Opinion
Case No. 99-cv-0833-MJR.
July 16, 2004
MEMORANDUM AND ORDER
I. The Issue in a Nutshell
In a previous Order (Doc. 646), the undersigned Judge (sometimes referred to herein as "Judge Reagan") expressed concern that the February 3, 2004 announced sale of Defendant Illinois Power Company ("Illinois Power") to Ameren Corporation ("Ameren"), in which Judge Reagan was a stockholder, created a non-waivable conflict of interest requiring disqualification, despite Judge Reagan's prompt divestiture of the Ameren interest. For reasons stated below, the undersigned Judge now concludes recusal is not warranted.
II. Case History and Background
In the above-captioned suit, the United States of America ("the Government") brings suit against Defendants Illinois Power Company and Dynegy Midwest Generation, Inc., pursuant to the Clean Air Act, 42 U.S.C. § 7401- 7671q, for injunctive relief and the assessment of civil penalties for violations of the Prevention of Significant Deterioration ("PSD") provisions of the Act, 42 U.S.C. §§ 7470-92, the New Source Performance Standards ("NSPS") of the Act, 42 U.S.C. § 7411, and the federally approved and enforceable Illinois State Implementation Plan ("Illinois SIP" or "ISIP").To summarize the allegations of the complaint broadly, the Government alleges that Illinois Power modified and operated three electric generating units at the Baldwin Power Station coal-fired electricity generating power plant in Randolph County, Illinois, which was operated by Illinois Power and then later by Dynegy without obtaining the appropriate operating permits and without installing the best available control technology to control emissions of nitrogen oxides, sulfur dioxide, and particulate matter as the Clean Air Act, applicable federal regulations, and the Illinois SIP require.
Judge Reagan's Order on Defendants' motion for summary judgment left the Government with a claim for injunctive relief under all three provisions (PSD, NSPS, and ISIP), but restricted the Government's prayer for civil penalties to claims for NSPS emissions violations under 40 C.F.R. § 60.42a(a), 40 C.F.R. § 60.43a(a), and 40 C.F.R. § 60.44a(a) and Illinois SIP operating permit violations under 35 IAC § 201.143.
For four weeks in June 2003, the case was tried to the bench on the issue of liability. Live testimony was heard from approximately 20 witnesses with deposition testimony offered from many more. Thousands of exhibits were admitted and/or referenced. Thereafter, the parties submitted proposed findings of fact and conclusions of law and made closing arguments in September 2003.
Within days of the closing arguments, however, the above-referenced Intervenor Plaintiffs moved to intervene in the case after the United States EPA proposed new regulations which interpreted the Clean Air Act in a less stringent manner. After briefs were filed on the issue, movants were allowed to intervene and brief the issue of liability. Briefing from all parties regarding liability was complete late in 2003.
On February 3, 2004, Judge Reagan learned that Ameren was going to purchase Illinois Power. (See attachment to Doc. 646). Judge Reagan promptly divested himself of the Ameren stock.
The potential financial conflict of interest was disclosed to the parties by Order dated March 18, 2004 (Doc. 646). A teleconference regarding the issue was held April 5, 2004. All parties were given the opportunity to weigh in on the conflict issue. The parties furnished copies of the relevant Ameren/Illinois Power sale documents. Additionally, Judge Reagan sought counsel from the Committee on the Code of Conduct of the Judicial Conference of the United States and advised the parties that he might seek the independent opinion of an expert in judicial ethics.
III. Recapitulation of Significant Events
The following is a recapitulation of significant events in this case:
• 11/03/99 USA vs. Illinois Power filed in District Court
• 10/24/00 Case assigned to Judge Reagan
• 12/23/02 500 shares of Ameren purchased in Judge Reagan's joint account
• 4/28/03 Ameren holding first shows up on Judge Reagan's financial disclosure-for reporting year 2002
• June 2003 Four-week bench trial completed in USA vs. Illinois Power, et al.
• 2/03/04 St. Louis Post-Dispatch reports sale of Illinois Power to Ameren
• 2/04/04 Judge Reagan speaks to General Counsel Marilyn J. Holmes for information regarding procedure to request written opinion from the Committee on the Code of Conduct
• 2/05/04 Judge Reagan sells all Ameren stock
• 2/06/04 Judge Reagan solicits a written opinion from the Committee on the Code of Conduct of the United States Judicial Conference
• 3/05/04 Committee on Code of Conduct of the United States Judicial Conference responds to Judge Reagan's inquiry of 2/6/04
• 3/18/04 Judge Reagan enters "Order Setting Telephone Status Conference for the Purpose of Obtaining Factual Information Regarding the Reported Purchase of Illinois Power by Ameren so the Court can Determine if a Non-Waivable Financial Conflict of Interest Exists Which Would Mandate Recusal" (Doc. 646)
• 4/05/04 Telephone status conference held regarding 3/18/04 Order
• 4/09/04 Defendants provide factual information regarding the Ameren/Illinois Power transaction
• 6/25/04 Judge Reagan solicits the opinion of attorney and legal ethicist Robert P. Cummins, Cummins and Cronin LLC, Chicago, Illinois
• 07/07/04 Judge Reagan receives the 7/6/04 written opinion of Mr. Cummins which states recusal would be inappropriate and inconsistent with the sound administration of justice.
IV. Relevant Law
The ethical conduct of United States Judges, including recusal, is governed by the CODE OF CONDUCT FOR UNITED STATES JUDGES and is codified at 28 U.S.C. § 455. The Code provides a "bright line" rule, mandating disqualification if the Court has a financial interest, no matter how small, in a party to a proceeding before it. The disqualification is mandatory and cannot be waived by the parties. See generally Canon 3C(1), 3C(1)(c), 3C(3)(c) and 3D. Canon 3C(4) and 28 U.S.C. § 455(f) however, recognize an exception to the bright line rule:
Notwithstanding the preceding provisions of this Canon, if a 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 judge, spouse or minor child, as a case may be, divests himself or herself of the interest that provides the grounds for the disqualification.
Canon 3C(4).
28 U.S.C. § 455(f) provides:
Notwithstanding the preceding provisions of this section, if any justice, judge, magistrate judge, or bankruptcy 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 judge, 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.
V. Analysis
Since Judge Reagan divested himself of the Ameren holdings two days after learning of the potential Ameren/Illinois Power sale, recusal is not mandated if substantial judicial time has been devoted to this matter, and the divested interest could not be "substantially affected" by the outcome of the lawsuit.Turning to the first point, it cannot be seriously challenged that Judge Reagan has devoted a substantial amount of time to this case. In addition to ruling on summary judgment motions, he heard a four-week bench trial involving many witnesses, received and reviewed thousands of exhibits, and reviewed many depositions. Indeed, of the many cases heard by Judge Reagan — both jury and non-jury — none has occupied more time and chambers resources than this case.
The determination of whether the divested Ameren interest could be "substantially affected" by the outcome is more elusive. The reasoning behind the rule requiring recusal if the divested interest could be substantially affected by the outcome is sound — an unscrupulous judge could keep stock, knowing he was going to rule in such a manner that would line his pockets by an uptake in its value or, he could sell before ruling, if his decision would likely adversely affect its value. Significantly, Judge Reagan ceased all deliberation on this matter as soon as he became aware of the potential financial conflict and came to no conclusions as to the merits of the case. The Ameren stock was sold at a time when Judge Reagan had not concluded which party should prevail. Indeed, such a conclusion has not yet been made as of the date of this Order. The undersigned Judge needs to complete additional legal research, rule on the admissibility of certain testimony, and sift through several depositions before a liability conclusion is reached.
At the telephone status conference held on April 5, 2004 to discuss this issue, counsel were asked to provide relevant documents to aid in Judge Reagan's "substantially affected" determination. First, the documents reveal the sale is far from consummated and is subject to many conditions precedent. Importantly, and almost dispositive, is the fact that the agreement provides for the full indemnification of Ameren for any Baldwin related environmental liabilities of Illinois Power. It seems that a decision for or against Illinois Power or Dynegy would not substantially affect the divested Ameren holdings. In that same teleconference, all parties — Plaintiff, Defendants, and Intervenors — believed recusal was not necessary.
Moreover, Judge Reagan's interest in Ameren was very insubstantial and insignificant in relation to the overall outstanding stock — 500 shares out of 182.64 million — further disabusing any notion that a decision in the case at bar would substantially affect the divested Ameren holdings.
Utilizing the provisions of Canon 3A(4) of the CODE OF CONDUCT FOR UNITED STATES JUDGES, Judge Reagan elicited the opinion of a disinterested legal ethicist concerning the implications of the ownership and divestiture of the Ameren securities vis-a-vis continued participation in this case. Prior to this case, Judge Reagan did not know Robert P. Cummins, of Cummins Cronin, LLC, Chicago, Illinois, who was recruited for the task after being recommended by Mary Robinson, Administrator of the Illinois Attorney Registration and Disciplinary Commission of the Supreme Court of Illinois ("ARDC"). Judge Reagan was formerly a Commissioner with the ARDC and values Ms. Robinson's opinion. Mr. Cummins has offered his counsel on the issue. It is appended to this Order, as is Mr. Cummins' resume. He is well qualified and respected in the field of legal ethics and, ultimately, opines that recusal is not only unnecessary but contrary to the interests of the parties and inconsistent with the fair administration of justice. The undersigned Judge thanks Mr. Cummins for his thorough, thoughtful, responsive, insightful, and prompt analysis. He also thanks the Committee on the Code of Conduct for its prompt response to the his inquiry. The Committee's report is confidential, but its conclusions are not inconsistent with the decision to not recuse.
Mr. Cummins, in addition to a cover letter, was provided: Judge Reagan's transaction confirmations from A.G. Edwards stockbrokers regarding the Ameren purchase and sale; Judge Reagan's letter to William L. Osteen, Chairman of the Committee on Code of Conduct of the Judicial Conference in the United States dated February 6, 2004; Response of the Committee on Code of Conduct of the Judicial Conference in the United States dated March 5, 2004 to the Court's inquiry of February 6, 2004; Order Setting Telephone Status Conference for the Purpose of Obtaining Factual Information Regarding the Reported Purchase of Illinois Power by Ameren so the Court can Determine if a Non-Waivable Financial Conflict of Interest Exists Which Would Mandate Recusal (Doc. 646); Transcript of the April 5, 2004 telephone status conference; April 9, 2004 correspondence from Defendants regarding the Ameren/Illinois Power transaction; and a Docket Sheet.
V. Conclusion
For the reasons stated above, the undersigned Judge will remain as the judicial officer deciding the merits of this case and will now resume that task.
IT IS SO ORDERED.
CUMMINS CRONIN, LLC ATTORNEYS AND COUNSELORS 77 WEST WACKER DRIVE SUITE 4800 CHICAGO, ILLINOIS 60601 TELEPHONE: (312) 578-0500
ROBERT P. CUMMINS FACSIMILE: (312) 578-1234 THOMAS C. CRONIN rpc@cumminscronin.com tcc@cumminscronin.com
VIA FACSIMILE FEDERAL EXPRESS The Honorable Michael J. Reagan United States District Court Southern District of Illinois 750 Missouri Avenue East St. Louis, Illinois 62201
Re: United States et al. v. Illinois Power Company, et al. Case No. 99 CV 0833-MJR
Dear Judge Reagan:
Pursuant to the provisions of Canon 3A(4) of the Code of Conduct for United States Judges, you have requested an opinion concerning the implications of your ownership of the now divested Ameren securities vis-a-vis your continued participation in the above identified litigation.
For the reasons set forth below, it is my opinion that you need not recuse yourself from the Illinois Power case.
The Context of this Opinion
The facts pertinent to your participation in the case; your ownership and divestiture of the Ameren stock; and the relevant details of the Ameren/Illinova/Dynegy transaction are set forth in your letter to Judge Osteen dated February 6, 2004 and in Mr. Rosen's letter to you dated April 9, 2004.
On March 5, the Committee on Codes of Conduct of the Judicial Conference of the United States responded to your letter and stated the following:
"The Committee has previously advised that when a judge owns stock in a company which has formally agreed to merge with another company assuming anticipated regulatory approvals are obtained, the judge has a financial interest in both companies. See Compendium § 3.1-1 (m) (2003). Thus, you have correctly concluded that Ameren's agreement to acquire Illinois Power gave you a financial interest in a party in the case that you have tried, but not yet decided."
While the Committee noted that Ameren's agreement to acquire Illinois Power gave you a financial interest in that entity, it was "unable to offer an opinion regarding whether the Illinois Power case will have a substantial affect on the financial interest you held in Ameren." As noted below and based upon prevailing authority, it is my opinion that there is no "substantial effect."
Because the conditions precedent to Ameren's purchase of Illinois Power are so extensive and because of the indemnification provisions embodied in the relevant agreement, it would not be illogical to argue that you never possessed a financial interest in Illinois Power. However, I will not pursue this approach and will assume — as did the Committee — that the purchase agreement did give you such an interest.
The Relevant Law
Under both Canon 3C(4) of the Code of Conduct for United States Judges and 28 U.S.C. § 455(f), a judge who has devoted substantial judicial time to a matter need not be disqualified if certain conditions are met. Thus and in summary form, if, after a matter is assigned, a judge discovers that he has a financial interest in a party that could not be substantially affected by the outcome of the case, disqualification will not be required if the judge has promptly divested himself of that interest.In your case it is clear that: (1) substantial judicial time has been devoted to the matter of United States, et al. v. Illinois Power Co., et al.; (2) the disqualifying financial interest arose after the matter was assigned to you; and (3) you immediately divested yourself of the interest that might have provided grounds for your disqualification. Accordingly, your disqualification is not required so long as the divested interest could not be "substantially affected" by the outcome of the lawsuit.
In looking at how to analyze whether something will have a substantial effect, the committee report to § 455(f) provides little guidance. The committee report notes that this section was "added specifically as a safety valve to avoid costly and inefficient disruption of cases when the financial interest at state are de minimis. 1988 U.S. Code Cong. Admin. News 5982, 6029-30. The committee's example of a case where recusal would not be called for was one where a judge's wife's ownership interest of at most $30 forced him to disqualify himself from a six-year old class action case.
Whether an interest could be "substantially affected" by the outcome of a proceeding is a mixed question of fact and law, Key Pharmaceuticals, Inc. v. Mylan Laboratories Inc., 24 F. Supp. 2d 480, 483 (W.D. Penn. 1998), which "depends on the interaction of two variables: the remoteness of the interest and its extent or degree." Perpich v. Cleveland Cliffs Iron Co., 927 F. Supp. 226, 232 (E.D. Mich. 1996) (considering whether "other interest" under § 455(b)(4) was substantially effected) (citing Wright, Miller Cooper, Federal Practice and Procedure 2d § 3547). Remoteness or speculativeness of a potential effect is also a factor to be considered. Accord, In re Perkins, 1988 WL 120651 (N.D. Ill. 1988) vacated on other grounds by 902 F.2d 1254 (7th Cir. 1990) (considering whether "other interest" could be substantially affected). The Key Pharmaceuticals court observed that the exception under § 455(f) "embodies a standard of reasonableness." 24 F.2d at 483.
It is my opinion based on the facts in this case that your interest in Ameren (and arguably Illinois Power) would not be substantially affected by the outcome of this lawsuit.
As highlighted in Mr. Rosen's April 9, 2004 letter, the stock purchase agreement for the purchase of Illinois Power by Ameren has safeguards specifically incorporated to prevent this lawsuit from affecting the value of Illinois Power through various indemnification provisions. ( See Art. 9.1(d) and § 5.18(c) of the stock purchase agreement). As a result of these safeguards the possibility of any effect on Ameren or Illinois Power is speculative and any such effect would be minimal.
Furthermore, your interest in Ameren consisted of 500 shares of stock. On its website (ameren.com), Ameren represents that it has 182.64 million shares of total outstanding stock. Any theoretical effect on your 500 share interest is too insubstantial and insignificant to mandate disqualification. See e.g., Key Pharmaceuticals, 24 F. Supp. 2d at 483 (Where cost basis for 151 shares comprised only a very small fraction of judge's total portfolio and were shares in a large, publicly held corporation with diverse interests and revenues in the billions there was no reason to believe that the outcome of a case involving one product line of one of its subsidiaries would affect the judge's former financial interest in the parent); Polaroid Corp. v. Eastman Kodak Co., 867 F.2d 1415 (Fed. Cir. 1989) (District Court found that where judge's mother-in-law's ownership of 1,000 shares of Kodak stock when total number of shares outstanding at the time was estimated at 162.5 million shares too insubstantial and insignificant to mandate disqualification in Polaroid's patent infringement action where instant photography only accounted for 1.3 to 5.1% of Kodak's total sales).
This finding was not addressed by the U.S. Court of Appeals for the Federal Circuit.
In addition, in Union Carbide Corp. v. U.S. Cutting Service, Inc., 782 F.2d 710 (7th Cir. 1986), Judge Posner wrote for the majority and found that a judge who discovered a financial interest in a party (resulting from her marriage during the pendency of the litigation) and immediately suspended her involvement in the case had acted "as if she recused herself." When the judge's husband sold the offending stock and she resumed control of the lawsuit Judge Posner further observed that "it was as if she had been reassigned" to the lawsuit when she no longer had a financial interest. Posner concluded,
[s]ince the statute forbids only the knowing possession of a financial interest, since [the judge] relinquished control of the case as soon as she found out about the financial interest, and since she did not resume control until the financial interest was eliminated, at no time was she in literal violation of the statute.Id. Although the Union Carbide court cautioned that sale will not cure disqualification in all cases, the court concluded that the Judge was not disqualified for having a financial interest in one of the parties. See also In re Initial Public Offering Securities Litigation, 174 F. Supp. 2d 70 (S.N.Y. 2001).
The majority in Union Carbide then examined the facts before it under § 455(a) which requires recusal where the judge's impartiality could be reasonably questioned. For the same reasons I believe your recusal is not required under § 455(f), I do not believe your impartiality could be reasonable questioned in this case. However, even if it could be, the parties have expressed a desire for you to remain in the case and have thereby likely waived any objection under § 455(a). See 28 U.S.C. § 455(3) (Where the ground for disqualification arises only under subsection (a), waiver may be accepted provided it is preceded by a full disclosure on the record of the basis for disqualification).
Applying the rationale of the majority opinion in Union Carbide, your decision to suspend action on the lawsuit upon your discovery of your interest coupled with your immediate sale of the Ameren shares eliminated any need to recuse yourself. Although it is still good law, please note that Union Carbide was decided prior to the amendment of § 455.
Conclusion
Given the relevant facts and applying a fair and reasonable interpretation of the provisions of Title 28 U.S.C. § 455(f) as well as the mandates of Canon 3C(4); the terms of Ameren deal; your divestiture of the Ameren stock on February 5, 2004, coupled with the substantial investment of judicial time that you have devoted to the Illinois Power case, it is my opinion that it is unnecessary for you to recuse yourself from that litigation. Indeed, such a result would be contrary to the interests of the parties and inconsistent with the sound and efficient administration of justice.
P.S. As you requested, a relatively current C.V. is enclosed.
Graduated from DePaul University Law School in 1962 and has pursued a civil and criminal trial practice and related counseling for over 40 years. He is admitted to practice in both Illinois and Colorado. In addition to maintaining his private practice, he served as Vice President and Trial Counsel of Motorola Inc. from 1982 to 1985. He is also admitted to practice before the U.S. Supreme Court and numerous Federal Courts of Appeal and Federal District Courts.
As evidence of his high standing in the legal profession, Mr. Cummins has been elected a 2004 Laureate of the Academy of Illinois Lawyers.
He served as Chairman of the Illinois Judicial Inquiry Board until December 1987. He served as a member of the Review Board of the Attorney Registration and Disciplinary Commission of the Illinois Supreme Court for seven years until appointed by the Governor to the Judicial Inquiry Board in 1979.
He currently serves on behalf of the American Judicature Society as advisor to the American Bar Association's Joint Commission to Evaluate the Model Code of Judicial Conduct.
He is a member of the ABA Standing Committee on Professionalism; is past Chairman of the American Bar Association Standing Committee on Professional Discipline; and a past member of the Standing Committee on Lawyers' Professional Liability. He has served as a member of the ABA Standing Committee on Lawyer Competence and as Vice Chairman of the ABA Litigation Section Professional Responsibility Committee. He served on the ABA Litigation Section Task Force on the Independent Lawyer and chaired the Litigation Section Task Force on Ethics 2000 and served as Chairman of the ABA Judicial Division Lawyers Conference Committee on Judicial Performance and Conduct. He is currently a member of the ABA Joint Committee on Lawyer Regulation.
He has been a member of the Board of Governors of the Illinois State Bar Association and served as Vice Chairman of its Task Force on Professionalism. He is a former member of the American Bar Association Commission on Lawyer Assistance Programs and the Advisory Commission on Client Protection Funds. He has also served as a member of the Board of Directors of the Criminal Justice Project of Cook County and was a co-chairman of the Special Commission on the Administration of Justice. He has served on the Board of Managers of the Chicago Bar Association and the Board of Directors of the Chicago Council of Lawyers. He was a Charter Member of the Illinois Bar Foundation. He serves as a member of the Board of Directors of the American Judicature Society, has chaired the Society's Advisory Committee and served as Chairman of the American Judicature Society's Committee on Judicial Independence.
He has lectured on trial practice and professional conduct at the John Marshall and DePaul Law Schools and conducted a seminar course on ethics and professionalism at the Loyola School of Law from 1979 to 1989. He has authored a variety of articles and lectured extensively to judges and lawyers on topics focusing on trial practice and related professional practice issues. For example, he served for ten years as a faculty member of the annual New Judge Seminar pursuant to appointment by the Illinois Supreme Court and has lectured on the subject of lawyer and judicial conduct at the National Judicial College and at a variety of national and regional judicial seminars, conferences and symposia.
He served as a member of the Editorial Board of the ABA/BNA Lawyers' Manual on Professional Conduct. He has served as a member of the Performance Assistance Committee of the Trial Bar of the United States District Court for the Northern District of Illinois. He is a member of the Fund Committee of the Seventh Circuit Court of Appeals. He was appointed by Chief Judge Aspen to serve as Co-Chairman of the Trial Bar Advisory Committee of the Northern District of Illinois. He has been appointed as special counsel in a variety of circumstances including the so-called Black Panther (Fred Hampton, et al.) case in 1970 and has represented the Committee on Character and Fitness of the Illinois Supreme Court in connection with the infamous Martin Trigona and Matthew Hale matters. He served as court-appointed counsel in the Pontiac prison case and chaired the Defense of Indigent Prisoners' Committee of the Chicago Bar Association. He has chaired or served on numerous other committees of the American, Illinois and Chicago Bar Associations.
Additional professional activities include his service as a member of the Board of the Chicago Law Enforcement Study Group, the Cook County Special Bail Project, the Legal Clinic for the Disabled, the Central States Institute of Addiction, the Judicial Training Group and the Lawyers' Assistance Program of which he was a founder.
Other activities include his membership in the Law Club of Chicago, the Legal Club of Chicago and service on the Dean's Visiting Committee of the DePaul University School of Law and the DePaul School of Law Advisory Council. He has been a Board member and served as Secretary of the Gastro-Intestinal Research Foundation and as President of the Foundation in 1986.
He served on active duty in the United States Marine Corps from 1952-1954.