Court of Appeal holds that stock ownership in a publicly traded company by a Judge where that company is a party to the action is a conflict providing grounds for disqualification and undisclosed the conflict is sufficient grounds for vacating a judgment

2021 case review: Chaganti v. Superior Court

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The Court in this case clarified the law regarding when a judge must recuse themselves in light of a conflict. Plaintiff Chaganti had brought a lawsuit and gone to trial against Cricket and New Cingular, which are wholly owned subsidiaries of AT&T. The lawsuit was brought regarding a commercial lease in which the named lessee was “AT&T Wireless PCS” and where rent was paid by “AT&T.”

In the course of the litigation, the defendant sought and was granted a Motion for Summary Adjudication regarding several defense claims made by the defendant. The other causes of action proceeded to trial, in which Plaintiff did not prevail.

While the appeal from the Judgment was underway, Plaintiff Chaganti sought a writ of error, a highly unusual action. In the writ, Chaganti claimed lack of knowledge that the Judge who had granted summary adjudication of claims in favor of the defendants was, in fact, a shareholder in AT&T, the parent company of those defendants.

The statute relevant to the writ is Code of Civil Procedure 170.1, which provides: “A judge shall be disqualified if any one or more of the following are true: ... The judge has a financial interest in the subject matter in a proceeding or in a party to the proceeding.” The superior court judge who had summarily adjudicated the claims owned stock worth between $10,000 and $100,000 in AT&T. “Financial interest” has been defined as ownership of more than a one percent interest in a party, or a legal or equitable interest in a party of a fair market value in excess of $1,500.

The Court of Appeal ordered that the Superior Court judgment be vacated, finding that the Plaintiff had not failed to exercise due diligence in discovering the Judge’s stock ownership.

Simply put, Judges have an obligation to disclose financial interests in parties before them prior to any substantive action on such cases. This Judge failed to do so. If a defendant were to conduct investigations that determined such a conflict existed, and then failed to raise the issue, that could well negate the ability to challenge the Judge. All parties need to be forthcoming with information regarding conflicts of interest. Having said that, Judges are required to regularly provide financial disclosures – it behooves a defendant, especially in a suit concerning a publicly traded company, to review those statements for potential conflicts and to address that issue as soon as it is known.