An opinion has been requested as to whether a conflict of interest arises for a member of the Supplemental Retirement Plans Board (the Board) where an attorney in the law firm with which he is affiliated is representing an insurance guaranty corporation against which the Board may have a claim. We advise, given the nature of the transaction and the Member's participation on the Board, that the Member may continue his service on the Board while this matter is pending.
The Supplemental Retirement Plan in State government is a retirement program available to employees in State and other governments who participate in the State teachers and employees retirement systems. The program enables these employees to participate in income-deferred tax sheltered annuity programs. One of the Plan's investment options is a fixed earnings investment consisting of guaranteed investment contracts (GICs) underwritten by various insurance and other financial institutions. This investment program involves purchase of insurance annuity funds, the assets and return on which are blended together. Two of the earliest of the GIC investments were purchases of annuity contracts from the California-based Executive Life Insurance Company. One of these contracts was due to be redeemed in December 1991 and the other in mid-1992. During 1991, however, Executive Life was placed in conservatorship by the California Insurance Commissioner. Its assets were frozen and the Conservatorship Court in California has issued a liquidation order directing that creditors be paid in accordance with established priorities. This action will result in a loss to beneficiaries, including the Supplemental Retirement Plan.
In Maryland, however, as in other States, a system has been established to protect annuitants and beneficiaries of insurance programs from losses sustained as a result of the failure of an insurer. The Life and Health Insurance Guaranty Corporation (the Corporation) is a private nonstock corporation established under State law. Its purpose is to maintain an insurance guaranty fund through assessments on member insurers; all insurers in the State must be members as a condition of their authority to transact business in the State. The Corporation may make payments to prevent losses or continue coverage for beneficiaries damaged by an insurance company failure, including, theoretically, beneficiaries such as the Plan. Apparently, however, the Board has been preliminarily advised of the Corporation's view that the Board is not an annuitant as intended by the health and life guaranty statute and therefore not entitled to recovery. If this is ultimately the official determination of the Corporation, then Counsel to the Board indicates that it will very likely undertake litigation to prosecute its claim under the Health and Life Guaranty law.
Should this litigation be pursued a potential for conflict of interest arises. One of the members of the Board (the Member) is a partner in a law firm (the Firm). Another member of the Firm is counsel to the Life and Health Guaranty Corporation. The Member is a long-term and active member of the Board. He serves as Chairman of its Hardship Committee, and is on the Communications and Executive Committees; the Executive Life controversy is not within the specific responsibility of any of these committees. The Member advises that he is generally familiar with the Executive Life situation. He indicates, however, that since he became aware of the partner's involvement he has disqualified himself and has left the room whenever the matter comes up for discussion.
Board Counsel indicates that the Board's function is to make final investment and other policy decisions. It would make the determination to litigate the Executive Life matter with the Corporation, but the substance of the litigation would be handled by legal counsel. To date this has involved primarily a monitoring function. According to Counsel this situation is getting some attention right now, but he does not envision it becoming a major part of the workload of the Board. The Member agrees with this assessment, and believes that it is possible for him to absent himself from discussion relating particularly to Executive Life and any litigation against the Corporation without significantly limiting his ability to function effectively as a Board member. The Member also advises that he has no dealings or relationships with the partner in the context of his Firm affiliation. These are two partners in a very large law firm. The Member works in the business taxation section of the business transactions division. His work seldom involves him in litigation, which is the section in which the partner works. The Member advises that individual compensation in the Firm is determined in part by a fee credit system, and that no credits resulting from the Firm's representation of the Corporation would accrue to him.
This request presents issues under the outside employment provisions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). This section 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 contracts with his agency (subsection (a)(1)(i)), or from having any other employment relationship that would impair his impartiality or independence of judgment (subsection (a)(1)(ii)). We have considered on several occasions attorney members of boards, and have generally found that a conflict existed where the individual's affiliation was with a firm that (through other attorneys in the firm) made appearances before, negotiated with or contracted to provide services to the individual's board. (See, for example, Opinions No. 80-3, No. 83-29, and No. 86-15.)
The principles reflected in most of these situations dealt, however, with relatively direct relationships with the individual's board. They involved direct appearances before or contracts with the board that brought the situation within the strict prohibition of subsection (a)(1)(i). In our view the Member's circumstances do not present this type of situation. His affiliation is with the Firm, which does not have any contractual dealings with the Board. Nor is it directly representing a person or entity in a matter before the Board. The relationship is less direct, involving representation by a partner of the Firm of another entity in litigation with the Board.1 The situation thus presents a question of application to the Member of the impairment provision of subsection (a)(1)(ii) of the Law. Implementation of this provision involves consideration of the individual's actual official responsibilities to determine whether any relationships exist between them and the outside employer to raise concerns about the person's ability to hold the outside employment and continue to carry out their official responsibilities with impartiality and independence of judgment.
In the circumstances here we are advised that the Member's assignments on the Board do not involve duties relating directly to this particular matter, and, further, that this matter does not represent a significant part of the general workload of the Board. He has thus been able to absent himself from any deliberations regarding the Board's potential litigation against the Corporation. The Member thus need not be viewed as having duties relating to his private employer or the matter in which it is involved, and the affiliation would not therefore be expected to impact on his performance or his official functions. He also advises that he has no connection with the matter in his private affiliation with the Firm.
We note that we have not as a general matter permitted disqualification to be a cure of a violation of the employment provisions of the Law. Were the relationship here more direct, and if the potential litigation represented a more significant aspect of the Board's workload, we would be concerned about this dual affiliation even if the Member continued his nonparticipation. Under the circumstances presented here, however, we conclude that the Member's continued affiliation with the Firm would not impair his impartiality in his fulfillment of his official duties with the Board, and so advise him and the Board. The Member should, of course, continue to disqualify himself. He should also provide full notification to his Firm of this situation and take care that it is monitored carefully. Should the circumstances change so that the matter becomes a greater part of the Board's activities, or if the situation within the Firm changes, then further Ethics Law review may be required.
William J. Evans, Chairman
Mark C. Medairy, Jr.
Robert C. Rice, Ph.D.
Mary M. Thompson
Date: March 3, 1992
1 See Opinion No. 83-36 for another opinion involving a less direct relationship, where an attorney was permitted to remain on a community college board despite his representation in his practice of business entities that had other relationship with the board.