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HomeMy WebLinkAbout07-584 ConfidentialADVICE OF COUNSEL September 27, 2007 07 -584 This responds to your letter of August 17, 2007, by which you requested confidential advice from the State Ethics Commission. Issue: Whether the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa. .S. § 1101 et seq., would present any prohibitions or restrictions upon a county A with regard to participating as a stockholder in or compensated manager for a company that is developing a system for As, B records departments, Cs, and Ds to complete E documents online, where: (1) such system would be made available at no charge to the office of said county A, Fs and the local B within that county, Fs outside that county that would be working in conjunction with the county A's office, and all Cs; and (2) the company would charge fees to other users of such system. Facts: As the A of G County, you seek an advisory from the State Ethics C ommission based upon facts that may be fairly summarized as follows. You state that you are working with some private businessmen to develop a system for the completion of E documents online (hereinafter referred to as the System "). The System would permit As, B records departments, Cs, and Ds to collaborate online to complete E documents and attach digital signatures to such documents. The logistics of the System are nearly complete, and you are working with the H to pursue a !test of the System. The System will be made available by a company, Company L ( "the Company "). The System would operate by notifying a F or C via e -mail, text message, or fax that an E document awaits attention at the secure Company website. The D or C would log onto the System to complete and sign the appropriate portions of the E document. The D would then print the completed E document and deliver it to the J. You state that the System would also be available to As with a much wider functionality that would allow for the complete management of K data. The Company will generate profits by charging participating Bs a monthly fee for using the System to initiate an E document online. As will also be charged a monthly fee for use of the System, while Fs will be charged for use of the System on a transactional basis. Cs will not be charged for use of the system. Confidential Advice, 07 -584 September 27, 2007 Page 2 You state that no A, B, C, or D would be compelled to participate or pay any fees without opting into the System. For example, if a B or A's office is participating in the System and the local D is not, the E document would be provided as usual to the local D in paper format at no charge. You state that early in the process of developing the Company's business model, the Company determined that every effort must be taken to avoid an appearance of impropriety with regard to your participation. You further state that the following safeguards were put in place from the outset and will be implemented once the Company is up and running: • The G County A's Office will receive all services, including electronic E document and K management capabilities, from the Company at no charge; • All Fs within G County will receive all services from the Company at no charge; • When working in conjunction with the G County A's Office to provide an E document through the System, all transactions involving Fs outside of G County will be accommodated at no charge; • The local B in G County will not be charged any fees for using the System; and • Cs will not be charged to use the System, regardless of their affiliation or their location within the Commonwealth. You state that the Company will lose approximately $16,000 per year in revenues by not charging for the use of the System in G County, as set forth above. You express your view that given the safeguards set forth above, you would not be using any information obtainable in your public position as G County A for your personal enrichment via the Company in contravention of the Ethics Act. Based upon the above submitted facts, you pose the following specific inquiries: 1. Whether your position as A would conflict in some manner with your participation as a stockholder or compensated manager with the Company; 2. Whether the Ethics Act would prohibit or restrict you from being involved with the Company given the fact that some of the Company's revenues would come from the budgets of Pennsylvania counties whose As would participate in the System; 3. Whether the Ethics Act would prohibit or restrict you from being involved in the Company given the fact that some Company revenues would come from Fs or Bs; 4. Whether your involvement with the Company would be complicated given the fact that private (qualified) investors may place personal assets at risk; and 5. Whether there would be any other barriers to your involvement with the Company that you have not considered. Discussion: It is initially noted that pursuant to Sections 1107(10) and 1107(11) of the Ethics Act, 65 Pa.C.S. §§ 1107(10), (11), advisories are issued to the requester based upon the facts that the requester has submitted. In issuing the advisory based upon the facts that the requester has submitted, the Commission does not engage in an Confidential Advice, 07 -584 September 27, 2007 Page 3 independent investigation of the facts, nor does it speculate as to facts that have not been submitted. It is the burden of the requester to truthfully disclose all of the material facts relevant to the inquiry. 65 Pa.C.S. §§ 1107(10), (11). An advisory only affords a defense to the extent the requester has truthfully disclosed all of the material facts. As A for G County, you are a public official as that term is defined in the Ethics Act, and hence you are subject to the provisions of the Ethics Act. Sections 1103(a) and 1103(j) of the Ethics Act provide: § 1103. Restricted activities (a) Conflict of interest. - -No public official or public employee shall engage in conduct that constitutes a conflict of interest. (j) Voting conflict. - -Where voting conflicts are not otherwise addressed by the Constitution of Pennsylvania or by any law, rule, regulation, order or ordinance, the following procedure shall be employed. Any public official or public employee who in the discharge of his official duties would be required to vote on a matter that would result in a conflict of interest shall abstain from voting and, prior to the vote being taken, publicly announce and disclose the nature of his interest as a public record in a written memorandum filed with the person responsible for recording the minutes of the meeting at which the vote is taken, provided that whenever a governing body would be unable to take any action on a matter before it because the number of members of the body required to abstain from voting under the provisions of this section makes the majority or other legally required vote of approval unattainable, then such members shall be permitted to vote if disclosures are made as otherwise provided herein. In the case of a three - member governing body of a political subdivision, where one member has abstained from voting as a result of a conflict of interest and the remaining two members of the governing body have cast opposing votes, the member who has abstained shall be permitted to vote to break the tie vote if disclosure is made as otherwise provided herein. 65 Pa.C.S. §§ 1103(a), (j). The following terms are defined in the Ethics Act as follows: § 1102. Definitions "Conflict" or "conflict of interest." Use by a public official or public employee of the authority of his office or employment or any confidential information received through his holding public office or employment for the private pecuniary benefit of himself, a member of his immediate family or a business with which he or a member of his immediate family is associated. The term does not include an action having a de minimis economic impact or which affects to the same degree a class consisting of the general public or a subclass consisting of an industry, occupation or other group which includes the public official or public Confidential Advice, 07 -584 September 27, 2007 Page 4 employee, a member of his immediate family or a business with which he or a member of his immediate family is associated. "Authority of office or employment." The actual power provided by law, the exercise of which is necessary to the performance of duties and responsibilities unique to a particular public office or position of public employment. "Business." Any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, self - employed individual, holding company, joint stock company, receivership, trust or any legal entity organized for profit. "Business with which he is associated." Any business in which the person or a member of the person's immediate family is a director, officer, owner, employee or has a financial interest. "Financial interest." Any financial interest in a legal entity engaged in business for profit which comprises more than 5% of the equity of the business or more than 5% of the assets of the economic interest in indebtedness. 65 Pa. C. S. § 1102. Pursuant to Section 1103(a) of the Ethics Act, a public official /public employee is prohibited from using the authority of public office /employment or confidential information received by holding such a public position for the private pecuniary benefit of the public official /public employee himself, a member of his immediate family, or a business with which he or a member of his immediate family is associated. The use of authority of office is not limited merely to voting, but extends to any use of authority of office including, but not limited to, discussing, conferring with others, and lobbying for a particular result. Juliante, Order 809. In each instance of a voting conflict, Section 1103(j) of the Ethics Act requires the public official /public employee to abstain and to publicly disclose the abstention and reasons for same, both orally and by filing a written memorandum to that effect with the person recording the minutes. In the event that the required abstention results in the inability of the governmental body to take action because a majority is unattainable due to the abstention(s) from conflict under the Ethics Act, then voting is permissible provided the disclosure requirements noted above are followed. See, Pavlovic, Opinion 02 -005. Section 1103(f) of the Ethics Act, pertaining to contracting, provides as follows: § 1103. Restricted activities (f) Contract. - -No public official or public employee or his spouse or child or any business in which the person or his spouse or child is associated shall enter into any contract valued at $500 or more with the governmental body with which the public official or public employee is associated or any subcontract valued at $500 or more with any person who has been awarded a contract with the governmental body with which the public official or public employee is Confidential Advice, 07 -584 September 27, 2007 Page 5 65 Pa.C.S. § 1103(f). associated, unless the contract has been awarded through an open and public process, including prior public notice and subsequent public disclosure of all proposals considered and contracts awarded. In such a case, the public official or public employee shall not have any supervisory or overall responsibility for the implementation or administration of the contract. Any contract or subcontract made in violation of this subsection shall be voidable by a court of competent jurisdiction if the suit is commenced within 90 days of the making of the contract or subcontract. The term "contract" is defined in the Ethics Act as follows: § 1102. Definitions "Contract." An agreement or arrangement for the acquisition, use or disposal by the Commonwealth or a political subdivision of consulting or other services or of supplies, materials, equipment, land or other personal or real property. The term shall not mean an agreement or arrangement between the State or political subdivision as one party and a public official or public employee as the other party, concerning his expense, reimbursement, salary, wage, retirement or other benefit, tenure or other matters in consideration of his current public employment with the Commonwealth or a political subdivision. 65 Pa.C.S. § 1102 Section 1103(f) of the Ethics Act provides in part that no public official /public employee or his spouse or child or business with which the public official /public employee or his spouse or child is associated may enter into a contract with his governmental body valued at five hundred dollars or more or any subcontract valued at five hundred dollars or more with any person who has been awarded a contract with the governmental body with which the public official /public employee is associated unless the contract is awarded through an open and public process including prior public notice and subsequent public disclosure. Section 1103(f) of the Ethics Act also requires that the public official /public employee may not have any supervisory or overall responsibility as to the implementation or administration of the contract with the governmental body. In applying the above provisions of the Ethics Act to your inquiry, it is noted that Section 1103(a) of the Ethics Act pertaining to conflicts of interest does not prohibit public officials /public employees from having outside business activities or employment; however, the public official /public employee may not use the authority of his public position - -or confidential information obtained by being in that position- -for the advancement of his own private pecuniary benefit or that of a business with which he is associated. Pancoe, Opinion 89 -011. Examples of conduct that would be prohibited under Section 1103(a) would include: (1) the pursuit of a private business opportunity in the course of public action, Metrick, Order 1037; (2) the use of governmental facilities, such as governmental telephones, postage, equipment, research materials, or other property, or the use of governmental personnel, to conduct private business activities, Freind, Order 800; Pancoe, supra; and (3) the participation in an official capacity as to matters involving the business with which the public official /public employee is associated in his private capacity (Gorman, Order 1041; Rembold, Order 1303; Wilcox, Order 1306), or private customer(s) /client(s) (Miller, Opinion 89 -024; Kannebecker, Opinion 92- 10). Confidential Advice, 07 -584 September 27, 2007 Page 6 You are advised that Section 1103(a) of the Ethics Act would not prohibit you from serving as a compensated manager for, or being a stockholder of, the Company. If you would serve as a compensated manager for the Company or obtain a "financial interest" in the Company as that term is defined by the Ethics Act, the Company would be considered a business with which you are associated, and pursuant to Section 1103(a) of the Ethics Act, in your public capacity as A of G County, you would generally have a conflict of interest in matters that would financially benefit you or the Company. In each instance of a conflict of interest, you would be required to abstain fully from participation and to satisfy the disclosure requirements of Section 1103(j) of the Ethics Act where applicable. above. Turning to your specific inquiries, your first specific inquiry has been addressed In response to your second, third, and fourth specific inquiries, you are advised as follows. The submitted facts that: (1) some of the Company's revenues would come from the budgets of Pennsylvania counties whose As would participate in the System, Fs, or Bs; and (2) private (qualified) investors in the Company might place personal assets at risk, would not alter the conclusion that the Ethics Act would not prohibit you from serving as a compensated manager for the Company or obtaining a financial interest in the Company, subject to the restrictions and qualifications as noted above. As to your fifth question, this advisory is limited to addressing the Ethics Act, and any other considerations are not addressed herein. Parenthetically, it is noted that under the submitted facts, the Company would not charge the G County A's Office for use of the System. You are advised that the restrictions of Section 1103(f) of the Ethics Act would have to be observed when applicable. The propriety of the proposed conduct has only been addressed under the Ethics Act; the applicability of any other statute, code, ordinance, regulation or other code of conduct other than the Ethics Act has not been considered in that they do not involve an interpretation of the Ethics Act. Specifically not addressed herein is the applicability of the County Code. Conclusion: As A for G County, you are a public official subject to the provisions of the Public Official and Employee Ethics Act ("Ethics Act "), 65 Pa.C.S. § 1101 et seq. Section 1103(a) of the Ethics Act would not prohibit you from serving as a compensated manager for, or being a stockholder of, Company L ( "the Company "), which is developing a system (the System ") for As, B records departments, Cs, and Ds to complete E documents online. If you would serve as a compensated manager for the Company or obtain a "financial interest" in the Company as that term is defined by the Ethics Act, the Company would be considered a business with which you are associated, and pursuant to Section 1103(a) of the Ethics Act, in your public capacity as A of G County, you would generally have a conflict of interest in matters that would financially benefit you or the Company. In each instance of a conflict of interest, you would be required to abstain fully from participation and to satisfy the disclosure requirements of Section 1103(j) of the Ethics Act where applicable. The submitted facts that: (1) some of the Company's revenues would come from the budgets of Pennsylvania counties whose As would participate in the System, Fs, or Bs; and (2) private (qualified) investors in the Company might place personal assets at risk, would not alter the conclusion that the Ethics Act would not prohibit you from serving as a compensated manager for the Company or obtaining a financial interest in the Company, subject to the restrictions and qualifications as noted above. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Act. Confidential Advice, 07 -584 September 27, 2007 Page 7 Pursuant to Section 1107(11), an Advice is a complete defense in any enforcement proceeding initiated by the Commission, and evidence of good faith conduct in any other civil or criminal proceeding, provided the requester has disclosed truthfully all the material facts and committed the acts complained of in reliance on the Advice given. This letter is a public record and will be made available as such. Finally, if you disagree with this Advice or if you have any reason to challenge same, you may appeal the Advice to the full Commission. A personal appearance before the Commission will be scheduled and a formal Opinion will be issued by the Commission. Any such appeal must be in writing and must be actually received at the Commission within thirty (30) days of the date of this Advice pursuant to 51 Pa. Code § 13.2(h). The appeal may be received at the Commission by hand delivery, United States mail, delivery service, or by FAX transmission (717 - 787 - 0806). Failure to file such an appeal at the Commission within thirty (30) days may result in the dismissal of the appeal. Sincerely, Robin M. Hittie Chief Counsel