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Sunday, December 4, 2022

Federal Judge Steps Aside From High-Profile Amazon Case, Citing Financial Conflict

A federal judge removed himself from a nearly two-year-old Amazon.com Inc. case, citing a financial conflict, after a Wall Street Journal report about his family’s Amazon stockholdings.

U.S. District Judge

Liam O’Grady

had ruled in Amazon’s favor during the 20 months he oversaw the civil case, in which the online retailer accuses two former employees of taking kickbacks from a real-estate developer and violating Amazon’s conflict-of-interest policies.

In December, Judge O’Grady notified parties in the case in a Virginia federal court that his wife had owned about $22,000 in Amazon stock. Following the Journal’s questions about the Amazon holdings, his wife’s investment adviser sold the stock on Dec. 3. Judge O’Grady’s conflict in the case was the subject of a Dec. 30 Journal article.

In an order Monday, Judge O’Grady said he was reluctant to step aside because his wife no longer owned the stock and the defendants in the case who had asked him to recuse offered no evidence that he was biased in Amazon’s favor. Judge O’Grady previously told the Journal he didn’t know his wife owned Amazon shares.

“However, perception of the fair administration of justice—both by the public and by the parties in the case—is of the highest importance to the Court,” Judge O’Grady wrote.

A WSJ review found that Judge Liam O’Grady has heard 66 cases since 2010 in the Alexandria, Va., federal courthouse while his wife was invested in plaintiffs or defendants.



The recusal by Judge O’Grady, who has been on the bench since 2007, means a new judge will take over a busy case with nearly 500 docket entries and more than 4,000 pages of legal filings, likely creating costly delays for the litigants.

The case was reassigned on Monday to Judge

Michael Nachmanoff,

who took his seat on the U.S. District Court for the Eastern District of Virginia late last year.

The Amazon suit is one of 66 cases since 2010 that Judge O’Grady has heard in the Alexandria, Va., federal courthouse while his wife was invested in plaintiffs or defendants, a Journal review found. Judge O’Grady said in an email that he was reviewing his case lists and disclosure forms and would notify parties of conflicts.

His participation in those cases violated a 1974 federal law that requires judges to disqualify themselves from cases involving parties in which they, their spouses or their minor children have a financial interest, such as individual stocks. Investments in mutual or index funds are exempted.

At a Jan. 6 hearing in response to the defendants’ request for his recusal, Judge O’Grady said that he had mistakenly believed his wife’s account was a mutual fund and had “no familiarity with it.” A Georgia-based investment adviser handles all the trades for his wife, he said.

In the hearing, Judge O’Grady bemoaned an ethics regime in which “my docket is entirely dependent on some Atlanta broker’s decision on what stock to buy and sell at any given time when I get no notice about it until the end of the year.” He called it a “trap” for district judges.

Federal law mandates that judges make a reasonable effort to inform themselves about their spouses’ financial interests. They are required by the federal judiciary to maintain recusal lists of companies in which they or their families are invested and update it regularly.

“Up-to-date recusal lists are the most effective tool for conflict screening,” Judge

Roslynn Mauskopf,

director of the Administrative Office of the U.S. Courts, said in an October memorandum sent to all judges.

Judge O’Grady, 71 years old, is among 136 judges for whom the Journal has identified stock conflicts as part of a yearlong investigation. The investigation and further reviews by judges who were contacted by the Journal have identified more than 950 cases since 2010 with recusal violations.

The Amazon case, filed in April 2020, centers on more than $400 million in development projects in northern Virginia, where Amazon has established huge data farms. They are the lifeblood of Amazon Web Services Inc., the retailer’s cloud-computing arm.

The racketeering lawsuit alleges that two former employees steered contracts to a developer, Northstar Commercial Partners, in return for millions of dollars of kickbacks. The former employees and developer have denied the allegations.

At last week’s hearing, Judge O’Grady said that the “idea that I would steer this case in Amazon’s favor because I felt that my wife’s $22,000 investment in Amazon’s stock would be at risk if I didn’t is literally—is almost insane.” He noted that he had ruled against Amazon in a counterfeiting case in May.

A spokesman for Amazon, which opposed the request for Judge O’Grady’s recusal, didn’t respond to a request for comment.

“We look forward to resolving this case on the merits,” said

Stanley Garnett,

a lawyer for  Northstar founder

Brian Watson.

The former employees declined to comment.

Write to Joe Palazzolo at joe.palazzolo@wsj.com

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