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Oklahoma Association of Municipal Attorneys

Nepotism (21 section 481 et seq.) - Council Members/Prohibited Conduct (11 section 8-113)

Joe Weaver

Mon, May 11, 2020 4:26 PM

Counsel:

I represent a small town that is pursuing a grant to upgrade its water well fields to include the drilling of an additional well(s) and construction of a new water line(s). The grant application is not due yet, but preliminary engineering work has be done to determine potential locations for the well(s). The Town has paid for the engineering work. It appears the location chosen for the new well is on property owned by the father-in-law (or father-in-law's trust) of a member of the Board of Trustees. Though grant funds will be used to construct the well and water line, the Town will ultimately pay the landowner for the water.

Is the proposed construction of the well and water line, and purchase of the water, prohibited by the referenced statutes or otherwise? Your thoughts and input will be appreciated.

Thanks,
Joe Weaver

Joe Weaver
Attorney At Law
405.262.4040
405.262.4058 fax
joe@basslaw.net mailto:agbass@basslaw.net

[cid:image001.png@01D62785.2ED03920]
www.basslaw.net
104 N. Rock Island Ave.
P.O. Box 157
El Reno, OK 73036

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Counsel: I represent a small town that is pursuing a grant to upgrade its water well fields to include the drilling of an additional well(s) and construction of a new water line(s). The grant application is not due yet, but preliminary engineering work has be done to determine potential locations for the well(s). The Town has paid for the engineering work. It appears the location chosen for the new well is on property owned by the father-in-law (or father-in-law's trust) of a member of the Board of Trustees. Though grant funds will be used to construct the well and water line, the Town will ultimately pay the landowner for the water. Is the proposed construction of the well and water line, and purchase of the water, prohibited by the referenced statutes or otherwise? Your thoughts and input will be appreciated. Thanks, Joe Weaver -------------------------------- Joe Weaver Attorney At Law 405.262.4040 405.262.4058 fax joe@basslaw.net<mailto:agbass@basslaw.net> [cid:image001.png@01D62785.2ED03920] www.basslaw.net 104 N. Rock Island Ave. P.O. Box 157 El Reno, OK 73036 NOTICE: The information contained in this transmission is or may be protected by the attorney-client and/or the attorney work product privilege and is confidential. It is intended only for the use of the individual or entity identified above. If the reader of this message is not the intended recipient you are hereby notified that any dissemination or distribution of the accompanying communication is prohibited. No applicable privilege is waived by the party sending this communication. If you have received this communication in error, please notify us immediately by reply and delete the original message from your system. Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Jon Miller

Mon, May 11, 2020 4:47 PM

Joe,

The following might be helpful.

Section 11, 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, a part 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, §11 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). 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. Section11 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.

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 hyper technical 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.

Section 11 would not prohibit a city from obtaining a loan from a bank 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 §11 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).

Section 8-113 of Title 11, Oklahoma Statutes, contains the primary provision applicable to municipal officers. Section 8-133 provides in part that:

A. Except as otherwise provided by this section, no municipal officer or employee, or any business in which the officer, employee, or spouse of the officer or employee has a proprietary interest, shall engage in:

       Selling, buying, or leasing property, real or personal, to or from the municipality;

       Contracting with the municipality; or

       Buying or bartering for or otherwise engaging in any manner in the acquisition of any bonds, warrants, or other evidence of indebtedness of the municipality.

Section 8-113 generally does not apply to any municipality with a population of not more than 2,500 if the officer or employee's business is the only business of that type within five miles of the city limits, and even then the activities cannot exceed $500.00 for any single activity and cannot exceed $10,000.00 in any calendar year (unless the items purchased are regularly sold to the general public in the normal course of business and the price charged to the municipality does not exceed the price charged to the general public). Under §8-113, "any person who receives wages, reimbursement for expenses, or emoluments of any kind from a municipality, any spouse of the person, or any business in which the person or spouse has a proprietary interest shall not buy or otherwise become interested in the transfer of any surplus property of a municipality or a public trust of which the municipality is beneficiary unless the surplus property is offered for sale to the public after notice of the sale is published."

As with the Oklahoma Constitutional prohibition, "any transaction entered into in violation of [§8-113] is void." 11 Okla. Stat. §8-113(E). Section 8-113 goes further, however, and provides that "any member of a governing body who approves any transaction in violation of the provisions of this section shall be held personally liable for the amount of the transaction." 11 Okla. Stat. §8-113(E). Section 8-113 applies to contracts between a municipality and an officer or employee of the municipality. Oklahoma Attorney General Opinion, 1995 OK AG 41 (03/01/1996). However, it does not apply to contracts to contracts of a trust that is a separate legal entity from the city, provided "the funds of one are not the funds of the other." Id. Thus, a contract between a trust and an ambulance service owned by a councilmember "would not per se be an unlawful conflict of interest" even though the city council appoints the trustees of the trust. Id. However, as the Oklahoma Attorney General noted in that 1995 decision, whether the councilmember "might attempt to use that position in such a way as to gain financial advantage or profit is a question of fact." Id. "Public officials must always be mindful that they should follow a high standard of conduct." Id. In other words, while the contract may not violate the letter of §8-113, a conflict might nonetheless exist if the councilmember improperly used his position to obtain the contract. Section 8-113 determines conflicts of interest "based on whether a proprietary interest exists." Oklahoma Attorney General Opinion, 2001 OK AG 32 (07/18/2001). Section 8-113, while closely following §11, Article X of the Oklahoma Constitution, the prohibition in §8-113 is not as broad as that in §11. Id.

In order to answer your question, you will need more information on the relationship between the father-in-law's trust and the town trustee and his family. Is the town trustee's wife a beneficiary of the trust? Are their children beneficiaries? Those relationships might reveal a disqualifying fact under the constitutional prohibition.

Jonathan E. Miller
City Attorney
City of Mustang
P.O. Box 546
Piedmont, Oklahoma 73078
Telephone: (405) 938-9108

This message is sent by a lawyer and may contain information that is privileged or confidential. If you received this transmission in error, please notify the sender by reply e-mail and delete this message and any attachments. This e-mail is intended for the addressee(s) only, and may not be distributed to any other person without written consent of the sender.

From: Oama oama-bounces@lists.imla.org On Behalf Of Joe Weaver
Sent: Monday, May 11, 2020 11:26 AM
To: oama@lists.imla.org
Subject: [Oama] Nepotism (21 section 481 et seq.) - Council Members/Prohibited Conduct (11 section 8-113)

Counsel:

Is the proposed construction of the well and water line, and purchase of the water, prohibited by the referenced statutes or otherwise? Your thoughts and input will be appreciated.

Thanks,
Joe Weaver

Joe Weaver
Attorney At Law
405.262.4040
405.262.4058 fax
joe@basslaw.net mailto:agbass@basslaw.net

[cid:image001.png@01D62788.6FCA6920]
www.basslaw.net
104 N. Rock Island Ave.
P.O. Box 157
El Reno, OK 73036

Joe, The following might be helpful. Section 11, 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, a part 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, §11 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). 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. Section11 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. 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 hyper technical 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. Section 11 would not prohibit a city from obtaining a loan from a bank 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 §11 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). Section 8-113 of Title 11, Oklahoma Statutes, contains the primary provision applicable to municipal officers. Section 8-133 provides in part that: A. Except as otherwise provided by this section, no municipal officer or employee, or any business in which the officer, employee, or spouse of the officer or employee has a proprietary interest, shall engage in: 1. Selling, buying, or leasing property, real or personal, to or from the municipality; 2. Contracting with the municipality; or 3. Buying or bartering for or otherwise engaging in any manner in the acquisition of any bonds, warrants, or other evidence of indebtedness of the municipality. Section 8-113 generally does not apply to any municipality with a population of not more than 2,500 if the officer or employee's business is the only business of that type within five miles of the city limits, and even then the activities cannot exceed $500.00 for any single activity and cannot exceed $10,000.00 in any calendar year (unless the items purchased are regularly sold to the general public in the normal course of business and the price charged to the municipality does not exceed the price charged to the general public). Under §8-113, "any person who receives wages, reimbursement for expenses, or emoluments of any kind from a municipality, any spouse of the person, or any business in which the person or spouse has a proprietary interest shall not buy or otherwise become interested in the transfer of any surplus property of a municipality or a public trust of which the municipality is beneficiary unless the surplus property is offered for sale to the public after notice of the sale is published." As with the Oklahoma Constitutional prohibition, "any transaction entered into in violation of [§8-113] is void." 11 Okla. Stat. §8-113(E). Section 8-113 goes further, however, and provides that "any member of a governing body who approves any transaction in violation of the provisions of this section shall be held personally liable for the amount of the transaction." 11 Okla. Stat. §8-113(E). Section 8-113 applies to contracts between a municipality and an officer or employee of the municipality. Oklahoma Attorney General Opinion, 1995 OK AG 41 (03/01/1996). However, it does not apply to contracts to contracts of a trust that is a separate legal entity from the city, provided "the funds of one are not the funds of the other." Id. Thus, a contract between a trust and an ambulance service owned by a councilmember "would not per se be an unlawful conflict of interest" even though the city council appoints the trustees of the trust. Id. However, as the Oklahoma Attorney General noted in that 1995 decision, whether the councilmember "might attempt to use that position in such a way as to gain financial advantage or profit is a question of fact." Id. "Public officials must always be mindful that they should follow a high standard of conduct." Id. In other words, while the contract may not violate the letter of §8-113, a conflict might nonetheless exist if the councilmember improperly used his position to obtain the contract. Section 8-113 determines conflicts of interest "based on whether a proprietary interest exists." Oklahoma Attorney General Opinion, 2001 OK AG 32 (07/18/2001). Section 8-113, while closely following §11, Article X of the Oklahoma Constitution, the prohibition in §8-113 is not as broad as that in §11. Id. In order to answer your question, you will need more information on the relationship between the father-in-law's trust and the town trustee and his family. Is the town trustee's wife a beneficiary of the trust? Are their children beneficiaries? Those relationships might reveal a disqualifying fact under the constitutional prohibition. Jonathan E. Miller City Attorney City of Mustang P.O. Box 546 Piedmont, Oklahoma 73078 Telephone: (405) 938-9108 ********************************************************************************************* This message is sent by a lawyer and may contain information that is privileged or confidential. If you received this transmission in error, please notify the sender by reply e-mail and delete this message and any attachments. This e-mail is intended for the addressee(s) only, and may not be distributed to any other person without written consent of the sender. From: Oama <oama-bounces@lists.imla.org> On Behalf Of Joe Weaver Sent: Monday, May 11, 2020 11:26 AM To: oama@lists.imla.org Subject: [Oama] Nepotism (21 section 481 et seq.) - Council Members/Prohibited Conduct (11 section 8-113) Counsel: I represent a small town that is pursuing a grant to upgrade its water well fields to include the drilling of an additional well(s) and construction of a new water line(s). The grant application is not due yet, but preliminary engineering work has be done to determine potential locations for the well(s). The Town has paid for the engineering work. It appears the location chosen for the new well is on property owned by the father-in-law (or father-in-law's trust) of a member of the Board of Trustees. Though grant funds will be used to construct the well and water line, the Town will ultimately pay the landowner for the water. Is the proposed construction of the well and water line, and purchase of the water, prohibited by the referenced statutes or otherwise? Your thoughts and input will be appreciated. Thanks, Joe Weaver -------------------------------- Joe Weaver Attorney At Law 405.262.4040 405.262.4058 fax joe@basslaw.net<mailto:agbass@basslaw.net> [cid:image001.png@01D62788.6FCA6920] www.basslaw.net 104 N. Rock Island Ave. P.O. Box 157 El Reno, OK 73036 NOTICE: The information contained in this transmission is or may be protected by the attorney-client and/or the attorney work product privilege and is confidential. It is intended only for the use of the individual or entity identified above. If the reader of this message is not the intended recipient you are hereby notified that any dissemination or distribution of the accompanying communication is prohibited. No applicable privilege is waived by the party sending this communication. If you have received this communication in error, please notify us immediately by reply and delete the original message from your system. Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.