Oct. 21 (Bloomberg) -- A U.S. federal judge stepped down from Duke University’s lawsuit against American International Group Inc. over legal costs from a court battle with lacrosse team members falsely accused of sexually assaulting a stripper.

Judge Wallace Dixon “is convinced that a conflict has arisen,” forcing him to withdraw from the case, according to an entry in the case file yesterday. He didn’t say what the conflict was. A unit of New York-based AIG, National Union Fire Insurance Co., insured Duke against legal expenses.

Duke is seeking payment for costs related to confidential settlements with three players who were exonerated of charges they raped a stripper invited to a team party in 2006. The school in Durham, North Carolina, also wants reimbursement for expenses from defending against lawsuits by unindicted players, who said Duke remained silent during the probe even though it had evidence they were innocent.

While judges aren’t required to disclose why they stepped down from a case, they often will make the reason public, especially in high-visibility cases, said Deborah Rhode, a Stanford University law professor and director of the school’s Center on the Legal Profession.

“They’ll recuse themselves if they find they have some connection to a party in the case or one of the law firms representing a party,” said Rhode, a visiting professor at Columbia University Law School. “If they feel there could be some question about their fairness or impartiality, they’ll step aside.”

New Judge

The case was reassigned to P. Trevor Sharp as referral judge, according to the file.

On Aug. 20, lawyers met in front of Dixon in open court, and then in the judge’s chambers, according to an entry in the case file. The entry relating to that day listed the judge’s recusal decision as pending.

Michael Schoenfeld, a spokesman for the university, and Mark Herr, a spokesman for AIG, declined to comment. Calls to Dixon, Gregg McDougal, a lawyer for the school, and David Coats, a lawyer for AIG’s National Union, weren’t immediately returned.

AIG has said it offered $5 million and met its obligations under the policy. Duke University and its health system, listed as co-plaintiffs, are each seeking unspecified damages and reimbursement of more than $75,000 from AIG, according to court documents. Duke purchased two so-called individual-and- organization policies protecting the school and some of its administrators from legal costs, according to its original complaint.

Motion to Dismiss

AIG filed a complaint against United Educators Insurance, another Duke insurer, seeking payment to offset Duke’s claim, according to court documents. In March, United Educators filed a motion to dismiss the complaint.

“We have motion to dismiss AIG or National Union’s action against United Educators based upon an arbitration agreement and we think that that motion will be allowed,” James Dorsett III, an attorney representing United Educators, said in an interview yesterday.

Duke last week made a motion to proceed with an exchange of documents to allow both the school and AIG to prepare for trial, telling the judge “good cause exists to move forward” with the so-called discovery phase, rather than wait for a ruling on United Educators’ role in the case.

This isn’t the first time Dixon has been involved in a case involving Duke University. In May, he recommended dismissal of a suit against the school by Andrew Giuliani, son of Rudy Giuliani, former mayor of New York City and a 2008 presidential candidate. Giuliani sued the school after he was kicked off the golf team.

The case is Duke University and Duke University Health System Inc. v. National Union Fire Insurance Co. of Pittsburgh Pa., 08-cv-0854, U.S. District Court, Middle District of North Carolina (Durham).

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

Last Updated: October 21, 2009 08:49 EDT