HomeMy WebLinkAbout14-567 Confidential
ADVICE OF COUNSEL
December 23, 2014
14-567
This responds to your letter dated November 19, 2014, received in signed form
on December 1, 2014, by which you requested a confidential advisory from the
Pennsylvania State Ethics Commission (“Commission”).
Issue:
Whether the Public Official and Employee Ethics Act (“Ethics Act”), 65
Pa.C.S. § 1101 et seq., would impose prohibitions or restrictions upon an individual
serving as a school director, who in a private capacity is an owner of a \[amount of
interest\] in a company, with regard to such company entering into contracts to sell
products to classes, organizations, and clubs of the school district.
Facts:
As a School Director for the \[name of school district\] (the “School District”),
you request a confidential advisory from the Commission based upon submitted facts
that may be fairly summarized as follows.
In a private capacity, you own a \[amount of interest\] in a \[type of company\] (the
“Company”) which is known as \[name of company\] and also trades as \[trade name 1\]
and \[trade name 2\]. Classes, organizations, and clubs of the School District, hereinafter
collectively referred to as “School District Groups,” have expressed an interest in
contracting with the Company to purchase its products.
You that the School District Groups raise their own funds and make their own
independent decisions with regard to the source of materials they wish to purchase.
You state that in order to accommodate the School District Groups, the School District
holds their funds in separate accounts in the name of the School District. When a
School District Group makes a purchase, the School District receives a voucher from
the School District Group. The School District then issues a check approved by the
School District School Board in payment of the School District Group’s obligation. You
assert that the funds in the accounts remain the property of the School District Groups.
You reference Section 5-511(d) of the Public School Code of 1949 as amended (“Public
School Code”), 24 P.S. § 5-511(d).
Based upon the above submitted facts, you seek guidance as to whether the
Ethics Act would impose prohibitions or restrictions upon you with regard to the
Company contracting to sell products to School District Groups.
Confidential Advice, 14-567
December 23, 2014
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 this Advice is limited to addressing the narrow
question posed.
As a School Director for the School District, 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:
§ 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
Confidential Advice, 14-567
December 23, 2014
Page 3
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.
Subject to the statutory exclusions to the Ethics Act’s definition of the term
“conflict” or “conflict of interest,” 65 Pa.C.S. § 1102, 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.
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 could form the basis for a conflict of interest under
Section 1103(a) of the Ethics Act would include the pursuit of a private business
opportunity in the course of public action (Metrick, Order 1037) and 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. 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 would require the public official/public
employee to abstain and to publicly disclose the abstention and reasons for same, both
Confidential Advice, 14-567
December 23, 2014
Page 4
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
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.
It is administratively noted that the Public School Code provides in part:
Confidential Advice, 14-567
December 23, 2014
Page 5
§ 3-324. Not to be employed by or do business with
district; exceptions
(a) No school director shall, during the term for which he
was elected or appointed, as a private person engaged in
any business transaction with the school district in which he
is elected or appointed, be employed in any capacity by the
school district in which he is elected or appointed, or receive
from such school district any pay for services rendered to the
district except as provided in this act…
….
(c) It shall not be a violation of this section for a school
district to contract for the purchase of goods or services from
a business with which a school director is associated to the
extent permitted by and in compliance with 65 Pa.C.S. Ch.
11 (relating to ethics standards and financial disclosure).
24 P.S. § 3-324(a), (c). On its face, Section 3-324(c) of the Public School Code permits
contracting between school districts and businesses with which school directors are
associated as long as the requirements of the Ethics Act are observed.
The Public School Code further provides:
§ 5-511. School athletics, publications, and
organizations
(d) Notwithstanding the use of school property or
personnel, it shall be lawful for any school or any class or
any organization, club, society, or group thereof, to raise,
expend, or hold funds, including balances carried over from
year to year, in its own name and under its own
management, under the supervision of the principal or other
professional employe of the school district designated by the
board. Such funds shall not be the funds of the school
district but shall remain the property of the respective school,
class, organization, club, society, or group. The treasurer or
custodian of such funds shall furnish to the school district a
proper bond, in such amount and with such surety or
sureties as the board shall approve, conditioned upon the
faithful performance of his duties as treasurer or custodian.
The premium of such bond, if any, shall be paid from the
fund or funds secured thereby or from the funds of the
school district, at the discretion of the board. The treasurer
or custodian shall be required to maintain an accounting
system approved by the board, shall deposit the funds in a
depository approved by the board, shall submit a financial
statement to the board quarterly or oftener, at the direction of
the board, and shall submit the accounts to be audited in like
manner as the accounts of the school district.
24 P.S. § 5-511(d).
In applying the above provisions of the Ethics Act to the instant matter, you are
advised as follows.
Confidential Advice, 14-567
December 23, 2014
Page 6
The Company is a business with which you are associated in your capacity as an
owner. Pursuant to Section 1103(a) of the Ethics Act, you generally would have a
conflict of interest as a School Director in matter(s) before the School District School
Board that would financially impact you or the Company.
Section 1103(a) of the Ethics Act would prohibit you from using the authority of
your position as a School Director or confidential information received by holding such
public position in furtherance of the Company entering into contracts to sell products to
School District Groups. In addition, you generally would have a conflict of interest with
respect to voting to approve any checks that would be issued in payment of a School
District Group’s obligation to the Company.
In each instance of a conflict of interest, you 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.
You have factually submitted that School District Groups raise their own funds
and make their own independent decisions with regard to the source of materials they
wish to purchase. You have further factually submitted that in order to accommodate
the School District Groups, the School District holds their funds in separate accounts in
the name of the School District. You assert that the funds in the accounts remain the
property of the School District Groups.
The Commission may not, within the context of an advisory opinion, resolve any
factual/legal issues as to whether the aforesaid accounts held in the name of the School
District remain the property of the School District Groups or are the property of the
School District. Therefore, under the submitted facts, you are generally advised that to
the extent that the Company would not be contracting with the School District, or
entering into subcontracts with person(s) awarded contract(s) with the School District,
the restrictions and requirements of Section 1103(f) of the Ethics Act would not apply as
to contracts for sales of the Company’s products to School District Groups. Cf.,
Confidential Advice, 14-520; Perini, Advice 08-506.
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 School Director for the \[name of school district\] (the “School
District”), 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. Based upon the
submitted facts that: (1) in a private capacity, you own a \[amount of interest\] in a \[type of
company\] (the “Company”) which is known as \[name of company\] and also trades as
\[trade name 1\] and \[trade name 2\]; (2) classes, organizations, and clubs of the School
District, hereinafter collectively referred to as “School District Groups,” have expressed
an interest in contracting with the Company to purchase its products; (3) School District
Groups raise their own funds and make their own independent decisions with regard to
the source of materials they wish to purchase; (4) in order to accommodate the School
District Groups, the School District holds their funds in separate accounts in the name of
the School District; (5) when a School District Group makes a purchase, the School
District receives a voucher from the School District Group; (6) the School District then
issues a check approved by the School District School Board in payment of the School
District Group’s obligation; and (7) you assert that the funds in the accounts remain the
property of the School District Groups, you are advised as follows.
Confidential Advice, 14-567
December 23, 2014
Page 7
The Company is a business with which you are associated in your capacity as an
owner. Pursuant to Section 1103(a) of the Ethics Act, you generally would have a
conflict of interest as a School Director in matter(s) before the School District School
Board that would financially impact you or the Company. Section 1103(a) of the Ethics
Act would prohibit you from using the authority of your position as a School Director or
confidential information received by holding such public position in furtherance of the
Company entering into contracts to sell products to School District Groups. In addition,
you generally would have a conflict of interest with respect to voting to approve any
checks that would be issued in payment of a School District Group’s obligation to the
Company. In each instance of a conflict of interest, you 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 Commission may not, within the context of an advisory opinion,
resolve any factual/legal issues as to whether the aforesaid accounts held in the name
of the School District remain the property of the School District Groups or are the
property of the School District. Therefore, under the submitted facts, you are generally
advised that to the extent that the Company would not be contracting with the School
District, or entering into subcontracts with person(s) awarded contract(s) with the School
District, the restrictions and requirements of Section 1103(f) of the Ethics Act would not
apply as to contracts for sales of the Company’s products to School District Groups.
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
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