This Advisory Opinion concerns the following issue as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on January 7, 2000, basing its approval solely on the facts and circumstances stated herein.
 

May a nonprofit corporation whose board of directors include all or some of the members of a board of trustees of a community hospital lease the community hospital from the county board of supervisors?

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 25-4-101 states:
 

“The legislature declares that elective and public office and employment is a public trust and any effort to realize personal gain through official conduct, other than as provided by law, or as a natural consequence of the employment or position, is a violation of that trust.  Therefore, public servants shall endeavor to pursue a course of conduct which will not raise suspicion among the public that they are likely to be engaged in acts that are in violation of this trust and which will not reflect unfavorably upon the state and local governments.”

Code Section 25-4-103(b), (c), (e), (f)(i)(ii), (g)(i)(v), (h), (m), (o) and (p)(i)(ii)(iii) states:
 

“(b) ‘Benefit’ means any gain or advantage to the beneficiary, including any gain or advantage to a third person pursuant to the desire or consent of the beneficiary.

(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.

(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; 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.

(m) ‘Person’ means any individual, firm, business, corporation, association, partnership, union or other legal entity, and where appropriate a governmental entity.

(o) ‘Public funds’ means money belonging to the government.

(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(2) and (3)(e) states:
 

“(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:

(e) Perform any service for any compensation for any person or business after termination of his office or employment is relation to any case, decision, proceeding or application with respect to which he was directly concerned or in which he personally participated during the period of his service or employment.”

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.

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

The facts presented in this request that confront the state conflict of interest laws are that the board of supervisors will be leasing the hospital to a nonprofit corporation controlled by the current board of trustees of the community hospital by way of their appointments to the nonprofit corporation’s board of directors and that the trustees themselves will be the appointing authority.

In Frazier v. State, 504 So. 2d 675, (Miss. 1987), the Mississippi Supreme Court set forth the four elements for applying the prohibition imposed by the above cited Constitutional Section 109.  The four elements are:
 

1. Is there a governmental contract with the state, county, municipality or district?

2. Does the public officer have an interest, direct or indirect, in the contract?

3. Is the contract authorized by a law passed or order made by a board or public body of which the public officer is a member?

4. Was the authorizing law or order passed during the public officer’s term or within one year after the expiration (or termination) of such term?

These four elements equally determine the application of the prohibition imposed by the above cited Code Section 25-4-105(2).

It is clear from the requestor’s facts that elements 1, 2, and 4 set forth above are met in this instance.

The requestor is advised regarding element 2, set forth above, that the board of trustees’ interests in the lease agreement are not restricted to a personal pecuniary interest but also arise from their fiduciary interests as board of directors of the nonprofit corporation.

Therefore, the remaining question is whether the lease contract will be in fact authorized by the community hospital board of trustees.

The requestor has attempted to show that the lease contract will not be authorized by the community hospital board of trustees in saying that “the board of trustees will take no action to approve the proposed lease and the board of trustees will not be a party to the lease agreement between the board of supervisors and the nonprofit corporation.”

Although the board of trustees taking an action to approve the lease or being a party to the lease are certainly the most obvious ways for an authorization to occur, they are not the only ways.

It is clear from the facts and circumstances concerning this matter that the board of supervisors and the board of trustees have been in negotiations and discussions concerning the establishment of the nonprofit corporation and its leasing of the community hospital.

It is also clear that without the board of trustees actions to establish the nonprofit corporation and to appoint themselves to its board of directors the board of supervisors would not be re-advertising and extending the response time so that the board of trustees could through its nonprofit corporation submit a bid so as to be able to obtain the lease of the community hospital.

Based on the above, the board of trustees’ actions to establish the nonprofit and to appoint themselves members of its board of directors under the current facts and circumstances will in fact result in these actions being a part of the authorization of the lease contract for the community hospital as anticipated by Constitutional Section 109 and Code Section 25-4-105(2).

Therefore, Constitutional Section 109 and Code Section 25-4-105(2) will prohibit the nonprofit corporation, if established as described herein, from leasing the community hospital from the board of supervisors during the terms, and for one year thereafter, of the members of the board of trustees which also will be serving as members of the board of directors of the nonprofit corporation.

Notwithstanding the above, the facts presented by the requestor also present serious public policy concerns.

These concerns involve Code Section 25-4-101, cited above, which is the Legislature’s “Declaration of Public Policy.”  Code Section 25-4-101 sets the tone for the conflict of interest laws by declaring that elective and public office and employment is a public trust.  The Legislature’s “Declaration of Public Policy,” in part, provides, “Therefore, public servants shall endeavor to pursue a course of conduct which will not raise suspicion among the public that they are likely to be engaged in acts that are in violation of this trust and which will not reflect unfavorably upon the state and local governments.”

The courts of this state have not specifically addressed the “Declaration of Public Policy,” set forth in Code Section 25-4-101, as prohibiting a specific situation.  However, the courts have addressed public policy issues in other areas where certain situations were prohibited.

The courts have said very clearly that the public policy of this state is “found in its constitution and statutes.”¹    In insurance cases involving indemnity clauses, the courts have said that contracts may be invalid because they violate public policy.²

In addition, the Mississippi Supreme Court has addressed certain instances where public servants are limited in their actions by public policy.   In Board of Trustees v. Mississippi Publishers Corp., 478 So. 2d 269 (Miss. 1985), the Court ruled that the Institution of Higher Learning (IHL), regardless of the reasons benefiting IHL, could not ignore the clearly established public policy set out in the Open Meetings Law.³   Also, the Court ruled in Friedhof v. City of Biloxi, 232 Miss. 20 (1957), that city council members may not vote on matters directly concerning their personal interests as it is against public policy.⁴

The state’s public policy of public service being a public trust is clearly expressed in Code Section 25-4-101.  Therefore, members the board of trustees of the community hospital serving on the board of directors of the nonprofit corporation must be balanced against this clear statutorily declared public policy of public trust.

In this instance, the trustees by appointing themselves to the board of directors of the nonprofit corporation will be retaining their power and control over the community hospital without the public trust mandate required by public policy.  The inevitable outcome is that the trustees’ private positions as directors of the nonprofit corporation will obligate them to place the nonprofit corporation’s interest, as well as the limited partnerships interest, in competition with their public obligations.

Based on the above, the state’s public policy of public service being a public trust forbids the trustees of the community hospital from serving on and thereby from appointing themselves to serve on the board of directors of the nonprofit corporation.

Should the appointing procedure be altered in such a way that the members of the board of trustees find themselves available to serve on the board of directors of the nonprofit corporation after having resigned from the board of trustees for one full year, then the members must remain keenly aware of the above cited Code Section 25-4-105(3)(e).

Code Section 25-4-105(3)(e), cited above, prohibits a former public servant, including a former community hospital trustee, from performing any service for any compensation for any person or business after termination of his office or employment is relation to any case, decision, proceeding or application with respect to which he was directly concerned or in which he personally participated during the period of his service or employment.

Clearly, the current members of the board of trustees of the community hospital have been directly concerned and have personally participated in the decisions and proceedings involving the lease of the community hospital.

Also, the nonprofit corporation and the limited partnership will qualify as a “person” as defined above in Code Section 25-4-103(m), and mostly likely will also qualify as a “business” as defined above in Code Section 25-4-103(c).

Therefore, Code Section 25-4-105(3)(e) would absolutely prohibit said member(s) of the board of trustees from being compensated by the nonprofit corporation or the limited partnership should future circumstances result which allow said member(s) to serve on the board of directors of the nonprofit corporation.

“Compensation” is defined in the above cited Code Section 25-4-103(e) as “money or thing of value received, or to be received, from any person for services rendered.”  This would include per diem payments or travel reimbursement payments.
 
 

Ronald E. Crowe
Executive Director
 

¹ Lanier v. State, 635 So. 2d 813 (1994); Cappaert v. Junker, 413 So. 2d 378, 380 (Miss. 1982); and State ex rel Knox v. Hines Lbr. Co., 115 So. 598, 605 (1928).

² Heritage Cablevision v. New Albany Elec., 646 So. 2d 1305 (Miss. 1994).

³ Board of Trustees, supra, “Notwithstanding these arguments, this Court weighs the negative aspect proposed by the Board against the balance of the statutorily declared public policy of openness.”  “The public policy of openness has been clearly expressed by the legislature.  Public access to information is the overriding consideration in this Court decision-”

⁴ Friedhof, supra, “Public policy forbids that a City Councilman be arbiter of his own cause.”