OPINION NO. 80-3
A member (the Member) of the Maryland Industrial Development Financing Authority (MIDFA or the Authority) has asked whether it is a violation of the Maryland Public Ethics Law to continue serving on the Authority since an attorney whose practice involves the occasional representation of MIDFA applicants has recently joined the Member's law firm.
MIDFA is established as part of the Department of Economic and Community Development (DECD) by §266J266cc of Article 41 of the Maryland Code. MIDFA was created to encourage the establishment of industrial facilities, to promote favorable economic conditions for retaining existing facilities, and to encourage local non-profit development corporations and local governmental units in their efforts to stimulate business growth in their communities.
The Authority consists of seven voting members appointed by the Secretary of DECD with the approval of the Governor and two ex-officio members, the State Treasurer and the Secretary of DECD. The seven voting members are non-compensated but are reimbursed for expenses.
MIDFA encourages economic growth by approving and insuring certain industrial mortgage loans which satisfy the socio-economic requirements of the MIDFA Act. The primary requirement for approval, and therefore MIDFA participation, is that the project demonstrate that it will create new jobs and expand the governmental unit's tax base. Approval also depends, in part, upon the financial condition of the company and the collateral value of the land, building and equipment being financed.
A business may obtain a MIDFA insured loan by requesting local government participation. Mortgage insurance is available for mortgages applied for by local governmental units which use the proceeds to acquire land and construct facilities which are then leased to private users.
Since interest on obligations of local governmental units is tax-exempt, the savings can be passed along to private tenants. A business may also elect the option of arranging a mortgage loan directly with a lender at prevailing rates.
The applicant, the firm or corporation which wishes to establish an industrial facility, must submit with an application form a letter of intent from a bank and from a local subdivision if the applicant has requested local government participation.
The MIDFA staff holds conferences with the applicant, the applicant's attorney and accountant and representatives of the lender to gather enough statistical information so that it can make a recommendation concerning eligibility, i.e., whether the socio-economic impact of the project is sufficient to warrant approval.
The application is then sent to each member of the Board of the Authority with the summary and recommendation of the representative of the staff. Thereafter, the application is discussed by the members of the Authority at a meeting.
The Member has informed us that the Authority will rarely reject an application if the staff has recommended approval. Occasionally the staff will make no recommendation and the decision then rests solely with the Authority.
The Member who appeared at the hearing has served on the Authority for approximately seven years. He has informed us that on three or four occasions during that period of time an office client made application for a MIDFA guaranteed loan. On none of those occasions was the client represented by the Member's firm and on each of those occasions the Member disqualified himself from discussing or voting on the application.
On July 1, 1979, an attorney joined the Member's firm who, in the past, has represented MIDFA applicants and intended to represent them in the future. Five days after the attorney joined the firm the Member requested an opinion from this Commission. In his letter he stated that he would disqualify himself from any matter in which the attorney and therefore his law firm was involved and asked whether disqualification was sufficient to satisfy the requirements of the law. He also stated at the hearing that he and his firm would be willing to segregate the MIDFA clients' fees so that those fees would not be included in the earnings of the firm from which he derived his income.
The provisions of the Code involved are §§3-101(a), (a)(1), and (a)(2) and 3-103(a). Section 3-101(a), (a)(1), and (a)(2) require an official or employee to disqualify himself from any participation in a matter if he has an interest therein or if a business entity in which he has either a direct financial interest or employment interest is involved. Section 3-103(a), in relevant part, prohibits an official or employee from being employed by or having an interest in any entity which is negotiating a contract with that government agency. We have recently discussed the interplay between §3-101(a), the "disqualification" provision and §3-103(a), in Opinion 79-1. As we explained in that opinion, if an economic interest is prohibited by §3-103(a), disqualification, under §3-101(a) with respect to any matter concerning that interest, does not cure the conflict.
We find §3-103(a) is directly applicable to the circumstances here. The Member clearly has an economic interest in the total earnings of his professional association, i.e. his law firm, regardless of the fee arrangement set by his firm. The law firm, by representing an applicant for a MIDFA guaranteed loan, is "an entity negotiating a contract" with MIDFA.(1) Therefore, §3-103(a), by its terms, proscribes the law firm's representation so long as the Member retains his position. Mr. Finney agrees with this result inasmuch as he believes that the member is in fact "employed by" the professional association which is his law firm, and because he believes that partners in law firms generally are "employed by" those firms, within the meaning of §3-103(a).
Since the Member is a public official appointed to a State board, the Commission has the power under §2-103(h) to waive 3-103(a) prohibition. However, for the reasons explained below, we believe that to grant a waiver here would be contrary to the purposes of Article 40A.
The Legislature has rather eloquently set forth the policy underlying the Public Ethics Law in §§1-102(a) and (b):
1-102. Legislative Findings and Statement of Policy.
(a) The General Assembly of Maryland, recognizing that our system of representative government is dependent in part upon the people maintaining the highest trust in their public officials and officers, finds and declares that the people have a right to be assured that the impartiality and independent judgment of public officials and officers will be maintained.
(b) It is evident that this confidence and trust is eroded when the conduct of the State's business is subject to improper influence and even the appearance of improper influence.
We believe that to grant a waiver which would permit the law firm of a public official on a board or commission to represent clients in matters involving that board or commission would create a situation in which the public perception of improper influence would have the effect of eroding public confidence in government.
The prior Board of Ethics consistently advised under a provision of the old Code substantially similar to §3-103(a) (Article III, §5)(2) that when a lawyer member of a State board or commission also a is member of a private law firm, that firm cannot in any way represent anyone with respect to matters pending before that board or commission so long as the lawyer member retains his position. The Board summarized its concerns in Opinion No. 13, which involves a lawyer-member of the Maryland Unsatisfied Claim and Judgment Fund:
We do not imply in any way that an attorney who is a memberof the Board has used or would use his Board membership to
attempt to influence the Board's decision, even though he did not participate therein. As we said in our Opinion No. 1: "The appearance of impartiality in the performance of official duties for the State is as important as impartiality in fact." The public could reasonably assume that representation of a claim against the Fund by an attorney who is a member of the Board, or by any partner or associate of his, could put his client in a more favorable position that he otherwise would have been. The public might also reasonably assume that the familiarity with the Board's procedure and its approach to settlement of claims might of itself tend to employment of the attorney in matters involving the Fund. It is immaterial that none of these assumptions is probably true. The decision must be made in view of the purpose of the Code to maintain public confidence in the administration of the laws. See also Opinions No. 2, 9, 18 and 28.
Our opinion in no way impugns the integrity or ethical standards of either the Member or any attorney in his firm. However, we share the belief of the prior Board that permitting the law firm of a board member to represent clients before that board creates the potential for and the public perception of the client's receiving certain advantages either at the staff or board level.
We commend the Member for coming to the Ethics Commission immediately upon perceiving a potential conflict. We have no doubt that he has rendered intelligent, impartial and valuable service to the State of Maryland through his long association with MIDFA. However, so long as an attorney associated with his law firm wishes to represent MIDFA clients, we must advise the Member to relinquish his position with the Authority.
Herbert J. Belgrad, Chairman
William B. Calvert
Jervis S. Finney
Reverend John Wesley Holland
Barbara M. Steckel
Date: February 28, 1980
1 The term negotiate is defined in Black's Law Dictionary as:
To transact business, to treat with another respecting a purchase and a sale, to hold intercourse, to bargain or trade, to conduct communications or conferences. It is that which passes between parties or their agents in the course of or incident to the making of a contract and is also conversation in arranging terms of a contract.
It is our view under this construction of the concept of negotiation that attorneys representing MIDFA applicants in facilitating eligibility approval are engaged in "negotiation" as contemplated in section 3-103(a).
2 [It shall be considered unethical for any State employee or
official] to assist another individual or entity for compensation or to
represent another individual or entity as agent or attorney, whether
or not for compensation, in any transaction involving the agency of
which he is an officer or employee or in any transaction involving the
State which results in a conflict or could reasonably be expected to
result in a conflict between the private interests of the officer or
employee and his official State duties and responsibilities, or to
accept a portion of any fee received by another individual or entity
for assistance which such officer or employee would be prohibited from
rendering by this section..."