CEO 96-1 -- January 29, 1996
CONFLICT OF INTEREST
CITY ELECTRIC AUTHORITY BOARD MEMBER "SPECIAL
COUNSEL" TO LAW FIRM REPRESENTING BOND
UNDERWRITERS ON AUTHORITY BOND ISSUES AND
REPRESENTING CLIENTS DOING BUSINESS WITH AUTHORITY
To: Neill W. McArthur, Jr., Assistant General Counsel, City of Jacksonville
A prohibited conflict of interest is created under Section 112.313(7)(a), Florida Statutes, when the law firm with which a Jacksonville Electric Authority (AJEA@) Board member has a "special counsel" relationship appears before the Board on behalf of bond underwriters on various JEA bond issues or represents other clients before the Board. The appearances of the law firm before the Board and the Board member's close, regular, and continuing relationship to the law firm, which exists as a result of his "special counsel" relationship to the firm, together with his duty of loyalty to all of the firm's clients, creates an impediment to the full and faithful discharge of his public duties. However, Section 112.313(7) would not prohibit the Board member=s Aspecial counsel@ relationship with the law firm if clients of the firm do business with the Authority, without the law firm=s representation in that particular matter, as the Board member would not have a contractual relationship with a business entity doing business with his agency.
Would a prohibited conflict of interest be created were the law firm with which a Jacksonville Electric Authority ("JEA") Board member has a "special counsel" relationship to appear before the JEA representing bond underwriters in JEA bond issues or representing other clients of the law firm?
Under the circumstances presented, your question is answered in the affirmative.
In your letter of inquiry, the JEA Board member's response to staff's questions, and correspondence from the law firm with which the Board member has a "special counsel" relationship, we are advised that you are requesting this opinion on behalf of . . . , who is one of the seven (7) members of the Jacksonville Electric Authority ("JEA") Board. The JEA is a municipal electric utility which provides electric services within and without the consolidated City of Jacksonville. We noted in CEO 93-26 that the JEA also is a legislatively created body politic and corporate as well as an independent agency of the City of Jacksonville. Therefore, we opined, it meets the definition of "agency" as contemplated by Section 112.312(2), Florida Statutes. Its Board, appointed by the Mayor and approved by the City Council, is authorized to exercise many official duties, including, but not limited to, awarding bids, entering into contracts, and selling bonds to finance electrical power projects.
We are advised that the JEA Board member, who has been a member of the Board since March 1, 1995, also is an attorney licensed to practice in the State of Florida. He is "special counsel" to a local law firm, for which he receives $1,000.00 per month. We are advised that the period of payment is discretionary with the law firm and that there is no formal written agreement or contract between the Board member and the law firm. While his name appears on the law firm's letter stationery as "Special Counsel", it does not appear on the law firm's door and/or shingle. We also are advised that although the Board member's name appears in the 1995 version of Martindale-Hubbell, as "Of Counsel," it is not a part of the listing of attorneys in the telephone directory. However, his name is listed in the business section of the telephone directory as an attorney, with the law firm's telephone number. The Board member characterizes his relationship to the firm as "one of honor."
You emphasize that the Board member is not a member, partner, or shareholder of the local law firm. You also advise that his relationship with the law firm began when he closed his own law firm and merged it into the local law firm, so that some of his previous clients now are represented by the law firm. The Board member advises that, apart from the law firm's access to the files of clients that he worked on prior to closing his firm, it does not have access to any of his personal books or records, and he does not have any access to the firm's. He also advises that he does no legal work for the law firm or for any of its clients. His only functions, he claims, have been to answer questions and confer from time to time with the lawyers of the law firm concerning questions arising regarding former clients and, especially, questions arising concerning some event that occurred during the time that he was the attorney for the client, and with regard to administrative matters, specifically in the area of public relations.
The Board member's present occupation, we are advised, is as the full-time President and Chief Executive Officer of three (3) pari-mutual companies doing business in Duval, Clay, and St. Johns Counties. His employment with these companies came with the understanding that he would not be involved in the practice of law. We are advised further that since the Board member became a member of the JEA Board, the law firm appeared at only one of the JEA Board's meetings as counsel for a bond underwriter doing business with the JEA. At the same meeting, we are advised, an associate in the law firm also briefly appeared before the Board in connection with the approval of a settlement negotiated in an eminent domain action which began prior to the Board member's service on the Board.
As attorneys for the underwriter of a bond issue, the firm did not represent the JEA. It represented a bond underwriter who has a contract with the JEA to market its bonds. Notwithstanding this representation, we are advised, the Board member does not give any advice and will not give any advice to the law firm regarding JEA projects, contracts, etc. At other times, you also write, clients of the law firm come before the JEA on various other matters. For example, as lowest and best bidder, some of the law firm's clients who bid on JEA projects may be eligible to have public purchasing or construction contracts awarded to them. However, we are advised, the members of the Board are not advised of any contract until just prior to the Board meeting at which Board approval is required.
You advise that out of an abundance of caution, the Board member has declared voting conflicts and abstained from voting, as he is permitted to do under Sections 112.313, 112.3143, and 286.012, Florida Statutes. However, because of the events and circumstances resulting in the Board member's abstentions with respect to clients of the law firm, who may be awarded bids or contracts, the Board member is requesting that we address his concerns, the first of which is whether his position as special counsel to the law firm creates a prohibited conflict of interest for him when the local law firm represents bond underwriters on various JEA bond issues.
The Code of Ethics for Public Officers and Employees provides in relevant part:
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.]
This provision prohibits the Board member from holding any employment or contractual relationship with the law firm if it will create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or would impede the full and faithful discharge of his public duties. For purposes of this provision, "conflict" or "conflict of interest" is defined to mean "a situation in which regard for a private interest tends to lead to disregard of a public duty or interest." Section 112.312(8), Florida Statutes. See Zerwick v. State Commission on Ethics, 409 So. 2d 57 (Fla. 4th DCA 1982), in which the court held that Section 112.313(7)(a) "establishes an objective standard which requires an examination of 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.'"
In CEO 74-55 we observed, in the context of a different provision of the Code of Ethics:
The 'of counsel' relationship, as used in the legal profession, is vague and may take several forms. One limitation which is present in most 'of counsel' relationships is that an individual so designated is not a partner or associate of the law firm. As stated in Ethics Opinion 74-54 of the Professional Ethics Committee of the Florida Bar.' . . . this term 'of counsel' is hardly one of precision, but most past and present usages of the term in Florida seem to exclude the status of firm membership.'
The permissible use of the term "of counsel" has been expanded to include a "lawyer who maintains a close continuing relationship with a law firm other than that of a partner or associate." See Fla. Bar Opinions 71-49, 75-4, and 94-7. Moreover, in ABA Formal Op. 90-357 the ABA Standing Committee on Ethics and Professional Responsibility opined that such titles as "counsel," "special counsel," "tax (or other specialty) counsel," and "senior counsel," all share the defining characteristic of the relationship denoted by the term "of counsel," that is, a "close, regular, personal relationship," but a relationship which is neither that of a partner nor associate. The Committee was of the view that the term "of counsel" could not be used to designate a relationship involving only an individual case, the forwarding or receiving of legal business, only occasional collaborative efforts among otherwise unrelated lawyers or firms, or acting as outside consultant. The Committee believed that such use would run afoul of the ethical requirements under the Model Rules and Model Code of Professional Conduct to avoid misrepresenting a lawyer's status and the relationship between lawyer and law firm. Finally, the Committee was of the view that an "of counsel" lawyer or firm is "associated in" and has an "association with" the firm(s) to which the lawyer is of counsel, for purposes of the general imputation of disqualification rules, that is, those rules which impose on associated lawyers the conflict of interest disabilities of each other. Thus, where an associate, partner, or of counsel attorney is disqualified from representing a client due to a conflict, all of the firm's partners, associates, and of counsel attorneys similarly are disqualified, because they all owe the same duty of loyalty and confidentiality to the affected client.
We assume that the Board member's relationship to the law firm complies with the Bar=s regulations and constitutes a true "of counsel" or "special counsel" relationship, as recognized by the American Bar Association's Standing Committee on Ethics and Professional Responsibility in its Formal Op. 90-357. As noted there, the core characteristics of an "of counsel" relationship include a "close, regular, personal relationship . . . ." See Wren, Harold G. and Clascock, Beverly J., The Of Counsel Agreement: A Guide for Law Firm and Practitioner, Senior Lawyers Division, ABA 1991.
In past opinions, we have concluded that representing a client before the board of which one is a member violates Section 112.313(7)(a), as it interferes with the full and faithful discharge of one=s public duties and, where such representations are frequent, presents a continuing or frequently recurring conflict. See CEO 77-126 and CEO 78-86. We also have concluded that the same conflict exists when another member or employee of the public officer=s professional firm undertakes to represent a client before the officer=s board. See CEO 78-86 and CEO 88-40. On the other hand, in CEO 94-41 we advised that Section 112.313(7)(a) did not prohibit a city council member=s employment as a paralegal with a law firm that infrequently represented clients before the city council. Thus, essentially, we have followed the Bar=s imputed disqualification rules in this context.
Therefore, we find that, because of the Board member's close, regular, and continuing relationship with the law firm and duty of loyalty to the clients of the law firm, a prohibited conflict of interest under the second part of Section 112.313(7)(a) would exist when the law firm appears before the JEA on behalf of a client, notwithstanding that the Board member's special counsel position does not entail advising the firm about JEA bond issues, projects, or contracts. An impediment to public duties could exist for the Board member to favor the law firm or the client (his private interests) and to disregard his public duty to act independently and impartially in the best interests of the JEA, when the firm=s representation of the client involves the JEA.
Accordingly, we find that a prohibited conflict of interest is created when the law firm with which the subject Board member has a Aspecial counsel@ relationship appears before the Board on behalf of a bond underwriter or another client of the firm.
Would a prohibited conflict of interest be created were a client of the law firm with which a Jacksonville Electric Authority ("JEA") Board member has a "special counsel" relationship to do business with the JEA?
Under the circumstances presented, your question is answered in the negative.
Section 112.313(7)(a) prohibits the Board member from having a contractual or employment relationship with any business entity that is doing business with or is subject to the regulation of the JEA. In previous opinions, we have concluded that an attorney has a contractual relationship with each client of his or her law firm, whether or not he or she personally was involved in the client=s representation (See CEO 94-41, CEO 94-5, CEO 89-36, CEO 87-85, and CEO 86-37). This principle was derived from a series of Third District Court of Appeals decisions holding
the retention of a law firm obligates every member thereof to fulfilling that contract, and that upon a dissolution any of the partners is obligated to complete that obligation without extra compensation.
See Frates v. Nichols, 167 So. 2d 77, 81 (Fla. 3d DCA 1964); Kreutzer v. Wallace, 342 So. 2d 981, 982 (Fla. 3d DCA 1980); and Welsh v. Carroll, 378 So. 2d 1255, 1257 (Fla. 3d DCA 1980). Thus, we have concluded in such opinions as CEO 94-5 that a public official may not be a member of a law firm that represents a business entity that is doing business with the official=s agency.
In CEO 92-11, we addressed the "of counsel" relationship of a member of the Florida Transportation Commission to a law firm which had a condemnation/eminent domain practice involving the Florida Department of Transportation, where the firm did not appear before, and its clients did not do business with, the Transportation Commission. We found that where the Commission member did not practice law for the firm, was not a partner or stockholder of the firm, and was not an employee of the firm, he did not have a contractual relationship with the clients of the firm.
Here, we find that the Board member's relationship with the local law firm appears to be very similar (he is not a partner and has no ownership interest in the law firm, he is not an associate of the firm, the firm exercises no control over his actions, he has no clients, he has no access to the firm's books, records, or files, and the firm has no access to his personal books, records, or files), so that his contractual relationship with the law firm falls within the reasoning of CEO 92-11. Therefore, we find that the Board member has a contractual relationship with the law firm rather than with any of the bond underwriters doing business with the JEA or other clients represented by the law firm. Consequently, the Board member would not have a prohibited contractual relationship under Section 112.313(7)(a), because he does not have an employment or contractual relationship with a business entity doing business with or regulated by his agency. Rather, he has a contractual relationship with a business entity (the law firm), which has a contractual relationship with a business entity (the client), which is doing business with his agency. This "twice-removed" relationship, under the rationale of CEO 88-43 and the opinions cited therein, is not prohibited under the first part of Section 112.313(7)(a).
Section 112.3143(3), Florida Statutes, prohibits the Board member from voting on a measure which inures to his special private gain or loss, to the special private gain or loss of a principal by whom he is retained, or to the special private gain or loss of a relative or business associate. It also contains an affirmative duty of disclosure so that interested parties and the public will understand why he abstained from voting.
Because the Board member receives a fixed amount of compensation every month from the law firm, which compensation apparently is not dependent on any action that the JEA takes, and because the Board member does not appear to have any other interest in any matter that would be coming before the JEA that would inure to his special gain or loss, it appears that the only reason that he would be prohibited from voting is if knows a matter before the JEA inures to the special gain or loss of a principal by which he is retained, such as the law firm. The mere presence of one of the law firm's clients before the JEA on some matter does not create a voting conflict of interest. It is only when the Board member knows that a matter before the Board inures to the special gain or loss of the law firm that he is required to abstain from voting. Because of the lack of specific information provided to us concerning matters with which the law firm was involved and which came before the JEA, it is difficult for us to provide any further guidance as to whether the Board member has been presented with voting conflicts of interest for which he should have abstained from voting. However, in order to avoid even the appearance of impropriety, the Board member may wish to abstain from voting on matters that he knows involve the law firm's clients, as he is permitted to do under Section 286.012, Florida Statutes.
This question is answered accordingly.
ORDERED by the State of Florida Commission on Ethics meeting in public session on January 25, 1996, and RENDERED this 29th day of January, 1996.
William J. Rish