ADVISORY OPINION NO. 06-035-E

June 9, 2006

The Mississippi Ethics Commission issued this opinion on the date shown above in accordance with Section 25-4-17(i), Mississippi Code of 1972, as reflected upon its minutes of even date. The Commission is empowered to interpret and opine only upon Article IV, Section 109, Mississippi Constitution of 1890, and Article 3, Chapter 4, Title 25, Mississippi Code of 1972. This opinion does not interpret or offer indemnity from liability for any other laws, rules or regulations. The Commission based this opinion solely on the facts and circumstances provided by the requestor as restated herein. The indemnity provided under Section 25-4-17(i) is limited to the individual who requested this opinion and to the accuracy and completeness of these facts.

I. LAW

The pertinent Ethics in Government Laws to be considered here are as follows, to wit:

Section 25-4-103, Miss. Code of 1972.

(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.

(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 th aggregate annual net income to the public servant therefrom is less than Five Thousand Dollars ($5,000.00);

(iii) The income as an employee of a relative if neither the public servant or relative is an officer, director or partner in the business and any ownership interest would not be deemed material pursuant to subparagraph (i) or (ii) herein; or

(iv) The income of the spouse of a public servant when such spouse is a contractor subcontractor or vendor with the governmental entity that employs the public servant and the public servant exercises no control, direct or indirect, over the contract between the spouse and such governmental entity.

(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.

Section 25-4-105, Miss. Code of 1972.

(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.

(b) Be a purchaser, direct or indirect, at any sale made by him in his official capacity or by the governmental entity of which he is an officer or employee, except in respect of the sale of goods or services when provided as public utilities or offered to the general public on a uniform price schedule.

II. FACTS

Facts provided by the requestor are set forth below, with identifying information redacted, and are
considered a part of this opinion.

This request for an opinion of the Mississippi Ethics Commission is submitted jointly by and on behalf of a Redevelopment Authority (“the Authority”) and a law firm (the “law firm”).

Factual Background: The Authority is the urban renewal agency of the City created pursuant to Section 43-35-33 of the Mississippi Code of 1972. The Authority is vested with the “urban renewal project powers” of the City as the result of action by the governing body of the City pursuant to Section 43-35-31 of the Mississippi Code of 1972. The Authority is governed by a seven (7) member Board of Commissioners, appointed for staggered terms of five (5) years each in the manner provided in Section 43-35-33 of the Mississippi Code of 1972. The Authority is a governmental entity separate from the City. The Authority is responsible for carrying out urban renewal projects in the City.

The Law Firm is a Mississippi Corporation. No shareholder has an equity interest in excess of 2.5%.

The Law Firm currently serves as general counsel to the Authority. The Law Firm and various predecessor partnerships have served as general counsel to the Authority since the Authority’s formation in 1968. The terms of the Law Firm’s engagement address providing routine services, services with respect to various undertakings of the Authority and services with respect to financing transactions in which the Authority is involved.

The Authority is also represented by a Law Firm (“Co-Counsel”). Co-Counsel, and its predecessor law firms, have represented the Authority for approximately 20 years. The individual who is currently responsible for providing services to the Authority attends (unless prevented by conflicting engagements) all meetings of the Board of Commissioners of the Authority and is involved in almost all undertakings of the Authority. Co-Counsel has primary responsibility for various transactions.

The Law Firm is currently leasing premises in downtown of a City under a lease which expires in September, 2009. The Law Firm has determined that it will not remain in its current facilities upon expiration of such leas and has solicited, and received, proposals from parties interested in leasing space in downtown of the City to the Law Firm. All of such proposals contemplate construction of a new building.

The Authority recently solicited proposals to purchase or lease and redevelop two properties (one of which is referred to as the “Subject Property”) owned by the Authority. The attorney in the Law Firm primarily responsible for work of the Authority (the “Law Firm’s Primary Representative”) was involved in the process of preparing documents soliciting proposals, and other representatives of the Law Firm were involved in that process to a minor extent. Co-Counsel has final responsibility for the solicitation documents relating to the Subject Property. The Law Firm was aware of the likelihood that parties in which clients of the firm has interests would submit proposals in response to either or both of the solicitations. The Law Firm was also aware that parties submitting proposals to purchase and redevelop either of the properties would have a strong interest in leasing space in any building constructed on either site to the Law Firm.

Upon receipt of proposals, the Law Firm’s Primary Representative inquired concerning the identities of the parties submitting proposals. The Law Firm’s Primary Representative was advised that two proposals has been submitted with respect to the Subject Property and was given information sufficient to indicate that one of the proposals was submitted by a client of the Law Firm. (The second proposal was submitted by an entity which is not a client of the Law Firm, although a client of the Law Firm does have an interest in such entity.) One proposal, from a party which is not a client of the Law Firm, submitted a proposal to purchase and redevelop the other parcel.

The Law Firm has represented the Authority in evaluating the proposal to purchase and redevelop the other parcel and is representing the Authority in negotiations with the party submitting that proposal.

As a consequence of submission of a proposal to purchase and redevelop the Subject Property by a client of the Law Firm, representatives of the Law Firm have not participated in the process of evaluating proposals with respect to the Subject Property. The Law Firm’s Primary Representative has absented himself from all meetings of the Authority and all committee and evaluation team meetings whenever proposals with respect to the Subject Property were discussed. No other representatives of the Law Firm have attended any such meetings. No representative of the Law Firm has advised the Authority in connection with the Authority’s decision as to whether to accept a proposal to purchase and redevelop the Subject Property.

At the meeting on May 10, 2006, the Board of Commissioners of the Authority declared its intent to accept the proposal to purchase and redevelop the Subject Property submitted by the party which is not a client of the Law Firm (the “Proposed Developer”). The Proposed Developer has never been a client of the law firm. Although a client of the Law Firm does have an interest in the Proposed Developer, a representative of that client was advised that the Law Firm would not provide representation in any manner relating to a proposed transaction involving the Authority. The Law Firm has absolutely no financial interest in the Proposed Developer. Any and all fees received from the client with an interest in the Proposed Developer are paid to the Law Firm and not to any individual attorney in the Law Firm.

The proposal contemplates acquisition of the Subject Property from the Authority and an agreement concerning development of a parking facility to serve the Project. The proposed parking facility may be located on a portion of the Subject Property, and economic participation by the Authority in costs of the parking facility will be required. Economic participation by a public entity will generally be required in connection with any new parking facility to serve new a development in downtown of the city.

At least four of the major City’s based law firms and one major accounting firm which occupy significant space in downtown of the City are currently reviewing their space needs. The City and the Authority are extremely interested in assuring that these firms maintain their principal offices in downtown of the City.

Under current market conditions, all new developments in the downtown area will require public incentives of some type. Most, if not all, of those incentives will involve the Authority.

The Authority’s Acting Chairman and Co-Counsel have requested that the Law Firm’s Primary Representative provide advice, consultation and other legal services with respect to the Authority’s proposed sale and redevelopment of the Subject Property. Co-counsel has advised that access to the advice and counsel of the Law Firm’s Primary Representative is of paramount importance, based upon the experience of the Law Firm and the Law Firm’s Primary Representative in representing the Authority in connection with acquisition of the Subject Property, a prior conveyance and reconveyance of the Subject Property, the structuring of all transactions since 1977 in which the Authority has been involved in construction of parking facilities and/or other public improvements, the structuring of all transactions in which new developments have been constructed on property acquired from the Authority, and all financing transactions in which the Authority has been involved.

The Law Firm’s Primary Representative has advised the Acting Chairman and Co-Counsel that, even though the Board has declared its intent to enter into an agreement with the proposer which is not a client of the Law Firm, he will not participate in any discussions or actions concerning the proposal to purchase the Subject Property without an opinion of the Mississippi Ethics Commission approving such participation and actions.

In Op. Miss. Ethics Commn. No. 05-101-E, the Commission was confronted with a situation in which the deciding question was whether a partner of a law firm, who was personally acting as general counsel/secretary to a private hospital, had a material financial interest in the hospital. The Commission held that he did not in the following language:

The only question here is whether the requestor has a material financial interest in the private hospital. That question must be answered in the negative. As a partner in the law firm, the requestor almost assuredly has a material financial interest in the law firm. However, the requestor himself apparently receives no income directly from the private hospital. The legal fees are paid by the private hospital to the law firm. While the requestor presumably receives some portion of those fees pursuant the firm’s partnership agreement, one cannot say “the aggregate annual income to the public servant” amounts to $5,000.00 or more as required under Section 25-4-103(k)(ii) above. Therefore, the Commission finds the requestor does not have a material financial interest in the private hospital, and no violation of Section 25-4-103(3)(a) will result if that private hospital contracts with the state hospital as described herein.

In this case both the Law Firm and the Law Firm’s Primary Representative are further step removed from any interest in the Proposed Developer; neither represents nor receives any payment from the Proposed Developer. The only connection to the Proposed Developer is that a client of the Law Firm has an interest in the Proposed Developer. Any fees received from that client are paid to the Law Firm and not to any individual attorney in the Law Firm. Under the rule of Op. 05-101-E there is no material financial interest in the client and certainly none in the Proposed Developer, which is not represented by the Law Firm at all. Therefore, it is submitted, there can be no violation of 25-4-105(3)(a).

With neither the Law firm nor the Law Firm’s Primary Representative having any ownership of, income from or control over the Proposed Developer, the Proposed Developer cannot be a “business which he is associated,” and therefore there can be no violation of 15-4-105(2), the use of office prohibition.

Request for Opinion: We would appreciate your opinion as to whether, under the conflict of interest laws set forth in Article 3, Chapter 4, Title 25, Mississippi Code of 1972, and based upon:

(a) the acts set forth above, and

(b) the Law Firm’s lack of any financial interest in the Proposed Developer:

the Law Firm may provide advice, counsel and other legal services to the Authority, either directly or under or through Co-Counsel, and render opinions with respect to issues relating to the proposed transaction;

the Proposed Developer will be permitted to enter into an agreement with the Authority, the Law Firm will be permitted to lease space in a facility constructed by the Proposed Developer on the Subject Property, upon commercially reasonable terms which are not impacted by any agreement between the Developer and the Authority; and

the Law Firm and/or its employees will be permitted to park, upon the same terms as are available for members of the general public and/or other occupants of the Project, in a parking facility which may be owned by the Authority.

We are aware that actions by the Law Firm are also subject to the Rules of Professional Conduct of the Mississippi Bar Association and that any opinion by the State Ethics Commission will not address issues under those Rules. We are undertaking a separate analysis of requirements of those rules al [sic] applicable to this transaction.

III. ANALYSIS

Section 25-4-105(3)(a), Miss. Code of 1972, quoted above, prohibits a public servant from having a “material financial interest” in a business which is a contractor, subcontractor or vendor to the governmental entity with which the public servant is associated. See Section 25-4-103(k), above. The governmental entity here is the Redevelopment Authority. Individual shareholders or employees of the firm who represent the authority may be public servants of the authority. See Op. Miss. Ethics Commn. No. 05-063-E.

To recap the most pertinent fact, the only connection between attorneys in the firm and the proposed developer is that a client of the firm has an interest in the proposed developer. No attorney in the firm can have a material financial interest in the proposed developer based solely on this tenuous connection. Therefore, no violation of Section 25-4-105(3)(a) should occur if the proposed developer becomes a contractor to the authority. Also, under these facts the firm will be free to lease space in the development from the proposed developer without fear of breaching the Ethics in Government Laws.

Likewise, the proposed developer does not qualify as a business with which any attorney in the firm is associated, based strictly upon the tangential association described herein. See Section 25-4-103(d), above. Thus, no violation of Section 25-4-105(1) should arise if attorneys in the firm render services to the authority in this matter.

Finally, Section 25-4-105(3)(b) will prohibit any public servant of the authority from purchasing from the authority “except in respect of the sale of goods or services when provided as public utilities or offered to the general public on a uniform price schedule.” Presumably the service of parking in a public parking facility would be available to the general public pursuant to a uniform price schedule, and no violation of Section 25-4-105(3)(b) would arise if firm employees park their vehicles in a facility owned by the authority.

MISSISSIPPI ETHICS COMMISSION

BY: Tom Hood, Executive Director and
Chief Counsel