The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.:
On October 17, 2001, certain underwriter defendants (the "Moving
Defendants") moved for this Court to disqualify itself pursuant to
28 U.S.C. § 455 in In re Initial Public Offering Securities
Litigation, 21 MC 92 (SAS) ("IPO securities litigation"). See 10/17/01
Notice of Motion. That motion was denied on November 28, 2001. See In re
Initial Pub. Offering Secs. Litig., 174 F. Supp.2d 70 (S.D.N.Y. 2001).
The Moving Defendants then filed a petition for a writ of mandamus with
the United States Court of Appeals for the Second Circuit on December
A week later, this Court determined that another case, MDCM Holdings,
Inc. v. Credit Suisse First Boston Corp., 01 Civ. 9333, should be
coordinated with the IPO securities litigation for pretrial purposes.
See 12/21/01 Transcript ("Tr.") at 3. The decision to coordinate the two
cases rested in part on the fact that the cases have similar factual
allegations, even though MDCM Holdings is brought under state law on
behalf "of 182 U.S. ___ domiciled issuers that [Credit Suisse] led or
co-led" since 1998 and the IPO securities litigation is brought under
federal law on behalf of all shareholders who owned the IPO stock.*fn1
1/4/02 Tr. at 5. See also Fed.R.Civ.P. 42(a); Rule 15(a) of the Local
Rules for the Division of Business Among District Judges.
On April 1, 2002, the Second Circuit denied the Moving Defendants'
petition. See In re Certain Underwriter Defendants, ___ F.3d ___, ___ (2d
Cir. 2002). Now that the Second Circuit has issued its decision, Credit
Suisse's motion in MDCM Holdings must be resolved. In addition, I must
consider another issue that no party has raised: I currently own stock in
AOL Time Warner, Inc., ("AOL") and Intel Corporation ("Intel"), companies
that, according to the parties' financial disclosure statements, own
stock in five of the companies that are issuer defendants in the IPO
securities litigation.*fn4 The question is whether this financial
interest mandates recusal.*fn5
A. Stock Ownership in Putative Members of the Plaintiff Class
While the Second Circuit never reached the issue of whether putative
class members are deemed to be parties to the proceedings,*fn7 every
court that has addressed this issue has concluded that they are not. See
Tramonte v. Chrysler Corp., 136 F.3d 1025, 1030 (5th Cir. 1998) (holding
that "members of a putative class are not `parties' to a class action for
these purposes [under section 455(b)(5)]."); New Orleans Pub. Serv. v.
United Gas Pipe Line Co., 719 F.2d 733, 735 (5th Cir. 1983) (holding that
judges are not disqualified if they are only putative class members);
LeRoy v. City of Houston, 592 F. Supp. 415, 419 (S.D. Tex. 1984) ("If
nothing more, to hold a judge to be a `party' in any situation where he
was a member of a potential class would do violence to the rules
governing class actions. . . . The interests of a potential member of a
class are too `uncertain' to justify holding those potential members to
be parties under § 455.").*fn8 By definition, a putative class
member is only a potential class member, rather than a party in fact.
See id. At most, this Court currently has a financial interest in two
companies that may, or may not, be parties to this litigation (as a
member of the plaintiff class) at some future date. Such an interest is
too speculative to trigger the recusal provisions of section 455(b)(4).
"Of course, if the class were already certified and it included this
Court, the Court would be [a] `party to the proceeding.'" In re Initial
Pub. Offering Secs. Litig., 174 F. Supp.2d at 92 n. 34 (citing In re
Cement and Concrete Antitrust Litig., 688 F.2d 1297,
1315 (9th Cir.
1982)). Therefore, if Fairchild Semiconductors and Jupiter Communications
are included in the defined and certified class, and they do not opt
out, this Court must either sell its stock or disqualify itself before
any further substantive decisions are made. See 28 U.S.C. § 455(f);
cf. Union Carbide Corp. v. U.S. Cutting Serv., Inc., 782 F.2d 710, 714
(7th Cir. 1986) (Posner, J.) (holding that a judge need not recuse
herself if a conflict arises for the first time in the middle of the
litigation as long as she "divested [her]self of the interest as soon as
[she] discovered it[,] and made no rulings between the date of discovery
and the date of divestment.").
The second question raised under subsection (b)(4) is whether the
stock I own "could be substantially affected by the outcome of the
proceeding" at this stage of the litigation. 28 U.S.C. § 455(b)(4)
(emphasis added). Deciding this question requires speculation as to (1)
whether the companies will be included in the class, (2) whether any
companies will recover money from the class action, and (3) how such
recovery will affect the prices of the companies' stock. At this time,
the effect of this litigation on the prices of these two stocks is, at
best, "remote, contingent, or speculative" and thus cannot serve as a
basis for disqualification. In re Initial Pub. Offering Secs. Litig.,
174 F. Supp.2d at 92 (quotation marks and citations omitted).
B. Stock Ownership in a Company that Has a Financial Interest in a
Party to the Proceeding
Under section 455(b), the same two questions are raised by my ownership
of AOL and Intel, corporations that own stock in five issuer defendants
in the IPO securities litigation. See supra note 4. Under the plain
language of the statute, such stock ownership does not constitute a
disqualifying interest because it is not a "financial interest in a party
to the proceeding." 28 U.S.C. § 455(b)(4) (emphasis added). Rather,
they are financial interests in corporations that, in turn, have an
interest in parties to the proceedings. And, for the same reasons given
above, it cannot be said that the stock price of AOL or Intel will be
substantially affected by the outcome of this litigation.
Of course, form must not be elevated over substance. If these companies
were owned exclusively by AOL or Intel, or the companies were corporate
subsidiaries, then stock ownership in AOL or Intel would require
disqualification if not promptly sold. At the same time, nothing in the
text of section 455(b) or its legislative history indicates that Congress
intended to require disqualification whenever a judge owned stock in a
company that is a shareholder in a party ...