Opinion 16-80

June 16, 2016

Digest:         A full-time judge may, in an individual capacity and as trustee of a beneficial trust for a family member, hold ownership interests in a limited liability company that owns income-producing property, along with the judge’s spouse.

Rules:          Judiciary Law § 212(2)(l); 22 NYCRR 100.0(I); 100.2; 100.2(A); 100.4(D)(2); 100.4(D)(3)(b); 100.4(E)(1)-(2); Opinions 14-89; 10-203(B); 10-77; 99-84; 99-12.

Opinion:

         The inquiring full-time judge, who now serves as trustee of a supplemental needs trust for a second-degree relative, asks if he/she may, both in his/her individual capacity and as trustee of the supplemental needs trust, hold ownership interests in a limited liability company that owns income-producing realty. The only other owner and member will be the judge’s spouse.¹

         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 may serve as trustee for the trust of a member of the judge’s family (see 22 NYCRR 100.4[E][1]), which presumptively includes relatives within the sixth degree of relationship (see Opinion 14-89, interpreting 22 NYCRR 100.0[I]). A judge may hold and manage his/her own investments and those of members of the judge’s family, including real estate (see 22 NYCRR 100.4[D][2]). Moreover, while a full-time judge is generally prohibited from being an “active participant” of any business entity, he/she may manage and participate in a business entity engaged solely in investment of the judge’s or the judge’s family members’ financial resources (see 22 NYCRR 100.4[D][3][b]).

          Applying sections 100.4(D)(2) and 100.4(D)(3)(b), the Committee has advised a full-time judge “may be a member with his/her siblings of an LLC that will own several pieces of real estate” (Opinion 10-203[B]); “may serve as an officer” of closely held family corporations that own real estate (Opinion 10-77); and may serve as both the sole general partner and a limited partner with the judge’s spouse and children for the purpose of investing family assets in the stock of publicly-owned corporations and in government securities and rehabilitating and owning a multiple dwelling residence (see Opinion 99-12). Similarly, a full-time support magistrate may own stock in and be an officer of a family-owned corporation in which the hearing examiner and the hearing officer’s spouse are sole shareholders (see Opinion 99-84).

         Accordingly, this judge and his/her spouse may be the sole members and co-owners of a limited liability company that holds income-producing property for the judge and his/her family (see Opinion 10-203[B]). The only new wrinkle is whether a different ethical standard should apply to a judge who acts in his/her fiduciary capacity for a family member. The Committee sees no reason for a different result here, especially as “[t]he same restrictions on financial activities that apply to a judge personally also apply to the judge while acting in a fiduciary capacity” (22 NYCRR 100.4[E][2]). Thus, the judge may be a member of the LLC in both individual and fiduciary capacities, if it is lawful to do so.

         However, the Committee cannot address legal issues: e.g., whether a trustee of a supplemental needs trust may be a member of a limited liability company (see Judiciary Law § 212[2][l]). 

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         ¹ The assets are solely held by the limited liability company, and the judge and his/her spouse will be the sole co-owners and members of the LLC.