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HomeMy WebLinkAbout10-541 Krauland ADVICE OF COUNSEL February 1, 2010 Richard Krauland, President Farmers & Merchants Bank of Western PA 222 Market Street Kittanning, PA 16201 10-541 Dear Mr. Krauland: This responds to your letter dated December 3, 2009, by which you requested an advisory from the Pennsylvania State Ethics Commission. Issue: Whether the Public Official and Employee Ethics Act (“Ethics Act”), 65 Pa.C.S. § 1101 et seq., would present any prohibitions or restrictions upon a member of an industrial development authority board who, in a private capacity, is president of a bank with which the authority has several ongoing transactions, including a fixed rate mortgage. Facts: As a Member of the Board of the Armstrong County Industrial Development Authority (“the Authority”), you request an advisory from the Pennsylvania State Ethics Commission based upon submitted facts that may be fairly summarized as follows. In a private capacity, you are employed as the President of Farmers & Merchants Bank of Western PA (“the Bank”). You state that prior to your appointment to the Authority Board, the Authority had established a relationship with the Bank as a result of several ongoing transactions, including a fixed rate mortgage (“the Mortgage”) that the Authority gave to the Bank. Based upon the above submitted facts, you pose the following specific questions: 1. Whether the Ethics Act would impose any prohibitions or restrictions upon you as to matter(s) pertaining to the Mortgage; 2. Whether you would have a conflict of interest under the Ethics Act as to prospective new mortgages that the Bank might take from the Authority; and 3. If you should become aware of confidential information regarding third parties through either your position with the Bank or the Authority Board and such information could be relevant to your other position, how you should proceed under the Ethics Act. Krauland, 10-541 February 1, 2010 Page 2 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. It is further initially noted that, pursuant to the same aforesaid Sections of the Ethics Act, an opinion/advice may be given only as to prospective (future) conduct. To the extent that your inquiry relates to conduct that has already occurred, such past conduct may not be addressed in the context of an advisory opinion. However, to the extent your inquiry relates to future conduct, your inquiry may and shall be addressed. As a Member of the Authority Board, you are a public official 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 related to Section 1103(a) are defined in the Ethics Act as follows: Krauland, 10-541 February 1, 2010 Page 3 § 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. "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. 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. Subject to certain statutory exceptions, 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. 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 Krauland, 10-541 February 1, 2010 Page 4 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 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. 65 Pa.C.S. § 1103(f). 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) does not operate to make contracting with the governmental body permissible where it is otherwise prohibited. Rather, where a public official/public employee, his spouse or child, or a business with which he, his spouse or child is associated, is otherwise appropriately contracting with the governmental body, or subcontracting with any person who has been awarded a contract with the governmental body, in an amount of $500.00 or more, Section 1103(f) requires that an “open and public process” be observed as to the contract with the governmental body. Section 1103(f) of the Ethics Act also provides 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 provisions of the Ethics Act to the questions you have posed, it is noted that Section 1103(a) of the Ethics Act 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 Krauland, 10-541 February 1, 2010 Page 5 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 or private client(s). Miller, Opinion 89-024; Kannebecker, Opinion 92-010. A reasonable and legitimate expectation that a business relationship will form may also support a finding of a conflict of interest. Amato, Opinion 89-002. In each instance of a conflict of interest, the public official/public employee would be required to abstain from participation, and in the instance of a voting conflict, to abstain and fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. You are advised that the Bank is a business with which you are associated in your capacity as President. Subject to the statutory exclusions to the definition of “conflict” or “conflict of interest” as set forth in the Ethics Act, 65 Pa.C.S. § 1102, pursuant to Section 1103(a) of the Ethics Act, in your capacity as an Authority Board Member, you would have a conflict of interest in matters that would financially impact you, the Bank, or the Bank’s customer(s)/client(s). See, Kannebecker, supra; Miller, supra. See, Coll, Advice 05-501 (Self-employed public official would not have a conflict of interest as to a customer/client from which he/his business would receive only a de minimis financial benefit). Your specific questions are addressed as follows. In response to your first specific question, you are advised that pursuant to Section 1103(a) of the Ethics Act, in your public capacity as an Authority Board Member, you generally would have a conflict of interest in matter(s) pertaining to the Mortgage. However, a conflict of interest would not exist with regard to participating in the approval of pre-fixed, routine, uncontested payments on the Mortgage. See, Yezzi, Order 825 at 58; Krushinski, Order 168; Brooks, Opinion 89-023; Maholick, Opinion 90- 010; Pizonka/Rieder/Rittenhouse, Opinion 09-007. In each instance of a conflict of interest, you would be required to abstain from participation, and in the instance of a voting conflict, to abstain and fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. In response to your second specific question, you are advised as follows. You would have a conflict of interest under Section 1103(a) of the Ethics Act in matters before the Authority Board pertaining to prospective new mortgage(s) that the Bank might take from the Authority. At such times as there would be a reasonable expectation of a business relationship forming between the Authority and the Bank as to a particular mortgage, you would have a conflict of interest and could not participate in related matters. You would also be prohibited from using the authority of your public position, or confidential information accessed or received as a result of being an Authority Board Member, to effectuate a private pecuniary benefit to the Bank through a detriment to a business competitor. See, Pepper, Opinion 87-008. As noted above, in each instance of a conflict of interest, you would be required to abstain fully from participation and in the instance of a voting conflict, to abstain fully and satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. The requirements of Section 1103(f) of the Ethics Act would have to be observed whenever applicable. To the extent the Bank would contract with the Authority, or would subcontract with a person awarded a contract with the Authority, and the value of the Bank’s contract/subcontract would be $500 or more, the restrictions of Section 1103(f) would be applicable. Krauland, 10-541 February 1, 2010 Page 6 Your third question has been addressed above to the extent that it relates to your conduct as a public official. Section 1103(a) of the Ethics Act regulates the conduct of a public official/public employee in his public capacity and not his private capacity. 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. Conclusion: As a Member of the Board of the Armstrong County Industrial Development Authority (“the Authority”), 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. Farmers & Merchants Bank of Western PA (“the Bank”) is a business with which you are associated in your capacity as President. Subject to the statutory exclusions to the definition of “conflict” or “conflict of interest” as set forth in the Ethics Act, 65 Pa.C.S. § 1102, pursuant to Section 1103(a) of the Ethics Act, in your public capacity as an Authority Board Member, you would have a conflict of interest in matters that would financially impact you, the Bank, or the Bank’s customer(s)/client(s). As an Authority Board Member, you generally would have a conflict of interest under Section 1103(a) of the Ethics Act in matter(s) pertaining to a fixed rate mortgage (“the Mortgage”) that the Authority gave to the Bank prior to your appointment to the Authority Board. However, a conflict of interest would not exist with regard to participating in the approval of pre-fixed, routine, uncontested payments on the Mortgage. You would have a conflict of interest under Section 1103(a) of the Ethics Act in matters before the Authority Board pertaining to prospective new mortgage(s) that the Bank might take from the Authority. At such times as there would be a reasonable expectation of a business relationship forming between the Authority and the Bank as to a particular mortgage, you would have a conflict of interest and could not participate in related matters. You would also be prohibited from using the authority of your public position, or confidential information accessed or received as a result of being an Authority Board Member, to effectuate a private pecuniary benefit to the Bank through a detriment to a business competitor. In each instance of a conflict of interest, you would be required to abstain fully from participation. The abstention requirement would not be limited to voting, but rather would extend to any use of authority of office. In each instance of a voting conflict, you would be required to abstain fully and to satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. The requirements of Section 1103(f) of the Ethics Act would have to be observed whenever applicable. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Act. Pursuant to Section 1107(11) of the Ethics Act, 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 Krauland, 10-541 February 1, 2010 Page 7 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