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Where does it leave you when you try to get a judge tossed off a case and it doesn’t work? Nowhere you’d want to be. But that is exactly where 38 investment bank defendants are, after suggesting in late September that Judge Shira Scheindlin recuse herself from overseeing scores of class actions centering on initial public offering allocations. Last week, Scheindlin, of the U.S. District Court for the Southern District of New York, rejected the recusal motion made by underwriters named as defendants in about 1,000 lawsuits filed by investors who bought shares in hot IPOs. Now the banks’ failed request could come back to haunt them. “You don’t want to make a recusal motion unless you’re pretty darn sure you’re going to prevail,” said Robert Gooding, chair of the securities litigation practice at Howrey Simon Arnold & White in Irvine, Calif., and the co-chair of the litigation section of the American Bar Association. “If you’re going to shoot at the king, you’d better be darn sure you don’t miss.” Participants are scheduled to reconvene Dec. 7 for a case-management hearing. While one litigator said there are no statistics to suggest how recusal motions affect a lawsuit outcome, others say a failed motion can harm the case psychologically. “What often happens is that a judge is insulted, and being human, he or she may make some findings against you unconsciously,” said Larry Soderquist, a Vanderbilt University law professor and a partner with Dinsmore & Shohl in Nashville, Tenn. He added, however, “There are very few judges who would consciously go after you for it.” Gooding added: “In litigation that has really high stakes, you want to have as good a relationship [with the judge] as you can, and it’s not starting out very well to bring a recusal motion that you lose.” Lawyers agree that the recusal request was bold. The group, which includes Goldman, Sachs & Co., Merrill Lynch & Co. and Credit Suisse First Boston, said Scheindlin and her son owned stocks named in the suits, so she should withdraw. Four underwriters, mostly boutiques, opposed the motion; the only major firm on the anti-recusal team was Morgan Stanley. Vincent DiBlasi, the liaison counsel for the underwriters, declined comment. The recusal motion seemed doomed from the start, litigators say. The divisiveness among the underwriters is very unusual, Gooding noted. “I don’t think I’ve ever seen a situation involving multiple defendants where everyone didn’t join in the [recusal] motion,” he said. “I think the fact that some didn’t join suggests it wasn’t as strong as it might have been.” Another problem: The underwriters likely antagonized Scheindlin by accessing the brokerage history of her adult son without his permission or hers. Scheindlin referred to it in her 62-page opinion rejecting the recusal motion. Another problem: When they first suggested recusal, Scheindlin speculated that they were judge-shopping. She initially would not consider it, although later she let them proceed with the motion. Then the underwriters said they would call judicial ethics experts to explain Scheindlin’s ethical duty as a judge — to Scheindlin. She struck that down, too. Scheindlin said she sold the stocks in the suits as soon as she was alerted that she owned them and waived her right to any losses. “The Moving Defendant’s argument only has strength if one presumes that all the steps I have taken to avoid even the appearance of impropriety are nothing more than an attempt to extract vengeance,” she wrote. “In principle, recusal motions are a bad idea because they tend not only to get the judge in question mad, but they also make other judges mad,” said Walter Olson, the author of “The Litigation Explosion” and a senior fellow with the Manhattan Institute for Policy Research, a New York think tank. Judges tend to be sympathetic to their colleagues, he added. Reverse psychology, however, could help the underwriters. Soderquist suggested that “some judges would bend so far over backwards to be fair to you that your recusal motion would end up working in your favor.” Copyright (c)2001 TDD, LLC. All rights reserved.

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