Untitled Texas Attorney General Opinion ( 1989 )


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  •                            January 12, 1989
    Honorable Mike Driscoll            OpiniOn    No.   JM-1006
    Harris County Attorney
    1001 Preston, Suite 634            Re: Whether a county judge
    Houston, Texas 77002               may simultaneously  serve as
    a member of the board of
    directors of a corporation
    which does business with the
    county, and related questions
    (RQ-1506)
    Dear   Mr,   Driscoll:
    You ask the following questions     regarding            possible
    conflicts of interest of a county judge:
    May a county judge     [of Harris County]
    serve simultaneously as county judge and as a
    member of the Board of Directors of a private
    corporation which contracts or does business
    with Harris County, the Harris County Flood
    Control District and/or the Harris County
    Hospital District?
    Whether the county judge should file an
    affidavit of substantial interest regarding
    agenda items relating to his wife's employer,
    the City of Houston?
    In answer to your first question,. it is our opinion
    that the activity you describe creates a conflict         of
    interest contrary to public policy.    Inasmuch as we have
    been informed by letter dated September 28, 1988, from the
    county judge that effective September 15, 1988, his wife has
    left her employment with the city, we find it unnecessary to
    address your second question.
    You state that the current county judge in Harris
    County was first elected to that position in 1975.        In
    1988 he was elected to the board -of directors of Houston
    Industries, Inc. (HII), and consequently also serves on the
    board of directors of Houston  Lighting and Power (HL&P), a
    p. 5173.
    Honorable Mike.Driscoll   - Page 2   (JM-1006)
    wholly owned subsidiary   of HII. In addition to HLLP, HI1
    is also the parent company of Utility Fuels, Inc.~ (coal
    supplier), Primary Fuels (oil and gas exploration),   Innova-
    tive Controls,  Inc.   (outside lighting manufacturer),   XBL
    Communications,  Inc.   (cable   television  supplier),   and
    Houston Industries Finance, Inc.   (purchaser of HL&P delin-
    quent bills).
    Since his election to the board of directors, the judge
    has sold his stock in the company and has filed many
    naffidavits of substantial interest n disclosing his position
    with the companies.  In his capacity as county judge, he has
    recused himself on many votes taken at county commissioners
    court meetings relating to business between the county and
    the companies.. The judge has also filed a letter with the
    corporation waiving "any and all present or future compensa-
    tioniu including expense reimbursement during the time he
    serves both on the corporation boards and as a county judge.
    As detailed in your brief, there are frequent    inter-
    actions between   HLhP and the county.    YOU state,    "HL&P
    constructs, uses and maintains its lines and facilities   on,
    over, and across virtually  every Harris County road right-
    of-way." We need not recount the many types of interactions
    between the county and the company, but they include the
    county's  payment   of bills for electrical    service:   the
    acquisition of easements by both parties; the construction,
    relocation, repair, and maintenance of both roads and power
    lines; and the county's use of HL&P's      light poles    for
    traffic signals.
    In addition to his position on the HL&P board of
    directors, the county judge sits on the board of directors
    of a nonprofit corporation established to treat indigent and
    paying AIDS patients   in the county.   The county judge has
    informed us by letter, dated September 28, 1988, that' he
    will not receive   any compensation for his services on the
    board of directors   of the nonprofit  corporation.  In that
    same letter, the county judge poses the possibility that the
    county may contract with the nonprofit corporation,     while
    you anticipate that the hospital district may contract with
    the corporation for the care of indigent AIDS patients     in
    the county. We will respond to both possibilities.
    Public policy has long prohibited public officers  from
    holding other positions, executing contracts, or engaging in
    private activities that conflict with their public duties.
    That policy has been engrafted in the Texas Constitution
    p. 5174
    Honorable Mike Driscoll - Page 3   (JM-1006)
    and statutes. See. e.cr., Tex. Const. art. III, gg 18, 22;
    V.T.C.S. art. 6252-933: Local Gov't Code, ch. 171, 5 81.002.
    The leading Texas case in this area of law is Mevers v.
    Walker, 
    276 S.W. 305
    (Tex. Civ. App. - Eastland 1925, no
    writ). Although that case involved city officials who had a
    pecuniary interest in a contract, the court's restatement of
    the public policy behind such prohibitions is instructive to
    our current inquiry. The court said:
    These safeguards   in letting contracts were
    not provided with the thought that the public
    official was corrupt, but that, in        the
    expenditure of public
    __.    money,
    --_   the  strictest
    regulrement snoulc be followed.     our raw-
    makers were wise in trying, not only to
    remove temptation,   but to place the public
    official even above the suspicion of wrong-
    doing. The idea of keeping the public in the
    confidence of the official would bring co-
    operation and loyalty in the administration
    of government   and enforcement of law, and
    these principles underlie the security of our
    government.
    Mevers v. Walker, suvra, at 307.
    That case was grounded in the common law prohibition on
    public officers' conflict of interest. However, in 1983 the
    legislature adopted a mechanism    whereby  a local public
    officer could hold an interest in a business entity, declare
    that interest, and recuse himself on matters concerning that
    business entity: thus allowing the remainder of the govern-
    ing body to vote on and conduct business with that entity.
    Lot. Gov't Code, ch. 171.      It has been suggested     that
    chapter 171 allows the county judge to sit on the board of
    directors and recuse himself on county matters pertaining to
    the corporation.  However, that chapter applies only when a
    local public official has a "substantial interest"      in a
    business entity or real property, and l'substantial interest"
    is defined   in exclusively financial and -familial terms.
    Lot. Gov!t Code § 171.002. The fact that the county judge
    has waived all compensation for his services to the corpora-
    tion removes him from the purview of chapter 171.
    Section 81.002 of the Local Government Code requires
    that prior to undertaking    the duties of office, county
    judges and county commissioners take an oath that they will
    not be directly or indirectly interested    in any contract
    p. 5175
    Honorable Mike Driscoll - Page 4   (JM-1006)
    with or claim against the county,        except as expressly
    authorized by law. It was that oath that provided the basis
    for the holding in another case where a county officer had
    no apparent interest in a questioned contract.    Dexa Coun y
    v.Wentworth    
    378 S.W.2d 126
      (Tex. Civ. App. - San rAntonio
    1964, writ r;f'd n.r.e.), involved a county commissioner who
    had contracted with a voting machine company to be its sole
    representative and salesman in the state except in his own
    county and would receive a commission on every machine    sold
    in the state, except those sold to his own county.           A
    taxpayer in the county brought suit to enjoin the sale of
    that company's   voting machines   to the county. The court
    said that the record was undisputed     that the commissioner
    would receive no money from the sale of the machines to his
    county.    In affirming   the trial courtts grant of the
    injunction, the court said:
    [The commissioner] is obligated to give his
    best efforts to the carrying     out of his
    appointment, and to  render such services  in
    connection therewith as may be reasonable and
    necessary.
    .   .   .   .
    Under all of the circumstances,      it is
    presumed that Ploch was not in a position   to
    give to Bexar County his undivided    loyalty
    and support in seeing to it that Bexar County
    got the very best deal possible        in the
    purchase of 100 new voting machines, when he
    was at the same time obligated    to use his
    best efforts to promote and exploit the sale
    of Shoup voting machines     throughout    the
    State, except in Bexar County. The fact that
    he was not to receive any money from such a
    sale in Bexar County would not prevent     him
    from having an indirect interest in promoting
    and exploiting  Shoup voting machines    else-
    where in the State by a sale in Bexar County.
    Bexar Countv v. Wentworth, SYEIg, at 129.
    In that case, as in this inquiry, the ultimate interest
    of the county officer is unknown,   and, superficially,  his
    actions appear to be within the letter of the law.       The
    county judge in the current instance    is a director of a
    corporation and as such has a considerably larger interest
    in the private company than had the voting machine salesman.
    p. 5176
    Honorable Mike Driscoll - Page 5   (JM-1006)
    It is well. established in Texas law that an individual   who
    sits on the board of directors of a corporation owes to that
    corporation the exacting duty of a fiduciary. E.q.,     State
    Hankina Bd. v. Vallev Nat'1 Ban&, 604 S.W.Zd 415 (Tex. Civ.
    APP. - Austin 1980, writ ref'd n.r.e.); Canion v. Texas
    Cvcle Suu~lv. Inc., 
    537 S.W.2d 510
    (Tex. Civ. App. - Austin
    1976, writ ref'd n.r.e.): mtv-Universal     Insurance Co. v.
    Maxwell, 
    101 S.W.2d 606
    (Tex. Civ. App. - Austin 1937, writ
    dism'd).
    We believe the logic of the court in the 8exar County
    case extends to the question before us. The county judge of
    Harris County is not in a position to give to Harris  County
    his undivided loyalty and support, when he is at the same
    time obligated to exercise the care of a fiduciary on behalf
    of the corporation.   We conclude that   public policy pro-
    hibits a county judge from sitting on the board of directors
    of a corporation that does business with that county.
    Our conclusion  is buttressed   by the public policy
    prohibition of dual agency. In Scott v. Kelso, 
    130 S.W. 610
    (Tex. Civ. App. 1910) the court opined:
    In all cases the principal is entitled to
    the best effort and unbiased judgment of his
    agent, and the law, for reasons founded in
    public policy, forbids the agent's assumption
    of  a relation which affords      temptations
    antagonistic to his duty.
    Scott v. Kelso, sunra, at 611.
    In Attorney General Opinion O-2929 (1942), this office
    relied on the quoted language to find that state employees
    had effectively resigned their public employment when they
    took positions in the private sector that were in direct
    competition with their public employment.  Again in Attorney
    General Opinion H-1309   (1978), this office said "public
    policy severely limits the ability of a public entity to
    contract with a private entity when the same persons   serve
    in management  positions on both. Thus, while one person
    technically may serve in both capacities, the conflicts   of
    interest thereby raised will often prevent him from acting
    in both capacities as a practical matter."  
    Id. at 2.
    The same public policy applies to business     dealings
    between the Harris County Flood Control District and HL&P or
    HII, and our conclusion   is the same. The Harris     County
    Flood Control District was created under Acts 1937 of the
    p. 5177
    Honorable Mike Driscoll - Page 6   (JM-1006)
    45th Legislature, chapter   360,   at 714.   Section 1 of that
    act establishes the district     as wa governmental agency and
    body politic and corporatew and designates the commissioners
    court of Harris     County as the governing        body of the
    district.   The county judge is still subjected to the same
    divided loyalty whether   he is sitting as a member of the
    commissioners court or on the governing      body of the flood
    control district.
    We reach the same conclusion in regard to contracts   or
    other business dealings between the county and the nonprofit
    corporation established to treat AIDS patients.       The fact
    that the corporation was established not for profit does not
    a'ffect the public policy considerations:     the county judge
    has a fiduciary duty to the corporation, and there is no
    less opportunity for his public duty to conflict with his
    private    interest.   See. e a.    Attorney  General  Opinions
    JM-884   (1988): H-1309 (1978)'; i-714 (1970). In fact, we can
    hypothesize that his conflict may be greater in the case of
    a corporation in whose beneficial goals the public     official
    strongly believes.
    The same considerations do not apply, however,  to
    contracts between the AIDS corporation and the Hospital
    District.
    The Harris  County Hospital District was established
    pursuant to article 4494n, V.T.C.S.   The commissioners court
    appoints the board of managers of the district.      V.T.C.S.
    art. 4494n, g 5B. The commissioners court must also approve
    the district's budget, &    5 8,   and all contracts of the
    district.  &L 5 5b.   The commissioners  court may prescribe
    purchasing and accounting practices of the district.      
    Id. § 6.
           Although, under the statute, the county commissioners
    court retains some      responsibilities  in regard to    the
    hospital district,    the district is a separate political
    subdivision of the state.       Bexar Countv HOSD. Dist. v.
    Crosby, 
    327 S.W.2d 445
    (Tex. 1959); Attorney General Opinion
    WW-886    (1960) .
    The commissioners court does not act as the governing
    body of the hospital    district, which, under the facts
    presented, may have a continuing contractual       relationship
    with the nonprofit corporation.    We believe     that a court
    would not, as a matter of law, find that a business      trans-
    action between  the hospital district        and the nonprofit
    corporation is invalid simply because of the county 'judgets
    p. 5178
    Honorable Mike Driscoll - Page 7     (JM-1006)
    L
    interest in the corporation.   However, we also believe   that
    should such a contract be questioned      in a court of law,
    the court would examine it with the strict scrutiny         to
    which transactions between   corporations   with  interlocking
    directorships are subjected.     m    United Towina    Co. v.
    PhilliDS, 
    242 F.2d 627
    (5th cir.),    cert. denied, 
    78 S. Ct. 93
    (1957); Stat    Bankina Bd. v. Vallev Nat'1 Bank, 
    604 S.W.2d 415
      (Texe Civ. APP. - Austin       1980, writ ref'd
    n.r.e.).
    SUMMARY
    Public policy prohibits a county judge
    from simultaneously serving on the board of
    directors of a corporation that does business
    with the county, even where the county judge
    receives no compensation from the corporation.
    A county hospital district may contract or do
    business with a corporation on whose board of
    J I-
    directors a county judge serves.
    Very truly you
    i-m
    JIM      MATTOX
    Attorney General of Texas
    MARYKELLER
    First Assistant Attorney General
    MU MCCREARY
    Executive Assistant Attorney General
    JUDGE ZOLLIE STEAKLEY
    Special Assistant Attorney General
    RICK GILPIN
    Chairman, Opinion Committee
    Prepared by Karen C. Gladney
    Assistant Attorney General
    p. 5179