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HomeMy WebLinkAbout94-582 ConfidentialSTATE ETHICS COMMISSION 309 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 17108 -1470 TELEPHONE (717) 783 -1610 ADVICE OF COUNSEL June 22, 1994 94 -582 Re: Conflict, Public Official /Employee, Municipal Authority, Council Member, Board Member, Insurance, Business with which Associated. This responds to your letter of June 8, 1994 in which you requested confidential advice from the State Ethics Commission. Issue: Whether the Public Cfficial and Employee Ethics Law presents any prohibition or restrictions upon a borough councilmember and municipal authority board member regarding the sale of insurance policies to the borough from a business with which the borough councilmember /municipal authority board member is associated. Facts: You request a confidential advisory from the Commission due to a situation which has arisen regarding the merger of two local corporations. In January, 1991 you were appointed to the A Borough Water Authority and Sewer Authority for a five (5) year term. In November 1993, you were elected to a position of Councilman on the A Borough Council. You are a shareholder, an officer, and employee of corporation B incorporated in 1931, which sells insurance. On June 1, 1994, a merger occurred whereby corporation B acquired corporation C (incorporated in 1859) which also sells business insurance. Under the merger agreement, corporation B will acquire corporation C over a buy -out period of ten (10) years. For the past twenty -three (23) years, the Borough of A purchased insurance coverage from corporation C. In December, 1993, the Borough Council approved the payment of a $217,000.00 insurance premium to corporation C for insurance for the calendar year 1994. The Water and Sewer Authority, by endorsement, piggybacks on the Borough Council's general liability policy and does not have any separate policies or insurance. The Confidential Advice, 94 -582 June 22, 1994 Page 2 authority does not vote or participate in the process of insurance coverage. You did not assume office as a Councilmember until January 3, 1994. Under the merger agreement between corporations B and C, all premiums for policies purchased prior to June 1, 1994, go to corporation C, and are not received by corporation B, or used or possessed by corporation B in any capacity. Any and all such commissions on policies sold prior to June 1, 1994, through the expiration of the policy period are paid directly to corporation C. Assuming that the Borough places its insurances with corporation C for the 1995 calendar year, a commission of approximately $13,000.00 will be received by the newly merged corporations. Of that premium, approximately 50% would be used to pay overhead associated with fixed expenses of the corporation and the remaining 50% would be paid directly to the agent who sold the policies and who was previously with corporation C. An issue has now surfaced as to whether you would be permitted to hold office under the appropriate provisions of the Ethics Law and under Section 1404 of the Borough Code. No vote or action is presently required by Borough Council; if Borough Council should elect insurance coverage from the same agent for 1995, a voting situation would arise in December of this year. Under these factual scenarios you request advice as to whether the corporate merger would affect your ability to serve as a Councilmember under the Ethics Law or the Borough Code and secondly whether the corporate merger would affect your ability to serve as a member of the Water and Sewer Authority under the Ethics Law or Borough Code. Discussion: It is initially noted that pursuant to Sections 7(10) and 7(11) of the Ethics Law, 65 P.S. 55407(10), (11), advisories are issued to the requestor based upon the facts which the requestor has submitted. In issuing the advisory based upon the facts which the requestor has submitted, the Commission does not engage in an independent investigation of the facts, nor does it speculate as to facts which have not been submitted. It is the burden of the requestor to truthfully disclose all of the material facts relevant to the inquiry. 65 P.S. 55407(10), (11). An advisory only affords a defense to the extent the requestor has truthfully disclosed all of the material facts. As Borough Councilman and Municipal Authority Board Member for A, you are a public official as that term is defined under the Ethics Law, and hence you are subject to the provisions of that law. Confidential Advice, 94 -582 June 22, 1994 Page 3 Section 3(a) of the Ethics Law provides: Section 3. Restricted Activities. (a) No public official or public employee shall engage in conduct that constitutes a conflict of interest. The following terms are defined in the Ethics Law as follows: Section 2. 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. "Conflict" or "conflict of interest" 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. "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. In addition, Sections 3(b) and 3(c) of the Ethics Law provide in part that no person shall offer to a public official /employee anything of monetary value and no public official /employee shall solicit or accept anything of monetary value based upon the understanding that the vote, official action, or judgement of the public official /employee would be influenced thereby. Reference is made to these provisions of the law not to imply that there has been or will be any transgression thereof but merely to provide a complete response to the question presented. Section 3(f) of the Ethics Law provides as follows: Confidential Advice, 94 -582 June 22, 1994 Page 4 Section 3. Restricted activities (f) 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. Parenthetically, where contracting is otherwise allowed or where there appears to be no expressed prohibitions to such contracting, the above particular provision of the law would require that an open and public process must be used in all situations where a public official /employee is otherwise appropriately contracting with his own 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. This open and public process would require that the following be observed as to the contract with the governmental body: (1) prior public notice of the employment or contracting possibility; (2) sufficient time for a reasonable and prudent competitor/ applicant to be able to prepare and present an application or proposal; (3) public disclosure of all applications or proposals considered and; (4) public disclosure of the contract awarded and offered and accepted. Confidential Advice, 94 -582 June 22, 1994 Page 5 Section 3(f) of the Ethics Law also requires that the public official /employee may not have any supervisory or overall responsibility as to the implementation or administration of the contract with the governmental body. Section 3(j) of the Ethics Law provides as follows: Section 3. Restricted activities (j) 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. If a conflict •exists, Section 3(j) requires the public official /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 or supervisor. Although the Ethics Law would not prohibit you from serving as a Councilmember or a Municipal Authority Board Member in A, you would have a conflict regarding matters involving corporation B Confidential Advice, 94 -582 June 22, 1994 Page 6 before Council or the Municipal Authority. It is noted that you are shareholder, officer and employee of corporation B; hence, that is a business with which you are associated. Further, in the event that there is a merger between corporations B and C and you would become a director, officer or employee or have a financial interest in that merged corporation, that merged corporation would also be a business with which you are associated. In such instances, you would have a conflict regarding the business with which you are associated and could not participate or vote concerning matters regarding the business(es) with which you are associated that would come before Council /the Municipal Authority. In such instances of conflict, you would have to observe the disclosure requirements of Section 3(j) noted above. The propriety of the proposed conduct has only been addressed under the Ethics Law; the applicability of any other statute, code, ordinance, regulation or other code of conduct other than the Ethics Law has not been considered in that they do not involve an interpretation of the Ethics Law. Specifically not addressed herein is the applicability of the respective municipal code. Conclusion: As a Municipal Authority Board Member and Borough Councilmember for A, you are a public official subject to the provisions of the Ethics Law. Although the Ethics Law would not prohibit a municipal authority board member /councilmember from serving on the municipalities where a business with which he is associated would sell insurance policies to the municipalities, the public official would have a conflict and could not participate or vote regarding matters as to the business(es) with which he is associated. In addition, to the extent applicable, the provisions of Section 3(f) and 3(j) of the Ethics Law must be satisfied. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Law. Pursuant to Section 7(11), this 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, providing the requestor 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. Confidential' Advice, 94 -582 June 22, 1994 Page 7 Any such appeal must be in writing and must be actually . received at the Commission within fifteen (15) 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 fifteen (15) days may result in the dismissal of the appeal. cerely, Vincent r. Dopko Chief Counsel