OPINION NUMBER - 137
ADOPTED - 1992/01/17
SUBJECT - Conflicts of Interest.
REQUESTED BY: Gary E. Lacey, Lancaster County Attorney
QUESTION: May an appraisal firm enter into contracts with the county when a partner of the firm is the spouse of the county attorney.
The spouse of the Lancaster County Attorney recently became a partner in a local appraisal firm. In the past Lancaster County has had extensive business dealings with the predecessor of the firm and with several of the individual principals of the present firm. It is anticipated that these business dealings will continue. These business dealings have taken place in three basic types of situations.
Fact Situation #1 - Pursuant to section 77-1502.01 the County Board of Equalization may appoint one or more referees to conduct initial hearings on tax protests. The referee then makes recommendations to the board regarding disposition of the protest. For the past several years the Lancaster County Board of Equalization has employed a referee system. This has resulted in the county contracting with an individual or firm to serve as a referee coordinator. The duties of the referee coordinator include administration and overall supervision of the referee system. The referee coordinator is responsible for recruiting and supervising individual referees, scheduling hearings, reviewing the work of individual referees, conducting hearings in certain cases, and appearing at hearings of the Board of Equalization.
In addition to the referee coordinator, the system includes several individual referees who actually conduct the vast majority of the hearings. Referees work under the supervision of the referee coordinator and are generally assigned to hear protests regarding certain types of properties in which they have a particular experience or expertise.
Neither the referee coordinator nor the individual referees are employees of the county. They are hired on a contract basis and each executes a separate contract with the county.
From the inception of the referee system in Lancaster County, the referee coordinator position has been filled by either the predecessor firm or the firm in which the spouse of the county attorney is now a partner, or by one of the principals in the present firm. All of the principals in the present firm, including the spouse of the county attorney, have acted as individual referees in the past.
On at least one occasion the county board accepted formal bids for the referee coordinator position. In recent years, however, no bids have been sought and the county has simply contracted with the same individual. The county attorney's office has advised the county board that it may solicit bids if it chooses to do so, but it is not legally obliged to do so since the services provided by the referee coordinator are professional services and are thus exempt from the formal bidding requirements of section 23-3109. The role of the county attorney's office in the referee coordinator system consists of providing legal advice to the county board as well as drafting, reviewing, and approving any legal documents that are executed. If problems were to arise in connection with any of these legal documents, the county attorney's office would represent the county in any proceedings to resolve them. In addition, when requested, the county attorney's office provides the referee coordinator with advice regarding legal questions that arise in connection with the protests that are filed.
Specific inquiry is made as to whether there would be a conflict of the firm in which the spouse of the county attorney is a partner or any of its principals or employees contracted with the county to provide services either as the referee coordinator or as individual referees.
Fact Situation #2 - Periodically, agencies of the Lancaster County Government require outside appraisal services. Most commonly these needs arise in the county assessor's office in connection with valuation questions for tax purposes, or on the county engineer's office in connection with valuation questions for acquisition of a right-of-way. In some cases the services required by these agencies include appearances at administrative or judicial hearings at which the agencies are represented by the county attorney's office. Generally, the individual agencies make the necessary arrangements to obtain the specific services they need. When the agencies have reached an agreement with a firm or an individual appraiser, the county attorney's office either drafts a written contract or reviews the contract developed between the agency and the appraiser. The contract is then submitted to the county board for approval.
In connection with these types of contracts, the county attorney's office advises both the county agency and the county board regarding any legal issues that exist and would represent the county in the event of any problems.
In the past may contracts of this type have involved the predecessor to the firm in which the county attorney's wife is now a partner as well as some of the individuals who are principals in the current firm.
Specific inquiry is made as to whether there would be a conflict if the firm in which the county attorney's wife is a partner or any of its principals or employees entered into contracts of this type.
Fact Situation #3 - On occasion the Lancaster County Attorney's office requires the services of an appraiser to testify as an expert witness in either civil litigation in which the county attorney's office is representing the county or in criminal prosecutions. Because the needs in these situations tend to be very specific and require a high degree of expertise, the county attorney's office has never employed any type of bidding process. Instead, it has simply identified the individual or firm which best fits its requirements and then attempted to negotiate terms under which the firm or individual would agree to provide the necessary services. The terms would then be incorporated into a written agreement and submitted to the county board for approval. Often the expert appraisers used by the county attorney's office have been individuals who are now principals in the firm in which the county attorney's spouse is now a partner.
Specific inquiry is made as to whether it would be a conflict if the firm in which the county attorney's spouse is a partner or any of its principals or employees, other than the spouse, contracted with the county to perform services as expert witnesses in litigation being handled by the county attorney's office.
Applicable to all three of the foregoing situations is the fact that all contracts would be executed by the board of county commissioners. The board is a public body and its business is conducted in compliance with the provisions of the Nebraska Public Meetings Law. See section 84-1408, et seq. Those provisions require open public meetings, advance public notice of the time and place of meetings, and an agenda for the meetings. In addition, all contracts entered into by the county board are on file in the office of the county clerk and subject to inspection pursuant to the provisions of sections 84-712 and 84-712.01.
Section 49-14,103.01(2) provides that "no officer may have an interest in any contract which his or her governing body, or anyone for its benefit, is a party. The existence of such an interest in any contract shall render the contract voidable by decree of a court of competent jurisdiction as to any person who entered into the contract or took assignment of such contract with actual knowledge of the prohibited conflict." The provision goes on to state that an officer has a prohibited interest in a contract if "his or her parent, spouse, or child a) has a business association as defined in section 49-1408 with the business involved in the contract or b) will receive a direct pecuniary fee or commission as a result of the contract."
Section 49-1408 provides that an individual has a business association with any business in which the individual is a partner, director, or officer. Thus, the spouse of the county attorney who is a partner in the appraisal firm has a business association with the appraisal firm.
Section 49-14,103.01(3) provides that the prohibition against an officer having an interest in a contract with the governing body shall not apply if the interested officer: a) makes a declaration on the record to the governing body responsible for approving the contract regarding the nature and extent of his or her interest prior to the official consideration of the contract; b) does not vote on the matter of granting the contract; and c) does not act for the governing body which is a party to the contract as to inspection or performance under the contract in which he or she has an interest.
In applying the provisions of section 49-14,103.01, one is struck by the fact that the term "governing body" appears throughout the statute. Parts of section 49-14,103.01 seem to presume that the officer in question is a member of a governing body. This is not surprising since much of the language of section 49-14,103.01 was taken from now repealed statutes pertaining to city councils and county boards. However, one needs to review closely the provisions of section 49-14,103.01(1)(b) and (c). Part (b) includes within the definition of "officer" a member of any board or commission of any county. Part (c) refers to any elected official. It is clear that the Legislature intended to include within the term "officer" county officials who are members of boards or commissions and elected county officials who are not members of boards or commissions. Therefore, the county attorney is an "officer" for the purpose of this statute.
The county attorney has an interest in any contract between the county and his spouse and any contract between the county and the firm of his spouse. This interest would trigger the requirements of section 49-14.103.01(3) set forth above. Failure to comply with these provisions would render the contract voidable. Therefore, the county attorney would be required to make a declaration on the record to the county board regarding the nature and extent of his interest in the contract prior to the time that the board officially considers the contract. This declaration may be made by completing a Contractual Interest Statement and filing the same with the county clerk. Since the county attorney is not a member of the governing body, the provisions of section 49-14,103.01(3)(b) prohibiting a vote on the matter of the granting of the contract are not applicable.
Section 49-14,103.01(3)(c) prohibits the interested officer from acting for the governing body which is a party to the contract as to inspection or performance under the contract. It is our position that a county attorney providing legal advice to a county board with reference to a contract, or representing the county board in legal proceedings regarding a contract is "acting for the governing body which is a party to the contract as to inspection or performance under the contract". Therefore, the county attorney would be prohibited from engaging in these activities in connection with any contract involving either his spouse or the appraisal firm in which his spouse is a partner. We note, however, that the provisions of section 49-14,103.01 apply to the interested officer. That is, the county attorney. That section does not appear to prohibit the staff or employees of the county attorney from providing legal advice to, and representation of, the county board in connection with a contract involving the county attorney's spouse or her firm. It is our position, therefore, that the Nebraska Political Accountability and Disclosure Act would not prohibit other attorneys in the county attorney's office from providing these services to the county board in situations in which the county attorney's spouse or her firm is a party to a contract with the county board.
The concept of a conflict of interest as found in the Nebraska Political Accountability and Disclosure Act in not necessarily the same as the concept found in the Canons of Legal Ethics applicable to Nebraska attorneys. While we state that there is no prohibition in the Act against the staff of the county attorney acting in situations in which the county attorney may not, an application of the canons may result in a contrary opinion. The Commission has no jurisdiction interpret the Canons of Legal Ethics and it is therefore recommended that the county attorney seek appropriate advice from the Nebraska State Bar Association.
Section 49-14,103.01(7) provides that "any contract entered into with an interested officer of the governing body shall be subject to applicable competitive bidding requirements and shall be fair and reasonable to the governing body". It is our position that section 49-14,103.01(7) does not establish a bidding requirement independent of other statutes. If bidding is not required by other statutes, subsection 7 does not require bidding. However, if competitive bidding is required by other statutes, subsection 7 makes it clear that section 49-14.103.01 contains supplementary requirements rather than alternative requirements and bidding would still be required. While the Commission has no authority to interpret the provisions of section 23-3109, it does appear that professional services are exempt from formal bidding requirements.
Section 49-1499 requires that certain public employees and public officials, including elected county officials, prepare written statements disclosing a conflict of interest when they are faced, in their official capacities, with taking an action or making a decision which could result in a financial benefit or detriment to an immediate family member. Section 49-1499 does not apply to the three described situations. Section 39-14,103.07 provides, "Individuals required to make disclosures pursuant to Sections 49-1499.01 and 49-14,103.01 to 49-14,103.06 shall not be required to file Potential Conflict of Interest Statements pursuant to Section 49-1499".
We do not believe that section 49-14,102 which generally governs contracts between a public official and a governmental body is applicable in any of the three situations because the more specific provisions of section 49-14,103.01 govern.
Section 49-14,101(3) provides that no public official or public employee shall use his or her public office to obtain financial gain for himself or herself, a member of his or her immediate family, or business with which the individual is associated.
As stated, members of the county attorney's staff may provide legal advice to the county board regarding contracts involving the county attorney's spouse or a firm in which the county attorney's spouse is a partner. However, this section would prohibit the county attorney from attempting to use his position in any way to induce his staff to take legal positions or render advice favorable to his spouse or her firm.
In the situations described above it appears that on some occasions a contract may be with an individual who is a principal in the firm an on other occasions it may be the firm itself. Clearly a contract in which one the parties is either the spouse of the county attorney or the firm in which the spouse is a partner falls within the restrictions established by the Nebraska Political Accountability and Disclosure Act. It is less clear as to whether the Act applies when the contract is between the county and an individual who happens to be one of the principals of the firm in which the county attorney's spouse is a partner. As a general rule, it is our position that the Act would not apply to situations in which the contract is with an individual who is a member of the spouse's firm. However, the Act would apply to a contract between the county and an individual principal if there was some agreement or understanding between the principal and the firm that the individual's fees resulting from the county contract would ultimately be received by, or transferred to, the firm or its other principals.
The county attorney would have a prohibited interest in any contract between the county and his spouse and in any contract between the county and the firm in which his spouse is a partner. This interest would render the contract voidable unless he disclosed on the record to the county board the nature and extent of his interest in the contract and refrained from providing legal advice to, or legal representation of, the county board in connection with the contract. He would also be required to refrain from using the power or influence of his public office in order to induce for his spouse or her firm favorable rulings or legal positions from his staff.