September 10, 2015
Digest: A judge is not disqualified from presiding in a matter where the judge and his/her spouse own a de minimis interest in large corporations that are parties in the matter, nor need the judge disclose such de minimis interest(s), provided he/she can be fair and impartial.
Rules: 22 NYCRR 100.0(D); 100.0(D)(1), (4), (5); 100.2; 100.2(A); 100.3(E)(1)(c); 100.3(E)(1)(d)(iii); Opinions 01-12; 99-122; 92-107.
The inquiring full-time judge asks if he/she may preside in a number of similar cases involving certain large publicly traded corporations as defendants,1 where the judge and his/her spouse own securities in several of those entities. If so, the judge further asks whether he/she must disclose these investments. The judge states that these securities constitute “an infinitesimal fraction of the companies’ outstanding shares or bonds.” Even considered collectively, the current aggregate value of these securities is under $250,000, and the single largest holding is less than 1% of the overall securities portfolio of the judge and his/her spouse.
A judge must always avoid even the appearance of impropriety (see 22 NYCRR 100.2), and must always act to promote public confidence in the judiciary’s integrity and impartiality (see 22 NYCRR 100.2[A]). Accordingly, a judge may not preside in a case where the judge, or the judge’s spouse “has an economic interest in the subject matter in controversy or in a party to the proceeding or has any other interest that could be substantially affected by the outcome of the proceeding” (22 NYCRR 100.3[E][c]). The Rules Governing Judicial Conduct define “economic interest” as “ownership of more than de minimis legal or equitable interest” (22 NYCRR 100.0[D]). In turn, de minimis denotes “an insignificant interest that could not raise reasonable questions as to a judge’s impartiality” (22 NYCRR 100.0[D]).
Although the Rules provide little guidance as to what is a de minimis interest with regard to direct ownership of securities in a publicly traded corporation,2 the Committee has previously advised that a judge need not disqualify him/herself in a class action settlement where the judge’s parent owned less than .001 percent of the outstanding stock in “one of the large corporate parties in the action” (Opinion 92-107). The Committee concluded the judge’s parent’s interest in the matter was “not substantial,” because the investment interest could not be substantially affected by the proceeding’s outcome (id.). On these facts, the Committee said disqualification was not required, although the judge should disclose the stock ownership to all parties (see id.).
While Opinion 92-107 provides some assistance for the analysis, it cannot entirely control the result here. First, Opinion 92-107 was decided before the 2004 amendments which excluded de minimis interests from the definition of a judge’s economic interests.3 Second, Opinion 92-107 did not involve the economic interests of the inquiring judge or his/her spouse, but instead those of the judge’s parent. The applicable standards are somewhat different. While in both situations, the judge is disqualified when the judge knows the judge or his/her relative has an “interest that could be substantially affected by the proceeding” (compare 22 NYCRR 100.3[E][c] with 22 NYCRR 100.3[E][d][iii]), as discussed in Opinion 92-107, Section 100.3(E)(1)(c) goes further, because also requires disqualification when the judge knows that the judge or his/her spouse “has an economic interest ... in a party to the proceeding” (22 NYCRR 100.3[E][c]).
Here, as the judge and his/her spouse own “an infinitesimal fraction of the companies’ outstanding shares or bonds,” and since each security is less than 1% of all their joint investments, the Committee concludes their interest is thus de minimis, and raise no reasonable questions about the judge’s impartiality (see 22 NYCRR
100.0[D]; 100.0[D]; cf. Opinion 92-107).4
Therefore, if the inquiring judge concludes he/she can be completely fair and impartial, the judge may preside in a case in which one of these companies appears as a defendant (see Opinion 92-107), and need not disclose the de minimis investment interest, although he/she may do so in his/her discretion.5
1 The Committee understands that the cases involve similar legal theories of liability against each defendant.
2 By contrast, there are specific provisions and prior opinions dealing with “ownership of an interest in a mutual or common investment fund that holds securities” (22 NYCRR 100.0[D]; Opinion 01-12) and “ownership of government securities” (22 NYCRR 100.0[D]; Opinion 99-122).
3 See http://www.nycourts.gov/rules/chiefadmin/100.0_amend.pdf.
4 Considered collectively, these securities still represent less than 3% of the overall investment portfolio of the judge and his/her spouse.
5 Opinion 92-107 is hereby modified to the extent inconsistent with the present opinion on the topic of disclosure.