Opinion 04-17

March 11, 2004

Digest:         A judge is not required to disqualify him/herself under 22 NYCRR 100.3(E)(1)(c) from presiding over a case when a party is either a wholly or partially owned subsidiary of a corporation in which the judge or the judge’s spouse owns stock, or when a party is a parent or an affiliate or such corporation.

Rule:            22 NYCRR 100.3(E)(1)(c); 100.00(D); 100.3(F).

Opinion: 

         The inquiring judge and his/her spouse own stock in certain publicly traded corporations. The judge correctly understands the ethical obligation to disclose this ownership interest and exercise recusal, subject to remittal (22 NYCRR 100.3[F]), and in those cases where such corporation is a party to the action before the judge (See 22NYCRR 100.3[E][1](c]).

         The judge is concerned about whether there is a similar obligation in cases where a party is a subsidiary of a corporation in which the judge or his/her spouse owns stock, or such corporation controls or holds stock in a party.

         Therefore, the judge asks the Committee whether he/she is obliged under the Rules Governing Judicial Conduct to disclose or exercise recusal when a party is either a wholly or partially owned subsidiary of a corporation in which the judge or the judge’s spouse owns stock or is a parent or affiliate of such corporation. Under 22 NYCRR 100.3(E)(1)(c) of the Rules Governing Judicial Conduct a judge is disqualified in a proceeding in which the judge “has an economic interest in the subject matter in controversy or in a party to the proceeding.” Pursuant to 22 NYCRR 100.0(D), “economic interest denotes ownership of a legal or equitable interest, however small...”. *** (See note below.)

         Under New York Law, a subsidiary corporation is considered legally distinct from its parent even if it is wholly owned or the two corporations share common stockholders, officers, or directors, or where they use the same offices. As a general rule, parent, subsidiary , or affiliated corporations are treated separately and independently, and one will not be held liable for the contractual obligations, torts, or acts of the other. Accordingly, when a judge, or the judge’s spouse owns stock in a party, the judge has an “economic interest,”i.e., a legal and equitable interest in that corporation. However, the judge does not likewise have a legal or equitable interest in any subsidiary, parent, or related corporation pursuant to 22 NYCRR 100.0(D). Therefore, under 22 NYCRR 100.3(E)(c)(1), a judge is not required to exercise recusal, nor is he/she obligated to disclose when a party is either a wholly or partially owned subsidiary, parent or other affiliate of a corporation in which the judge, or the judge’s spouse, owns stock.

         In these circumstances, a judge has no economic interest in subsidiaries, parents, or related corporations. Therefore, a judge is not required to undertake independent investigations to determine the parents, subsidiaries, or other corporate relationships of parties in which the judge or the judge’s spouse has an economic interest.

***NOTE: After this opinion was issued, the relevant language of Section 100.0(D) of the Rules Governing Judicial Conduct was amended to read as follows:

(D) “Economic interest” denotes ownership of a more than de minimis legal or equitable interest, or a relationship as officer, director, advisory or other active participant in the affairs of a party, except that . . .

(5) “De minimis” denotes an insignificant interest that could not raise reasonable questions as to a judge’s impartiality.”