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Analysis: In Citi appeal, who will speak for Rakoff?

A woman walks into a Citibank branch in New York
A woman walks into a Citibank branch in New York

By Carlyn Kolker

NEW YORK (Reuters) - Manhattan federal judge Jed Rakoff is certainly not shy about speaking for himself. In November, as you'll surely recall, Rakoff blocked a negotiated $285 million settlement between the Securities and Exchange Commission and Citigroup over mortgage-linked securities. To say Rakoff had harsh words for the parties would be the understatement of the year. He railed against the bank and regulators and said the SEC's practice of allowing companies to settle cases without admitting or denying wrongdoing was far outside the public interest. For good measure, he also accused the SEC of being out for a "quick headline" and called the settlement amount "pocket change."

The SEC wasn't happy, either. In December the agency appealed Rakoff's order to the 2nd U.S. Circuit Court of Appeals. The appeals court hasn't ruled yet on whether the ruling is even appealable. Rakoff himself has said he doesn't think the issue is ripe for appeal and in December declined to issue a stay in the case, which is scheduled for trial in July. Motions are due before the 2nd Circuit today on the SEC's request for a stay. But when the argument on the merits of Rakoff's opinion goes to the 2nd Circuit -- and it is sure to go there eventually -- an essential question remains: Will we hear Rakoff's voice, either in the flesh or in spirit? By proxy or in person?

Remember, without the judge's involvement, the case is basically an appeal without an adversary. The two parties to the suit, the SEC and Citi, consented to the settlement and both want the 2nd Circuit to override Rakoff and approve their deal. Their "adversary" -- Rakoff -- is not a party to the case and does not have any enshrined rights as an advocate in the litigation.

There are few precedents for this situation. The most directly analogous case dates back to 1995, when another maverick judge, U.S. District Court Judge Stanley Sporkin of Washington, D.C., rejected an agreement between two equally high-profile parties, Microsoft Corp and the Justice Department. The two sides had inked a consent decree over Microsoft's anticompetitive software practices, but Sporkin ruled that the agreement was not in the public interest (sound familiar?) and that it did not sufficiently meet antitrust standards. (This was the consent decree the Justice Department later accused Microsoft of violating, sparking the epic antitrust trial of the late 1990s.) Microsoft and the DOJ appealed, and the D.C. Circuit reversed Sporkin, saying he had exceeded his judicial authority. The appeals court also remanded the case to a new judge because, in its view, Sporkin appeared to be biased against the parties. In the appellate proceedings, Sporkin didn't speak or submit any supplemental briefing.

"Nobody represented me," said Sporkin, now practicing at Stanley Sporkin, Esq. "It's a tough issue, where nobody is supporting the judge." (Sporkin noted that despite the stinging reversal from the appeals court, he felt vindicated nearly 10 years later when Congress amended the relevant antitrust law to clarify the role judges have in reviewing similar agreements.)

So will Rakoff get a voice that Sporkin did not?

That may depend on whether the 2nd Circuit takes the Citi case as a straight appeal or as a writ of mandamus, which is essentially a suit against the judge and a direct challenge to his integrity.

There are four possible scenarios:

1) The 2nd Circuit could do nothing, letting the record that Rakoff created at the district-court level speak for his position at the appellate level. After all, Rakoff hardly minced words in his 15-page order rejecting the settlement; any circuit judge could dissect his language and get a pretty good idea of his argument. Moreover, after penning his initial ruling, Rakoff continued to take the parties to task, saying they were potentially "misleading" the court. "Certainly, Rakoff made it clear he was foreshadowing the appeals argument," said Hillary Sale, a securities law professor at Washington University in St. Louis.

2) The 2nd Circuit could put out a call for amicus briefs supporting Rakoff's view. The problem with that, said Sale, is that few groups have stepped in to support Rakoff's position. (So far just one amicus group, the Business Roundtable, has asked to enter the fray, and it is supporting the appealing parties.) Defendants, government agencies, and plaintiffs' lawyers all generally support the practice of settling cases without admitting wrongdoing, Sale noted, and no academics have publicly come forward to say they agree with Rakoff's position. A public interest group, perhaps? "Let's say Occupy Wall Street -- whoever they are," said Sale. If no one answered a call for amici, the appeals judges could simply rely on their law clerks to brief Rakoff's argument, according to Sale.

3) The appeals court could appoint a lawyer, also in an amicus position, to represent Rakoff's view. This practice occurs occasionally at the U.S. Supreme Court, usually when the Court wants to review a case but one party has abandoned a position expressed in the lower courts. The Justices typically appoint a former Supreme Court clerk to present an argument to the high court (pro bono, of course). A recent Stanford Law Review article noted that such arguments have been presented to the Court 43 times since 1954.

"It's a weird job," said Ernest Young, a Duke University law professor and specialist in federal procedure. "On the one hand, you've been appointed to argue this cool case. On the other hand, you've been appointed to argue it because no rational lawyer has taken that position."

4) Rakoff himself could provide briefing to the 2nd Circuit or seek out a lawyer to speak on his behalf. This is where things get trickier. The federal rules of appellate procedure are clear that when a writ of mandamus is involved, the court of appeals can invite the judge to address the writ. When the Republic of Germany brought a mandamus action against Sporkin over a Holocaust-era dispute, Sporkin hired Harvey Pitt -- then of Fried, Frank, Harris, Shriver & Jacobson, later the chairman of the SEC -- to represent him. In another mandamus action Sporkin hired noted Washington lawyer Lloyd Cutler of the firm now known as Wilmer Cutler Pickering Hale and Dorr. In a strict appeal situation, appellate procedure does not contemplate a request to the district court judge for his or her submission -- but nor does it preclude it, says Paul Cassell, a professor at University of Utah's SJ Quinney College of Law and a former federal judge.

Still, Cassell said, most judges would likely prefer to remain silent and let their decision speak for itself.

"I think judges get a bit queasy when they are asked to assume an adversarial role," said Cassell. "Judges are in the business of deciding cases, not advocating positions."

(Reporting by Carlyn Kolker; Editing by Jesse Wegman)

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