HomeMy WebLinkAbout08-535 ConfidentialADVICE OF COUNSEL
April 15, 2008
08 -535
This responds to your letter of March 3, 2008, by which you requested a
confidential advisory from the Pennsylvania 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 the A with
Commonwealth Department B (hereinafter the Department ") with regard to participating
in the Department's review and action on applications for the H of 1 of two [type of
companies], where the spouse of the A is employed with a company owned by a
subsidiary of one of the aforesaid [type of companies].
Facts: As Chief Counsel of the Department, you request a confidential advisory
from the Pennsylvania State Ethics Commission on behalf of: (1) Commonwealth
Official C; and (2) Individual D, who is employed as the A with the Department. You
have submitted extensive facts that may be fairly summarized as follows.
The E Office (hereinafter the Office "), under the direction of the A, protects [type
of individuals] by requiring all F companies operating in Pennsylvania to maintain [types
of qualities]. The Office consists of two Gs: G1 and G2. The responsibilities of G1
include reviewing significant financial transactions involving [type of companies], such
as [types of transactions].
Pursuant to the [Act and cite] (hereinafter the Act "), for any transaction involving
H of 1 of a F company, the entity seeking I must file an application known as a J with
Commonwealth Official C for approval or disapproval. The J is required to contain
information pertaining to the transaction, including, inter ahia, the identity of the parties to
the transaction, the K and source of the K for the transaction, any L plans, and the
terms of the agreement. After receiving a J, the Department publishes notice in the
[publication] and invites public comment on the application.
Section [number' of the Act, [cite], establishes the standards for approval of an
application for change in 1 of a F company. You state that those standards include:
[delineation of certain standards].
You state that the Department reviews and takes action on an average of
[number] [type of transactions] under the Act each year. However, to date, the
Department has reviewed and issued orders on only one transaction (hereinafter
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April 15, 2008
Page 2
referred to as the Transaction ") involving F subsidiaries of M corporations. The
Transaction involved the consolidation of [name of company] and [name of company] to
form [name of company]. The application for the Transaction was filed in [year] and the
Department issued various orders on the Transaction from [year] through [year]. You
state that the A played a major role in the review process for the Transaction, and he is
the only current Department employee with full institutional knowledge of the process
and procedure of that review.
On [date], the Department received Js for the H of the Pennsylvania F company
subsidiaries of Entity 1 and Entity 2 by Entity 3, a yet to be named company to be
formed upon the consolidation of Entity 1 and Entity 2. You state that if the Department
approves the Entity 1 and Entity 2 Js, Entity 1 and Entity 2 will then be in a position to
consummate their consolidation.
The Department has engaged outside Ns and outside 0 to review and evaluate
the Js. The work will involve significant input from and coordination by the Office. You
state that the A would be involved in: the day -to -day review of information received from
Entity 1 and Entity 2; all Department discussions and meetings concerning the proposed
transaction; participation at any public hearings that would be scheduled; and any
requests by the Department for additional information from Entity 1 and Entity 2. The A
would not make the determination to approve or disapprove the Js. Rather, the ultimate
decision would be rendered by Commonwealth Official C through issuance of a public
order.
You state that one of Entity 2's subsidiary companies, five steps removed from
the parent, is Subsidiary 1. Subsidiary 1 is jointly owned by Entity 2 and another
business entity through subsidiaries. One of Subsidiary 1's subsidiaries is Subsidiary 2.
Subsidiary 2 is a P company that owns Subsidiary 3. Subsidiary 1 purchased
Subsidiary 3 on or about [date]. You state that Subsidiary 1 has provided you with a
corporate organization chart that shows seven corporate layers between Subsidiary 3
and Entity 2. You have submitted a copy of such chart.
The spouse of the A is employed with Subsidiary 3 as a [position]. You state that
her duties are purely clerical /administrative in nature.
Based upon the above submitted facts, you pose the following questions:
1. Whether the Ethics Act would prohibit the A from participating in the
Department's review and action on the Js for approval of the consolidation
of Entity 1 and Entity 2, given that his spouse is an employee of
Subsidiary 3;
2. If the A does not participate in the review and approval /disapproval of the
aforesaid Js, whether he would have a conflict of interest under the Ethics
Act with regard to providing information to Department employees or
Commonwealth Official C on the general procedures used in previous
applications concerning similarly situated F companies; and
3. If the A does not participate in the review and approval /disapproval of the
aforesaid Js, whether he would have a conflict of interest under the Ethics
Act in providing information to the aforementioned outside Ns and outside
0 on the general procedures used in previous applications concerning
similarly situated F companies.
You state that the A currently is not involved with or participating in the review of
the Js for the H of Entity 1 and Entity 2. You state that his duties have been delegated
outside his chain of command and will remain so unless the Ethics Act would permit his
involvement under any of the questions posed above.
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April 15, 2008
Page 3
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
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 the A, Individual D is a public official /public employee and an Executive -level
State employee subject to the provisions of the Ethics Act.
Section 1103(a) of the Ethics Act provides:
§ 1103. Restricted activities
(a) Conflict of interest. - -No public official or public
employee shall engage in conduct that constitutes a conflict
of interest.
65 Pa.C.S. § 1103(a).
The following terms that relate to Section 1103(a) 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
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.
"Immediate family." A parent, spouse, child, brother
or sister.
"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.
Confidential Advice, 08 -535
April 15, 2008
Page 4
"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.
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, any member of his immediate family, or a
business with which he or a member of his immediate family is associated.
In each instance of a conflict of interest, the public official /public employee would
be required to abstain fully from participation. The abstention requirement would not be
limited merely to voting, but would extend 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 applying the above general principles to your first specific inquiry, you are
advised as follows. Individual D's spouse is a member of his "immediate family' as that
term is defined in the Ethics Act. Subsidiary 3 is a business with which Individual D's
spouse is associated in her capacity as an employee of Subsidiary 3. Pursuant to
Section 1103(a) of the Ethics Act, in his public capacity as the A, Individual D would
generally have a conflict of interest in matters that would financially impact him, his
spouse, or Subsidiary 3.
The fact that Subsidiary 3 has an attenuated business relationship with Entity 2,
by virtue of being owned by a holding company that is a subsidiary of a subsidiary jointly
owned by Entity 2 and another business entity, would not in and of itself make Entity 2 a
business with which Individual D's spouse is associated. Cf., Confidential Opinion, 92-
003; Lowery, Advice 93 -559; O'Gurek, Advice 06 -590.
The submitted facts do not suggest any basis for concluding that Individual D's
participation as the A in the Department's review and action on the Js for approval of
the consolidation of Entity 1 and Entity 2 would have any financial impact upon
Individual D's spouse or Subsidiary 3. Therefore, you are advised that absent some
basis for a conflict of interest such as a financial impact on Individual D, his spouse, or
Subsidiary 3, Individual D would not have a conflict of interest with regard to
participating in the Department's review and action on the Js for approval of the
consolidation of Entity 1 and Entity 2.
In response to your second and third specific inquiries, you are advised as
follows. Regardless of whether Individual D would have a conflict of interest with regard
to participating in the Department's review and action on the Js for approval of the
consolidation of Entity 1 and Entity 2, Individual D would not have a conflict of interest
under Section 1103(a) of the Ethics Act with regard to providing to: (1) Ns and outside 0
engaged to review and evaluate the Js; (2) Department employees; or (3)
Commonwealth Official C information limited to the general procedures used in previous
applications concerning similarly situated F companies, as the provision of such general
procedural information would not in and of itself constitute participation with regard to
the Js for approval of the consolidation of Entity 1 and Entity 2.
The ropriety of the proposed conduct has only been addressed under the Ethics
Act. Specifically not addressed herein is the applicability of the Q.
Conclusion: As the A with Commonwealth Department B (hereinafter the
Department "), Individual D is a public official /public employee and an Executive -level
Confidential Advice, 08 -535
April 15, 2008
Page 5
State employee subject to the provisions of the Public Official and Employee Ethics Act
"Ethics Act"), 65 Pa.C.S. § 1101 et seq. Based upon the submitted facts that: (1) on
[date], the Department received Js for the H of the Pennsylvania F company
subsidiaries of Entity 1 and Entity 2 by Entity 3, a yet to be named company to be
formed upon the consolidation of Entity 1 and Entity 2; (2) one of Entity 2's subsidiary
companies, five steps removed from the parent, is Subsidiary 1; (3) Subsidiary 1 is
jointly owned by Entity 2 and another business entity through subsidiaries; (4) one of
Subsidiary 1's subsidiaries is Subsidiary 2; (5) Subsidiary 2 is a P company that owns
Subsidiary 3; (6) Subsidiary 1 purchased Subsidiary 3 on or about [date]; and (7)
Individual D's spouse is employed with Subsidiary 3 as a [position], you are advised as
follows. Individual D's spouse is a member of his "immediate family" as that term is
defined in the Ethics Act. Subsidiary 3 is a business with which Individual D's spouse is
associated in her capacity as an employee of Subsidiary 3. Pursuant to Section
1103(a) of the Ethics Act, in his public capacity as the A, Individual D would generally
have a conflict of interest in matters that would financially impact him, his spouse, or
Subsidiary 3. The fact that Subsidiary 3 has an attenuated business relationship with
Entity 2, by virtue of being owned by a holding company that is a subsidiary of a
subsidiary jointly owned by Entity 2 and another business entity, would not in and of
itself make Entity 2 a business with which Individual D's spouse is associated. The
submitted facts do not suggest any basis for concluding that Individual D's participation
as the A in the Department's review and action on the Js for approval of the
consolidation of Entity 1 and Entity 2 would have any financial impact upon Individual
D's spouse or Subsidiary 3. Therefore, you are advised that absent some basis for a
conflict of interest such as a financial impact on Individual D, his spouse, or Subsidiary
3, Individual D would not have a conflict of interest in participating in the Department's
review and action on the Js for approval of the consolidation of Entity 1 and Entity 2.
Regardless of whether Individual D would have a conflict of interest with regard to
participating in the Department's review and action on the Js for approval of the
consolidation of Entity 1 and Entity 2, Individual D would not have a conflict of interest
under Section 1103(a) of the Ethics Act with regard to providing to: (1) Ns and outside 0
engaged to review and evaluate the Js; (2) Department employees; or (3)
Commonwealth Official C information limited to the general procedures used in previous
applications concerning similarly situated F companies, as the provision of such general
procedural information would not in and of itself constitute participation with regard to
the Js for approval of the consolidation of Entity 1 and Entity 2.
Lastly, the propriety of the proposed conduct has only been addressed under the
Ethics Act.
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,
Confidential Advice, 08 -535
April 15, 2008
Page 6
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