CONFLICT OF INTEREST; VOTING CONFLICT

MEMBER OF BOARD OF GOVERNORS OF STATE UNIVERSITY SYSTEM
SERVING AS OFFICER IN CORPORATION WHOSE PARENT COMPANY
OWNS SEPARATE SUBSIDIARY DOING BUSINESS
WITH A STATE UNIVERSITY

To: Name withheld at person's request (Tallahassee)

SUMMARY:

Under the specific circumstances presented, a prohibited conflict of interest would not be created under Sections 112.313(3) or 112.313(7)(a), Florida Statutes, were the Board of Governors of the State University System to approve a project agreement involving a state university and a corporation, when a serving Board member owns stock in the corporation's parent company and serves as a paid officer of a separate subsidiary of the parent company. However, the Board member is required to comply with the voting and participation conflicts laws in Section 112.3143, Florida Statutes, in any matters concerning the project agreement. Referenced are CEO 20-10, CEO 20-3, CEO 18-12, CEO 17-12, CEO 12-15, CEO 11-13, CEO 11-5, CEO 09-2, CEO 09-1, CEO 05-8, CEO 03-13, CEO 99-13, CEO 94-5, CEO 93-11, CEO 86-36, and CEO 86-12.

QUESTION 1:

Would a prohibited conflict of interest be created if a member of the Board of Governors of the State University System serves as a paid officer of a corporation when that corporation's parent company owns a separate subsidiary conducting business with a state university?

Under the circumstances presented, Question 1 is answered in the negative.

In your letter of inquiry and additional information provided to our staff, you indicate you are inquiring on behalf of a member of the Board of Governors for the State University System (Board). The Board member was appointed to his position by the Governor,¹ and the Board itself oversees the State University System, of which the University of Florida (UF) is a member.² While the Board has general responsibilities concerning the institutions within the State University System, each university is directly administered by its own board of trustees.³

In addition to serving on the Board, the member in question is also employed as the Chief Executive Officer of Florida Power and Light Company (FPL). FPL, you relate, is a wholly-owned subsidiary of NextEra Energy, Inc. (NEE), a publicly-traded corporation with operations spanning the United States and Canada. You state that—as the parent company—NEE appointed the Board member to his position with FPL and plays an active role in FPL's operation, with the companies sharing several of the same executive officers. You also relate the Board member has a personal ownership interest in NEE, as he owns approximately 160,917 total shares of NEE stock.⁴

However, from what you indicate, NEE currently has 1,962,000,000 shares of publicly-traded stock, meaning the Board member's ownership interest equates to less than .0001%. You also relate the Board member's service as an officer is with FPL alone; and state that he is not an officer, partner, director, or proprietor of NEE. And since NEE currently has over one thousand subsidiaries,⁵ you state the Board member's company—FPL—is operated separate and independent from the other subsidiaries that NEE owns.

This point is especially germane to your inquiry, which concerns a separate NEE subsidiary named DG Concession Holdings, LLC (DG Concession Holdings). DG Concession Holdings is owned by a series of companies, all of which are ultimately owned by NEE.⁶ You emphasize the Board member has no ownership interest in—and is not an officer, partner, director, or proprietor of—DG Concession Holdings, and has no ownership in, or status in relation to, any other corporate entity involved with DG Concession Holdings, apart from his ownership of NEE stock.

Your inquiry focuses upon the potential interface that DG Concession Holdings may have with UF. More specifically, you indicate DG Concession Holdings is part of a private consortium called Gator Campus Energy, which is an entity comprised of DG Concession Holdings and two other companies, with all the companies involved serving as equal partners.⁷ Gator Campus Energy has responded to an Invitation to Negotiate (ITN) issued by UF, and recently learned it has been added to the short list of companies eligible to submit a more refined proposal. In the event that UF selects Gator Campus Energy as its preferred vendor, the University will present for the Board's approval a project agreement between UF and Gator Campus Energy. Given that DG Concession Holding is part of the Gator Campus Energy consortium—and that DG Concession Holding and FPL are both subsidiaries of NEE—you inquire whether the Board member will have a prohibited conflict of interest were the Board to approve a project agreement between UF and Gator Campus Energy.

You stress that the Board itself plays no role, and will provide no input, in the ITN process or in UF's selection of a private developer. You indicate UF is seeking, through the ITN, a private partner: (1) to assist in designing, financing, constructing, operating, and maintaining a central energy plant on campus which will produce steam, chilled water, and electricity; (2) to finance and construct new thermal distribution pipes to handle the chilled water that the energy plant will produce; and (3) to finance and construct a new electrical substation which will connect the new energy plant's electrical system to Duke Energy facilities. You state UF is, in all respects, following the Board's guidelines for soliciting private partners for capital projects, and that the ITN process is the Board's preferred method for competitively soliciting a private partner. However, you emphasize the Board's sole responsibility—after UF selects its preferred developer—will be to approve the project agreement. And you note the Board will not be a party to the agreement, which will be between UF's Board of Trustees⁸ and the developer.

Nor will the Board be involved in implementing the project agreement once it is approved. You indicate the Board will not be overseeing the construction of the energy plant, the distribution pipes, or the electrical substation, and that UF will be overseeing the construction without the Board's involvement.⁹ And, after the different facets of the project are completed, the Board will have a minimal role in their operation. You state that, under the arrangement UF is proposing, the selected developer will operate and maintain the energy plant, while UF will operate and maintain the distribution pipes and the electrical substation, all without any involvement from the Board.

You indicate as well that FPL will not be affected if Gator Campus Energy—the consortium involving DG Concession Holdings—is selected as the project developer. As previously explained, the only parties to the project agreement will be UF's Board of Trustees and Gator Campus Energy, not FPL or NEE. You emphasize FPL will have no responsibilities concerning the project, and will receive no payment or remuneration pursuant to the project agreement. In fact, because UF is outside of FPL's regulated service territory, you state FPL is precluded from being involved in the sale of retail electricity in that region.

Relevant to whether a project agreement involving DG Concession Holdings will present a prohibited conflict of interest for the Board member are the following provisions of the Code of Ethics for Public Officers and Employees:

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 . . . 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 RELATIOSHIP.—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, any 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]

Section 112.313(3), Florida Statutes, prohibits the Board member from acting in his official capacity, as a public officer, to purchase any realty, goods or services for his agency from a business entity where he is an officer, partner, director, or proprietor, or holds a material interest.¹⁰ A public officer is considered acting in his or her official capacity when a body or board of which he or she is a member acts to purchase realty, goods, or services. See CEO 99-13, Question 1. The statute also prohibits the Board member, acting in a private capacity, from selling any realty, goods, or services to his agency or political subdivision. This can occur if a corporation for which the Board member is an officer or director, or in which he owns a material interest, sells the realty, goods, or services to his agency or political subdivision. See CEO 09-1.

Turning to your inquiry, an argument could be made that the Board member's "agency" for purposes of Section 112.313(3) encompasses the Board as well as the institutions within the State University System. See CEO 17-12, Question 2. Accepting this interpretation, any entity doing business with UF's Board of Trustees would be doing business with the Board member's "agency." However, in the event that the Board approves a project agreement with Gator Campus Energy, neither the Board nor UF's Board of Trustees will be purchasing services from a business entity in which the Board member is serving as an officer, partner, director, or proprietor, or in which he has a material interest. From what you indicate, the project agreement will name only Gator Campus Energy as the developer, meaning only Gator Campus Energy and its equity members, such as DG Concession Holdings, will be selling services under the agreement. The Board member has no ownership or officer-ship in Gator Campus Energy or in any of its equity members. FPL—the corporation where the Board member does serve as an officer—will not be involved in the project, and while the Board member owns stock in NEE—the parent company of DG Concession Holdings—he is not an officer, partner, director, or proprietor of NEE, and his ownership interest equates to less than .0001 percent, which is not enough to be considered a "material interest" triggering the statute's application. For these reasons, we find the Board member will not have a prohibited conflict under Section 112.313(3) if the project agreement with Gator Campus Energy is approved.

Regarding Section 112.313(7)(a), Florida Statutes, the statute has two parts. The first part prohibits the Board member from having a contractual relationship with a business entity if that entity is doing business with, or is subject to the regulation of, the Board member's agency. In CEO 99-13, the Commission stated the application of this portion of the statute hinges upon:

(1) identifying the 'business entity' with which the official has an employment or contractual relationship and (2) [] identifying the 'business entity' that is doing business with the governmental agency, in order to determine whether the official's employment or contractual relationship is with the same 'business entity' that is doing business with his or her agency.

When applying this statutory prohibition, the Commission has, in the past, turned to the definition of a "business entity" contained in Section 112.312(5), Florida Statutes, which defines the term as:

Any corporation, partnership, limited partnership, company, limited liability company, proprietorship, firm, enterprise, franchise, association, self-employed individual, or trust, whether fictitiously named or not, doing business in this state.

This language specifies "[a]ny corporation . . . doing business in this state[,]" which recognizes the separateness of corporations one from another. See CEO 09-2, Question 1. For this reason, the Commission repeatedly has determined that corporate subsidiaries are separate business entities from each other for purposes of the statute. See, among many, CEO 18-12, CEO 99-13, Question 1, and CEO 05-8. Or, stated another way, even if a public officer has an employment or contractual relationship with a particular corporation, that does not mean he or she also an employment or contractual relationship with that corporation's sibling subsidiaries. See CEO 09-2, Question 1.

Here, in the event that the Board approves the project agreement with Gator Campus Energy, it will be doing business with the entities comprising that energy consortium, including DG Concession Holdings. However, the Board member has no employment or contractual relationship with DG Concession Holdings, only with FPL, which is a separate and distinct corporation. While DG Concession Holdings and FPL are sibling subsidiaries of the same parent company—NEE—this does not change the analysis. To find otherwise would mean the Board member would have an employment or contractual relationship with each of NEE's over one thousand subsidiaries simply because of his employment with one of them.

Nor will the Board member's stock in NEE—the parent company—trigger the first part of Section 112.313(7)(a) if Gator Campus Energy secures the project agreement. The Board member does have a contractual relationship with NEE by virtue of his stock ownership. See CEO 11-13. However, the Commission has long treated parent corporations as separate business entities from their subsidiaries for purposes of Section 112.313(7)(a). See CEO 11-5, Question 1, CEO 86-36, and CEO 86-12. This again reflects the language in the definition of "business entity" emphasizing the separateness of each corporation.¹¹ Consistent with these decisions, we find NEE is a separate "business entity" from its corporate subsidiaries for the purposes of Section 112.313(7)(a), and, therefore, the Board member's contractual relationship with NEE does not mean he has that same relationship with DG Concession Holdings. Accordingly, were the Board to approve a project agreement involving DG Concession Holdings, the Board member will not be in violation of the first part of Section 112.313(7)(a), even considering his stock ownership in NEE, because, mechanically speaking, he will not have an employment or contractual relationship with a business entity doing business with his agency.¹²

We also note the other requirement of this first part of Section 112.313(7)(a) is that the business entity with which the public officer has an employment or contractual relationship must be "doing business" with his or her agency. A business entity is "doing business with" an agency when they have 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 breach or default. See CEO 20-3, Question 1 and CEO 12-15. Traditionally, contractual relationships with a corporation result in liabilities only for that corporation, not for the shareholders or owners of that corporation. See CEO 99-13, Question 1. Stated another way, because corporations are formed to limit liability, the corporate entities themselves are the only parties legally liable in the event of a breach or default, not their shareholders or owners. Here, only Gator Campus Energy and its equity partners—including DG Concession Holdings—would be held liable for breaching the project agreement. Although NEE is DG Concession Holdings' corporate parent, neither NEE nor any of its other corporate subsidiaries would be liable. Therefore, the Board member would have no employment or contractual relationship with a business entity "doing business" with his agency if the project agreement were approved.

Regarding the second part of Section 112.313(7)(a), the statute prohibits the Board member from holding employment or a contractual relationship that 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 his public duties. See CEO 18-12. This part of the statute does not hinge on the public officer's employment or contractual relationship being tied to a business entity doing business with or being regulated by his or her agency. In this respect, it is broader than the first part, and can be triggered based on any employment or contractual relationship that creates a conflict of interest. For the purposes of the statute, the phrase "conflict of interest" is defined in Section 112.312(8), Florida Statutes, to mean "a situation in which regard for a private interest tends to lead to disregard of a public duty or interest." To determine whether such a conflict has occurred, the Fourth District Court of Appeal held in Zerweck v. State, Commission on Ethics, 409 So. 2d 57, 61 (Fla. 4th DCA 1982), that the Commission must examine:

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.'

One instance where we found the second part of the statute applicable was in CEO 18-12, which involved a county commissioner who was employed by a subsidiary of a waste management company. Part of his employment duties involved serving as a marketing sales representative for a sibling subsidiary, and this sibling subsidiary was planning to respond to a Request for Qualifications (RFQ) being issued by the county. In the event that the sibling subsidiary entered into a business relationship with the county, we found the county commissioner would not be in violation of the first part of Section 112.313(7)(a), as the sibling subsidiary was a separate and distinct business entity from the corporation where he was employed. However, we found the arrangement would trigger the second part of Section 112.313(7)(a), as the county commissioner, in his private capacity, would be assisting the sibling subsidiary in performing the county contract while, at the same time, reviewing and overseeing that performance in his public capacity. Because of the overlap between his private employment and his public duties, we determined the second part of Section 112.313(7)(a) would be triggered were the county to enter into business with the sibling subsidiary. However, we noted this conflict would not occur if the county commissioner were reassigned to another corporate subsidiary not conducting business with the county, as then he would not have any private employment responsibilities that could affect the performance of his public duties.

Here, unlike in CEO 18-12, we do not find the situation indicates a conflict of interest under the second part of Section 112.313(7)(a). Regarding the Board member's public duties, you relate the Board's only role in the ITN selection process is to vote to approve the developer selected by UF. Otherwise, the Board has no role in the ITN process, will not be asked to provide input to UF, and will not be a party to the project agreement with the developer. And after the developer is selected, you relate the Board will largely leave the construction, management, and operation of the various facets of the project to UF and the developer, and will only become involved if a material change is needed to the project agreement. Accordingly, the Board member will have minimal to no public responsibilities concerning the project, except being asked to approve the project developer.

And, under the facts as submitted, if Gator Campus Energy is selected as the project developer, the Board member will have no private responsibilities concerning the project, and the personal benefit to him, if any, will be minimal. You relate FPL, where the Board member serves as the Chief Executive Officer, will have no responsibilities under the project agreement, and will receive no payment or remuneration of any kind related to the project. Indeed, from what you indicate, FPL cannot even provide services in the area of the State where UF is located. Therefore, it seems unlikely that the Board member's employment with FPL would affect the performance of his public duties if Gator Campus Energy is selected as the proposed developer.

An argument could be made that the Board member's contractual relationship with NEE, via his stock ownership, could create a conflict of interest were the Board to be asked to approve an agreement involving its subsidiary, DG Concession Holdings. The argument would be that his stock ownership in NEE, and the fact that DG Concession Holdings is an NEE subsidiary, could affect his objectivity in deciding whether to approve the agreement. However, the Board member's stock ownership in NEE equates to a less than .0001% interest. And even if the consortium of which DG Concession Holdings is a member performs work on the project, it is difficult to predict how, and to what degree, this will affect the value of its parent company's stock. Clearly, there will be some economic effect on NEE, as it is the parent company, but the extent of that effect is uncertain. Considering this uncertainty, and coupling that with the Board member's comparatively small interest in NEE and the Board's limited involvement with the project, we find a prohibited conflict of interest does not exist for the Board member under the second part of Section 112.313(7)(a).

While we find that a prohibited conflict of interest will not be created for the Board member were his Board to approve the selection of Gator Campus Energy as the project developer, we caution the Board member that he needs to treat such a vote as a voting conflict under Section 112.3143, Florida Statutes, and respond in accordance with the requirements of that provision, as explained infra in Question 2. Moreover, our decision herein, which was reached based on the unique facts present in this matter, does not preclude our application of the prohibitions contained in Section 112.313(6), Florida Statutes, or Article II, Section 8(g), Florida Constitution, if the Board member engages in conduct indicative of a misuse of public position or an abuse of public position to obtain a disproportionate benefit.

Question 1 is answered accordingly.

QUESTION 2:

Would a voting conflict of interest occur were a member of the Board of Governors of the State University System to vote to approve the selection of a corporation as a project developer, when that corporation's parent company also owns the Board member's corporate employer?

Under the circumstances presented, Question 2 is answered in the affirmative.

You also inquire whether the Board member would have a voting conflict under Section 112.3143, Florida Statutes, the voting conflict law, in the event that the Board is asked to approve a project agreement involving DG Concession Holdings. The Board member is obligated to comply with the following provisions of Section 112.3143 due to his status as an appointed state officer:

A state public officer may not vote on any matter that the officer knows would inure to his or her special private gain or loss. Any state public officer who abstains from voting in an official capacity upon any measure that the officer knows would inure to the officer's special private gain or loss, or who votes in an official capacity on a measure that he or she knows would inure to the special private gain or loss of any principal by whom the officer is retained or to the parent organization or subsidiary of a corporate principal by which the officer is retained other than an agency as defined in s. 112.312(2); or which the officer knows would inure to the special private gain or loss of a relative or business associate of the public officer, shall make every reasonable effort to 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. If it is not possible for the state public officer to file a memorandum before the vote, the memorandum must be filed with the person responsible for recording the minutes of the meeting no later than 15 days after the vote. [Section 112.3143(2)(a), Florida Statutes]

No appointed public officer shall participate in any matter which would inure to the officer's special private gain or loss; which the officer 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; 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, without first disclosing the nature of this or her interest in the matter. [Section 112.3143(4), Florida Statutes]

(emphasis added).

These statutory provisions indicate the Board member will have a voting conflict if a measure will inure to the special private gain or loss¹³ of a "parent organization [] of a corporate principal" by which he is retained. In the past, the Commission has found that a "parent organization" can be a parent company of a corporation where one is employed. See CEO 20-10, CEO 05-8, and CEO 03-13. Therefore, if a vote by the Board will have a financial effect, great or small, on the parent company of the Board member's employer, he should treat the measure as a voting conflict and respond in accordance with the statutory provisions detailed above. Given his status as an appointed state officer, this means he will not be prohibited from voting on the measure, but he must, prior to any participation in the matter, disclose the nature of his interests in the manner set forth in the statutes above.¹⁴

Here, any vote approving a project agreement with Gator Campus Energy will have an economic effect on DG Concession Holdings and, by extension, its parent company, NEE. While the exact financial effect on NEE may be unclear—and while it may not rise to the level of creating a conflict of interest for the Board member under Section 112.313(7)(a) (See Question 1, above)—it is inevitable that NEE will receive some financial gain or loss from an agreement with its subsidiary. Since NEE is the parent organization of FPL, and since FPL employs the Board member, he will have a voting conflict concerning any project agreement with Gator Campus Energy, and should respond in accordance with the statutory provisions cited above.¹⁵

Question 2 is answered accordingly.

ORDERED by the State of Florida Commission on Ethics meeting in public session on March 4, 2022, and RENDERED this 9th day of March, 2022.

____________________________________

John Grant, Chair

^[1]Section 7(d) of Article IX of the State Constitution allows the Governor to appoint fourteen of the seventeen members of the Board, subject to confirmation by the State Senate. See also Section 1001.70(1), Florida Statutes.