Untitled Texas Attorney General Opinion ( 1993 )

QBfficeof tty 2hmwp Qberal
Mate of Z!kxae
DAN MORALES
ATTORSEI
GENERAL December 31,1993
Honorable James L. Anderson, Jr. Opiion No. DM-279
Aransas County Attorney
301 North Live Oak Re: Whether a wncrete material company
Rockport, Texas 78382 owned by a county commissioner may
provide services and materials to the county
or to another contractor under contract with
the wlmty (RQ-295)
Dear Mr. Anderson:
You state that a person who is likely to be appointed county commissioner in the
timm owns either the majority interest in or sll of the stock in a corporation that sells
wncrete materials. The commissionerscourt has contracted with a general contractor for
extensive runway construction at the Aransas County Airport, and you believe he will
purchase materials from the concrete company becsutseit is the only such company in the
area1 On the assmnption that the owner of the concrete company will be a member of the
commissioners court when the materials are purchased, you ask whether a concrete
material company owned by a county commissionermay provide services and/or concrete
materials to the county, or to a contractor performing services to the county under
contract. Thus, you inquire about a sale from the concrete company to the county as well
as a sale from the concrete company to the contractor who is already under contract with
the wunty.
You wish to know how section 81.002 and section 171.004 of the Local
Government Code apply to the facts you have presented. Section 81.002 provides in part:
(a) Before undertaking the duties of the county judge or a
wtmty wmmissioner, a person must take the official oath and swear
in writing that the person will not be interested, directly or indirectly,
in a contract with or claim against the county except:
(1) a contract or claim expressly authorized by law; or
(2) a warrant issued to the judge or wmmissioner as a fee
of 05ce.
(b) [bond requirement]
twe~thstthcwunty.inpurhasingmatcrialrfortbisprojeRwillwmplywithany
applicablecompetitivebiddinglaws. See LocalGov’tCodeQ#271.021-271.030.
p. 1460
Honorable James L. Anderson, Jr. - Page 2 @M-279)
(c) [permittingcounty judge or county wmmissioner to serve as
member of the governing body or as officer or director of another
entity that does business with the wunty, subject to the provisions of
chapter 1711.
The special oath required of the wunty judge and a county wmmissioner by
section 81.002(a) has been in effect since 1876. See Acts 1876, 15th Leg., ch. 55, at 51.
Prior to 1981, when the precursor of section 81.002(a)(l) was adopted, only the county
judge’s and county wmmissioners’fees of office were specificallyexcepted from the oath
provision. See Acts 1981,67th Leg., ch. 527, 4 3, at 2230. Public wntmcts in which a
member of the wntmcting body had a direct or indirect pecuniary interest were against
public policy and void, acwrding to the common-law ruleapplied by Terms courts.
Meyers v. Wuker, 276 SW. 305 (T’ex.Civ. App.-Easthmd 1925, no writ); see ako Cig
ojI%Murg v. Ellis, 59 S.W.2d 99 (Tex. Commh App. 1933, holding approved); Bexar
County v. Wentworth, 378 S.W.2d 126 (Tex. Civ. App-San Antonio 1964, writ ref’d
n.r.e.); Sfotr Counq v. Guerra, 297 S.W.2d 379 (Tex. Civ. App.-San Antonio 1951. no
writ); fiippu v. Stewari Iron Works,66 S.W. 322 (Tex. Civ. App.-1902, no writ). This
rule applied to counties, cities, school districts, and other state and local govemmemal
bodies. See Attorney General OpinionsH-916 (1976); V-640 (1948).
In 1981 the legislature adopted an exception applicable to the predecessor of
section 81.002(a) and to former article 988 V.T.C.S. (1925), which prohibited members of
a~city wuncil from being “diiectiy or ir$rectly interested in any work, business or
wntract, the expense, price or consideration of which is paid from the city treasury.” Acts
1875, 14th Leg., ch. 100, at 154 (repeuZedJ+JActs 1983, 68th Leg., ch. 640. at 4082).
The 1981 exception read upon adoption as follows:
An incorporated city or town or a county may purchase
equipment or supplies from a cooperative association to which one
or more members of its governing body . . belongs if no member of
the governing body. . will receive a pecuniary benefit 6om the
purchase except as is reflected in an increase in dividends distributed
generally to members of the cooperative assokti0n.s
Acts 1981,67th Leg., ch. 527, 5 1, at 2229 (revised and rewdified 1987) (current version
at Local Gov’t Code 0 271.902). The bill that adopted the provision quoted above also
adopted the exception for “such contracts or claims as are expressly authoriaed by law.”
now wdiied as section 81.002(a)(l), Local Government Code. Acts 1981,67th Leg., ch.
527,s 3, at 2230.
Chapter 171 of the Local Govemment Code, adopted in 1983, etTected a major
change in the traditional common-law prohibition against a public officer’s direct or
2ThirpmvisionavrrmledAttomcyGcaualOpinionEM24 (1975) (oo- -may”ot
pwchasc suppliesfroma farm&s mopcmtivein +ich Bcommissionu owns 8 small share).
p. 1461
Honorable James L. Anderson, Jr. - Page 3 (DM-279)
indirect interest in a public contract entered into by the governing body to which the
officer belonged. Acts 1983, 68th Leg., ch. 640, 4 1, at 4079 (adopting predecessor of
chapter 171 as V.T.C.S. art. 988b (1925); see generally Attorney General Cpiion
JM-424 (1986)). Chapter 171 permits local governing bodies to enter into ~ntracts in
which a member of the governing body has a “substantialinterest” as defmed by section
171.002, but the “interested”public 05ce-r must comply with section 171.004 of the Local
Government Code, which provides as follows:
(a) If a local public official has a substantial interest in a
business entitys or in real property, the official shall file, before a vote
or decision on any matter involving the business entity or the real
property, an a5davit stating the nature and extent of the interest and
shall abstain from the further participation in the matter Z
(1) in the case of a substantial interest in a business.entity
the action on the matter wili have a special economic effect on
the business entity that is distinguishablefrom the effect on the
public; . .
A “local public official”includes the following:
a member of he governing body or another officer . of mry diict
(including a school district), county municipality, precinct, central
appraisal district, transit authority or district . . .
Local Gov’tCode 8 171.001(l) (emphasisadded).
A local public 05&l commits an offense by knowinglyviolating section 171.004,
id. 8 171.003(a)(l), but this violation will not invalidate the wntract unless the measure
would not have passed the governing body without his vote. Id. 5 171.006. This
enactment modiies the strict common-law rule that would have invalidated the contmct
even if the public officer had not participated. It permits the transaction but forbids the
interested officer from participating in it, enforcing this requirement by a crimmal penalty.
Id. 8 171.003.
The legislature has not expressly repealed section 8 1.002 of the Locai Government
Code, but the apparent overlap of this provision with chapter 171 of the Local
Government Code raises an issue of implied repeal. Section 81.002 requires the county
judge and wunty wmmissioners to talce an oath that they will not be interested in
wntracts with the wunty, but chapter 171 permits the wunty to enter into wntracts in
which these officers are interested. See Local Goti Code 5 171.001(l) (detining “local
public 05&l* to include a member of the governing body of a county).
“‘Bosinces
entity”is detinedas “a soleproprietorship,
psruicmhip,firm,coquaatioa,heldiq
compny, joint-stockcompany,receivership,
trust,or any otherentityrecognized
by law.” LocslGo+l
code 0 171.001(2).
p. 1462
Honorable James L. Anderson, Jr. - Page 4 (DM-279)
In Attorney General Opiion JIM-1090(1989) this office attempted to harmonize
these two provisions, concluding that the provisions of chapter 171 impliedly repealed
those of 81.002 to a certain extent. On review of Attorney General Opiion JM-1090, we
believe that it wrrectly concluded that chapter 171 prevails over section 81.002, but that
its reasoning is erroneous. In particular, Attorney General Opiion JM-1090 was
inwrrect in stating that a contract entered into under chapter 171 was “‘a
contract . expressly authorized by law.‘” As we have pointed out, the quoted language
was adopted in a bii that authorized a wunty to purchase equipment or supplies from a
woperative association to which a member of the wmmissioners court belonged. See
Local Goti Code § 271.902. A wntract to purchase equipment or supplies from a
woperative association is necesssrily a contract “expressly authotizd by law.” The terms
of the authorizing law are specitk as to the subject matter of the contract and the hind of
entity with which the county contracts. Chapter 171 does not have that hind of specificity.
Assuming that the wmmissioners court has authority under another statute or a
wnstitutional provision to wntract with a business entity or with regard to real estate,
chapter 171 permits the wmmissioners court to enter into the wntract even thougb a
member of the wmt has a personal pecuniary interest in it. As a wnsequence of
characterizing contracts made pursuant to chapter 171 as contracts “expressly authorized
by law,” Attorney General Opinion JM-1090 reached the doubffil conclusion that a
county wuld enter into wntracts in which a county wmmissioner had a “substantkl
interest” within chapter 171, but could not enter into wntmcts in which a county
wmmissioner bad a lesser interest.
In our opinion, chapter 171 and section 81.002 may be wrre-cdy harmonized by
reading chapter 171 to authorize a wunty to enter into contracts or take actions in which
a member of the commissioners court is pecuniarily interested to the same extent that
other local govemmental bodies may take such actions. Thus, if a wunty wmmissioner or
county judge has a substantial interest in a business entity that will be subject to a vote or
decision by the wmmissioners court, he must file the a5davit required by section 171.004
and abstain from participation in a matter if “action on the matter will have a special
economic eEect on the business entity that is distinguishablefrom the e&ct on the public.”
Local Oov’t Code 8 171.004. If his interest in a business entity is less than a substantkl
interest, the interested member of the wmmissioner’s wurt may participate in an action
affcaing the business entity. Chapter 171 creates an exception in the oath required by
section 8 1.002 to the extent that it permits a county judge or county wmmissioner to have
a direct or indirect interest in a contract with or claim against the wunty.4
4chaptcr171oftheLocal Govcmmwtcodcappliwlocolmtywolmctablvo~r~
entity”io which a anmtyjudge or wunty wmmissioner is intcmsted. Local GovVcode 8 171.002(a),@).
Itis~openqucstionwhetheranattcmptbyacountyjudgcoracwntywmmissionnto``cll
mvnedin his perscd capscitywould involve a “businessentity”within chapter171. Thus, it is possiile
that chapter 171 would not authorizea wunty commissionerto sell, for example, his automobileto the
wmtty, aad s&ion 81.002 and the common-lawrule would continue to prohibitsuch tmnmctions. See
Stow Cmmryv. Guem, 297 S.WA 379 (%x. Cit. ASP.-SW Antonio 1951, no writ) (wuoly
wmmiAoncr unlawfullyemployedas mad wmmissioncr was not entitledto mcetvcsalary). But see 35
p. 1463
,
Honorable James L. Anderson, Jr. - Page 5 W-279)
The legislativehistory of chapter 171 shows that it was meant to apply to members
of the wmmissioners wurt just as it applies to members of other local governmental
bodies. Its enactment was recommended by the Public Servant Standards of Conduct
Advisory Committee, a body establishedby statute to study laws on the conduct of public
servants and to recommend revisions to the legislature. See g&erully Attorney General
.
Opinion JM-424 (1986). The wmnuttee’s report stated as follows:
Local officers-elected and appointed officers in city cmd cow@
govemmenr, some special districts, and school districts-perform the
same types of fbnctions as state officers and are open to the same
types of conflicts of interest, centering around voting, purchasing,
and wntracts. The fbll wnmtittee eventually recommended solutions
that were based on a form of tlnancial disclosure with abstention
&om participation.
BACKGROUNDREPORT ON LQCAL. OFFICERS’CONFLICT OF INTEREST PROBLEMS,
published in FINAL.REPORT OF THE PUBLIC SERVANT STANDARDS OF CONDUCf
ADVlSORYCOMMITlEEat 17 (August 1982) (m Legislative Reference Library) (emphasis
added).
In 1989, the legislature adopted House Bii 1976 to overturn Attorney General
Opinion Jhf-1006 (1989). which determinedthat public policy and section 81.002 barred a
wunty judge gem serving on the board of directors of a private wrporation that did
business with the c0unty.J House Comm. on County Atihim, Bill kalysis, H.B. 1976,
7lst Leg. (1989); Senate Comm. on IntergovernmentalRelations, Bill Analysis, C.S.H.B.
1976. 7lst Leg. (1989). It added the following provision to section 81.002 of the Local
0ovemme.t~ Code:
(c) Subject IO the provisions of Chapter 171, the county judge
or a county wmmissioner may serve as a member of the governing
body or as an officer or director of another entity, except:
(1) a publicly traded corporation; or
(2) a subsidiary, afliliate, or subdivisionof a publicly traded
corporation;
that does business with the wunty
(foomotcwnthwd)
D. BROOKS, COVNN ANDSFWL~LDtsnucr LAW5 18.37 (Texas F’mctice1989) (suggeping that
dcfmitionof “bosincssentity’includesan individualselling properlyor wntmcting in his own name).
JHCWSC Bill 1976 also addedsection 171.009to tlx Local oovcmmwtcod+allowingsoylocal
pblic cdlicial to wvc as a memberof the board of directorscf private,nonprofitwrporations if the
oflicial sane6 wltboutwmpmsation or othermmmmation.
p. 1464
Honorable JamesL. Anderson, Jr. - Page 6 (DM-279)
Acts 1989,7lst Leg., ch. 475,s 1, at 1647-48 (emphasisadded).6
The italicized language of section 81.002(c) shows that chapter 171 applies to
county contracts. The bii analysis prepared for the Senate Committee on
Intergovermnental Relations also shows the legislature’sunderstandmg that chapter 171
applied to members of the wmmissioners’court:
The Local Government Code sets out standards designed to
regulate wnflicts of interest of 05wrs of municipalities, wrmries,
and certain other local governments. The laws provide that a local
public official commits a Class A misdemeanor (1) if that 05ciaJ
(i.e., elected or appointed, paid or unpaid member or 05ces of any
district, coun& municipality, etc.) has a substantial interest. . . in a
business entity, and (2) that official participates in a decision that
would confer likely economic benefit on the business. . . .
Senate Comm. on IntergovemmentalRelations, supru (emphasis added).
Chapter 171 is not the only enactment that has impliedly mod&d section 81.002
of the Local Government Code or its predecessors. A 1935 amendment to article XVI,
section 61 of the Texas Constitution placed wunty officers in counties of 20,000 or more
on a salary basis, requiring their fees to be paid into the county treasury. H.J.R. 6. Acts
1935,44th Leg., at 1235. Section 81.002(a)(2), which excepts only “a warrant issued to
the judge or commissioner as u fee of o#%ze,” was not amended. Local Goti Code
5 81.002(c) (emphasis added). County commissioners and the county judge nonetheless
may receive the salary, expenses, and benefits authorized by other law. See Local Goti
Code 8 152.011; Attorney General Opiions MW-110 (1979); H-992 (1977).
Article 2529c, V.T.C.S., adopted in 1967, Acts 1967,6Oth Leg., ch. 179, at 370,
permits the state and political subdivisions to choose a depository bank even though
members of the body selecting it own stock in it or serve as its officers or directors. This
statute expressly modifies the wmmon law, but does not mention the county
wmmissioners’and judge’s oath provision. Nevertheless, this 05ce has held article 2529c
applicable to the wunty’s contract with its depository. Attorney General Opiions
MW-505 (1982); H-596 (1975). Chapter 171 also modifies the special oath required by
section 8 1.002(a).
We will address your specific questions. We will assume that the owner of a
wncrete materials corporation will be a member of the wmmissioners wurt at the time
the county or the contractor purchases materials from his corporation. You have informed
us tbat the owner of the corporation has at least a majority interest in it, which would be
ewe assumethatthewncmtcmatctis wmpmyin questionis sot a pnbncryuadedanpxation
or subsidiarycda publiclyWadedcorporation.Acwrdingly,we will not wnsidu the appli~on of section
81.002(c) to the situationyou havepresented.
p. 146.5
Honorable James L. Anderson, Jr. - Page 7 (In+279)
“a substantial interest in a busiiess entity” within chapter 171 of the Local Government
Code. See Local Gov’tCode $8 171.001(2), 171.002. He will be subject to the following
provision:
the 05&l [who is substantiallyinterested in a business entity] shall
5e, before a vote or decision on any matter involving the business
entity. . , an affidavit stating the nature and extent of the interest
and shall abstain from the tinther participationin the matter if:
(1) in the case of a substantial interest in a business entity
the action on the matter will have a special economic efkct on
the business entity that is distinguishablefrom the et&t on the
public.
Local Cioti Code 8 171.004 (emphasisadded).
Ordinarily, we cannot decide in the opinion process whether an action of the
wmmissioners wurt “willhave a special economic effect on the business entity” because
this decision requires the investigation and resolution of fact questions. However, if the
county decides to buy materials from the corporation owned entirely or in large part by the
wmmissioner, we believe that this decision will, as a matter of law, “have a special
economic effect on the. . [corporation] that is distinguishable 6om the effect on the
public.” Accordingly, the wunty commissionerwill have to tile the a5davit and abstain
from 6ntha participation in the matter, includingparticipation in discussions leading up to
a vote or decision on the contract. See Attorney General OpinionJM-379 (1985).
Jf the county’s general contractor purchases materials from the wncrete
corporation, section 171.004 of the Local Government Code will apply if the
wmmissioners court takes any action involving the concrete business that “will have a
special economic effect on the business entity that is distinguishable6om the e5ct on the
public.” We are unable to determine 6om the facts that you have provided whether the
wmmissioners wurt will take any such actions.
Attorney Gmeral Opinion JM-1090 is modiied to the extent it is inwnsistent with
this opinion.
SUMMARY
Chapter 171 of the Locsl Government Code authorizes a county
to enter into contracts or take actions in which a member of the
wmmissioners court is pecuniarilyinterested to the same extent that
other local governmental bodies may take such actions. Section
81.002 of the Local Government Code, which requires the county
judge and each county commissionerto take an oath tbat he will not
be diiectly or indirectly interested in a contract with the county, is
impliedlyrepealed to the extent it is inwnsistent with chapter 171.
p. 1466
Honorable James L. Anderson, Jr. - Page 8 (DM-279)
If Aransas County decides to buy materials from a wrporation
owned entirely or in large part by a member of the commissioners
court, this decision will, as a matter of law, “have a special ewnomic
effect on the. . [corporation] that is distinguishablefrom the effect
on the public.” The county wmmissioner who owns the corporation
will have to file the affidavit and abstain from krther participation in
the matter, including participation in discussions leading up to a vote
or decision on the contract.
Attorney Oeneral Opinion JIM-1090(1989) is modified to the
extent it is inwnsistent with this opinion.
DAN MORALES
Attorney Oeneral of Texas
W&L. PRYOR
Pii Assistant Attorney General
MARYKELLER
Deputy Attorney General for Litigation
RENEAHKKS
State Solicitor
MADELEINE B. JOHNSON
Chair, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General
p. 1467