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HomeMy WebLinkAbout11-523 ADVICE OF COUNSEL May 2, 2011 11-523 This responds to your letters dated March 14, 2011, and March 21, 2011, 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.C.S. § 1101 et seq., would impose any prohibitions or restrictions upon an individual with regard to seeking election or serving as a member of a [political subdivision] [governmental body] where: (1) in his private capacity, the individual is the president and sole owner of a [type of business] that provides services to [political subdivision] facilities as a subcontractor to another corporation which has a [number]-year contract with the [political subdivision]; and (2) there are [number] years remaining under the terms of the aforesaid contract between the [political subdivision] and such other corporation. Facts: You have been authorized by Individual A to request a confidential advisory from the Pennsylvania State Ethics Commission on his behalf. You have submitted facts that may be fairly summarized as follows. Three years ago, Political Subdivision B entered into a [number]-year contract (“the Contract”) with a privately held corporation named [name of corporation], hereinafter referred to as “Corporation 1,” for the installation and servicing of [a type of system] for buildings owned by Political Subdivision B. You state that the Contract was awarded through a competitive public bid process. The remaining [number] years of the Contract are not guaranteed, and the Contract is subject to cancellation by Political Subdivision B. In a private capacity, Individual A is the President and sole owner of a [type of business] named [name of business], hereinafter referred to as “Corporation 2,” which is located in Political Subdivision B. Corporation 1 subcontracted with Corporation 2 to provide services required under the Contract to those Political Subdivision B facilities covered by the Contract. You state that Corporation 1 has no ties to Individual A. You further state that the aforesaid work subcontracted to Corporation 2 currently comprises approximately [range of percent] of the gross income of Corporation 2. You have submitted unexecuted copies of two contracts between Corporation 1 and Corporation 2 pertaining to the aforesaid work subcontracted to Corporation 2, which documents are incorporated herein by reference. Confidential Advice, 11-523 May 2, 2011 Page 2 You state that Individual A has been asked to consider running for the office of Member of Governmental Body C, which is the governing body of Political Subdivision B. You state that if Individual A would be elected to Governmental Body C, he would recuse himself from voting to approve bills submitted by Corporation 2 for maintenance work performed on the systems in Political Subdivision B buildings. You state that Individual A has investigated whether he could sell his/Corporation 2’s contractual rights to Corporation 1 if he would be required to do so by the Ethics Act. You further state that an offer to purchase such rights made by Corporation 1, at a price of [amount] per remaining year of the Contract based on quarterly payments of [amount], would not appear to remove any potential conflicts of interest for him. Based upon the above submitted facts, you seek guidance as to whether the Ethics Act would impose any prohibitions or restrictions upon Individual A with regard to seeking election or serving as a Member of Governmental Body C while continuing to operate Corporation 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. 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. Confidential Advice, 11-523 May 2, 2011 Page 3 65 Pa.C.S. §§ 1103(a), (j). The following terms related 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. "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. 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 conflict of interest, a public official/public employee would be required to abstain from participation, which would include voting unless one of the statutory exceptions of Section 1103(j) of the Ethics Act would be applicable. Additionally, the disclosure requirements of Section 1103(j) of the Ethics Act would have to be satisfied in the event of a voting conflict. Confidential Advice, 11-523 May 2, 2011 Page 4 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 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. 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 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. Confidential Advice, 11-523 May 2, 2011 Page 5 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 above provisions of the Ethics Act to the instant matter, you are advised that Corporation 2 is a business with which Individual A is associated in his capacity as the President and owner. The Ethics Act would not prohibit Individual A from seeking election or serving as a Member of Governmental Body C while continuing to operate Corporation 2. If Individual A would be elected as a Member of Governmental Body C, upon assuming said position, he would in that capacity be a public official subject to the Ethics Act, and pursuant to Section 1103(a) of the Ethics Act, Individual A would generally have a conflict of interest in matters before Governmental Body C that would financially impact him, Corporation 2, or Corporation 2’s customer(s)/client(s), including but not limited to Corporation 1. See, Kannebecker, supra; Miller, supra. Individual A would specifically have a conflict of interest in his public capacity as a Member of Governmental Body C in any matter(s) pertaining to the Contract, including but not limited to overseeing work performed by Corporation 1 or Corporation 2 relative to the Contract or participating in the approval/payment of invoices involving the Contract. In each instance of a conflict of interest, Individual A would be required to abstain from participation, which would include voting unless one of the statutory exceptions of Section 1103(j) of the Ethics Act would be applicable. Additionally, the disclosure requirements of Section 1103(j) of the Ethics Act would have to be satisfied in the event of a voting conflict. The restrictions and requirements of Section 1103(f) of the Ethics Act would have to be observed whenever applicable. Section 1103(f) would not be applicable to the Contract given that the Contract was not entered into at a time when Individual A was serving as a Member of Governmental Body C. Cf., Bowers, Advice 07-588; Nicholson, Advice 04-544; Confidential Advice, 03-546. However, any renewals of the Contract would be subject to the restrictions and requirements of Section 1103(f) of the Ethics Act to the extent that: (1) Individual A would be a Member of Governmental Body C; (2) Corporation 2 would remain a business with which Individual A is associated; and (3) Corporation 2 would enter into a subcontract valued at $500 or more with Corporation 1. Lastly, 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 D. Conclusion: Based upon the submitted facts that: (1) three years ago, Political Subdivision B entered into a [number]-year contract (“the Contract”) with a privately held corporation named [name of corporation], hereinafter referred to as “Corporation 1,” for the installation and servicing of [a type of system] for buildings owned by Political Subdivision B; (2) the Contract was awarded through a competitive public bid process; (3) the remaining [number] years of the Contract are not guaranteed, and the Contract is subject to cancellation by Political Subdivision B; (4) in a private capacity, Individual A is the President and sole owner of a [type of business] named [name of business], Confidential Advice, 11-523 May 2, 2011 Page 6 hereinafter referred to as “Corporation 2,” which is located in Political Subdivision B; (5) Corporation 1 subcontracted with Corporation 2 to provide services required under the Contract to those Political Subdivision B facilities covered by the Contract; (6) Corporation 1 has no ties to Individual A; (7) the aforesaid work subcontracted to Corporation 2 currently comprises approximately [range of percent] of the gross income of Corporation 2; and (8) Individual A has been asked to consider running for the office of Member of Governmental Body C, which is the governing body of Political Subdivision B, you are advised as follows. Corporation 2 is a business with which Individual A is associated in his capacity as the President and owner. The Public Official and Employee Ethics Act (“Ethics Act”), 65 Pa.C.S. § 1101 et seq., would not prohibit Individual A from seeking election or serving as a Member of Governmental Body C while continuing to operate Corporation 2. If Individual A would be elected as a Member of Governmental Body C, upon assuming said position, he would in that capacity be a public official subject to the Ethics Act, and pursuant to Section 1103(a) of the Ethics Act, Individual A would generally have a conflict of interest in matters before Governmental Body C that would financially impact him, Corporation 2, or Corporation 2’s customer(s)/client(s), including but not limited to Corporation 1. Individual A would specifically have a conflict of interest in his public capacity as a Member of Governmental Body C in any matter(s) pertaining to the Contract, including but not limited to overseeing work performed by Corporation 1 or Corporation 2 relative to the Contract or participating in the approval/payment of invoices involving the Contract. In each instance of a conflict of interest, Individual A would be required to abstain from participation, which would include voting unless one of the statutory exceptions of Section 1103(j) of the Ethics Act would be applicable. Additionally, the disclosure requirements of Section 1103(j) of the Ethics Act would have to be satisfied in the event of a voting conflict. The restrictions and requirements of Section 1103(f) of the Ethics Act would have to be observed whenever applicable. Section 1103(f) would not be applicable to the Contract given that the Contract was not entered into at a time when Individual A was serving as a Member of Governmental Body C. However, any renewals of the Contract would be subject to the restrictions and requirements of Section 1103(f) of the Ethics Act to the extent that: (1) Individual A would be a Member of Governmental Body C; (2) Corporation 2 would remain a business with which Individual A is associated; and (3) Corporation 2 would enter into a subcontract valued at $500 or more with Corporation 1. 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 Confidential Advice, 11-523 May 2, 2011 Page 7 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