SEC, Drexel Spar Over Removal of Jurist in Fraud Case : Allowing ‘Judge Shopping’ Harmful, Government Claims

The removal of a federal judge from the Drexel Burnham Lambert securities fraud case would show that powerful organizations such as Drexel can “judge shop” and would harm public confidence in the justice system, the Securities and Exchange Commission contended Friday.

Continuing the skirmishing over Drexel’s motion to remove U.S. District Judge Milton Pollack, SEC attorneys contended in court papers that litigants should not be allowed to remove a judge for alleged conflict of interest simply because they favor another. Allowing such maneuvers would “signal to the public--and the bar--that improper and questionable tactics will ultimately succeed,” the SEC said.

Judge Pollack’s removal has quickly shaped up as a pivotal issue in the 7-week-old case. A federal appeals court in New York is to hear arguments Monday on Drexel’s contention that Judge Pollack would not be impartial in the case because of the big investment firm’s role in a corporate buyout that would mean millions of dollars for his wife, Moselle Pollack.

Drexel is helping finance a leveraged buyout of the Palais Royale department store chain in Houston by a firm called Bain Venture Capital Inc. Moselle Pollack holds a $30-million block of stock in the department store.

‘People Are Watching’

Drexel’s attorneys have argued that the deal would make the judge favor Drexel. But legal observers say Drexel, in fact, fears the judge’s reputation as a man who has been hard on defendants in white-collar cases.

Paul Gonson, the SEC attorney who will argue the case Monday, noted in an interview that Drexel’s efforts to remove the judge have already received considerable coverage in the press. One newspaper story quoted lawyers praising Drexel’s team for provoking the judge’s wrath, which these experts said laid the groundwork for arguments on appeal that Pollack was biased, the SEC papers noted.

“People are watching, and you want to assure them that litigants who are well financed and with a lot of lawyers get the same justice as others,” Gonson said.

The SEC also argued in its papers that if Pollack were biased against Drexel’s attorneys, that would not be sufficient cause for his removal from the case. The judge has sparred bitterly with Drexel attorneys, including Arthur L. Liman and Peter Fleming. But the SEC said that under the law it is the judge’s attitude toward the parties, not the lawyers, that counts in deciding whether removal is proper.

The commission’s attorneys also repeated arguments they made earlier that Moselle Pollack’s connections to Drexel are not close enough to draw an inference of bias on the judge’s part. They contended that several other investment firms could handle the financing if Drexel were not available, citing an evaluation of the deal recently done by Lewis Glucksman, former chief executive of Lehman Bros. Kuhn Loeb investment firm.