by Dennis Crouch
Cisco has escaped its $2.75 billion patent infringement loss with a recusal order based upon the fact that the Judge’s spouse owned $5,000 in Cisco stock.
Centripetal Networks, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2022)
Judge Dyk wrote this opinion ordering the recusal of E.D. Va. Judge Henry C. Morgan based upon his spouse’s ownership of about $5,000 of Cisco stock. The order also vacates all orders and opinions in the case entered after Judge Morgan learned of her ownership.
In this situation, the (rather small) financial interest suggests tilting things in Cisco’s favor. But, here is the crazy thing: The outcome of the case was a $2.75 billion verdict for the patentee Centripetal — i.e., Cisco lost the case. When Judge Morgan learned of the ownership, he immediately notified the parties. Centripetal indicated that it had no problem with Judge Morgan continuing to hear the case. But, Cisco concluded that the it was likely to lose the case anyway and so requested Judge Morgan recuse himself under 28 U.S.C. § 455. The Judge denied Cisco’s motion for recusal and eventually awarded the absolutely huge judgment against Cisco.
Spousal activity and recusal has been in the news lately with Justice Thomas and his spouse’s political advocacy. Although judicial codes of ethics provide guidance. Congress has also created a statutory regime that requires recusal in certain situations. On point for this case, the statute calls for recusal if a judge “knows that he … or his spouse … has a financial interest … in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding.” 28 U.S.C. § 455(b)(4). This requirement to step-down is not waivable. § 455(e).
Here it is clear that Judge Morgan falls within § 455(b)(4). However, the statute goes on to indicate that a judge who has devoted substantial judicial time to a matter can keep the case so long as they “divest [themselves] of the interest that provides the grounds for the disqualification.” § 455(f). Here, Judge Morgan took the step of placing the stock in a blind trust. However, the Federal Circuit here held that the blind trust was not sufficient for the statutory requirement of “divest[ment].”
Judge Morgan had considered simply selling the stock, but was concerned about the appearance of insider training. On appeal, the Federal Circuit added a footnote concluding that it would not have been insider trading: “Selling the stock to comply with ethical obligations is not insider trading, as was made clear in the Stop Trading on Congressional Knowledge Act of 2012 (“STOCK Act”), Pub. L. 112–105, 126 Stat. 291, 298 (2012).”
Remedy for failure to recuse. Sometimes there is no ex post remedy for a judge’s failure to recuse. Here, as I mentioned, the financial incentive favored Cisco, but it is also Cisco that is asking for vacatur. Centripetal argued that the failure to recuse was thus a harmless error. In Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 862 (1988), the Supreme Court highlighted three factors in considering whether failure to recuse was harmless:
(1) “the risk of injustice to the parties in the particular case”;
(2) “the risk that the denial of relief will produce injustice in other cases”; and
(3) “the risk of undermining the public’s confidence in the judicial process.”
Id. On appeal, the Federal Circuit suggested that all three factors weighed in favor of recusal. The court noted that the statute is purposely designed to require recusal without proving any actual bias.
Making such a bias determination would require the sort of line drawing that the statute was designed to avoid. . . . The reason § 455(b)(4) establishes a bright-line rule and does not require a showing of prejudice is because of the great difficulty in establishing actual prejudice in any particular case.
Slip Op. On remand, the case will be re-assigned and rolled-back to August 2020. That will likely require a new trial in the case.
Note that Judge Morgan passed away in May 2022. He was 87 years old. RIP.