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HomeMy WebLinkAbout01-598 ConfidentialADVICE OF COUNSEL November 6, 2001 01 -598 Re: Former Public Official /Public Employee; Section 1103(g); Member; Board of Trustees; B; Attorney; Of Counsel; Law Firm; Investment Entity. This responds to your letter of October 9, 2001, 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.C.S. § 1101 et seq., presents any restrictions upon employment of a member of the Board of Trustees of B following termination of service with B. Facts: You represent A. A is a former member of the Board of Trustees of the B. wed as a member of the Board of Trustees of B from [year] until his resignation effective [date]. Throughout most of A's tenure on the B Board, he served as Officer C of Committee D. You state that as a member of the Board of Trustees of B, A was not a Commonwealth employee or an executive -level State employee. You further state that A's compensation as a B Board member was limited to a meeting attendance fee of [dollar amount] per meeting plus reimbursement for certain travel expenses. In his private capacity, A is an attorney. During his tenure on the B Board, A maintained a position as of counsel" with Law Firm E and subsequently with your firm, Law Firm F. You state that A routinely abstained from participating in matters involving B's investment decisions where either of the aforesaid law firms had a client relationship or where A had a personal relationship with the principals of the investment entity. Now that A has resigned from the B Board, you seek an advisory from the State Ethics Commission regarding the restrictions of the Ethics Act which would apply to A's prospective conduct. You state that it is likely that A and /or Law Firm F may be personally or professionally involved with venture capital funds, limited partnerships, real estate investment trusts, mutual funds, or other investment vehicles in which B has invested funds or to which B funds have been given or may hereafter be given for management in the public or private equity markets. You ask the following questions: 1 Whether A may become involved as an officer, director, employee, investor, general or limited partner, member of an advisory board, or legal counsel with an entity which has previously received funding from B; Confidential Advice, 01 -598 November 6, 2001 Page 2 2. Whether the answer to Question 1 would differ if the investment entity would have sought or received investment capital from B during A's tenure on the B Board; 3. Whether the answer to Question 2 would differ depending upon whether A voted on the previous investment action or abstained from participation; 4. Whether, during the first year following A's departure from the B Board, A would be restricted with regard to having a personal or professional interest in any entity that may wish to have a business relationship with B; 5. Assuming that the only restrictions under Question 4 would relate to A's ability to "represent" a person before B, whether, during the first year following his departure from the B Board, A would be permitted to engage in any of the following activities in connection with an investment entity for which he may become an officer, director, employee, investor, general or limited partner, member of an advisory board, or legal counsel: a. representing the entity as a principal or as legal counsel before the B Board of Trustees, Committee D, Chief Investment Officer, or other B staff, or appearing as part of a presentation group for an investment opportunity being considered by B; b. corresponding on behalf of the entity as a principal or legal counsel with any of the B groups listed in subparagraph (a) above, in connection with such an investment opportunity; or c. acting as legal counsel for such an investment entity in connection with negotiations of investment documents subsequent to action by the B Board of Trustees to authorize an investment in the entity (assuming A was not involved prior to the Board authorization); 6. During the first year following A's departure from the B Board, assuming that he does not personally appear before the said Board, whether he must nevertheless make certain that B is made aware of the nature and extent of his personal or professional interest(s) in any investment entity being considered by B; and 7 Whether any of the restrictions applicable to A would apply to other members of the law firm with which he is associated as a "non- equity" member. You state that during A's service on the B Board, he recused himself and refrained from participating in matters in which he perceived a potential conflict of interest. You further state that in each such case, A submitted a written recusal form and disclosed his conflict to B staff and Board colleagues. Now, given A's resignation from the B Board, you seek guidance as to whether the prospective disclosure to B of A's involvement with a client or business venture could result in the transgression of Section 1103(g) of the Ethics Act, or whether by remaining silent and anonymous, A could be accused of violating some duty to disclose such personal or professional interest. 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 Confidential Advice, 01 -598 November 6, 2001 Page 3 affords a defense to the extent the requestor has truthfully disclosed all of the material facts. In the former capacity as a member of the B Board of Trustees, A would be considered a public official subject to the Ethics Act and the Regulations of the State Ethics Commission. See, 65 Pa.C.S. § 1102; 51 Pa. Code § 11.1. Consequently, upon termination of public service, A became a former public official subject to the restrictions of Section 1103(g) of the Ethics Act. While Section 1103(g) does not prohibit a former public official /public employee from accepting a position of employment, it does restrict the former public official /public employee with regard to "representing" a "person" before the governmental body with which he has been associated ": § 1103. Restricted activities (g) Former official or employee. - -No former public official or public employee shall represent a person, with promised or actual compensation, on any matter before the governmental body with which he has been associated for one year after he leaves that body. 65 Pa.C.S. § 1103(g) (Emphasis added). The terms "represent," "person," and "governmental body with which a public official or employee is or has been associated" are specifically defined in the Ethics Act as follows: § 1102. Definitions "Represent." To act on behalf of any other person in any activity which includes, but is not limited to, the following: personal appearances, negotiations, lobbying and submitting bid or contract proposals which are signed by or contain the name of a former public official or public employee. "Person." A business, governmental body, individual, corporation, union, association, firm, partnership, committee, club or other organization or group of persons. "Governmental body with which a public official or public employee is or has been associated." The governmental body within State government or a political subdivision by which the public official or employee is or has been employed or to which the public official or employee is or has been appointed or elected and subdivisions and offices within that governmental body. 65 Pa.C.S. § 1102. The term "person" is very broadly defined. It includes, inter alia, corporations and other businesses. It also includes the former public employee himself, Confidential Opinion, 93 -005, as well as a new governmental employer. Ledebur, Opinion 95 -007. The term "representation" is also broadly defined to prohibit acting on behalf of any person in any activity. Examples of prohibited representation include: (1) personal appearances before the former governmental body or bodies; (2) attempts to influence; (3) submission of bid or contract proposals which are signed by or contain the name of Confidential Advice, 01 -598 November 6, 2001 Page 4 the former public official /public employee; (4) participating in any matters before the former governmental body as to acting on behalf of a person; and (5) lobbying. Popovich, Opinion 89 -005. Listing one's name as the person who will provide technical assistance on a proposal, document, or bid, if submitted to or reviewed by the former governmental body, constitutes an attempt to influence the former governmental body. Section 1103(g) also generally prohibits the inclusion of the name of a former public official /public employee on invoices submitted by his new employer to the former governmental body, even though the invoices pertain to a contract that existed prior to termination of public service. Shay, Opinion 91 -012. However, if such a pre - existing contract does not involve the unit where the former public employee worked, the name of the former public employee may appear on routine invoices if required by the regulations of the agency to which the billing is being submitted. Abrams/Webster, Opinion 95 -011. A former public official /public employee may assist in the preparation of any documents presented to his former governmental body. However, the ublic official /public employee may not be identified on documents submitted to the former governmental body. The public official /public employee may also counsel any person regarding that person's appearance before his former governmental body. Once again, however, the activity in this respect should not be revealed to the former governmental body. The Ethics Act would not prohibit or preclude making general informational inquiries to the former governmental body to secure information which is available to the general public, but this must not be done in an effort to indirectly influence the former governmental body or to otherwise make known to that body the representation of, or work for the new employer. Section 1103(g) only restricts the former public official /public employee with regard to representation before his former governmental body. The former public official /public employee is not restricted as to representation before other agencies or entities. However, the "governmental body with which a public official /public employee is or has been associated" is not limited to the particular subdivision of the agency or other governmental body where the public official /public employee had influence or control but extends to the entire body. See, Legislative Journal of House, 1989 Session, No. 15 at 290, 291; Sirolli, Opinion 90 -006; Sharp, Opinion 90- 009 -R. The governmental body with which A has been associated upon termination of public service is B in its entirety. Therefore, for the first year after termination of service with B, Section 1103(g) of the Ethics Act would apply and restrict "representation" of "persons" before B. Having set forth the restrictions of Section 1103(g), your seven questions shall now be considered. The first consideration, raised by several of your questions, is whether Section 1103(g) of the Ethics Act would restrict A as to activities constituting the practice of law. Historically, following the 1982 landmark case of Pennsylvania Public Utility Commission Bar Association v. Thornburgh, 434 A.2d 1327 (Pa. Cmwlth. 1981), aff'd per curiam, 498 Pa. 589, 450 A.2d 613 (1982), the State Ethics Commission consistently held that the predecessor provisions of Section 1103(g) could not be applied to restrict a former public official's /public employee's conduct insofar as it constituted the practice of law, because the Supreme Court had the exclusive authority to regulate an attorney's conduct in that regard. Only non -legal representation before the former governmental body was restricted. However, in a 1999 ruling by the Supreme Court of Pennsylvania, specifically P.J.S. v. State Ethics Commission, 555 Pa. 149, 723 A.2d 174 (1999), the Supreme Court drew a clear distinction between the regulation of attorneys specifically, which Confidential Advice, 01 -598 November 6, 2001 Page 5 intrudes upon the Court's jurisdiction, as opposed to the regulation of groups that happen to include attorneys, which does not intrude upon the Court's jurisdiction. The Commission's ruling in Shaulis, Opinion 99 -003, issued March 24, 1999, applied P.J.S. and set a new precedent with regard to the restrictions imposed by Section 1103(g) of the Ethics Act upon former public officials /public employees who happen to be attorneys engaged in the practice of law. In reviewing P.J.S., the Commission found that the Section 1103(g) restrictions fit precisely within the parameters enunciated by the Supreme Court. The Commission held that based upon P.J.S., supra, the restrictions of Section 1103(g) apply to restrict a former public official /public employee even as to the practice of law before the former governmental body. Such holding was to be applied prospectively only, from the date of issuance of the Shaulis Opinion. The Shaulis Opinion was appealed to the Commonwealth Court of Pennsylvania. Commonwealth Court reversed the Shaulis Opinion "insofar as it attempts to apply the provisions of Section 1103(g) of the Public Official and Employee Ethics Act, 65 Pa.C.S. §1103(g) to [ Shaulis] representation, as an attorney, of clients before the Department of Revenue and the Courts of this Commonwealth." Shaulis v. State Ethics Commission, 739 A.2d 1091, 1106 (Pa. Cmwlth. 1999). On November 1, 1999, the Commission filed a petition for Allowance of Appeal with the Supreme Court of Pennsylvania. On April 11, 2000, the Supreme Court of Pennsylvania granted the Petition for Allowance of Appeal, limited to the following issues: 1. Does the lower Court's decision - -which continues to exempt former public officials /employees who happen to be attorneys from the restrictions of Section 1103(g) of the Ethics Act -- conflict with the controlling precedent set by the Supreme Court of Pennsylvania in P.J.S. v. State Ethics Commission, 555 Pa. 149, 723 A.2d 174 (1999), that attorneys may be regulated by the State Ethics Commission as part of a class which includes non - lawyers? 2. Did the lower Court exceed the bounds of appellate jurisdiction and act contrary to longstanding judicial precedent -- including its own on point" ruling - -by entertaining the Shaulis matter as an appeal from an advisory opinion? Shaulis v. State Ethics Commission, 561 Pa. 212, 749 A.2d 910 (2000). Pursuant to Rule 1736(b) of the Pennsylvania Rules of Appellate Procedure, the taking of an appeal by the Commonwealth operates as a supersedeas in its favor. Pa.R.A.P 1736(b). Given that the Commission's appeal of the Commonwealth Court decision operated as an automatic supersedeas, the Commonwealth Court's decision is inoperative pending the Supreme Court's ruling. Therefore, pending a Supreme Court ruling on the aforementioned appeal, you are advised that Section 1103(g) would restrict A from "representing" "person(s)" for promised or actual compensation before B for one year following A's resignation from B, even if such representation would constitute the practice of law. In response to your Questions 1 through 3, you are advised as follows. Section 1103(g) of the Ethics Act would not prohibit A from becoming involved with an entity as an officer, director, employee, investor, general or limited partner, member of an advisory board, or legal counsel where that entity has: 1) previously received funding from B, or 2) previously sought or received investment capital from B during A's tenure on the B Board. Rather, Section 1103(g) would prohibit A from engaging in prohibited Confidential Advice, 01 -598 November 6, 2001 Page 6 representation of person(s) before B during the one -year period of applicability of Section 1103(g). It is noted that for purposes of applying Section 1103(g) of the Ethics Act, it would make no difference whether A would have participated or abstained from participation in previous investment actions. Such considerations may have relevance in applying other Sections of the Ethics Act to specific factual scenarios. However, you have not submitted any specific factual scenarios for consideration. In response to Question 4, you are similarly advised that Section 1103(g) of the Ethics Act would not prohibit A from having a personal or professional interest in any entity that may wish to have a business relationship with B. Section 1103(g) would prohibit A from engaging in prohibited representation of person(s) before B as outlined above. In response to Question 5, you are advised that pursuant to Section 1103(g) of the Ethics Act, A would not be permitted to engage in any of the activities described in subparagraphs 5(a), 5(b) and /or 5(c) because such conduct would constitute prohibited "representation" before A's former governmental body, B. In response to Question 6, you are advised that the Ethics Act would not require A to ensure that B is made aware of the nature and extent of his personal or professional interest(s) in any investment entity being considered by B. Finally, with respect to Question 7, you have not established standing to inquire as to the conduct of other members of the law firm. However, it is generally noted that the Section 1103(g) restrictions only apply to former public officials and former public employees. Based upon the facts which have been submitted, this Advice has addressed the applicability of Section 1103(g) only. It is expressly assumed that there has been no use of authority of office for a private pecuniary benefit as prohibited by Section 1103(a) of the Ethics Act. Further, you are advised that Sections 1103(b) and 1103(c) of the Ethics Act provide in part that no person shall offer to a public official /public employee and no public official /public employee shall solicit or accept anything of monetary value based upon the understanding that the vote, official action, or judgment of the public official /public 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. 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 G or the Rules of Professional Conduct. Conclusion: In the former capacity as a member of the Board of Trustees of the B, A would be considered a "public official" as defined in the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa.C.S. § 1101 et seq. Upon termination of service with B, A became a former public official subject to the restrictions of Section 1103(g) of the Ethics Act. The former governmental body is B in its entirety. Pending the Supreme Court's ruling in Shaulis v. State Ethics Commission, No. 0044 M.D. Appeal Docket 2000, you are advised that Section 1103(g) would restrict A from "representing" " person(s)" for promised or actual compensation before B for one year following A's resignation from B, even if such representation would constitute the practice of law. The restrictions as to representation outlined above must be followed. The propriety of the proposed conduct has only been addressed under the Ethics Act. Confidential Advice, 01 -598 November 6, 2001 Page 7 Further, should service be terminated, as outlined above, the Ethics Act would require that a Statement of Financial Interests be filed by no later than May 1 of the year after termination of service. 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 § 13.2(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, Vincent J. Dopko Chief Counsel