98.10

OPINION NO. 98-10

Ethics Commission advice has been requested as to whether and how the employment prohibitions and special board and commission exemption provisions of §15-502 of the Public Ethics Law (State Government Article, Title 15, Annotated Code of Maryland) apply to service by a Trustee of the Maryland Affordable Housing Trust (MAHT), in view of her employment as Vice President and Counsel of a large land title company, and service as President of a Maryland professional association (the Association). We advise that a licensing/regulatory board exemption may apply to the Requestor's primary employment affiliation. Her service as President and on the Board of the Association, however, is within the §15-502 prohibition and, in the absence of a time of appointment exemption disclosure, there is no exemption that would allow this dual service to continue.

The Maryland Affordable Housing Trust was established in 1992 with the general mission of enhancing the availability of affordable housing throughout the State. Its Board of Trustees includes 11 voting members appointed by the Governor with the advice of the Senate. In addition to one general public member, the Board includes public housing and social services provider representatives, local government representatives, profit and nonprofit developer representatives, local governments, financial institutions, and a representative of title companies doing business in the State. There are also three ex officio nonvoting members representing the Department of Housing and Community Development and the Maryland Senate and House of Delegates. The law establishes the MAHT Fund to hold any monies received by the Trust, including interest money earned on escrow accounts held by title insurers or their agents or approved attorneys under the Insurance Article. The Board of Trustees uses Fund money for awards for acquisition and preservation of affordable housing. The Trustees are responsible to receive and process applications for awards, which are made twice a year based on a competitive evaluation and ranking system.

The MAHT Fund consists entirely of interest earned on title company escrow accounts. The accounts are created by title companies pursuant to requirements in §22-103 of the Insurance Article that title insurers and their agents pool money received in connection with escrows, closing or title indemnifications if they believe that separate deposit of the funds will result in earnings of less than $50 or the cost of administering a separate account. On a quarterly basis, financial institutions that administer these pooled accounts are required to transfer the interest earned on these accounts to the MAHT Fund. Though neither the Insurance Article nor the MAHT statute specifically provides for audit of these accounts, the Insurance Commissioner has issued regulations that define the transactions and the parties involved, provide more detailed requirements regarding operations of MAHT accounts, require annual reports, and provide for audit of the accounts. COMAR 31.16.03.07, dealing with review and audit, provides for joint review of the annual reports by MAHT and the Insurance Commissioner, deals directly with records and related audit requirements, and also provides that the Commissioner may delegate its audit authority to MAHT. In the case of delegation, MAHT is authorized to "audit the transactional files and related financial records of a title insurer or title insurance agent in connection with the sale or financing of real estate." The audit findings are to be reported to the Commissioner, who may take appropriate action based on the findings reported in the audit.

The Requestor was appointed to the 11 member MAHT Board in 1996 to fill the position for a representative of Maryland title companies. At the time of her appointment she was employed as Assistant Vice President and DC/Southern Maryland Counsel for a Maryland land title insurance company. She was also at the time apparently active in the Association, serving on its Board, as its Vice President, on several committees, and as its legislative liaison to the Insurance Commissioner on continuing education requirements. This information was included on her resume submitted to the Appointments Office. She did not submit a public Time of Appointment Disclosure Statement, however, a filing required to support certain conflict of interest exemptions under the Ethics Law. The Requestor has since become President of the Association.

Though originally presented as a participation question in view of the Trustees' consideration of audit results, this request more particularly presents issues under the employment limitations of the Ethics Law and application of the exemption provisions under them available to appointees and members of boards and commissions (§15-502). This section prohibits officials and employees, including members of boards and commissions, from being employed by or having an interest in an entity that contracts with or is subject to their authority or that of their agency (subsection (b)(1)), or from having any other employment that would impair their impartiality or independence of judgment (subsection (b)(2)). Subsection (c) provides that these prohibitions do not apply

— to a public official who is appointed to a regulatory or licensing unit pursuant to a statutory requirement that entities subject to the jurisdiction of the unit be represented in appointments to it; or

— to a member of a board who holds the employment or financial interest when appointed if the employment or financial interest is publicly disclosed to the appointing authority, the Ethics Commission, and if applicable, the Senate of Maryland before confirmation.

We believe as an initial matter that the Requestor's affiliations come within the §15-502 employment prohibitions. MAHT is not generally a regulatory entity. The MAHT law recognizes title companies as a source of funds, but does not address the regulatory or related processes by which this will come about. Regulation of the title companies themselves is left, as a statutory matter, to the Insurance Commissioner. As a practical regulatory matter, however, the Insurance Commissioner has delegated regulatory authority in the form of audit responsibilities over the title companies to MAHT. It is the MAHT staff that engages the auditor and designs the audit, and will be involved on an ongoing basis in managing the audit process. Moreover, that MAHT engages in activities that would be expected to impact on the title companies seems to be suggested by the required inclusion of a title company affiliated member on the Board.

Under the circumstances, we believe that the Requestor's agency has responsibilities relating to title companies that bring it into official relationships with title companies, including the Requestor's direct employer, and that this employment is therefore as an initial matter, within the prohibition of §15-502 of the Ethics Law, and is prohibited in the absence of an exception or exemption. Moreover, we also must conclude that her service as Association President is barred under this section pursuant to long-standing Commission advice that service on the operational and management board of a private entity is employment, and that this employment is barred in various situations, particularly if the entity is an association of entities subject to the individual's or their agency's authority.

The question for us is therefore whether any of the Law's exceptions or exemptions could be relied upon to allow the multiple affiliations. The "licensing exemption" of §15-502(c)(2) provides that the prohibition does not apply where a member of a licensing or regulatory unit is appointed pursuant a statutory requirement that licensees or regulatees serve on the Board. Despite the absence of specific regulatory authority in the MAHT law, we believe that MAHT can be considered a regulatory unit by virtue of its delegated responsibilities by Insurance Commissioner regulations for auditing the title companies. Since the Requestor is appointed as a Trustee pursuant to a specific statutory requirement for one representative of Maryland title companies, it is our further conclusion that this exemption can be applied to exempt her primary employment relationship with the title company. We do not believe, however, that this approach can be applied to her service with the Association. In considering the several exemptions in §15-502, we have generally advised that the licensing exemption extends only to employment or other affiliation that relates directly to the statutory requirement, but not to other relationships that are ancillary or related to the general activity. For example, Opinion No. 81-39 advised that this exemption could not be applied to an optometrist appointed to the Optometry Board as a licensee who was also involved with a continuing education school subject to the Board's authority.

The remaining issue as to the Requestor's service with the Association is whether the Time of Appointment exemption set forth in §15-502(c)(4) could be relied upon here. This provision allows for exemption for board or commission appointees as to employment and interests held at the time of appointment and publicly disclosed to the appointing authority, the Commission and the Senate if confirmation is required. The Requestor was sent a time of appointment exemption form with her appointment letter, and did not submit the form to the Commission or the Appointments Office. We note her statement that she did not believe that she needed to file the form since she was appointed to fill a representative position. However, the Law references public disclosure to the Commission in addition to inclusion on a resume provided to the appointing authority and the Senate. Recognizing that some appointees may not understand the process, Commission staff coordinated with the Governor's appointments office to adjust the instructions to the form to clarify the particular points at issue here. The instructions specifically advise that service as a board member of a profit, nonprofit or professional association is employment even if not compensated. Also, the instructions indicate that where the licensing/regulatory exemption does not apply the time of appointment disclosure is necessary.

Under the circumstances we cannot conclude that there was adequate public disclosure here as contemplated by the Law, to warrant application of a time of appointment exemption as to the Requestor's service as a board member or officer of the Association. We therefore advise her that her continued service in this capacity with the Association is a conflict of interest prohibited by §15-502 of the Ethics Law as long as she serves with MAHT.

Charles O. Monk, II, Chairman
   Michael L. May
   Mark C. Medairy, Jr.
   April E. Sepulveda

Date: October 23, 1998