This Advisory Opinion concerns the following issues as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on October 3, 1997, basing its approval solely on the facts and circumstances stated herein.
ISSUE 2. May an individual simultaneously serve as a board member of a public authority and as a vice-president for the bank that is the depository for the public authority?
The pertinent conflict of interest laws to be considered here are:
Constitutional Section 109 states:
"(c) 'Business' means any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, holding company, self-employed individual, joint stock company, receivership, trust or other legal entity or undertaking organized for economic gain, a nonprofit corporation or other such entity, association or organization receiving public funds.
(d) 'Business with which he is associated' means any business of which a public servant or his relative is an officer, director, owner, partner, employee or is a holder of more than ten percent (10%) of the fair market value or from which he or his relative derives more than One Thousand Dollars ($1,000.00) in annual income or over which such public servant or his relative exercises control.
(f) 'Contract' means:
(i) Any agreement to which the government is a party; or
(ii) Any agreement on behalf of the government which involves the payment of public funds.
(g) 'Governmental' means the state and all political entities thereof, both collectively and separately, including but not limited to:
(i) Counties;
(ii) Municipalities;
(iii) All school districts;
(iv) All courts; and
(v) Any department, agency, board, commission, institution, instrumentality, or legislative or administrative body of the state, counties or municipalities created by statute, ordinance or executive order including all units that expend public funds.
(h) 'Governmental entity' means the state, a county, a municipality or any other separate political subdivision authorized by law to exercise a part of the sovereign power of the state.
(k) 'Material financial interest' means a personal and pecuniary interest, direct or indirect, accruing to a public servant or spouse, either individually or in combination with each other. Notwithstanding the foregoing, the following shall not be deemed to be a material financial interest with respect to a business with which a public servant may be associated:
(i) Ownership of any interest of less than ten percent (10%) in a business where the aggregate annual net income to the public servant therefrom is less than One Thousand Dollars ($1,000.00);
(ii) Ownership of any interest of less than two percent (2%) in a business where the aggregate annual net income to the public servant therefrom is less than Five Thousand Dollars ($5,000.00).
(l) 'Pecuniary benefit' means benefit in the form of money, property, commercial interests or anything else the primary significance of which is economic gain. Expenses associated with social occasions afforded public servants shall not be deemed a pecuniary benefit.
(m) 'Person' means any individual, firm, business, corporation, association, partnership, union or other legal entity, and where appropriate a governmental entity.
(p) 'Public servant' means:
(i) Any elected or appointed official of the government;
(ii) Any officer, director, commissioner, supervisor, chief, head, agent or employee of the government or any agency thereof, or of any public entity created by or under the laws of the State of Mississippi or created by an agency or governmental entity thereof, any of which is funded by public funds or which expends, authorizes or recommends the use of public funds; or
(iii) Any individual who receives a salary, per diem or expenses paid in whole or in part out of funds authorized to be expended by the government."
Code Section 25-4-105 (1), (2), (3)(a)(d), (4)(a), (5) and (6) states:
"(1) No public servant shall use his official position to obtain pecuniary benefit for himself other than that compensation provided for by law, or to obtain pecuniary benefit for any relative or any business with which he is associated.
(2) No public servant shall be interested, directly or indirectly, during the term for which he shall have been chosen, or within one (1) year after the expiration of such term, in any contract with the state, or any district, county, city or town thereof, authorized by any law passed or order made by any board of which he may be or may have been a member.
(3) No public servant shall:
(a) Be a contractor, subcontractor or vendor with the governmental entity of which he is a member, officer, employee or agent, other than in his contract of employment, or have a material financial interest in any business which is a contractor, subcontractor or vendor with the governmental entity of which he is a member, officer, employee or agent.
(d) Perform any service for any compensation during his term of office or employment by which he attempts to influence a decision of the authority of the governmental entity of which he is a member.
(4) Notwithstanding the provisions of subsection (3) of this section, a public servant or his relative:
(a) May be an officer or stockholder of banks or savings and loan associations or other such financial institutions bidding for bonds, notes or other evidences of debt or for the privilege of keeping as depositories the public funds of a governmental entity thereof or the editor or employee of any newspaper in which legal notices are required to be published in respect to the publication of said legal notices.
(5) No person may intentionally use or disclose information gained in the course of or by reason of his official position or employment as a public servant in any way that could result in pecuniary benefit for himself, any relative, or any other person, if the information has not been communicated to the public or is not public information.
(6) Any contract made in violation of this section may be declared void by the governing body of the contracting or selling authority of the governmental subdivision or a court of competent jurisdiction and the contractor or subcontractor shall retain or receive only the reasonable value, with no increment for profit or commission, of the property or the services furnished prior to the date of receiving notice that the contract has been voided."
Code Section 25-4-109 (1) and (2) states:
"(1) Upon a finding by clear and convincing evidence that any elected public servant or other person has violated any provision of this article, a circuit court of competent jurisdiction may censure the elected public servant or remove the elected public servant from office or impose a civil fine of not more than five thousand dollars ($5,000.00) or both.
(2) Upon a finding by clear and convincing evidence that any nonelected public servant has violated any provision of this article, a circuit court of competent jurisdiction may censure, remove, suspend, or order a reduction in pay or demotion of the nonelected public servant or impose a civil fine of not more than five thousand dollars ($5,000.00) or both."
Code Section 25-4-113 states:
"The attorney general of the state of Mississippi or any governmental entity directly injured by a violation of this act may bring a separate civil action against the public servant or other person or business violating the provisions of this article for recovery of damages suffered as a result of such violation. Further, any pecuniary benefit received by or given by a public servant in violation of this article shall be declared forfeited by a circuit court of competent jurisdiction for the benefit of the governmental entity injured. In the discretion of the court, any judgment for damages or forfeiture of pecuniary benefit may include costs of court and reasonable attorney's fees."
Code Section 25-4-115 states:
"This article shall not bar, suspend or otherwise restrict any right or liability to damage, penalty, forfeiture, restitution or other remedy authorized by law to be recovered or enforced in a civil action, regardless of whether the conduct involved in the proceeding constituted an offense covered by this article."
Pertinent facts and circumstances in the form of the requestor's letter, absent identifying data, are attached hereto and considered a part of this opinion.
The Commission formally adopts Advisory Opinions No. 97-060-E, No. 97-019-E, No. 91-125-E and No. 89-62-E in response to this request and by attachment incorporates them into this opinion.
Based solely on the facts and circumstances presented by the requestor, the Commission's opinion is as follows.
ISSUE 1. The employment contract between the authority and the attorney results in the attorney being an employee and agent of the authority and therefore a public servant of the authority as defined in the above cited Code Section 25-4-103 (p).
As set forth in the attached Advisory Opinions No. 91-125-E and No. 89-62-E, an attorney acting as counsel to a governmental entity's board and as counsel to the governmental entity's depository can easily violate the conflict of interest laws by asserting his influence as the governmental entity's board's counsel by urging the governmental entity's board to select the bank he represents as its depository.
Specifically, Code Section 25-4-105 (1) and/or (3)(d), both cited above, are identified in the attached advisory opinions as conflict of interest laws the attorney can violate by urging the governmental entity's board to select the bank he represents as its depository. The prohibition set forth in Code Section 25-4-105 (1) applies only if the bank is a business with which the attorney is associated. Code Section 25-4-103 (d), cited above, defines when a public servant's interest in a business results in that business being "a business with which he is associated."
Also, the attached opinions identify Code Section 25-4-105 (5), cited above, as a conflict of interest law an attorney can violate when acting as counsel for a governmental entity and the governmental entity's depository. A violation of Code Section 25-4-105 (5) occurs when a public servant discloses nonpublic information obtained in his public position that could result in a pecuniary benefit to the public servant or any other person. A "person" as defined in the above cited Code Section 25-4-103 (m) includes a bank.
A public servant may avoid a violation of Code Section 25-4-105 (1), (3)(d) and/or (5) by totally and completely recusing himself from the matter raising the conflict.
A total and complete recusal requires that the public servant not only avoid debating, discussing or taking action on the subject matter during the official meeting, but also avoid discussing the subject matter with board members, staff or any other person prior to and after the official meeting. This includes casual comments, as well as detailed discussions, made in person, by telephone or by any other means.
Also to properly recuse oneself from a matter, the public servant must leave the room or area where such discussions, considerations and/or actions take place. The minutes of the governing entity's board should state the public servant left the meeting by showing him or her absent for that matter.
Therefore, the attorney should avoid officially or unofficially discussing matters concerning the bank with the authority's board members and staff; should leave the board room; and should have the minutes show him absent when the board discusses, considers or takes actions regarding the bank.
The issue presented by the requestor also must be viewed as it relates to Code Section 25-4-101, set forth above. This code section sets the tone for the conflict of interest laws as the Legislature's "Declaration of Public Policy." This public policy can be summarized as any circumstance having the potential of creating suspicion among the public and reflecting unfavorably upon the state or local government should be closely reviewed by public servants with the intent to reduce or eliminate any suspicion on the part of the public which detracts from the public's trust in state or local government.
Clearly, the same attorney representing a governmental entity and the governmental entity's depository has the potential of creating suspicion among the public and reflecting unfavorably upon the governmental entity. Therefore, such duel representation should be avoided.
As set forth in the attached Advisory Opinion No. 89-64-E (1) , an attorney serving as counsel to a governmental entity's board does not violate Code Section 25-4-105 (3)(a), cited above, when he also simultaneously serves as counsel to the governmental entity's depository because of the exception set forth in the above cited Code Section 25-4-105 (4)(a).
ISSUE 2. Constitutional Section 109 and Code Section 25-4-105 (2), both cited above, absolutely prohibit a public official from having an interest, direct or indirect, in a contract authorized by a governmental board that the public official is a member of during the public official's term or for one year thereafter.
The attached Advisory Opinions No. 97-019-E and No. 97-060-E apply the prohibitions set forth in Constitutional Section 109 and Code Section 25-4-105 (2) to governmental entities' board members that are employees of banks serving as the governmental entities' depositories in two distinct instances. First in Advisory Opinion No. 97-060-E, the prohibitions are applied when the depository is directly selected by the governmental entity's board. Second in Advisory Opinion No. 97-019-E, the prohibitions are applied when a superior governmental entity's board selects multiple depositories and the subject governmental entity's board chooses its depository from those multiple depositories selected by the superior governmental entity's board.
However in either instance, four elements must be met to apply the prohibitions set forth in Constitutional Section 109 and Code Section 25-4-105 (2). In Frazier v. State , 504 So. 2d 675 (1987), the Mississippi Supreme Court set out these four elements. They are: (a) having any direct or indirect interest in any contract; (b) with the state or any political subdivision; (c) executed during his term of office or one year thereafter; and (d) authorized by any law, or order of any board of which he was a member.
In the instance presented herein by the requestor, three of the four elements are clearly met. Those being (a), (b) and (d) as identified above. However, the fourth element, identified above as "(c) executed during his term of office or one year thereafter," raises concerns.
The minutes provided by the requestor, attached hereto, clearly indicate the contract with the bank was authorized by the authority's board prior to the vice president of the bank being appointed to the authority's board. The resolution authorizing the bank's contract with the authority also states, "It is further resolved that this resolution shall continue in full force and effect until written notice or revocation, duly signed in the name of the Authority by the President and Secretary/Treasurer thereof and duly sealed, shall have been received by [the bank]."
Therefore at first impression, it appears that the bank's vice president accepting his position on the authority's board will not violate Constitutional 109 or Code Section 25-4-105 (2) as the bank's contract was authorized prior to his term and continues in effect unless revoked by the authority by giving written notice to the bank.
However, serious public policy questions are raised when a governmental entity, such as the authority, enters into a depository contract that does not have a specified term; follows no legally established procedure for selecting a depository; and, requires no bids to determine which bank has the best available services and rates of interest. The Mississippi Legislature has recognized these public policy interests by passing legislation to mandate selection of depositories by state and local governments. (2)
In the attached Attorney General's opinion, No. 94-0459, the Attorney General recognizes these public policy concerns. In a circumstance very similar to the authority's, the Attorney General opined that although the enabling legislation of Diamondhead Water and Sewer District was silent as to the disposition of its monies, it should deposit its funds in the county depository pursuant to Code Sections 27-105-301 et seq. and invest its surplus funds pursuant to Code Section 19-9-29 as the District was established by resolution of the Hancock County Board of Supervisors.
Based on the Attorney General's opinion in No. 94-0459, the requestor is advised to write for an Attorney General's opinion on whether the authority, like Diamondhead Water and Sewer District, is required to comply with the local depository laws that apply to the county.
If the Attorney General opines that the authority is required to comply with the local depository laws, then it is this Commission's opinion that the authority will be required to enter into a new contract with a legally selected county depository at the time the county board of supervisors' selects its depositories. Code Section 27-105-305 requires county boards of supervisors to select depositories every two years.
Therefore, should the authority be required to select a new depository at the time the county board of supervisors selects its new depositories, then the authority board member who is the vice president of the bank will be in violation of Constitutional Section 109 and Code Section 25-4-105 (2) if the authority's board again selects the current depository. This is with the understanding that the county will be selecting multiple depositories thereby giving the authority discretion in selecting its depository as discussed in the attached Advisory Opinion No. 97-019-E.
The authority's board member who is the vice president of the authority's depository is not in violation of the above cited Code Section 25-4-105 (3)(a) as the exception set forth in the above cited Code Section 25-4-105 (4)(a) is applicable to his circumstance.
The authority's board member who is the vice president of the authority's depository is advised to recuse himself from matters concerning the depository to avoid violating Code Section 25-4-105 (1) and (3)(d), as discussed above in ISSUE 1 . The need to recuse himself to avoid violating Code Section 25-4-105 (1) and (3)(d) applies only from the time of his appointment to the authority's board to the time that a new depository is selected by the authority's board. Once a new depository is selected after the bank vice president's appointment to the authority's board, a recusal will not protect him as he will be in violation of Constitutional Section 109 and Code Section 25-4-105 (2) if the current depository is selected.
A recusal or an abstention does not prevent a violation of Constitutional Section 109 and Code Section 25-4-105 (2). Even without the board member's vote, the authorization by the member's board nonetheless results in a contract in which the board member has a prohibited interest.
Regarding the requestor's personal liability in this instance, the requestor is advised to review the above cited Code Section 25-4-109 and Code Section 25-4-113. The liability for violating the conflict of interest laws lies primarily with the public servant who has the prohibited interest or receives the pecuniary benefit. However, as set forth in Code Section 25-4-115, cited above, civil actions under the conflict of interest laws do not preclude other civil liability. The Mississippi Supreme Court has ruled on several occasions that a contract in violation of Constitutional Section 109 is null and void. Therefore, should a board member vote for a contract that he has reason to believe is in violation of the conflict of interest laws, and particularly Constitutional Section 109, then that board member could assume personal liability for approving an illegal contract. Ultimately a public servant's personal liability must be determined by a court of competent jurisdiction.
The requestor is also advised that the above cited Code Section 25-4-105 (6)
gives a governing body the authority to declare void any contract made
in violation of Code Section 25-4-105.
1. Regarding the attorney serving as a director of the bank, Advisory Opinion No. 89-62-E has been amended by the attached Advisory Opinion No. 95-133-E. An attorney serving as a director of a bank that is the depository for the governmental entity the attorney serves as board counsel does violate Code Section 25-4-105 (3)(a) and the exception in Code Section 25-4-105 (4)(a) does not apply. [Emphasis added where text italicized]
See 27-105-1, et seq., Mississippi Code Annotated of 1972 (amended).