October 19, 2006
Digest: A full-time judge may acquire a limited partnership interest in an entity created to manage and invest the capital contributions of the general and limited partners, where the judge’s role, as a limited partner, is passive and restricted to making financial investment contributions to the partnership.
Rules: 22 NYCRR 100.0(D)(5); 100.3(E)(1)(c); 100.4(D)(2)-(3); Opinions 99-73 (Vol. XVIII); 99-12 (Vol. XVII).
A full-time judge inquires whether the judge may acquire a limited partnership interest in a New York limited partnership created for the purpose of managing and investing the capital contributions of the general and limited partners. The partnership will also manage any distributed capital gains and income generated. As provided in the partnership agreement, the general partners will manage the investments and make all investment decisions on behalf of the partnership. The limited partners will be restricted to the investment of an initial capital contribution to join the partnership and their share of any additional future capital investments.
Although the rules Governing Judicial Conduct permit a judge to hold personal investments, they prohibit a full-time judge from serving as an “officer, director, manager, general partner, advisor, employee or other active participant of any business entity.” 22 NYCRR 100.4(D)(2)-(3) (emphasis added). Applying that provision, this Committee has previously determined that a judge may be a limited partner in a real estate development project and in a limited partnership that owns and manages a multiple dwelling residence, provided that the “judge does not take an active role in the management or control of the business of the limited partnership.” Opinions 99-73 (Vol. XVIII); 99-12 (Vol. XVII).
In the instant inquiry, under the terms of the limited partnership agreement, it is the general partners who are responsible for making all investment decisions on behalf of the partners. The role of the limited partner is passive and restricted to making financial investment contributions to the partnership, and thus it is permissible for the judge to acquire a limited partnership interest in this investment partnership. The judge must, however, maintain a passive role and may not actively partake in the operation of the partnership and in investment decisions. In short, as described, the judge is neither a general partner nor an active participant in the limited partnership, and therefore will not be in violation of the prohibition against such business activities.
The judge should also be aware that, should any entities that have issued securities held by the partnership appear before the judge, the judge must disqualify him/herself if the judge’s interest is more than de minimis. 22 NYCRR 100.0(D)(5); 100.3(E)(1)(c).