A request has been presented concerning whether and how the provisions of the Ethics Law (including the §3-103(a)(2)(iii) appointee exemption provision) apply to the involvement by members of the Racing Commission in a variety of horse breeding, ownership, racing and other activities relating to the jurisdiction and authority of the Commission. We advise, based on the disclosures filed by current members, and in view of the 1989 amendments to the Racing Law, that these particular affiliations would not be barred, but that the disqualification, prestige and other provisions of the Ethics Law must be carefully followed.

The Maryland Racing Commission was reorganized in 1984 when the regulation of the Thoroughbred and Standardbred Boards was combined. The Commission consists of 7 members appointed by the Governor with the advice and consent of the Senate. The Racing Law in Article 78B, § 2, Annotated Code of Maryland requires the appointment of a certain number of Commissioners knowledgeable or experienced in some aspect of thoroughbred racing and harness racing. It also provides (by amendment in 1989) that "no more than 4 Commissioners appointed after July 1, 1989 shall have any monetary or pecuniary interest in horse racing in the State of Maryland". This language was adopted in response to the Maryland Senate language proposed for the 1989 bill that would have barred these types of interests for Racing Commission members. Further, however, no person is eligible for appointment as Commissioner (or to be appointed or otherwise employed by the Commission), who holds any official relation to any association or corporation conducting racing within the State of Maryland, or who holds stock or bonds therein, or who has any pecuniary interest therein.

The Racing Commission has broad authority over the racing industry. The law prohibits any person, association or corporation from holding or conducting any meeting within the State where there will be horse racing for any stake, purse or reward unless they are licensed by the Commission. Stewards, judges and other employees at the race tracks are employed by or subject to the authority of the Commission and their salaries and other benefits are subject to its review. The Commission has responsibilities in ensuring cooperation among licensees regarding stabling of horses and assignment of stalls and has general regulatory jurisdiction over the thoroughbred training facility at Bowie.

The Commission may award racing dates consistent with the statute, suspend, revoke or deny licenses, and has power to proscribe the rules, regulations and conditions under which all horse races shall be conducted within the State of Maryland. Its authority includes regulating betting, admission charges, the sale of any item at the track, and the sizes of purses. The Racing Commission may establish a system of telephone betting and is authorized to establish a system of intertrack wagering between tracks licensed under the law. The Commission also administers the Maryland Standardbred and Maryland-Bred Race programs, as well as the Horsemen's Assistance Fund.

This request was presented by the Chairman of the Racing Commission and relates to the Time of Appointment Exemption Disclosure Form submitted in connection with his appointment.1 The Chairman is a health professional who indicates that he has had horses since 1973, and established his farm in 1975. He was appointed to the Standardbred Racing Board in 1977, and continued on the newly organized Commission. He was appointed by the Governor to serve as the Chairman of the Commission to begin in July 1988. The Chairman indicates that his farm is involved in the breeding and training of horses and in the past was involved in racing them. As a breeder, he may also receive income from the Maryland Breeders Fund, a program managed by the Racing Commission under which payments are made to a breeder whenever a horse bred by the person wins a Maryland race.

The Chairman advises that he does not now race his own horses. He breeds them and maintains them, providing upkeep and maintenance as well as general training. The Chairman indicates that his horses are raced solely through a leasing arrangement he has with a private stable, and that he has no responsibility or duties regarding the racing of the horses. He further advises that the farm is paid for the costs of upkeep if a horse finishes in the money, but the rest of the horse's winnings are retained by the lessee, and no payments are due to the farm if the horse does not finish in the money. Though employees at his farm are licensed by the Commission for purposes of taking a horse into a track, the farm itself is not directly licensed by the Commission. The stable, however, is an entity that regularly races horses at Maryland tracks. The entity and its owner are therefore directly licensed by the Commission and engage in racing activities that are significantly subject to the authority of the Commission. The Chairman's breeding and lease of his horses was disclosed on a time of appointment disclosure form received by the Ethics Commission on March 3, 1988. The other current Commission member whose racing interests are presented here2 is an individual who is affiliated with a regional health care organization serving Washington, Maryland and Virginia. He was appointed to the Commission in September 1988 and indicates that he has over a period of time been involved in thoroughbred racing. He currently owns and breeds horses and races them in Maryland. He races them himself under his farm name, Hickory Ridge Farm. Both he as an individual and the farm itself are licensed by the Racing Commission. The farm is a family business owned and operated by the Member and his spouse. This interest was disclosed by the Member on a Time of Appointment Exemption Form received by the Ethics Commission on October 6, 1988.

This request presents issues under the outside employment and interest prohibitions of §3-103(a) of the Public Ethics Law (Article 40A, § 3-103(a), Annotated Code of Maryland, the Ethics Law), and its exemption provisions, as well as the nonparticipation, prestige, gift and information provisions of §§3-101, 3-104, 3-106 and 3-107 of the Law. Section 3-103(a) prohibits an official or employee, including a member of a board or commission, from being employed by or having an interest in an entity that is subject to his authority or that of his agency. It also prohibits any other employment relationship that would impair the individual's impartiality or independence of judgment.

We have consistently held that engaging in a business activity, even one that is not formally organized or incorporated, can result in the existence of an entity with which the individual has both an employment and interest relationship. In our view the Chairman's and the Member's racing activities would be viewed as within this prohibition and would therefore be barred by this section unless an exemption can be applied. We believe this to be true of the Chairman as well as the Member, despite the fact that his horses are leased and actually raced by another entity. He is a breeder covered by the Breeders Fund activities, and personnel from his farm are licensed by the Commission. He also has an economic interest in his horses doing well, since payments to him by the lessee are directly determined by the horses' racing success.

There are several exemptions in the Law that specifically address situations presented by members of Boards and Commissions. Section 3-103(a)(2)(i) provides that the prohibition does not apply to a public official who is appointed to a regulatory or licensing authority pursuant to a statutory requirement that persons subject to the jurisdiction of the authority be represented in appointments to it. The Ethics Commission has in one situation said that this provision applied where the statutory requirement was expressed in the negative, providing that at least a certain number of a board's members would not be in a regulated profession. (Opinion No. 81-21.) This was viewed as an implied requirement that members of the profession be included on the board. This exemption generally is limited, however, as it addresses only the licensed or regulated activity and not necessarily other activities that may be in the same field but are not subject to the entity's licensing or regulation. (See, for example, Opinions No. 85-12 and No. 81-39.)

Another exemption is set forth in §3-103(a)(2)(iii). This provision provides that, subject to the other conflict of interest provisions of the Law, the prohibition does not apply to a member of a board or commission in regard to a financial interest or employment held at the time of appointment, provided it is publicly disclosed to the appointing authority, the Commission, and, in instances where confirmation is required, to the Senate prior to confirmation. The Ethics Commission has considered this exemption in several prior Opinions, generally concluding that it applies without action by the Ethics Commission to interests or employment that present an actual conflict at the time of appointment, and that are disclosed in connection with the appointment.

Both of the individuals whose situation is presented here disclosed their interest in some way in connection with their recent appointments. The Chairman filed a public Appointee Exemption Disclosure Form with the Ethics Commission in March 1988 shortly after his confirmation hearing before the Senate Executive Nominations Committee. Also, both the Senate Committee and the appointing authority had on file a resume that referenced some of his racing activity, and during his confirmation hearing a Committee member noted his prior service with the Racing Commission, as well as the fact that he is a horseman. As to the Member, a Time of Appointment Disclosure Form was filed with the Ethics Commission in October 1988, prior to his confirmation hearing. Though it is not clear whether this document was on file with the appointing authority or the Senate Committee, there appears to be other correspondence that discusses his racing involvement, and the Senate confirmation hearing includes a discussion of that fact that he had been active in the business of horses for a number of years, including a small breeding farm and active racing involvement.

Though we would prefer that the time of appointment disclosure in these situations had been more technically consistent with the procedures that have been established under the Ethics Law, we believe based on the review of the total context of the appointment processes as to these individuals, that public disclosure to the appointing authority, the Senate and the Ethics Commission was sufficient to comply with the mandate for a public determination regarding conflicting interest exemption in this type of situation as part of the appointment and Senate confirmation.

Moreover, we note, as set forth above, that the Racing Law was amended in 1989 to make a more specific reference to the inclusion on the Commission of persons that may have some involvement in racing. As we have previously concluded in Opinion No. 81-21 with regard to the Health Services Cost Review Commission, we believe that the provision that no more than four commissioners may have economic interests in Maryland horse racing reflects an understanding that persons with these interests were on the Racing Commission and that there was an intent that a limited number of members could have these interests in future appointments. However, the language does not clearly suggest that at least four members must have these relationships as is contemplated in §3-103(a)(2).

Though these amendments became effective as to appointments made after July 1, 1989, we believe that it is appropriate to take this legislative approach into account in evaluating the total circumstances relating to these two Commissioners.3 Given that these individuals did as a practical matter disclose their racing activities in connection with their appointment, and the apparent legislative intention that persons with such involvement can serve on the Racing Commission, we conclude that their continued service is not absolutely barred by the employment and interest prohibitions of the Ethics Law.

Persons who are involved in racing and serve on the Commission under the exemptions continue, however, to be subject to the other provisions of the Ethics Law, including §§3-101, 3-104, 3-106 and 3-107. Section 3-101 is a disqualification provision that prohibits a Commissioner from participating in any nonministerial way in any matter in which he or any of certain listed relatives (including spouses) has an interest or which involves as a party an entity with which he or the relative has certain economic relationships. This would include matters involving an entity in which he or a spouse has a financial interest or an employment relationship, for example. Also covered would be matters where the individual or relative had contractual or debtor relationships with the entity.

The term matter as used in this provision has been interpreted to include any proceeding, application, submission, request for ruling or other determination, contract, claim, case or other such particular matter. Thus, the Chairman would need to disqualify himself, for example, from participation in any particular determination as to a horse's disqualification from a race, a jockey disqualification, a license proceeding, or a sanction under the drug policy, if the determination involves one of his own horses, or if it involves the stable which races his horse. The Member would need to decline participation in similar matters where his own or his spouse's horses or stable is involved, or, for example, where a trainer retained by him is involved.

Though we have said that more than general policy development is necessary for there to be a matter that would require disqualification (see, for example, Opinion No. 86-12), it is also possible, given the nature of the Commission's activity, that other more general matters could require disqualification. The Commission takes many actions, which, though they reflect general policy, are also very discrete determinations that tend to impact on a clearly definable class of individuals or entities. Where such an action deals with a particular subgroup in the racing industry and would have clear and particular fiscal impact on a group that involves a Commissioner, then disqualification may be required by §3-101. On the other hand, more broadly directed policy decisions or determinations not impacting directly on subgroups involving these particular Commissioners might include policies such as helmet safety, program prices, and racing days, dates and transfers. These types of general issues would usually not require disqualification unless the result had some clear and substantial impact on the Commissioner's subgroup.

Commissioners must also be aware of the provisions of the Law that prohibit the use of prestige of office for one's own economic gain or that of another (§3-104), that bar the acceptance of gifts from private entities involved with their Commission or agency (§3-106), and that prohibit the use of confidential agency information for their own or another's gain. These provisions would limit acceptance of special benefits from tracks or other licensees, including, for example, special race passes for family and friends, or special parking or other privileges not directly connected with official Commission activities. Also, agency plans or information regarding licensing or enforcement activities that are not generally public cannot be used in connection with private activities. These provisions apply to all members of the Racing Commission, though they may present special issues for those that have private financial interests in the racing industry, and who therefore may have more operational dealings with track owners and other licensees. Special care therefore needs to be taken to be sensitive to the potential for issues to develop under these provisions.

In summary, based on the specific facts presented here, we advise the Chairman and Member that, given their prior disclosure and the clear legislative intent that persons engaged in these activities can serve on the Racing Commission, their continued membership is not barred by the strict application of the employment and interest provisions of the Ethics Law. They both need to be aware of the application of the disqualification provisions of the Law, however, as well as other Ethics Law limitations that apply to their conduct and relationships while they serve on the Commission. Should any particular questions arise regarding implementation of these principles, further guidance may be sought from Ethics Commission staff or on a more formal basis from the Ethics Commission itself.

William J. Evans, Chairman
   Robert C. Rice, Ph.D.
   Barbara M. Steckel

Date: June 21, 1990


1 This Opinion covers the application of the Public Ethics Law, although various provisions of the racing law and activities carried out under that law are discussed. This Opinion does not constitute a determination of the content of the racing law or compliance regarding the matters discussed.

2 As originally considered this request also involved a third Commissioner, whose term is expiring. Issues regarding this individual's financial disclosure or past racing activities will be considered in another context.

3 If as a matter of policy it is determined that what is intended is that a certain number of persons regulated by the Racing Commission should be on the Commission, then some consideration should be given to amendments to clarify the Racing Law.