86.15

OPINION NO. 86-15

An opinion has been requested as to whether the Ethics Law would prohibit the employment of the Chairman of the State Board of Universities and Colleges (the Board) with a law firm that is counsel to a contractor in a construction project at one of the Board's colleges.

The Board is established in Title 14 of the Education Article, Annotated Code of Maryland, and is responsible for the governance of the State's 4 State Colleges, as well as Towson State University and the University of Baltimore. It meets 6 times a year and approves all academic programs and all tuition and fees; it approves hirings and separations of college personnel, and prepares and submits capital and operating budgets for all six campuses. The Board consists of 15 members appointed by the Governor. Except for one student member, they serve 5-year terms and may not be subject to the Board's authority in any way. The Requestor was appointed in 1978; he is serving his second term now and has been Chairman during the years 1984 and 1985.

This request involves the construction of a student union on the campus of Salisbury State College. This facility is described as an auxiliary facility, that is, other than a classroom or other educational facility. Auxiliary facilities are funded and operated with fees generated from their use, rather than through State funds. The construction and funding process is therefore different from educational buildings funded by the State, where the lead contracting agency is the Department of General Services. Auxiliary facilities are constructed through a process that involves the State's procurement rules and interagency review teams including the usual control agencies (DGS, State Planning and Budget and Fiscal Planning), along with staff of both the Board and the College. The contract must be approved by the Board of Public Works, but the actual signer of the contract on behalf of the State is a representative of the user agency, in this case the Board's Interim Executive Director and also the President of the College.

Apparently in these situations the need is identified on the particular campus and presented to the Board, which makes an initial policy determination as to the need for the facility and the decision to go forward. In this particular situation, the need for the facility was apparently well-known, as Salisbury is the only residential campus without a permanent student union. Board staff analysis and review was coordinated with the campus, and after various approvals and reviews by the Board and its Committee on Finance and Management (including development of a detailed design through a consultant), the interagency review team developed a Request for Proposals (RFP) that was issued on March 29, 1985 after Board approval.

The RFP required bidders to include proposed financing mechanisms, though the preferred route was identified as a leasing arrangement. The interagency review team rejected all bids on the Student Union as too high, apparently because of the design of the building. Subsequently, negotiations were conducted with both offerors, however, and the team selected Eastern Shore Associates, an entity put together for this project. It consists of a Baltimore developer and a Salisbury construction contractor. Eastern Shore is represented in this transaction by a Baltimore law firm with which the Chairman is affiliated. The proposal suggested by Eastern Shore was for a municipal lease under which construction would be financed by a private tax exempt bond, and the building leased to the College for a 30-year term at the end of which the College owns the building. The College can terminate the lease at any time during its term. The State at this point was advised by representatives of the Attorney General's Office, and also worked closely with the developer's attorneys. Apparently attorneys on both sides were involved in the entire negotiating process. The resulting recommendation for a proposed contractor and financing method was provided to the Board's Finance and Management Committee, and ultimately to the Board in January 1986.

Once the Board approved the recommendation, contract documents were drafted and placed on the DGS agenda for the March 1986 meeting. After approval by BPW, the contract was signed by the Board's Interim Executive Director, the President of the College, and by representatives of the developer. The Department of General Services is not a party to the contract. The project is now under construction. Because it is a lease arrangement where the developer constructs the facility and leases it to the Board for a defined rate, there are unlikely to be ongoing "change order" construction decisions to be made by the Board. A major change that would alter the lease amount, however, would have to go to the BPW, through the Board, as would any action to terminate the contract. Also, representatives of both the Board and the College participate with DGS personnel in contract monitoring to assure the building is constructed according to specifications.

The Executive Director indicates that identification of counsel to the proposed contractors is not usually a specified information item in the proposals. Staff as a matter of course do obtain this information, however, and advise Board members if any firms are identified with which a member may be affiliated. According to the Executive Director, the Chairman, though he is an ex officio member of all Board committees, had not been involved in the Salisbury State student union project at the Finance and Management Committee review stage. The Executive Director indicated that he informed the Chairman that his law firm was the Baltimore firm representing one of the possible contractors at the time the full Board first considered the Finance Committee's contract recommendation in January 1986.

The Chairman indicates that he was unaware until this time of his firm's involvement. He states that he is in the firm's litigation division and does product liability defense work, and some anti-trust work. He says he has not been involved in this or any other aspect of the firm's representation of Eastern Shore Associates. Apparently the Baltimore developer in the project is a regular client of the firm, and it was therefore involved in at least one prior similar transaction between the Board and this developer involving facilities construction at Towson State University. The Chairman says that he had disqualified himself from Board participation in the Towson State project.

The Chairman advises that as soon as he learned of his firm's involvement in the Salisbury State project, he immediately disqualified himself and has left the room on that and every occasion since where the student union project has been discussed. On these occasions the Board's meeting has been chaired by the Vice-Chairman. The Chairman states that he has no knowledge of the activities of his firm regarding this matter. He has, however, apparently continued to be involved on the Board in general budget discussions, which included Salisbury State fee schedules that are being significantly raised to reflect the cost of the new student union.

Since he does not plan to participate in the project for the firm, or in the Board's consideration of the project, the primary issue presented here is whether the Chairman's employment with the firm in itself presents employment issues under §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). Subsection (a)(1)(i) of this provision prohibits a person from being employed by or having an interest in an entity that contracts with or is negotiating a contract with his agency. Subsection (a)(1)(ii) further prohibits any other employment that would impair his impartiality or independence of judgment. In this situation, the firm itself does not contract directly with the Board and is not regulated by it. A preliminary question, therefore, is whether the firm's significant involvement as an advisor to a party in a major facilities project being considered by the Board as a participant in the negotiation and document drafting process, results in a relationship between the Board and the firm as contemplated by the strictly worded prohibition of §3-103(a)(1)(i) of the Ethics Law.

In our Opinion No. 80-3 we considered a situation where a member of the law firm of an individual who served on the Maryland Industrial Development Financing Authority (MIDFA or the Authority) was involved in representation of clients negotiating mortgage loan agreements with the Authority. We concluded in that case that the "law firm, by representing an applicant for a MIDFA guaranteed loan, is 'an entity negotiating a contract' with" the Authority. Though we do not necessarily conclude that in all circumstances a law firm representing a client would be "negotiating" for purposes of §3-103(a)(1)(i), we think that the situation presented here does come within this provision. The Chairman's law firm is counsel to an entity that has been and continues to be a party to a major transaction directly with the Board. This entity and this law firm have been involved in at least one prior transaction with the Board. These types of efforts do tend to involve continuing discussion and negotiation back and forth between the developer and the Board, whose staff participates regularly in the monitoring activity.

Under all of these circumstances, we must conclude that the Chairman's firm is an entity that is negotiating a contract with the Board for purposes of §3-103(a)(1)(i), and his employment with it inconsistent with his Board membership unless an exception or exemption can be applied.1 The Law establishes several exceptions and exemptions, aimed to allowing certain skilled people to be appointed to and retained on boards. These include, for example, the licensing or regulatory exception where members are required to be licensed by the (§3-103(a)(2)(i)). In our view, this exception would not apply here, since the Chairman was not appointed to represent a licensed profession. Other provisions include the time of appointment exception (§3-103(a)(2)(iii)), the Gubernatorial exemption (§3-103(a)(3)), and the board and commission exemption (§2-103(h)).2

We have also evaluated this situation in view of an additional general exception set forth in §3-103(a)(1), and our implementing regulatory criteria (COMAR 19A.02.01). This exception is allowed where an interest is disclosed and where there is a determination that the situation presents no conflict of interest or appearance of conflict. The regulations are designed as guidelines for determining whether the relationships between private and official activities are sufficiently remote so that these statutory criteria are met. They include review of official responsibilities, consideration of the nature of the private affiliation, and a general evaluation of whether the total circumstances of the particular situation would present a conflict of interest or appearance thereof.

In considering the regulatory criteria, it is our view that they cannot be applied to allow simultaneous service of the Chairman on the Board and participation by his firm in this project. This Board apparently functions as the primary decision-maker as to both matters of policy and operation in the State program for higher education. The project here significantly involves both the Board and the firm, and its client. The Chairman, as a full member of the Board, would normally be expected to be a participant in these determinations, and, as Chairman, would be expected to serve on the various subcommittees that would be directly involved in work on the project.

We recognize that the Chairman is prepared to disqualify himself from the Board's consideration of that transaction, and to avoid any involvement in the firm's activities on it. We have, however, consistently held that disqualification cannot be a cure for a breach of the strict prohibition of §3-103(a)(1)(i),3 and our regulatory criteria have not been viewed as adopting this approach. These criteria, consistent with the statutory standard, include consideration of the total circumstances and the potential for appearance of conflict as well as actual conflict. Disqualification from participation in decisions such as those presented here, no matter how carefully and scrupulously followed, is often simply not a matter of public knowledge. What is seen by the public is that the Board is the decision-maker in these matters, and one of its members, who legally has joint authority and responsibility for the contract decision, is affiliated with a law firm significantly involved in the transaction. The public sees that the Chairman's firm has been involved as counsel to a developer involved in at least two of the recent construction projects in which the Board has been involved.

As we discussed in our Opinion No. 80-3, we believe that this situation raises appearance concerns that militate against application of an exception to this situation. Citing the legislative findings in §1-201(b) of the Law, that the public's confidence and trust in public officials "is eroded when the conduct of the State's business is subject to improper influence or even the appearance of improper influence," we concluded there that permitting

the law firm of a public official on a board or commission to represent clients in matters involving that board or commission would create a situation in which the public perception of improper influence would have the effect of eroding public confidence in government.

We also noted there that this approach followed the consistent and long-standing advice of our predecessor Board of Ethics under a comparable provision (Article III, §5 of the Code of Ethics) "that when a lawyer member of a State board or commission is also a member of a private law firm, that firm cannot in any way represent anyone with respect to matters pending before that board or commission as long as the lawyer member retains his position."

As we stated in our earlier Opinion, we do not in any way impugn the integrity or ethical standards of either the Chairman or any attorney in his firm. In fact, we commend the Chairman for bringing this matter to our attention. However, we continue in our past concern and that of our predecessor Board of Ethics that permitting the law firm of a board member to represent clients in matters concerning that board creates the potential for and public perception of the type of conflict intended to be addressed by the employment and other provisions of the Ethics Law. Applying these principles to all of the circumstances presented here, we therefore advise the Chairman, the Board and his law firm that his simultaneous service on the Board and his firm's representation of the developer would be inconsistent with §3-103(a)(1)(i) of the Ethics Law, and that this conflict could not be overcome by application of the statutory regulatory exception provisions of §3-103(a) or other Ethics Law exception or exemption provisions.4

Reverend John Wesley Holland
   Betty B. Nelson
   Barbara M. Steckel

Date: July 8, 1986

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1 As we believe this situation is covered by subsection (a)(1)(i), we do not rule formally on §3-103(a)(1)(ii). However, we wish to note that we are concerned that significant issues could be raised here under this provision. Unlike other situations where we have allowed relationships of board and commission members under this provision, the circumstances here involve more than one transaction, and a continuing series of dealings and interactions; the relationship is directly with the Board, and Board staff (which is not large and appears to work closely with the Board) is significantly involved on an ongoing basis.

2 The time of appointment exemption (§3-103(a)(2)(iii)) is aimed at attracting necessary skills to a board where there is a known publicly disclosed existing conflict that is found acceptable to the appointing authority and to the Senate where confirmation is required. The exemption leaves intact protections in the Law which prohibit new business activity relating to the board member's agency. This exemption would not apply here since the Chairman's firm's representation of a developer involved with the agency was not disclosed at the time of his most recent appointment. See below at footnote 4, a discussion of the §3-103(a) and 3-103(h) exceptions.

3 See, for example, our Opinions No. 84-18,No. 84-3, No. 83-34 and No. 83-1.

4 The exemption provisions in §2-103(h) and 3-103(a)(3) have been viewed by the Commission as extraordinary remedies. Both require a recommendation from an appropriate agency head, and a §3-103(a)(3) exception must be requested by the Governor. Under §2-103(h) there must be a finding that application of the Law would constitute an unreasonable invasion of privacy, would significantly reduce the availability of qualified persons for public service, and is not necessary to preserve the purpose of the Law. Section 3-103(a)(3) is specifically to apply "in extraordinary situations," and must be based on the finding that failure to grant the exemption would reduce the State's ability to recruit and hire highly or uniquely qualified professionals or assure the availability of competent services to the public. No exception request has been received under either of these provisions.