Legal Anarchy Unfolds in Minnesota as Federal Judges Brush Aside Federal Rules or Laws Applicable to Them

This is a follow up article from yesterday, see;

Legal Anarchy Unfolds in Minnesota as Replacement Judge’s PHH Mortgage Corp. Ties Spark Citizen Outrage. MN Appoints Judge Who Previously Represented PHH Mortgage. LIT reveals the Minnesota Judiciary’s Scandalous Acts enabling Wall St Home Theft.

Magistrate Judge David Shultz, District of Minnesota

Prior to his appointment to the bench,  David Schultz was a Partner at Maslon LLP for 11 years, a private law firm. Whilst working there, he represented defendant PHH Mortgage Corporation in a case which is part of the RFC Litigation, and which led Joanna Burke to Minnesota. See; Residential Funding Co. v. Mortg. Network, Inc. (In re RFC Liquidating Trust Litig.) 14-cv-4701 (JRT) (D. Minn.).

It is blatantly obvious that Magistrate Judge David T. Schultz is conflicted in the Burke proceedings and it is of great concern that the Magistrate and the District of Minnesota court thought it was ‘buried’ deep enough not to be discovered prior to the premeditated dismissal of Burke’s lawsuit.

Unfortunately for the courts, but fortunately for Burke, the lack of transparency and judicial misconduct has been discovered. This inexcusable conduct by a sitting Magistrate Judge is both unethical and reprehensible.

“The U.S. District Court, District of Minnesota is composed of seven authorized district judges, six senior district judges, seven magistrate judges and one part-time magistrate judge, Clerk’s Office staff, and Probation and Pretrial Services Office staff.” – per this courts’ own website.

Despite the many options, this court chose the one Magistrate Judge who represented defendant PHH Mortgage Corporation, and not only that – this Magistrate Judge accepted the position – despite his past relationship with defendant PHH Mortgage Corporation.

The 3M Litigation: Magistrate Judge Schultz Refuses to Recuse and Disqualification is Denied

Below, y’all can see that the judiciary in Minnesota is circlin’ the wagons on high-stakes, high profile cases. It is clear that Schultz was disqualified but the courts’ refused to comply. This is a prime example of ochlocracy at work in the federal judiciary.

The extracts from the memorandum below pertaining to Magistrate Judge David T Schultz was completely blanked by Senior US District Judge Ericksen in her July 10, 2023 Memorandum. Not a single reference was made to their arguments pertaining to financial disclosure reporting and specifically Schultz failure to self-recuse due to his personal stash of 3M shares. Judge Joan Ericksen refused the disqualification of both herself and Magistrate Judge Schultz.

PLAINTIFFS’ MEMORANDUM IN SUPPORT OF MOTION TO
DISQUALIFY JUDGE ERICKSEN AND MAGISTRATE JUDGE SCHULTZ
(REDACTED FOR PUBLIC FILING) – LIT FOCUSES ON SCHULTZ…

I. Judge Schultz should be disqualified under 28 U.S.C. § 455(a) and (b).

Magistrate Judge Schultz’s violations of section 455(a) and (b) demand his disqualification.

Judge Schultz violated section 455(b)(4) by knowingly holding 3M stock while presiding over this MDL.

This newly discovered evidence—at a bare minimum—creates an appearance of bias under section 455(a) requiring Judge Schultz’s disqualification.

A. Judge Schultz knew he had a financial interest in 3M during this MDL.

Section 455(b)(4) mandates disqualification where the judge “knows that he … or his spouse … has a financial interest in the subject matter in controversy or in a party to the proceeding.”

28 U.S.C. § 455(b)(4).

Disqualification in this context is not optional; it is “automatic.”

Little Rock Sch. Dist. v. Ark. State Bd. of Educ., 902 F.2d 1289, 1290 (8th Cir. 1990); see, e.g., Wright & Miller, Fed. Prac. & Proc. Juris. § 3546 (3d ed.) (judge “must recuse” if he or she has “any financial interest … in a party”).

“It is well-established that the ownership of stock constitutes a financial interest.”

E.g., Shell Oil Co. v. United States, 672 F.3d 1283, 1289 (Fed. Cir. 2012) (citing 28 U.S.C. § 455(d)(4)).

This bright-line rule leaves “no room for discretion.”

Wright & Miller, § 3546.

who have discovered such conflicts therefore recused themselves “at once.”

In re Mar. & Ne. Pipeline, L.L.C., 349 F.Supp.2d 175, 178 (D. Mass 2004); see, e.g., H & R Block, Inc. v. Am. Int’l Specialty Lines Ins. Co., 546 F.3d 937, 938 n.1 (8th Cir. 2008)

(judge “recused from the case when he inherited stock in one of the parties”);

In re RFC & Rescap Liquidating Tr. Litig., 2016 WL 7177706, at *2 (D. Minn. Dec. 8, 2016)

(similar “mid-litigation” recusal in “consolidated action”).

In fact, droves of judges recused themselves in the wake of the Wall Street Journal’s ground-breaking 2021 article reporting that “[m]ore than 130 federal judges ha[d] violated U.S. law and judicial ethics by overseeing court cases involving companies in which they or their family owned stock.”

See ExxonMobil Oil Corp. v. TIG Ins. Co., 44 F.4th 163, 171 (2d Cir. 2022)

(quoting James V. Grimaldi, Coulter Jones & Joe Palazzolo, 131 Federal Judges Broke the Law by Hearing Cases Where They Had a Financial Interest, Wall St. J., Sept. 28, 2021);

see, e.g., Roberts v. Wal-Mart La., L.L.C., 54 F.4th 852, 853-54 (5th Cir. 2022);

Obduskey v. Wells Fargo, 2023 WL 1831128, at *4 (10th Cir. Feb. 9, 2023).10

Although the Wall Street Journal article presumably prompted Judge Schultz to finally reveal that he had owned “72 shares of 3M stock” while overseeing this MDL, he refused to recuse, unlike other judges.

Compare Dkt. 2161 at 1-2, with, e.g., ExxonMobil Oil Corp., 44 F.3d at 170-71

(“Although [the judge] reported that his stock ownership did not affect his decisions in the case, he recognized that such ownership would have required his recusal.”).

Instead, Judge Schultz issued an order on December 22, 2021, sidestepping recusal because he apparently first “became aware of his (very) modest past ownership interest in 3M” in November 2021, after he divested.

Dkt. 2161 at 1.

But documents show otherwise.

Newly discovered Annual Financial Disclosure Reports confirm Judge Schultz had full knowledge of his interest in 3M at the time of his appointment to the MDL in 2018 and for two full years of the MDL before he finally divested.

PX2 (2017-Disclosure-1, 12, 17, 27) (reporting 3M stock ownership, purchase, and dividends on August 8, 2018); PX3 (2018-Disclosure-10, 15, 26) (dividends); PX4 (2019-Disclosure-10, 14, 23) (dividends).

Judge Schultz’s signature “certify[ing]” his “knowledge” of his financial interest in 3M was “accurate, true, and complete,” e.g., PX2 (2017-Disclosure-34), confirms he was “subjectively aware” of that conflict during the MDL, cf. Dkt. 2161 at 1.

E.g., PX2 (2017-Disclosure-34); PX3 (2018-Disclosure-37); PX4 (2019-Disclosure-31).11

Given Judge Schultz’s knowledge of his financial interest in 3M before and during this MDL, he “should have recused himself from this matter upon its assignment to him.”

See, e.g., ExxonMobil Oil Corp., 44 F.4th at 171.

His repeated failure to do so was a plain “violation of § 455(b)(4).”

See Liljeberg, 486 U.S. at 867.12

And his stated ignorance of this conflict is “inexcusable” given the impact of his omission on Plaintiffs and the public.

See id. at 866; Roberts, 54 F.4th at 854

(“the public’s faith in the judicial system” is “undermined” where a judge holds stock in a party but fails to recuse).

Judge Schultz “remain[ed] under a duty to stay informed of any personal or fiduciary financial interest [he] may have” had in the litigation, “notwithstanding [its] size and complexity.”

See Liljeberg, 486 U.S. at 862 n.9 (citing 28 U.S.C. § 455(c)).

Independent of his section 455(b)(4) violation, then, Judge Schultz “separate[ly] violat[ed]” section 455(c) by “fail[ing] to stay informed of his fiduciary interest,” as Chief Justice Roberts instructed him.

See Liljeberg, 486 U.S. at 867-68; Sw. Bell Tel. Co. v. F.C.C., 153 F.3d 520, 521 (8th Cir. 1998)

(“[I]t is the fundamental ethical duty of every judge to police his or her own disqualification status.”);

Roberts, supra note 5, at 3-4.

Judge Schultz’s prior reasoning does not save him under section 455 or the Canons.

See Dkt. 2161 at 1-2; Liljeberg, 486 U.S. at 858 n.7

(Congress amended section 455 “to conform with the recently adopted ABA Code of Judicial Conduct”);

Veneklase v. City of Fargo, 236 F.3d 899, 901 (8th Cir. 2000).

Judge Schultz’s description of his stock ownership as “(very) modest” is of no moment.

Cf. Dkt. 2161 at 1.13

Section 455(d)(4) defines a “financial interest” as “ownership of a legal or equitable interest, however small.” 28 U.S.C. § 455(d)(4) (emphasis added);

Wright & Miller, § 3546; see Roberts, supra note 5, at 3.

The Canons echo that expansive definition, as Judge Schultz himself recognized.

See Dkt. 2161 at 2

(“Canon 3C(3)(c) defines a ‘financial interest’ as ‘ownership of a legal or equitable interest, however small.’”). Ergo, “no matter how insubstantial [his] financial interest and regardless of whether or not [his] interest actually creates an appearance of impropriety,” disqualification is required.

See, e.g., Liljeberg, 486 U.S. at 859 n.8.

Equally unavailing are Judge Schultz’s non-sequiturs that he did not “approve” the 3M stock purchase, that he lacked “subjective[] aware[ness]” of the purchase, and that he “divested” his interest after presiding over this litigation for two years.

Cf. Dkt. 2161 at 1.

Under the disqualification statute, all that matters is whether Judge Schultz knew he had a “financial interest” in 3M during this MDL.

See 28 U.S.C. § 455(b)(4).

And his signed and certified financial disclosure forms confirm that he did.

Section 455(f) allows judges to cure conflicts in certain circumstances, to be sure.

See 28 U.S.C. § 455(f).

But “curative divestment” only counts when it immediately follows discovery of the conflict; it was never meant to be invoked retroactively to avoid recusal.

See, e.g., In re Aetna UCR Litig., 2013 WL 1622160, at *4-5 (D.N.J. Apr. 15, 2013).

Here, however, Judge Schultz did not divest when he first reported this conflict in 2018.

Quite the opposite: he continued to report 3M dividends throughout the MDL.

E.g., PX3 (2018-Disclosure-10, 15, 26).

Section 455(f) does not excuse such violations. Even if it did, Plaintiffs would still seek disqualification.

See, e.g., In re Mar. & Ne. Pipeline, L.L.C., 349 F.Supp.2d at 179

(“[S]ection 455(f) prudentially ought to be reserved for those situations where all parties desire continued judicial action by the same judicial officer.”).

In addition, Judge Schultz cannot satisfy the savings clause’s plain language because he did not devote “substantial judicial time” to this MDL.

See 28 U.S.C. § 455(f); see also Wright & Miller, § 3546

(“[T]he concept of ‘substantial judicial time,’ … [depends] on the amount of activity undertaken by the court, rather than mere passage of time.”).

From July 2018 (when he was appointed) to July 2019 (when the MDL was closed), Judge Schultz handed down only 14 rulings.

See Dkt. 2161-1.

Compared to his predecessor, Judge Schultz’s “involvement in the action was, to put it plainly, minimal.”

See In re Aetna, 2013 WL 1622160, at *1, 4.14

After all, Judge Schultz could not have substantially impacted the MDL while it was on appeal and then held in “abeyance” as the parties “pursue[d] mediation.”

See id.

(finding “basic housekeeping” during mediation constituted “minimal” involvement);

Dkt. 2169.

Because “it can hardly be said that Judge [Schultz] devoted ‘substantial judicial time’ to the [MDL],” section 455(f) is “unavailable” to him.

See, e.g., Tramonte v. Chrysler Corp., 136 F.3d 1025, 1031-32 (5th Cir. 1998).15

Judge Schultz also cannot seek shelter under section 455(f)’s safe harbor because his financial interest in 3M could have been “substantially affected by the outcome” of this massive MDL.

See 28 U.S.C. § 455(f).

Properly understood, the inquiry considers “not the size of the interest, but the size of the impact on the interest.”

United States v. United Health Grp., Inc., 2019 WL 2353124, at *1 (C.D. Cal. May 31, 2019).

Outcomes of high-profile MDLs like this one—the eighth largest mass tort in the country—significantly impact financial investments in the defendant-companies.16

Because this MDL surely “affect[ed] the price of [his 3M stock] by even a penny,” Judge Schultz’s divestment of his shares does not save him from disqualification.

See id.

Either way, Judge Schultz’s dilatory divestment “give[s] rise to an appearance of impropriety.”

See id.; see, e.g., United States v. Miell, 2018 WL 974843, at *3 (N.D. Iowa Apr. 8, 2008).

Most troubling is Judge Schultz’s representation to Plaintiffs and the public that he lacked knowledge of his conflict until November 2021.

See Dkt. 2161 at 1.

Clearly, an average person on the street would expect a federal judge to review his Annual Financial Disclosures as part of his investigation into his own financial holdings following the Wall Street Journal exposé.

See E.A. Renfroe & Co., 2008 WL 11375428, at *4

(“A federal judge is very likely to be aware of such [a financial] interest, partly because … the Ethics in Government Act requires that judges file an annual Financial Disclosure Report detailing their stockholdings and other investments.”).

Regardless, Judge Schultz’s certification of those disclosures establishes his knowledge of the conflict.

Disqualification follows.

B. Judge Schultz appears biased even if he is not actually biased.

Even if Judge Schultz could evade section 455(b)(4) by claiming he lacked knowledge of his 3M stock, he cannot escape section 455(a)’s “catchall recusal provision.”

See Liteky, 510 U.S. at 548.

That “liberal standard,” Singer, 575 F.Supp. at 68, “requires disqualification if a reasonable person who knew the circumstances would question [Judge Schultz’s] impartiality, even though no actual bias or prejudice has been shown,” see Willis, 2012 WL 6644240, at *1 (Ericksen, J.).

Actual bias is not dispositive of Judge Schultz’s disqualification because “observers outside of the judicial process are less inclined to credit [his] impartiality and mental discipline than the judiciary itself will be.”

See, e.g., United States v. Herrera-Valdez, 826 F.3d 912, 918-19 (7th Cir. 2016).

Whether Judge Schultz truly lacked knowledge about his financial conflict while presiding over this MDL “is open to speculation, and it is precisely that speculation that causes the perception of bias [by an average person on the street] which is prohibited under § 455(a).”

See, e.g., Herrera-Valdez, 826 F.3d at 919; cf. Borrero, 2009 WL 2005221, at *1 (Ericksen, J.).

“Scienter is not an element of a violation of § 455(a),” so Judge Schultz’s belated knowledge of his financial interest in 3M “does not eliminate the risk that his impartiality might reasonably be questioned.”

See Liljeberg, 486 U.S. at 859. Thus, even if Judge Schultz first discovered his section 455(b)(4) violation after he “divested of all 3M stock,” Dkt. 2161 at 1, disqualification is still inescapable under section 455(a), see, e.g., E.A. Renfroe & Co. v. Rigsby, 2008 WL 11375428, at *4 (N.D. Ala. Jan. 4, 2008); Driscoll, 2021 WL 5323962, at *1.

At a minimum, to “rectify” his “oversight and to take the steps necessary to maintain public confidence in the impartiality of the judiciary,” Judge Schultz should have recused “when he finally realized that [he] had an interest in the litigation.”

See Liljeberg, 486 U.S. at 861; see, e.g., In re Sch. Asbestos Litig., 977 F.2d 764, 784 (3d Cir. 1992)

(“[A judge] can and should disqualify himself or herself retroactively upon discovery of the facts that led to the current appearance of partiality.”).

Indeed, assuming his “failure to disqualify himself was the product of a temporary lapse of memory,” despite his self-certified disclosure of 3M stock ownership and dividends during this MDL, “it was nevertheless a plain violation of the terms of the statute.”

See Liljeberg, 486 U.S. at 861-62 (citing 28 U.S.C. § 455(a)).17

Not only that, Judge Schultz’s refusal to recuse after so “many publicly reported instances of federal judges presiding over cases in violation of § 455 create[d] a particular risk of undermining public opinion in the judicial process,” even if he “was not actually aware of [his] disqualifying interest.”

E.g., Driscoll, 2021 WL 5323962, at *1-2; Eclipse Grp., LLP v. Target Corp., 2023 WL 1453155, at *3-4 (S.D. Cal. Feb. 1, 2023).

Accordingly, in the extraordinary event that section 455(b)(4) does not mandate Judge Schultz’s disqualification—it does—disqualification would still further “the purpose behind [section 455(a)] of assuring the appearance of impartiality.”

See Dyas v. Lockhart, 705 F.2d 993, 997-98 (8th Cir. 1983); see, e.g., Potashnick, 609 F.2d at 1111-12; In re Hatcher, 150 F.3d 631, 633 (7th Cir. 1998)

(“Notwithstanding our complete confidence in [the judge’s] integrity and impartiality, however, we conclude that the circumstances of this case required him to recuse himself under § 455(a) because of the significant risk of an appearance of impropriety.”).

Maslon is pleased to announce that David Schultz, former partner and trial lawyer in Maslon’s Litigation Group, has been appointed to the position of United States Magistrate Judge for the District of Minnesota. Schultz will take the oath of office in the U.S. Courthouse in St. Paul on February 7, 2017. A formal investiture ceremony will be held at a later date.

“We’re very proud to see our partner and friend, David Schultz, selected to serve as a United States Magistrate Judge,” stated Michael McCarthy, chair of Maslon’s Governance Committee. “We believe all the qualities that have made David a great attorney will make him an equally exceptional judge and support his strong commitment to serving justice.”

Prior to his appointment, David was a partner at Maslon LLP for 11 years, where he focused his practice on high stakes litigation in the areas of product liability, healthcare, commercial disputes, civil and criminal fraud, and intellectual property. As a litigator, he tried cases to verdict in state and federal courts throughout the country and developed an active appellate practice, having argued more than 50 cases before several federal circuits as well as the Minnesota Supreme Court and Court of Appeals.

David is board certified as a Civil Trial Advocate by the National Board of Trial Advocacy and as a Civil Trial Specialist by the Minnesota State Bar Association. In addition, he has taught trial advocacy at the National Institute for Trial Advocacy (NITA) as well as legal writing at the University of Minnesota Law School and William Mitchell College of Law. He has lectured on constitutional law at Carleton College and criminal law to undergraduates while a law student at Stanford University.

David is ranked as a Notable Practitioner in Minnesota for Litigation by Chambers USA since 2013, has been included in The Best Lawyers in America® from 2012-2017, and is recognized on the Minnesota Super Lawyers® list every year since 1999. He also received the Child Advocacy Award from the Minnesota Chapter of the American Academy of Pediatrics in 2013.

Amidst his vibrant law practice, David regularly devoted hundreds of hours to pro bono representation every year and served on the Board of Innocence Project of Minnesota (IPMN). As a result of his tireless work to help free the wrongfully convicted and reform the criminal justice system, he was recognized with the IPMN’s 2016 “Never Forgotten Award.” He was also selected as a Minnesota Lawyer 2016 Attorney of the Year.

David graduated from Stanford Law School in 1985 and received his bachelor’s degree, magna cum laude, from Carleton College.

View the United States District Court District of Minnesota’s Announcement.