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HomeMy WebLinkAboutS2-City Attorney BERNARDINO 300 NORTH "0" STREET, SAN BERNARDINO, CALIFORNIA 92418 December 2, 1988 JAMES F. PENMAN CITY ATTORNEY (714) 384.5355 Opinion No. 88-36 Valerie Pope-Ludlam, Council Pe~son RE: CONFLICT OF INTEREST QUESTION Is a conflict present und~r California law when a council person, who is also a salaried director of a non-profit corporation, votes on a proposal from another non-profit corporation to use residual bond proceeds to rehabilitate abandoned homes for sale, where the council person's non-profit corporation could submit a similar proposal? ANALYSIS I The' conflict of interest provisions of the Political Reform Act of 1974, are found in Sections 87100 to 87103 of the Government Code. Section 87100 contains the basic prohibition of the Act. It states: "No public official at any level of state or local government shall make, participate in making, or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest." 5'-;U OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Two "Financial interest" is defined in Section 87103 of the Government Code as follows: "An official has a financial interest in a decision within the meaning of Section 87100 if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official or member of his or her immediate family or on: (a) Any business enti ty in which the public official haR a direct or indirect investment worth one thousand dollars ($1,000) or more; (b) Any real property in which the public official has a direct or indirect interest worth one thousand dollars $1,000) or more; (c) Any source of income other than gifts and other than loans by a commercial lending institution in the regular course of business on terms available to the public without regard to official status, aggregating Two Hundred Fifty Dollars ($250) or more in value provided to, received by or promised to the public official within twelve months prior to the time when the decision is made; (d) Any business entity in which the public official is a director, officer, partner, trustee, employee, or holds any position of management; (e) Any donor of, or any intermediary or agent for a donor of, a gift or gifts aggregating Two Hundred Fifty Dollars ($250) or more in value provided to, received by, or promised to the public official wi thin twelve months prior to the time when the decision is made. For purposes of this section, 'indirect investment or interest' means any investment or interest owned by the spouse or dependent child of a public official, by an agent on behalf of a public official, or by a business OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Three entity on trust in which toe official, the official's agent, spouse, and dependent chi 1 dren own directly, indirectly, or beneficially a ten percent interest or greater." (emphasis added) In addition to Sections 87100 to 87103 of the Government Code, Section 87300 requires each public agency to promulgate a conflict of interest code. In this opinion, I have not reviewed the provisions of the conflict of interest code for the City which may have an affect on any restrictions on your participation pertaining to matters involving the subject proposal. Government Code Section 87102 provides that the requirements of Section 87100 are in addition to any provisions of any "conflict of interest code" adopted under the Act. In the context of this opinion, these statutory provisions must be understood to provide that a council person cannot participate in any decision which will have a material effect on any entity by which he or she is currently employed, or from which he or she has received income in excess of $250 during the past year. For purposes of this section "participate in a decision" has a very broad meaning. Section 18700 of the Regulations of the California Fair Political Practice Commission defines such participation as follows: "(b) A public official 'makes a governmental decision' except as provided in subsection (d) of this section, when he or she, acting within the authority of his or her office: - -ell Votes on a matter; (2) Appoints a person; (3) Obligates or commits his or her agency to any course of action; (4) Enters into any contractual agreement on behalf of his or her agency; (5) Determines not to act, wi thin the meaning of subparagraphs (1), (2), (3) or (4), unless such determination is made because of his or her financial interest. When the determination not to act occurs because of his or her financial interest, the official's determination must be accompanied by disclosure of the OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Four financial interest made part of the agency's official record or made in writing to the official's supervisor, appointing power or any other person specified in a conflict of interest code adopted pursuant to Government Code Section 87300; (c) A public official or designated employee 'participates in the making of a governmental decision' when, acting within the authority of his or her position, he or she: (1) Negotiates, without significant substantive review, with a governmental entity or private person regarding the decision; or (2) Advises or makes recommendations to the decisionmaker, either directly or without significant intervening substantive review, by: (A) Conducting research or making any investigation which requires the exercise of judgment on the part of the official or designated employee and the purpose of which is to influence the decision; or (B) Preparing or presenting any report, analysis or opinion, orally or in writing, which requires the exercise of judgment on the part of the official or designated employee and the purpose of which is to influence the decision. (d) Making or participating in the making of a governmental decision shall not include: (1) Actions of public officials which are solely ministerial, secretarial, manual or clerical; (2) Appearances by a public official as a member of the general public before an agency in the course of its prescribed governmental function to represent himself or herself on matters related solely to his or her personal interests; or (3) Actions by public officials, employees, or employee representatives relating to their compensation or the terms or conditions of their employment or contract." OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Five Pursuant to the above, it is a conflict of interest for any council person employed by or receiving income from an entity to vote on any question that will have a material effect on that entity as distinguished from its effect on the public at large. The council person may not abstain from a vote on the grounds of financial interest without setting forth that financial interest as the grounds for abstention. That council person may not serve on any committee which investigates and makes recommendations to the Council as a whole regarding a disposition of monies which will materially affect the subject entity. And, as further set forth in Regulation 18700.1, the council person may not attempt to influence any employee of the City regarding an issue related to the entity: "(a) With regard to a governmental decision which is before an official's agency or any agency appointed by or subject to the budgetary control of his or her agency, the official is attempting to use his or her official position to influence the decision if, for the purpose of influencing the decision, the official contacts, or appears before, or otherwise attempts to influence, any member, officer, employee or consultant of the agency. Attempts to influence include, but are not limited to, appearances or contacts by the official on behalf of a business entity, client, or customer." These regulations also prohibit attempts to influence the decision-making employees of the City where such use can be interpre~~d as an attempt to circumvent these regulations. In the current context, if you were to vote on the proposal by the present non-profit entity, and then your non-profit organization submitted a similar proposal, such action would probably make the initial vote violative of the statute as establishing a precedent to later benefit your own agency. Therefore, it would be the advice of this office that, if you vote on the initial proposal, you be prohibited from submitting a similar proposal. On the other hand, you could abstain on the initial proposal on the basis that your non-profit organization could perhaps submit a similar proposal and if such proposal is, in fact, submitted, it could then be acted upon (subject to your abstention at that time). OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Six It should be clearly noted, however, that under the provisions of Section 83114 of the Government Code, any person may request an opinion of, or seek the advice of, the Fair Political Practice Commission concerning his or her duties under the Act. Such an opinion or advice may be relied upon so long as the Fair Political Practice Commission was provided with all the material facts, and will constitute a complete defense to civil or criminal penalties under the Political Reform Act. II The Political Reform Act of 1974 is, by its terms, applicable to all governmental decisions made by governmental officials, whether contractual or noncontractual in nature. However, state or local laws may impose additional requirements if, "such requirements do not prevent the person from complying wi th the provision of" the Political Reform Act. In case of conflict, the Political Reform Act, "shall prevail". Government Code Section 81013. Section 1090 et seq. of the Government Code is such a law imposing "additional requirements". Consequently, as a practical matter, where a proposed contract is involved, analysis of possible conflicts of interest should begin with reference to Section 1090, et seq. This is so since under the Political Reform Act, all that is needed to avoid the restrictions of Section 87100 of the Government Code is non-participation or abstention with respect to official actions. However, in contractual matters, if a conflict of interest exists, not only may the official not act, but the whole council or body on which he serves may not act either. In short, the whole transaction is prohibited even should the affected official abstain. (See, e.g., City of Imperial Beach v. Bailey (1980) 103 Cal.App.3d 191, 195.) Section 1090 of the Government Code is the law of general applicability to state and local officers. It provides: "Members of the legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase by them in their official capacity. ..." OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Seven Thus, Section 1090 of the Government Code prohibits a public officer or employee from being financially interested in a contract made by him in his official capacity, or by a board or body of which he is a member. Section 1091 then sets forth certain "remote interests" as follows: "(a) An officer shall not be deemed to be interested in a contract entered into by a body or board of which the officer is a member within the meaning of this article if the officer has only a remote interest in the contract and if the fact of such interest is disclosed to the body of (sic) the board of which the officer is a member and noted in its official records, and thereafter the body or board authorizes, approves, or ratifies the contract in good faith by a vote of its membership sufficient for the purpose without counting the vote or votes of the officer or member with the remote interest. (b) As used in this article, 'remote interest' means any of the following: 1. That of an officer or employee of a non- profit corporation, except as provided in paragraph (8) of subdivision (a) of Section 1091.5. 2. That of an employee or agent of the contracting party, if such contracting party has ten or more other employees and if the officer was an employee or agent of such contracting party for at least three . -years prior to the officer initially accepting his or her office. For the purposes of this paragraph, time of employment with the contracting party by the officer shall be counted in computing the three-year period specified in this paragraph, even though such contracting party has been converted from one form of business organization to a different form of business organization within three years of the initial taking of office by such officer. Time of employment in such case shall be counted only if, after the transfer or change in organization, the real or ultimate ownership of the contracting party is the same or substantially similar to that which existed before such transfer or OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Eight change in organization. For the purposes of this paragraph, stockholders, bondholders, partners, or other persons hOlding an interest in the contracting party are regarded as having the "real" or "ultimate" ownership of such contracting party. (c) The provisions of this section shall not be applicable to any officer interested in a contract who influences or attempts to influence another member of the body or board of which he or she is a member to enter into the contract. (d) The willful failure of an officer to disclose the fact of his or her interest in a contract pursuant to this section shall be punishable as provided in Section 1097. Such violation shall not void the contract, however, unless the contracting party had knowledge of the fact of the remote interest of the officer at the time the contract was executed." (emphasis added) Subparagraph (b) (1) above provides an exception and refers to paragraph (8) of subdivision (a) of Section 1091.5. This exception relates to non-compensated officers of non-profit tax- exempt corporations, and makes such positions as a "noninterest". Although the remote interests outlined in subparagraphs (1) and (2) of subparagraph (b) may apply in your situation, the section requires that such interest be disclosed on the record and, apparently, that you abstain from voting. It also requires that you not attempt to influence any other member of the Council as to the propriety or impropriety of entering into an agreement with th-e-proposed non-profit organization. Should such "lobbying" take place, then the exemption provided in Section 1091 would not apply. It is our understanding that your employment relationship with your non-profit organization meets the requirements of subdivision (b) quoted above. Assuming that no lobbying takes place as proscribed by the statute, you would not appear to be in violation of Government Code Section 1090, et seq. Contracts made in violation of Section 1090, although described as voidable in Section 1092 are, in fact, void. (See Stigall v. City of Taft (1962) 58 Ca1.2d 565, 568-570, and cases cited therein; see, however, limited exception in Section 1092.5) OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Nine Violation of Section 1090 is both a felony and works a disqualification from forever hOlding public office in this State (Government Code Section 1097). Aside from the remote interests or non-interests as outlined in Sections 1091 and 1091.5, the purposes of Government Code Section 1090 were outlined by the Supreme Court in the case of Stigall v. City of Taft, Supra, 58 Cal.2d at p. 569: "The instant statutes [1090 et seq.] are concerned with any interest, other than perhaps a remote or minimal interest, which would prevent the officials involved from exercising absolute loyalty and undivided allegiance to the best interests of the ... [public entity] ... conceding that no fraud or dishonesty is apparent ..., the object of the enactments is to remove or limit the possibility of any possible influence, either directly or indirectly which might bear on an official's decision, as well as to void contracts which are actually obtained through fraud or dishonest conduct..." (emphasis in original) Likewise, the interest need not be the present interest, but may consist of a potential benefit which can arise after the execution of a contract (People v. Darbey (1952) 114 Cal.App.2d 412, 431) and, further, the indirect interest need not consist of an actual financial link with the subject matter of the contract itself, such as that of a remote supplier of goods for the contract. All that is needed is that there be a financial or pecuniary-benefit to the officer which could sway his judgment. (See, e.g., Fraser-Vamor Agency, Inc., v. County of Del Norte (1977) 68 Cal.App.3d 201, 212-215, noting the lack of any judicial definition of "financial interest" and concluding, despite a public official's attempt to completely insulate himself from certain commissions on insurance contracts with the county) : " Fraser [a member of the Board of Supervisors] has had an investment in the agency represented by his partnership and shareholder interest. His interest in the Agency and in any contracts from which it derives a pecuniary benefit is clearly a financial one because the financial success of the agency inures to his personal benefit. OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Ten Such success, in time, enhances the value of Fraser's interest in the agency " (emphasis added) III The inapplicability of Section 1126 of the Government Code to your position as a council member deserves at least brief mention. Except as to nonelective public attorneys, who are permitted to hold other local incompatible offices (see Government Code Section 1128) Section 1126 provides that: " . A local agency officer or employee shall not engage in any employment, activity or enterprise for compensation which is inconsistent, incompatible, in conflict with, or inimical to his or her duties as a local agency officer or employee or with the duties, functions, or responsibilities of his or her appointing power or the agency by which he or she is employed. " It further provides that: "Each appointing power may determine, subject to the approval of the local agency, those activities which, for employees under its jurisdiction [are to be prohibited] " In -6-4 Ops.Cal.Atty.Gen. 795 (1981), the Attorney General concluded that Section 1126 of the Government Code would not be applicable to elective officers since they have no "appointing power" other than the electorate. Thus, this opinion would be directly applicable to your situation. IV Although the above discussion relates both to your position as a member of the City Council, and to your position as a member of the Community Development Commission, it is important to refer to the specific provisions related to redevelopment conflicts of interest. OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Eleven Health and Safety Code Section 33130 provides in pertinent part as follows: "(a) No agency or community officer or employee who, in tha course of his or her duties, is required to participate in the formulation of, or to approve plans or policies for, the redevelopment of a project area shall acquire any interest in any property included within a project area within the community. If any such officer or employee owns or has any direct or indirect financial interest in property included within a project area, that officer or employee shall immediately make a written disclosure of that financial interest to the agency and the legislative body and the disclosure shall be entered on the minutes of the agency and the legislative body. Failure to make the disclosure required by this subdivision constitutes misconduct in office. (b) Subdivision (a) does not prohibit any agency or community officer or employee from acquiring an interest in property within the project area for the purpose of participating as an owner or re-entering into business pursuant to this part if that officer or employee has owned a substantially equal interest in that being acquired for the three years immediately preceding the selection of the project area." Subsection (c) to the above section also provides that various rental arrangements do not constitute a violation of the section as long as such agreements are disclosed immediately to the agency and the legislative body. Violation is denoted as misconduct in office. The ownership of personal residential property within a project area is covered by the provisions of Health and Safety code Section 33130.5. This section requires full disclosure of such purchase and complete abstention from voting on any matter which would affect that property. Failure to comply is also designated as misconduct in office. OPINION ON CONFLICT OF INTEREST VALERIE POPE-LUDLAM December 1, 1988 Page Twelve V To round out the discussion, I quote the following language from a comprehensive opinion on conflicts of interest found in 59 Ops.Cal.Atty.Gen 604, 613-614: "The common law doctrine of conflicts of interest ". strictly requires public officers to avoid placing themselves in a position in which personal interests may come into conflict with their duty to the public." See also 46 Ops.Cal.Atty.Gen. 74, 86; 26 Ops.Cal.Atty. Gen.5; 67 Ops.Cal.Atty.Gen. 381. It should be noted that both the Attorney General and the courts have concluded that the common law doctrine is still a viable rule despite the passage of the Political Reform Act in 1974. CONCLUSION It therefore appears that, based upon a review of the various conflict of interest statutes above, you would have a conflict of interest under the provisions of the Political Reform Act and perhaps also under the common law doctrine with reference to matters affecting the Westside CDC if you voted on a proposal as described above, and then the Westside CDC submitted a similar proposal. It is strongly recommended that you seek a specific opinion on that question from the Fair Political Practices Commission, which opinion, as noted above, provides a complete defense from criminal or civil litigation. Respectfully ~iS . Barlow Sr. Asst. City Attorney DAB:cez cpy: Mayor City Administrator City Clerk