Walson v. Ethics Committee of the Kentucky Judiciary

308 S.W.3d 205, 2010 Ky. LEXIS 89, 2010 WL 1636675

• Court: Kentucky Supreme Court
• Decided: April 22, 2010
• Docket: 2009-SC-000623-OA
• Status: Published

Opinions

OPINION AND ORDER

I. INTRODUCTION AND FACTUAL SUMMARY.

The Ethics Committee of the Kentucky Judiciary was asked to determine if the Kentucky Code of Judicial Conduct (Code), set forth at Rules of the Supreme Court (SCR) 4.300, prohibits a Kentucky justice or judge from serving as a member of the board of directors or on an advisory board of a financial institution. Revising some of its past opinions, the Committee issued Formal Judicial Ethics Opinion (JE) 118 stating that no justice or judge may serve as either an advisor or member of the board of directors of a financial institution, unless that justice or judge “has invested personal funds in a banking company....”

This Court has reviewed JE-118 under SCR 4.310(4) at the request of Jeffrey Walson, a family court judge in the 25th Judicial Circuit of Kentucky. Judge Wal-son serves on the advisory board of a bank. We conclude that in JE-118, the Committee correctly determined that no member of the state judiciary may serve as an advisor or director for a financial institution. But we further conclude that the Committee erred in JE-118 by making an exception for members of the judiciary who have a personal financial stake in the financial institution they serve.¹

II. ANALYSIS.

This case presents two questions. First, may a justice or judge, serving at any level of the Kentucky Court of Justice, be a member of the board of directors or of an advisory board of a financial institution? We agree with JE-118 that the answer is no. Having reached that conclusion, we must then decide whether JE-118 correctly made an exception, which allows a justice or judge to serve on a board of a financial institution in which the justice or judge has a personal financial stake. We agree with Judge Walson that the exception is improper.

A. The. General Prohibition Applies to All Members of the Judiciary.

Canon 2 of the Code plainly says that a judicial officer “may properly lend the prestige of the judge’s office to advance the public interest in the administration of justice!,]” but a judge “shall not lend the prestige of judicial office to advance the private interests of the judge or others.... ” Closely related is Canon 4 D(3), which permits a judicial officer to serve as an officer, director, etc., of a business entity, unless that business entity, among other things, is “likely to be engaged in proceedings that would ordinarily come before the judge, or ... [is] likely to be engaged frequently in adversary proceedings in the court of which the judge is a member .... ” Canon 4 D(3) (a) (ii)-(iii).

Banks and other financial institutions are frequent litigants at all levels of the courts of this Commonwealth. And the Canons make no distinction related to the court on which the judicial officer serves. So it would appear beyond dispute that district, circuit (including family court), and appellate judicial officers are all prohibited from serving as officers, directors, etc., for financial institutions.²

Of course, we do not believe that any of our conscientious judicial officers across the Commonwealth intentionally lends the prestige of office to the financial institutions on whose boards they serve. But we agree with the Committee’s general conclusion that judicial officers are prohibited by the Canons from serving as directors or advisors of financial institutions because those judicial officers’ service does unquestionably lend the prestige of the judicial offices to those financial institutions.

So we decline to disturb JE-118’s conclusion that the Canons contain a general prohibition against judicial officers serving as advisors, directors, and the like on behalf of financial institutions. Judge Wal-son seems to accept the existence of that general prohibition; but he argues that family court judges — and, as we understand his point, only family court judges— should be exempt from that general prohibition. We disagree.

As Judge Walson notes in his motion for review, financial institutions themselves are not likely to be frequent litigators in family court. But we consider a special exception for family court judges improper for two reasons. First, although not themselves parties, financial institutions will frequently have some interest in the outcome of family court proceedings by virtue of being the repositories of the funds or the holders of debt of the family court litigants.³ Second, and more importantly, adopting Judge Walson’s position would require us to engage in an impermissible and arbitrary division of the offices of circuit judge and family court judge.

Section 109 of our Kentucky Constitution states, in relevant part, that “[t]he judicial power of the Commonwealth shall be vested exclusively in one Court of Justice which shall be divided into ... a trial court of general jurisdiction known as the Circuit Court....” And a circuit court division designated as a family court “shall retain the general jurisdiction of the Circuit Court and shall have additional jurisdiction as may be provided by the General Assembly.” Ky. Const. § 112(6). So, in simple terms, family court judges are circuit judges. And as we recently noted, “[cjonstitutionally speaking, Kentucky has but one circuit court and all circuit judges are members of that court and enjoy equal capacity to act throughout the state.” Baze v. Commonwealth, 276 S.W.3d 761, 767 (Ky.2008). There is no constitutional basis, therefore, to treat family court judges differently from other circuit court judges. Judge Walson’s argument asks us to divide the indivisible.

The constitutional provisions referenced in this opinion plainly lead to a conclusion that there is also no basis under the Code for us to adopt an arbitrary distinction between circuit judges exercising general jurisdiction and circuit judges exercising family court jurisdiction. Canon 4 D(3)(a)(iii) prohibits a judicial officer from serving as an officer, director, etc., for any business entity “likely to be engaged frequently in adversary proceedings in the court of which the judge is a member.... ” Family court judges are members of the circuit court, and it is indisputable that financial institutions are frequent litigants in circuit court. So the contention that family court judges — and only family court judges — may serve the interests of financial institutions is contrary to both Kentucky’s Constitution and the Code of Judicial Conduct.

The Committee concluded that it was “unable to ascertain any purpose to an Advisory Board other than to lend the judge’s name to enhance the prestige of the institution to enable it to draw more business.” (Internal quotation marks omitted.) Judge Walson takes issue with this conclusion, arguing that it “stems from either a lack of understanding, consideration, or imagination.” We agree that the Committee appears to have used unfortunately broad language in this section of its opinion. It is certainly possible that a judicial officer’s education, training, or previous practice or employment experience could make the judicial officer well qualified to serve as an advisor or director for a financial institution. But Judge Wal-son has not cited to anything specific, apart from his own personal experience, to support his presumption that judicial officers are invariably chosen to serve financial institutions for reasons that have nothing to do with the high offices they hold. Although we do not embrace the broad language used by the Committee, we must reluctantly agree with its conclusion that, at least sometimes, judicial officers are placed on bank boards primarily because they are judicial officers who are popularly elected in the community from which the financial institution draws its customer base.

Although our focus must primarily be upon Kentucky law, we have also examined authority in other state judicial systems for guidance. Unfortunately, there are few reported decisions on this subject. But our conclusion that service as a judicial officer generally precludes simultaneous service as a director or similar officer of a financial institution is in accord with decisions from both the Oklahoma Judicial Ethics Advisory Panel⁴ and the Supreme Court of Louisiana.⁵

Finally, we are compelled to note that adoption of Judge Walson’s arguments would permit judicial officers to serve the interests of typically for-profit financial institutions while, by contrast, judicial officers are prohibited by JE-117 from serving as a member of the board of trustees of a public university.⁶ It is unnecessary in this opinion to expound on the reasons underlying JE-117, and we intend no criticism of that decision. Instead, we merely point out that adoption of Judge Walson’s arguments would lead to a seemingly incongruous juxtaposition between what a judicial officer (or at least a family court judge) could permissibly do on behalf of a presumably for-profit financial institution with what a judicial officer may not do on behalf of a non-profit public university. That juxtaposition seems illogical and arbitrary and, potentially, could undermine the public’s confidence and trust in the judiciary.

B. No Exception for Having a Personal Financial Stake.

Although we reject his conclusion regarding a special exception for family court judges, we do agree with Judge Wal-son’s argument that the Committee erred in JE-118 by holding that a judicial officer is permitted to serve a financial institution merely because the judicial officer holds stock, or has a similar financial interest, in the financial institution being served. To the contrary, Canon 2 D explicitly forbids such a conclusion because it unquestionably prohibits judicial officers from “lending] the prestige of judicial office to advance the private interests of the judge or others.... ” Additionally, the Ethics Committee’s conclusion seems to run afoul of Canon 4 D(4), which requires a judicial officer to “manage the judge’s investments and other financial interests to minimize the number of cases in which the judge is disqualified.”

Obviously, any director or advisor to a financial institution must seek to further the interests of that financial institution. Babineaux, 341 So.2d at 400. (“The petitioners’ contention that a directorship is a neutral position is untenable. It overlooks the fact that a director owes a fiduciary duty to the corporation. In practical terms, this means a duty to efficiently manage its affairs and promote its business.”). We fail to see how merely owning at least one share of stock in a financial institution overrides the Code so as to function as a virtual free pass for a judicial officer to advance the private pecuniary interests of that financial institution. In other words, there is no distinction in the Canons between being an owner or no-nowner of stock in the financial institution; and the Committee erred by grafting such an unwarranted exception onto the Code.

III. CONCLUSION.

We emphasize that we east no aspersions on Judge Walson or any similarly situated judicial officer who is currently serving as a director or advisor for a financial institution. To the contrary, we trust that Judge Walson and all the judicial officers of this Commonwealth strive scrupulously to follow the requirements of the Code. But our construction of the Code and the Kentucky Constitution leads us to the inescapable conclusion that judicial officers, regardless of their benign intentions, are prohibited from accepting these types of positions with financial institutions. We agree with the Supreme Court of Louisiana that such a prohibition:

serves to reduce the possibility that a judge would, or would seem to, use the prestige of his judicial office to attract business for the financial institution, to eliminate the potential conflict between a director’s fiduciary duty to the corporation and his judicial duties, and to lessen the possibility of conflict of interest for the judge revolving around litigation before the court.

In re Babineaux, 346 So.2d 676, 679-80 (La.1977).

We agree with the Committee that no judicial officer, family court or otherwise, may serve as an advisor, director, or the like for financial institutions. We reject the Committee’s conclusion that a judicial officer may serve as a director or advisor of a financial institution if the judicial officer has a financial stake in that financial institution.

All sitting. MINTON, C.J.; ABRAMSON, CUNNINGHAM, NOBLE, SCOTT, and VENTERS, JJ., concur. SCHRODER, J., dissents by separate opinion.

ENTERED: April 22, 2010.

/s/ John D. Minton, Jr.

1 . Because the issue is not properly before us, we express no binding opinion at this time as to whether a judicial officer may serve as an advisor or director to a business entity other than a financial institution.

2 . Thus, the Committee properly withdrew its formal opinion in JE-78, which had held that district court judges were permitted to serve as directors of banks.

3 . See, e.g., Steven Lubet, Regulation of Judges’ Business and Financial Activities, 37 Emory L.J. 1, 28 (1988) ("It should be apparent, however, that certain institutions are more litigation sensitive’ than others. Banks, insurance companies, and utilities may often be affected by the outcome of litigation even where the particular entity is not a party to the particular proceeding. ... Similarly, financial institutions may have an interest in lawsuits concerning general banking law, securities, pension regulation, trusts, and a host of other subjects. Thus, a judge who sits on the board of directors of an insurance company will be faced with many more actual and potential conflicts of interest than will a judge who operates a hardware store. The conflicts are no less troubling because they are inchoate or general rather than being tied to specific litigation. The same holds true for virtually all of the heavily regulated industries, but banks, insurance companies, and utilities are among those that are the most closely involved with state government and state law.") (emphasis added and footnote omitted).

4 . In re Judicial Ethics Opinion 2004-4, 103 P.3d 84 (Okla.Jud.Eth.2004) (answering in the affirmative the question of whether "appointment to the Bench and assuming office necessitate or require the judge to resign as a Director of a Federal Credit Union[.]”).

5 . Babineaux v. Judiciary Commission, 341 So.2d 396, 403 (La.1976) (finding constitutional a canon of judicial ethics prohibiting judicial officers from serving on the board of directors of financial institutions).

6 . JE-117 was rendered in April 2009 and is available to the public at http://courts.kv.gov/ NR/rdonlyres/50756AFl-2DA5-4B29-98C2-24471FSC0A98l0IJE117.pdf.

In May 2009, a majority of this Court declined to review JE-117 in case no. 2009-SC-000242-OA, In re Honorable Jeff S. Taylor. The public may view the stepsheet, which summarily reflects our decision to decline review of JE-117 by entering the appropriate case information at http://apps.courts.ky.gov/ supreme/sc-dockets.shtm.