Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every
Speaker 1: day we bring you insight and analysis into the most
Speaker 1: important legal news of the day. You can find more
Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud
Speaker 1: and on Bloomberg dot com Slash Podcasts. It's Chief Justice
Speaker 1: John roberts thirteen year end report on the state of
Speaker 1: Federal Judiciary, and it may be the report that gets
Speaker 1: more attention than any other because it raises issues that
Speaker 1: have been sweeping the country with the me too movement.
Speaker 1: The report is largely devoted to the federal judiciary's response
Speaker 1: to this year's natural disasters, but the Chief also highlights
Speaker 1: the depth of the problem of sexual harassment in the
Speaker 1: workplace across the country, shinning a spotline on a special
Speaker 1: problem for the judiciary where law clerks work closely and
Speaker 1: in confidence with powerful judges Joining me as Deborah Cat's
Speaker 1: founding partner of Cats, Marshall and Banks, Deborah Roberts said
Speaker 1: events in past few weeks have made clear that the
Speaker 1: judicial branch is not immune from the problem of sexual harassment.
Speaker 1: He didn't mentioned prominent Judge Alex Kazinski of the Ninth
Speaker 1: circuit by name, but he was undoubtedly referring to him.
Speaker 1: Tell us what happened with Judge Kazinski, sure well. On
Speaker 1: December eight the Washington Post ran UH bombshell of a
Speaker 1: report reporting on the fact that a number of former
Speaker 1: clerks of Judge Kazinski had accused him of sexual misconduct
Speaker 1: and there was a range of behavior that was reported
Speaker 1: by these former judges that ran the gamut from subjecting
Speaker 1: them to inappropriate, bizarre, sexualized comments, to pornography UH and
Speaker 1: essentially creating an environment where they did not feel able
Speaker 1: to complain because there was no mechanism to complain, but
Speaker 1: that they felt completely UH demeaned by the experience, and
Speaker 1: the judge responded in a way that was extremely dismissive
Speaker 1: and said, essentially, if this is the worst I've done
Speaker 1: in thirty five years, I can live with that. That
Speaker 1: led to the Washington Post on December fifteenth reporting that
Speaker 1: nine more women had come forward and these women had
Speaker 1: also described bizarre, inappropriate comments, but also said that the
Speaker 1: judge had subjected at least four of them to touching
Speaker 1: or kissing, clear sexual harassment, and at that point, UH
Speaker 1: it was clear that a floodgate had been opened and
Speaker 1: the judiciary had to respond. Ultimately, the judge was forced
Speaker 1: to submit his resignation before an investigation was undertaken, so
Speaker 1: he announced his retirement on December eighteenth. Let's discuss the
Speaker 1: complexity of the problem with law clerks because an appeals
Speaker 1: court judge will usually have four clerks and there is
Speaker 1: a strict code of confidentiality they work under. There's also
Speaker 1: the fact that the judge is very influential in their
Speaker 1: future career as many times one are the special pressures
Speaker 1: and conflicts a clerk faces who is harassed, Well, you've
Speaker 1: you've named for a few Getting a federal judicial clerkship
Speaker 1: is a real plump for any uh person graduating from
Speaker 1: law school, and it is a significant stepping stone for
Speaker 1: advancement in the legal profession. People are very reliant on
Speaker 1: judges to get recommendations to either advanced to higher level
Speaker 1: clerkships in Kazynski's case, to the U. S. Supreme Court,
Speaker 1: which is the very top of the profession, or two
Speaker 1: other positions at firms and elsewhere, um. And it really
Speaker 1: is the first significant lawyering lawyering job that someone has
Speaker 1: out of law school, so the clerk is completely reliant
Speaker 1: on the judge for connections and recommendations, and few people
Speaker 1: want to burn that bridge. The other problem is that,
Speaker 1: as you've described, seederal judges have four clerks, and you
Speaker 1: are very isolated in the judges chambers. You don't discuss
Speaker 1: your work with other clerks or with other judges. UM.
Speaker 1: So there really isn't a mechanism to go tell your coworkers,
Speaker 1: this is what's happening in my chambers. And what the
Speaker 1: clerks have done is they sent a letter that I
Speaker 1: think at this point has well over seven hundred signatures
Speaker 1: describing needed reforms within the court system to make clear
Speaker 1: that the UH condition of confidentiality does not apply to
Speaker 1: keeping judges UH. I'm sorry to keeping clerks muzzled when
Speaker 1: they're being subjected to sexual harassment. So that was a
Speaker 1: very significant first step UH that the judiciary did, which
Speaker 1: is it amended the law Clerk Handbook to provide UH
Speaker 1: clarity that harassment is not one of those conditions that
Speaker 1: is to be kept confidential. Roberts said he's already asked
Speaker 1: the Director of the Administrative Office of US Courts to
Speaker 1: assemble a working group to consider whether changes are needed
Speaker 1: in the Judiciary's Code of Conduct, etcetera. Is that enough
Speaker 1: is will that do it? Well? That's an important first
Speaker 1: step because and that was one of the reforms that
Speaker 1: the clerks who signed onto that letter ask for. UH.
Speaker 1: The code provides ethical canons for all judicial employees, including judges,
Speaker 1: and it's very clear that UH there is a paucity
Speaker 1: of direction in this code that makes clear that judicial
Speaker 1: employees UH can report these things and sets out a
Speaker 1: mechanism to handle harassment should it be encountered in the workplace,
Speaker 1: Unlike UH members in the private sector even or even
Speaker 1: in federal executive agencies, there's no recourse if you're sexually
Speaker 1: harassed and you're clerking for a federal judge. UH, there
Speaker 1: isn't Title seven does not cover you in the workplace. UH,
Speaker 1: and there aren't clear reporting lines like going to the
Speaker 1: E E O C. So revising the Code of Conduct
Speaker 1: for judicial employees is really crucial. Only about forty five
Speaker 1: seconds here, I just wanted to get your opinion, Debora,
Speaker 1: about there's been a lot of reporting about things that
Speaker 1: happened UH sexual inappropriate activity from let's say twenty years ago,
Speaker 1: where the statute of limitations has run and there was
Speaker 1: an October sixteenth article about account of a woman who
Speaker 1: said Justice Clarence Thomas had touched her inappropriately in what
Speaker 1: about this going back so far? Well, people are coming
Speaker 1: forward with these allegations because they are of important public concern.
Speaker 1: This is a moment where women are finally being believed
Speaker 1: about these allegations. And they're not coming forward seeking money,
Speaker 1: They're not asserting legal claims. They're essentially saying that people
Speaker 1: who hold the public trust need to be held accountable.
Speaker 1: And that's what happened Kazynski's case. He's paid for this
Speaker 1: with you know, the ultimate got I've got to stop
Speaker 1: you there. We have so much to talk about this,
Speaker 1: but thank you. New York financier Lynn Tilton is starting
Speaker 1: the new year on a high note with a record
Speaker 1: of two out of three court wins. In last Friday,
Speaker 1: a federal judge throughout the charges against Tilton in a
Speaker 1: one billion dollars civil racketeering suit, just three months after
Speaker 1: the Securities and Exchange Commission cleared her of front charges
Speaker 1: of building investors out of more than two hundred million dollars.
Speaker 1: Following the sec ruling, Tilton told Bloomberg TV that she
Speaker 1: had been completely vindicated. The documents spoke for themselves. They
Speaker 1: gave me complete discretion, as the judge said, they gave
Speaker 1: me control over the funds, and as she said, there
Speaker 1: were no emissions. Everything was reported, Everything was there for
Speaker 1: people to see. However, Tilton did not fare as well
Speaker 1: in a Delaware trial. She's appealing to judge's ruling that
Speaker 1: she was properly ousted as a director from some portfolio
Speaker 1: company she claimed to control. My guest is Robert Hockett,
Speaker 1: professor at Cornell University Law School. Bob tell us about
Speaker 1: the civil racketeering lawsuit against Tilton and her Patriarch Partners
Speaker 1: investment firm. Sure. Yeah, so they're basically quite a few
Speaker 1: moving parts here, But I think we can kind of
Speaker 1: spoil it down to its essence by noting what the
Speaker 1: sec suit first amounted to and then understanding the kind
Speaker 1: of the private suits sort of in relation to that.
Speaker 1: So essentially, what you have here is a case of
Speaker 1: some failing companies. Miss Tilton becomes an owner of those
Speaker 1: companies with you to turning them around. She also runs, however,
Speaker 1: a funds which is used to extend funds to the
Speaker 1: failing firms, which she needs in order to turn them around. Okay,
Speaker 1: it's a fairly unorthodox arrangement, but there's nothing illegal about
Speaker 1: illegal about it as such, and all right, So ultimately,
Speaker 1: of course, the whole plan comes a cropper. It doesn't
Speaker 1: end up working out. So the SEC brings a suit
Speaker 1: against her, alleging that she's defrauded the investors in the
Speaker 1: funds that she used to extend financing to the failing
Speaker 1: companies that she was trying to turn around. She actually
Speaker 1: objects to that SEC suit. She thinks that it's unconstitutional.
Speaker 1: That was, of course a stilly argument on her part,
Speaker 1: and she lost it. She was rebuffed there, but the
Speaker 1: SEC nevertheless ultimately found in her favor. It said that, Okay, look,
Speaker 1: she didn't defraud those investors because she had informed them
Speaker 1: all along precisely how she was going to be operating.
Speaker 1: And also she had, um, you know, being given a
Speaker 1: great deal of discretion under those funds organizing documents. Okay, Now,
Speaker 1: the fund those who invested in the funds weren't satisfied,
Speaker 1: of course, with the SEC finding. They sued in their
Speaker 1: own names. So now we have a civil action brought
Speaker 1: by private parties rather than by a regulator. They sued
Speaker 1: her on racketeering claims or racketeering charges. The problem with
Speaker 1: that suit is that that kind of suit had been
Speaker 1: foreclosed in the mid ninety nineties um by Congress, right
Speaker 1: in the so called ps l R A, which was
Speaker 1: essentially a suit that I mean, a statute that was
Speaker 1: designed to place limitations on the kinds of civil suits
Speaker 1: that could be brought against alleged securities fraudsters. So that
Speaker 1: suit was thrown out ultimately by the court precisely because
Speaker 1: the ps l r A prohibited it um. One last
Speaker 1: thing may be worth noting in this connection is that
Speaker 1: miss Chilton might be right, and she might not be
Speaker 1: right when she says that she's been fully vindicated by
Speaker 1: this most recent decision um. The reason that she might
Speaker 1: not be right is that this is just the suit
Speaker 1: was tossed out because it's foreclosed by statute, not on
Speaker 1: the merits right. So she could in theory still be
Speaker 1: wrong on the merits. But we'll never have occasion to
Speaker 1: find that out because Congress says you can't bring suits
Speaker 1: like that against people like miss Chilton. So I think
Speaker 1: I need a diagram now to figure out all these
Speaker 1: different lawsuits. So Judge William Pauli's decision that found that
Speaker 1: these allegations were outside the scope of federal racketeering laws.
Speaker 1: That was not based on a determination that the allegations
Speaker 1: were false. That was procedural, right exactly, Its entirely procedural
Speaker 1: as a matter of essentially whether the law, you know,
Speaker 1: whether this this kind of suit is permitted. Again, it's
Speaker 1: a civil suit. This was a private litigation brought at
Speaker 1: a civil suit, not a regulatory charge. Uh. And essentially
Speaker 1: with the court found was that, well, that's exactly the
Speaker 1: kind of suit that Congress decided no longer to allow
Speaker 1: in the mid ninety nine when it passed b. S
Speaker 1: l r. A. So, is there any other way that
Speaker 1: they can go after her the the you know, the
Speaker 1: investors as far as the racketeering charges. Is there any
Speaker 1: other kind of suit or are they dead in the
Speaker 1: water there? Well, in theory, they could try to go
Speaker 1: after her on the same theory that the sec itself
Speaker 1: had gone after her. But in light of the fact
Speaker 1: that the s s SEE itself ultimately found that she
Speaker 1: had not defrauded her investors because she had, you know,
Speaker 1: even though it was an unorthodox arrangement, she had informed
Speaker 1: them of everything. And plus again they had entrusted her
Speaker 1: with a great deal of scratch and lighted the SEC's
Speaker 1: finding that way, it seems unlikely that any private suit
Speaker 1: would succeed here. A private suit that doesn't sound in
Speaker 1: racketeering might be bringable, but again that would probably lose
Speaker 1: on the marriage in light of what the SEC itself
Speaker 1: had found. So, Bob, let's go to lawsuit number three,
Speaker 1: which she lost, tell us about what the Delaware judge ruled,
Speaker 1: and she's going to appeal that decision. Yeah, so the
Speaker 1: Delaware judge. I mean, so, in the midst of all
Speaker 1: of this, Um, you know, she ultimately, how should I say,
Speaker 1: the funds that she was managing in order to raise
Speaker 1: money that would help her finance her attempts to turn
Speaker 1: around at the failing companies that she was trying to tournament. Uh,
Speaker 1: those particular funds ultimately asked her as there as their
Speaker 1: may manager. Right. Uh. They auskedd her essentially on the
Speaker 1: basis that well, this was essentially again the arrangement was
Speaker 1: so unorthodox and that it was such an inherently conflicted
Speaker 1: sort of arrangement that it basically presented her with such
Speaker 1: a conflict of interest that it wouldn't do for her
Speaker 1: any longer to be on, you know, managing those particular funds.
Speaker 1: Um and Uh. They asked her on that basis, right,
Speaker 1: so the Delaware Court. So she sues saying that that's
Speaker 1: a wrongful termination, so to speak. Right in effect, she's saying,
Speaker 1: that was a wrongful separance of my relation with these
Speaker 1: particular funds. The Delaware court upheld this, but it didn't
Speaker 1: uphold this on the on the on the basis of
Speaker 1: a theory to the effect that well, she really was
Speaker 1: somehow wronging those funds, just saying that the funds themselves
Speaker 1: have a good bit of discretion when it comes to
Speaker 1: determining who they want to be managing them. Uh. And
Speaker 1: they also have discretion to you know, say, look, we're
Speaker 1: uncomfortable with the conflict of interest this places her in. Uh.
Speaker 1: And so we're going to ask her on that basis.
Speaker 1: I think that's going to be a harder one for
Speaker 1: her to challenge. Write the Delaware court, having upheld the
Speaker 1: fund's decision upheld on unreasonable grounds, on sensible grounds, it
Speaker 1: wasn't clearly wrong or clearly illegal or clearly in breach
Speaker 1: of contract for the funds to oust miss Tilton on
Speaker 1: the grounds that they did. Uh. And so I think
Speaker 1: her appeal of that particular decision is not likely to prevail.
Speaker 1: Maybe my big good idea to quit while she's ahead,
Speaker 1: if I could put it that way. We have about
Speaker 1: one minute here right now. What is her power? What
Speaker 1: is she in charge of? Is she managing? Is she
Speaker 1: getting money from different things? Where does she stand? Well,
Speaker 1: she's got other funds now, of course, right, Uh? And
Speaker 1: so I mean she's still doing the kinds of things
Speaker 1: she was doing before, which as far as we know,
Speaker 1: are legal. Right, there's nothing, Um, there's nothing that's kind
Speaker 1: of the per se illegal or per se shady about
Speaker 1: what she's doing. What she's doing is unorthodox, and it
Speaker 1: does definitely raise certain conflicts of interest. Uh. And could
Speaker 1: very well be that the law in the distant past
Speaker 1: would have just flat out prohibited her whole wearing these
Speaker 1: particular hats in such a way as subjects or to
Speaker 1: this particular conflict of interest. But the laws that stands
Speaker 1: now doesn't prevent that. So she's essentially doing the kinds
Speaker 1: of things that she was doing before now with another firm.
Speaker 1: All right, Bob, that was an excellent explanation of a
Speaker 1: really complicated situation. That's Robert Hockett, professor at Cornell University
Speaker 1: Law School. Thanks for listening to the Bloomberg Law Podcast.
Speaker 1: You can subscribe and listen to the show on Apple podcast, SoundCloud,
Speaker 1: and on Bloomberg dot com slash podcast. I'm June Brasso.
Speaker 1: This is Bloomberg Ye.