Receiving Extended Payout of Capital Investment in Former Firm
January 20, 2000
CJE Opinion No. 2000-1
You have requested the Committee’s advice regarding the financial arrangements you and your firm propose to make upon your appointment as a judge. Your swearing in is scheduled for on or about . You have informed the Committee that the Firm proposes to buy out your interest in the Firm for an amount on which you and the Firm agree and then to pay you that amount on an installment basis over a 10-year period. The obligation would run from the Firm to you personally. Although you have not yet finalized the precise amount the Firm will pay you, that amount ultimately will be a fixed sum payable at a reasonable rate of interest over the 10-year period. You have asked whether such an arrangement would comply with the Code of Judicial Conduct.
In answering your question, the Committee assumes that both the principal amount and the interest rate would be fixed at the time the amount of the obligation was set or that, if the interest rate fluctuated over the 10-year pay-out period, it would do so in a predetermined manner that had nothing to do with the affairs of the Firm. With those assumptions in mind, only Canon 5(C) of the Code seems applicable to your request. In material part, Canon 5(C) provides as follows:
“(1) A judge should refrain from financial and business dealings that tend to reflect adversely on his impartiality, interfere with the proper performance of his judicial position, or involve him in frequent transactions with lawyers or persons likely to come before the court on which he serves.
“(2) Subject to the requirements of subsection (1), a judge may hold and manage investments, including real estate, and engage in other remunerative activity permitted by Canon 4, but should not serve as an officer, director, manager, advisor, or employee of any business.
“(3) A judge should manage his investments and other financial interests to minimize the number of cases in which he is disqualified. As soon as he can do so without serious financial detriment, he should divest himself of investments and other financial interests that might require frequent disqualification.”
The Committee does not believe that the financial arrangements you have described would violate Canon 5(C)(1). Quite clearly, the transaction amounts to an extended payout of your capital investment in the Firm, not some gift, reward or other emolument the Firm is bestowing on you as a consequence of your appointment. Calling as it does for automatic, periodic payments of a fixed and definite debt, the arrangement would amount to a single transaction generating payments over a period of time and thus would not involve you in frequent transactions with lawyers likely to come before the court on which you serve.
In addition, the Committee does not believe that the transaction would violate Canon 5(C)(3). Although the Firm’s payment of money to you undoubtedly would require you to disqualify yourself from hearing any cases in which the Firm was involved, it is unlikely that you would hear any cases involving the Firm, its members or employees in any event, at least for some period of time. In that regard, however, if you believe that it would otherwise be proper for you to hear cases involving the Firm, its members or employees in fewer than 10 years, and thus that you are creating an arrangement that would provide at some point in the future the sole reason for your disqualification, then you should think about attempting to structure the pay-out term to one that would be congruent with the period you believe that you would otherwise disqualify yourself from hearing such cases.