This Advisory Opinion concerns the following issue as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on July 12, 2002, basing its approval solely on the facts and circumstances stated herein.
 

May a Water Management District purchase land from a bank when several of the District’s directors are stockholders of the bank?

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(a), (c), (d), (f)(i)(ii), (g)(v), (h), (k)(i)(ii), (l) and (p)(i)(ii)(iii) states:
 

“(a) ‘Authority’ means any component unit of a governmental entity.

(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:
 

(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.

(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 (4)(a)(d) 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.

(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.

(d) May be a contractor, subcontractor or vendor with any authority of the governmental entity of which he is a member, officer, employee or agent or have a material financial interest in a business which is a contractor, subcontractor or vendor with any  authority of the governmental entity of which he is a member, officer, employee or agent: (i) where such goods or services involved are reasonably available from two (2) or fewer commercial sources, provided such transactions comply with the public purchases laws; or (ii) where the contractual relationship involves the further research, development, testing, promotion or merchandising of an intellectual property created by the public servant.”

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

I am the attorney for a Water Management District (“District”).  The District has been appropriated certain funds to purchase land for a headquarters building and maintenance shop.

The District has found a very suitable tract of land in a City in Mississippi that is desirable in all aspects including safe access for the heavy equipment utilized by the District and otherwise which is convenient to the District’s employees.  This tract of land is owned by a Bank.

Attached hereto are the “Director’s Questionnaire Regarding Banking Interest” forms on seven (7) of the District’s directors, either still presently serving or who were recently replaced by the Governor’s appointment of fifteen (l5) new boards members on June 18, 2002, and who have an interest in the Bank as shown on said Questionnaires.

As to the Governor’s appointment of fifteen (15) new board members on June 18, 2002 as shown on the appointment letters attached hereto, we do not have any information at this time as to whether or not any of them have any interest in the Bank.

The District believes that it is in the best interest to be allowed to purchase this tract of land which is suitable and desirable for the District’s purposes and for what the District believes is a very fair and reasonable price.  However, with the present directors or with the past directors, whose terms ended just a few days ago, having an interest in the Bank as shown by the enclosed Questionnaires, the District wants to know if it can proceed in purchasing this tract of land from the Bank.

Accordingly, the District respectfully requests an opinion from your agency as to whether or not the District can proceed in purchasing the land from the Bank and then constructing the appropriate buildings on the site.

The Commission formally adopts Advisory Opinion No. 98-008-E in response to this request and by attachment incorporates it into this opinion.

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

 
Constitutional Section 109 and Code Section 25-4-105(2), both cited above, prohibit a board member from having a direct or indirect interest in any contract authorized by the 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.

In Frazier v. State, 504 So. 2d 675, (Miss. 1987), the Mississippi Supreme Court set forth the following four elements necessary to apply the Constitutional Section 109, and Code Section 25-4-105(1), prohibition:
 

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 or was 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?

First, the purchase of land from the bank would constitute a governmental contract for purposes of Constitutional Section 109 and Code Section 25-4-105(2).

Secondly, district board members, who are stockholders of the bank, would have an indirect interest in the District’s contract to purchase land from the bank through their bank stock holdings.

Thirdly, if purchased, the land contract would have been authorized by the District board of which they are or were members.

Lastly, if the land is purchased by the District during the term for which the board members shall have been chosen or within one (1) year after the expiration of their term, the prohibitions in Constitutional Section 109 and Code Section 25-4-105(2) apply.

Therefore, Constitutional Section 109 and Code Section 25-4-105(2) will prohibit the District directors, as bank stockholders, from purchasing land from a bank during their term and for one year thereafter.

 
As set forth in the attached advisory opinion, a board member’s prohibited interest in a bank contracting with their District may be construed to be an interest that is “de minimis non curet lex.”

In Frazier, supra, the Mississippi Supreme Court gave some indication that certain prohibited interests may be de minimis non curat lex.  In other words, a board member’s interest would be in violation of Constitutional Section 109 but would be so small or trifling that the law would not take notice of the interest leading to the violation.  The Court provided no guidance on when it would classify an interest as a de minimis interest.  The requestor’s facts do not include sufficient information to make a determination to the de minimis interest of the District directors. Each case must be determined based on its individual facts and must ultimately be decided by a court of competent jurisdiction if the de minimis interest is contested. However, it is this Commission’s position that a situation would be much less likely to be classified as de minimis when multiple members of a governmental board are stockholders of the bank in question.

The requestor is cautioned to advise the District’s board members that a recusal or an abstention will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2).  Even without a 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.

Also, the requestor is cautioned to advise the District’ board members, who might still be serving on the board at the time of the property purchase and who own stock in the bank, that the prohibition set forth in Code Section 25-4-105(3)(a), cited above, is applicable in this circumstance.

Code Section 25-4-105(3)(a) prohibits a public servant, including the District’s board members, from having a material financial interest in a business, such as the bank, that is a contractor with the District.

The District’s board members who are stockholders will have a material financial interest in the bank if they meet the threshold set forth in the above cited Code Section 25-4-103(k)(i)(ii). Specifically, the Director’s will have a material financial interest in the bank if they 1) own ten percent or more interest in the bank; 2) own less than ten percent but not less than two percent and earn an aggregate annual net income of $1,000.00 or more; or 3) own less than two percent and earn an aggregate annual net income of $5,000.00 or more.

 
The requestor is also cautioned to advise the District’s board members that the exception set forth in Code Section 25-4-105(4)(a), cited above, is not applicable in this instance as the District’s contract with the bank does not involve serving as 1) a depository or 2) bidding on indebtedness instruments.  Also, the requestor is cautioned to inform the District’s board members that the exception in Code Section 25-4-105(4)(d), cited above, is not applicable in this instance as the two (2) or fewer commercial sources exemption is limited to goods or services and therefore does not include property.  Code Section 25-4-105(4)(d) is the appropriate law as the bank would be selling its property to the District which is the governmental authority of the District’s board members who are stockholders of the bank.

   Should a District’s board member’s interest in the bank contracting with the District to sell property be determined by a court of competent jurisdiction to be de minimis non curat lex and should the same member’s stock ownership in the bank be determined not to be a material financial interest, the District’s board member still must remain keenly aware of the above cited Code Section 25-4-105(1).

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 action on the subject matter during the official meeting, but also avoid discussing the subject matter with other 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.

 
In order to be certain to avoid a violation of Code Section 25-4-105(1), the District directors must totally and completely recuse themselves from any matter concerning the bank that comes before the District board including not only the land purchase but also making investments and deposits with the depositories.

Again, the requestor is advised that a recusal or an abstention will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2). Also, the requestor is cautioned to advise the District’s board members that a recusal or an abstention will not prevent a violation of Code Section 25-4-105(3)(a).
 
 
 

Scott Rankin
Executive Director