative if it is to remain as judge of the case: (1) does the Court have a "financial interest" in the subject matter in controversy; (2) does it have any direct and personal pecuniary interest in the case; (3) does the Court, in its opinion, have a substantial interest herein; (4) does it have any interest of such a nature that its impartiality may reasonably be questioned; (5) does it have...