COMMITTEE ON CODES OF CONDUCT
ADVISORY OPINION NO. 57
Disqualification in a Case When Controlled Subsidiary of a Corporation
in Which Judge Owns Stock Is a Party.
Two judges have requested an opinion from the Committee as to whether
a judge is disqualified when a controlled subsidiary of a corporation in
which the judge owns stock is a party.
A complete answer to these inquiries would involve an interpretation
of both Canon 3C of the Code of Conduct for United States Judges and 28
U.S.C. § 455. The provisions of the canon and statute are similar,
but our opinion is limited to an interpretation of the canon.
Canon 3C(1) provides that:
- (1) A judge shall disqualify himself or herself in a proceeding
in which the judge's impartiality might reasonably be questioned, including
but not limited to instances in which:
* * *
- (c) the judge knows that . . . [he or she] has a financial
interest in the subject matter in controversy or in a party to the proceeding,
or any other interest that could be affected substantially by the outcome
of the proceeding.
Canon 3C(3)(c) defines a "financial interest" as "ownership of a legal
or equitable interest, however small," with enumerated exceptions, including
ownership in a mutual or common investment fund, the proprietary interest
of a policy holder in a mutual insurance company, or a similar proprietary
interest, where the outcome of the proceeding could not substantially affect
the value of the interest.
The Reporter's Notes to Code of Judicial Conduct, in explaining
the meaning of financial interest, reads in part:
The "financial interest" of a judge that will disqualify him is
his direct legal or equitable ownership interest, no matter how small,
in a party or in the subject matter in a proceeding before him.
* * *
When a judge deposits money in a mutual savings association or takes
out a policy of insurance in a mutual insurance company, he has a technical
legal interest in the association or company. The Committee was of the
opinion that these technical interests, and other similar ones, should
not be a basis for disqualifying a judge even though the association or
company is a party to a proceeding before him, unless the value of his
interest could be substantially affected by the outcome of the proceeding
or the broad test of Canon 3C(1) is applicable.
Thode, Reporter's Notes to Code of Judicial Conduct 69-71 (ABA
1973).
We are concerned accordingly with the question of whether an owner
of stock in the parent corporation has a direct legal or equitable interest
in the controlled subsidiary or merely a "technical legal interest" within
the recognized exceptions.
It is the opinion of the Committee that the owner of stock in a
parent corporation has a direct legal or equitable interest in a controlled
subsidiary, and where a judge knows that a party is controlled by a corporation
in which the judge owns stock, the judge should disqualify in the proceeding.
August 9, 1978
Revised July 10, 1998