Does a judge's small stock interest in a public company require recusal from its case?

Plain-English summary

The judge planned to move a former law firm's 401(k) account to an IRA managed by a financial services company. The proposed holdings included mutual funds and shares in individual publicly traded companies. The judge said the account could not hold more than one percent of any company's securities.

Canons 5C(1) and (2) allow judges to hold and manage investments within limits concerning impartiality, judicial duties, and exploitation of judicial position. Canon 5C(3) calls for managing interests to minimize disqualifications. The Commission says financial activity causing excessive disqualification could interfere with judicial duties and cease to be permissible under Canon 5C(1).

Under Canon 3C(3)(c), owning a mutual fund does not make the judge an owner of each security held by the fund. Direct ownership of a de minimis share of a publicly traded company likewise is not a disqualifying financial interest under the rule's definition. The Commission rejects a fixed percentage cutoff: it looks to the judge's share of total outstanding stock and whether that share could reasonably raise an impartiality question. It says the stated holdings of less than one percent are unlikely to exceed de minimis status.

That narrow de minimis inquiry does not end the analysis. Under Canon 3C(1)'s general impartiality standard, the judge also considers all circumstances, including the total value of the holding. The opinion requires disqualification if those facts give a reasonable observer grounds to question impartiality or if the outcome could substantially affect the judge's interest. It strongly encourages disclosure of a de minimis direct stock interest under Canon 3E, but says the mutual-fund holding need not be disclosed as an interest in the underlying securities. A disqualification under Canon 3C(1)(c) for a non-de-minimis interest may be remitted under Canon 3D.

In practice

The opinion distinguishes indirect mutual-fund ownership from direct shares in a party. For direct shares, it separately considers the percentage of outstanding stock for de minimis status and the full value and circumstances for the general impartiality question.

Common questions

Q: Does a mutual fund holding count as an interest in each company in the fund?

A: No. Canon 3C(3)(c) excludes the fund's underlying securities from the judge's financial interest, and the opinion says that indirect holding need not be disclosed as such an interest.

Q: Is ownership below one percent always de minimis?

A: No fixed threshold appears in the opinion. The Commission says the inquiring judge's described account is unlikely to exceed de minimis status, but the test asks whether the share of outstanding stock could reasonably raise an impartiality question.

Q: Can a de minimis holding still lead to recusal?

A: Yes. The general Canon 3C(1) inquiry also considers the total value and all circumstances; an interest that could be substantially affected by the outcome independently calls for disqualification.

Background and rules framework

The opinion reads Alabama Canons 5C(1) through (3) on investments with Canons 3C(1), 3C(1)(c), and 3C(3)(c) on financial interests and disqualification. It also addresses disclosure under Canon 3E and possible remittal under Canon 3D.

Citations and references

Alabama Canons of Judicial Ethics:

• Canons 3C(1), 3C(1)(c), 3C(1)(d)(ii), 3C(2), 3C(3)(c), 3D, 3E, 5C(1), 5C(2), and 5C(3).

Cases:

• In re Disqualification of Lavrich, 657 N.E.2d 1330 (Ohio 1990), cited on stock percentage compared with total outstanding shares.
• Huffman v. Ark. Judicial Discipline and Disability Comm’n, 42 S.W.3d 386 (Ark. 2001), cited on impartiality concerns despite a small percentage of company shares.
• Matter of Sheffield, 465 So. 2d 350 (Ala. 1984), quoted for the ordinary-prudence impartiality test.

Other opinions cited:

• Alabama JIC Advisory Opinions 81-107, 03-811, and 03-816, on investment limits, substantial effects, and disclosure.

See also

• AL Judicial Ethics Op. 25-969: Former DHR Lawyer's Recusal
• DC Judicial Ethics Op. 6: Prosecutor Spouse Recusal

Source

• Landing page: Alabama JIC advisory opinions
• Original PDF: Advisory Opinion 25-965

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

JUDICIAL INQUIRY COMMISSION
DATE ISSUED: MARCH 10, 2025 ADVISORY OPINION 25-965
FINANCIAL ACTIVITIES:
INVESTMENT PORTFOLIOS
DISQUALIFICATION:
FINANCIAL ACTIVITIES
ISSUE
What limitations are there on a
judge’s investment activity?
Answer: A judge may hold and
manage investments subject to the
limitations in Canons 5C(1) and
5C(3).
Is a judge disqualified from a case
in which a publicly traded
corporation is a party where the judge
holds only a de minimis portion of the
securities of a publicly traded
corporation?
Answer: No, unless the judge’s
interest might be substantially
affected by the outcome or might
otherwise still create a reasonable
question as to the judge’s
impartiality.
FACTS
A judge is in the process of
transferring a 401K retirement plan
with his former law firm into an
individual retirement account
(“IRA”). The IRA will be managed by
a financial services company. It is
anticipated that the judge’s IRA will
include investments both in mutual
funds consisting of publicly traded
corporations as well as securities in
individual publicly traded
corporations. The judge states that
the total value of the IRA would not
be sufficient to hold more than one
percent of the securities in any
publicly traded company.
DISCUSSION
A judge’s financial investments
are generally governed by Canon
5C(1) and (2). Together, those
Canons provide that a judge may hold
and manage investments, including
real estate, or engage in other
remunerative activity, including
operating a business, so long as it
does not reflect adversely on the
judge’s impartiality, interfere with
the proper performance of the judge’s
judicial duties, or exploit the judge’s
judicial position. Additionally,
Canon 5C(3) provides, “A judge
should manage his [or her]
investments and other financial
interests to minimize the number of
cases in which he [or she] is
disqualified.” If a judge’s
investments or other financial
activity cause his or her excessive
disqualification, then that activity
interferes with the proper
performance of his or her duties and
is no longer permissible under Canon
5C(1). Whether a judge’s specific
financial activity might violate the
restrictions of Canon 5C must be
determined by the judge on a case-by-
case basis. Alabama Advisory
Opinion 81-107.
A judge’s financial activity can
also have disqualification
implications, even where the judge
does not personally participate in the
ADVISORY OPINION 25-965
PAGE 2
management of his or her financial
activity. See Canon 3C(2). Canon
3C(1) provides:
A judge should disqualify
himself [or herself] in a
proceeding in which his [or her]
disqualification is required by
law or his [or her] impartiality
might reasonably be questioned,
including but not limited to
instances where:
. . . .
(c) He [or she] knows
that he [or she],
individually or as a
fiduciary, or his [or her]
spouse or minor child
residing in his [or her]
household, has a
financial interest in the
subject matter in
controversy or in a party
to the proceeding, or any
other interest that could
be substantially affected
by the outcome of the
proceeding.
Canon 3C(3)(c) further defines
financial interest:
“Financial interest” means
ownership of a legal or
equitable interest, or a
relationship as officer,
director, advisor, or other
active participant in the affairs
of a party, except that:
(i) Ownership in a
mutual or common
investment fund that
holds securities is not a
“financial interest” in
securities held by the
organization or
institution;
. . . .
(v) Ownership of a de
minimis portion of the
securities of a publicly
traded corporation is not
a “financial interest.” A
“de minimis” portion is
an interest that could not
raise a reasonable
question as to a judge’s
impartiality.
(Italics in original.) Thus, a judge is
not disqualified from a case involving
a specific publicly traded corporation
if he or she invests in a mutual or
common investment fund that holds
securities in that same publicly traded
corporation; however, a judge is
disqualified if he or she directly holds
a portion of the securities in the
publicly traded corporation where
that portion could create a reasonable
question as to the judge’s
impartiality.
Because the determination of
whether a judge’s interest is de
minimis depends on whether his or
her interest creates a reasonable
question as to the judge’s
impartiality, this question is unsuited
for a bright line rule. The
ADVISORY OPINION 25-965
PAGE 3
Commission, however, offers the
following guidance in determining
whether a judge’s interest is, in fact,
de minimis. In determining whether a
judge’s portion of securities in a
publicly traded corporation is de
minimis, the judge need only consider
the total percentage of the judge’s
interest in the corporation relative to
the total outstanding stock of the
corporation. In re Disqualification of
Lavrich, 657 N.E.2d 1330, 1331
(Ohio 1990). If the percentage of the
judge’s interest relative to the total
outstanding stock of a publicly traded
corporation could create a reasonable
question as to the judge’s
impartiality, then the judge’s interest
is not de minimis and the judge must
disqualify. The Commission notes,
however, that the inquiring judge has
represented that the total value of his
IRA would not be sufficient to hold
more than one percent of the
securities in any publicly traded
corporation. Based on this
representation, it is unlikely that the
judge’s holdings in his IRA would be
considered anything more than a de
minimis interest.
Although a judge’s interest in a
publicly traded corporation might be
de minimis, the Commission strongly
encourages judges to fully disclose
such interests to the parties pursuant
to the provisions of Canon 3E.1
The
Commission has recognized that
1
This does not apply to a judge’s interest in
a mutual fund as such an interest does not
qualify as a financial interest according to
Canon 3C(3), and, thus, does not need to be
disclosed.
providing such a disclosure serves
two purposes: it will avoid any issue
of appearance of impropriety that
may arise and will give the parties the
opportunity to supply any additional
relevant information not yet
considered by the judge. Alabama
Advisory Opinion 03-816. Moreover,
where the judge’s interest is not de
minimis and the judge is disqualified,
the judge’s disqualification may be
remitted pursuant to the provisions of
Canon 3D.
Even if the judge’s interest is de
minimis for the purposes of Canon
3C(1)(c), he or she should still
examine the totality of the
circumstances to determine whether
there is a reasonable question as to
the judge’s impartiality. See Huffman
v. Ark. Judicial Discipline and
Disability Comm’n, 42 S.W.3d 386,
391–92 (Ark. 2001). As the text of
Canon 3C(1) makes clear, the list of
specific instances in Canons 3C(1)(a)
through (d) is not exhaustive. Thus,
even though a judge may not be
disqualified under one of the specific
instances, the judge must still
consider whether he or she is
disqualified under Canon 3C(1)’s
general provision.
The test to determine whether a
judge is disqualified under Canon
3C(1)’s general provision is: “‘Would
a person of ordinary prudence in the
ADVISORY OPINION 25-965
PAGE 4
judge’s position knowing all of the
facts known to the judge find that
there is a reasonable basis for
questioning the judge’s
impartiality?’” Matter of Sheffield,
465 So. 2d 350, 356 (Ala. 1984)
(quoting Thode, The Code of Judicial
Conduct—The First Five Years in the
Courts, 1977 Utah L. Rev. 395, 402).
Unlike the Canons’ definition of de
minimis, this test is not limited to the
portion of the overall shares of a
publicly traded corporation that are
held by a judge. Rather, judges must
consider whether a reasonable person,
knowing all of the facts known by the
judge, would find a reasonable basis
for questioning the judge’s
impartiality. This includes the total
value of the judge’s holdings in a
publicly traded corporation.
In Huffman, the Arkansas Supreme
Court denied the judge’s petition for
a writ of certiorari asking the Court
to review the Arkansas Judicial
Discipline and Disability
Commission’s admonishment against
him for failing to disqualify from a
case involving Wal-Mart where the
judge and his wife held
approximately 12,000 shares of Wal-
Mart stock totaling $700,000. 42
S.W.3d at 388, 391. The Court held,
“If Judge Huffman’s economic
interest in Wal-Mart would create in
reasonable minds a preception that
the judge’s ability to carry out the
judicial responsibilities in a case
involving Wal-Mart with integrity,
impartiality, and competence is
impaired, then it does not matter that
Judge Huffman’s economic interest in
Wal-Mart is de minimis to the extent
that his economic interest could not
be substantially affected by this
proceeding.” Id. at 393 (italics in
original). The Court explained,
“While there is little doubt that the
action taken by Judge Huffman was
unlikely to fundamentally affect the
value of his and his wife’s stock,
which comprises but a miniscule
percent of the total stock existing in
Wal-Mart, this analysis on the de
minimis value of an economic interest
. . . ignores the more basic issue of
appearance of impropriety and
impartiality.” Id. at 391–92.
Therefore, even where a judge’s
interest might be only a de minimis
portion of the securities of a publicly
traded corporation, the judge should
still consider whether a reasonable
person knowing all of the facts known
to the judge might have a reasonable
basis for questioning the judge’s
impartiality. If so, then the judge
must disqualify.
Lastly, this opinion, so far, has
addressed only the circumstance
where a publicly traded corporation
in which a judge holds securities is a
party to a proceeding pending before
the judge. A judge should also
disqualify himself or herself,
however, from any proceeding in
which the judge knows that he or she
has “an interest that could be
substantially affected by the outcome
of the proceeding.” Canons 3C(1)(c)
and 3C(1)(d)(ii). When determining
whether a judge’s financial interest
could be substantially affected by the
outcome of the proceeding, the judge
ADVISORY OPINION 25-965
PAGE 5
should consider the extent of his or
her interest and whether any benefit
or loss that the judge may receive
would raise a reasonable question as
to his or her impartiality. Alabama
Advisory Opinion 03-811 (citing L.
Abramson, Judicial Disqualification
Under Canon 3C of the Code of
Judicial Conduct 64–65 (Am.
Judicature Soc’y 1986)).
REFERENCES
Alabama Canons of Judicial Ethics
3C(1), 3C(1)(c), 3C(1)(d)(ii), 3C(2),
3C(3)(c), 3D, 3E, 5C(1), 5C(2),
5C(3).
Alabama JIC Advisory Opinions 81-
107, 03-811, and 03-816.
In re Disqualification of Lavrich, 657
N.E.2d 1330, 1331 (Ohio 1990).
Huffman v. Ark. Judicial Discipline
and Disability Comm’n, 42 S.W.3d
386, 391–92 (Ark. 2001).
Matter of Sheffield, 465 So. 2d 350,
356 (Ala. 1984).
This opinion is advisory only and is
based on the specific facts and
questions submitted by the judge who
requested the opinion pursuant to
Rule 18 of the Alabama Rules of
Procedure of the Judicial Inquiry
Commission. For further information,
you may contact the Judicial Inquiry
Commission, P.O. Box 303400,
Montgomery, Alabama 36130-3400;
tel.: (334) 242-4089; email:
[email protected].