Blind trusts will improve blind justice in the high court

They could help avoid judicial conflicts of interest.

For justice to be blind, the nine justices of the US Supreme Court need to have blind trusts.

An embarrassing situation arose in May when the high court affirmed a US Court of Appeals ruling permitting a landmark $400 billion lawsuit, American Isuzu Motors v. Ntsebeza, to proceed because four Supreme Court justices had conflicts of interest involving the plaintiff companies and had to recuse themselves from the case.

The result was a setback to dozens of multinational corporations being sued in federal court for allegedly aiding and abetting South Africa's apartheid regime because they did business there when its abhorrent system of racial segregation was in place. 

In addition to Isuzu Motors, the companies include such well-known giants as Ford, JPMorgan Chase, Honeywell International, General Electric, and 3M.

If the suit eventually prevails, it could threaten America's currently fragile economy by opening the door to lawsuits against other US firms that operated in countries whose rulers imposed unjust sanctions against their citizens.

The US, British, German, Swiss, and South African governments had urged the Supreme Court to accept the case and overturn the lower court's ruling. 

South Africa feared that a victory by the plaintiffs' lawyers would dry up desperately needed foreign investment and hurt the ongoing effort for racial reconciliation.

Indeed, South African President Thabo Mbeki – Nelson Mandela's handpicked successor – called the lawsuit a clear example of "judicial imperialism."

The Bush administration, in its brief, argued that the lawsuit "would interfere with the ability of the US government to employ the full range of foreign policy options" when interacting with regimes the US would like to influence to adopt democratic reforms.

It said such policies "would be greatly undermined" if the corporations that invest or operate in a foreign country are subjected to lawsuits more properly aimed at the offending regimes themselves.

The Justice Department contends that current US tort law allows suits against the South African government, but not against US and foreign companies doing business there when the repressive policies were in place.

The personal injury lawyers filing the suit appear likely to receive the lion's share of any damage awards in the case. 

They charge that the companies are guilty of helping support apartheid merely because they did business in South Africa during the 46 years its legalized system of racial segregation was in place – an accusation the current black-majority government of the country strongly refutes.

To the contrary, many US firms fought for racial equality in South Africa as signatories to the Sullivan Principles, a code of conduct committing firms not only to practice equal employment, but to commit significant resources to improve the housing, training, and education for South Africa's black population.

In 1986, although foreign-owned firms accounted for just 2.8 percent of the companies doing business in South Africa, they were responsible for 20 percent of all corporate spending on education, training, and community development in the country.

And US firms openly defied apartheid laws. A May 1987 report in The New York Times noted, for example, that 77 US companies operating in South Africa were settling nonwhite managers and executives in white-only neighborhoods in defiance of the law.

Incredibly, if the plaintiffs eventually win, the 20 million black South Africans still living who suffered under apartheid could get as little as 50 cents in compensation. The lawyers, meanwhile, stand to pocket millions.

As South Africa's leading business newspaper, Business Day of Johannesburg, recently noted: "The only redistribution of wealth ever likely to result is from shareholders to lawyers. There has been plenty of that already. There will be more."

Yet this harmful lawsuit is going forward because of judicial conflicts of interest that could have been avoided but weren't. Four recusals left the Supreme Court short of the required six-justice quorum – thwarting an expected decision that almost certainly would have overruled a deeply flawed lower-court action that allowed the litigation to proceed.

Three of the four declined to involve themselves in the case because they own shares in some of the defendant companies. All could have participated if their stock holdings had been placed in a blind trust or even mutual funds when they took the bench.

The fourth had an unavoidable conflict – his son works for a defendant in the case.

Although the number of Supreme Court cases affected by investment-linked recusals is unknown because justices seldom explain their reasons for bowing out, several high-profile cases this year proceeded without nine justices for this reason. Perhaps the most notable is Warner-Lambert v. Kent, which yielded a 4-to-4 split decision.

Anytime a justice is disqualified due to a financial conflict of interest, it increases the likelihood of split decisions, creating uncertainty in the law.

Congress passed a law two years ago that makes it easier for federal judges to divest themselves of holdings creating conflicts of interest by allowing them to sell these assets without incurring capital gains taxes, but it isn't enough. Justices are unlikely to divest when it is a bad time to sell or the divestiture would create as many appearance problems as it resolves.

For the justice system to work with certainty, the president and the senate should require Supreme Court nominees to place their assets in blind trusts as a condition of serving.

David A. Ridenour is vice president of the National Center for Public Policy Research, a nonpartisan conservative think tank on Capitol Hill

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