HomeMy WebLinkAbout1173 MalarbiIn Re: Malarbi
File Docket:
X -ref:
Date Decided:
Date Mailed:
Before: Daneen E. Reese, Chair
John J. Bolger
Frank M. Brown
Susan Mosites Bicket
97- 055 -C2
Order No. 1173
12/12/00
12/27/00
This is a final adjudication of the State Ethics Commission.
Procedurally, the Investigative Division of the State Ethics Commission conducted
an investigation regarding a possible violation of the Public Official and Employee Ethics
Law, Act 9 of 1989, P.L. 26, 65 P.S. §401 et seq., by the above -named Respondent. At the
commencement of its investigation, the Investigative Division served upon Respondent
written notice of the specific allegation(s). Upon completion of its investigation, the
Investigative Division issued and served upon Respondent a Findings Report identified as
an "Investigative Complaint." An Answer was filed and a hearing was waived. The record
is complete. A Consent Agreement was submitted by the parties to the Commission for
consideration which was subsequently approved.
Effective December 15, 1998, Act 9 of 1989 was repealed and replaced by Chapter
11, Act 93 of 1998, which essentially repeats Act 9 of 1989 and provides for the completion
of pending matters under Act 93 of 1998.
This adjudication of the State Ethics Commission is issued under Act 93 of 1998
and will be made available as a public document thirty days after the mailing date noted
above. However, reconsideration may be requested. Any reconsideration request must be
received at this Commission within thirty days of the mailing date and must include a
detailed explanation of the reasons as to why reconsideration should be granted in
conformity with 51 Pa. Code §21.29(b). A request for reconsideration will not affect the
finality of this adjudication but will defer its public release pending action on the request by
the Commission.
The files in this case will remain confidential in accordance with Chapter 11 of Act
93 of 1998. Any person who violates confidentiality of the Ethics Law is guilty of a
misdemeanor subject to a fine of not more than $1,000 or imprisonment for not more than
one year. Confidentiality does not preclude discussing this case with an attorney at law.
Malarbi, 97- 055 -C2
Page 2
I. ALLEGATION:
That R. Gene Malarbi, a public official /public employee, in his capacity as a
Superintendent of the Monessen School District, Westmoreland County, violated Sections
3(c) and 5(b)(4) of the State Ethics Act (Act 9 of 1989 when he solicited or accepted free
legal services and a $10,000 loan from a law firm retained by the School District, based
upon his understanding that his official action of recommending the retention of that law
firm would be influenced thereby; and when he failed to disclose the receipt of a $10,000
loan from Charles Steele on Statements of Financial Interests for the 1994, 1995 and 1996
calendar years.
II. FINDINGS:
1. R. Gene Malarbi has served as the Superintendent of the City of Monessen School
District since October 8, 1991, up to and including the present time.
a. Malarbi was previously employed as the Executive Director of the
Westmoreland County Intermediate Unit No. 7 from approximately 1985 until
being hired by the Monessen School District in 1991.
b. Malarbi's duties as superintendent of the City of Monessen Schools include
apprising the school board of legal matters and at times recommending and
working with outside legal counsel.
2. Steele and Hoffman was a Pennsylvania law firm which specialized in the
representation of school districts located in various parts of the Commonwealth.
a. Steele & Hoffman was retained to provide legal services on behalf of the
Westmoreland County Intermediate Unit in January 1991.
b. Malarbi became acquainted with the law firm of Steele & Hoffman and with
its growing local and statewide reputation for highly skilled legal work in the
area of school law while serving as Executive Director for the Westmoreland
County Intermediate Unit No. 7.
1. Steele, a former educator was an expert in labor relations issues.
2. Hoffman was an expert in construction litigation.
3. Beginning in February 1991, and through 1995, Steele & Hoffman entered its
appearance and represented Malarbi on the following private matters:
a. Sendell Motors v. Rocco Malarbi, #3423 of 1991, Westmoreland Court of
Common Pleas, a small claims civil dispute appealed from the District
Justice Courts and settled quickly before any substantial activity at the
Common Pleas level.
b. Rocco Malarbi v. Carole Malarbi, #5572 of 1988, Westmoreland Court of
Common Pleas, a divorce action.
c. The divorce action had been filed in 1988 by another law firm and Steele &
Hoffman entered the case at a date after 1991. Malarbi had earlier retained
an attorney and paid him a $1,500 retainer, but that attorney committed
suicide.
d. The law firm assigned one of its junior associates to handle Malarbi's legal
Malarbi, 97- 055 -C2
Page 3
matters as an accommodation and to give the firm and the new lawyer
experience in a new area of the law.
e. The law firm did not routinely handle divorce cases or small claims civil suits.
f. No records exist to substantiate whether the law firm billed Malarbi for the
legal work performed on his behalf or the circumstances under which the
initial billings were to be sent to Malarbi.
g.
Interviews with law firm associates or staff of the law firm and court records
reveal that legal services were performed for Malarbi and that normal
records were kept of time spent on the Malarbi matters but cannot assist with
the determination with any accuracy of the number of hours and estimated
dollar amount of same.
h. Examination of Malarbi's bank accounts for the relevant time period reveal
no checks were written to Steele & Hoffman as payment for legal services
rendered.
Interviews with former law partner Charles Steele indicate that he does not
recall that the work done on either case was extensive, that it was not
contemplated to be time consuming, that the required legal work could be
handled solely by inexperienced law firm associates and that the law firm
expected reimbursement for any expenses incurred during its representation.
4. During the time period from April, 1993 through December 1995, Steele & Hoffman
was retained by the City of Monessen School District to handle several legal
actions.
a. Malarbi recommended the use of Steele & Hoffman on several occasions.
b. Malarbi was receiving legal services, as described, from Steele & Hoffman at
the time.
c. Investigation and interviews reveal that when the position of Solicitor for the
City of Monessen School District was declared open in January of 1994,
Malarbi did not recommend Steele & Hoffman but recommended retention of
attorney Daniel Myshin as Solicitor.
d. The investigation also revealed that during this time period Malarbi
recommended hiring of two other attorneys and their firms to do some of the
legal work for the City of Monessen School District in addition to Steele &
Hoffman.
5. As part of the divorce settlement with his ex -wife reached on July 28, 1994, Malarbi
was required to make a lump sum payment of $10,000.00.
a. Malarbi did not have funds available to make this payment.
b. Malarbi was unable to secure a loan at that time from traditional sources.
c. Malarbi advised Steele & Hoffman of his limited financial resources.
d. Charles Steele, a partner in the law firm of Steele & Hoffman initiated the
discussion of a loan and agreed to provide Malarbi the $10,000 needed for
the divorce settlement. Interviews with Steele indicated that his primary
motivation in offering the loan was to provide a way to extract his firm from
Malarbi, 97- 055 -C2
Page 4
the Malarbi divorce representation, for which his firm was no longer suited.
6. Steele paid to Malarbi check no. 147 in the amount of $10,000 drawn on Account
No. 00300007309 at Dollar Bank.
a. The check was made payable to R. Gene Malarbi and was dated September
28, 1994.
b. The check was cashed on October 7, 1994.
c. The check was endorsed with the following typed notation:
"By the endorsement hereof, I hereby agree to repay this loan
of $10,000 in accordance with Note 1001."
d. The signature "R. Gene Malarbi" is directly below the notation.
7 On October 1, 1994, R. Gene Malarbi and Kathryn Malarbi signed a Promissory
Note No. 1001 to repay Charles E. Steele the amount of $10,000 by December,
1996. The note was a preprinted demand note bearing legal interest and included
a standard confession of judgment clause evidencing a lien on all personal property
and real estate owned by R. Gene and Kathryn Malarbi.
8. Steele began receiving payments on the loan from Malarbi beginning in April 1997.
Interviews and documents located by investigation indicate that Steele had made
both verbal and written demands for payment on Malarbi prior to April 1997.
9. Malarbi and his wife, Kathryn Malarbi, maintained a checking account at Mellon
Bank to Account No. 578 -2072 from August 30, 1996, through October 8, 1997.
10. On April 1, 1997, Malarbi issued check no. 1727 to Chris Steele in the amount of
$8,000.00.
11. On September 18, 1997, Malarbi issued check no. 1841 in an amount of $3,560,
payable to Chris Steele.
a. The check was endorsed by "Chris Steele" and cashed on September 26,
1997.
b. "Chris Steele" is the wife of Charles Steele.
12. This payment represented the balance of the $10,000 loan and $1,560 interest.
13. Malarbi annually filed Statements of Financial Interests as Superintendent of the
City of Monessen School District.
14. On the Statements of Financial Interests initially filed for the 1994, 1995 and 1996
calendar years, Malarbi disclosed the following:
a. Line 10, Creditors — None
15. The "Instructions for Completing Financial Interests Statement" provided to Malarbi
for each of the calendar years 1994, 1995 and 1996 specifically stated: The
mortgages or loans on your primary or secondary residence need NOT be listed."
16. Section 405(b)(4) of the Ethics Act (now Section 1105(b)(4)) stated: "... mortgages
securing real property which is the principal or secondary residence of the person
Malarbi, 97- 055 -C2
Page 5
filing shall not be included."
17. During each of the calendar years 1994, 1995 and 1996, Malarbi had three
creditors who had each loaned money to Malarbi and his wife, Kathryn Malarbi, to
each of whom was owned in excess of $5,000. They were as follows:
a. Monessen School Employees Federal Credit Union, Rostraver Street,
Monessen, PA 15062; amount owed - $20,000; interest rate 15%
b. Jay Clark and Cecelia Clark, 308 Center Avenue, North Charleroi, PA
15022; amount owned - $16,000; interest rate 9.75%
c. C.E. Steele, 422 Frick Building, Pittsburgh, PA 15219; amount owed -
$10,000; interest rate 12%
18. Each of the said loans referred to above was secured by a judgment note and the
total indebtedness of Malarbi on said loans was less than the equity in his personal
residence.
19. Malarbi asserts that having read the Instructions which paraphrased the statute (but
stated "mortgages and loans ") and not having read the statute itself (which stated
only "mortgages "), he concluded in good faith that it was not necessary to report
any of the three loans on his Statement of Financial Interests for each of the
calendar years 1994, 1995 and 1996, and did not do so.
20. Upon being made aware by the Investigative Division of the State Ethics
Commission that there was an issue as to the correctness of Malarbi's
interpretation, as set forth above, Malarbi requested, and, on November 18, 1997,
received from the State Ethics Commission, Advice of Counsel No. 97 -0625,
opining that his interpretation was incorrect and advising him to file Statements of
Financial Interests for the years in question.
21. Immediately thereafter, on December 4, 1997, Malarbi filed amended Statements of
Financial Interests for each of the calendar years 1994, 1995 and 1996, in which he
reported the loans set forth above.
III. DISCUSSION:
At all times relevant to this matter, the Respondent, R. Gene Malarbi, hereinafter
Malarbi, has been a public official /public employee subject to the provisions of the Public
Official and Employee Ethics Law, Act 9 of 1989, Pamphlet Law 26, 65 P.S. §401, et seq.
as codified by the Public Official and Employee Ethics Act, Act 93 of 1998, Chapter 11, 65
Pa.C.S. §1101 et seq., which Acts are referred to herein as the "Ethics Act."
The issues are whether Malarbi violated Sections 3(a), 3(c) and 5(b)(4) of the Ethics
Act as to the allegations that he used the authority of office to solicit or accept free legal
services and a $10,000 loan from a law firm retained by the school district; that he solicited
or accepted free legal services and a $10,000 loan from a law firm retained by the School
District based upon his understanding that his official action of recommending the retention
of that law firm would be influenced thereby; and that he failed to disclose the receipt of a
$10,000 loan from Charles Steele on Statements of Financial Interests for the 1994, 1995,
and 1996 calendar years.
Pursuant to Section 3(a) of the Ethics Act quoted above, a public official /public
employee is prohibited from engaging in conduct that constitutes a conflict of interest.
Malarbi, 97- 055 -C2
Page 6
The term "conflict of interest" is defined under Act 9 of 1989 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.
65 P.S. §402.
Section 3(a) of Act 9 of 1989 prohibits a public official /public employee 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 3. Restricted Activities
(c) No public official, public employee or nominee or
candidate for public office shall solicit or accept, anything of
monetary value, including a gift, loan, political contribution,
reward, or promise of future employment based on any
understanding of that public official, public employee or
nominee that the vote, official action, or judgment of the public
official or public employee or nominee or candidate for public
office would be influenced thereby.
65 P.S. §403(c).
Section 3(c) of Act 9 of 1989 quoted above provides in part that a public
official /public employee shall not solicit or accept anything of monetary value based upon
any understanding that his vote, official action or judgment would be influenced thereby.
Section 5. Statement of financial interests
(b) The statement shall include the following
information for the prior calendar year with regard to the
person required to file the statement.
(4) The name and address of each creditor to
whom is owed in excess of $5,000 and the interest rate
thereon. However, loans or credit extended between
members of the immediate family and mortgages
securing real property which is the principal or
secondary residence of the person filing shall not be
included.
Malarbi, 97- 055 -C2
Page 7
65 P.S. §405(b)(4).
Section 5(b)(4) of Act 9 of 1989 requires that every public official /public employee
and candidate list the name and address of each creditor to whom is owed in excess of
$5,000 and the interest rate thereon, excluding loans or credit extended between members
of the immediate family and mortgages securing real property which is the principal or
secondary residence of the person filing.
facts.
Having noted the issues and applicable law, we shall now summarize the relevant
Malarbi has served as the Superintendent of the City of Monessen School District
(School District) since October 8, 1991, to the present. Malarbi's duties as the School
District Superintendent include apprising the School Board of legal matters and
occasionally recommending and working with outside legal counsel.
While serving as the Executive Director for the Westmoreland County Intermediate
Unit No. 7 from 1985 to 1991, Malarbi became acquainted with the law firm of Steele &
Hoffman, which specialized in representing school districts throughout the Commonwealth.
Although Steele & Hoffman did not routinely handle small claims civil matters or divorce
cases, the firm agreed to represent Malarbi in a small claims civil dispute appealed from
the office of a district justice and a divorce action against his then wife originally filed in
1988 by another law firm.
As part of the divorce settlement, Malarbi was required to make a lump sum
payment of $10,000 to his ex -wife. Malarbi advised Steele & Hoffman that he did not have
the available funds or the ability to secure a $10,000 loan through traditional sources.
Charles Steele, a partner in the law firm, agreed to help Malarbi and provided him with a
$10,000 check dated September 28, 1994. By endorsing the check, Malarbi agreed to
repay the $10,000 loan in accordance with a promissory note he and his wife executed on
October 1, 1994.
The promissory note, which included a standard confession of judgment clause
evidencing a lien upon all personal property and real estate jointly owned, obligated
Marlarbi and his wife to repay Charles E. Steele $10,000 by December 1996. However,
Malarbi failed to make any payment on the loan until April 1997 when he issued an $8,000
check to Charles Steele's wife. In September 1997, Malarbi issued a second check to
Charles Steele's wife in the amount of $3,560, representing the balance of the $10,000
loan plus $1,560 in interest.
At the time the loan was made, Steele & Hoffman was being retained by the School
District to handle several legal matters per Malarbi's recommendation. There is no
evidence that Steele & Hoffman ever billed Malarbi for the legal services rendered in either
the small claims or divorce matters or that Malarbi ever wrote any checks out to Steele &
Hoffman as payment for those services.
On Statements of Financial Interests filed by Malarbi as Superintendent of the
School District for the 1994, 1995, and 1996 calendar years, Malarbi indicated as follows:
"Line 10, Creditors - None." In fact, during those years, Malarbi and his wife were
indebted to three creditors, including Charles Steele, all in amounts exceeding $5,000. On
December 4, 1997, following receipt of an advisory from the State Ethics Commission,
Malarbi filed amended Statements of Financial Interests for the 1994, 1995, and 1996
calendar years listing Charles Steele and the other creditors.
Having summarized the above relevant facts, we must now determine whether the
actions of Malarbi violated Sections 3(a), 3(c) and 5(b)(4) of Act 9 of 1989.
Malarbi, 97- 055 -C2
Page 8
The parties have submitted a Consent Agreement together with a Stipulation of
Findings wherein they propose to resolve the case by finding no violation of Section 3(a) of
the Ethics Act in relation to Malarbi using the authority of office to solicit or accept free
legal services and a $10,000 loan from a law firm retained by the School District based
upon insufficient evidence; no violation of Section 3(c) of the Ethics Act in relation to
Malarbi soliciting or accepting free legal services and a $10,000 loan from a law firm
retained by the School District based upon an understanding that his vote, official action or
judgment would be influenced thereby, due to insufficient evidence; a technical violation of
Section 5(b)(4) of the Ethics Act in relation to Malarbi failing to disclose creditors to whom
he was indebted in excess of $5,000 for the 1994, 1995, and 1996 calendar years; and
Malarbi agreeing to make a payment of $1,500 within 30 days of the issuance of this Order
through this Commission to the Commonwealth of Pennsylvania.
We shall review the instant case in the context of the issues and proposed
disposition as agreed to by the parties.
The first allegation is that Malarbi violated Section 3(a) of the Ethics Act when he
used the authority of his position as Superintendent of the School District to solicit or
accept free legal services and a $10,000 loan from the law firm of Steele & Hoffman. The
second allegation is that Malarbi violated Section 3(c) of the Ethics Act when he solicited
or accepted free legal services and a $10,000 loan from Steele & Hoffman based upon his
understanding that his vote, official action, or judgment would be influenced thereby.
Based upon a review of the record, we find a lack of clear and convincing evidence
to establish a violation of either Section 3(a) or Section 3(c) of the Ethics Act. Clear and
convincing evidence is defined as "testimony that is so `clear, direct, weighty and
convincing as to enable the trier of fact to come to a clear conviction, without hesitance, of
the truth of the precise facts in issue." In re: Charles E.D.M., 550 Pa. 595, 601, 708 A.2d
88, 91 (Pa. 1998)(Citation omitted.)
With regard to Section 3(a) of the Ethics Act, there is insufficient evidence to
establish that Malarbi received free legal services from Steele & Hoffman and hence a
private pecuniary benefit. The evidence merely indicates that a question exists as to
whether Malarbi was ever billed for the legal work performed on his behalf. Further, the
fact that no checks were ever written out to Steele & Hoffman from Malarbi's bank
accounts is not dispositive on the issue of whether Malarbi received legal services at no
cost, since it is entirely plausible that Malarbi could have made payments to Steele &
Hoffman from any number of other sources. As for the $10,000 loan, there is a lack of
clear and convincing evidence that Malarbi used the authority of his office as
Superintendent of the School District to induce Charles Steele to make the loan to him at a
time when Steele and Hoffman was being retained by the School District. Although the
record reflects that Malarbi did have the authority to recommend outside legal counsel,
there is no evidence that Steele & Hoffman was the exclusive law firm that Malarbi
recommended to represent the School District. A violation of Section 3(a) of the Ethics Act
may not be found absent some use of authority of office for a private pecuniary benefit.
Accordingly, we find no violation by Malarbi of Section 3(a) of the Ethics Act due to a lack
of clear and convincing evidence.
With regard to Section 3(c) of the Ethics Act, we find insufficient evidence to
establish that Malarbi solicited or accepted free legal services and a $10,000 loan based
upon his understanding that his vote, official action or judgment would be influenced
thereby. Absent such an improper understanding, a violation of Section 3(c) cannot be
established. Accordingly, we find no violation by Malarbi of Section 3(c) of the Ethics Act
due to a lack of clear and convincing evidence.
Malarbi, 97- 055 -C2
Page 9
Finally, with regard to Section 5(b)(4) of the Ethics Act, the Findings reflect that
during the years 1994 through 1996 when Malarbi was indebted to Charles Steele and two
other creditors on loans in excess of $5,000, he failed to disclose those creditors on
Statements of Financial Interests filed for the 1994, 1995, and 1996 calendar years.
Malarbi subsequently filed amended Statements of Financial Interests for the years in
question disclosing all three creditors upon the direction of the State Ethics Commission.
As to Malarbi's failure to disclose all creditors to whom he was indebted in excess of
$5,000 on Statements of Financial Interests filed for the years 1994 through 1996, we find
a technical violation of Section 5(b)(4) of the Ethics Act.
As to the Stipulation of Findings and Consent Agreement, we believe that the
Consent Agreement is the proper disposition for this case based upon our review as
reflected in the above analysis and the totality of the facts and circumstances.
Accordingly, Malarbi is directed to make a payment of $1,500 within 30 days of the
issuance of this Order through this Commission to the Commonwealth of Pennsylvania.
Compliance with the foregoing will result in the closing of this case with no further action.
Noncompliance will result in the institution of an order enforcement action.
IV. CONCLUSIONS OF LAW:
1. Malarbi as Superintendent of the Monessen School District, Westmoreland County,
is a public official /employee subject to the provisions of Act 9 of 1989.
2. Based upon a lack of clear and convincing evidence, Malarbi did not violate Section
3(a) of the Ethics Act with regard to the allegation that he used the authority of
office to solicit or accept free legal services and a $10,000 loan from a law firm
retained by the School District.
3. Based upon a lack of clear and convincing evidence, Malarbi did not violate Section
3(c) of the Ethics Act with regard to the allegation that he solicited or accepted free
legal services and a $10,000 loan from a law firm retained by the School District
based upon his understanding that his official action of recommending the retention
of that law firm would be influenced thereby.
4. Malarbi technically violated Section 5(b)(4) of the Ethics Act when he failed to
disclose the receipt of a $10,000 loan from Charles Steele on Statements of
Financial Interests for the 1994, 1995, and 1996 calendar years.
In Re: R. Gene Malarbi
ORDER NO. 1173
File Docket: 97- 055 -C2
Date Decided: 12/12/00
Date Mailed: 12/27/00
1 Malarbi, as Superintendent of the Monessen School District, Westmoreland County,
did not violate Section 3(a) of the Ethics Act with regard to the allegation that he
used the authority of office to solicit or accept free legal services and a $10,000
loan from a law firm retained by the School District, based upon an insufficiency of
evidence.
2. Malarbi did not violate Section 3(c) of the Ethics Act with regard to the allegation
that he solicited or accepted free legal services and a $10,000 loan from a law firm
retained by the School District, based upon his understanding that his official action
of recommending the retention of that law firm would be influenced thereby, based
upon an insufficiency of evidence.
3. Malarbi technically violated Section 5(b)(4) of the Ethics Act when he failed to
disclose the receipt of a $10,000 loan from Charles Steele on Statements of
Financial Interests for the 1994, 1995, and 1996 calendar years.
4. As per the Consent Agreement, Malarbi is directed to make a payment of $1,500
within 30 days of the issuance of this Order through this Commission to the
Commonwealth of Pennsylvania.
a. Compliance with the foregoing will result in the closing of this case with no
further action.
b. Noncompliance will result in the institution of an order enforcement action.
BY THE COMMISSION,
DANEEN E. REESE, CHAIR