This Advisory Opinion concerns the following issues as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on February 13, 1998, basing its approval solely on the facts and circumstances stated herein.

ISSUE 1. May employees of the manager of a community hospital who serve as the community hospital's chief executive officer and chief financial office under the manager's contract with the community hospital also simultaneously serve as uncompensated board members and officers of a nonprofit corporation organized and operated exclusively to promote health and healthcare in the community hospital's service area when the nonprofit corporation will receive financial assistance and grants from the community hospital?

ISSUE 2. May an employee of a community hospital holding the position of vice president of clinical services also simultaneously serve as an uncompensated board member and officer of a nonprofit corporation organized and operated exclusively to promote health and healthcare in the community hospital's service area when the nonprofit corporation will receive financial assistance and grants from the community hospital?

ISSUE 3. May a member of a community hospital's board of trustees purchase an interest in a limited liability company that will own 50% of another limited liability company when the remaining 50% ownership interest will be purchased by a nonprofit corporation to which the community hospital's board of trustees authorizes financial assistance and appoints its board members?

State law restricts the Mississippi Ethics Commission to interpreting and issuing opinions on Sections 25-4-101 through 25-4-119, 1972 Mississippi Code Annotated and Article IV, Section 109, Mississippi Constitution of 1890. Therefore, this opinion does not address the Mississippi laws outside the Commission's jurisdiction nor the governmental entity's internal rules and regulations.

The pertinent conflict of interest laws to be considered here are:

Constitutional Section 109 states:

"No public officer or member of the legislature shall be interested, directly or indirectly, 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, during the term for which he shall have been chosen, or within one year after the expiration of such term."

Code Section 25-4-103 (c), (d), (e), (f)(i)(ii), (g)(i)(ii)(iii)(iv)(v), (h), (i), (k)(i)(ii)(iii)(iv), (l), (m) and (p)(i)(ii)(iii) 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.

(e) 'Compensation' mean money or thing of value received, or to be received, from any person for services rendered.

(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.

(i) 'Income' means money or thing of value received, or to be received, from any source derived, including but not limited to any salary, wage, advance, payment, dividend, interest, rent, forgiveness of debt, fee, royalty, commission or any combination thereof.

(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);

(iii) The income as an employee of a relative if neither the public servant or relative is an officer, director or partner in the business and any ownership interest would not be deemed material pursuant to subparagraph (i) or (ii) herein; or

(iv) The income of the spouse of a public servant when such spouse is a contractor, subcontractor or vendor with the governmental entity that employs the public servant and the public servant exercises no control, direct or indirect, over the contract between the spouse and such governmental entity.

(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) and (5) 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.

(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."

Pertinent facts and circumstances provided by the requestor, absent identifying data, are set forth as follows and considered a part of this opinion.

Our firm is special counsel to the Board of Trustees of the Hospital. The Hospital is a community hospital owned by the City and the County. With a medical staff of approximately forty (40) physicians representing approximately eighteen (18) specialities, the Hospital offers a comprehensive array of healthcare services, currently operating 164 licensed beds of which fifty-eight (58) are dedicated medical/surgical beds.

We hereby request an Advisory Opinion from the Mississippi Ethics Commission addressing (i) the investment by a current member ("Interested Board Member") of the Board of Trustees of the Hospital in a Physicians Group, LLC ("LLC"); and (ii) the appointment and service of certain employees of the Hospital and of the Hospital's Manager, a for profit corporation, ("Manager") as members of the Board of Directors or officers of a nonprofit medical corporation, which corporation may receive financial assistance and grants from the Hospital.

In an effort to continue to serve and promote the health and welfare of the citizens of the Hospital's service area, the Board of Trustees of the Hospital desires to provide financial assistance or grants to Regional Surgery Center ("Nonprofit"), a Mississippi § nonprofit corporation, pursuant its authority under 41-13-38 (2) of the Mississippi Code of 1972, as amended. Nonprofit will be a nonprofit corporation organized and operated exclusively for the promotion of health and provision of healthcare services in the Hospital's service area and will apply for tax exempt status under Section 501(c)(3) of the Internal Revenue Code. Nonprofit will be independent and separate from the Hospital, none of the members of the Board of Trustees of the Hospital will be members, directors, or officers of Nonprofit.

Nonprofit's Bylaws will provide that the Board of Trustees of the Hospital will appoint the directors of Nonprofit. It is anticipated that the Hospital's Chief Executive Officer, Chief Financial Officer, and Vice President of Clinical Services will be designated as members of the Board of Directors, and will be elected as officers of Nonprofit. The Hospital's Chief Executive Officer and Chief Financial Officer are employees of the Manager while the Hospital's Vice President of Clinical Services is an employee of the Hospital. There will be no compensation paid by Nonprofit to any of its directors or officers for serving as directors or officers, nor will such persons have any personal financial interest or financial relationship with Nonprofit.

The Board of Trustees of the Hospital will financially support Nonprofit through a loan of funds. In the alternative, the Hospital may enter into a Support Agreement with Nonprofit which would set forth the amount and manner of grants or other financial assistance which the Board of Trustees of the Hospital will provide to Nonprofit under the terms of the Support Agreement. The Hospital will submit a request for an Opinion from the Mississippi Attorney General (i) on the authority of the Board of Trustees to provide grants, loans or other financial assistance to Nonprofit or to enter into a Support Agreement with Nonprofit, and (ii) on the authority of the Hospital to act as the sole member of Nonprofit.

Nonprofit will purchase and own 50% interest in Local Surgery Center, LLC, a Mississippi limited liability company which will own and operate an ambulatory surgery center ("Facility") to be constructed and operated by the Local Surgery Center, LLC. The Facility will provide patients with a convenient, high quality, low cost alternative for outpatient surgery and will improve access to such surgery to citizens in the Hospital's service area. In addition, the Facility will provide physicians with access to an outpatient surgery center which utilizes current technology innovations. The investment of Nonprofit in the Local Surgery Center, LLC as a new healthcare provider will expand access to healthcare resources in the Hospital's service area, and will allow the more efficient provision of outpatient surgical services to the community.

The other 50% interest in the Local Surgery Center, LLC will be owned by the Physicians Group, LLC, a Mississippi limited liability company, owned by eligible physician investors. The Interested Board Member desires to purchase an interest in the Physicians Group, LLC.

Based on the above described structure, please provide us with an Advisory Opinion as to:

(1) Whether the Mississippi Ethics in Government Laws permit the investment by the Interested Board Member in the Physicians Group, LLC; and

(2) Whether the Mississippi Ethics in Government Laws permit the appointment and service of the Chief Executive Officer and Chief Financial Officer of the Hospital (both employees of the Manager) and the Vice President of Clinical Services (an employee of the Hospital) to act as members of the Board of Directors or officers of Nonprofit.

In addition to the above facts, the Commission's staff was provided the following additional facts by the requestor. Although, the Hospital is not itself incorporating Nonprofit, it has given its approval for its and its Manager's employees to incorporate Nonprofit for the sole purpose of purchasing 50% of Local Surgery Center, LLC. The Hospital's approval to fund Nonprofit to purchase 50% of Local Surgery Center, LLC in order for it to operate Facility was with the knowledge that Physicians Group, LLC would purchase the remaining 50% of Local Surgery Center, LLC.

The requestor also advised the Commission's staff that the Chief Executive Officer and Chief Financial Officer of the Hospital (both employees of the Manager) have the authority to act on behalf of the Hospital just as if they were its own employees. The requestor described the Chief Executive Officer position as the Hospital Administrator.

Based solely on the facts and circumstances presented by the requestor, the Commission's opinion is as follows.

ISSUE 1. In order to address the question concerning the Chief Executive Officer and Chief Financial Officer of the Hospital (both employees of the Manager) serving as directors or officers of Nonprofit, it must be determined whether they are public servants as defined in the above cited Code Section 25-4-103 (p).

Specifically, Code Section 25-4-103 (p)(ii) and (iii) are sufficient to include the Chief Executive Officer and Chief Financial Officer of the Hospital (both employees of the Manager) within their definitions of public servants. The Chief Executive Officer is the head or chief of the Hospital and the Chief Financial Officer is a supervisor for financial services for the Hospital. Also, both the Chief Executive Officer's and Chief Financial Officer's salaries are paid out of funds authorized by the Hospital's Board of Trustees. Those funds being the monies paid under the Manager contract.

Therefore, the Chief Executive Officer and Chief Financial Officer of the Hospital (both employees of the Manager) are public servants of the Hospital and subject to the Ethics in Government Laws.

Notwithstanding the above, the Chief Executive Officer and Chief Financial Officer of the Hospital are not as such prohibited from simultaneously serving as uncompensated board members and officers of Nonprofit.

Regarding the Chief Executive Officer, the Hospital's Board of Trustees is advised to not delegate to the Chief Executive Officer any of its powers pertaining to the Nonprofit, or its contracts or funding, as its Administrator. ⁽¹⁾ The delegation of the Hospital's Board of Trustees's powers pertaining to the Nonprofit, or its contracts or funding, will result in the Chief Executive Officer violating the above cited Code Section 25-4-105 (1) and (2) should he approve any contracts with or funding to Nonprofit.

ISSUE 2. The Hospital's Vice President of Clinical Services of the Hospital is not as such prohibited from simultaneously serving as an uncompensated board member and officer of Nonprofit.

Regarding both ISSUE 1 and ISSUE 2 , the requestor is cautioned to advise the Chief Executive Officer, the Chief Financial Officer and the Vice President of Clinical Services to remain keenly aware of the above cited Code Section 25-4-105 (1) and (5).

Code Section 25-4-105 (1) prohibits public servants from using their official positions to obtain a pecuniary benefit for themselves, a relative or a business with which they are associated.

To avoid using their official positions to obtain a pecuniary benefit, the public servants must totally and completely recuse themselves from subject matters providing the pecuniary interests. An abstention is a vote with the majority of the governing entity's board and therefore does not qualify as a recusal.

A total and complete recusal requires that the public servant not only avoid debating, discussing or taking official action on the subject matter, but also avoid discussing the subject matter with board members, staff or any other person prior to and after an official action. This includes casual comments, as well as detailed discussions, made in person, by telephone or by any other means.

Also in order 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.

Code Section 25-4-105 (5) prohibits a public servant from using or disclosing information obtained through his or her official position that could result in a pecuniary benefit for the public servant, any relative or any other person. A "person" as defined in Code Section 25-4-103 (m), cited above, would include Nonprofit, Local Surgery Center, LLC and Facility.

Also should Nonprofit, Local Surgery Center, LLC or Facility compensate the Chief Executive Officer, the Chief Financial Officer and the Vice President of Clinical Services, then they could be in violation of Code Section 25-4-105 (3)(a), cited above, if the compensation results in them having a material financial interest in Nonprofit, Local Surgery Center, LLC or Facility. A material financial interest is defined in the above cited Code Section 25-4-103 (k).

ISSUE 3. Constitutional Section 109 and Code Section 25-4-105 (2), both cited above, absolutely prohibit the Interested Board Member from purchasing an interest in Physicians Group, LLC.

Constitutional Section 109 and Code Section 25-4-105 (2) prohibit a member of a public body, in this instance a community hospital's board of trustees, from having an interest, direct or indirect, in any contract authorized by the public body. Also, the State Supreme Court has said that the appropriation of funds is a necessary part of the contract authorization process. ⁽²⁾

Clearly, the Hospital's authorization of a support agreement, or other grant or funding method, with Nonprofit for the purpose of it purchasing 50% of Local Surgery Center, LLC gives the Interested Board Member a direct interest in the support agreement, or other grant or funding method, since he would own an interest in Physicians Group, LLC which will own the other 50% of Local Surgery Center, LLC. Stated another way, without the Hospital's funding of Nonprofit, Local Surgery Center, LLC would not exist and would not be operating the Facility. Therefore, Physicians Group, LLC would not have its 50% ownership interest in Local Surgery Center, LLC resulting in Interested Board Member's interest in and potential benefits from his investment in Physicians Group, LLC being significantly reduced. In fact, Interested Board Member would have no investment to make if Physicians Group, LLC sole purpose was to invest in Local Surgery Center, LLC.

The requestor is cautioned to advise the Interested Board Member that a recusal or an abstention will 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.

Ronald E. Crowe
Executive Director

1. Code Section 41-13-36(d) authorizes a community hospital's board of trustees to give its administrator the authority "to exercise any of the powers of the board of trustees as described in Section 41-13-35, Mississippi Code of 1972, which have been delegated, by resolution or through the board bylaws, to the administrator."

2. See Frazier v. State , 504 So. 2d 675 (1987) and Cassibry v. State , 404 So. 2d 1360 (1981).