CONFLICT OF INTEREST; VOTING CONFLICT
CITY COUNCIL MEMBER PRESIDENT OF CORPORATION
PARTY TO AGREEMENT WITH CITY
To: Mike Chesser, Attorney for City Council Member (Destin)
Under the situation presented, a prohibited conflict of interest under Sections 112.313(3) and 112.313(7)(a), Florida Statutes, would be created were a corporation of which a city council member is a shareholder and president to enter into a development agreement with the city. The member would be acting in his official capacity to acquire items from the corporation, he would be acting in a private capacity to provide items to the city, he would hold a contractual relationship with a business entity doing business with his public agency, and the "sole source" exemption would not be applicable. In addition, he would hold a contractual relationship with a business entity subject to the regulation of his public agency, and his contractual relationship would create a continuing or frequently recurring conflict or would impede the full and faithful discharge of his public duties.1
Would a prohibited conflict of interest be created were a corporation of which a city council member is a shareholder and president to enter into a development agreement with the city?
Under the circumstances presented, your question is answered in the affirmative.
By your letter of inquiry, several documents accompanying the letter, and additional correspondence between you and our staff, we are advised that Kelly Windes (member) serves as a member of the City Council of the City of Destin and that he is president and a major shareholder of a corporation which desires to interface with the City as set forth below. Continuing, you advise that the City, as part of its effort to "remake" the harbor area of the City, has contracted to buy a parcel (approximately 1/2 acre in size) which is contiguous to property owned by the corporation and regarding which the City proposes to enter into agreements with the corporation.2
The prohibitions within the Code of Ethics for Public Officers and Employees (Part III, Chapter 112, Florida Statutes) relevant to your inquiry are Sections 112.313(3) and 112.313(7)(a), Florida Statutes. The prohibitions provide:
DOING BUSINESS WITH ONE'S AGENCY.- No employee of an agency acting in his or her official capacity as a purchasing agent, or public officer acting in his or her official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his or her own agency from any business entity of which the officer or employee or the officer's or employee's spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or the officer's or employee's spouse or child, or any combination of them, has a material interest. Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to the officer's or employee's own agency, if he or she is a state officer or employee, or to any political subdivision or any agency thereof, if he or she is serving as an officer or employee of that political subdivision. The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator's place of business or when such offices are on property wholly or partially owned by the legislator. This subsection shall not affect or be construed to prohibit contracts entered into prior to:
(a) October 1, 1975.
(b) Qualification for elective office.
(c) Appointment to public office.
(d) Beginning public employment.
[Section 112.313(3), Florida Statutes.]
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.łNo public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee . . .; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties. [Section 112.313(7)(a), Florida Statutes.]
Absent applicability of an exemption, Section 112.313(3) would prohibit the member's purchasing, renting, or leasing for the City in his official (City Council) capacity any realty, goods, or services from the corporation, and it would prohibit his acting in a private capacity (i.e., in behalf of the corporation) to rent, lease, or sell any realty, goods, or services to the City.3 And, absent applicability of an exemption, a prohibited conflict of interest would be created for the member under Section 112.313(7)(a) were the corporation (of which he is a shareholder and president) to enter into the agreements with the City; under such a situation, the member would, inter alia, hold employment or a contractual relationship with a business entity doing business with his public agency.4
The exemption at issue under your inquiry is the "sole source" exemption codified at Section 112.313(12)(e), Florida Statutes. The exemption provides:
(12) EXEMPTION.--. . . . In addition, no person shall be held in violation of subsection (3) or subsection (7) if:
(e) The business entity involved is the only source of supply within the political subdivision of the officer or employee and there is full disclosure by the officer or employee of his or her interest in the business entity to the governing body of the political subdivision prior to the purchase, rental, sale, leasing, or other business being transacted.
We have had relatively few occasions to construe this exemption (see CEO 00-10); and we have not had occasion to construe it in a situation similar to that presented herein. In the instant inquiry, the City, rather than seeking merely to acquire a certain interest/use in realty, service, or other item, is seeking to establish a complicated, multifaceted, enforceable relationship between itself and the corporation which will enable the City's park (revitalization) project but which will also facilitate a private development project of the corporation.
In the context presented, we find that the sole source exemption is not applicable. In so finding, we recognize that the focus of the exemption is on a local government's acquisition of a particular item which it is in need of, and our recognition of its possible application has been in that vein.5 We have never applied the exemption to block applicability of the prohibitions of Sections 112.313(3) and 112.313(7)(a) to complicated relationships or interfaces between local governments and business entities which, as here, focus substantially on the interests of the business entity which extend far beyond the entity's interest in merely making a rental, lease, or sale of particular sole source items to the local government, and we decline to apply it in the instant situation. In essence, we find that the exemption must [as must all exemptions, see State v. Nourse, 340 So. 2d 966 (Fla. 3d DCA 1976)] be strictly construed, and, thus, that it must be limited to the vending of items to local governments.6
In addition, we find that if the Development Agreement is entered into between the City and the corporation, that the corporation will be "subject to the regulation of" the City Council (the member's public agency), due to the many terms and conditions contained in the agreement. And thus we find that this would create a prohibited conflict for the member under Section 112.313(7)(a), independent and separate from the conflict, recognized above, which would be grounded in the City's and the corporation's "doing business with" one another. In this regard, see the final order and the recommended order in In re WALTER STOTESBURY, Commission on Ethics' Complaint No. 89-160, in which the Commission found that a fixed-base operator was subject to the regulation of the authority by virtue of an agreement between the fixed-base operator and the authority.7
Accordingly, we find that a prohibited conflict of interest will be created for the member if the corporation of which he is a shareholder and president enters into the Development Agreement with the City while he is a member of the City Council.8
ORDERED by the State of Florida Commission on Ethics meeting in public session on December 4, 2009 and RENDERED this 9th day of December, 2009.
Cheryl Forchilli, Chair
 Prior opinions of the Commission on Ethics cited herein may be obtained from its website (www.ethics.state.fl.us) or may be obtained directly from the Commission.
You advise that there are two proposed agreements between the City and the corporation: (1) a Development Agreement and (2) an Amendment To Lease Agreement For Riparian Rights. In essence, it appears that the Development Agreement would further the corporation's development of a project which would include residential condominium units, a condominium hotel, commercial space (including a restaurant and retail), and a marina, in conjunction with the City's construction of a harbor-front City park, certain elements of which would be coordinated and partially integrated with the corporation's project. And it appears that the riparian rights lease/amendment would primarily lease from the corporation to the City rights to submerged lands usages necessary to enable park amenities.
Previously, we have found that a public officer acts in his official capacity when his public board acts, and we have found that he acts in a private capacity when a corporation of which he is an officer, director, or holder of a material interest acts. See, for example, CEO 90-24, CEO 81-2, and CEO 09-1.
We have found that one's ownership of stock in (being a shareholder of) a corporation constitutes one's holding of a contractual relationship with the corporation. See, for example, CEO 99-13. Also, we have found that a business entity is doing business with a public agency when the two have entered into a relationship where a cause of action would exist in the event of a breach. See, for example, CEO 86-24 and CEO 07-11. "Business entity" is defined at Section 112.312(5), Florida Statutes, to include "any corporation."
See CEO 06-28 (assistant principal selling real property to school district), CEO 87-31 (school principal selling real property to school district), CEO 90-24 (city commissioners members of church seeking to sell property to the city), CEO 83-23 (county commissioner officer and shareholder in corporation which owns building leased to county), CEO 91-26 (county tourist development council advisory committee member also executive director of chamber of commerce contracting with tourist development council), CEO 00-10 (community redevelopment agency employee owner of television station selling advertising to CRA), CEO 98-6 (city council member's publication selling advertising to city), CEO 92-28 (school director and teacher receiving royalties from sale of textbooks required for their courses), CEO 81-2 (department of health and rehabilitative services employee providing consulting services to department), CEO 78-24 (county employee owning company which sells patented item to county), CEO 78-17 (fire control district board member owner of hardware store doing business with district), CEO 77-127 (counsel for fire district commission owning material interest in telephone answering service company doing business with fire district), and CEO 77-125 (school district director of curriculum owner of athletic supply company selling to schools in district).
In this regard, we note that if the situation merely involved the lease or use by the City of riparian rights from the corporation and/or other "realty specific" relationships between the City and the corporation, the exemption might very well apply. However, the private development interests of the corporation which would be embodied in the Development Agreement between the City and the corporation present a much different situation.
Also, we find that a continuing or frequently recurring conflict between the member's private interests and the performance of his public duties, or an impediment to the full and faithful discharge of his public duties, would be created were the corporation to enter into the Development Agreement while the member is on the City Council. The situation is indicative of the potential for divided loyalty exemplified in Zerweck v. State Commission on Ethics, 409 So. 2d 57 (Fla. 4th DCA 1982), and codified in Section 112.312(8), Florida Statutes, which defines "conflict" or "conflict of interest" to mean "a situation in which regard for a private interest tends to lead to disregard of a public duty or interest." Of course, this is not meant to say, and we by no means say, that the member actually would yield to such a temptation; however, the statute, being preventive in nature, does not require an affirmative transgression.
Regarding the voting conflicts law applicable to local, elective public officers, Section 112.3143(3)(a), Florida Statutes, we find that the member would be presented with a voting conflict as to votes/measures of the City Council concerning the corporation. See, for example, CEO 06-20, note 6. Therefore, he must declare his interests, abstain from voting, and timely file CE Form 8B (memorandum of voting conflict) regarding all votes/measures of the City Council concerning the corporation. However, compliance with the voting conflicts law will not insulate the member from a conflict under Sections 112.313(3) and 112.313(7)(a). See, for example, CEO 94-5. Thus, it appears that in order not to run afoul of Section 112.313(3) or Section 112.313(7)(a), the member must resign his public office, or end his stock ownership and presidency with the corporation, prior to the City and the corporation entering into any agreements.