CONFLICT OF INTEREST; VOTING CONFLICT

COUNTY COMMISSIONER PAID DIRECTOR OF BANK CONTRACTING
WITH COUNTY UNDER S.H.I.P. PROGRAM AND UNPAID
DIRECTOR OF PHILANTHROPIC ORGANIZATIONS

To: Name withheld at person's request (Escambia County)

SUMMARY:

A prohibited conflict of interest exists under Sections 112.313(3) and 112.313(7)(a), Florida Statutes, where a county commissioner serves as a director of a bank contracting with the county regarding a housing program. Under Section 112.313(3), the commissioner acted in his official capacity to purchase services from a business entity of which he is a director and he acted in a private capacity to sell services to the county, his political subdivision. Under Section 112.313(7)(a), the commissioner holds employment or a contractual relationship with the bank, a business entity doing business with his public agency under the contract or agreement between the county and the bank. In addition, a voting conflict of interest was created when the county commissioner voted to approve his bank for entry into the agreement with the county. No definitive answer can be provided regarding whether a prohibited conflict would be created under Sections 112.313(3) and 112.313(7)(a) based on the commissioner's service as an unpaid director of various philanthropic organizations; the commissioner is invited to submit particular scenarios for review, should such arise. But no voting conflict would be created regarding votes/measures affecting the philanthropic organizations because they are not principals by whom the commissioner is "retained." Other directors of the bank's board of directors are not, by virtue of being directors, "business associates" of the commissioner regarding the voting conflicts law. CEO 79-33, CEO 81-2, CEO 84-50, CEO 85-89, CEO 86-24, CEO 90-24, CEO 93-23, CEO 93-32, CEO 97-6, CEO 98-9, CEO 98-24, CEO 01-17, CEO 02-14, and CEO 07-11 are referenced.¹

QUESTION 1:

Does a prohibited conflict of interest exist where you, a county commissioner, serve as a compensated director of a bank which is contracting with the county under the State Housing Initiatives Partnership program (SHIP)?

This question is answered in the affirmative.

By your letter of inquiry and additional information provided by you at the request of our staff, we are advised that you serve as a member of the Escambia County Commission, having taken office on November 21, 2006, and that you also are, since December 2002, a paid member of the board of directors of a local bank.² In addition, you advise that the County (and the City of Pensacola) and the bank are under contract (via an agreement entered into in November 2007)³ regarding the State Housing Initiatives Partnership program (SHIP), which was created by the Legislature (see Part VII, Chapter 420, Florida Statutes) to create and preserve affordable housing. Under the agreement, you advise, the County and the City agree to provide funds from a trust account for down payments and closing costs for mortgage financing provided by the bank for eligible families, and the bank and other participating lenders⁴ have access to the SHIP First Time Homebuyer Incentive Fund.⁵

The Code of Ethics for Public Officers and Employees provides in part:

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.]

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. [Section 112.313(7)(a), Florida Statutes.]

Absent "grandfathering" or the applicability of an exemption under Section 112.313(12), Florida Statutes, the first part of Section 112.313(3) prohibits a public officer acting in his official capacity from purchasing services from a business entity of which he is, among other things, a director, and the second part of Section 112.313(3) prohibits a public officer from acting in a private capacity to sell services to his political subdivision or any agency of his political subdivision. Also, absent grandfathering or applicability of an exemption, Section 112.313(7)(a) prohibits a public officer from holding employment or a contractual relationship with a business entity which is doing business with the officer's public agency.⁶

We find that a prohibited conflict of interest exists for you under both statutes due to the relationship between the County (your political subdivision or agency) and the bank (a business entity of which you are a director and with which you hold employment or a contractual relationship). Your situation meets the required elements of Section 112.313(3): as a County Commissioner, you are a "public officer" [defined at Section 112.313(1), Florida Statutes]; as a corporation or similar entity, the bank is a "business entity" [defined at Section 112.312(5), Florida Statutes]; as a member of the board of directors of the bank you are a director of the business entity (see, for example, CEO 97-6); when the County Commission acted to enter into the agreement with the bank, you acted to purchase services for the County from a business entity of which you are a director (see, for example, CEO 90-24); and as a director of the bank, you acted in a private capacity to sell services to the County when the bank acted to do so (see, for example, CEO 81-2). Your situation also meets the required elements of Section 112.313(7)(a): as a County Commissioner, you are a public officer; by virtue of being a paid director of the bank you hold employment or a contractual relationship with a business entity (see, for example, CEO 85-89); and by virtue of the agreement between the bank and the County, the business entity with which you hold employment or a contractual relationship is "doing business with" your public "agency." See, for example, CEO 86-24 and CEO 07-11, in which we found that a business entity is doing business with a public agency where the parties have entered into a lease, contract, or other type of arrangement where one party would have a cause of action against the other in the event of a default or breach.

This question is answered accordingly.⁷

QUESTION 2:

Does a prohibited conflict of interest exist for you regarding your service as an unpaid member of the boards of directors of various philanthropic organizations?⁸

We cannot give a definitive answer to this question without knowing the particular facts of situations, perhaps many and varied, relevant to this question. If you have a particular situation which you would like to present to us, please contact us or our staff in the future.

QUESTION 3:

Was a voting conflict of interest created for you when you voted on the list of banks, including your bank, authorized in relation to SHIP, in 2007?

This question is answered in the affirmative.

The voting conflicts law provides, regarding local, elective, public officers:

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.]

Section 112.3143(3)(a) prohibits a local public officer (e.g., a county commissioner) from voting on a measure which the officer knows would inure to the special private gain or loss of a principal by whom the officer is retained, requires the official to state his interest or that of his principal in the matter, and requires timely filing of a memorandum of voting conflict (CE Form 8B).

In your situation, you acknowledge that you voted to approve the list of authorized banks, including your bank, thereby enabling your principal (the bank, by virtue of your paid relationship with it) to make and profit from SHIP-related loans.

This question is answered accordingly.

QUESTION 4:

Would a voting conflict of interest be created for you regarding County Commission measures affecting philanthropic organizations which you serve as an uncompensated director?

This question is answered in the negative.

While such an organization might in some sense be your "principal," Section 112.3143(3)(a) requires that you be "retained" by your principal in order for the relationship to give rise to a voting conflict. We consistently have found that "retention" requires pay or similar consideration. See, for example, CEO 84-50 (county planning council member voting to approve land use amendment regarding property of nonprofit organization he serves as uncompensated director). See also CEO 98-24 and CEO 90-24.

This question is answered accordingly.

QUESTION 5:

Would a voting conflict of interest be created for you regarding County Commission measures affecting fellow directors of the bank you serve as a director, where the measures do not also affect the bank?

This question is answered in the negative.

You question whether the voting conflicts law would apply regarding County Commission votes/measures that affect the other directors in "nonbank" matters. Besides the voting conflicts law encompassing measures inuring to the special private gain or loss of a principal by whom one is retained, it encompasses measures affecting one's "business associate," which is codified 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.

Prior to the inclusion of "business associate" in the voting conflicts law,⁹ the law did not encompass measures affecting persons who happened to be one's partners or fellow stockholders in business ventures unrelated to the measure pending before the officer's agencies, such as the situation in which a school board was considering an architect, who, independent of his practice, was a partner in a real estate development partnership with a school board member. See CEO 79-33 and CEO 93-32.

While a simplistic view of your situation might yield a conclusion that you and your fellow members of the bank's corporate board of directors are, by virtue of your membership on the bank's collegial governing board, engaged in or carrying on a business enterprise with each other, and thus that you are "business associates" with one another, we recognize that the wording of Section 112.312(4) is not properly read so simply. It is apparent from its language that the definition was intended to bring within the reach of the law partnership endeavors or similar enterprises in which individuals or business entities combine themselves, through enumerated vehicles (e.g., holders of non-publicly-traded stock of a close corporation), relationships previously absent from the law's reach, and that it was not intended to reach situations where several persons merely hold similar responsibilities for the same corporate entity or situations where they merely occupy a nominal status in relation to each other. See CEO 93-32 (Question 1), CEO 98-9 (Question 1), and CEO 01-17. Also, Section 112.312(4) does not enumerate co-directors or fellow directors of a corporation as persons coming within the relationship subject to the prohibition. Thus, given the intent of Section 112.312(4), as gleaned from the terms used by the Legislature (and in view of the "partnership loophole" previously existing in the law), and given the strict judicial construction applicable to penal statutes such as the statutes within the Code of Ethics [see City of Miami Beach v. Galbut, 626 So. 2d 192 (Fla. 1993)], we find that your fellow members on the bank's board of directors are not your "business associates" for purposes of the voting conflicts law. See CEO 01-17, note 4.

Accordingly, we find that the other members of the bank's board of directors are not your "business associates" by virtue of your and their service as directors,¹⁰ and thus that you are not subject to the voting conflicts law regarding measures/votes of the County Commission which would inure to the special private gain of the other directors of the bank.

ORDERED by the State of Florida Commission on Ethics meeting in public session on February 29, 2008 and RENDERED this 5th day of March, 2008.

____________________________________

Albert P. Massey, III, Chairman

^[1]For prior opinions of the Commission on Ethics, go to www.ethics.state.fl.us, go to Research, go to Advisory Opinions, go to the year, and go to the particular opinion number.