This is a partial transcript of "Special Report With Brit Hume" from Nov. 10, 2005, that has been edited for clarity.

BRIT HUME, HOST: Supreme Court nominee Judge Samuel Alito has now met with more than 40 senators and the only question, or about the only question raised about his qualifications concerns his ruling in a federal appeals case involving a mutual fund company in which he held some shares of a mutual fund.

FOX News correspondent Megyn Kendall is here to sort out the story. Megyn?

MEGYN KENDALL, FOX NEWS CORRESPONDENT: Hi there, Brit.

This is a case in which the judge said when he was nominated to the court of appeals that he would not rule on any cases involving the so- called Vanguard companies because he had mutual shares with Vanguard.

Well, a case went up before the 3rd Circuit Court of Appeals in 2002 and the judge did not recuse himself from the case. So, his detractors...

HUME: What was Vanguard’s role in the case?

KENDALL: Vanguard was named as a defendant among many other defendants. And so some query, well, why didn’t you recuse yourself? You said you would.

Well, he issued a letter late Thursday saying it was an oversight. But, here’s how things unfolded. Back when he was nominated to the appeals court, back in 1990, the rules for judges in deciding cases involving defendants in whom judges owned some mutual funds were very sketchy.

And so legal ethics experts said look, back then, it wasn’t clear. He was right to sort of say maybe I will have to recuse myself if a case involving this company comes up. But, since then, they’ve been clarified to say that judges don’t have to recuse themselves in such cases.

HUME: Unless they have a major interest in the company?

KENDALL: Right, because it’s not the same -- owning funds, owning a mutual fund is not the same thing as owning stock in a company.

HUME: It’s also the case that if you own a mutual fund that is provided by a company, it doesn’t mean that you own a share, it means you own one of its products.

KENDALL: Not at all, exactly. It’s more of a trustee relationship. And one of those experts, a guy named Geoffrey Hazard, who’s a law professor at University of Pennsylvania wrote a letter in addition to another expert, supporting Alito, saying, investing in mutual funds is a very appropriate way for judges to put away savings in securities without becoming owners in the companies whose shares are held in a mutual fund. Many judges do that, and properly so.

So, he is basically saying it wasn’t a problem for Alito to decide this case.

HUME: On the other hand, he’d promised that he would recuse himself and when the case came along, he didn’t. So how did that all play out?

KENDALL: Exactly. So then the plaintiff, who lost, as a result of his ruling, objected and said, you own stock, you own mutual funds with Vanguard. So, he said, you know what, you’re right. I’m going to step down. Let’s push the whole case to a brand new panel on the 3rd Circuit and let them decide it. And they came out with the exact same ruling. She lost again.

HUME: So what happened is, the case was then re-argued before another judicial panel.

KENDALL: Re-submitted at least.

HUME: Re-submitted. And they ruled on it.

KENDALL: Without Alito.

HUME: Without Alito present and the case ended up coming out the same way, as it happened.

KENDALL: Came to the exact same conclusion.

HUME: So what you had was an initial failure on his part to recuse himself, a failure which -- when was called to his attention later, he then sought to rectify by having the case re-submitted, which it was.

KENDALL: Right. And in his letter today, he expanded on that and said it was a mistake, but I rectified it. And I was too harsh on myself when I said I wouldn’t rule on it in the first place. But I took care of it when all was said and done.

HUME: All right Megyn, thanks for explaining that.

Watch "Special Report With Brit Hume" weeknights at 6 p.m. EDT.

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