OPINION NUMBER - 144

ADOPTED - 1994/04/22

SUBJECT - Conflicts of Interest/City Council Member with interest in corporation holding liquor license voting on matters involving other liquor licenses.

REQUESTED BY: Thomas Mumgaard, Assistant City Attorney, on behalf of Omaha City Council Member Frank Christensen.

QUESTION: 1) Under what circumstances must a city council member abstain in liquor license matters when he holds an interest in a liquor license? 2) Must potential conflicts of interest be disclosed in writing each time one arises even if they continuously arise out of similar and previously described circumstances?

CONCLUSION

As to question #1, see Analysis. As to question #2, yes.

FACTS

A member of the Omaha City Council owns 25% of the stock of a corporation. The corporation holds a Class C liquor license for premises located within the City of Omaha. The city council member repeatedly faces issues relating to the regulation of the sale of alcoholic beverages. These issues include the issuance and renewal of liquor licenses. They may also include ordinances of various types that would affect all liquor licensees.

The city council member intends to abstain from any matter before the city council involving a liquor license held by the corporation in which he has an interest. However, he has questions as to his obligations under the Nebraska Political Accountability and Disclosure Act when the matters involving other liquor licensees or liquor license holders in general are before the city council.

ANALYSIS

Section 49-1499 is applicable to public employees or public officials whose positions are "designated in Section 49-1493." The designation of Section 49-1493 includes, in paragraph 9, "an elected official of a city of the primary or metropolitan class." The City of Omaha is a city of the metropolitan class pursuant to the provisions of Section 14-101.

Section 49-1499 identifies a potential conflict of interest as a situation in which a public official is faced with taking an action or making a decision which may cause a financial benefit or detriment to: 1) the official; 2) a member of his immediate family; or 3) a business with which the individual is associated. Additionally, the benefit or detriment must be distinguishable from the effect of the action on the general public or a broad segment of it.

Section 49-1408 defines the term business association in part as a business "in which the individual . . . is a stockholder of closed corporation stock worth $1,000.00 or more at fair market value or which represents more than a 5% equity interest." By holding 25% of the stock of the corporation, the city council member has at least a 5% equity interest in the corporation and therefore has a business association with the corporation.

As a general proposition, a city council member does not have a potential conflict of interest simply because the matter before the city council involves a liquor license or a liquor license holder. The city council member does not have a potential conflict of interest simply because the matter before the city council involves an ordinance applicable either to all liquor license holders or all holding liquor licenses of a particular class. A potential conflict of interest exists if there is a financial benefit or detriment to the corporation in which the city council member has a business association and that benefit or detriment is not one which will be experienced by the general public or a broad segment of it.

By way of background, we note that the City of Omaha has a population of approximately 335,000. Within the City of Omaha there are approximately 800 entities holding liquor licenses. Of these, approximately 429 are Class C liquor licenses. Given these figures we do not believe that the liquor license holders in Omaha constitute the general public or a broad segment of it.

When considering the application of Section 49-1499, the Commission has used the "reasonably foreseeable" test. That is, any potential benefit or detriment must be reasonably foreseeable. A financial benefit or detriment is not reasonably foreseeable if the benefit or detriment is remote, highly uncertain, contingent, or speculative. See Advisory Opinion #79.

While theoretically all liquor license holders are in competition with each other, the reality is that this is not true. An establishment serving liquor by the drink which features live music and a dance floor is not likely to be in competition with an establishment which is primarily a restaurant and serves alcoholic beverages in conjunction with meals. Neither of these establishments is likely to be a competitor of a convenience store which sells carryout beer which will not be consumed on the premises. Under most circumstances the success or failure of any one of these three types of establishments is unlikely to have any effect on the other two. That is, any financial benefit or detriment to the other two would be remote, speculative, or uncertain.

Under other circumstances it is obvious that one license holder is a competitor of the other. Consider a situation in which license holders are located across the street from each other. License holder A lowers the price of drinks in order to attract customers. This causes license holder B to lose customers. Thereafter, license holder B lowers the price of drinks and provides free food. The crowd gravitates towards B's establishment. License holder A thereupon adds a big screen t.v. and the crowd gravitates back toward A's place of business. Under these circumstances the success or failure of one of these establishments would be beneficial to the other. Under such circumstances, a city council member with an interest in business A might have a potential conflict of interest if a matter were before the city council involving business B.

We turn now to the specific questions.

Question #1 - Must the city council member abstain from voting on city ordinances regulating the sale of alcohol in general?

Response - The city council member must abstain only if the ordinance will result in a financial benefit or detriment to the corporation in which he has an interest which holds the liquor license. As stated, 800 license holders do not qualify as "the general public or a broad segment of it."

Question #2 - Must the city council member abstain from voting on ordinances imposing city occupation taxes on liquor license holders?

Response - Yes, an ordinance which taxes has a financial benefit or detriment to the taxed entity. If the tax affects a business association of a city council member, the city council member has a potential conflict of interest unless the tax applies to the general public or a broad segment of it. For example, a tax affecting owners of real estate within the city would be a tax that would affect the general public or a broad segment of it. Under these circumstances the city council member would not have a potential conflict of interest. However, if a tax applied only to liquor licensees, the general or broad segment of the public concept would not apply.

Question #3 - Must the city council member abstain from voting on special designated licenses issued to liquor licensees within his trade territory when the event for which the temporary license is issued is held outside of the trade territory?

Response - The term "trade territory" is not a precise one since it may be used in a sense which is geographic or in a sense which is demographic. That is, for certain types of businesses a trade territory may be geographic in nature. The business draws its customers from those living, working or traveling through a certain radius surrounding the business. For example, retailers of gasoline are plentiful. There are sufficient gasoline retailers in Omaha that people are not likely to drive across town for the mere purpose of purchasing gasoline from a particular dealer. People simply buy their gasoline at the most convenient location with, perhaps, some slight variation built in for price, brand preference, etc. Other businesses may have a trade territory which is demographic in nature. That is, it draws from categories of people rather than from a certain geographic area. Therefore, we will not make use of the term trade territory.

A liquor licensee may only sell or serve alcoholic beverages on the premises specified in the license. However, a licensee may apply for a special designated license. This is a license which is normally issued in connection with a specific event which is to be held at a nonlicensed facility. For example, a liquor license holder might be asked to provide food and drink at a wedding reception to be held on premises other than its own. A special designated license would be required in this case.

The ultimate question is whether a designated license will potentially work to the financial benefit or detriment of the corporation in which the city council member holds an interest. If the answer is yes, the city council member must abstain.

Question #4 - Must the city council member abstain from voting on resolutions expressing support for, or opposition to, pending legislation regulating the sale of alcohol?

Response - No. A resolution of this sort can best be described as the expression of an opinion by a public body. It does not result in a financial benefit or detriment to anyone. It is true that the legislation which the resolution is supporting or opposing could result in a financial benefit or detriment. However, the connection between the resolution of one public body and the action taken by a separate public body is uncertain or speculative. Therefore, a city council member would not have a potential conflict of interest under these circumstances.

Question #5 - Must a Potential Conflict of Interest Statement be submitted every time one of these issues arises, or may the city council member submit one statement reporting all potential conflicts and setting forth his anticipated action with regard to the general categories of issues?

Response - Section 49-1499 provides that upon becoming aware of a potential conflict of interest the public official shall take certain actions. He or she must:

1) Prepare a written statement describing the matter; and 2) deliver a copy of the statement to the Accountability and Disclosure Commission. Given the use of the word "shall" it appears that the filing of a written statement is not optional. A written disclosure must be filed each time that a city council member would be faced with a potential conflict of interest.

There is a related matter which should be addressed. Section 49-14,101(3) provides as follows:

No public official or public employee shall use that person's public office or any confidential information received through the holding of a public office to obtain financial gain, other than compensation provided by law, for himself or herself, a member of his or her immediate family, or a business with which the individual is associated.

The Commission has interpreted this provision to mean in part that a public official may not use the power or influence of his or her public office for financial gain. Any entity which sells or serves alcoholic beverages typically has dealings with a number of city employees. These may include health inspectors, fire marshals, police officers, and various inspectors. Great care must be taken by the city council member to avoid conduct or statements which could be taken by a city employee to mean that the corporation in which the city council member has an interest should be treated differently from others which are similarly situated.

SUMMARY

A city council member with an interest in a corporation holding a liquor license does not have a potential conflict of interest as to all matters coming before the city council which involve liquor licenses or the holders of liquor licenses. The council member only has a conflict of interest if the matter before the city council could result in a financial benefit or detriment to the corporation. The benefit or detriment must be distinguishable from the effects of the action or decision on the general public or a broad segment of it. Under such circumstances the city council member must file a written statement with the Commission describing the specific matter before the city council.