May 2, 2019
Digest: A full-time judge may be an officer of a company owned solely by his/her third-degree relative, where the company is engaged solely in the business of holding and managing certain intellectual property assets created by a deceased relative.
Rules: 22 NYCRR 100.0(C); 100.0(I); 100.2; 100.2(A); 100.4(D)(2); 100.4(D)(3); 100.4(D)(3)(b); Opinions 17-11; 14-89; 10-203(B); 10-193; 10-77; 05-130(B); 00-01; 99-12.
A full-time judge’s third-degree relative1 solely owns a company that holds and manages a deceased relative’s intellectual property rights. These assets passively generate ongoing income for the judge’s relative, in the form of residuals.2 The judge asks if he/she may be an officer of the company. The judge and his/her relative are the company’s only officers, and the judge’s relative has the sole financial interest in the company.
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]). A full-time judge must not serve as an officer, director, or other active participant of any business entity, unless an exception applies (see 22 NYCRR 100.4[D]). Among the exceptions, a full-time judge may “hold and manage investments of the judge and members of the judge’s family, including real estate” (22 NYCRR 100.4[D]) and “manage and participate in a business entity engaged solely in investment of the financial resources of the judge or members of the judge’s family” (22 NYCRR 100.4[D][b]). The term “member of the judge’s family” presumptively includes relatives within the sixth degree of relationship (see Opinion 14-89, interpreting 22 NYCRR 100.0[I]).
We have said a full-time judge may form a general partnership with his/her first cousins that will operate as an investment club to “invest solely the financial resources of the judge and his/her cousins” (Opinion 14-89); may be “the sole general partner” in a “family limited partnership” with his/her spouse and children, where the entity’s purpose is “to invest family assets in the stock of publicly-owned corporations and in government securities” (Opinion 99-12); may, as the sole member of a limited liability corporation, manage real property the corporation owns (see Opinion 10-193); and may manage and participate in a wholly family-owned corporation whose sole function is to hold and manage the family’s investments, including commercial real estate, where the judge and his/her close relatives are the sole shareholders (see Opinions 10-77; 05-130[B]).
The novel question here is whether the intellectual property assets here should be considered “investments” within the meaning of Section 100.4(D)(2). We believe they should, as these assets generate residual payments for creative work previously performed by the judge’s deceased relative (cf. Opinions 17-11 [full-time judge may publish his/her own musical compositions and receive royalties and performance rights fees for them]; 00-01 [full-time judge may sell a patent for an invention owned by the judge]).
Accordingly, because the company is solely owned by a relative within the sixth degree and is engaged solely in the business of holding and managing the relative’s investments, this full-time judge may serve as an officer (see Opinions 14-89; 10-203[B]; 22 NYCRR 100.4[D]; 100.4[D][b]).
1 Third-degree relatives include aunts, uncles, nieces, and nephews (see generally 22 NYCRR 100.0[C] [explaining how to ascertain the degree of relationship]).
2 “Royalties, in film and television, go by the name ‘residuals’ and are paid when a film or program is rebroadcast” (https://www.royaltyexchange.com/blog/film-and-television-royalties [visited 6/17/2019]; Black’s Law Dictionary [7th ed.] [defining residuals as “fee[s] paid to a composer or performer for each repeated broadcast (esp. on television) of a film, program, or commercial”]).