CEO 80-25 -- April 17, 1980
CONFLICT OF INTEREST
COUNTY COMMISSIONER AND ASSISTANT COUNTY ATTORNEY OFFICER OR STOCKHOLDER OF CORPORATION BOOKING SHOWS INTO COUNTY ARENA
To: (Name withheld at the person's request.)
Prepared by: Phil Claypool
The Code of Ethics prohibits a public officer from having any employment or contractual relationship with a business entity which is doing business with his public agency. Section 112.313(7)(a), F. S. This provision would be violated were a county commissioner and assistant county attorney to be officers and stockholders of a corporation, a wholly owned subsidiary of which acts as a promoter to book shows into an arena owned and operated by the county. In CEO 79-16 it was determined that the ownership of stock in a corporation constitutes a contractual relationship with that corporation, and the subject commissioner and assistant county attorney are deemed to have a contractual relationship with the promoter corporation by virtue of their ownership interest in the parent company which serves as a holding company for only one asset: the stock of the subsidiary corporation. While it is recognized that such finding serves to "pierce the corporation veil," this is done not for the purpose of imposing personal financial liabilities upon shareholders, but rather to adjudge the ethical responsibilities of public officers and employees under a conflict-of-interest statute. A public officer or employee should not be able to disregard his ethical responsibilities and the public's trust simply by changing the business form under which he operates or in which he invests.
1. Would a prohibited conflict of interest be created were a county commissioner to be an officer or a stockholder of a corporation, when a wholly owned subsidiary of that corporation acts as a promoter to book shows into an arena owned and operated by the county?
2. Would a prohibited conflict of interest be created were an assistant county attorney to be an officer or a stockholder of a corporation which owns a subsidiary acting as a promoter to book shows into an arena owned and operated by the county or were he to be an officer of the subsidiary?
Question 1 is answered in the affirmative.
In your letter of inquiry you advise that Lee County, through the board of county commissioners, owns and operates the Lee County Arena and Fairgrounds. These facilities, you advise, are used to present live entertainment, with the shows being booked into the arena by private promoters. Contracts are entered into by the promoter and the arena manager, who is hired by the county commission and who signs the contract when authorized to do so by the county commission. The promoter pays to the arena either a flat fee or a percentage of gate receipts for the use of the facility, you advise.
In a telephone conversation with our staff, you advise that the subject county commissioner is an officer of and owns stock in a corporation which in turn owns the stock of a subsidiary. It is anticipated that this wholly owned subsidiary would act as a promoter to book shows in the county arena and to contract with the county through the arena manager. In addition, we are advised that the parent company is merely a holding company which at present owns only the promoter corporation, although it is intended that it will hold other assets in the future. The subject county commissioner neither owns stock in nor serves as an officer of the subsidiary.
The Code of Ethics for Public Officers and Employees prohibits a public officer from serving as an officer of, or owning a material interest in, a business which is leasing or selling any realty, goods, or services to his agency. Section 112.313(3), F. S. Here, however, the corporation would not be leasing property to the county, but rather would be temporarily leasing the arena from the county.
The Code of Ethics also prohibits a public officer from having any employment or contractual relationship with a business entity which is doing business with his agency. Section 112.313(7)(a), F. S. We previously have advised that the ownership of stock in a corporation constitutes a contractual relationship with that corporation. See CEO 79-16. Clearly, the promoter corporation would be "doing business with" the county by virtue of any contract with the county for the use of the county arena. This leaves the question of whether the subject commissioner has a contractual relationship with the promoter corporation; in our opinion he does have such a relationship, by virtue of his ownership interest in the parent company which serves merely as a holding company over the wholly owned subsidiary.
Ordinarily, a corporation may own part or all of the stock of another corporation, and each is treated as a separate legal entity. See, e.g., 8 Fla. Jur.2d Business Relationships ss. 10, 12, and 18. In a previous advisory opinion, CEO 78-20 (question 3), we recognized this legal principle in distinguishing between an engineering firm and its wholly owned subsidiary, a management corporation which was managing the liquidation of a limited partnership of the subject public officer.
Here, however, the subject commissioner is an owner of a corporation which at the present time serves merely as a holding company holding only one asset -- the stock of the subsidiary corporation. A "holding company" has been defined as:
A company that confines its activities to owning stock in, and supervising management of, other companies. A holding company usually owns a controlling interest in (more that 50 percent of the voting stock) the companies whose stock it holds. A corporation that controls the voting power of other individual corporations for the purpose of united action. [Black's Law Dictionary (5th Rev. ed 1979), p. 658.]
A holding company has been defined as a supercorporation which owns or at least controls such a dominant interest in one or more other corporations that it is enabled to dictate their policies through voting power, or which is in position to control or materially to influence the management of one or more companies by virtue, in part at least, of its ownership of securities in the other company or companies. [18 Am. Jur.2d Corporations s. 12.]
It is clear that, as a holding company, the subject commissioner's parent corporation is empowered to dictate the policies of its single, wholly owned subsidiary.
The corporate entity may be disregarded when it is used as a cover for fraud or illegality, when it is used to work an injustice, when it is deemed necessary to achieve equity, or when failure to achieve equity would enable the corporate device to be used to circumvent a statute. See 18 Am. Jur.2d Corporations s. 15, and cases cited therein. We hasten to point out that we have seen no indication that the corporations involved here have been created in order to cover any fraud or injustice. However, in the context of conflict of interest laws, we also observe that it would appear to be no less of a conflict of interest for a public officer or employee to own an interest in and be an officer of a parent, holding company than for him to own and be an officer of a wholly owned subsidiary. Thus, if we were to observe the strict, legal formalities of the corporate form, a public officer or employee could circumvent the Code of Ethics in order to own a corporation doing business with or subject to the regulation of his agency merely by adding a holding company to insulate him from the Code of Ethics. We have no reason to believe that the subject commissioner has intended to circumvent the Code of Ethics; however, as a matter of precedent, we cannot allow the corporate form to thwart the intent and effectiveness of the Code of Ethics.
We are aware that the Florida Supreme Court has held that the Florida Industrial Commission has no jurisdiction to disregard the legal existence of a corporation in order to try to impose financial liability upon the shareholders of that corporation and that a workmen's compensation claimant should bring an action in a court of equity or law in order to "pierce the corporate veil" and hold the stockholders liable for his claim. Roberts' Fish Farm v. Spencer, 153 So.2d 718 (Fla. 1963). However, the Supreme Court also has held that it is the duty of this commission to determine what conduct by public officers and employees could constitute breach of the public trust. Florida Commission on Ethics v. Plante, 369 So.2d 332 (Fla. 1979). We are not attempting here to "pierce the corporate veil" in order to impose personal financial liabilities upon shareholders, but rather to adjudge the ethical responsibilities of public officers and employees under a conflict-of-interest statute. The corporate form is a well-accepted form of economic life within this state:
Forming a corporation in order to limit one's risk to the amount of his investment in the stock, so far as future liabilities of the corporation are concerned, is a legitimate and an everyday occurrence. [8 Fla. Jur.2d Business Relationships s. 20.]
See also Roberts' Fish Farm v. Spencer, supra, at p. 721. We agree that this form has a legitimate function within the economic sphere, but we do believe that a public officer or employee should not be able to disregard his ethical responsibilities and the public's trust simply by changing the business form under which he operates or in which he invests.
Accordingly, we find that a prohibited conflict of interest would be created were the subject county commissioner to be an officer or a stockholder of a holding company, when a wholly owned subsidiary of that company acts as a promoter to contract with the county to book shows into an arena owned and operated by the county.
Question 2 is answered in the affirmative, based on the rationale contained in our response to your first question. We see no material difference under s. 112.313(7)(a), F. S., between the subject county commissioner and an assistant county attorney.