– 72 –
ORAL HISTORY OF
JUDGE STANLEY SPORKIN
OCTOBER 4, 2004
This is the fourth interview of the Oral History of Judge Stanley Sporkin as part of the Oral History Project of the D.C. Circuit Historical Society. It is being held by Alexander Bennett on October 4, 2004. The tape and any transcripts made from the tape are confidential and governed by the wishes of Judge Sporkin, which have been made in the form of a written donative instrument.
Mr. Bennett: I think the last time we got together we ended as you were telling us about the confirmation process. You had just at that stage explained how the issue raised by Senator Denton about your alleged obstruction of justice had basically been dealt with in a hearing. We wonder if you could continue and explain the rest of the process by which you came to be confirmed as a judge.
Judge Sporkin: I think I told you it was sort of bizarre when I was told that the issue of obstructing justice was based upon the fact that I had recommended a lawyer to a CIA Agency official who was under investigation. I think I mentioned that Edward Bennett Williams had never heard of anything like it. In any event, we had the hearing. The strategy of my opponents was to subpoena this individual and force him to take the Fifth Amendment. That blew up in their faces, when this gentleman came forward and testified under oath that he did not engage in the conduct that he was accused of engaging in. At that point, the hearing ended. This was all done in a confidential hearing.
The late Senator Paul Simon immediately left the hearing room and met with the press and told them that he had heard enough and that he was strongly supporting me. The vote then came out of Committee unanimously. It went to the full Senate but of course the timing was very close to the end of the
– 73 –
session. There was a real question of whether I could get a vote. What next happened was that the Administration had a move that they wanted to make, namely they wanted to move Margaret Heckler from her Cabinet position to that of Ambassador to, I believe, Ireland. The Administration wanted to do it very quickly. It was on a Friday when the Heckler issue came to the Senate. Persons who were strongly in my court, particularly Senator Proxmire, put a hold on the Heckler nomination and told the Administration that the Heckler nomination would not go forward until they had a vote on me. The President and Majority Leader Dole did everything they could to assure Senator Proxmire that, if they allowed the Heckler nomination to go forward, I would be taken up at the beginning of the following week. Senator Proxmire to his credit refused to budge and the whole matter was put off until Monday, at which time my nomination came to a vote and I received unanimous approval. And that was followed by the Heckler and the Buckley nominations.
I do not know whether Senator Buckley realized it but the reason that he got a vote was that the two Connecticut senators who were holding up his nomination were strongly in favor of me, and they agreed to have his nomination come to a vote if my nomination was allowed to go forward before his. It was Senators Weicker and Dodd who were holding up the Buckley nomination. But once my nomination came forward, then Buckley was also confirmed as a judge on the D.C. Circuit. That’s really the history of my confirmation process.
– 74 –
Mr. Bennett: Throughout this period of time when there were numerous hearings dealing with issues raised by Senator Denton and other persons, did any questions come up about political affiliations, judicial philosophy or anything of that kind?
Judge Sporkin: Those issues were not really raised. You’ve got to understand that I had extremely strong support on the Hill – extremely strong support, because many senators approved of what I had done at the SEC – particularly Senator Proxmire. This was the case also with Senator Weicker and Senator Dodd, and a host of others. The only real issues in the confirmation process were those raised by Senator Denton. And these issues did not reflect what I believe was disturbing him. Senator Denton did not have a basis for holding me up for his real reason, which I believe was that, while I was at the SEC, we may have brought a case or two against people he had an interest in, and he thought that we were being a little hard on them. But that reason could not surface because they were people who had violated the law. So Senator Denton tried other strategies to stop me, and the one he used primarily was the argument that I had obstructed justice on the ground that I had advised the Director of Central Intelligence that we should assist one of our officers by arranging for him to have an attorney.
Mr. Bennett: Judge Sporkin, originally your nomination went to the Senate in June 1984 and it was not acted on during that year. The first nomination was returned to President Reagan in October of that year. And then you were renominated the
– 75 –
following year, 1985, and there were the hearings that we talked about previously. You mentioned, I think, in one of our previous sessions that you considered this to include some of your darkest days, personally.
Judge Sporkin: Right.
Mr. Bennett: I think in an even earlier session, one of our first that we had for this oral history project, you mentioned that, when you had the opportunity to become a judge, it was interesting to you that you were almost blinded by the desire to be a judge and never really looked at it in an objective way that perhaps you should have looked at it. Were you alluding to the problems that you were encountering during the nomination process that caused you personal distress?
Judge Sporkin: No. That had nothing to do with it. The only thing was this. My whole desire throughout my whole professional career was to be a judge. That was still with me because my father had been a judge and I saw the best in the profession through what this gentleman had done. And I wanted obviously to emulate him. He was my role model. What I was saying was that I had not independently looked into the role of a judge, what the issues are and how to do it. When I became a judge, I then of course was faced with reality. In other words, I had to realize that you have to take every case. You cannot duck a case. You do not get exactly what you want. There is a lot of time that you spend which is not very productive but you have to sit days on end listening to testimony, almost mechanically ruling on evidence issues. Those are issues that I had not really focused on in this
– 76 –
process. I still think that it is a great position and would do it again. But I had not really contemplated those types of issues.
Mr. Bennett: Referring to your earlier years on the bench, when you got there you were sworn in and began functioning as a judge, did the job turn out more or less as you had expected it to be?
Judge Sporkin: It turned out in many ways to be better than I expected. Remember my experience with the courts was through my father being a judge and through my years as a law clerk. But what I had not contemplated were the matters that come before a court like the United States District Court for the District of Columbia. You get a much broader segment of judicial matters here in the District. It is an amazing court. I never
contemplated a Microsoft case3 or a Keating case4 or some of these other major matters – matters that sometimes started out as a very minor case that just mushroomed into something very big. For example, the Prinz case, Hugo Prinz.5 That was a case that looked like a number of other matters that we had – involving somebody who had a
3 United States v. Microsoft, 159 F.R.D. 318 (D.D.C. 1995) (ruling that consent decree was not in public interest in light of its failure to address all anticompetitive practices at issue and for other reasons), 1995 WL 121107 (D.D.C. March 14, 1995) (order setting forth additional observations on the court’s decision), rev’d, 56 F.3d 1148 (D.C. Cir. 1995).
4 Lincoln Savings & Loan Ass’n v. Wall, 743 F. Supp. 901 (D.D.C. 1990) (upholding the action of the Federal Home Loan Bank Board in appointing a conservator and receiver for Lincoln Savings & Loan).
5 Prinz v. Federal Republic of Germany, 813 F. Supp. 22 (D.D.C. 1992) (denying motion to dismiss), 1999 WL 121301 (D.D.C., April 7, 1993) (denying motion for stay pending appeal), rev’d, 26 F.3d 1166 (D.C. Cir 1994).
– 77 –
beef for 50 years and thought he was entitled to something. When my law clerk looked at it she thought that this was a case that probably could be summarily dealt with as being like a lot of other claims where people had grievances but the case was not really there. Yet that case turned into a major, major case that resulted eventually in hundreds of millions of dollars being sent to victims of the Holocaust.
– 78 –
So you have a number of those kinds of things. A case I had, that I was looking at the other day, involved the Government’s policy of Don’t Ask, Don’t Tell, for gays in the military.6 I think at the time that I had the leading case on these issues. People used to say to me how come I get all the good cases. It was not that I was getting all the good cases. It was these little cases that nobody else thought were much that grew into big cases. A lot of times we did not know what was going to happen.
Mr. Bennett: Were there any surprises when you took the bench? I am thinking about things like your friends might have become reluctant to return your calls or anything of that kind.
Judge Sporkin: No. My only surprise was that the degree of independence that you have. If there is anything that marks the greatness about that job is the tremendous amount of independence. Here I had managed big operations involving hundreds of people at the SEC and 100 to 150 people at the CIA. When I went to the courthouse, I had just me, a secretary, two clerks, a courtroom clerk and so I felt in control. I also
6 McVeigh v. Cohen, 983 F. Supp. 215 (D.D.C. 1998) (injunction ordered to address Navy’s violation of the “don’t ask, don’t tell, don’t pursue” policy when the Navy sought information about an otherwise undisclosed identity of a particular e-mail user from an internet online service provider), 996 F. Supp. 59 (ordering hearing to determine whether defendants were in compliance with the Court’s order).
– 79 –
had a tremendous amount of independence being able to call them as I saw them. And that was the best surprise.
Mr. Bennett: In those early days, did you have any special friends among the other judges?
Judge Sporkin: The district court judges are just super. They were nice. They were friendly. I became friendly with great judges like Judge Richey, a dear friend of mine. Lou Oberdorfer was a very close friend and still is. I had a good relationship with Judge Jackson, and with Judges Hogan, Lambert, Penn and Harold Green. And I should mention Bill Bryant, Barrington Parker and Joyce Green. These were all very strong, supportive colleagues. When I first got there, I was sandwiched between Barrington Parker and Bill Bryant. Bryant was extremely pleased to see me. I didn’t know what he knew about me but he must have known something about my background. He seemed to be very happy with my judging and the decisions I was making.
Mr. Bennett: Did any of those judges give you any special help in sort of getting your feet under yourself when you arrived?
Judge Sporkin: Yes. I learned from Judge Richey how important it was to control your docket and to dispose of cases. You have so much independence that there is a tendency to let things slip, perhaps with the thought that nobody is going to do anything about it. That was one thing in particular about which I disciplined myself – to get my decisions out on time. I did not want to have anything that was reportable as pending too
– 80 –
long. You had to file a report every quarter. There were two judges there that had the lowest number of cases. One was Judge Gesell and the other was Judge Richey. It was not long before I was in a competitive battle with those two. They did not like the newcomer coming along, so they exerted even more effort to get their dockets down. I kept my docket extremely current. It even got to the point where some of the lawyers used to say, Judge, we know that you decide cases quickly but please take a little more time in this case. I never had anyone complaining about the promptness of justice in my court.
Mr. Bennett: How did you find your law clerks and how did you deal with them?
Judge Sporkin: My clerks were super kids and are very close at this point. We used to get almost 1,000 applications a year. This district court here is very sought after by law school graduates. One day it dawned on me that it was harder to become my clerk than get admitted to Harvard or Yale. I could not believe that was the fact, and it was the fact. Early on, I decided that to sit down and sift through these hundreds of applications was not a good expenditure of my time. So what I did about hiring law clerks was to base it usually on a professor recommending someone or a former law clerk recommending someone. That is the way I would normally hire clerks.
Mr. Bennett: What were you looking for in a clerk?
– 81 –
Judge Sporkin: When I hired a clerk, I would bring him or her in and say exactly what I anticipated. I told them that we are going operate like the Supreme Court; we are not going to carry over any matters past the term that the clerk served, which was usually September to August. I told the clerks that they had to be prepared to work on what I called a real time basis. If they were not prepared to do that, then they should not accept the job. The intelligence aspect was clearly there and reflected in their ranking in the class. But it was hard to tell how somebody was going to be smarter or more capable than somebody else based upon the written record alone.
Mr. Bennett: Did you have some particular things that you wanted to teach your clerks in their year with you?
Judge Sporkin: Yes, I certainly did. I did a lot of things that other judges did not do. One is that I had them interact with lawyers. Many judges do not like that. The reason I wanted the clerks to do it was I wanted them to be equipped when they left my clerkship to be able to stand on their own two feet. It was my premise that you do not learn how to practice law in law school. Law school is theoretical and academic. You get very little practical instruction in law school. So I looked at the clerkship as being a half-way house between the theoretical, the academy, and the practice. I wanted to give them a soft landing when they left me and went into the practice. I required that the three of us did things together. I required that they be in court with me. Many judges seldom allowed their clerks to go to court.
– 82 –
They had to go to court with me and even though we had assignments – odd and even cases – I wanted to get both viewpoints when I decided the cases, even from the clerk that did not have the assignment.
Mr. Bennett: So each of your clerks was expected to have at least some familiarity with all of the cases brought to you for decision.
Judge Sporkin: Absolutely. And both were to provide their input. Another thing was that after a case was heard, I would then go back and we would talk it over. I would make a decision and then I would often ask for a draft or for research. Then I would have the draft on my desk within a short time. I also disciplined myself that I had what I called a 24-hour rule, which was that any draft that came to me from a clerk would be reviewed and commented on within 24 hours. That practice came to me from my management days at the CIA and the SEC, because that was the only way you could manage. Otherwise people would be sitting around waiting and losing valuable time.
Mr. Bennett: As far as your clerks were concerned, did they give you any input on what kind of experience they would like that caused you over the years to change?
Judge Sporkin: This was not a debating society. They had to know that there was one person who would make the decision. They had to know what their role was. If they did not like it, they should not have applied as a clerk. But I do not think I had anybody disappointed with the experience. They could not have been
– 83 –
disappointed, because they were actively engaged, they were doing important work, they were getting good writing experience and they were getting good interactive experience. I had one case I remember where my law clerk named John Polise was involved in a major criminal case. It required a lot of administrative attention requiring jury questionnaires, and a lot of work of that kind. This fellow was extremely gifted. I just turned over the whole matter to him and he arranged for the questionnaires and all of the administrative work that was required of this massive case that lasted for weeks and weeks. We had creative people like that.
Mr. Bennett: Did most of these law clerks go on to careers in the practice of law? Did some go into the academic world?
Judge Sporkin: Yes. I had at least two who went into the academic world — one is a full professor and the other is a tenured associate or assistant professor at a good law school. I have had at least three that are assistant U.S. attorneys. I had a number of my clerks, at least four, who have gone to the SEC on my recommendation and have done extremely well. I have had one who is in a business, and one who is a top general counsel of a major company. Another has a major job at the Treasury Department. They have all been very successful.
Mr. Bennett: Did you make any special efforts while they were serving with you to encourage them to seek further public service?
– 84 –
Judge Sporkin: I often told them that I thought that they would have a great career at the SEC. I mentioned that I had at least four clerks, and maybe more, take this suggestion and go to the SEC. I had another clerk who is an elected official in New York. He has done very well. He is a councilman. Some have gone to the Hill.
Mr. Bennett: Just going on a bit about how life was as a judge, I did notice that you gave a number of speeches while you were on the bench. What was your attitude about public speaking while you were serving on the bench?
Judge Sporkin: I mostly talked about issues that were not likely to come before me. Most of the time I gave speeches was because of my prior role as Director of Enforcement at the SEC. Because I had served in that role, I recused myself from all SEC cases. I also recused myself from CIA cases. These recusals did bother me some, because those would be areas I knew something about. But I thought that out of an abundance of caution, and to avoid any perception of unfairness, I should not get involved in those cases.
Mr. Bennett: During that period of time while you were on the bench, Judge Sporkin, you must have received many invitations to speak. Did you think it was part of an extension of your previous public service to continue to play a public role in discussing SEC and other issues?
Judge Sporkin: I thought I had something to say. I loved those areas and I wanted to keep abreast of them.
– 85 –
Of course these issues flowed back, because look at the Keating case that is cited I do not know how many times when I asked the question: where were the lawyers and where were the accountants? 7 That was the old gatekeeper approach. And in the recent Sarbanes Oxley legislation, the statute is largely a gatekeeper statute. So I feel proud that the gatekeeper concept, which I sort of invented, is now part of the landscape of the federal securities laws.
Mr. Bennett: Perhaps we should now talk about some of the cases that you had previously indicated to me that you considered significant and worthy of discussion for purposes of this oral history. We have selected five such cases from among the many decisions you rendered. We probably cannot get through more than one or two today. Those five cases include: The Lincoln Savings & Loan case that you mentioned; the Microsoft case in which you participated; and the Prinz case that you also mentioned. A fourth case to discuss is McVeigh v. Cohen, which is the Don’t Ask, Don’t Tell, case you also mentioned. And then a fifth case, United States v. Webb, is one of a number of cases in which you were involved in trying to determine the proper role of a judge in sentencing criminal defendants.8 Shall we start with the Lincoln Savings & Loan case?
7 Lincoln Savings & Loan Ass’n v. Wall, 743 F. Supp. at 920, includes the discussion of “Where were these professionals [accountants and lawyers] . . . when these clearly improper transactions were being consummated?”
8 United States v. Webb, 966 F. Supp. 16 (D.D.C. 1997) (discussing downward departure from Sentencing Guidelines for defendant Alvin Webb), rev’d, 134 F.3d 403 (D.C. Cir. 1998), 1998 WL 93052 (D.D.C. Feb. 20, 1998) (recusal decision by Judge Sporkin). Footnote continued on next page
– 86 –
Judge Sporkin: Yes, that was an interesting case. The case came before me in the posture where Keating was trying to get back his ownership of Lincoln Savings. Keating owned a company called Continental, which owned Lincoln Savings. The Office of Thrift Supervision had taken the savings and loan away from Keating and Continental, and Keating was utilizing his right under the Fifth Amendment of the Constitution to get back the property. When the case started out, Keating sought to have me disqualified because, while I was at the SEC, many years before, we had to take disciplinary action against one of Keating’s entities. I did not think that it had anything to do with this case and therefore I denied the motion and presided over the case. The case involved Continental taking over Lincoln Savings & Loan in an era in which there was a tremendous crisis affecting savings and loans. It appeared that savings and loans were failing all over the country. They were failing because they were very limited as to what a savings and loan could do. They were not like commercial banks. For example, a savings and loan at the time could only make indirect investments. They could not make direct investments. For example, a savings and loan could make an indirect investment by loaning somebody money to buy a house but it could not make a direct investment by buying a parcel of land itself. Banks could do some of those things. Congress saw that there was going to be billions of dollars of defaults in the savings and loan business, which under the federal deposit Footnote continued from previous page
– 87 –
insurance scheme would have involved a lot of money. So Congress decided to avoid the day of reckoning by passing legislation that would provide savings and loans with broader authority with the thought it might encourage people to come in and bail out these underwater savings and loans. It was that legislation that prompted Keating, through Continental, to take over Lincoln Savings & Loan. Lincoln Savings & Loan was a small California savings and loan that had a net worth of about $39 million. With borrowed money, Keating went to the owners and bought them out for $51 million. The owners thought they had died and gone to heaven, because they had a failing savings and loan and they would be able to get a profit of $12 million. All this is in the record and found to be true. Keating wanted to take over the savings and loan in order to have access to the billion dollars in assets at the savings and loan which came from depositors with federally insured accounts. He took Lincoln over by Continental buying 100% of the savings and loan. The Office of Thrift Supervision through its San Francisco office had jurisdiction. They were aware that they had to watch Keating because of prior run-ins with the law. So when Keating would ask for certain waivers of the law, they would look at it very carefully. The first thing that Keating tried to do was make some upstream dividends. The Office of Thrift Supervision said, no, they were not going to allow it. Then Keating concocted a plan whereby there would be what was
– 88 –
known as a tax-sharing agreement between Lincoln and Continental. The way this would work, according to Keating, was that Continental would file a consolidated tax return, by which they would bring together the profits and losses of both companies and file a single return. Keating’s lawyers came up with this idea, because Continental had about $200 million in tax loss carryforwards. The plan was that large sums for taxes would be upstreamed from the savings and loan to the parent with the understanding that the parent would keep the money, since there would be no tax due to the U.S. Treasury because of the tax-loss carryforward that the parent company had. This proposal was presented to the Office of Thrift Supervision, and it said that, yes, it sounds okay and therefore it approved the agreement. Keating and Continental now had in place the plan. However, the plan would only work if the savings and loan had income. So the next part of the plan was for the savings and loan to create income. Under the tax-sharing agreement, each quarter the savings and loan would prepare a profit-and-loss statement that would be calculated under what was known as GAAP, or generally accepted accounting principles. At the end of each quarter, whatever that profit was the amount of the tax on such profit would be upstreamed to the parent company under the tax-sharing agreement. For example, at the end of a quarter, if there was a $10 million profit at Lincoln Savings & Loan and the tax rate at that time was 40%, 40% of the $10 million would go to Continental. Continental could keep this amount until
– 89 –
it used up its $200 million tax-loss carryforward. But when we started out a few minutes ago, I explained that savings and loans were losing money. How then did Continental and Lincoln make the savings and loan a viable, profitable company? Continental would come up with a number of orchestrated transactions. I will give you one as an example. There was a piece of property that Lincoln bought in Phoenix, Arizona, for $3 million. Remember that savings and loans were now permitted to invest directly in assets at that time, so Lincoln went out and bought this property. Keating then entered into an arrangement with some fellow who they picked off the streets of Phoenix and brought him into the boardroom. They arranged for this gentleman to buy this $3 million property for $14 million through a company called Wescon, which had a net worth of only $31,000 and which was acting as a “straw” for the individual. The plan was that the difference between the $3 million and the $14 million would be a profit to the savings and loan, so that something like 40 percent of that profit, or more than $4 million, would be upstreamed to the parent company under the tax sharing agreement. The deal in this instance was that Wescon and the individual would buy the property for $14 million, but on a non-recourse basis. The individual or Wescon would receive – I forget – it may have been a fee of $25,000 to do this transaction. But there were some problems with this transaction. In order for the savings and loan to be able to declare as a profit under GAAP, 25 percent of the purchase price had to come from a source other than the owner or seller of the property. So this individual or Wescon, with a $31,000 net worth, had to
– 90 –
come up with $3.5 million for GAAP to allow the profit to be claimed by Lincoln. So Keating then worked out a deal with a local utility in Phoenix unrelated to the individual involved. The utility needed approximately $20 million. Keating said that the savings and loan would give the utility what it wanted and would give the utility $3.5 million additional with the understanding that the utility would loan that money to Wescon. It was that $3.5 million that was used to satisfy GAAP requirements, because it came from a source other than the seller. That was the kind of transaction that was utilized to allow the savings and loan to upstream funds to Continental. When those issues came to me, I saw through this business and said: look, even though there was an intervening party, namely the utility, the money still emanated from the seller and therefore the profit recorded on the transaction did not satisfy GAAP. Even though there was testimony by several accounting professionals that this transaction met GAAP standards, I said that GAAP requires reality.9 Those kinds of transactions led me to uphold the Office of Thrift Supervision and to permit them to take the savings and loan away from Continental. Another interesting aspect of the Keating story is that, before the case
9 “Accountants must be particularly skeptical where a transaction has little or no economic substance. This is so despite the fact that the transaction might technically meet GAAP standards. In a paper prepared by Touche Ross & Company in 1975 the following poignant statement appears: ‘The goals of accounting are to measure, record and communicate economic reality. In the long run, these goals are necessities – both for accounting and for society. Can behavior be economically rational if not grounded on economic reality.’” Lincoln Savings and Loan Ass’n v. Wall, 743 F. Supp. 901, 913 n. 17 (D.D.C. 1990).
– 91 –
came before me, the Office of Thrift Supervision in its regional office in San Francisco had done an examination of the savings and loan and came in with a report to the home office – to a good fellow named Danny Wall – that OTS wanted take away the savings and loan from Keating. But the report was based solely on technical violations – that the signatures were not there and certain other things. There was no substantive examination, none, in that first report.
When that first report got to Washington, Keating enlisted many friends that he had acquired through campaign contributions and otherwise who sided with him and stepped in with the savings and loan to get this recommendation reversed. As you know, there is a group called the Keating Five, which was Senator Cranston, Senator Riegle, Senator McCain, Senator DeConcini and Senator Glenn. These were the five. They interceded with the Office of Thrift Supervision, saying: how come you can take the savings and loan away from Keating when all that savings and loan does is make money? Remember that Lincoln had all these funny transactions in which it was making money. Of course the Office of Thrift Supervision had not examined those transactions substantively. They only looked at technical issues. So when the Keating Five interceded with Danny Wall, Danny stepped back and said, okay, and he was forced to withdraw the recommendation. He said he would withdraw the recommendation and send somebody in to do a substantive review to deal with the safety and soundness of the institution and start a new examination with new examiners. This second examination then found all these transactions that showed there were serious safety and soundness issues. Based
– 92 –
on that record, they took away the savings and loan from Keating. That was it in a nutshell.
Mr. Bennett: I understand you have to leave for a meeting. We will resume with this case, including a discussion of a few additional interesting aspects of this case we have not yet touched on.
– 72 –