Opinion: 01-12

January 25, 2001

Digest:  On the facts presented, the judge's interest in a mutual fund that owns stock in American Express does not require the judge to recuse himself or herself from presiding in a shareholders' derivative action brought on behalf of American Express.

Rule:  22 NYCRR 100.0(D); 100.0(D)(1); 100.3(E)(1)(c);
           Opinion 99-122.


            The inquiring judge, who had been assigned to approve settlement and attorneys fees in a shareholders' derivative action, referred the matter to a judicial hearing officer to hear and report. Now, upon reading the motion papers to partially affirm and partially disaffirm the referee's report, the judge learned that a certain mutual fund is the second largest stockholder of American Express, the corporation on whose behalf the derivative action was brought. One-half of one percent of the fund's assets are invested in that corporation.

            Through the deferred compensation plan of the Unified Court System, the judge has invested in that mutual fund. On the assumption that the fund's entire investment in the corporation were lost, the judge calculates that his/her interest in the fund would diminish by about $1,135 out of a total investment in the fund of approximately $227,000.00 - i.e. one half of one percent. But, in reality, because of the giant size of the corporation, an award of the full amount of counsel fees requested is extremely unlikely to have any impact whatever on the market value of the stock of that corporation. (The referee has recommended an award of less than one-third the fee requested.)

            Based on the foregoing, the judge asks whether his or her "economic interest" is "sufficiently substantial to trigger disqualification." That is, section 100.3(E)(1)(c) of the Rules Governing Judicial Conduct requires disqualification in a proceeding in which the judge "has an economic interest in the subject matter in question . . ." 22 NYCRR 100.3(E)(1)(c). "Economic interest" is defined in section 100.0(D) of the Rules as follows:

(D) "Economic interest" denotes ownership of a legal or equitable interest, however small, or a relationship as officer, director, advisor or other active participant in the affairs of a party, except that

(1) ownership of an interest in a mutual or common fund that holds securities is not an economic interest in such securities unless the judge participates in the management of the fund or a proceeding pending or impending before the judge could substantially affect the value of the interest.

            Thus, the question is whether the present proceeding before the judge "could substantially affect the value" of the judge's interest in the mutual fund. Based on the facts presented, the answer is clearly "no." The judge has postulated a corporate doomsday scenario, where the market value of American Express goes to zero, and in that event the value of the judge's investment in the mutual fund would decrease by $1,135 or one-half of one percent of the judge's overall investment in that fund. Acceptance of that possibility for purposes of analysis, however unlikely (if not incredible), does not in our opinion lead to the conclusion that recusal is required. Moreover, given the high degree of improbability that American Express will simply vanish as a corporation with any market value, we are, in any event, compelled to conclude that the judge's interest will not be substantially affected by the matter before the court, and, therefore, the mutual fund exception provided for in section 100.0(D)(1) is applicable. On the facts presented, the judge is not disqualified from presiding in the matter before the court. See e.g. Opinion 99-122 [a judge's ownership of 1,000,000 in New York City bonds does not require recusal in all cases involving the City].