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HomeMy WebLinkAbout00-621 ConfidentialADVICE OF COUNSEL October 25, 2000 00 -621 Re: Conflict; Public Official /Employee; Member; General Assembly; A; Franchise; Limited Liability Partnership; FIS; Financial Interest; Income. This responds to your letter of September 25, 2000 by which you requested a confidential advice from the State Ethics Commission. Issue: Whether the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa. .S. §1101 et seq., presents any prohibition or restrictions upon a Legislator with regard to his /her prospective interest in a limited liability partnership created for the purpose of creating and establishing an A franchise within a municipality in the Commonwealth of Pennsylvania. Facts: As B to the C, you request an advisory on behalf of an elected member of the Pennsylvania General Assembly ( "Legislator "). The Legislator wants to ensure that his /her involvement in a contemplated business relationship would comply with the Ethics Act. You have submitted facts which may be fairly summarized as follows. The contemplated business relationship involves a limited liability partnership ( "Partnership ") created for the purpose of creating and establishing an A franchise within a municipality in the Commonwealth of Pennsylvania. Approximately twelve limited partners will have a minority equity stake in the Partnership which will total approximately 9.25% of the value of the business. In consideration for providing business advice and consultation, the Legislator would receive an estimated 40% stake of one of the individual limited partner's interest in the business. That limited partner's interest would be approximately a 3% stake in the enterprise. You state that the monetary value of each share of the Partnership cannot be determined unless and until a municipally granted franchise agreement is acquired by the Partnership. You further state that if the Partnership would be successful in obtaining an A franchise agreement from a municipal government, the Legislator would have the opportunity to sell some or all of his /her interest in the Partnership. Under such circumstances, the Legislator could be compensated for the interest in the Partnership in a lump sum or in payments. You state that the conveyance of an A franchise agreement is exclusively a function of local governing authorities in the Commonwealth, such as municipalities. You Confidential Advice, 00 -621 October 25, 2000 Page 2 explain that the D has determined that A does not fall within the statutory definition of "E." You further state that the Pennsylvania Supreme Court has upheld the authority of local governing bodies to regulate A franchise agreements unless there is an exercise of preemptive control by either Congress or the Pennsylvania General Assembly. You state that neither Congress nor the Pennsylvania General Assembly has enacted such legislation; therefore, local governments possess exclusive control over the granting of A franchise rights to F. As a state official, the Legislator does not hold a municipal office or exercise any municipal authority. However, as a Member of the General Assembly, the Legislator may, in the future, be required to consider legislation that would extend state control over local government approval of A franchise agreements. You state that regardless of this possibility, under no circumstances would the Legislator exercise or possess any official authority over the granting of any particular A franchise agreements. Based upon the foregoing facts, you pose the following questions. 1. Whether the proposed business relationship of the Legislator would conflict with the provisions of the Ethics Act; 2. Whether the Legislator's 40% share of the aforesaid individual limited partner's interest in the business would constitute a "financial interest" subject to disclosure on the Statement of Financial Interests pursuant to Section 1105(b)(9) of the Ethics Act, given that the Legislator's interest in the total value of the Partnership would not exceed 5% of the equity of the business or the assets of the economic interest in any indebtedness; and 3. Assuming that the Partnership would be successful in obtaining a municipally granted A franchise agreement and that the Legislator's interest in the Partnership would be purchased by the general partner of the business, whether such payment(s) would be considered "income' within the context of the Ethics Act, and if so, whether such income would be required to be disclosed on the Legislator's Statement of Financial Interests. 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 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 Pa.C.S. §1107(10), (11). An advisory only affords a defense to the extent the requestor has truthfully disclosed all of the material facts. As a Member of the Pennsylvania General Assembly, the Legislator on whose behalf you have inquired is a public official subject to the provisions of the Ethics Act. Section 1103(a) of the Ethics Act provides as follows: § 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 pertaining to Section 1103(a) are defined in the Ethics Act as follows: Confidential Advice, 00 -621 October 25, 2000 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. "Financial interest." Any financial interest in a legal entity engaged in business for profit which comprises more than 5% of the equity of the business or more than 5% of the assets of the economic interest in indebtedness. 65 Pa.C.S. §1102. In addition, Sections 1103(b) and 1103(c) of the Ethics Act 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 judgment 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 1103(j) of the Ethics Act provides as follows: § 1103. Restricted activities (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 Confidential Advice, 00 -621 October 25, 2000 Page 4 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(j). Section 1105(b) of the Ethics Act provides, in pertinent part: §1105. Statement of financial interests (b) Required information. —The statement shall include the following information for the prior calendar year with regard to the person required to file the statement: (5) The name and address of any direct or indirect source of income totaling in the aggregate $1,300 or more. However, this provision shall not be construed to require the divulgence of confidential information protected by statute or existing professional codes of ethics or common law privileges. (9) Any financial interest in any legal entity engaged in business for profit. 65 Pa.C.S. § §1105(b)(5), (9). The related term "financial interest" is defined in §1102 of the Ethics Act as set forth above. The related term "income" is defined in the Ethics Act as follows: §1102. Definitions "Income." Any money or thing of value received or to be received as a claim on future services or in recognition of services rendered in the past, whether in the form of a payment, fee, salary, expense, allowance, forbearance, forgiveness, interest, dividend, royalty, rent, capital gain, reward, severance payment, proceeds from the sale of a financial interest in a corporation, professional corporation, partnership or other entity resulting from termination or withdrawal therefrom upon assumption of public office or Confidential Advice, 00 -621 October 25, 2000 Page 5 employment or any other form or recompense or any combination thereof. The term refers to gross income and includes prize winnings and tax - exempt income. The term does not include gifts, governmentally mandated payments or benefits, retirement, pension or annuity payments funded totally be contributions of the public official or employee, or miscellaneous, incidental income of minor dependent children. 65 Pa.C.S. §1102. The above provisions of the Ethics Act shall now be applied to your inquiries. Your first question is whether the proposed business relationship of the Legislator would conflict with the provisions of the Ethics Act. You are advised that Section 1103(a) of the Ethics Act does not prohibit public officials /public employees from having outside business activities or employment. However, subject to certain exceptions delineated in the definition of "conflict" or "conflict of interest" above, Section 1103(a) of the Ethics Act ordinarily applies to prohibit the public official /public employee from using 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. Ordinarily, a public official /public employee with a conflict under the Ethics Act is required to abstain fully and to fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. Members of the Pennsylvania General Assembly have the following privileges under the Constitution of Pennsylvania: Privileges of Members Section 15. The members of the General Assembly shall in all cases, except treason, felony, violation of their oath of office, and breach of surety of the peace, be privileged from arrest during their attendance at the sessions of their respective Houses and in going to and returning from the same; and for any speech or debate in either House they shall not be questioned in any other place. Constitution of Pennsylvania, Article 11, Section 15. The Constitution of Pennsylvania further provides: Vote Denied Members with Personal Interest Section 13. A member who has a personal or private interest in any measure or bill proposed or pending before the General Assembly shall disclose the fact to the House of which he is a member, and shall not vote thereon. Constitution of Pennsylvania, Article 111, Section 13. In reviewing the above constitutional provisions and pertinent case law, the State Ethics Commission has held that: Confidential Advice, 00 -621 October 25, 2000 Page 6 The activities of a member of the General Assembly insofar as such relate to legislative actions, defined as the introduction, consideration, debating, voting, enactment, adoption or approval of legislation, are constitutionally controlled. Such legislative actions are therefore exempt from the purview of the State Ethics Act and the State Ethics Commission. . the application of the State Ethics Act to non - legislative activities are in no way affected by this opinion. Corrigan, Opinion 87 -001 at 4 (Emphasis added). Thus, Legislators are subject to the provisions of the Ethics Act and the jurisdiction of the State Ethics Commission to the extent their activities do not constitute "legislative actions," that is, the introduction, consideration, debating, voting, enactment, adoption or approval of legislation. Id. See, e.g., Freind, Order 800. Under the facts which you have submitted, Section 1103(a) of the Ethics Act would not prohibit the Legislator on whose behalf you have inquired from receiving an interest in the Partnership in consideration for business advice and consultation, conditioned upon the assumption that there would be no use by the Legislator of confidential information received by being in his /her public office for a prohibited private pecuniary benefit. The only "use of authority of office" of the Legislator which you have noted is possible future involvement in the consideration of legislation that would extend state control over local government approval of A franchise agreements. You state that under no circumstances would the Legislator exercise or possess any official authority over the granting of any particular A franchise agreements. Where the only "use of authority of office" of the Legislator would be involvement as a Member of the General Assembly in the consideration of legislation that would extend state control over local government approval of A franchise agreements, the official actions of the Legislator would fall within the definition of "legislative actions" and would therefore be exempt from the purview of the Ethics Act and the State Ethics Commission. Your second question is whether the Legislator's 40% share of the aforesaid individual limited partner's approximately 3% interest in the Partnership would constitute a "financial interest" subject to disclosure on the Statement of Financial Interests pursuant to Section 1105(b)(9) of the Ethics Act, given that the Legislator's interest in the total value of the Partnership would not exceed 5% of the equity of the business or the assets of the economic interest in any indebtedness. You are advised that the Legislator's interest would not constitute a "financial interest" as defined in the Ethics Act. However, while the Legislator's interest in the Partnership would not be subject to disclosure under Section 1105(b)(9) of the Ethics Act, the Legislator's receipt of his /her interest in the Partnership in consideration for business advice and consultation would constitute "income" as defined by the Ethics Act and therefore would trigger disclosure on the Statement of Financial Interests pursuant to Section 1105(b)(5) of the Ethics Act, assuming the value of the Legislator's interest and any other income received from the same source would total $1300 or more for the calendar year in question. Section 1105(b)(5) of the Ethics Act requires disclosure of the name and address of the source of income, but not the amount of the income. Your third question is: assuming that the Partnership would be successful in obtaining a municipally granted A franchise agreement and that the Legislator's interest in the Partnership would be purchased by the general partner of the business, would such payment(s) be considered "income" within the context of the Ethics Act, and if so, would such income be required to be disclosed on the Legislator's Statement of Financial Interests? In response to your third question, you are advised as follows. As noted above, the Legislator's receipt of the interest in the Partnership in consideration for business advice and consultation would itself constitute "income," requiring disclosure under Section 1105(b)(5) of the Ethics Act assuming the threshold Confidential Advice, 00 -621 October 25, 2000 Page 7 for disclosure would be met. The subsequent sale of the Legislator's interest in the Partnership would result in additional income to the Legislator to the extent the Legislator would receive money or thing(s) with a total value greater than the value of the Legislator's interest in the business at the time he /she received it. To the extent the income from a given source is in the aggregate $1300 or more for the calendar year in question, such income would trigger disclosure on the Statement of Financial Interests pursuant to Section 1105(b)(5) of the Ethics Act. 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 Legislative Code of Conduct. Conclusion: As a Member of the Pennsylvania General Assembly, the Legislator on whose behalf you have inquired ( "Legislator ") is a public official subject to the provisions of the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa.C.S. §1101 et seq. Under the facts which you have submitted, Section 1103(a) of the Ethics Act would not prohibit the Legislator on whose behalf you have inquired from receiving - -in consideration for business advice and consultation - -an interest in a limited liability partnership ( "Partnership ") created for the purpose of creating and establishing an A franchise within a municipality in the Commonwealth of Pennsylvania, conditioned upon the assumption that there would be no use by the Legislator of confidential information received by being in his /her public office for a prohibited private pecuniary benefit. Legislators are subject to the provisions of the Ethics Act and the jurisdiction of the State Ethics Commission to the extent their activities do not constitute "legislative actions," defined as the introduction, consideration, debating, voting, enactment, adoption or approval of legislation. Where the only "use of authority of office" of the Legislator would be involvement as a Member of the General Assembly in the consideration of legislation that would extend state control over local government approval of A franchise agreements, the official actions of the Legislator would fall within the definition of "legislative actions" and would therefore be exempt from the purview of the Ethics Act and the State Ethics Commission. Where the Legislator's interest in the Partnership would be a 40% share of an individual limited partner's approximately 3% interest in the Partnership, such that the Legislator's interest in the total value of the Partnership would not exceed 5% of the equity of the business or the assets of the economic interest in any indebtedness, the Legislator's interest would not constitute a "financial interest" as defined in the Ethics Act. While the Legislator's interest in the Partnership would not be subject to disclosure under Section 1105(b)(9) of the Ethics Act, the Legislator's receipt of his /her interest in the Partnership in consideration for business advice and consultation would constitute "income" as defined by the Ethics Act, requiring disclosure on the Statement of Financial Interests pursuant to Section 1105(b)(5) of the Ethics Act assuming the value of the Legislators interest and any other income received from the same source would total $1300 or more for the calendar year in question. Section 1105(b)(5) of the Ethics Act requires disclosure of the name and address of the source of income, but not the amount of the income. The subsequent sale of the Legislator's interest in the Partnership would result in additional income to the Legislator to the extent the Legislator would receive money or thing(s) with a total value greater than the value of the Legislator's interest in the business at the time he /she received it. As noted above, to the extent the income from a given source is in the aggregate $1300 or more for the calendar year in question, such Confidential Advice, 00 -621 October 25, 2000 Page 8 income would trigger disclosure on the Statement of Financial Interests pursuant to Section 1105(b)(5) of the Ethics Act. 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 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. 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 §13.20. 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, Vincent J. Dopko Chief Counsel