A prohibited conflict of interest under Section 112.313(7)(a), Florida Statutes, would be created were the law firm of a city commissioner to provide legal services to an underwriter of a "conduit" city bond issue. Notwithstanding that a nonprofit hospital corporation benefits from the bond issue, the commissioner would hold a contractual relationship with a business entity doing business with the city. A prohibited conflict under Section 112.313(7)(a) also would be created were the commissioner's firm to provide legal services to a governmental consulting corporation contracting with the city. However, a prohibited conflict under either Section 112.313(3), Florida Statutes, or Section 112.313(7)(a) does not exist where the commissioner's firm provides legal services as bond disclosure counsel to an interlocal agency providing funding to member governments (including the commissioner's city) via issuance of bonds and other debt instruments. CEO's 78-83, 94-5, 96-20, and 96-23 are referenced.
Would a prohibited conflict of interest be created under Section 112.313(7)(a), Florida Statutes, were the law firm of a city commissioner to serve as underwriter's counsel for bonds issued by the city on behalf of third party entities?
This question is answered in the affirmative.
By your letter of inquiry, letters from the public officer who is the subject of this opinion, and additional documents provided by the Commissioner, we are advised that . . . . serves as a member of the City Commission of the City of Tallahassee, having taken office on February 28, 2003, and that he is a shareholder of a law firm whose practice includes public finance law. In addition, we are advised that the Commissioner's firm represents cities, counties, school districts, other governmental entities, and, from time to time, investment banking firms (underwriters) that contract with governmental entities in connection with the issuance and sale of bonds. Further, we are advised that the Commissioner's City issues bonds from time to time, including bonds issued on behalf of other entities, such as a local nonprofit hospital/healthcare corporation, and that in such a transaction it has been the City's practice to permit the other entity to select the underwriter for the bond issue. Additionally, we are advised that the City and the nonprofit corporation would have a legal cause of action against the underwriter if it breached its obligations, although any damages would be for the benefit of the nonprofit, and that the underwriter and the nonprofit would have a legal cause of action against the City, if the City breached its obligation to issue bonds after signing a bond purchase contract.
Thus, you inquire whether the Commissioner's firm's representation of underwriters in such third-party/conduit bond issues would be prohibited by the Code of Ethics, given his service as a City Commissioner.
Section 112.313(7)(a), Florida Statutes, the provision of the Code of Ethics for Public Officers and Employees applicable to this question, 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.
In accord with previous decisions of ours, we find that a prohibited conflict would be created under the statute were the Commissioner's firm to provide legal services to the underwriter of a City bond issue. In such a situation, the Commissioner would hold a contractual relationship with a business entity (the underwriter) that is doing business with the City (his public agency). See CEO 94-5, in which we found that the statute would be violated were clients (inter alia, bond underwriter clients) of the law firm of a housing finance authority member to do business with the authority.
Would a prohibited conflict of interest be created were the Commissioner's law firm to provide legal services to a corporation providing management consulting services and data and financial services to the City?
This question is answered in the affirmative.
In addition to the information provided relative to Question 1 above, we are advised that several partners of the Commissioner's law firm (but not the Commissioner) own stock in a corporation that provides management consulting services and data and financial services to local governments; that an example of the corporation's work is its hiring by the City to develop the City's fire services fee; that other types of potential City contracts for the corporation include studies or programs for impact fees, special assessments, or emergency management structural services; that, subject to a procurement threshold, the City Commission would approve contracts between the City and the corporation; that the corporation's contracts with the City would, in most cases, have a legal component which the corporation would subcontract to the Commissioner's law firm; that the law firm provides "piece work" for the corporation on specific projects of the corporation, although the firm is not continuously retained by the corporation; and that the Commissioner neither personally provides legal services to the corporation nor supervises members of the law firm who personally provide legal services to the corporation.
Thus, the Commissioner inquires whether his law firm's representation of the corporation would be prohibited by the Code of Ethics.
In accord with our finding regarding Question 1, we find that a prohibited conflict of interest would be created for the Commissioner under Section 112.313(7)(a) were his law firm to provide legal services to the corporation. The Commissioner would hold a contractual relationship with a business entity (the corporation) doing business with (by virtue of its contracts with the City) his public agency.
Does a prohibited conflict of interest exist where the Commissioner's firm serves as disclosure counsel to an interlocal agency of which his city is a member?
Under the scenario presented, this question is answered in the negative.
In addition to the information provided relative to Questions 1 and 2 above, we are advised that the Commissioner's law firm was selected in 2002 (prior to his qualification for a seat on the City Commission) to serve as finance disclosure counsel for the Sunshine State Governmental Financing Commission ("SSGFC"), an interlocal agency created under Chapter 163, Florida Statutes; that seventeen local governments (cities and counties), including the City, are members of SSGFC via an interlocal agreement and Chapter 163, Florida Statutes; that SSGFC exists to provide funding to cities and counties for public projects by issuing bonds and other debt instruments; and that the Commissioner's firm's responsibility (as disclosure counsel) is to prepare the offering documents used to market SSGFC's debt instruments and to provide advice regarding disclosure of material issues to the bond market.Further, we are advised that the City's representative to SSGFC also is one of SSGFC's five-member board of directors, but that the Commissioner would not be the City's representative as long as his firm serves as SSGFC's disclosure counsel. Also, we are advised that the Commissioner personally provides legal services to SSGFC, but that other qualified attorneys in his firm may also provide services; that there are no known (current or past) conflicts between the City and SSGFC or between the City and other members of SSGFC relating to matters involving SSGFC; that the firm is paid directly by SSGFC for disclosure counsel services from funds paid from ongoing administrative fees paid by all of the borrowers as a part of the ongoing "carry" costs of their outstanding loans; that at the time each new loan is made fees are charged to the new borrower to pay the "costs of issuance" of the loan, with these costs including the disclosure counsel's fee associated with the particular loan; and that neither the Commissioner nor the City Commission can affect his firm's status or compensation as SSGFC's disclosure counsel.
Sections 112.313(3) and 112.313(7)(a), set forth above, are the provisions of the Code of Ethics relevant to this question.
Under Section 112.313(3), we find that a prohibited conflict does not exist. Regarding the first part of the statute, it is apparent that SSGFC, rather than the Commissioner or the City Commission, purchased legal services from the firm, as provided in the disclosure counsel agreement dated August 16, 2002. Concerning the second part, although the Commissioner acted in a private capacity to sell legal services to SSGFC, SSGFC is not the City (SSGFC is not the political subdivision on whose governing board the member sits).
Concerning the first part of Section 112.313(7)(a), we see no indication that the City "regulates" SSGFC; and intergovernmental relationships, such as are present regarding this question, have not been viewed by us as constituting "doing business." See, for example, CEO 96-20, in which we found that a county commissioner's employment as coordinator for a private industry council for a three-county consortium (including his county) did not create a prohibited conflict. As To the second part of the statute, we do not find a continuing or frequently recurring conflict or impediment to the full and faithful discharge of public duty, especially given the Commissioner's lack of public capacity responsibility regarding SSGFC and its interface with his firm under the Facts presented.
Accordingly, under the situation presented, we find that a prohibited conflict does not exist under either Section 112.313(3) or Section 112.313(7)(a), Florida Statutes, where the Commissioner and his law firm provide legal services to SSGFC.
ORDERED by the State of Florida Commission on Ethics meeting in public session on June 3, 2004 and RENDERED this 8th day of June, 2004.
Richard L. Spears
Advisory opinions of the Commission on Ethics cited herein are viewable on the Commission on Ethics' website: www.ethics.state.fl.us
The Commissioner advises that it is contemplated that on an issue of City debt for the nonprofit he would not be personally involved in his firm's provision of legal counsel to the underwriter.
A conduit bond issue, we are advised, generally means a situation where an issuer issues bonds on behalf of another entity and for which such other entity's credit is utilized to repay the bonds. The issuer, we are advised, is not obligated to repay such debt (other than from amounts received from the borrowing entity), and thus the issuer acts as a "conduit." The primary reason for the City's involvement, we are advised, is to insure that interest on the bonds is exempt from federal income taxes due to its status as a governmental issuer.
We find that Section 112.313(3), Florida Statutes, is not applicable to this question, inasmuch as the scenario presented does not indicate that the Commissioner's firm will be providing legal services to the City. Rather, it is represented that the Commissioner's firm will be providing services to a business entity (the underwriter) that will in turn be providing services to the City. See CEO 78-83. Also, we are advised that although the Commissioner's firm previously acted as bond counsel on City bond issues for the nonprofit, he informed both the City and the nonprofit that his firm would no longer be able to continue doing so after his election. Section 112.313(3) 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.]
We are not persuaded that continuance of the City's practice of permitting the nonprofit to select the underwriter would negate the conflict, especially given the apparent role of the City Commission in approval of the contract between itself (as bond issuer) and the underwriter; see the sample CONTRACT OF PURCHASE, dated October 26, 2000, provided to us. Also, see CEO 96-23 (city council member employed by financial services company acting as underwriter for city bond issue) in which we found a prohibited conflict despite a city council's delegation of selection of underwriters to a professional services evaluation committee.
In addition to the information recited above in relation to Question 2, we are advised that the Commissioner is a general partner of a Florida limited partnership that leases space to his law firm and to the corporation. However, in view of our response to Question 2, the information concerning the leasing of space is not in need of analysis and is not relevant to our decision regarding Question 2.
Our phrasing of Question 2 and our response may be broader than the wording set out in the Commissioner's inquiry. Our breadth is purposeful, in that we want to be clear that we find that a prohibited conflict would be created irrespective of whether the firm's work for the corporation concerns the corporation's work for the City or concerns the corporation's work unrelated to the City, provided the corporation is doing some business with the City at the time the firm is providing some legal services to the corporation.
In CEO 94-5 (housing finance authority member shareholder in law firm representing financial institutions and bond underwriters), we emphasized our view that members of law firms hold contractual relationships with the firm's clients, irrespective of the size of the firm and irrespective of whether a particular member handles a particular client's business, and that compliance with the voting conflicts law (Section 112.3143, Florida Statutes) does not negate conflicts under Section 112.313(7)(a).
In view of our response to this question, it is not necessary for us to consider issues of "grandfathering," as suggested in your inquiry.
Under Part I, Chapter 163, Florida Statutes, and the interlocal agreement concerning SSGFC, SSGFC is "a legal entity and public body corporate and politic," a description which may or may not render it a separate political subdivision of the State within the meaning of Section 1.01(8), Florida Statutes. However, under the factual basis presented regarding this question, we find that SSGFC is sufficiently separate from the City Commission (and from the City Commissioner-based influence of the Commissioner) such that Section 112.313(3) is not violated by the firm's provision of legal services to SSGFC, notwithstanding SSGFC's arguably amorphous technical/governmental status, especially in light of Section 112.316, Florida Statutes, which provides:
CONSTRUCTION.—It is not the intent of this part, nor shall it be construed, to prevent any officer or employee of a state agency or county, city, or other political subdivision of the state or any legislator or legislative employee from accepting other employment or following any pursuit which does not interfere with the full and faithful discharge by such officer, employee, legislator, or legislative employee of his or her duties to the state or the county, city, or other political subdivision of the state involved.
As the Commissioner recognizes, the voting conflicts law concerning local, elected, public officers [Section 112.3143(3)(a), Florida Statutes] may be relevant to him in various contexts regarding himself, his firm, and/or other persons or entities. He should seek further advice regarding the law's applicability regarding particular measures which may present themselves in the future, should he be uncertain as to applicability.