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Justice Must Satisfy the Appearance of Justice— A Judge’s Family’s Financial Interest of 100 Shares of a Party’s Stock Is a Serious Issue

| Nima Zargari, Ph.D.Daniel P. Hughes

CENTRIPETAL NETWORKS, INC. v. CISCO SYSTEMS, INC.

Before Dyk, Taranto, and Cunningham.  Appeal from the United States District Court for the Eastern District of Virginia.

Summary: Placing stock in a blind trust does not divest a judge of that stock for purposes of the judicial ethics statutes.

After a 22-day bench trial in a patent case between Centripetal Networks and Cisco, Judge Morgan learned that his wife owned 100 shares of Cisco stock valued at $4,687.99.  Instead of selling the stock, Judge Morgan placed the stock in a blind trust.  Judge Morgan then denied Cisco’s motion requesting Judge Morgan’s recusal under 28 U.S.C. § 455, reasoning that placing the stock in a blind trust “cured” any conflict and that selling the stock would “imply[] concern about insider trading.”  Judge Morgan ultimately held that Cisco willfully infringed Centripetal’s patents and awarded enhanced damages and royalties exceeding $2.75 billion.

On appeal, the Federal Circuit reversed.  The Federal Circuit concluded that placing the stock in a blind trust did not “divest” Judge Morgan of the stock under the judicial ethics statutes because “ownership” can only be “divested” if the interest is sold or given away.  The Court also noted that selling the stock would not have suggested the appearance of insider trading because “comply[ing] with ethical obligations is not insider trading.”  Stressing the importance of judiciary credibility and the public’s confidence in the judicial process, the Federal Circuit also held that the appropriate remedy is to vacate the rulings which were issued after Judge Morgan learned of his wife’s financial interest in Cisco.  Thus, the Federal Circuit, in part, reversed, vacated, and remanded Judge Morgan’s orders.

Editor: Paul Stewart