STATE OF FLORIDA
COMMISSION ON ETHICS
In re BERND SCHULTE, )
) Complaint No. 02-074
Respondent. ) DOAH Case No. 04-2064EC
) COE Final Order No. 05-206
On January 11, 2005, an Administrative Law Judge ("ALJ") from the Division of Administrative Hearings ("DOAH") submitted to the Commission and all parties his Recommended Order, a copy of which is attached hereto, recommending that the Commission enter a Final Order finding that the evidence did not establish that the Respondent violated Section 112.313(7)(a), Florida Statutes, and dismissing this complaint. The matter is now before the Commission for final agency action.
This matter began with the filing of a complaint on June 10, 2002, by Betty Kelso alleging that Bernd Schulte, the Respondent, as a member of the Town Commission of the Town of Ocean Ridge, had violated the Code of Ethics for Public Officers and Employees. An investigation was undertaken, and on June 5, 2003, the Ethics Commission found probable cause to believe that the Respondent had violated Section 112.313(7)(a), Florida Statutes, by having a contractual relationship with an individual engaged in a lawsuit involving the Town.
The matter was forwarded to DOAH for assignment of an ALJ to conduct a formal hearing and prepare a recommended order. The formal hearing was held on October 19, 2004. A transcript was filed with the ALJ and both parties filed proposed recommended orders. After the Recommended Order was entered, the Commission Advocate timely filed Exceptions to the Recommended Order, and the Respondent timely filed a Response.
STANDARDS FOR REVIEW
Under Section 120.57(1)(l), Florida Statutes, an agency may not reject or modify findings of fact made by the ALJ unless a review of the entire record demonstrates that the findings were not based on competent, substantial evidence or that the proceedings on which the findings were based did not comply with the essential requirements of law. See, e.g., Freeze v. Dept. of Business Regulation, 556 So.2d 1204 (Fla. 5th DCA 1990); and Florida Department of Corrections v. Bradley, 510 So.2d 1122 (Fla. 1st DCA 1987). Competent, substantial evidence has been defined by the Florida Supreme Court as such evidence as is "sufficiently relevant and material that a reasonable mind would accept it as adequate to support the conclusions reached." DeGroot v. Sheffield, 95 So.2d 912, 916 (Fla. 1957).
The agency may not reweigh the evidence, resolve conflicts therein, or judge the credibility of witnesses, because those are matters within the sole province of the ALJ. Heifetz v. Dept. of Business Regulation, 475 So.2d 1277, 1281 (Fla. 1st DCA 1985). Consequently, if the record of the DOAH proceedings discloses any competent, substantial evidence to support a finding of fact made by the ALJ, the Commission is bound by that finding.
Under Section 120.57(1)(l), Florida Statutes, an agency may reject or modify the conclusions of law over which it has substantive jurisdiction and interpretation of administrative rules over which it has substantive jurisdiction. When rejecting or modifying such conclusions of law or interpretations of administrative rules, the agency must state with particularity its reasons for rejecting or modifying such conclusions of law or interpretations of administrative rules and must make a finding that its substituted conclusion of law or interpretation of administrative rule is as or more reasonable than that which was rejected or modified.
Having reviewed the Recommended Order and the entire record of the proceeding, the exceptions filed by the Advocate and response filed by the Respondent, and having heard the arguments of counsel, the Commission makes the following findings, conclusions, rulings and recommendations.
RULINGS ON EXCEPTIONS
1. In essence, the ALJ found that the Respondent had an interest in the pending litigation involving the Kelso property and the Town, because he owned property adjoining the Kelsos' lot and believed that developing the Kelso property would have an impact on his property. Consequently, the Respondent abstained from voting and did not participate in his official capacity in any of the Town's decisions regarding the litigation. As this conflicting interest pre-dated the Respondent's acquisition of the contractual obligation to fund Ms. Olanoff's litigation in opposition to the Town, which "was merely a manifestation of a preexisting and continuing conflict of interest," and as the Respondent already was obliged to abstain from voting on the matter, the Respondent had no further public duties that could have been compromised at the time he undertook to fund the litigation, the ALJ found. On this basis, the ALJ concluded that this contractual relationship did not "impede the full and faithful discharge of his public duties."
2. The Advocate argues that the ALJ's reasoning, as set forth in paragraphs 80, 82, and 83 of the Recommended Order, is not supported by the evidence and fails to apply the law to the facts properly. He argues that the Agreement and Option Agreement was a conflicting contractual relationship that coincided with his public duties to create a situation that "tempted dishonor," citing Zerweck v. State Commission on Ethics, 409 So.2d 57, at p. 61 (Fla. 4th DCA 1982), where the Court stated 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.'
3. The Advocate's first exception is directed to a portion (underlined below) of paragraph 80 of the Conclusions of Law:
As a Town Commissioner Respondent does have a responsibility to take into consideration the "best interests" of the Town, but this duty applies only when he is acting in his capacity as a Town official. He need not be guided by what is in the Town's "best interests" in his private affairs. Accordingly, to the extent he may have placed his personal interests over the interests of the Town in entering into the Agreement and Option Agreement with Ms. Olanoff and in exercising his contractual rights thereunder, Respondent did not, in so doing, run afoul of the law inasmuch as he was acting as a private citizen, not a Town Commissioner.
The Advocate argues that this statement ignores the guidance of the Fourth District Court of Appeal in Zerweck, fails to account for the fact that the purpose of the Agreement and Option Agreement was to defeat access across Ms. Olanoff's property at all costs, and fails to account for the non-disclosure portion of the Agreement.
In our view, the emphasized language above is poorly phrased and, if taken out of context, could be read as excepting any actions a public official takes "as a private citizen" from the pertinent statute, Section 112.313(7)(a). No legal authority was provided for the proposition that "this duty applies only when he is acting in his capacity as a Town official." Moreover, the analysis ignores Section 112.313(7), which is the statute at issue in the case and which directly limits the employment and contractual relationships that public officers and employees may undertake in their private capacity. We do note that the ALJ clarified his statements in the following paragraph (paragraph 81, to which the Advocate has not excepted), where he noted that "Respondent, as a public officer, is not free to enter into any private contract he so desires, without restriction" and noted that Respondent is constrained by Section 112.313(7).
As the language in paragraph 80 of the conclusions of law appears irrelevant to the statute at issue, we strike this paragraph from the conclusions of law, but decline to adopt the substituted language proposed by the Advocate.
4. The Advocate's second Exception is directed to the underlined portions of Conclusions of Law paragraph 82:
82. Respondent's Agreement and Option Agreement with Ms. Olanoff, however, did not constitute such a prohibited contractual relationship. It did not create any impediment to Respondent's fully and faithfully discharging any Town Commissioner duties he otherwise would have been able to perform unemcumbered [sic] by conflict of interest. It is true that Respondent recused himself and did not participate in any Town Commission votes relating to the litigation (involving Ms. Olanoff, the Kelsos, the Town, and others) referenced in the agreement, but even if Respondent had not entered into the agreement, he still would have had to have refrained from performing these public duties. This is because, at the time he entered into the agreement, Respondent already had a personal interest in the outcome of the litigation by virtue of his status as an owner of property abutting the lot (Lot 0002) that the Kelsos owned and were seeking access to (through the litigation) so that they would be able to develop it. Respondent wanted a result that would effectively prevent such development from taking place, believing that a contrary outcome could adversely affect the value of his property. It was this very desire to protect the worth of this property that prompted Respondent to enter into the Agreement and Option Agreement with Ms. Olanoff. Respondent's establishing this contractual relationship therefore did not create a new conflict of interest that made it more difficult for him than it otherwise would have been to fully and faithfully perform his responsibilities as a Town Commissioner; rather, such action was merely a manifestation of a preexisting and continuing conflict of interest (that already disqualified him, and would continue to disqualify him, from voting on matters relating to the litigation) arising, not from any contractual or employment relationship he had, but from his status as the owner of property that could be impacted by the litigation. In short, Respondent's Agreement and Option Agreement with Ms. Olanoff did not create a situation where Respondent was, in any appreciable way, more tempted than he would have been in the absence of such an agreement to disregard the interests of the Town in favor of his own personal interests in discharging his public duties.
This is the first time we have had before us a situation with these particular circumstances, where the circumstances giving rise to a conflict of interest pre-dated the contractual relationship. After careful consideration, we conclude that the wording of the statute requires us to focus on the duties of the official and how those may be impacted by his conflicting interests, rather than on the interests of the official's agency and how those may be impacted by the official's interests. Section 112.313(7)(a) does not address conflicts between the interests of the official and the interests of his or her agency. Rather, it only prohibits a 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." As noted by the Fourth District Court of Appeal (in the quotation above in paragraph 2), the statute provides "an objective standard" under which we 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.'" [E.S.] See also Section 112.316, Florida Statutes, which provides that the Code of Ethics should not be construed to prevent a public officer or employee from following any pursuit that does not "interfere with the full and faithful discharge . . . of his or her duties to the state or the county, city, or other political subdivision of the state involved." While the voters may vote a public official out of office because of conflicting interests, we must judge the situation according to the standards of conduct prescribed by the Legislature.
In our view, there was a conflict between the interests of the Respondent and the interests of the Town. Initially, the conflict arose out of the Respondent's ownership of his home and the location of the property that was the subject of the litigation to which the Town was a party. This occurred before the Respondent was elected to serve on the Town Commission. The conflict of interests was made more significant when, in furtherance of a goal to protect his interests, the Respondent became contractually obligated to finance and control the litigation for Ms. Olanoff, an obligation that was undertaken after the Town Commission had clearly announced its intent to settle the litigation on the terms originally agreed to by Ms. Olanoff, and after his service on the Town Commission began.
The Respondent's property interests were sufficient to require him to abstain from voting on matters relating to the litigation, under Section 112.3143(3), Florida Statutes, which he did from the beginning. There was no evidence that the Respondent took any action in his official capacity regarding the subject property and litigation. There was no indication that he attempted to influence Town employees or other Commission members, either during or outside of Commission meetings.
The Advocate argues that the ALJ's implication that Respondent's duty to vote was his only duty fails to take into account other duties, including Respondent's public duty to act in the best interests of the Town, duty as a public officer to avoid a conflict of interest, his duty of independence and impartiality, and his duty to observe the Code of Ethics and the advisory opinions of the Commission on Ethics. Looking at the Respondent's authority and obligations in his public capacity, we do not agree that there was any authority on the part of the Respondent, or any action taken in his official capacity, at the time he was a party to the contractual relationship, that was of the nature contemplated by Section 112.313(7)(a). To say otherwise would run the risk of "bootstrapping" any conflict of interest into a violation of a statute that, by its own terms, only applies to more significant conflicts.
The Advocate also argues that even if Respondent could have avoided his contractual conflict by abstaining, he failed to properly disclose his contractual conflict when he abstained from voting on the litigation issue after he had entered into the Agreement and Option Agreement with Ms. Olanoff. It may be that the Respondent's contractual obligation to keep the agreement secret conflicted with his public obligation under Section 112.3143(3)(a) to "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 . . .." However, the question of whether the Respondent violated Section 112.3143(3)(a) by filing an insufficient disclosure of the nature of his interest in the matter was not part of the charge for this proceeding and was not litigated during the proceeding. We simply did not anticipate this issue arising, at the time we considered the case for our probable cause decision. Because this issue was not part of the charges for which the Respondent was entitled to notice and to defend against, we cannot raise it now.
For these reasons, the Advocate's second exception is rejected.
5. Finally, the Advocate has excepted to the ALJ's ultimate finding (in paragraph 83) that the evidence was insufficient to establish that the Respondent violated Section 112.313(7)(a), has excepted to the recommendation of dismissal, and has asked that the Commission recommend a civil penalty be imposed against the Respondent. As we have concluded that, under the circumstances presented, the Respondent did not violate Section 112.313(7)(a), we deny these exceptions.
FINDINGS OF FACT
The Findings of Fact as set forth in the Recommended Order are approved, adopted, and incorporated herein by reference.
CONCLUSIONS OF LAW
1. The Conclusions of Law as set forth in the Recommended Order are approved, adopted, and incorporated by reference, except as modified above.
2. Accordingly, this complaint is hereby DISMISSED.
DONE and ORDERED by the State of Florida Commission on Ethics meeting in public session on Thursday, April 21, 2005.
Joel K. Gustafson
THIS ORDER CONSTITUTES FINAL AGENCY ACTION. ANY PARTY WHO IS ADVERSELY AFFECTED BY THIS ORDER HAS THE RIGHT TO SEEK JUDICIAL REVIEW UNDER SECTION 120.68, FLORIDA STATUTES, BY FILING A NOTICE OF ADMINISTRATIVE APPEAL PURSUANT TO RULE 9.110 FLORIDA RULES OF APPELLATE PROCEDURE, WITH THE CLERK OF THE COMMISSION ON ETHICS, 3600 Maclay Boulevard South, Suite 201, P.O. DRAWER 15709, TALLAHASSEE, FLORIDA 32317-5709; AND BY FILING A COPY OF THE NOTICE OF APPEAL ATTACHED TO WHICH IS A CONFORMED COPY OF THE ORDER DESIGNATED IN THE NOTICE OF APPEAL ACCOMPANIED BY THE APPLICABLE FILING FEES WITH THE APPROPRIATE DISTRICT COURT OF APPEAL. THE NOTICE OF ADMINISTRATIVE APPEAL MUST BE FILED WITHIN 30 DAYS OF THE DATE THIS ORDER IS RENDERED.
cc: Mr. Norman Malinski, Attorney for Respondent
Mr. James H. Peterson, III, Commission Advocate
Ms., Betty Kelso, Complainant
The Honorable Stuart M. Lerner, Administrative Law Judge
Division of Administrative Hearings