CEO 20-4—March 11, 2020
CONFLICT OF INTEREST
COMMISSIONER OF THE OFFICE OF FINANCIAL REGULATION
SELLING LAW FIRM
To: Name withheld at person's request (Coral Gables)
Under the circumstances presented, a conflict of interest would not be created were the sale of ownership in a law firm by an incoming Commissioner of the Office of Financial Regulation to include seller financing. CEO 03-7, CEO 14-5, and CEO 16-9 are referenced.
Would a prohibited conflict of interest be created were the Commissioner of the Office of Financial Regulation to sell his law firm using seller financing?
Under the particular circumstances presented, this question is answered in the negative.
According to your inquiry, you were appointed to become Commissioner of the Office of Financial Regulation (OFR) on December 2, 2019, and expect to assume office imminently. Currently, you are the sole owner, officer, and director of a law firm. In telephone conversations with Commission staff, you explained that your law firm represents clients with securities matters and many of those clients are concurrently regulated by federal and state agencies, including OFR. In the past, you have represented some clients before OFR.
Since the announcement of your appointment to public office, you have been preparing for a transition from private enterprise to public officeholding. Your inquiry indicates that you are in the process of selling your entire ownership stake in your law firm without an option to repurchase it later. You inform us that you have concluded all client relationships, except one with an entity that is not regulated by OFR and whose representation nonetheless will be transferred as part of the eventual sale of the firm.
You state that you have found someone (the buyer) to purchase your entire ownership stake in the law firm. The buyer is not regulated by OFR and does not do business with OFR. As part of the purchase agreement, the buyer will take over all client matters of the firm, which will include receiving active client files, and will purchase the rights to collect all unpaid accounts receivable, including fees for work you performed for clients on behalf of the firm and costs you advanced to clients, to the extent they are collectible.
Further insulating yourself from the firm and its clients, you indicate that the purchase agreement will include terms that the buyer is prohibited from remunerating you for anything other than the purchase price, that you will not have access to client information after the sale, and that you will be entitled to a money judgment, rather than reversion, if the buyer defaults. In your letter, you also state that you will be instituting a procedure at OFR for screening matters involving your former clientele from your participation.
You state the buyer requires financing to complete the purchase of the firm and has requested seller financing. Under the terms of the purchase agreement, the buyer would execute a promissory note in your favor for the purchase price plus interest to be paid in 24 monthly installments with no prepayment penalty. With this factual background, you ask whether the sale would create a prohibited conflict of interest for you.
Relevant to your inquiry, Section 112.313(7)(a), Florida Statutes, provides:
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 clause of this statute would prohibit a public officer from having any contractual relationship with an entity that does business with or is regulated by his or her agency. We previously have opined that an attorney of a law firm has a contractual relationship with every client of the firm, regardless of who among the attorneys provides the actual representation or supervision of the representation. See, e.g., CEO 16-9, CEO 03-7. Assuming the firm will continue to represent clients that are regulated by OFR, you will no longer have a contractual relationship with those clients once you sell the firm. You will, however, have a contractual relationship with the firm's future owner, the buyer, in the form of the proposed purchase agreement with the seller financing term, but the buyer is not regulated by OFR and does not do business with OFR.1 Thus, a prohibited conflict of interest is not created under the first clause of Section 112.313(7)(a).
The second clause of this statute would prohibit a public officer from having a contractual relationship that would create a continuing or frequently recurring conflict of interest or would create an impediment to the full and faithful discharge of his or her public duties. In this instance, there is no indication that the proposed purchase agreement with the seller financing term would create such a prohibited conflict, given that the buyer is prohibited from remunerating you for anything other than the purchase price, that you will not be able to access client information after the closing, that ownership of the firm will not revert to you by the terms of the agreement, even if the buyer defaults on the installment payments, and that you will be instituting a conflicts screening procedure at OFR to prevent you from participating in or being presented with matters involving your former clients.
For the foregoing reasons, we find that a prohibited conflict of interest would not be created under Section 112.313(7)(a) if you sell your firm.
Your question is answered accordingly.
ORDERED by the State of Florida Commission on Ethics meeting in public session on March 6, 2020, and RENDERED this 11th day of March, 2020.
Kimberly B. Rezanka, Chair
Cf. CEO 14-5 (finding no conflict of interest under the first clause of Section 112.313(7)(a), Florida Statutes, where OFR had no regulatory oversight over or business relationship with a law school the requestor sought to contract).