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Oklahoma Association of Municipal Attorneys

Self Dealing Question

John R. Andrew

Mon, Apr 3, 2023 1:34 PM

All,

The Ponca City Housing Authority is composed of members appointed by our Mayor with advice and consent of the Commissioners. The Housing Authority has just appointed a member who is renting an office space in a building owned by the Housing Authority. I believe that it's being rented at market value but have a real problem with someone on a board of the entity that owns the building he's renting space from. He's rented that space since before the building became owned by the Housing Authority.

Thanks,

John R. Andrew
City Attorney
Ponca City

All, The Ponca City Housing Authority is composed of members appointed by our Mayor with advice and consent of the Commissioners. The Housing Authority has just appointed a member who is renting an office space in a building owned by the Housing Authority. I believe that it's being rented at market value but have a real problem with someone on a board of the entity that owns the building he's renting space from. He's rented that space since before the building became owned by the Housing Authority. Thanks, John R. Andrew City Attorney Ponca City

Jon Miller

Mon, Apr 3, 2023 1:41 PM

John,

Here is part of some research I did a few years back. It may be helpful.

It is useful to begin any discussion of conflicts of interest with a statement by the Oklahoma Supreme Court: "Government officials and employees must exercise great care to avoid even the appearance of impropriety in their duties; for they, like Caesar's wife, must be above reproach." Westinghouse Electric Corp. v. Grand River Dam Authority, 1986 OK 20, 720 P.2d 713. This statement is a useful guide in determining whether an actual or potential conflict of interest exists in any case.

A. Oklahoma Constitution

The first place to begin a discussion on conflict of interest for municipal officers is the Oklahoma Constitution. Section I l, Article X of the Oklahoma Constitution contains a broad provision designed to preclude conflicts of interest by absolutely prohibiting transactions. Section 11 provides:

The receiving, directly or indirectly, by any officer of the State, or of any county, city, or town, or member or officer of the Legislature, of any interest, profit, or perquisites, arising from the use or loan of public funds in his hands, or moneys to be raised through his agency for State, city, town, district, or county purposes shall be deemed a felony. Said offense shall be punished as may be prescribed by law, apart of which punishment shall be disqualification to hold office.

In its broadest terms, § 11 prohibits public officers "from receiving benefits from the use of public funds in their hands or raised through their agencies for governmental purposes." As Oklahoma's Attorney General noted, prohibits public officers "from receiving a direct or indirect profit from the use of public funds." Oklahoma Attorney General Opinion, 1985 OK AG 138. As noted by the Attorney General:

This provision is broad in its sweep, and severe in its punishment of violations. Since violation of this provision results in punishment for a felony crime and disqualification to hold office it must be strictly construed, as are all penal statutes. Strict construction of Article X, Section 11 shows it covers only officers of the State, or any county, city, town or member of the Legislature. It does not, for example, prohibit conduct of members of a board of education of a school district, since a school district is not the State, nor a county, city or town, but a separate entity, nor does it include trustees of a public trust, which is also a separate and distinct legal entity.

Oklahoma Attorney General Opinion, 2004 OK AG 40 (12/15/2004). This constitutional prohibition has been applied in a number of relevant contexts.

Under §11, a state college cannot enter into a contract to obtain goods or services from a company that is owned in part by a member of the board of regents. Oklahoma Attorney General Opinion, 1980 OK AG 298 (01/14/1981). Because §11 is an absolute prohibition, the quantity or quality of the interest owned by the regent in the company is of no consequence. Id. Section 11 may also prohibit a city from contracting with a company which only employs a councilmember, even though the councilmember owns no interest in the company and the councilmember's compensation is not paid out of funds received from the city. Oklahoma Attorney General Opinion, 2001 OK AG 32 (07/18/2001). Whether an actual conflict exists would require delving into the company's finances to determine if the company could survive without the city funds or if the city funds "have a relationship to the funds that are used for the city official's compensation." Id. Such an inquiry would present a question of fact that could only be determined on a case-by-case basis.

Because §11 is an absolute prohibition, "the conflict cannot be avoided by having the city official recuse himself or herself from any vote concerning payment of city funds to the private entity." Id. Nor can the conflict be avoided if the private company insulates the municipal officer from receiving any benefit from the transaction. Oklahoma Attorney General Opinion, 2004 OK AG 40 (12/15/2004).

Section 11 would prohibit a public member of the Environmental Quality Board, or a company, firm or other entity that employs or is owned by such board member, from entering into a contractual or other business relationship with the Department of Environmental Quality. Oklahoma Attorney General Opinion, 2004 OK AG 40 (12/15/2004). Although recognizing that the money of the Department of Environmental Quality does not "pass through the hands" of the Environmental Quality Board, the Attorney General noted that the board "clearly exercises considerable control over DEQ's financial activities by virtue of oversight of the DEQ budget request to the Governor, by establishing DEQ policies (and programs) through rulemaking, and by the power to hire and fire the DEQ Director," and concluded that "the policy against conflicts of interest stated in Article X, Section 11 may not be overridden by a hypertechnical reading of the statutes pertaining to the Board's duties."

Section 11 prohibits a councilmember from indirectly receiving any interest, profit, or perquisites. Under §11 a municipality cannot contract with a company that is was owned in whole or in part by a councilmember's wife. Cf., Oklahoma Attorney General Opinion, 1981 OK AG 129 (06/10/1981) (state cannot contract with company half-owned by wife of legislator). By prohibiting transactions either "directly or indirectly," §11 prohibits "all methods of doing the proscribed thing." A wife's ownership would be a sufficient indirect interest to disqualify the company from entering into a contract with the city. For purposes of prohibiting financial or contractual dealings, the acts of the spouse would be indirectly the acts of the councilmember. Cf., Id. Oklahoma's Attorney General has further opined that §11 would prohibit the wife's company from selling material to another company, which in turn would sell directly to the state. As the Attorney General noted: "A party in such context cannot do indirectly that which such party is prohibited from doing directly. One may not circumscribe the rule against prohibited financial dealings by contract with an intermediary." Id.

While the prohibition in §11 is broad, it would not prohibit city employees from calling an ambulance service that is owned in part by a councilmember where the injured party is responsible for paying for the service. Oklahoma Attorney General Opinion, 1995 OK AG 41 (03/01/1996). In such a case, no city funds are involved and there is no contract between the city and the ambulance service. Id. However, even in that situation the Attorney General noted that "whether a council member might misuse his or her influence in such a way as to create an unlawful conflict of interest in a particular situation is a question of fact which cannot be addressed in an Attorney General Opinion." Id. This observation by the Attorney General undoubtedly left undecided any question of whether the councilmember improperly persuaded city employees to call the councilmember's company for such services.

Section 11 also would not prohibit a city from obtaining a loan from a bank where the where the vice-president of the bank is the father-in-law of a member of the Board of Trustees of the public trust involved, and the president of the bank is the father-in-law of a member of the city council. In order for to be implicated, the public officer must receive the direct or indirect profit or interest from the transaction. The Attorney General noted that, while the bank and its officer and employees may profit directly or indirectly from loans to the city, "the existence of a family relationship does not, in and of itself, establish a financial interest" to the public officer. Okl. A.G. Opin. No. 85-138 (January 30, 1986).

Without question a bank receives a profit from loaning out money and collecting interest. The bank stockholders and potentially the officers and employees of the bank itself may also profit directly or indirectly from such loans. While it is theoretically possible that an individual could profit or be interested in the financial gain of one's father-in-law, the existence of such a family relationship does not, in and of itself, establish such interest. The bank loan to the public trust as outlined in your opinion request would only be improper if a member of the Board of Trustees would directly or indirectly profit from said loan or if he or she had a direct or indirect interest in the loan transaction pursuant to Okla. Const. Art. X, 11. Whether or not such profit or interest exists is a question of fact. Id. (emphasis added).

Jonathan E. Miller
City Attorney
City of Mustang
1501 N. Mustang Road
Mustang, Oklahoma 73064
Telephone: (405) 376-7746
Facsimile: (405) 376-7721

This email is sent by the City Attorney and may contain information that is privileged or confidential. If you received this email in error, please notify the sender by reply email and delete the email and any attachments. If you are a and officer, employee or agent of the City of Mustang, you should not share this email with others. Sharing this email may result in a loss of the attorney-client privilege.

From: John R. Andrew andrejr@poncacityok.gov
Sent: Monday, April 3, 2023 8:34 AM
To: oama@lists.imla.org
Subject: [Oama] Self Dealing Question

All, The Ponca City Housing Authority is composed of members appointed by our Mayor with advice and consent of the Commissioners. The Housing Authority has just appointed a member who is rentin

All,

Thanks,

John R. Andrew
City Attorney
Ponca City

John, Here is part of some research I did a few years back. It may be helpful. It is useful to begin any discussion of conflicts of interest with a statement by the Oklahoma Supreme Court: "Government officials and employees must exercise great care to avoid even the appearance of impropriety in their duties; for they, like Caesar's wife, must be above reproach." Westinghouse Electric Corp. v. Grand River Dam Authority, 1986 OK 20, 720 P.2d 713. This statement is a useful guide in determining whether an actual or potential conflict of interest exists in any case. A. Oklahoma Constitution The first place to begin a discussion on conflict of interest for municipal officers is the Oklahoma Constitution. Section I l, Article X of the Oklahoma Constitution contains a broad provision designed to preclude conflicts of interest by absolutely prohibiting transactions. Section 11 provides: The receiving, directly or indirectly, by any officer of the State, or of any county, city, or town, or member or officer of the Legislature, of any interest, profit, or perquisites, arising from the use or loan of public funds in his hands, or moneys to be raised through his agency for State, city, town, district, or county purposes shall be deemed a felony. Said offense shall be punished as may be prescribed by law, apart of which punishment shall be disqualification to hold office. In its broadest terms, § 11 prohibits public officers "from receiving benefits from the use of public funds in their hands or raised through their agencies for governmental purposes." As Oklahoma's Attorney General noted, prohibits public officers "from receiving a direct or indirect profit from the use of public funds." Oklahoma Attorney General Opinion, 1985 OK AG 138. As noted by the Attorney General: This provision is broad in its sweep, and severe in its punishment of violations. Since violation of this provision results in punishment for a felony crime and disqualification to hold office it must be strictly construed, as are all penal statutes. Strict construction of Article X, Section 11 shows it covers only officers of the State, or any county, city, town or member of the Legislature. It does not, for example, prohibit conduct of members of a board of education of a school district, since a school district is not the State, nor a county, city or town, but a separate entity, nor does it include trustees of a public trust, which is also a separate and distinct legal entity. Oklahoma Attorney General Opinion, 2004 OK AG 40 (12/15/2004). This constitutional prohibition has been applied in a number of relevant contexts. Under §11, a state college cannot enter into a contract to obtain goods or services from a company that is owned in part by a member of the board of regents. Oklahoma Attorney General Opinion, 1980 OK AG 298 (01/14/1981). Because §11 is an absolute prohibition, the quantity or quality of the interest owned by the regent in the company is of no consequence. Id. Section 11 may also prohibit a city from contracting with a company which only employs a councilmember, even though the councilmember owns no interest in the company and the councilmember's compensation is not paid out of funds received from the city. Oklahoma Attorney General Opinion, 2001 OK AG 32 (07/18/2001). Whether an actual conflict exists would require delving into the company's finances to determine if the company could survive without the city funds or if the city funds "have a relationship to the funds that are used for the city official's compensation." Id. Such an inquiry would present a question of fact that could only be determined on a case-by-case basis. Because §11 is an absolute prohibition, "the conflict cannot be avoided by having the city official recuse himself or herself from any vote concerning payment of city funds to the private entity." Id. Nor can the conflict be avoided if the private company insulates the municipal officer from receiving any benefit from the transaction. Oklahoma Attorney General Opinion, 2004 OK AG 40 (12/15/2004). Section 11 would prohibit a public member of the Environmental Quality Board, or a company, firm or other entity that employs or is owned by such board member, from entering into a contractual or other business relationship with the Department of Environmental Quality. Oklahoma Attorney General Opinion, 2004 OK AG 40 (12/15/2004). Although recognizing that the money of the Department of Environmental Quality does not "pass through the hands" of the Environmental Quality Board, the Attorney General noted that the board "clearly exercises considerable control over DEQ's financial activities by virtue of oversight of the DEQ budget request to the Governor, by establishing DEQ policies (and programs) through rulemaking, and by the power to hire and fire the DEQ Director," and concluded that "the policy against conflicts of interest stated in Article X, Section 11 may not be overridden by a hypertechnical reading of the statutes pertaining to the Board's duties." Section 11 prohibits a councilmember from indirectly receiving any interest, profit, or perquisites. Under §11 a municipality cannot contract with a company that is was owned in whole or in part by a councilmember's wife. Cf., Oklahoma Attorney General Opinion, 1981 OK AG 129 (06/10/1981) (state cannot contract with company half-owned by wife of legislator). By prohibiting transactions either "directly or indirectly," §11 prohibits "all methods of doing the proscribed thing." A wife's ownership would be a sufficient indirect interest to disqualify the company from entering into a contract with the city. For purposes of prohibiting financial or contractual dealings, the acts of the spouse would be indirectly the acts of the councilmember. Cf., Id. Oklahoma's Attorney General has further opined that §11 would prohibit the wife's company from selling material to another company, which in turn would sell directly to the state. As the Attorney General noted: "A party in such context cannot do indirectly that which such party is prohibited from doing directly. One may not circumscribe the rule against prohibited financial dealings by contract with an intermediary." Id. While the prohibition in §11 is broad, it would not prohibit city employees from calling an ambulance service that is owned in part by a councilmember where the injured party is responsible for paying for the service. Oklahoma Attorney General Opinion, 1995 OK AG 41 (03/01/1996). In such a case, no city funds are involved and there is no contract between the city and the ambulance service. Id. However, even in that situation the Attorney General noted that "whether a council member might misuse his or her influence in such a way as to create an unlawful conflict of interest in a particular situation is a question of fact which cannot be addressed in an Attorney General Opinion." Id. This observation by the Attorney General undoubtedly left undecided any question of whether the councilmember improperly persuaded city employees to call the councilmember's company for such services. Section 11 also would not prohibit a city from obtaining a loan from a bank where the where the vice-president of the bank is the father-in-law of a member of the Board of Trustees of the public trust involved, and the president of the bank is the father-in-law of a member of the city council. In order for to be implicated, the public officer must receive the direct or indirect profit or interest from the transaction. The Attorney General noted that, while the bank and its officer and employees may profit directly or indirectly from loans to the city, "the existence of a family relationship does not, in and of itself, establish a financial interest" to the public officer. Okl. A.G. Opin. No. 85-138 (January 30, 1986). Without question a bank receives a profit from loaning out money and collecting interest. The bank stockholders and potentially the officers and employees of the bank itself may also profit directly or indirectly from such loans. While it is theoretically possible that an individual could profit or be interested in the financial gain of one's father-in-law, the existence of such a family relationship does not, in and of itself, establish such interest. The bank loan to the public trust as outlined in your opinion request would only be improper if a member of the Board of Trustees would directly or indirectly profit from said loan or if he or she had a direct or indirect interest in the loan transaction pursuant to Okla. Const. Art. X, 11. Whether or not such profit or interest exists is a question of fact. Id. (emphasis added). Jonathan E. Miller City Attorney City of Mustang 1501 N. Mustang Road Mustang, Oklahoma 73064 Telephone: (405) 376-7746 Facsimile: (405) 376-7721 This email is sent by the City Attorney and may contain information that is privileged or confidential. If you received this email in error, please notify the sender by reply email and delete the email and any attachments. If you are a and officer, employee or agent of the City of Mustang, you should not share this email with others. Sharing this email may result in a loss of the attorney-client privilege. From: John R. Andrew <andrejr@poncacityok.gov> Sent: Monday, April 3, 2023 8:34 AM To: oama@lists.imla.org Subject: [Oama] Self Dealing Question All, The Ponca City Housing Authority is composed of members appointed by our Mayor with advice and consent of the Commissioners. The Housing Authority has just appointed a member who is rentin All, The Ponca City Housing Authority is composed of members appointed by our Mayor with advice and consent of the Commissioners. The Housing Authority has just appointed a member who is renting an office space in a building owned by the Housing Authority. I believe that it's being rented at market value but have a real problem with someone on a board of the entity that owns the building he's renting space from. He's rented that space since before the building became owned by the Housing Authority. Thanks, John R. Andrew City Attorney Ponca City