Untitled Texas Attorney General Opinion ( 1987 )

October 28, 1987
Mr. Robert J. Provan Opinion.No. JM-817
General Counsel
Stephen F. Austin Re: Whether a state univer-
State University sity may contract with a
P. 0. Box 6214 corporation in which the
Nacogdoches, Texas 75962 spouse of a regent owns a
substantial interest
Dear Mr. Provan:
You state that Stephen F. Austin State University has
purchased the products of a close corporation. A person
recently appointed to the Board of Regents owns a .2%
interest of the firm's equity without a voting interest.
Her husband owns over 6% of the firm's equity and controls
over 12% of its voting interest. He is an employee of the
firm and serves as chairman of the board of directors, but
does not hold an elected office in the firs. You moreover
inform us that the new regent's spouse acquired his
interest in the corporation prior to the marriage and that
he asserts that his ownership interest is his separate
property.
You finally inform us that:
[T]he purchases by SFA 'of the firm's
products in the past have not been of the
kind that required the action or approval of
the Board of Regents. None of the purchases
were submitted to the Board of Regents in
the past. So far as can be determined at
this time, none of the prospective purchases
of the firm's products during the new
regent's term will require the action or
approval of the Board of Regents.
you ask whether an unlawful conflict of interest
exists if the university purchases the products of the
close corporation under the facts and circumstances you
have outlined.
p. 3875
Mr. Robert J. Provan - Page 2 (JM-817)
State universities are subject to the common law rule
which prohibits a public officer from having a direct or
indirect financial interest in a contract entered into by
the governmental body of which he is a member. See
Attorney General Opinion Nos. JM-671 (1987); H-1309
(1978); see also Attorney General Opinion MW-179 (1980).
Even very small pecuniary interests have been held to
constitute a prohibited financial interest in a public
contract. In Attorney General Opinion H-624 (1975) this
office determined that the commissioners court could not
purchase supplies from a farmer's cooperative in which a
commissioner owned a few shares, an almost negligible
interest. Thus, the individual regent's -2% interest
constitutes a pecuniary interest in the firm which would
bar the Board of Regents from contracting with the firm.
Under Texas community property law, one spouse has a
community property interest in the other spouse's earnings
from employment and in the income of the other spouse's
separate property. Family Code !j5.01(b): Hardee v.
Vincent, 147 S.W.Zd 1072 (Tex. 1941, opinion adopted)
(where original investment in business was from wife's '
separateaeitate, profits were community property): Matter
of Marri u of York, 613 S.W.Zd 764 (Tex. Civ. App. -
Amarillo 1981, no writ) (profits derived from business are
community property, even though capital is separate
property): Maben v. Maben, 574 S.W.Zd 229 (Tex: Civ. App.
- Fort Worth 1978, no writ) (husband's salary is community
property).
Section 5.22 of the Texas Family Code provides that
during marriage, each spouse has separate management,
control, and disposition. of certain community property
including personal earnings and revenue from separate
property. Family Code 55.22(a). However, each spouse
still has an interest in the community property subject to
the separate management of the other spouse. a Family
Code 55.61 (all community property is subject to tortious
liability of either spouse incurred during marriage):
Short v. U.S., 395 F. Supp. 1151 (E.D. Tex. 1975) (income
tax liability). &g Estate of Wvlv v. Commissioner of
mernal Revenue, 610 F.2d 1282 (5th Cir. 1980) (spouse's
interest in "sole management" community property is only
an "abstract" ownership). In our opinion, the regent has
a personal pecuniary interest in her husband's salary from
the close corporation and in the income of his ownership
interest.
p. 3876
i
Mr. Robert J. Provan - Page 3 (JM-817)
Attorney General Opinion JM-126 (1984) concluded that
an individual's community property interest in one half,of
her husband's salary as an employee of a health care
facility did not constitute a 'substantial pecuniary
interest in a facility" that would disqualify her from
serving on the Texas Health Facilities Commission. See
Acts 1975, 64th beg., ch. 323, 82.02 (expired Sept. 1,
1985 per Texas Sunset Act, Acts 1977, 65th Leg., ch. 735,
92.114) (formerly V.T.C.S. art. 4418h, 52.02). The
evaluation of the community property interest in Attorney
General Opinion JM-126 does not control the case you
inquire about. Attorney General Opinion JM-126 considered
whether a board member's community property interest in
her husband#s salary constituted a "substantial pecuniary
interest" under section 2.02 of article 4418h, V.T.C.S.
The husband was on a fixed salary, had no direct share in
the health facility's profits or losses, and had no
respons$bility for expansion or financial management of
the firm. Based on the given facts, Attorney General
Opinion JM-126 concluded that the commission member did
not have a "substantial pecuniary interest in a facility"
as defined by statute.
The present case involves a strict common law rule,
which reaches indirect as well as direct pecuniary
interests, and which is not limited to substantial
interests. Under the common law standard, the board
member's community property interest in her husband's
salary and other income from the firm constitutes a
personal pecuniary interest which prevents the Board. of
Regents from contracting to purchase its goods.
The fact that the Board of Regents does not approve
purchases of the firm's products does not remove them
sufficiently from the contracting process to eliminate the
conflict of interest. The board is responsible for the
general control and management of the university and for
purchasing. Educ. Code 595.21 (powers of Board of
Regents, State Senior Colleges): see Educ. Code 5101.41
(granting Board of Regents of Stephen F. Austin University
same powers and duties of management and control over
university as are conferred on Board of Regents, State
Senior Colleges, with respect to its component
institutions).
A subordinate officer or employee has authority to
contract for the university only because the board has
adopted a rule, regulation or order delegating such power.
Educ. Code %95.21(b). Cf. better Advisory No. 148 (1977)
p. 3877
Mr. Robert J. Provan - Page 4 (JM-817)
(employment of regent's niece by state university would
violate nepotism statute even though board of regents has
delegated employment power). The board may resume
exercising that authority itself by repealing the rule,
regulation, or order delegating it. The employee who
approves the contract is accountable to the board for his
decisions about the contract and for his job performance
generally. If a dispute with the contractor arises, the
board will very likely participate in resolving it. Thus,
the board cannot divest itself of responsibility for the
contract with the firm, even though subordinate officers
or employees may purchase its products without regental
approval. See aenerally V.T.C.S. art. 6252-913.
SUMMARY
Stephen F. Austin State University is
barred by common law conflict of interest
provisions from purchasing the products of a
firm in which a regent.has an interest, even
though the board of regents has delegated
purchasing decisions to subordinate officers
and employees.
Very truly y s,
.
L-/!kh
JIM MATTOX
Attorney General of Texas
MARY KELLER
Executive Assistant Attorney General
JUDGE ZOLLIE STEARLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General
p. 3878