CONFLICT OF INTEREST; GIFTS
EXPENDITURES BY CITIZENS INSURANCE BOARD MEMBER
To: Name withheld at person's request (Tallahassee)
No prohibited conflict of interest is created under Section 112.313(3) or (7)(a), Florida Statutes, where the Chairman of the Board of Governors of Citizens Property Insurance Corporation also serves on the board of directors of and holds stock in a company doing business with Citizens, as the "grandfather" provision of Section 112.313(3) applies to negate the conflict under that statute, and through application of Section 112.316, Florida Statutes, insulates him from the literal language of Section 112.313(7)(a), as well. CEO 87-41, CEO 08-8, CEO 02-19, and CEO 03-17 are referenced. The Chairman would not be required to abstain from voting on matters pertaining to his company or its parent, but would be required to disclose his voting conflict and file a CE Form 8A prior to voting on or participating in a measure which would inure to the corporation's special private gain or loss.
Compensation received by the Chairman for his service on those boards would constitute neither a prohibited "gift" under Sections 112.3148(4) or 627.351(6)(d)4, Florida Statutes, nor a prohibited "expenditure," under Section 627.351(6)(d)4, Florida Statutes. CEO 01-13, CEO 95-21, and CEO 06-7 are referenced.
Does a conflict of interest exist where the Chairman of the Board of Governors of Citizens Property Insurance Corporation also serves on the board of directors of a company doing business with Citizens?
Under the circumstances herein, your question is answered in the negative.
In your letter of inquiry, and additional correspondence and conversations with our staff, you advise that you represent …, who was appointed effective August 8, 2008 as Chairman of the Board of Governors of Citizens Property Insurance Corporation ("Citizens"). You write that the Chairman is also a compensated member of the board of directors of Regions Financial Corporation ("Regions Financial") and Regions Bank, its wholly-owned subsidiary. In addition, you advise that the Chairman and his spouse own 49,601 shares in Regions Financial,1 "one of the nation's largest full-service providers of consumer and commercial banking, trust, securities brokerage, mortgage and insurance products and services." On January 25, 2007, you write, Regions Bank was selected by Citizens pursuant to a Request for Proposal to serve as Successor Indenture Trustee and to provide trust administration services for Citizens for a term of three years, for which it will earn approximately $162,000 per year. On May 27, 2007, Citizens selected Regions Bank to act as an Indenture Trustee for the 2007 PLA/CLA bond proceeds. The term of this agreement is 15 years, or the date of maturity, whichever comes first, and Regions Bank will receive approximately $37,500 for its services. On July 1, 2007, Regions Bank became the Master Trustee under the 2008 Personal Lines Account/Commercial Lines Account (PLA/CLA) 364 Day Revolving Line of Credit Agreement indenture, and is also a lender for this line of credit.2 You write that Regions Bank will be paid nothing for its services as Master Trustee, unless Citizens actually draws on this line of credit.
Pursuant to Section 627.351(6)(d)3, Florida Statutes, members of Citizens' Board of Governors are subject to the Code of Ethics for Public Officers and Employees, and you inquire whether the member has a conflict of interest pursuant to either Section 112.313(3) or (7), Florida Statutes.
Section 112.313(3), Florida Statutes, provides:
DOING BUSINESS WITH ONE’S AGENCY.—No employee of an agency acting in his or her official capacity as a purchasing agent, or public officer acting in his or her official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his or her own agency from any business entity of which the officer or employee or the officer’s or employee’s spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or the officer’s or employee’s spouse or child, or any combination of them, has a material interest. Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to the officer’s or employee’s own agency, if he or she is a state officer or employee, or to any political subdivision or any agency thereof, if he or she is serving as an officer or employee of that political subdivision. The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator’s place of business or when such offices are on property wholly or partially owned by the legislator. This subsection shall not affect or be construed to prohibit contracts entered into prior to:
(a) October 1, 1975.
(b) Qualification for elective office.
(c) Appointment to public office.
(d) Beginning public employment. [Section 112.313(3), Florida Statutes.]
The first part of this section prohibits a public officer from acting in his public capacity to buy or rent goods, services, or realty from a business entity in which he is an officer or director; the second part prohibits a public officer from acting in his private capacity to sell, rent, or lease any goods, services, or realty to his public agency. We have previously indicated that a public officer is deemed to act in a private capacity when a business for which he serves as a director acts. See, CEO 87-41. Accordingly, absent some exception, a prohibited conflict is presented by the Chairman's simultaneous service as a member of Regions Bank's board of directors and on Citizens' Board of Governors.
Such an exemption is found in the "grandfathering" provision expressly stated in Section 112.313(3). This provision expressly exempts contracts entered into prior to the official's appointment to public office. As you have represented that both the Chairman's relationship with Regions Bank and all of Citizens' contractual relationships with Regions Bank predated the Chairman's appointment to Citizens' Board, this exemption applies to negate the conflict. CEO 08-8. Therefore, no prohibited conflict is created under Section 112.313(3), Florida Statutes, by the Chairman's service on the boards of directors of Regions Financial and Regions Bank.
Section 112.313(7), Florida Statutes, provides:
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.-—(a) No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee, excluding those organizations and their officers who, when acting in their official capacity, enter into or negotiate a collective bargaining contract with the state or any municipality, county, or other political subdivision of the state; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties.
The first part of Section 112.313(7)(a) prohibits a public officer or employee from having a contractual relationship with any business entity doing business with his agency. As the Chairman has a contractual relationship with Regions Bank by virtue of his compensated service on its board and Regions Bank is unquestionably "doing business with" Citizens, a prohibited conflict would exist under this statute as well.3 However, in prior cases we have said that the grandfathering provision of Section 112.313(3) applies, through the operation of Section 112.316, Florida Statutes, in the context of conflicts under the first part of Section 112.313(7). See, CEO 86-71, CEO 02-19, and CEO 03-17. For that reason we find that no prohibited conflict of interest would be created under the first part of Section 112.313(7), Florida Statutes, by the Chairman's service on the boards of directors of Regions Financial and Regions Bank.
However, the grandfathering provision does not exempt conflicts arising under the second part of Section 112.313(7), which prohibits a public officer or employee from having any contractual relationship which would create a continuing or frequently recurring conflict between his private interests and the performance of his public duties, or that would impede the full and faithful discharge of the officer's public duties. This provision establishes an objective standard which requires an examination of the nature and extent of the public officer's duties together with a review of his private employment to determine whether the two are compatible, separate and distinct, or whether they coincide to create a situation which "tempts dishonor." Zerweck v. Commission on Ethics, 409 So.2d 57 (Fla. 4th DCA 1982).
You have indicated that the Chairman is not an officer or employee of either Regions Financial or Regions Bank, and played no part in the sale of services to Citizens. In addition, according to your correspondence, the combined value of the contracts for Indenture Trustee services is approximately $199,500 per year, while in the last year Regions Bank had total revenues of more than $10.75 billion. While certainly not an insignificant sum, the amount of business transacted between Citizens and Regions Bank does not appear to us to rise to a level that would tempt the Chairman to dishonor his responsibilities to Citizens in favor of his private interests. Compare, CEO 03-17 (conflict under Section 112.313(7) could not be negated by "grandfathering," where potential member of Port Authority chaired a company which carried approximately 40 percent of all refined petroleum products moved into the port).
We note that although the existing contracts are "grandfathered," renewal or amendment of the contracts may result in the loss of the grandfather exemption, unless the renewal is for a time certain provided for in the original lease and the terms of the renewal remain the same as those of the original contract. CEO 03-17.
Accordingly, we find that no prohibited conflict exists under either 112.313(3) or (7), as a result of the existing contracts between Citizens and Regions Bank. We point out that although the Chairman, as a state officer, is not required to abstain, he must disclose his interest before participating or voting and file a memorandum of voting conflict (CE Form 8A) within 15 days after any vote occurs which will inure to the special private gain or loss of Regions Financial or any of its subsidiaries.
Does the compensation paid by Regions to the Chairman for his service on its board of directors violate the prohibitions on receipt of gifts or expenditures found in Sections 112.3148, 112.3215, or 627.351(6)(d)4, Florida Statutes?
You inquire whether the Chairman's receipt of compensation for his service as a member of the boards of Regions Financial and Regions Bank constitutes a prohibited gift or expenditure.
Section 112.3148(4), Florida Statutes, provides:
A reporting individual or procurement employee or any other person on his or her behalf is prohibited from knowingly accepting, directly or indirectly, a gift from a political committee or committee of continuous existence, as defined in s. 106.011, or from a lobbyist who lobbies the reporting individual's or procurement employee's agency, or directly or indirectly on behalf of the partner, firm, employer, or principal of a lobbyist, if he or she knows or reasonably believes that the gift has a value in excess of $100; however, such a gift may be accepted by such person on behalf of a governmental entity or a charitable organization. If the gift is accepted on behalf of a governmental entity or charitable organization, the person receiving the gift shall not maintain custody of the gift for any period of time beyond that reasonably necessary to arrange for the transfer of custody and ownership of the gift.
This provision applies to the Chairman, because pursuant to Section 627.351(6)(d)3, Florida Statutes, he is required to file financial disclosure and is thus a "reporting individual" subject to the proscriptions of Section 112.3148. However, pursuant to Section 112.312(12)(a), Florida Statutes, a "gift" is that "for which equal or greater consideration is not given within 90 days." We observed in CEO 01-13 that the statutory definition of "gift" includes the concept of "quid pro quo," and in several opinions involving the gift law, we have concluded that the recipient had provided equal or greater consideration such that they had not received a gift. In CEO 95-21, an opinion factually similar to the situation here, we opined that the stipend a state senator received for serving on the board of directors of an insurance company was not a "gift" since the other directors received the same remuneration. It was, instead, "equal or greater consideration" for his service on the board. Similarly, through the Chairman's service as a board member, he provides equal or greater consideration; therefore, his compensation would not constitute a "gift" under the statutory definition. In addition, Section 112.312(21) specifically excludes from the definition of "gift" expenses associated primarily with the donee's service as an officer or director of a corporation. Accordingly, we find that Section 112.3148 does not prohibit the Chairman from receiving compensation from Regions Financial and Regions Bank for his service on their boards of directors.
We next turn to the question of whether he is prohibited from receiving such compensation by Section 112.3215(6), Florida Statutes, which states:
Notwithstanding s. 112.3148, s. 112.3149, or any other provision of law to the contrary, no lobbyist or principal shall make, directly or indirectly, and no agency official, member, or employee shall knowingly accept, directly or indirectly, any expenditure.
This section applies only to officers or employees of executive branch agencies as defined in Section 112.3215(1), Florida Statutes. However, it is not necessary for us to decide here whether Citizens is an executive branch agency, because of the existence of a similar prohibition in Citizens' enabling legislation.
In 2006, the Legislature enacted Chapter Law 2006-12, Laws of Florida, containing Section 627.351(6)(d)4, which states:
Notwithstanding s. 112.3148 or s. 112.3149, or any other provision of law, an employee or board member may not knowingly accept, directly or indirectly, any gift or expenditure from a person or entity, or an employee or representative of such person or entity, that has a contractual relationship with the corporation or who is under consideration for a contract. An employee or board member who fails to comply with subparagraph 3. or this subparagraph is subject to penalties provided under ss. 112.317 and 112.3173.
This section prohibits both "gifts" and "expenditures" received from those having contracts with Citizens, a criterion that Regions Bank clearly meets. The statute does not define the terms "gift" or "expenditure," but as it was enacted after both Section 112.3148 and 112.3215(6),4 the Legislature apparently intended to adopt the definitions supplied by those statutes.
We already have spoken to the issue of whether the compensation met the definition of "gift,"5 and now focus on the issue of whether it constitutes an "expenditure." The term "expenditure" is defined in Section 112.3215(1)(d), Florida Statutes, to mean
a payment, distribution, loan, advance, reimbursement, deposit, or anything of value made by a lobbyist or principal for the purpose of lobbying. The term "expenditure" does not include contributions or expenditures reported pursuant to chapter 106 or federal election law, campaign-related personal services provided without compensation by individuals volunteering their time, any other contribution or expenditure made by or to a political party, or any other contribution or expenditure made by an organization that is exempt from taxation under 26 U.S.C. s. 527 or s. 501(c)(4).
In CEO 06-4 we said that by contemporaneously giving equal or greater consideration in the form of the purchase of an admission ticket, executive branch agency officials and employees did not receive a lobbying expenditure when they attended an event hosted by the principal of an executive branch lobbyist. The same rationale applies here: as you have provided equal or greater consideration in return for the compensation you have received, it does not appear to us that you have received an "expenditure."
In addition, in CEO 06-7, Question 5, we dealt with a question from the Commissioner of Agriculture, who was a member of the board of directors of the Florida Cattlemen's Association, the principal of an executive branch agency lobbyist. In his capacity as a member of that board, the Commissioner consumed food and beverages provided by the Association to the board members as part of their attendance at the board meeting. We said this would not constitute a prohibited "expenditure," as it was not given for the purpose of lobbying. In doing so, we also noted that the Interim Lobbying Guidelines for the House and Senate issued on January 20, 2006, consider employment-related compensation and benefits to be an exception to the expenditure prohibition imposed on members and staff of the Legislature under Ch. 2006-12, and that there is a similar exclusion from the definition of "gift" in Section 112.312(12)(b)1, Florida Statutes. For these reasons it appears that the compensation paid by Regions Financial and Regions Bank for the Chairman's service on their boards of directors is not a prohibited expenditure, as long as it is given in an amount commensurate with other similarly situated board members.
Accordingly, under the circumstances presented here, we find that the Chairman's receipt of compensation for his service as a member of the boards of directors of Regions Financial and Regions Bank6 is neither a prohibited "gift" under Sections 112.3148(4) or 627.351(6)(d)4, Florida Statutes, nor a prohibited "expenditure," under Section 627.351(6)(d)4, Florida Statutes.
ORDERED by the State of Florida Commission on Ethics meeting in public session on January 23, 2009 and RENDERED this 28th day of January, 2009.
Cheryl Forchilli, Chair
You relate that the Chairman owns 4,636 shares and 39,583 options and his wife owns 5,382 shares, and that their total interests amount to approximately .007% of Regions Financial's 693,601,138 outstanding shares.
You advise that the line of credit was obtained on May 16, 2008.
There is no indication that Citizens "regulates" Regions Bank.
Enacted in Chapter 2005-359, Laws of Florida.
We note that under Section 112.3148(4), a reporting individual is prohibited from accepting a gift valued in excess of $100 from one of the enumerated donors. In contrast, Section 627.351(6)(d)4 has no value threshold, prohibiting the acceptance of a gift of any amount. It is clear to us that the Legislature intended to apply differing standards depending upon the position held. For example, the proscriptions of Section 112.3148 apply only to reporting individuals and procurement employees, while the prohibitions on unauthorized compensation apply to all public officers and employees (and, by operation of Section 627.351(6)3, to senior managers and members of the board of governors of Citizens) and Section 350.04(2)(d),Florida Statutes, applicable to members of the Public Service Commission, prohibits taking anything from a party in a currently pending proceeding.
We do not speak to any items the Chairman may receive from parties other than Regions Financial or Regions Bank which may be tangential to or in some manner connected with his service on the boards.