Appeals Court Reinstates $10 Billion Bank Lawsuit After WSJ Investigation Into Conflicts

A federal appeals court Tuesday reinstated a $10 billion antitrust lawsuit against 10 banks after finding that a judge who had earlier dismissed the case should have recused himself because of an apparent conflict of interest first exposed by The Wall Street Journal.

The Manhattan lawsuit against Bank of America and nine other banks should never have been heard by U.S. District Judge Lewis Liman because his wife owned as much as $15,000 in Bank of America stock when he was assigned the case, the Second U.S. Circuit Court of Appeals ruled.

The lawsuit now goes back to the district court to be heard by another judge. The appeals court said it didn’t look at the merits of the case.

The 2020 case was one of 13 lawsuits heard by Liman that were the subject of a Journal examination of federal judicial stockholdings. The investigation found more than 150 judges owned shares of companies that appeared in court cases they oversaw. The stories resulted in congressional hearings and a new law that required judges to report stockholdings promptly in a searchable, online database.

In the bank case, so-called mom-and-pop bondholders accused the big banks of overcharging them in excess of $10 billion on bond purchases.

Bank of America and other banks argued that Liman’s wife divested the shares of Bank of America two months before oral arguments and three months before he agreed to dismiss the case. A Bank of America spokesman declined to comment on the ruling.

After the Journal contacted the judge about his family’s stockholdings, a court clerk wrote in a 2022 notice about Liman in the U.S. District Court for the Southern District of New York that his wife’s “ownership of stock neither affected nor impacted his decisions in this case. However, that stock ownership would have required recusal.”

The appeals court said Tuesday that ownership in the shares created an appearance problem that undermines the confidence in the courts.

“Due to the length of time that Judge Liman presided over this case with a conflict—albeit almost certainly unknowingly—and the substantive motions that came before him in that period, we find that his wife’s July 2021 divestiture of Bank of America stock was not sufficiently curative,” the court wrote.

“There is a legitimate risk that these kinds of violations will undermine the public’s confidence in the judicial process,” the three-judge panel wrote.

Write to James V. Grimaldi at [email protected]