Case 1:18-cv-00966-CFC-CJB Document 993 Filed 12/02/22 Page 1 of 10 PageID #: 38286
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`VLSI TECHNOLOGY LLC,
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`Plaintiff,
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`v.
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`INTEL CORPORATION,
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`Defendant.
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`C.A. No. 18-966-CFC-CJB
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`DECLARATION OF PROFESSOR BRUCE A. GREEN
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`1.
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`I have been asked by counsel for Plaintiff VLSI Technology LLC (“VLSI”) to
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`provide an objective expert opinion regarding two questions posed in the Court’s Memorandum
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`Order dated October 17, 2022 (“October 17 Memorandum Order”). The October 17 Memorandum
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`Order concerns the application of the Court’s April 18, 2022 Standing Order (“April 18 Standing
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`Order”), which would require the Plaintiff, as a limited liability company, to disclose “the name
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`of every owner, member, and partner . . ., proceeding up the chain of ownership until the name of
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`every individual and corporation with a direct or indirect interest in the party has been identified.”
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`As pertains to my assignment, the October 17 Memorandum Order asks how, without this
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`information, the Court can assure itself “that it does not have a conflict of interest that precludes it
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`from presiding over this case” and “that its presiding over the case will not create an appearance
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`of impropriety.”1
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`1 I have not been asked to address questions of law raised by the October 17 Memorandum
`Order, such as whether an individual district judge has authority under Fed. R. Civ. P. 83(b) to
`issue a standing order requiring greater disclosure than presently required by Fed. R. Civ. P. 7.1
`to enable the judge to make informed disqualification decisions.
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`I.
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`QUALIFICATIONS
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`2.
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`My qualifications to provide expert opinions on questions of judicial ethics are set
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`forth more fully in my curriculum vitae (attached hereto as Exhibit A). In brief, I joined the full-
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`time faculty of Fordham Law School in 1987, having previously served as a judicial law clerk and
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`a federal prosecutor. I have regularly taught courses in Professional Responsibility, including on
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`two occasions a seminar on “The Judicial Role and Responsibilities.” I write on Professional
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`Responsibility, including on judicial ethics, and co-author a casebook, Jefferson, Pearce, Green et
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`al., Professional Responsibility: A Contemporary Approach (4th ed. 2020, West Academic Publ.).
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`For the first three editions, I had primary responsibility for the chapter on “Special Ethical Rules:
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`Prosecutors and Judges.” My professional service relating to legal ethics includes chairing the
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`committee that drafts the Multistate Professional Responsibility Examination, which includes
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`questions that test familiarity with the ABA Model Code of Judicial Conduct. I previously chaired
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`the ethics committees of the NY State Bar Association, the NY City Bar, the ABA Section of
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`Litigation, and the ABA Criminal Justice Section, and served on the ABA Standing Committee on
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`Ethics and Professional Responsibility during a three-year period when it was reviewing proposed
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`amendments to the ABA Model Code of Judicial Conduct. I have also supervised student writings
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`on judicial ethics,2 and have organized and spoken at programs on judicial ethics. I was recently
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`selected to co-edit a forthcoming special edition of the Journal of Law and Contemporary
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`Problems titled, “Judges in the 21st Century: Confidence Lost?”.
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`2 See Ziona Hochbaum, Note, Taking Stock: The Need to Amend 28 U.S.C. § 455 to
`Achieve Clarity and Sensibility in Disqualification Rules for Judges’ Financial Holdings, 71
`FORDHAM L. REV. 1669 (2003).
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`3.
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`For the time I have devoted to consideration of this matter, I am being compensated
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`at my customary rate of $1,200 per hour. Payment of my fees is not contingent upon the content
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`or substance of the opinions expressed in this report or any testimony.
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`II.
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`RELEVANT FACTS
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`4.
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`For purposes of understanding the relevant facts, I have reviewed the documents
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`listed in the document attached hereto as Exhibit B.
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`5.
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`The relevant facts are, in brief, as follows: Plaintiff, VLSI Technology LLC, has
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`disclosed that it is 100% owned by a limited liability company, CF VLSI Holdings LLC (“VLSI
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`Holdings”), which, in turn, has a majority owner and nine minority owners, all of which have been
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`identified to the Court. Each of the ten entities is either a limited liability company or a limited
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`partnership. Each of the nine minority owners owns less than a 10% interest in VLSI Holdings.
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`The majority owner of VLSI Holdings, FCOF IV UST LLC (“FCO IV”), is “a closed end
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`investment fund family comprised of six individual funds,” which are managed by Fortress
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`Investment Group, LLC. 2022-07-18 Stolarski Decl. at ¶ 5. “[T]he ultimate owners of FCO IV
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`are hundreds of outside investors that are composed of pension and retirement funds, sovereign
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`wealth funds, foundations, high net worth individuals, endowments and other institutional
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`investors, each of which owns less than a 10% indirect interest in VLSI Holdings.” Id. VLSI has
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`represented that, with one limited exception, it does not know the identities of the investors in the
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`ten entities that collectively own VLSI Holdings.
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`III. DISCUSSION
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`A.
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`6.
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`Background: The Scope of the Relevant Disqualification Provisions
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`The question of whether a federal district judge’s financial holdings give rise to a
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`conflict of interest or create an appearance of impropriety requiring the judge’s disqualification is
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`governed by 28 U.S.C. § 455(b)(4) and by Canon 3C(1) of the Code of Conduct for United States
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`Judges. The relevant provisions are similar.
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`7.
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`Canon 3C(1) of the Code of Conduct for United States Judges provides that: “(1)
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`A judge shall disqualify himself or herself in a proceeding in which the judge’s impartiality might
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`reasonably be questioned, including but not limited to instances in which: . . . (c) the judge knows
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`that the judge, individually or as a fiduciary, or the judge’s spouse or minor child residing in the
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`judge’s household, has a financial interest . . . in a party to the proceeding, or any other interest
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`that could be affected substantially by the outcome of the proceeding.” Canon 3C(3)(c) defines a
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`“financial interest” as “ownership of a legal or equitable interest, however small, or a relationship
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`as director, advisor, or other active participant in the affairs of a party.” The provision sets forth
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`exceptions to the definition of “financial interest,” including an exception that ownership in a
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`mutual or common investment fund does not constitute a “financial interest” unless the judge
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`controls the fund. See Canon 3C(3)(c)(i).
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`8.
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`Section 455 is essentially the same. Section 455(b)(4) requires mandatory recusal
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`when a judge “has a financial interest in . . . a party to the proceeding, or any other interest that
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`could be substantially affected by the outcome of the proceeding.” It defines “financial interest”
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`to mean “ownership of a legal or equitable interest, however small, or a relationship as director,
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`adviser, or other active participant in the affairs of a party,” but, like Canon 3C, it makes an
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`exception for “[o]wnership in a mutual or common investment.” See 28 U.S.C. § 455(c)(4)(i).
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`9.
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`The October 17 Memorandum Order raises the question of whether, in this action,
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`a district judge might be subject to disqualification if he has an ownership interest in any of the
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`unidentified entities that has an interest in any of the Fortress-managed funds that, in turn, have an
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`interest in the Plaintiff’s parent company, VLSI Holdings. If not, then it would be unnecessary to
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`identify those entities to make an informed disqualification decision.
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`10.
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`The federal Advisory Committee on Codes of Conduct has provided relevant
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`guidance in Opinion No. 57, titled, “Disqualification Based on Stock Ownership in Parent
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`Corporation of a Party or Controlled Subsidiary of a Party.”3 One question addressed in Opinion
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`No. 57 was “whether a judge should recuse when the judge owns stock in the parent corporation
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`of a controlled subsidiary that is a party.” The Committee concluded that under Canon 3C, “the
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`owner of stock in a parent corporation has a financial interest in a controlled subsidiary. Therefore,
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`when a judge knows that a party is controlled by a corporation in which the judge owns stock, the
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`judge should recuse. . . . When a parent company does not own all or a majority of stock in the
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`subsidiary, the judge should determine whether the parent has control of the subsidiary. The
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`Committee advises that the 10% disclosure requirement in Fed. R. App. P. 26.1 is a benchmark
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`measure of parental control for recusal purposes.” Although the Committee’s mandate is limited
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`to interpreting the Code of Conduct for United States Judges, the advisory opinion noted that
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`“Canon 3C of the Code closely tracks the language of § 455.”
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`11.
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`Reported decisions are consistent with the advisory opinion. On one hand, federal
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`judges recognize that they have a conflict of interest requiring their recusal if they have an
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`ownership interest in a company that wholly owns a party to an action. See, e.g., Catherines v.
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`Copytele, Inc., 608 F. Supp. 1031 (E.D.N.Y. 1985). Here, as a hypothetical example, a judge’s
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`direct ownership interest in VLSI Holdings, the Plaintiff’s parent company, would be
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`disqualifying, because VLSI Holdings wholly owns the Plaintiff. On the other hand, a judge’s
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`3 This opinion is available at: https://www.uscourts.gov/sites/default/files/guide-vol02b-
`ch02_0.pdf.
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`stockholding in a company that in turn owns a small (less than 10%), non-controlling interest in a
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`party to an action (such as VLSI) does not create a disqualifying conflict of interest or appearance
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`of impropriety, because the judge’s financial interest in the party would be too small and indirect.
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`12.
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`Accordingly, in MDCM Holdings, Inc. v. Credit Suisse First Boston Corp., 205 F.
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`Supp. 2d. 158, 162-63 (S.D.N.Y. 2002), the district judge concluded that she was not required to
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`recuse herself because of her stock holdings in two corporations, AOL and Intel, “that own stock
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`in five issuer defendants in the IPO securities litigation.” The court reasoned: “Under the plain
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`language of the statute, such stock ownership does not constitute a disqualifying interest because
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`it is not a ‘financial interest in a party to the proceeding.’ . . . Rather, they are financial interests
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`in corporations that, in turn, have an interest in parties to the proceedings.” Id. at 162 (emphasis
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`added). The court further explained:
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`If these companies were owned exclusively by AOL or Intel, or the companies were
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`corporate subsidiaries, then stock ownership in AOL or Intel would require disqualification
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`if not promptly sold. At the same time, nothing in the text of section 455(b) or its legislative
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`history indicates that Congress intended to require disqualification whenever a judge
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`owned stock in a company that is a shareholder in a party (e.g., if AOL was not a parent
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`corporation but only owned a small percentage of shares in a party to this litigation).
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`The key question is whether the company in which the judge owns stock has effective
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`control over the party to the litigation -- that is, at least 50% of the voting stock or a majority
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`of the capital interest in the party. Thus, for example, a judge who owns stock in a
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`corporation that “holds 80% of the outstanding stock of [a party to the proceedings] through
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`one of its wholly owned subsidiaries” must disqualify herself unless she has properly
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`divested herself of ownership. . . . In contrast, because AOL and Intel do not exercise
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`control over any of the issuer defendants, my stock ownership does not trigger the
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`disqualification provision of section 455(b)(4).
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`Id. at 162-63 (internal citations omitted). The court concluded by observing that: “It was thus
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`inappropriate for the issuer defendants to include non-controlling stock interests in their companies
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`in their disclosure statements. Given the limited resources of the Court, which must review
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`hundreds of 1.9 statements every year, parties should only disclose what the local rule requires.”
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`Id. at 163.4
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`13.
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`Both the advisory opinion and the opinion in MDCM Holdings, Inc. are easily
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`accessible and familiar to courts and commentators, which have cited them. I am unaware of any
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`judicial decisions or secondary authority criticizing these opinions or calling their reasoning or
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`conclusions into question.
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`B.
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`Greater Disclosure is Not Needed to Make an Informed Disqualification
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`Decision
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`14.
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`In the context of this action, the Court’s April 18 Standing Order calls for disclosure
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`of “the name of every individual and corporation with a direct or indirect interest in” VLSI.
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`Although VLSI has identified its parent company (VLSI Holdings) and all the entities – one
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`majority owner and nine minority owners – with an interest in VLSI Holdings, the April 18
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`Standing Order would apparently require VLSI to disclose the identities of hundreds of outside
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`investors in the entities that are members of VLSI Holdings, including pension and retirement
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`4 On the undesirability of over-disclosure, see also Fed. R. Civ. P. 7.1, Committee Notes on
`Rules—2002 (“Unnecessary disclosure requirements place a burden on the parties and on
`courts. Unnecessary disclosure of volumes of information may create a risk that a judge will
`overlook the one bit of information that might require disqualification, and also may create a
`risk that unnecessary disqualifications will be made rather than attempt to unravel a potentially
`difficult question.”).
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`funds, sovereign wealth funds, foundations, high net worth individuals, endowments and other
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`institutional investors. VLSI has represented that, with one limited exception, it does not know
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`the identities of those indirect investors. Further, the April 18 Standing Order would perhaps also
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`require VLSI to disclose all the individuals and entities with ownership interests in those hundreds
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`of indirect investors, such as (for example) all investors in the University of Texas/Texas A&M
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`Investment Management Company (“UTIMCO”) funds that have invested in entities that have an
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`interest in VLSI Holdings.5 Against the foregoing background, I conclude that a district judge
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`does not need this information to make an informed disqualification decision.
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`15.
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`First, there is no necessity to identify individuals who have invested in any of the
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`ten identified entities with an ownership interest in VLSI Holdings. A district judge is aware of
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`his own and his family members’ investments and is therefore already able to make a fully
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`informed decision whether he or a family member is one of the “high net worth individuals” with
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`an investment in one of those ten entities. In an analogous situation, if a party such as Defendant
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`Intel is a corporation, the corporation is not required to identify all its individual stockholders,
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`because the judge would be capable of ascertaining more efficiently and conclusively from his
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`own financial records whether he or a family member is an investor in the corporation.
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`16.
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`Second, there is no necessity to identify entities such as pension, retirement, or
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`mutual funds that have invested in any of the ten entities with an ownership interest in VLSI
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`Holdings because there is no possibility that the judge could have a disqualifying financial interest
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`5 I understand that UTIMCO is an investor in some of the entities with ownership interests
`in VLSI Holdings. UTIMCO could potentially hold those indirect investments in VLSI
`Holdings on behalf of thousands (or tens of thousands) of individuals. However, it is unclear
`how VLSI would have access to information about individuals with investments held by
`UTIMCO, especially given that UTIMCO is not a direct investor in either VLSI or VLSI
`Holdings.
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`as a result of an investment in such entities. As discussed above, a judge’s investment in a common
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`investment fund or mutual fund that has invested in a party is not a disqualifying financial interest
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`unless the judge controls the fund. Therefore, even assuming the district judge or his family
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`member owned an interest in a mutual fund, retirement fund, or the like that has an indirect interest
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`in VLSI (or in an entity with a financial interest in such a mutual fund), that would not be
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`disqualifying. Cf. New York City Housing Dev. Corp. v. Hart, 796 F.2d 976, 979-80 (7th Cir.
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`1986).
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`17.
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`The remaining possibility is that the district judge is an investor in a public entity
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`that has an indirect interest in VLSI. Suppose, as a hypothetical example, that Citibank is an
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`investor in FCO IV, the majority owner of VLSI Holdings, and the judge owns shares in Citibank.
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`In theory, VLSI’s success in this action might redound to the financial benefit of FCO IV, and, in
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`turn, to the financial benefit of Citibank as an investor in FCO IV, and, in turn, to the financial
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`benefit of the district judge as a Citibank shareholder. The question, then, is whether, given this
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`possibility, a district judge would be disqualified because the judge “has a financial interest . . . in
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`a party to the proceeding,” or has another “interest that could be affected substantially by the
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`outcome of the proceeding,” or because “the judge’s impartiality” might otherwise “reasonably be
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`questioned.”
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`18.
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`Here, as noted above, no one investor owns as much as a 10% indirect interest in
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`VLSI Holdings. Accordingly, a judge would not be disqualified even assuming he held a financial
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`interest in a public entity, such as Citibank in the example above, that has a minority indirect
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`interest in VLSI Holdings. Both the above-discussed advisory opinion and the decision in MDCM
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`Holdings, Inc. compel this conclusion. Simply put, the disqualification rules do not support
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`disqualification when a judge holds shares in a public company that in turn has a small (below
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`l07o), non-controlling, indirect interest in a party to an action - that circumstance neither gives
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`rise to a conf'lict of interest nor creates an appearance of impropriety warranting disqualification.
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`19. This conclusion is consistent not only with the above-discussed authorities but also
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`with the understandings implicit in conventional federal judicial practice. To the best of my
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`knowledge, this Court's April l8 Standing Order is a rarity, if not unique. The conventional
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`understanding, reflected in ordinary practice throughout federal courts, is that, to enablejudges to
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`make infomed disqualification decisions, it is unnecessary to identify every entity and individual
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`with an indirect interest in a party.6 Further, if such disclosure were deemed necessary to make an
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`informed disqualifrcation decision (which in my opinion it is not). I am unaware of any basis fbr
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`requiring only certain entities like LLCs (such as VLSI) to provide this infbrmation, but not
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`requiring corporations (such as Def-endant Intel Corporation) to provide the same information.
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`I declare underpenalty of perjury underthe laws of the United States of Arnerica that the
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`fbregoing is true and correct to the best of my knowledge and belief-.
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`Dated: November 30, 2022
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`ur, ,rW
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`Bruce A. Green
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`6 Fed. R. Civ. P. 7.1 has been arnended effective as of December l, 2022ro require
`additional infbrmational disclosures from certain parties in the context of diversity jurisdiction
`cases, but not for the purpose of making judicialdisqualification decisions. I understand this is
`a patent case, not a diversityjurisdiction case.
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