Untitled Texas Attorney General Opinion

Opinion

QBfficeof tty 2hmwp Qberal Mate of Z!kxae DAN MORALES ATTORSEI GENERAL December 31,1993

Honorable James L. Anderson, Jr. Opiion No. DM-279 Aransas County Attorney 301 North Live Oak Re: Whether a wncrete material company Rockport, Texas 78382 owned by a county commissioner may provide services and materials to the county or to another contractor under contract with the wlmty (RQ-295)

Dear Mr. Anderson:

You state that a person who is likely to be appointed county commissioner in the timm owns either the majority interest in or sll of the stock in a corporation that sells wncrete materials. The commissionerscourt has contracted with a general contractor for extensive runway construction at the Aransas County Airport, and you believe he will purchase materials from the concrete company becsutseit is the only such company in the area1 On the assmnption that the owner of the concrete company will be a member of the commissioners court when the materials are purchased, you ask whether a concrete material company owned by a county commissionermay provide services and/or concrete materials to the county, or to a contractor performing services to the county under contract. Thus, you inquire about a sale from the concrete company to the county as well as a sale from the concrete company to the contractor who is already under contract with the wunty.

You wish to know how section 81.002 and section 171.004 of the Local Government Code apply to the facts you have presented. Section 81.002 provides in part: (a) Before undertaking the duties of the county judge or a wtmty wmmissioner, a person must take the official oath and swear in writing that the person will not be interested, directly or indirectly, in a contract with or claim against the county except: (1) a contract or claim expressly authorized by law; or (2) a warrant issued to the judge or wmmissioner as a fee of 05ce. (b) [bond requirement]

twe~thstthcwunty.inpurhasingmatcrialrfortbisprojeRwillwmplywithany applicablecompetitivebiddinglaws. See LocalGov’tCodeQ#271.021-271.030.

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(c) [permittingcounty judge or county wmmissioner to serve as member of the governing body or as officer or director of another entity that does business with the wunty, subject to the provisions of chapter 1711. The special oath required of the wunty judge and a county wmmissioner by section 81.002(a) has been in effect since 1876. See Acts 1876, 15th Leg., ch. 55, at 51. Prior to 1981, when the precursor of section 81.002(a)(l) was adopted, only the county judge’s and county wmmissioners’fees of office were specificallyexcepted from the oath provision. See Acts 1981,67th Leg., ch. 527, 4 3, at 2230. Public wntmcts in which a member of the wntmcting body had a direct or indirect pecuniary interest were against public policy and void, acwrding to the common-law ruleapplied by Terms courts. Meyers v. Wuker, 276 SW. 305 (T’ex.Civ. App.-Easthmd 1925, no writ); see ako Cig ojI%Murg v. Ellis, 59 S.W.2d 99 (Tex. Commh App. 1933, holding approved); Bexar County v. Wentworth, 378 S.W.2d 126 (Tex. Civ. App-San Antonio 1964, writ ref’d n.r.e.); Sfotr Counq v. Guerra, 297 S.W.2d 379 (Tex. Civ. App.-San Antonio 1951. no writ); fiippu v. Stewari Iron Works,66 S.W. 322 (Tex. Civ. App.-1902, no writ). This rule applied to counties, cities, school districts, and other state and local govemmemal bodies. See Attorney General OpinionsH-916 (1976); V-640 (1948).

In 1981 the legislature adopted an exception applicable to the predecessor of section 81.002(a) and to former article 988 V.T.C.S. (1925), which prohibited members of a~city wuncil from being “diiectiy or ir$rectly interested in any work, business or wntract, the expense, price or consideration of which is paid from the city treasury.” Acts 1875, 14th Leg., ch. 100, at 154 (repeuZedJ+JActs 1983, 68th Leg., ch. 640. at 4082). The 1981 exception read upon adoption as follows: An incorporated city or town or a county may purchase equipment or supplies from a cooperative association to which one or more members of its governing body . . belongs if no member of the governing body. . will receive a pecuniary benefit 6om the purchase except as is reflected in an increase in dividends distributed generally to members of the cooperative assokti0n.s Acts 1981,67th Leg., ch. 527, 5 1, at 2229 (revised and rewdified 1987) (current version at Local Gov’t Code 0 271.902). The bill that adopted the provision quoted above also adopted the exception for “such contracts or claims as are expressly authoriaed by law.” now wdiied as section 81.002(a)(l), Local Government Code. Acts 1981,67th Leg., ch. 527,s 3, at 2230.

Chapter 171 of the Local Govemment Code, adopted in 1983, etTected a major change in the traditional common-law prohibition against a public officer’s direct or

2ThirpmvisionavrrmledAttomcyGcaualOpinionEM24 (1975) (oo- -may”ot pwchasc suppliesfroma farm&s mopcmtivein +ich Bcommissionu owns 8 small share).

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indirect interest in a public contract entered into by the governing body to which the officer belonged. Acts 1983, 68th Leg., ch. 640, 4 1, at 4079 (adopting predecessor of chapter 171 as V.T.C.S. art. 988b (1925); see generally Attorney General Cpiion JM-424 (1986)). Chapter 171 permits local governing bodies to enter into ~ntracts in which a member of the governing body has a “substantialinterest” as defmed by section 171.002, but the “interested”public 05ce-r must comply with section 171.004 of the Local Government Code, which provides as follows: (a) If a local public official has a substantial interest in a business entitys or in real property, the official shall file, before a vote or decision on any matter involving the business entity or the real property, an a5davit stating the nature and extent of the interest and shall abstain from the further participation in the matter Z (1) in the case of a substantial interest in a business.entity the action on the matter wili have a special economic effect on the business entity that is distinguishablefrom the effect on the public; . . A “local public official”includes the following: a member of he governing body or another officer . of mry diict (including a school district), county municipality, precinct, central appraisal district, transit authority or district . . . Local Gov’tCode 8 171.001(l) (emphasisadded).

A local public 05&l commits an offense by knowinglyviolating section 171.004, id. 8 171.003(a)(l), but this violation will not invalidate the wntract unless the measure would not have passed the governing body without his vote. Id. 5 171.006. This enactment modiies the strict common-law rule that would have invalidated the contmct even if the public officer had not participated. It permits the transaction but forbids the interested officer from participating in it, enforcing this requirement by a crimmal penalty. Id. 8 171.003.

The legislature has not expressly repealed section 8 1.002 of the Locai Government Code, but the apparent overlap of this provision with chapter 171 of the Local Government Code raises an issue of implied repeal. Section 81.002 requires the county judge and wunty wmmissioners to talce an oath that they will not be interested in wntracts with the wunty, but chapter 171 permits the wunty to enter into wntracts in which these officers are interested. See Local Goti Code 5 171.001(l) (detining “local public 05&l* to include a member of the governing body of a county).

“‘Bosinces entity”is detinedas “a soleproprietorship, psruicmhip,firm,coquaatioa,heldiq compny, joint-stockcompany,receivership, trust,or any otherentityrecognized by law.” LocslGo+l code 0 171.001(2).

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In Attorney General Opiion JIM-1090(1989) this office attempted to harmonize these two provisions, concluding that the provisions of chapter 171 impliedly repealed those of 81.002 to a certain extent. On review of Attorney General Opiion JM-1090, we believe that it wrrectly concluded that chapter 171 prevails over section 81.002, but that its reasoning is erroneous. In particular, Attorney General Opiion JM-1090 was inwrrect in stating that a contract entered into under chapter 171 was “‘a contract . expressly authorized by law.‘” As we have pointed out, the quoted language was adopted in a bii that authorized a wunty to purchase equipment or supplies from a woperative association to which a member of the wmmissioners court belonged. See Local Goti Code § 271.902. A wntract to purchase equipment or supplies from a woperative association is necesssrily a contract “expressly authotizd by law.” The terms of the authorizing law are specitk as to the subject matter of the contract and the hind of entity with which the county contracts. Chapter 171 does not have that hind of specificity. Assuming that the wmmissioners court has authority under another statute or a wnstitutional provision to wntract with a business entity or with regard to real estate, chapter 171 permits the wmmissioners court to enter into the wntract even thougb a member of the wmt has a personal pecuniary interest in it. As a wnsequence of characterizing contracts made pursuant to chapter 171 as contracts “expressly authorized by law,” Attorney General Opinion JM-1090 reached the doubffil conclusion that a county wuld enter into wntracts in which a county wmmissioner had a “substantkl interest” within chapter 171, but could not enter into wntmcts in which a county wmmissioner bad a lesser interest.

In our opinion, chapter 171 and section 81.002 may be wrre-cdy harmonized by reading chapter 171 to authorize a wunty to enter into contracts or take actions in which a member of the commissioners court is pecuniarily interested to the same extent that other local govemmental bodies may take such actions. Thus, if a wunty wmmissioner or county judge has a substantial interest in a business entity that will be subject to a vote or decision by the wmmissioners court, he must file the a5davit required by section 171.004 and abstain from participation in a matter if “action on the matter will have a special economic eEect on the business entity that is distinguishablefrom the e&ct on the public.” Local Oov’t Code 8 171.004. If his interest in a business entity is less than a substantkl interest, the interested member of the wmmissioner’s wurt may participate in an action affcaing the business entity. Chapter 171 creates an exception in the oath required by section 8 1.002 to the extent that it permits a county judge or county wmmissioner to have a direct or indirect interest in a contract with or claim against the wunty.4

4chaptcr171oftheLocal Govcmmwtcodcappliwlocolmtywolmctablvo~r~ entity”io which a anmtyjudge or wunty wmmissioner is intcmsted. Local GovVcode 8 171.002(a),@). Itis~openqucstionwhetheranattcmptbyacountyjudgcoracwntywmmissionnto~~cll mvnedin his perscd capscitywould involve a “businessentity”within chapter171. Thus, it is possiile that chapter 171 would not authorizea wunty commissionerto sell, for example, his automobileto the wmtty, aad s&ion 81.002 and the common-lawrule would continue to prohibitsuch tmnmctions. See Stow Cmmryv. Guem, 297 S.WA 379 (%x. Cit. ASP.-SW Antonio 1951, no writ) (wuoly wmmiAoncr unlawfullyemployedas mad wmmissioncr was not entitledto mcetvcsalary). But see 35

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The legislativehistory of chapter 171 shows that it was meant to apply to members of the wmmissioners wurt just as it applies to members of other local governmental bodies. Its enactment was recommended by the Public Servant Standards of Conduct Advisory Committee, a body establishedby statute to study laws on the conduct of public servants and to recommend revisions to the legislature. See g&erully Attorney General . Opinion JM-424 (1986). The wmnuttee’s report stated as follows: Local officers-elected and appointed officers in city cmd cow@ govemmenr, some special districts, and school districts-perform the same types of fbnctions as state officers and are open to the same types of conflicts of interest, centering around voting, purchasing, and wntracts. The fbll wnmtittee eventually recommended solutions that were based on a form of tlnancial disclosure with abstention &om participation. BACKGROUNDREPORT ON LQCAL. OFFICERS’CONFLICT OF INTEREST PROBLEMS, published in FINAL.REPORT OF THE PUBLIC SERVANT STANDARDS OF CONDUCf ADVlSORYCOMMITlEEat 17 (August 1982) (m Legislative Reference Library) (emphasis added).

In 1989, the legislature adopted House Bii 1976 to overturn Attorney General Opinion Jhf-1006 (1989). which determinedthat public policy and section 81.002 barred a wunty judge gem serving on the board of directors of a private wrporation that did business with the c0unty.J House Comm. on County Atihim, Bill kalysis, H.B. 1976, 7lst Leg. (1989); Senate Comm. on IntergovernmentalRelations, Bill Analysis, C.S.H.B. 1976. 7lst Leg. (1989). It added the following provision to section 81.002 of the Local 0ovemme.t~ Code: (c) Subject IO the provisions of Chapter 171, the county judge or a county wmmissioner may serve as a member of the governing body or as an officer or director of another entity, except: (1) a publicly traded corporation; or (2) a subsidiary, afliliate, or subdivisionof a publicly traded corporation; that does business with the wunty

(foomotcwnthwd) D. BROOKS, COVNN ANDSFWL~LDtsnucr LAW5 18.37 (Texas F’mctice1989) (suggeping that dcfmitionof “bosincssentity’includesan individualselling properlyor wntmcting in his own name).

JHCWSC Bill 1976 also addedsection 171.009to tlx Local oovcmmwtcod+allowingsoylocal pblic cdlicial to wvc as a memberof the board of directorscf private,nonprofitwrporations if the oflicial sane6 wltboutwmpmsation or othermmmmation.

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Acts 1989,7lst Leg., ch. 475,s 1, at 1647-48 (emphasisadded).6

The italicized language of section 81.002(c) shows that chapter 171 applies to county contracts. The bii analysis prepared for the Senate Committee on Intergovermnental Relations also shows the legislature’sunderstandmg that chapter 171 applied to members of the wmmissioners’court: The Local Government Code sets out standards designed to regulate wnflicts of interest of 05wrs of municipalities, wrmries, and certain other local governments. The laws provide that a local public official commits a Class A misdemeanor (1) if that 05ciaJ (i.e., elected or appointed, paid or unpaid member or 05ces of any district, coun& municipality, etc.) has a substantial interest. . . in a business entity, and (2) that official participates in a decision that would confer likely economic benefit on the business. . . . Senate Comm. on IntergovemmentalRelations, supru (emphasis added).

Chapter 171 is not the only enactment that has impliedly mod&d section 81.002 of the Local Government Code or its predecessors. A 1935 amendment to article XVI, section 61 of the Texas Constitution placed wunty officers in counties of 20,000 or more on a salary basis, requiring their fees to be paid into the county treasury. H.J.R. 6. Acts 1935,44th Leg., at 1235. Section 81.002(a)(2), which excepts only “a warrant issued to the judge or commissioner as u fee of o#%ze,” was not amended. Local Goti Code 5 81.002(c) (emphasis added). County commissioners and the county judge nonetheless may receive the salary, expenses, and benefits authorized by other law. See Local Goti Code 8 152.011; Attorney General Opiions MW-110 (1979); H-992 (1977).

Article 2529c, V.T.C.S., adopted in 1967, Acts 1967,6Oth Leg., ch. 179, at 370, permits the state and political subdivisions to choose a depository bank even though members of the body selecting it own stock in it or serve as its officers or directors. This statute expressly modifies the wmmon law, but does not mention the county wmmissioners’and judge’s oath provision. Nevertheless, this 05ce has held article 2529c applicable to the wunty’s contract with its depository. Attorney General Opiions MW-505 (1982); H-596 (1975). Chapter 171 also modifies the special oath required by section 8 1.002(a).

We will address your specific questions. We will assume that the owner of a wncrete materials corporation will be a member of the wmmissioners wurt at the time the county or the contractor purchases materials from his corporation. You have informed us tbat the owner of the corporation has at least a majority interest in it, which would be

ewe assumethatthewncmtcmatctis wmpmyin questionis sot a pnbncryuadedanpxation or subsidiarycda publiclyWadedcorporation.Acwrdingly,we will not wnsidu the appli~on of section 81.002(c) to the situationyou havepresented.

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“a substantial interest in a busiiess entity” within chapter 171 of the Local Government Code. See Local Gov’tCode $8 171.001(2), 171.002. He will be subject to the following provision: the 05&l [who is substantiallyinterested in a business entity] shall 5e, before a vote or decision on any matter involving the business entity. . , an affidavit stating the nature and extent of the interest and shall abstain from the tinther participationin the matter if: (1) in the case of a substantial interest in a business entity the action on the matter will have a special economic efkct on the business entity that is distinguishablefrom the et&t on the public. Local Cioti Code 8 171.004 (emphasisadded).

Ordinarily, we cannot decide in the opinion process whether an action of the wmmissioners wurt “willhave a special economic effect on the business entity” because this decision requires the investigation and resolution of fact questions. However, if the county decides to buy materials from the corporation owned entirely or in large part by the wmmissioner, we believe that this decision will, as a matter of law, “have a special economic effect on the. . [corporation] that is distinguishable 6om the effect on the public.” Accordingly, the wunty commissionerwill have to tile the a5davit and abstain from 6ntha participation in the matter, includingparticipation in discussions leading up to a vote or decision on the contract. See Attorney General OpinionJM-379 (1985).

Jf the county’s general contractor purchases materials from the wncrete corporation, section 171.004 of the Local Government Code will apply if the wmmissioners court takes any action involving the concrete business that “will have a special economic effect on the business entity that is distinguishable6om the e5ct on the public.” We are unable to determine 6om the facts that you have provided whether the wmmissioners wurt will take any such actions.

Attorney Gmeral Opinion JM-1090 is modiied to the extent it is inwnsistent with this opinion.

SUMMARY Chapter 171 of the Locsl Government Code authorizes a county to enter into contracts or take actions in which a member of the wmmissioners court is pecuniarilyinterested to the same extent that other local governmental bodies may take such actions. Section 81.002 of the Local Government Code, which requires the county judge and each county commissionerto take an oath tbat he will not be diiectly or indirectly interested in a contract with the county, is impliedlyrepealed to the extent it is inwnsistent with chapter 171.

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If Aransas County decides to buy materials from a wrporation owned entirely or in large part by a member of the commissioners court, this decision will, as a matter of law, “have a special ewnomic effect on the. . [corporation] that is distinguishablefrom the effect on the public.” The county wmmissioner who owns the corporation will have to file the affidavit and abstain from krther participation in the matter, including participation in discussions leading up to a vote or decision on the contract.

Attorney Oeneral Opinion JIM-1090(1989) is modified to the extent it is inwnsistent with this opinion.

DAN MORALES Attorney Oeneral of Texas

W&L. PRYOR Pii Assistant Attorney General

MARYKELLER Deputy Attorney General for Litigation

RENEAHKKS State Solicitor

MADELEINE B. JOHNSON Chair, Opinion Committee

Prepared by Susan L. Garrison Assistant Attorney General

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