Response to Motion to Vacate All Prior Orders

Here's Comcast's response to e360's attempt to revive the dead corpse of its case against Comcast.

As we previously mentioned, in Ken Magill's article on this, he quotes Linhardt as saying "According to my attorney, Zagel said he should vacate all of the rulings but even that would be a conflict." This time, though, we get to see what the Judge really said, as Exhibit A is the transcript of the hearing.

Here's what the judge actually said:

I've given this some thought and there are several possible courses of action, one of which is upon request of the parties to reconsider all of my prior rulings and have a new round of briefing, or to vacate my rulings and have a new round of briefing, but the truth is is I had this case for a fairly long time, a matter of months, when I was in a state where I had a technical conflict and I don't think I should even be making that decision.

So, what I'm going to do is I'm going to recuse myself, have the case reassigned, and the issue as to whether my ruling should be vacated or reconsidered should be made by the new judge and not by me.

Is someone lying? You tell me.

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IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

E360INSIGHT, LLC,
Plaintiff,

v.

COMCAST CORPORATION,
Defendant.

COMCAST CORPORATION,
Counterclaimant,

v.

E360INSIGHT, LLC,
Counterdefendant, and
DAVID LINHARDT; MAVERICK DIRECT
MARKETING SOLUTIONS, INC.; BARGAIN
DEPOT ENTERPRISES, LLC, d/b/a
bargaindepot.net and bargainshoppecorp.com;
NORTHSHORE HOSTING COMPANY, LLC
d/b/a ROCKY MOUNTAIN INTERNET
SERVICES, LLC and BAY CITY HOSTING,
LLC; RAVINIA HOSTING COMPANY, LLC;
NORTHGATE INTERNET SERVICES, LLC,
and JOHN DOES 1-50,
Third-Party Defendants.

COMCAST’S OPPOSITION TO PLAINTIFF-COUNTERDEFENDANT’S AND THIRD-PARTY DEFENDANTS’ MOTION TO VACATE

Defendant-Counterclaimant, Comcast Corporation (“Comcast”), submits this memorandum in opposition to Plaintiff-Counterdefendant’s and Third-Party Defendants’ (collectively “e360”), Motion to Vacate All Prior Orders (“Motion”).

The Motion is premised on a significant misrepresentation of Judge Zagel’s awareness (or lack thereof) of his small financial investment in Comcast during the time this action was before him. In the Motion, e360 states that “it is not entirely clear” when Judge Zagel became aware of his alleged financial interest in this proceeding. Had e360 reviewed the transcript before they filed the Motion, they would have learned that Judge Zagel stated, unequivocally and
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on the record: “…I was unaware of Comcast at the time I made my rulings and holdings in Comcast…” (Exh. A, Transcript 2:23-25).

It is irresponsible for e360 to impugn a judge’s integrity and ask for the finality of two significant rulings to be disturbed without even reviewing the statements upon which they base their Motion. When Judge Zagel’s actual words are considered, there is no merit to the Motion.

I. FACTUAL BACKGROUND

This lawsuit was initiated nearly ten months ago by Plaintiff-Counterdefendant, e360insight, LLC, a known spammer. In its complaint, e360insight alleged that Comcast’s legitimate e-mail filtering activities violated e360insight’s rights under various unfounded theories, including that Comcast, a private actor, was violating e360insight’s First Amendment rights. Comcast timely answered the Complaint and filed a Motion for Judgment on the Pleadings, asserting federal statutory affirmative defenses that explicitly provide immunity for internet service providers like Comcast who take steps to block unsolicited commercial e-mails, including the CAN-SPAM Act, 15 U.S.C. § 7701, et. seq., and the Communications Decency Act, 47 U.S.C. § 230. The Court granted Comcast’s Motion for Judgment on the Pleadings and dismissed e360insight’s claims. Without introducing any new facts or evidence, e360insight filed a Motion to Reconsider, asserting that the Court had misunderstood e360insight’s pleadings and that it had incorrectly decided the motion. The Court denied the motion for reconsideration.

Comcast filed counterclaims against e360 for violations of the CAN-SPAM Act and other related claims. e360 filed a Motion to Dismiss Comcast’s Counterclaims and Third-Party Complaint, which the Court denied.

The parties have spent hundreds of hours and significant sums of money briefing these various motions. Recently, the parties had been engaging in meaningful settlement discussions and, prior to Judge Zagel’s recusal, appeared to be very close to a final resolution of this case.

A. Judge Zagel’s Recusal.

During a routine status conference on August 28, 2008, before the parties could inform the Court about their progress toward settlement, Judge Zagel notified the parties that he had just become aware of a small financial interest he had unknowingly held in Comcast during the pendency of this case. A copy of the transcript of that status conference is attached as Exhibit A (the “Transcript”). Judge Zagel stated that his interest in Comcast was held through a brokerage account he inherited several years ago that he “paid no attention to,” and that this account
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contained stock which, at some point after he inherited the account, became Comcast stock through a spin-off.1 Judge Zagel indicated that the existence of Comcast stock in the account had “obviously slipped [his] mind,” (Exh. A, Transcript at 2:18), and that he was “unaware of Comcast at the time I made my rulings and my holdings in Comcast at the time I made my rulings.” (Exh. A, Transcript at 2:23-25). As soon as Judge Zagel became actually aware of this fact, he sold the Comcast stock and recused himself from this case. (Exh. A., Transcript at 2:19-20).

[1 A copy of Judge Zagel’s 2006 fiscal year Financial Disclosure Report, which he stated is
automatically generated by computer, lists Comcast on the last page of the report (number 89 of 91), with an interest at less than $15,000. A copy of Judge Zagel’s Financial Disclosure Report for Calendar Year 2006 is attached as Exhibit B.]

B. e360’s Motion to Vacate.

The Motion seeks the extreme remedy of vacatur under Fed. R. Civ. P. 60(b)(6) claiming Judge Zagel was biased, or his actions raised the appearance of impropriety under 28 U.S.C. §§ 455(a) and 455(b)(4). In its Motion, e360 misrepresents Judge Zagel’s statements and urges improper application of well-settled principles. Specifically, paragraph 11 of e360’s motion states that:

While it is not entirely clear whether Judge Zagel knew of his financial interest in Comcast before e360 filed its complaint or whether Judge Zagel became aware of his financial interest later in the case, for the purposes of resolving this Motion for Vacatur (and absent a statement to the contrary), the Court should err on the side of concluding Judge Zagel knew of his financial interest in Comcast after receiving the Disclosure Statement.

To the contrary, the record is perfectly clear that Judge Zagel was not aware of his financial interest in Comcast until after he issued his rulings in this case. Counsel for e360 was present at the hearing where Judge Zagel disclosed his past interest in Comcast, but chose to file a motion relying on a mis-characterization of the statements rather than reviewing a transcript of Judge Zagel’s clear statement regarding when he became aware of his interest in Comcast.

e360 offers no support for its assertion that a reasonable person knowing all of the facts would question Judge Zagel’s impartiality in this case. Their sole statement on the subject is that, “a reasonable observer would expect him to realize his interest after receiving the Disclosure Statement clearly identifying Comcast as a party to the proceeding.” (Motion, ¶ 8). Obviously, if Judge Zagel did not even know that he owned stock in Comcast in the first place,
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seeing Comcast listed on a corporate disclosure statement would do nothing to alert him to his ownership.

II. ARGUMENT

A. Judge Zagel Did Not Violate Section 455(b)(4).

The plain language of Section 455(b)(4) requires disqualification where a judge knows that he holds a financial interest in a party or subject matter in a proceeding before him. 28 U.S.C. § 455(b)(4).

Courts have consistently held that the knowledge requirement is subjective, i.e., the judge must have actual knowledge of his interest. See, e.g., Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 859 (1988) (“A careful reading of the respective subsections makes clear that Congress intended to require knowledge under subsection (b)(4)…”); Union Carbide Corp. v. U.S. Cutting Service, Inc., 782 F.2d 710, 714 (7th Cir. 1986) (“the statute forbids only the knowing possession of a financial interest”).

In Davis v. Xerox (a case e360 cites in its Motion that the undersigned counsel emailed to e360’s counsel to explain why vacatur was not warranted), the Ninth Circuit rejected vacatur where the judge had forgotten that he held a small financial interest in one of the parties, made rulings in the case, and then remembered the existence of his interest at some later date. Davis v. Xerox, 811 F.2d 1293, 1295 (9th Cir. 1987) (“Apparently he had forgotten and, subjectively speaking, had no knowledge of his interests when he sat on Xerox’s case.”). In applying the subjective knowledge requirement, the Ninth Circuit stated that “we are unwilling to presume that because the judge once knew, he could not have forgotten.” Id. at 1296.

e360’s argument ignores the knowledge requirement from Section 455(b)(4) and imposes a strict liability standard that is contrary to the plain text of the section and well-settled law applying it. Moreover, rather than serving Rule 455’s purpose of maintaining confidence in the judiciary, e360’s argument attacks the judiciary, saying in essence, “even though Judge Zagel stated that he was unaware of his interest, this Court should not believe him.” This is not the law.

B. Judge Zagel Did Not Violate Section 455(a).

A judge is only required to disqualify himself under 28 U.S.C. § 455(a) where his “impartiality might reasonably be questioned.” Such inquiry explores whether a well-informed,
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objective observer would question the judge’s impartiality under the circumstances. Liljeberg, 486 U.S. at 861-2; see also Davis, 811 F.2d at 1296. The analysis is based on whether a “wellinformed, thoughtful observer rather than a hypersensitive or unduly suspicious person” would question the judge’s impartiality. O’Regan v. Arbitration Forums, Inc., 246 F.3d 975, 989 (7th Cir. 2001).

Setting aside the issue of whether a well-informed, thoughtful observer would question Judge Zagel’s impartiality for issuing rulings in a proceeding where he was completely unaware he had a small interest in one of the parties, courts have held that where a judge’s interest in a case is not directly linked to the resolution of the case, the judge’s impartiality is not likely to be reasonably questioned. See, e.g., In re Burnham Lambert Inc., 861 F.2d 1307, 1313 (2nd Cir. 1988) (“where an interest is not direct, but is remote, contingent, or speculative, it is not the kind of interest which reasonably brings into question a judge’s impartiality”); Davis, 811 F.2d at 1296 (“no reasonable person …would suppose that the value of [the judge’s stock]… would be affected one thimbleful by the outcome of the present case. The judge’s own financial welfare would be advanced not one whit whichever way he decided.”).

e360 offers no support for its claim that Judge Zagel’s impartiality would be questioned, saying only that “a reasonable observer would expect him to realize his interest after receiving the Disclosure Statement clearly identifying Comcast as a party to the proceeding. (Motion, ¶ 8). Notably, this statement says only that a reasonable observer would expect Judge Zagel to “realize his interest,” not that a reasonable observer would question Judge Zagel’s impartiality, as is required by the rule. Moreover, e360 cites no authority supporting disqualification under these circumstances, citing only the Supreme Court’s Liljeberg decision. A brief review of the facts in Liljeberg demonstrates that these two cases are vastly different, and that a different result is appropriate in this case.

The judge in Liljeberg was a member of the board of trustees of a university that stood to benefit tremendously from a ruling in favor of one of the parties to a proceeding before him. The judge had forgotten about the university’s (and his own) interest at the time the case started, but had attended board meetings at which the subject matter of the controversy was discussed and reviewed minutes of other meetings that discussed the subject matter of the controversy. Moreover, the judge again reviewed minutes discussing the subject (and thereby renewed his knowledge of his pecuniary interest in the controversy) immediately before and after a bench
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trial in which he ruled consistently with the university’s interest. Upon realizing his interest, he failed to disclose his interest to the parties. Still further, in denying a motion to vacate under Rule 60(b)(6) based on his interest in the proceeding, the judge refused to acknowledge that he had, in fact, been aware of his interest both shortly before and shortly after the bench trial. Both the district court and the court of appeals found that these circumstances created the appearance of impropriety and, in turn, the Supreme Court held that “where both lower courts found an ample basis in the record for concluding that an objective observer would have questioned [the judge’s] impartiality, his failure to disqualify himself was a plain violation of Section 455(a) even though it was initially the product of a temporary lapse of memory.” Liljeberg 486 U.S. at 848.

Obviously, the facts in this case stand in stark contrast to those presented in Liljeberg. A reasonable observer could easily understand from the circumstances why Judge Zagel had forgotten about his small interest in Comcast, and would not question his impartiality. First, Judge Zagel’s Comcast holdings came to him by inheritance rather than by direct action on his part, and were owned through a brokerage account. Second, his lengthy financial disclosures report is automatically generated by computer, and Comcast is listed on the final page of his 2007 disclosure form as the 89th of 91 entities. It is understandable that this would be inadvertently overlooked. Third, Judge Zagel’s interest in Comcast was so small (reported at one of the lowest levels available, “less than $15,000”) that he would not have directly benefited from the outcome of this case, whichever way he ruled. Given the relative size of his interest compared with Comcast and its market capitalization of more than $30 billion, any benefit derived from this case would be speculative, remote and indirect, at best. Fourth, upon discovering his past interest in Comcast, Judge Zagel immediately and proactively brought the matter to the parties’ attention and immediately recused himself. Finally, rather than decide whether any of his judgments required vacating, he referred the matter to the Court. Based on these circumstances, Comcast respectfully submits that the Seventh Circuit’s “well-informed, thoughtful observer” would not question the impartiality of Judge Zagel’s decisions in this case and, thus, there has been no violation of Section 455(a).

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C. Even If Judge Zagel Had Violated Section 455(a), Vacatur Is an Extreme Remedy Not Appropriate Here.

Even if it found that a well-informed objective observer would reasonably question Judge Zagel’s impartiality, the Court is not required to vacate all of his decisions. Unlike a disqualification under Section 455(b)(4), vacatur is only one of the available remedies and is “neither categorically available nor categorically unavailable for all § 455(a) violations.” Liljeberg, 486 U.S. at 864. The Supreme Court stated that “there need not be a draconian remedy for every violation of § 455(a),” Liljeberg, 486 U.S. at 862, and limited the remedy of retroactive vacatur only to “extraordinary circumstances.” Id. at 864. The Liljeberg Court also stated that, while scienter is not an element in the § 455(a) analysis, it “may bear on the question of remedy.” Id. at 859. In reviewing the judge’s actions, the Liljeberg Court stated that “a full disclosure at [the time of discovery] would have completely removed any basis for questioning the judge’s impartiality and would have made it possible for a different judge to decide whether the interests – and appearance- of justice would have been served by a retrial.” Id. at 866.

As discussed above, the facts present here are far from the “extraordinary circumstances” found in Liljeberg. Judge Zagel has unequivocally stated that he was unaware of his interest in Comcast when he issued his rulings in this case. Upon discovering his interest in Comcast, he took the exact steps suggested by the Supreme Court in Liljeberg: he immediately brought the issue to both parties’ attention and has made it possible for a different judge to decide whether the merits need to be reexamined. In so doing, Judge Zagel has, as the Supreme Court suggested, completely removed any basis for questioning his impartiality. Judge Zagel’s mistake is nothing more than the harmless error expressly contemplated by the Supreme Court in Liljeberg: “[a]s in other areas of law, there is surely room for harmless error committed by busy judges who inadvertently overlook a disqualifying circumstance.” 486 U.S. at 862.

III. CONCLUSION

Judge Zagel acted as a cautious and pruduent jurist– as soon as he became aware of his small financial investment in Comcast, he divested it, recused himself from this proceeding, and refrained from expressing any opinion on the propriety of his actions. That is remedy enough to alleviate any appearance of impropriety here. e360 should not, based on misrepresentation of the relevant facts, be permitted to undo well reasoned rulings, especially where there is no reason to
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believe that a well-informed and thoughtful observer would find Judge Zagel’s decisions to be anything but impartial.

For the foregoing reasons, Comcast respectfully requests that the Court deny Plaintiff’s Counter-Defendant’s and Third Party Defendants’ Motion to Vacate All Prior Orders Pursuant to F.R.C.P. 60(b)(6), and maintain all prior rulings made by Judge Zagel in this case.

Dated: November 4, 2008

LOEB & LOEB LLP

By: /s/ Douglas N. Masters_______________
Douglas N. Masters
Sharon A. Ceresnie
Nathan J. Hole
321 North Clark Street, Suite 2300
Chicago, Illinois 60654
[redacted]
Attorneys for Defendant-Counterclaimant,
Comcast Corporation

Attachment	Date	Size
MotVacateResponse.pdf	11/06/08 3:12 pm	2.93 MB

Order on Motion to Vacate All Prior Orders

Can you say "grounds for appeal"?

I knew you could.

Judge Coar has denied e360's request to give the case a reboot. I think it's a good call on his part, but you can be certain that e360 will seek to get this decision overturned, probably in an interlocutory appeal.

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MINUTE entry before the Honorable David H. Coar: Motion Hearing Held. Motion by Plaintiffs, Counter-Defendants, and Third Party Defendants to vacate all prior orders pursuant to F.R.C.P. 60(b)(6) is denied for reasons stated in open court.