CONFLICT OF INTEREST; VOTING CONFLICT
CITY COUNCIL MEMBER EMPLOYED BY CORPORATION
SHAREHOLDERS/OFFICERS OF WHICH ARE CONNECTED TO ANOTHER
CORPORATION DOING BUSINESS WITH CITY AND MEMBER
VOTING ON MEASURES AFFECTING NONEMPLOYER CORPORATION
To: Douglas J. Sale, Esquire (Panama City Beach)
Under the circumstances presented, a prohibited conflict of interest does not exist under Section 112.313(7)(a), Florida Statutes, where a member of a city council is employed by a hotel corporation, shareholders/officers of which are connected to a construction corporation which is doing business with the city. The hotel corporation employing the member is not the business entity which is doing business with the city and no continuing or frequently recurring conflict or impediment to the full and faithful discharge of public duty under the second part of the statute is indicated. Further, under the circumstances, the member would not be presented with a voting conflict of interest regarding measures/votes of the city council concerning contract change orders of the construction corporation. The construction corporation is not his principal/employer, the situation does not indicate that the measures/votes would inure to the special private gain or loss of his employer, the hotel corporation, and any natural persons who would be affected by the measures/votes are not his employer or his business associates. CEO 08-7, CEO 08-4, CEO 06-20, CEO 05-8, CEO 94-5, CEO 90-54, and CEO 86-12 are referenced; Commission on Ethics Complaint No. 02-108, In re IRVING ELLSWORTH, is distinguished.1
Does a prohibited conflict of interest exist where a city council member is employed by a hotel corporation, shareholders/officers of which are connected to another corporation which is doing business with the city?
Under the circumstances presented, your question is answered in the negative.
By your letter of inquiry and two subsequent letters, we are advised that you write in behalf of Jeff Ferguson (member), who serves as a member of the City Council of the City of Panama City Beach (City). In addition, we are advised that since March 2008 the member has been employed by a corporation (hotel corporation) which is solely engaged in the hospitality business, primarily on Panama City Beach. The hotel corporation owns five hotels, containing in the aggregate approximately 950 rooms, and it employs between 250 and 450 people, depending on the season. An individual (CH) owns 24 percent of the one share of voting stock of the hotel corporation, CH's wife (LH)owns 26 percent of the one share of the voting stock, all of the remaining stock is non-voting stock and is owned by persons other than CH and LH, and none of the remainder of the voting stock and none of the non-voting stock is owned by an officer or shareholder of another corporation (construction corporation).
Additionally, you advise that the officers of the hotel corporation are LH, president, another person (JH), executive vice president, and another person (CK), vice president. CH is listed as chief executive officer of the hotel corporation but functions as chairman of the board of directors of the hotel corporation and is not involved in the day-to-day operations of the hotel corporation; and CH, LH, JH, and CK are the members of the hotel corporation's board of directors. The hotel corporation is operated by LH and JH, whose offices are located on the Beach, in the hotel corporation's flagship hotel property, and from which the day-to-day business of the hotel corporation is conducted. CH has no office at the hotel but, rather, maintains his personal business and law offices at the office of the construction corporation. Each property of the hotel corporation has its own general manager (with CK being the general manager of the flagship hotel property). The member works as the director of asset management and guest relations for the flagship property, with the laundry, housekeeping, and engineering departments of the property reporting to him. He reports to CK, and CK, in turn, reports to LH and JH.2
As to the construction corporation, we are advised that it specializes in road-building and commercial, vertical construction, that it employs approximately 300 people, and that it produces an average of $100 million in annual revenue. CH owns 20 percent of the construction corporation's stock, LH owns 20 percent, and all of the remaining stock is owned by three persons not previously referred to in this opinion (RD, DW, and AB). The family of CH, LH, and JH has not owned a controlling interest in the construction corporation since 1994. The officers of the construction corporation are RD, president, another person previously unmentioned herein (CA), vice president, DW, vice president, AB, vice president, and CH, chief executive officer; these persons also are the directors of the construction corporation. The construction corporation is operated by RD and DW. Although CH carries the title of chief executive officer of the construction corporation and has his personal business and law office in the same building as the construction corporation, CH is not involved in the day-to-day operation of the construction corporation, whose offices are located in unincorporated Bay County, several miles north of the city of Panama City.3
Further, you advise that following a competitive advertisement for bids, the City in March 1997 entered into a contract with the construction corporation for $9,932,790.00 to reconstruct a road as part of the City's Front Beach Road Community Redevelopment Plan. As of October 23, 2008 there have been seven change orders to the contract, approved by the City Council and totaling $264,235.00, and ten smaller change orders, approved by the City Manager and totaling $54,037.61. The original contract and all change orders were recommended to the City by an independent engineering firm which was competitively selected by the City four years ago to serve as the manager of the City's Front Beach Road Community Redevelopment Program and which continues to serve in that capacity. The independent engineering firm did not design, and does not serve as project engineer for, any works in the Program, its sole function being to manage the design and construction of the various public works projects that comprise the Program. Individual project design is being handled by a separate engineering firm. Finally, you advise that all change orders approved by the City Council were unanimously approved based upon the review and favorable recommendation of the independent firm serving as Program manager.4
Regarding this first question, the relevant prohibition of the Code of Ethics for Public Officers and Employees is Section 112.313(7)(a), Florida Statutes, which provides:
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.—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 . . .; 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 this prohibition prohibits a public officer (e.g., a city council member) from having or holding employment or a contractual relationship with a business entity (e.g., a corporation) which is doing business with5 (e.g., which is a party to a contract with) the public officer's agency (e.g., a city or its governing board).
In many previous decisions, we have found that separate corporations constitute separate business entities for purposes of the statute, and therefore have found that one's employment or contractual relationship with a corporation does not mean that they also hold employment or a contractual relationship with other entities connected to the corporation with which they hold employment or a contractual relationship. See CEO 05-8, CEO 86-12, and opinions cited therein. These decisions are grounded in the definition of "business entity" codified in the Code of Ethics at Section 112.312(5), Florida Statutes, which recognizes the separateness of corporations one from another.6 Our only "piercings of the corporate veil" in this regard have come in the context of parent companies whose only assets consisted of wholly-owned subsidiaries. See, for example, CEO 94-5.
Thus, in accord with our previous decisions, we find that a prohibited conflict of interest does not exist for the member under the first part of the statute based upon his holding employment with the hotel corporation. Under the facts presented, it is clear that the construction corporation and the hotel corporation are separate business entities,7 that the hotel corporation and not the construction corporation is his employer, and that the construction corporation and not the hotel corporation is the business entity which is doing business with the City.
Under the circumstances presented, we also find that a prohibited conflict of interest does not exist for the member under the second part of the statute. While the second part can encompass situations in which one's employment or contractual relationship is held in circumstances broader than those addressed by the first part, we do not find that the situation presented contains a continuing or frequently recurring conflict or an impediment to the full and faithful discharge of public duties for the member. Rather than indicating any real or actual conflict for the member under the second part, the situation presented indicates a long-standing, professionally-guided relationship between the City and the construction corporation, with a structured or limited role for the City Council.
This question is answered accordingly.
QUESTION 2:Would the member be presented with a voting conflict of interest regarding City Council measures/votes concerning change orders on the construction corporation's contract with the City?
Under the circumstances presented, this question is answered in the negative.
The voting conflicts law applicable to local, elected public officers (e.g. city council members) provides:
VOTING CONFLICTS.—No county, municipal, or other local public officer shall vote in an official capacity upon any measure which would inure to his or her special private gain or loss; which he or she knows would inure to the special private gain or loss of any principal by whom he or she is retained or to the parent organization or subsidiary of a corporate principal by which he or she is retained, other than an agency as defined in s. 112.312(2); or which he or she knows would inure to the special private gain or loss of a relative or business associate of the public officer. Such public officer shall, prior to the vote being taken, publicly state to the assembly the nature of the officer’s interest in the matter from which he or she is abstaining from voting and, within 15 days after the vote occurs, disclose the nature of his or her interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes. [Section 112.3143(3)(a), Florida Statutes.]
While the circumstances presented indicate that change order measures/votes of the City Council will inure to the special private gain or loss of the construction corporation, the construction corporation is not the principal (employer) by whom the member is retained. Rather, the member is employed by a separate bona fide business entity (the hotel corporation). And while we have found that measures/votes which inure to the special private gain or loss of a corporation in which a natural person owns a substantial interest necessarily also cause gain or loss to the natural person (see CEO 90-54, CEO 06-20, and CEO 08-7), the circumstances presented do not indicate that any natural person who is an owner of the construction corporation is a principal (employer) of the member.8 Further, the circumstances presented do not indicate that any special private gain or loss would inure to the hotel corporation by virtue of votes on measures affecting the change orders of the construction corporation; rather, any effect on the hotel corporation (the member's principal/employer) from the change order measures/votes would appear to be remote and speculative.9
This question is answered accordingly.
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
Prior opinions of the Commission on Ethics and final orders of the Commission are accessible on its website: www.ethics.state.fl.us
You advise that the member stated that from his perspective the operations of the hotel corporation and the construction corporation are completely separate, that no one at the construction corporation has ever talked to him about City business or the construction corporation's change orders under its contract with the City, and that no one at the hotel corporation has ever talked to him about the construction corporation's business.
Via your two letters sent subsequent to your original letter of inquiry, we are advised that the annual reports for both the hotel corporation and the construction corporation list CH as resident agent, with both corporations' offices at the same address, the business office of the construction corporation where CH maintains his personal business and law offices. According to the vice president of the hotel corporation, the address is not the address of business or management offices of the hotel corporation.
You further advise that presumably the second engineering firm (the Project engineering firm) also reviewed and favorably recommended the change orders to the City Council.
The first part of the statute also addresses a business entity's being subject to the regulation of a public agency. However, your inquiry does not present a question concerning regulation.
Section 112.312(5) defines "business entity" to mean "any corporation, partnership, limited partnership, proprietorship, firm, enterprise, franchise, association, self-employed individual, or trust, whether fictitiously named or not, doing business in this state."
As pointed out in your letter of inquiry (on page 3 and page 5), the circumstances presented indicate that the hotel corporation and the construction corporation are not even sibling corporations, much less parent or subsidiary corporations. Rather, the circumstances indicate that the connection between the two corporations merely is that they have two common shareholders who, together, do not own a majority interest in either corporation, with the corporations engaged in totally different businesses one from another.
In this regard, the situation presented regarding the member is distinguishable from that present in In re IRVING ELLSWORTH, Commission on Ethics Complaint No. 02-108 (COE Final Order No. 06-024, rendered April 26, 2006). In ELLSWORTH, the respondent considered himself employed by a natural person (who was benefited by a vote/measure of the respondent's public board) who used corporations she wholly-owned or controlled as a mechanism to pay the respondent for his services, and who ran the corporations on a day-to-day basis. In the instant inquiry, there is no indication that the member considers himself employed by the construction corporation, the natural persons owning it, or the natural persons owning the hotel corporation; there is no indication that the hotel corporation is merely a payment mechanism for compensating the member; and there is no indication that any natural person who might be affected by votes affecting the construction corporation runs the day-to-day operations of the hotel corporation.
Additionally, your inquiry states that neither the construction corporation nor its officers and shareholders are "business associates" of the member's, and we do not find that they are, under the situation presented. "Business associate" is defined at Section 112.312(4), Florida Statutes, to mean any person or entity engaged in or carrying on a business enterprise with a public officer, public employee, or candidate as a partner, joint venturer, corporate shareholder where the shares of such corporation are not listed on any national or regional stock exchange, or coowner of property. The definition does not encompass persons who merely hold responsibilities for a corporation. CEO 08-4 (Question 5).
any person or entity engaged in or carrying on a business enterprise with a public officer, public employee, or candidate as a partner, joint venturer, corporate shareholder where the shares of such corporation are not listed on any national or regional stock exchange, or coowner of property.
The definition does not encompass persons who merely hold responsibilities for a corporation. CEO 08-4 (Question 5).