State of Washington

Ethics Advisory Committee

Question

May a judicial officer be named as a member and manager as defined in RCW 25.15.150 in a limited liability company (LLC) whose sole asset is a condominium that is rented out on a part-time basis to help defray ownership expenses?

The judicial officer and the judicial officer’s spouse are in the process of purchasing an out-of-state condominium with another couple. The other owners are not lawyers or judges, are not involved in the legal community and do not and will not appear before the judicial officer.

The condominium will be rented most of the year. The condominium owners have formed a LLC to own and manage the property. Because the property is out-of-state, the owners will most likely hire a property management company to do the work. The judicial officer will not be involved in the day-to-day management and operation of the unit except perhaps promoting it to friends and family. The judicial officer will have all the usual and customary responsibilities that accompany owning and managing real property.

RCW 25.15.150 governs the management of a LLC. It provides in part that the certificate of formation may vest management responsibilities in a manager or managers. If a manager is not identified, management is vested in its members. The members of the LLC prefer all members to have management authority. The LLC will be a business with a business license. It will receive and expend funds and will pay taxes.

Answer

CJC Canon 5(C)(1) provides that judges should refrain from financial and business dealings that reflect adversely on their impartiality, interfere with the proper performance of their judicial duties or exploit their judicial position. Canon 5(C)(2) further provides that judges should not involve themselves in frequent business transactions with lawyers or persons likely to come before them. Finally, Canon 5(C)(3) provides in pertinent part that subject to the limitations set forth above, judges may hold and manage investments, including real estate, but should not serve as officers, directors, managers, advisors or employees of any business.

The facts as represented in this request are that the judicial officer and the judicial officer’s spouse are purchasing a single condominium unit located out-of-state with another couple. The other owners are not lawyers and do not appear before the judicial officer. The owners intend to hire a property management company to do the work. The judicial officer will not be involved in the day-to-day management and operation of the condominium.

The issue in this query centers on when permitted management of real estate investments crosses the line and becomes management of a real estate business. The fact that the LLC will own only one residential condominium, the judicial officer will not be actively managing the property and will receive no compensation for any activities related to the condominium ownership suggest the LLC is engaged in a real estate investment and not a real estate business.
CJC Canon 5(C)(3) permits the judicial officer to participate in the LLC as a manager in the factual scenario submitted by the requester. These activities are typical for persons involved with a real estate investment and do not cross the line to add up to involvement in a real estate business.

As with any financial activity, the judicial officer should continue to monitor the involvement with the condominium to ensure that it remains in the nature of a real estate investment and not a real estate business.

Opinion 07-05

09/19/2007