HomeMy WebLinkAbout97-518 FeilmeierDan A. Blakinger, Esquire
Blakinger, Byler & Thomas; P.C.
28 Penn Square
Lancaster, PA 17603
STATE ETHICS COMMISSION
309 FINANCE BUILDING
P.O. 80X 11470
HARRISBURG, PA 1 71 08 -1 470
TELEPHONE (717) 783 -1610
ADVICE OF COUNSEL
February 3, 1997
97 -518
Re: Conflict, Public Official /Employee, Member, Lancaster Parking Authority,
Economic Development Company, HACC Proposal, East King Street Holdings
Limited Partnership, Lease /Purchase of Parking Garages from Parking Authority,
Bank, Law Firm, Business with which Associated.
Dear Mr. Blakinger:
This responds to your letter of December 31, 1996, and faxed transmission of
January 30, 1997 by which you requested advice from the State Ethics Commission.
Issue: Whether the Public Official and Employee Ethics Law presents any
prohibition or restrictions upon various Members of a Parking Authority as to
participating and voting with regard to a Community College's proposed lease of
parking spaces and eventual purchase of an Authority -owned parking garage, where:
the proposed relocation of the Community College will not occur unless the Authority
approves the proposal for the lease /purchase as to the garage; two Authority Members
are employed by banks which may invest in the Community College's relocation
project's limited partnership which has an expected rate of return that is below the
market rate; and one Authority Member is "of counsel" to a law firm that will provide
ongoing legal services to the developer of the project, and the member's retirement
compensation may be affected by the revenues generated by the law firm.
Facts: The Lancaster Parking Authority (Authority) is a five member board. As
the Authority's Solicitor, you have been authorized by three Authority Board Members,
Jeffrey Bankert (Bankert), Joseph Feilmeier ( Feilmeier), and John Hartman (Hartman)
to request an advisory from the State Ethics Commission on their behalf regarding their
participation and voting as to a proposal which is pending before the Authority. You
have submitted the following facts.
The Economic Development Company of Lancaster County, a local non - profit
economic development corporation, is acting as the conduit for a project involving the
relocation of the Lancaster campus of the Harrisburg Area Community College (HACC)
to the vacant Bon Ton Department Store building in downtown Lancaster. In order to
accomplish this project, the Economic Development Company is forming a limited
Biakinger 97 -518
February 3, 1997
Page 2
partnership which will provide the necessary funds. Federal bank regulatory approval
will be necessary for banks to invest in the limited partnership because of the low rate
of return.
As part of the HACC proposal, Bon Ton will sell the building to a limited
partnership known as East King Street Holdings Limited Partnership (Partnership). The
Partnership is engaged in no other business activity other than with respect to HACC
and the Bon Ton building.
The Partnership's general partner will be an entity known as the EDC Finance
Corporation (EDC). EDC is a non - profit Pennsylvania industrial development
corporation which was formed by the non - profit Economic Development Company of
Lancaster County to administer state and local economic development loan programs,
and otherwise assist in the economic development of Lancaster County. The identity
of the Partnership's limited partners is uncertain but EDC's intent is to stimulate
interest among Lancaster area financial institutions to become limited partners. In
addition, EDC intends to explore whether these same institutions would be willing to
make loans to EDC in order to fund the HACC proposal.
EDC intends to raise $1.5 million from the limited partners for those partnership
interests and to obtain another $1.5 million in loans. It is desired that each
participating institution will "match" their equity partnership stake with an equivalent
loan amount.
EDC has already approached nine financial institutions and requested an
expression of interest in an investment in the limited partnership. Fulton Bank and
Mellon Bank are among seven financial institutions which have expressed interest in
considering an investment, subject to approval by the appropriate bank regulatory
agencies. EDC's inquiries and the interest expressed by the seven financial institutions
have been tentative based upon oral discussions and preliminary financial information.
No written subscription or other agreement has been executed between any bank and
EDC, nor does any bank have a binding obligation to invest. EDC hopes to obtain
participation of at least three to five of these financial institutions as limited
partners /lenders in the Partnership.
Once the Partnership purchases the Bon Ton building, it intends to divide the
real estate into condominium units. Approximately half of the building will be devoted
to a condominium unit to be used by HACC. The Partnership will donate the
condominium shell to HACC and HACC will purchase the improvements at the cost to
the Partnership. HACC will have an option, at the end of five years, to purchase most
of the remaining condominium units in the Bon Ton building for future expansion of its
campus.
You state that as a rough estimate, it is anticipated that a limited partner will
earn approximately 1 .5% per annum on its investment if HACC exercises options to
buy additional condominium units. If HACC does not exercise those options, those
units will be rented, and the limited partner's return is anticipated to rise to
approximately 6 -7% per annum. The interest rates on the loans will be below market
interest rates at approximately 7% per annum. The Partnership's revenues will
primarily derive from a lease of one of the condominium units to the County of
Lancaster.
8lakinaer, 97 -518
February 3, 1997
Page 3
In conjunction with HACC's use of the Bon Ton building as a community
college, HACC requires a certain amount of parking. HACC has proposed leasing from
the Authority, for 15 years, 500 parking spaces in the King Street Parking Garage, one
of the four parking garages owned and operated by the Authority. At the end of 15
years, HACC will purchase this garage outright. This proposal requires approval from
the Authority's Board, and you state that it is the vote on this proposal that raises the
concern regarding conflicts of interest under the Ethics Law. Per the By -laws of the
Board, a majority of the full Board, i.e., three of the five Members, would have to vote
in favor of this proposal in order for it to be approved:
SECTION 5. Quorum and Transaction of Business.
A majority of the Board for the time being in office shall constitute
a quorum for the transaction of business .... All action of the Board
may be taken by vote of the majority of the members present at any
meeting except that the election of officers, agents and employees of the
Authority, and the fixing of their compensation, and the acauisition.
purchase. leasing., sale, transfer, or disposition of any proiects,
franchises, property, real, personal or mixed. tangible or intangible or anv
interest therein. must be by a majority of the entire Board for the time
being in office ... .
By -Laws of the Parkina Authority of the City of Lancaster, at 2 (Emphasis added).
You state that it should be assumed for purposes of this inquiry, that if HACC's
proposal concerning the King Street Garage is defeated, the entire HACC relocation
endeavor will not proceed (thus resulting in no limited partnership investments, no
loans from Fulton Bank or Mellon Bank and no work to the law firm of Hartman,
Underhill and Brubaker ( "HUB ") referenced below).
Authority Board Member Bankert is a Division Manager with Fulton Bank. He
would have no involvement in deciding whether Fulton will become a Limited partner
in or lender to the Partnership. His salary is not related to Fulton's financial
performance, though he does receive.a year -end bonus that is probably at some level
related to that performance. If Fulton Bank participated in one -third of the project, and
if the project return accrued at 6 -7% per annum, the investment would represent less
than one -tenth of one percent of Fulton Bank's revenue.
Authority Board Member Feilmeier is a Business Center Manager for the
Lancaster region for Mellon Bank. Mellon Bank has a credit facility outstanding with
HACC consisting of a $2,000,000 line of credit. Feilmeier is not involved in any way
in that credit facility. Feilmeier works in the Lancaster region for Mellon Bank and the
HACC loan is administered through a loan officer in the Harrisburg region of Mellon
Bank. If Mellon Bank participated in one -third of the project, and if the project return
accrued at 6 -7% per annum, the investment would represent less -than one -tenth of
one percent of Mellon Bank's revenue.
Board Member Hartman is "of counsel" to the law firm of Hartman, Underhill
and Brubaker (HUB), having retired on December 31, 1991. His former equity interest
in HUB is being bought out by HUB over an 8 year period of which 1997 will be the
sixth year. Hartman's buy -out involves two payments from HUB over the 8 year
period: (1) a flat, fixed monthly payment to Hartman; and (2) an annual payment that
Blakinaer, 97 -518
February 3, 1997
Page 4
is adjusted for cost of living, the number of other ex- partnership interests being bought
out by HUB each year, and the profits generated by HUB to the extent such profits do
not reach a minimum set level each year (which minimum has been exceeded each
year of the buy -out period).
A current HUB partner is Alexander Henderson (Henderson). He is also an EDC
Board Member and EDC's general counsel. He is counsel to EDC with respect to the
HACC proposal and issues pertaining to the Partnership. If the HACC relocation
occurs, it is anticipated that EDC will require additional legal work that Henderson and
HUB will perform. It is anticipated that the additional legal work would not exceed 2%
of HUB's revenues.
The general question posed by Bankert, Feilmeier, and Hartman is whether any
or all of them have a conflict of interest that prohibits their voting or participation as
to HACC's proposal to lease /purchase the Authority's King Street Garage.
You pose the following additional specific inquiries:
1. Whether any or all of the above three Board Members may be counted as
present for purposes of a quorum, can deliberate, and can second any motion
made concerning the HACC lease /purchase proposal relating to the King Street
Garage? You note Commission Opinions of Garner No. 93 -004 and Amato, No.
89 -002.
2. Can the vote of any of the three Board Members be considered as having a de
minimis economic impact on Fulton, Mellon, and HUB?
3. Is it on the banks and the law firm that the impact is evaluated? You
acknowledge that the impact upon the Authority, HACC, and the City of
Lancaster will not be de minimis.
4. Given the anticipated rates of return to the limited partners and the lenders,
does a favorable vote involve a private pecuniary benefit to those partners or to
HUB?
5. Does it matter what the actual vote of any of the Board Members actually is in
determining the existence of a conflict or is it the act of voting or participating
at all that constitutes the conflict? For instance, if one Member votes against
the proposal and therefore votes to deny the organization with which he is
associated the opportunity to participate in HACC's relocation, is such a voter
"using" the authority of his office to bestow a private pecuniary benefit?
You also identify the following as issues:
1. Whether the Ethics Law imposes any prohibition or restrictions upon a parking
authority board member from participating in a vote concerning a sale of one of
the authority's parking garages to a community college, when the sale is a part
of a community development project, pursuant to which the board member's
employer is considering a modest investment with a below market rate of return
in a limited partnership formed to provide a donation of the building shell to the
community college, where the investment will represent less than one -tenth of
Blakinaer, 97 -518
February 3, 1997
Page 5
one percent of the employer's assets and revenues and the board member's
compensation is not reiated to the investment?
2. Whether the Ethics Law imposes any prohibition or restrictions upon a parking
authority board member from participating in a vote concerning a sale of one of
the authority's parking garages to a community college, when the sale is a part
of a community development project, pursuant to which the board member's
law firm will provide ongoing legal services to the non - profit developer of the
project, where the fees for the services will represent less than two percent of
the law firm's revenues and approximately half of the board member's
retirement compensation may be related to the revenues of the law firm?
3. Whether the Ethics Law imposes any prohibition or restrictions upon a parking
authority board member from participating in a board vote concerning a sale of
one of the authority's parking garages to a community college, when the sale
is a part of a community development project, where the board member's
employer, a bank, has a credit facility with the community college, where the
board member is not involved in and does not have any connection with the
management of the credit facility and where the earnings of the bank on the
credit facility will represent less than one -tenth of one percent of the bank's
assets and revenues and the board member's compensation is not related to the
credit facility?
Discussion: It is initially noted that pursuant to Sections 7 {10) and 7(1 1) of the Ethics
Law, 65 P.S. §5407(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 requester 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 Members of the Lancaster Parking Authority, Bankert, Feilmeier, and
Hartman are public officials as that term is defined under the Ethics Law, and hence
they are subject to the provisions of that law.
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
Blakincier, 97 -518
February 3, 1997
Page 6
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.
"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 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.
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(j) of the Ethics Law provides as follows:
Section 3. Restricted activities
(1) 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
Blakinaer, 97 -518
February 3, 1997
Page 7
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.
In the event that the required abstention results in the inability of the
governmental body to take action because a majority is unattainable due to the
abstention(s) from conflict under the Ethics Law, then in that event participation in the
vote is permissible provided the disclosure requirements noted above are followed.
See, Mlakar, Advice 91- 523 -5.
In applying the above provisions of the Ethics Law to the circumstances which
you have submitted, pursuant to Section 3(a) of the Ethics Law, 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. Based upon the facts which have been submitted, Bankert, Feilmeier,
and Hartman would each have a conflict of interest in the matter of the proposed 15-
year lease of parking spaces and subsequent sale of the King Street Parking Garage to
HACC.
The facts which have been submitted expressly state that it should be assumed
that if this proposal is defeated, the entire HACC relocation endeavor will not proceed
such that there will be no limited partnership investments, no loans from Fulton Bank
or Mellon Bank, and no work to HUB.
Fulton Bank is a business with which Board Member Bankert is associated based
upon Bankert's employment status with that bank. Mellon Bank is a business with
which Board Member Feilmeier is associated based upon Feilmeier's employment
status with that bank. If the Authority accepts HACC's proposal and the relocation
project therefore proceeds, there is a reasonable expectation that Fulton Bank and
Mellon Bank will invest in the limited partnership. Both financial institutions have
expressed an interest in considering that investment, subject to approval by the
appropriate bank regulatory agencies. Thus, there is a reasonable expectation that a
business relationship will develop, and that is sufficient to form the basis for a conflict
of interest. Garner, Opinion 93 -004; Snyder, Order No. 979 -2. Although the
projected rate of return is below market interest rate and may vary depending upon
whether HACC exercises certain options as to buying additional condominium units,
there would nevertheless be a profit to the investors. The fact that an investor may
choose to invest so as to earn a lesser rate of return than he may have achieved
8lakinber, 97-518
February 3, 1997
Page 8
elsewhere does not alter the fact that the profit is a private pecuniary benefit within
the meaning of the Ethics Law. Based upon the dollar amounts contemplated in this
project, even at a 1.5% rate of return, the earnings by the limited partners would
certainly exceed a "de minimis" threshold.
Thus, Board Members Bankert and Feilmeier would clearly have conflicts of
interest as to this issue before the Authority Board.
Hartman would have a conflict of interest as well. The law firm for which he
is "of counsel," having retired on December 31, 1991, would, according to the facts
which have been submitted, provide ongoing legal services in the relocation project.
Given that Hartman's buy -out arrangement provides for the adjustment of the annual
payment portion based upon the profits generated by the law firm to the extent they
do not reach a minimum set level, the prospect of ongoing legal work for this project
would constitute a private pecuniary benefit to Hartman. By advancing the firm's
prospects of reaching those minimum levels, Hartman would be advancing his own
prospects of maximizing the annual payment portion of his buy -out.
Although each of these three Board Members would have a conflict of interest
in the matter of the proposed 15 year lease of parking spaces and subsequent
purchase of the King Street Parking Garage by HACC from the Parking Authority, the
following exception set forth in Section 3(j) would apply in this case:
... 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... .
65 P.S. §403(j). Since the Board may not act in this matter unless it has an
affirmative vote by a majority of the full Board, i.e., by three members, and three of
the five Members have a conflict of interest under the Ethics Law and must abstain,
there is an insufficient number of Members to act and this exception applies.
Conditioned upon the requirement that these three Board Members initially abstain and
satisfy the disclosure requirements in this matter, they will be permitted to vote
despite their conflicts of interest. Emphasis is placed upon the word "vote" because
the Section 3(j) exception is specifically carved out as to voting. There is no language
that addresses any ability to otherwise participate in the matter in which the Board
Member has a conflict.
As for your specific inquiries, the inclusion of the Board Members to establish
a. quorum would be permissible. Applying the reasoning of Garner Opinion No. 93-
004, the General Assembly in enacting Section 3(j) would not have allowed public
officials to vote despite a conflict under these circumstances (i.e., where the number
of members of the body required to abstain under the Ethics Law makes the majority
or other legally required vote of approval unattainable) if those individuals were not
also permitted to be present to establish a quorum so as to make Section 3(j)
operative.
As for "participation," the State Ethics Commission in Juliante, Order No. 809,
held that the use of authority of office includes discussing, conferring with others,
Blakinaer, 97 -518
February 3, 1997
Page 9
lobbying for a particular result, and/or any other use of the authority of office,
including but not limited to voting. Thus, in each instance of a conflict of interest, the
public official with the conflict is required to abstain from participation — not just from
voting — and to additionally satisfy the disclosure requirements of Section 3U) as set
forth above. Thus, these Board Members would initially be required to abstain fully
and to make their disclosures, but they could then participate in the actual vote under
the Section 3(j) exception.
In Garner, Opinion No. 93 -004, the Commission did allow individuals with a
conflict to second a motion to bring a matter to a vote where the Board was a three -
member Board and the remaining two Members had opposing views such that the
motion would never be seconded and brought to a vote unless the person with the
conflict took that action. If the same situation arose with the two Authority Board
Members who do not have a conflict, such that a second to a motion was not
forthcoming, the reasoning of Garner would apply and a Board Member with a conflict
could second the motion to bring it to a vote.
You are advised that the element of a private pecuniary benefit is as to the
public official himself, a member of his immediate family, or a business with which he
or a member of his immediate family is associated as defined above. Thus, in this
case, the relevant impact is upon the banks and the law firm.
Your questions as to a "de minimis" economic impact and the anticipated rates
of return have been addressed above.
Finally, in response to your specific inquiry as to what the actual vote is of any
given Board Member, you are advised that a vote against the interests of the business
with which a Board Member is associated would not result in a violation of Section
3(a) absent some other basis to support the element of a prohibited private pecuniary
benefit.
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 Members of the Lancaster Parking Authority, Messrs. Bankert,
Feilmeier, and Hartman are public officials subject to the provisions of the Ethics Law.
Bankert, Feilmeier, and Hartman would each have a conflict of interest under the Ethics
Law in the matter of HACC's proposal for a 15 year lease of parking spaces and
subsequent purchase of the King Street Parking Garage, based upon the submitted
facts that: (1) there is a reasonable expectation that the banks which employ Bankert
and Feilmeier will be limited partners in a project which hinges upon this vote; and (2)
Hartman's retirement income is based in part on the revenues generated by his former
firm which revenues would be enhanced by a vote approving HACC's proposal. In
each instance of a conflict of interest, a public otficial is required to abstain from
participation and to satisfy the disclosure requirements of Section 3(j). Participation
includes not only voting but other uses of authority of office as noted above.
However, given that an affirmative vote by three of the five Board Members would be
required for the Board to act, and three Members have conflicts of interest under the
Ethics Law, there would be an insufficient number of Board Members remaining to act
Blakinaer, 97 -518
February 3, 1997
Page 10
in this matter. Conditioned upon the assumption that these three Board Members
initially abstain and satisfy the requirements for disclosure, each of these Board
Members may then, pursuant to Section 3(j), participate in the vote despite the conflict
of interest. 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.
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 §13.2M). 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.
rely,
Vincent J. ' •pko
Chief Counsel