Opinion 21-17

January 28, 2021

Please Note: This opinion has been modified by Opinion 21-22(A) concerning a judge’s obligations when a party is appearing without counsel. As stated in Opinion 21-22(A), “we no longer prohibit remittal of disqualification merely because a party is unrepresented. We hereby modify our prior opinions to abolish that requirement.” This also affects opinions “where disclosure (or disclosure and insulation) is mandated in lieu of outright disqualification” (see id. fn 3).

Digest:         Where a new full-time judge was previously a law firm partner and took a loan from the firm’s 401(k) profit sharing plan, the judge may remain in the plan temporarily in order to pay back the loan and receive the plan’s annual employer matching contribution based on the judge’s prior legal work and earnings. The judge must continue to disqualify from matters involving the former firm and the judge’s former partners and associates during this period and for two years after the financial relationship completely terminates.

Rules:          Judiciary Law 212(2)(l); 22 NYCRR 101.1; 100.2; 100.2(A); 100.3(E)(1); 100.3(F); 100.4(D)(1); 100.4(D)(3); 100.4(D)(5); 100.4(G); Opinions 20-22; 19-142; 18-118; 18-46; 16-36; 11-21; 05-130(A); 04-42; 00-03; 97-09; 96-91; 95-12; 93-44.

Opinion:

         A new full-time judge had been a partner in a law firm and participated in the firm’s 401(k) profit-sharing plan, from which the judge had taken a loan in 2020. The 401(k) plan assets include partner contributions (deposited periodically during the year) and employer matching funds (deposited annually when the firm pays its taxes). The law firm is dissolving and will amend its 401(k) plan by creating a renamed successor plan. The judge asks if it is permissible to remain in the renamed successor plan until after (a) the judge repays the 2020 loan, so that the loan will not be deemed a taxable distribution for 2020 and (b) the judge’s 2020 contributions and the employer’s matching contribution are deposited in the fund, pursuant to the plan terms and based on the judge’s 2020 earnings performance. The judge anticipates both matters will be completed in 2021. Thereafter, the judge intends to withdraw all their plan funds or assets and roll them over to the judge’s own separate 401(k) plan. The judge recognizes disqualification will be required from any case involving the former law firm or its attorneys (the judge’s former partners and associates) until at least two years after their financial connection completely terminates.

         A judge must always avoid even the appearance of impropriety (see 22 NYCRR 100.2) and must always act in a manner that promotes public confidence in the judiciary’s integrity and impartiality (see 22 NYCRR 100.2[A]). Therefore, the Rules Governing Judicial Conduct restrict a judge’s ability to accept gifts (see 22 NYCRR 100.4[D][5]) or engage in financial and business dealings (see 22 NYCRR 100.4[D][1]). In addition, a full-time judge may not practice law (see 22 NYCRR 100.4[G]) or be an “active participant” in any business entity (22 NYCRR 100.4[D][3]).

         We have consistently advised that a full-time judge may ethically receive their share of previously earned legal fees for work the judge performed as an attorney (see e.g. Opinions 05-130[A]; 00-03; 97-09; 96-91; 95-12; 93-44). A full-time judge may also receive an on-going pension or life-long annual retirement benefits from their prior firm, subject to certain disqualification requirements (see Opinions 18-118; 04-42), and may even accept a discretionary bonus paid by their previous law firm after assuming the bench, as long as it is reasonable and based only on the judge’s prior performance as a firm member (see Opinion 11-21). Our prior opinions make clear that a full-time judge is ethically permitted to be compensated for work performed before assuming the bench and that continuing compensation through an ongoing pension or life-long retirement program based on the judge’s work and earnings prior to becoming a judge is neither a prohibited gift nor considered an improper practice of law.

         Here, the 401(k) profit sharing plan apparently allows its participants to take a loan from their earned plan share and to repay it before the loan will be deemed a taxable withdrawal. Therefore, assuming the judge is complying with the terms of the 401(k) profit sharing plan and any applicable statutes and regulations,¹ the inquiring judge is ethically permitted to temporarily remain in the renamed successor plan at least until the judge repays the 2020 loan so that the loan will not be deemed a taxable distribution for 2020.

         The same principles apply to the judge’s second question. It seems that, under the terms of the plan, the judge will be eligible to receive the employer’s matching contribution when the firm’s taxes are paid in 2021. The amount of the employer’s matching contribution will be determined by the plan and is based on the judge’s earnings at the firm in 2020 before the judge assumed the bench. We understand that the judge’s share of the employer’s matching contribution for 2020 has already been placed in a separate savings account for that purpose and is simply awaiting the filing in 2021 of the firm’s 2020 taxes before being paid to the participants. Again, assuming compliance with the terms of the plan and the governing law, the judge is ethically permitted to remain in the successor plan and receive the employer’s matching contribution. We also see no ethical impropriety in the judge subsequently repaying the loan, withdrawing all their funds from the firm’s plan, and rolling them over into the judge’s own new 401(k) plan.

         As the judge recognizes, they are disqualified from presiding in any case involving their prior law firm or its attorney(s) until two years have passed after the complete of any financial relationship between the judge and the law firm or its 401(k) profit sharing plan (see generally Opinions 18-118; 18-46; 16-36; 11-21; 04-42; 22 NYCRR 100.3[E][1]). Assuming the judge can be fair and impartial and no party is appearing without counsel, the disqualification is subject to remittal after full disclosure on the record (see Opinion 18-118; 22 NYCRR 100.3[F]).²

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¹ As we are charged with issuing advisory opinions on judicial ethics issues (see Judiciary Law 212[2][l]; 22 NYCRR 101.1), we cannot resolve or address legal questions. While a judge must “respect and comply with the law” (22 NYCRR 100.2[A]), we have also advised that a judge who acts in accordance with their good-faith legal determination about applicable law “necessarily acts ethically” (Opinion 19-142).

² As noted in Opinion 20-22:

Where a judge has a disqualifying conflict, it is not the parties’ burden to request the judge’s disqualification. Rather, it is the judge’s burden to disqualify him/herself at the outset, even if the parties are fully aware of the conflict and do not express any concern. Moreover, where remittal is available, it is a multi-step process which likewise puts the burden on the judge (1) to make full disclosure of the basis for disqualification on the record and (2) not to preside unless the parties and their counsel freely and affirmatively consent to waive the conflict as specified in Section 100.3(F) and our prior opinions. Again, mere failure to object is insufficient.