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 9, 2004, basing its approval solely on the facts and circumstances stated herein.
 

May an individual serve as director of a state agency while holding a material financial interest in a corporation which may (1) lease its own real property to the state and/or (2) represent third parties who lease real property to the state?

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:

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

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

(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.
 
(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) ‘Government’ 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.

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

(n) ‘Property’ means all real or personal property.

(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), (3)(a), (4)(b)(d) 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.

(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:

(b) May be a contractor or vendor with any authority of the governmental entity other than the 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 he is a member, officer, employee or agent where such contract is let to the lowest and best bidder after competitive bidding and three (3) or more legitimate bids are received or where the goods, services or property involved are reasonably available from two (2) or fewer commercial sources, provided such transactions comply with the public purchases laws.

(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.

(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.
 

I represent an individual who is being considered for appointment as the Executive Director of a state agency.

This individual requests an opinion as to the parameters of the permissible operations of a company with which he is associated if, in fact, this individual is appointed to and accepts the position of Executive Director.

The relevant facts are as follows: A corporation is a publicly traded company.  The facts related to its operations are publicly available on the internet so that the facts set out herein are not confidential.  The corporation is a real estate investment trust specializing in the operations, acquisition, ownership, management and leasing of office properties. The Corporation operates and invests principally in office properties in regional areas of the United States, but is not limited to any specific geographical region or property type.  As of March 1, 2003, the Corporation owned or had an interest in several office properties, which were comprised of approximately 9.9 million square feet of office space located in 11 states. The Corporation’s annual revenues are in excess of $140 million per year. The Corporation is publicly traded and widely held by investors throughout the United States.  The individual owns approximately 1% of the outstanding stock of the Corporation.

If appointed as Executive Director, the individual intends to continue to serve as a director of the Corporation and the chairman of its board of directors.  The individual will continue to receive a fixed fee for compensation for his services from the Corporation. The individual intends to waive any salary from the state for his services.

Two of the Corporation’s businesses are relevant to the questions presented here:

A. The Corporation owns various office buildings, space in which are leased to various third parties; and

B. The Corporation owns and operates, through a subsidiary, a real estate management and leasing business which leases space in properties owned by third parties.  The subsidiary receives a fee for those services which is usually a percentage of the rent paid over the life of the lease.

Questions present:

1. Would there be an impermissible conflict of interest if the Corporation leases space to a state agency in a building which the Corporation owns while the individual serves as Executive Director?

2. Would there be an impermissible conflict of interest if the Corporation leases space to a state agency in a building which a third party owns while the individual serves as Executive Director?

3. If the foregoing activities could present a possible conflict of interest in some situations, is there any “de minimus” amount of such transactions which could be conducted without creating an impermissible conflict of interest - in light of the relative size of the Corporation’s business and the lack of impact of any likely transaction with the State on either the Corporation or the individual?

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

 
Code Section 25-4-105(3)(a), cited above, precludes a public servant, like the Director of  a state agency, from having a material financial interest in a business which is a contractor with the state. When a public servant receives $5,000.00 or more in aggregate annual net income from a business, he or she has a material financial interest in that business. See Section 25-4-103(k), cited above. One would expect the chairman of a corporation with annual revenues in excess of $140 million per year to realize more than $5,000.00 in aggregate annual net income from that corporation. Thus, the individual in question certainly has a material financial interest in the subject corporation. A lease in which the state is a tenant is obviously a contract as that term is defined in Section 25-4-103(f), cited above. Therefore, if the individual in question becomes Director of the state agency and continues to hold a material financial interest in the subject corporation and if the corporation leases space to the state in buildings owned by the corporation, then a conflict of interest will arise, unless the lease fits one of two narrow statutory exceptions.

The exceptions are found in Section 25-4-105(4)(b), cited above. Under these exceptions the corporation in question could lease property it owns to the state only if it is the lowest and best of three bidders or if the property involved is reasonably available from two or fewer commercial sources and the lease otherwise complies with the purchasing laws.  The corporation could lease its own property directly to the state agency only under the two or fewer sources provision. See Section 25-4-105(4)(d), cited above. There is no “de minimus” exception to this rule.

However, even if circumstances arise through which the corporation may legally lease property to the state under one of these statutory exceptions, the individual in question must still take steps to avoid violating Code Section 25-4-105(1), cited above. Under that section, a public servant must not use his official position to obtain a pecuniary benefit for any business with which he is associated. To avoid a conflict, the public servant must exercise no influence whatsoever over the bid process and must totally and completely recuse himself from any action or discussion involving the proposed lease. A total and complete recusal requires that the public servant not only avoid debating, discussing or taking action on the subject matter during official meetings or deliberations, but also avoid discussing the subject matter with staff or any other person. This includes casual comments, as well as detailed discussions, made in person, by telephone or by any other means. The requestor is cautioned to advise the individual in question that these actions, or non-actions, that allow a public servant to avoid a violation of Code Section 25-4-105(1) will not prevent a violation of Code Section 25-4-105(3)(a).

With regard to whether the subject corporation may lease space on behalf of third parties, the question is really whether such an arrangement makes the subject corporation a subcontractor to the state. If the corporation in which the public servant has a material financial interest is in fact a subcontractor to the state, then another conflict would exist under Code Section 25-4-105(3)(a). The Commission finds the subject corporation would not be a subcontractor to the state, and no conflict would arise from its property management role as presented under the facts herein.

The Ethics in Government statutes do not define “subcontractor.” See Section 25-4-103. The Mississippi Supreme Court has held that “[w]here the legislature has not defined a term within the statutory scheme, we look to the term's common and generally accepted meaning.” Moore ex rel. City of Aberdeen v. Byars, 757 So.2d 243, 248 (Miss. 2000). In applying that rule, the Court defined a contractor, under Mississippi ethics law, as “one who contracts to perform a service for another and not in the broad sense of one who is a party to a contract.” Id. Likewise, “[t]he term ‘subcontractor’ means one who has contracted with the original contractor for the performance of all or a part of the work or services which such contractor has himself contracted to perform.” Black’s Law Dictionary 226-227 (6th ed. 1991). Additionally, it appears from the facts that, in its property management role, the corporation will be in privity of contract only with the landlord but will not be in privity with the state.

The Commission finds the corporation in question would not be a subcontractor to the state under these definitions and, in any event, would not be in privity of contract with the state. Therefore, no conflict would exist if the corporation’s chairman becomes Director of the state agency and the corporation’s lessor clients lease property to the state.

The requestor is cautioned to advise the individual in question that if he personally receives a pecuniary interest from his corporation’s third party clients leasing property to the state, and his pecuniary interest results in him having a material financial interest in the third party clients, then the individual in question would be in violation of Code Section 25-4-105(3)(a), unless the above discussed exceptions set forth in Code Section 25-4-105(4)(b)(d) are applicable.

One final cautionary note is appropriate under these facts. Public servants engaged in economic development work are inevitably privy to confidential information which, if known in the business community, could result in monetary gain to those possessing that knowledge. Code Section 25-4-105(5), cited above, exists to prevent the disclosure of such confidential information and the unjust enrichment of those who would violate that confidence. All public servants working in the field of economic development should remain cognizant of their duties of confidentiality and be constantly vigilant against even the unintentional disclosure of confidential information.
 
 

Scott Rankin
Executive Director