HomeMy WebLinkAbout05-569 DenlingerMark A. Denlinger, Esquire
Knox, McLaughlin, Gornall & Sennett
120 West Tenth Street
Erie, PA 16501 -1461
Dear Mr. Denlinger:
ADVICE OF COUNSEL
August 5, 2005
05 -569
Re: Conflict; Public Official; Township; Supervisor; Industrial and Economic
Development Authority; Proposed Development Project; Ownership Interest In
Real Property Adjacent to Development; Class /Subclass Exclusion; Vote.
This responds to your two letters of July 5, 2005, by which you requested 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 township
supervisor with regard to: (1) participating in the formation and establishment of an
industrial and economic development authority; and (2) participating in and voting on a
proposed development in the township, when the supervisor holds an ownership
interest in real property that is adjacent to the proposed development project in which
the proposed industrial and economic development authority may be involved.
Facts: As Solicitor for the Township of Summit ( "Township "), you seek an
advisory on behalf of an unnamed member of the Township Board of Supervisors (the
"Supervisor"). You have submitted facts, the material portions of which may be fairly
summarized as follows.
The Township is a second class township governed by a three - member board of
supervisors (the "Board "). The supervisors are in the process of: (1) organizing and
incorporating an industrial and economic development authority ( "Authority ") pursuant to
the Pennsylvania Economic Development Financing Law, 71 P.S. §§ 371 et seq.; and
(2) reviewing and evaluating the plans and requirements of a licensed gaming entity for
a proposed large land development in the Township involving the construction of a
racetrack and gaming facilities (the "Project "). Currently, the licensed gaming entity has
purchased numerous properties located within the Township and has submitted
preliminary subdivision and land development plans for such properties for the
proposed racetrack and gaming facilities.
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August 5, 2005
Page 2
The Supervisor on whose behalf you seek this advisory holds an ownership
interest in real property that is adjacent to the Project. You note that the Supervisor
purchased the property with his partner in 1996, well before the Supervisor was elected
to his current office in 2003, and well before the gaming entity became interested in the
proposed development around 2001 or 2002. If the gaming entity chooses a location
within the Township's jurisdiction, the Authority may be involved with addressing and
handling infrastructure and development matters for the Project. Based upon the
foregoing facts, you pose the following specific inquiries:
1. Whether the Supervisor would have a conflict of interest under the Ethics Act with
regard to participating in the formation and establishment of the Authority; and
2. Whether the Supervisor would have a conflict of interest under the Ethics Act with
regard to participating in and voting on the Project.
As to the first issue, you provide the following relevant facts.
The Township desires to organize and incorporate the Authority as a separate
public entity that can address and handle infrastructure and development matters of the
proposed licensed facility under the Gaming Act. The Authority would have all of the
powers and purposes conferred upon it under the Economic Development Financing
Law. You state that such powers and purposes would authorize the Authority to
become involved with not only the Project, but also other projects or enterprises in
furtherance of the health, welfare and safety of the general public of the Township. You
additionally state that if the licensed gaming entity would choose to construct and
develop in the Township, the economic impact of such would be felt throughout the
entire Township and possibly throughout all of Erie County.
You contend that the act of forming and establishing the Authority under the
Economic Development Financing Law would not confer a private pecuniary benefit on
or to the Supervisor. Citing Laser, Opinion 93 -002, and Mihalik, Opinion 90 -002, you
submit that in matters involving real estate ownership interests by a public official /public
employee, it has been recognized that a public official /public employee could have a
conflict of interest if he would realize a private pecuniary benefit; however, in this case,
the Supervisor would not have a conflict of interest because he would not realize a
private pecuniary benefit solely by the mere formation and establishment of the
Authority. In this regard, you state that the very act of forming and incorporating the
Authority under the Economic Development Financing Law, and all discussions related
thereto, are a combination of legislative, administrative and ministerial functions of the
Township supervisors. By incorporating and establishing the Authority, the supervisors
would be creating a governmental entity with specific public purposes for the benefit of
the entire Township and all of its citizens. No one person or business would stand to
benefit privately from the incorporation of the Authority. You further state that the
Economic Development Financing Law provides for the organization of local industrial
or commercial development authorities which shall exist and operate for the public
purpose of promoting the health, safety, morals, employment, business opportunities,
economic activity, and general welfare of the citizens of the Township and Erie County,
by and through economic activities including, but not limited to, the construction,
improvement, rehabilitation, revitalization, and financing of industrial, commercial,
manufacturing, tourist, research and development, and other economic activities and
enterprises. You state that you have submitted a copy of a proposed ordinance for the
incorporation of the Authority that contains the foregoing language; it is noted, however,
that no such document has been submitted with your request.
In the alternative, you argue that even if some tangential "private" benefit would
exist, the class /subclass exclusion to the definition of "conflict" or "conflict of interest"
would apply, allowing the Supervisor to participate in Board actions relative to the
formation and establishment of the Authority. You state that in the current situation, the
formation and establishment of the Authority would affect the entire general public and
Denlinger, 05 -569
August 5, 2005
Page 3
citizens of the Township, and may even have an impact on the entire County of Erie
depending upon the size and magnitude of the projects adopted by the Authority. You
maintain that as a member of the class consisting of the "general public," the Supervisor
would be affected the same way as every other person in the Township by the creation
of the Authority.
Finally, you argue that even if a conflict of interest would be deemed to exist, the
Supervisor would be permitted to vote to break a tie between the two other supervisors
provided the Supervisor would satisfy the disclosure requirements of Section 1103(j) of
the Ethics Act.
As to the second issue, you provide the following relevant facts.
The Supervisor owns property adjacent to the Project. Based upon Laser, supra,
and Bakowicz, Advice 95 -533, you state your understanding that unless appraisals or
similar evidence is obtained on the subject property and the properties located near the
Project, the State Ethics Commission may not have sufficient evidence to determine the
extent of a pecuniary benefit to the Supervisor. You state that, unfortunately, it is
difficult to obtain accurate appraisals or similar evidence concerning a proposed
development that has not yet occurred and may not ever occur.
As such, you suggest and propose the following hypothetical. If the Supervisor is
able to obtain prospective appraisals on his property as well as other properties
adjacent to and near the proposed development and such appraisals demonstrate that
all such properties reflect the same percentage increase in fair market value (within 3 —
4 % of each other), you ask whether the Supervisor would have a conflict of interest
since any alleged pecuniary benefit would be shared with a class of individuals of which
the Supervisor is a member. You submit that a conflict would not exist under such a
hypothetical because the Supervisor would belong to a class /subclass consisting of all
property owners located adjacent to or near the Project and all the members of that
class /subclass would be affected in the same manner. You contend that in the
hypothetical, the Project has the potential of affecting the general public and citizens of
the entire Township and possibly the entire County of Erie depending upon the size and
magnitude of the Project. You argue that even if a narrow focus is taken with respect
to the appropriate "measuring class' and such is limited to "property owners adjacent to
and near the Project," the class /subclass exclusion would still apply because the
Supervisor would be affected the same way as every other person in this limited
subclass of property owners.
Alternatively, if the same appraisals would reflect a large increase in the fair
market value of the Supervisor's property (with little or no increase to other properties
located adjacent to or near the Project) or the appraisals reflect a disparate increase in
fair market values among the same properties such that the Supervisor may realize a
greater increase than another similarly- situated property in the Township, then you ask
whether a conflict of interest would still exist.
Finally, you argue that even if a conflict of interest would be deemed to exist, the
Supervisor would be permitted to vote to break a tie between the two other supervisors
provided the Supervisor would satisfy the disclosure requirements of Section 1103(j) of
the Ethics Act.
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 requester
based upon the facts that the requester has submitted. In issuing the advisory based
upon the facts that the requester has submitted, the Commission does not engage in an
independent investigation of the facts, nor does it speculate as to facts that have not
been submitted. It is the burden of the requester 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 requester has truthfully disclosed all of the material facts.
Denlinger, 05 -569
August 5, 2005
Page 4
The Supervisor on whose behalf you seek this advisory is a "public official" as
that term is defined in the Ethics Act, and hence, the Supervisor is subject to the
provisions of that Act.
Section 1103(a) of the Ethics Act provides:
§ 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 are defined in the Ethics Act as follows:
§ 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
Denlinger, 05 -569
August 5, 2005
Page 5
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
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).
In each instance of a conflict, Section 1103(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 Act, then voting is permissible provided the
disclosure requirements noted above are followed. See, Pavlovic, Opinion 02 -005.
In applying the above provisions of the Ethics Act to the instant matter, it is noted
that Section 1103(a) of the Ethics Act does not prohibit public officials /public employees
from having outside business activities or employment; however, the public
official /public employee may not use 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. Pancoe, Opinion
89 -011. Examples of conduct that would be prohibited under Section 1103(a) would
include: (1) the pursuit of a private business opportunity in the course of public action,
Metrick, Order 1037; (2) the use of governmental facilities, such as governmental
telephones, postage, staff, equipment, research materials, or other property, or the use
of governmental personnel, to conduct private business activities, Freind, Order 800;
Pancoe, supra; and (3) the participation in an official capacity as to matters involving the
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August 5, 2005
Page 6
business with which the public official /public employee is associated in his private
capacity Gorman, Order 1041; Rembold, Order 1303; Wilcox, Order 1306), or private
customer(s)/client(s) (Miller, Opinion 89 -024; Kannebecker, Opinion 92 -010).
In the instant matter, it is noted from the submitted facts that the Supervisor
purchased the real property adjacent to the proposed Project with his business partner.
Assuming the partnership still exists, the partnership would be considered a business
with which the Supervisor is associated. Pursuant to Section 1103(a) of the Ethics Act,
the Supervisor would generally have a conflict of interest in his /her public capacity in
matters that would financially impact him /herself, the partnership, or private client(s). In
each instance of a conflict of interest, the Supervisor would be required to abstain from
participating and to satisfy the disclosure requirements of Section 1103(j) of the Ethics
Act.
Having established the above general principles, your first specific inquiry shall
now be addressed.
In response to your first question, the submitted facts do not establish that a use of
authority of office by the Supervisor through participation in the formation and
establishment of the Authority would result in a private pecuniary benefit to the
Supervisor him /herself, the partnership, or private client(s). In this regard, you have
expressly stated that no conflict of interest would result since no private pecuniary benefit
would be realized by the Supervisor solely by the mere formation and establishment of
the Authority. Where the requisite elements for a conflict -- use of authority of office; and
a private pecuniary benefit -- are absent, there can be no conflict. Therefore, the
necessary conclusion is that the individual as a Supervisor would not have a conflict of
interest under the Ethics Act as to such participation.
You have not provided any information as to whether the Supervisor would seek
or accept an appointment to the Authority Board. Assuming that the Supervisor could
legally serve on the Authority Board, the Supervisor could not participate in his own
appointment to the Authority Board. In this regard, it is noted that Section 65602(a) of
the Second Class Township Code, 53 P.S. § 65602(a), relating to a supervisor on a
three - member board having the ability to participate as to his own appointment to an
appointed township position has no applicability. Further, if appointed, the public official
would have a conflict of interest and could not participate in matters generally and the
gaming entity Project specifically, that would financially benefit him /herself, his /her
business or private client(s).
In response to your second question, the Supervisor would have a conflict of
interest under Section 1103(a) of the Ethics Act with regard to participating in and voting
on the Project when the Supervisor holds an ownership interest in real property that is
adjacent to the Project. The Supervisor would be using the authority of his /her office by
participating in the process of reviewing, evaluating and voting on the Project, which
action(s) would result in a private pecuniary benefit consisting of an increase in the
value of the Supervisor's property. Lastly, that pecuniary benefit would inure to the
Supervisor or the partnership or both. Hence, all of the elements of a conflict would
exist.
However, the statutory definition of "conflict" or "conflict of interest" includes two
exclusions, hereinafter referred to as the "de minimis" exclusion and the "class /subclass
exclusion."
The de minimis exclusion precludes a finding of a conflict of interest as to an
action having a de minimis (insignificant) economic impact. Thus, when a matter that
would otherwise constitute a conflict of interest under the Ethics Act would have an
insignificant economic impact upon a public official, a member of his immediate family,
or a business with which he or a member of his immediate family is associated, a
conflict would not exist and Sections 1103(a) and 1103(j) of the Ethics Act would not
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August 5, 2005
Page 7
restrict participation in such matter. See, Schweinsburq, Order 900. In that the inquiry
involves the Supervisor's participation in a land development project when the
Supervisor owns land adjacent to the project, the Supervisors action would not have a
de minimis economic impact, and therefore, this exclusion would not apply.
In order for the class /subclass exclusion to apply, two criteria must be met: (1)
the affected public official /public employee, immediate family member, or business with
which the public official /public employee or immediate family member is associated
must be a member of a class consisting of the general public or a true subclass
consisting of more than one member; and (2) the public official /public employee,
immediate family member, or business with which the public official /public employee or
immediate family member is associated must be affected "to the same degree" as the
other members of the class /subclass. 65 Pa.C.S. § 1102; see, Graham, Opinion 95 -002
(citing Van Rensler, Opinion 90 -017); Rubenstein, Opinion 01 -007. The first criterion of
the exclusion is satisfied where the members of the proposed subclass are similarly
situated as the result of relevant shared characteristics. The second criterion of the
exclusion is satisfied where the individual /business in question and the other members
of the class /subclass are reasonably affected to the same degree by the proposed
action. Kablack, Opinion 02 -003.
In considering the first criterion, it would appear that the correct identification of
the class /subclass is all property owners in the Township whose property is adjacent or
in the immediate vicinity of the Project.
Regarding the second criteria concerning being affected to the same degree as
the other members of the class /subclass, a serious question exists as to whether the
financial impact upon the Supervisor would be to the same degree as to the other
members of the class /subclass. It is administratively noted that properties adjacent to
developments involving gaming facilities typically appreciate in value and become highly
saleable. It is noted, however, that a proper analysis of the applicability of the
class /subclass exclusion in any given instance requires a careful examination of the
circumstances, on a case -by -case basis. Id. The second criterion may be difficult to
establish in matters pertaining to real estate. Sometimes a determination as to whether
a public official would be affected to the same degree as other property owners in a
proffered class /subclass may only be made through a comparison of real estate
appraisals of the affected properties. See, e.q., Laser, Opinion 93 -002 (Concluding that
in the absence of appraisals, a determination could not be made as to whether the
value of a township supervisor's property would be affected by a proposed development
to the same degree as that of all other property owners in the proffered class /subclass).
When a factual insufficiency exists as to the impact of a proposed action upon the
property values of the members of the class /subclass, an advisory must necessarily be
limited to providing general guidance.
You are advised that under the submitted facts, which indicate that the proposed
Project would have a financial impact upon the Supervisor who owns property adjacent
to the Project, the Supervisor would have a conflict of interest as to reviewing,
evaluating and voting on the Project unless the class /subclass exclusion would be
applicable. Due to a factual insufficiency, it has not been established that the
class /subclass exclusion would apply.
Where a conflict of interest would exist, the Supervisor would still be permitted to
participate under certain limited circumstances. In Garner, Opinion 93 -004, the
Commission considered the issue of whether, under Section 3(j) of the Ethics Law, a
supervisor on a three member board would be permitted to second a motion even if he
had a conflict where the two remaining supervisors would have opposing views or
where one of the remaining two members would be absent from the meeting.
Citing Juliante, Order 809, the Commission first noted that seconding a motion is
a use of authority of office. Hence an individual with a conflict would not be permitted to
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August 5, 2005
Page 8
participate, make a motion, second a motion, or vote. See, Garner, supra. However,
the Commission also stated:
[T]he General Assembly in enacting Section 3(j) would not have
allowed a public official /employee on a three member board who has a
conflict to be able to vote unless a second to the motion could be made so
that the matter would be in the posture for a vote. Thus, we believe that
since there is a need for a second to a motion in order to make Section
3(j) of the Ethics Law operative, the General Assembly intended as to
three members [sic] boards for the public official with a conflict to be
allowed to second so that if the other supervisors became deadlocked, the
public official could then vote provided the disclosure requirements are
satisfied.
Garner, at 6.
In light of the foregoing, the Commission concluded that Section 3(j) of the Ethics
Law does allow an individual to second a motion where the two remaining supervisors
have opposing views or where one of the other two supervisors is absent. The
Commission emphasized that its ruling was expressly limited in its application to three
member boards and to the question of seconding a motion.
Applying Garner to the instant matter, under Section 1103(j) of the Ethics Act, the
Supervisor would be permitted to second a motion only in a situation where, on a three
member board, 1) the two remaining Supervisors would have opposing views; or 2) one
of the other two Supervisors would be absent from the meeting. Allowing the
Supervisor to second the motion in either of the above scenarios would put the matter in
a posture for a vote. Thereafter, if the other two supervisors cast opposing votes, the
Supervisor would be permitted to vote to break the tie provided he satisfied the
disclosure requirements of Sections 1103(j).
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 Second Class Township Code and the Economic Development
Financing Law.
Conclusion: The Supervisor on whose behalf you seek this advisory is a "public official"
as that term is defined in the Ethics Act, and hence, the Supervisor is subject to the
provisions of that Act. The partnership would be considered a business with which the
Supervisor is associated. Pursuant to Section 1103(a) of the Ethics Act, the Supervisor
would generally have a conflict of interest in his /her public capacity in matters that would
financially impact him /herself, the partnership, or private client(s). In each instance of a
conflict of interest, the Supervisor would be required to abstain from participating and to
satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. Based upon the
submitted facts and your express factual representation that no private pecuniary benefit
would be realized by the Supervisor solely by the mere formation and establishment of
the Authority, the necessary conclusion is that the individual as a Supervisor would not
have a conflict of interest under the Ethics Act as to such participation. Assuming that
the Supervisor could legally serve on the Authority Board, the Supervisor could not
participate in his own appointment to the Authority Board. Further, if appointed, the
public official would have a conflict of interest and could not participate in matters
generally and the gaming entity Project specifically, that would financially benefit
him /herself, his /her business or private client(s). In response to the second question of
whether the Supervisor would have a conflict of interest under the Ethics Act with regard
to participating in and voting on the Project, the Supervisor would have a conflict of
interest under Section 1103(a) of the Ethics Act with regard to such action(s) when the
Supervisor holds an ownership interest in real property that is adjacent to the Project.
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August 5, 2005
Page 9
The Supervisor would be using the authority of his /her office by participating in the
process of reviewing, evaluating and voting on the Project, which action(s) would result
in a private pecuniary benefit consisting of an increase in the value of the Supervisor's
property. Lastly, that pecuniary benefit would inure to the Supervisor or the partnership
or both. Hence, all of the elements of a conflict would exist. However, the statutory
definition of "conflict" or "conflict of interest" includes two exclusions, hereinafter referred
to as the "de minimis" exclusion and the "class /subclass exclusion." In that the inquiry
involves the Supervisor's participation in a land development project when the
Supervisor owns land adjacent to the project, the Supervisors action would not have a
de minimis economic impact, and therefore, this exclusion would not apply. Due to a
factual insufficiency, it has not been established that the class /subclass exclusion would
apply. Where a conflict of interest would exist, the Supervisor would still be permitted to
participate where, on a three member board, 1) the two remaining Supervisors would
have opposing views; or 2) one of the other two Supervisors would be absent from the
meeting. Allowing the Supervisor to second the motion in either of the above scenarios
would put the matter in a posture for a vote. Thereafter, if the other two supervisors
cast opposing votes, the Supervisor would be permitted to vote to break the tie provided
he satisfied the disclosure requirements of Sections 1103(j).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 requester 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