John W. Dean

Does the Judge Who Blocked Obama's Drilling Moratorium Suffer from an Unethical Conflict of Interest?

By JOHN W. DEAN
Friday, June 25, 2010

Note: Since initial publication of this column, Judge Feldman has filed updated financial documents. The author has reviewed this development, and his updated commentary appears at the end of this article. -- Ed.

Notwithstanding his widely-reported financial ties to the oil industry, U.S. District Court Judge for the Eastern District of Louisiana Martin Leach-Cross Feldman -- after two hours of oral argument -- issued a preliminary injunction against the U.S. Department of Interior's drilling moratorium.

The moratorium seeks to ban deepwater drilling in the Gulf of Mexico for six months, while the federal government studies the reasons for the eleven deaths and the terrible environmental disaster caused by the spill involving BP's Deepwater Horizon platform.

If Judge Feldman, in fact, still holds the oil investments that he last reported holding in 2008, then it is difficult to understand why he did not recuse himself. Indeed, if he still owns these oil and gas interests, then he has violated the canons of judicial ethics for the federal judiciary -- which would be shocking, for Judge Feldman is a savvy, experienced and highly-respected federal judge. But something is going on here, for he has refused to comment: The Associated Press reported that " Feldman did not respond to requests for comment and to clarify whether he still holds some or all of these investments."

The Associated Press noted, as well, that "[Judge Feldman was] one of many federal judges across the Gulf Coast region with money in oil and gas. Several have disqualified themselves from hearing spill-related lawsuits and others have sold their holdings so they can preside over some of the 200-plus cases."

But thus far, the Associated Press and others in the mainstream news media have only taken a cursory look at the degree of the potential conflict of interest at issue here. I decided to look a bit closer.

Ethical Standards for Federal Judges: The Canon at Issue Here

The Code of Conduct for United States Judges is set forth in a few clear rules, which contain the "ethical principles and guidelines adopted by the Judicial Conference of the United States." The Code of Conduct provides guidance for judges on issues of judicial integrity and independence, judicial diligence and impartiality, permissible extra-judicial activities, and the avoidance of impropriety or even its appearance. According to the Code, judges may not hear cases in which they "have … a financial interest in any party or subject matter of the case."

More specifically, Canon 2 states: "A Judge Should Avoid Impropriety And The Appearance Of Impropriety In All Activities." The commentary to this Canon, in turn, explains the understood breadth of this rule: "Public confidence in the judiciary is eroded by irresponsible or improper conduct by judges. A judge must avoid all impropriety and appearance of impropriety. A judge must expect to be the subject of constant public scrutiny. A judge must therefore accept restrictions that might be viewed as burdensome by the ordinary citizen and should do so freely and willingly.… The test for appearance of impropriety is whether the conduct would create in reasonable minds, with knowledge of all the relevant circumstances that a reasonable inquiry would disclose, a perception that the judge's ability to carry out judicial responsibilities with integrity, impartiality, and competence is impaired."

Judge Feldman's Potentially-Relevant Oil and Gas Financial Interests

Judge Feldman's Financial Disclosure Report for Calendar Year 2008 (the last statement he filed) shows a man of considerable wealth. Although the statement suggests few large holdings (most under $15,000; some under $100,000), the numbers add up, no doubt to many millions of dollars. Financial disclosure statements are less than revealing, and Feldman's is no exception: It tells the reader little, but it does disclose his remarkable number of oil and gas holdings in the Gulf of Mexico, where his recent ruling will have its greatest impact.

The Associated Press spotted a few of the holdings that obviously suggested conflicts of interest -- namely holdings in Transocean Ltd, which built the Deepwater Horizon drilling rig that is now at the bottom of the Gulf -- not to mention about a dozen more rigs in the Gulf. Transocean is considered the world's largest offshore-drilling contractor. It is difficult to believe that Judge Feldman's ruling was not good for Transocean.

In addition, the Associated Press spotted Halliburton among the judge's holdings. Halliburton is all over the Gulf, and no doubt wants to do even more there, so Halliburton, too, would likely benefit from removing the ban. (It is clear from the 2008 financial disclosure that Feldman sold some of his investments in Halliburton, but the statement does not address how much, if any, he still retained.) Yet the mainstream news media has passed over other oil and gas investments by Judge Feldman that potentially relate directly to his ruling.

Judge Feldman's portfolio contains no less than seven other investments that it appears may be directly affected by his ruling on the exploration moratorium. I will consider them in the order in which they appear in his fourteen-page financial-disclosure form, where he lists 141 of his financial assets.

It appears that the following oil/gas industry investments ought to also raise questions:

Item #16 -- Ocean Energy is described as "an independent energy company engaged in the exploration, development, production, and acquisition of crude oil and natural gas. North American operations are focused in the shelf and deepwater areas of the Gulf of Mexico…." [Emphasis added.]

Item #95 -- Parker Drilling Company "provides drilling services on land and offshore including drilling rights, project management and rental tools to the energy industry. Parker's expertise extends to every region of the world -- from the U.S. Gulf of Mexico to the jungles of Papua New Guinea." The company offers the following notes on its offshore operations: "The company has 17 barge rigs in the U.S. Gulf of Mexico, … and is the second-largest drilling contractor in the transition zones of the Gulf of Mexico;" for its rental operation: "The company serves major and independent energy companies in the Gulf of Mexico…." [Emphases added.]

Item #113 -- Rowan Companies, Inc. is "a major provider of international and domestic contract drilling services. With a special focus on high-specification, premium jack-up rigs and a manufacturing division that is unique within the industry, we offer our customers innovative drilling products and systems including those that serve our niche market — hard-to-drill deep gas wells." In addition, it must be noted, "Rowan provides offshore drilling services internationally and currently has rigs working in the Gulf of Mexico." [Emphases added.]

Item #118 -- El Paso Corporation and Item # 124 -- El Paso Partners (some of Judge Feldman's investments in this company appear to have been sold in 2008) are in the natural gas pipeline business, and are active in the Gulf of Mexico, which means they could be affected by Judge Feldman's ruling.

Item #129 -- KBR, Inc. is a giant engineering, construction and service company that is highly active in the Gulf of Mexico. KBR has several projects that, it seems, could be directly affected by Judge Feldman's ruling. For example, the Aspen Subsea Tieback Projects, Phases I and Phase II in the Gulf, the Big Foot Project, the BP Atlantis Project, and the BP Thunder Horse Project -- to name a few of the company's prominent Gulf operations. [Emphasis added.]

Item #134 -- ATP Oil & Gas Corporation describes itself as being "engaged in the acquisition, development and production of natural gas and oil properties in the Gulf of Mexico…." The company explains, "ATP operates its developments and reduces operating risks with projects that have a close proximity to developed markets for natural gas and oil; existing infrastructure of oil and natural gas pipelines and production/processing platforms; and a relatively stable regulatory environment (e.g. the Gulf of Mexico …) for offshore natural gas and oil development and production." Surely, Judge Feldman's decision has provided ATP with precisely the kind of "stable regulatory environment" it seeks. [Emphases added.]

If Judge Feldman still owns these investments, then he is surely in violation of the Code of Conduct for United States Judges -- specifically, Canon 2. On the other hand, if he has sold these holdings, while he might not directly profit from his ruling, his prior investments still corroborate what is the appearance of clear bias, in his ruling, in favor of drilling. In fact, those holdings indicate that it would not be possible to find a judge who would have been more sympathetic than Judge Feldman showed to a request to halt the government's effort to place a temporary moratorium on deepwater oil and gas exploration in the Gulf of Mexico.

Surprisingly, there has, as of yet, been little serious investigation into Judge Feldman's potential conflicts of interest. When the judge refused to address the subject, the media and defendants apparently backed off. Why? If this judge were truly as good as his reputation, then he would surely have put this matter to bed when it first arose.

Feldman's Conspicuously-Biased Ruling

Judge Feldman's Order And Reasons do not appear to have been in any way carefully considered. To the contrary, his opinion is snarky, less than skillfully crafted, and remarkably political -- not to mention, filled with troubling gaps. It reads like a draft prepared by a bright law clerk who had just returned from a meeting of the Federalist Society.

For the moment, I am setting aside the judge's disposition of technical legal issues such as the jurisdiction of the court, the interpretation of the applicable statutes, and the respective burdens on the parties to make their case in court, for these issues will be addressed in the government's appeal of the judge's order. Most striking is the judge's unbalanced examination of the information before the court: his easy dismissal of the government's information, combined with his uncritical embrace of the information provided by the oil and gas industry.

Feldman belittles a government report (which contained the views of experts, some of which were in conflict) that sought to provide the Secretary of Interior with guidance on how to deal with the BP disaster in the Gulf, and that recommended the brief moratorium. But this report was not written as a set of legal findings; rather, it served as an informal working document -- and accordingly, provided an easy target. But this report is no looser with the facts than Judge Feldman is in his own opinion.

For example, the judge rejected as conclusory the findings in a one-page memorandum from the Secretary of Interior to the director of the Minerals Management Service directing the six-month suspension of the offshore drilling of new deepwater wells in the Gulf of Mexico. Yet there was no statutory requirement that more detail be provided. Moreover, the judge did not want to hear other evidence that would have bolstered the government's justification for its moratorium. (The judge apparently wanted a formal proceeding to have taken place, but no such proceeding occurred before the moratorium was imposed.)

In contrast, when the oil and gas industry offered similarly conclusory evidence, the judge accepted it. A preliminary injunction requires a showing of likely success on the legal merits, coupled with a showing of irreparable harm if the injunction is not granted. With respect to the industry's claims of damage from the temporary moratorium, the judge found the pleadings to be enough -- looking to the complaint, not any evidentiary submission. He wrote, "The plaintiffs' complaint is based on the effect of the general moratorium on their oil service industry business, on the local economy, and puts in play the issue of the robustness of a Gulf-wide industry and satellite trades." Without citing a scintilla of evidence from the record of irreparable harm to the plaintiffs, the judge (several pages later) states: "The plaintiffs assert that they have suffered and will continue to suffer irreparable harm as a result of the moratorium. The Court agrees."

That is it. Based on a mere assertion of harm to the oil and gas industry -- not actual proof of harm -- this court ended the drilling moratorium.

While the record of the information submitted by the parties is not available online, four days before the lawsuit to end the moratorium was filed, the lead plaintiff, Hornbeck Offshore Services (a New York Stock Exchange-listed company), was still touting its stock to investors as being relatively unaffected by the moratorium.

Specifically, Hornbeck claimed: "During the Drilling Moratorium, the Company will continue to seek to engage in all permissible oilfield activities that are not affected by the Drilling Moratorium in the [Guff of Mexico]. Such activities include oil spill response efforts, drilling support in waters of 500 feet or less, workover operations, completion operations, abandonment operations, intervention operations, and certain production-related activities and other specialty non-drilling applications." Hornbeck added, "Based on currently available customer opportunities, the Company is reasonably optimistic about its ability to further diversify its revenue base." This is a company that Judge Feldman found to be suffering "irreparable harm" because of the moratorium.

During the court proceedings before Judge Feldman, the government pointed out that Secretary Salazar's decision to follow the recommendations of the experts calling for a brief moratorium was, as the judge notes in his opinion, "influenced by a concern that the government's resources, stretched thin by the oil spill, could not cope with another blowout were one to occur." Yet Judge Feldman's response to this rather grim reality was to characterize it -- in a footnote, no less -- as a "disturbing admission by this Administration."

In his opinion, Judge Feldman also dismisses the reality of what has occurred at BP's Deepwater Horizon site. He writes: "If some drilling equipment parts are flawed, is it rational to say all are? Are all airplanes a danger because one was? All oil tankers like Exxon Valdez? All trains? All mines? That sort of thinking seems heavy-handed, and rather overbearing."

"Heavy-handed"? "Overbearing"? The judge might as well be talking about his own behavior in overturning a highly rational government action -- an action that would have allowed all parties to take a brief period of time to understand the flaw that caused the spill, before risking further deaths and truly irreparable harm to the environment.

In sum, Judge Feldman's opinion strongly indicates that he is following the oil-and-gas-are-foremost philosophy of Gulf politicians, rather than the dispassionate and rational approach that has traditionally been applied by the federal bench.

Appealing Judge Feldman's Preliminary Ruling

Judge Feldman has even refused to stay his order prohibiting the moratorium during the appeal process. As a result, the government is rightly taking the matter to the U.S. Court of Appeals for the Firth Circuit, which may or may not issue a stay.

Theoretically, it is a crucial part of a trial judge's job to build an evidentiary record, and thus enable meaningful appellate review. But if there is much of an evidentiary record in this case, Judge Feldman has kept it well concealed. Thus, there may be little for the appellate court to go on, and that court may largely be left resolving technical legal issues -- of which there are many.

Finally, if an emergency panel of judges from the Fifth Circuit does not provide the government with a temporary stay, the government can forget about going to the U.S Supreme Court Justice responsible for the Fifth Circuit for an emergency stay. That Justice is Antonin Scalia -- a close personal friend and great admirer of Judge Martin Feldman -- and Justice Scalia has never met a conflict of interest that troubled him.

UPDATE

Shortly after posting this column, the Associated Press reported Judge Feldman had filed his 2009 financial disclosure statement on June 6, 2010. In addition, on June 23, 2010, the judge sent a letter to amend his disclosure statement indicating that "at the opening of the stock market on June 22, 2010 [and] prior to the opening of a Court hearing on the Oil Spill Moratorium case," he had sold his recently acquired shares of Exxon. Clearly, Judge Feldman understands the canons, and he is playing it as close to the line as possible, which itself may violate the canons.

Judge Feldman was assigned this case that was filed on June 7 th at least by Friday, June 18 th, when he began issuing orders to the parties to expedite the case, if not earlier. Yet he waited until Tuesday, June 22 nd to sell his Exxon. Did he wait to sell until he had decided before the hearing that he was going to rule in favor of the oil companies, making his Exxon ownership a conspicuous conflict of interest? More importantly, why did he not remove all the potential conflict investments from his portfolio? For example, he still own shares which appear they could be affected by his ruling, namely Ocean Energy and El Paso Corporation (see above), along with more recently acquired interests in Energy Transfer Equity and Crosstex (which have Louisiana operations)?

While the judge still appears to have not insignificant financial interests in the oil and gas industry that will be directly or indirectly affected by his actions, he did sell several other investments that would have benefited from his ruling: Halliburton, Parker Drilling, Rowan Companies, and El Paso Pipeline Partners, KBR, Inc., and ATP Oil & Gas Corporation. But in taking this case, and given his handling of it, Judge Feldman seems to not give a care about the federal judiciary's canon that addresses the appearance of impartiality, as well as the fact.

Most troubling for me, Judge Feldman's Order prohibiting the Interior Department from enforcing its moratorium is extremely broad, for not only does it deal with the Gulf of Mexico but it also includes such potential activities in the Pacific. I live along the Pacific and frankly I don't want an oil drenched industry boosting federal judge sitting in New Orleans making decisions for California, which is what has occurred. He maybe be hell bent on risking the further fouling his ocean. But please, not mine.


John W. Dean, a FindLaw columnist, is a former counsel to the president.

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