05.02

OPINION NO. 05-02

The Executive Director of the Maryland Port Administration ("MPA") has requested an advisory opinion pursuant to §15-501(b)(ii) of the Maryland Public Ethics Law, Md. Code Ann., State Gov't Title 15 (2005 Supp.) to allow the MPA's Director of Operations to participate in matters involving an international shipping carrier (hereinafter "Carrier") that employs the Director of Operation's older brother. Based on the facts presented, the remoteness of the situation, and the MPA's contract negotiations and review procedures, we advise that the Director may participate in matters involving the Carrier.

The MPA is a modal administration in the Maryland Department of Transportation responsible for the operation of the six public terminals at the Port of Baltimore ("the Port"). According to the Maryland Department of Business and Economic Development, the Port is one of the busiest international deepwater ports in the nation. It is the second largest auto importer, and the thirteenth largest container handler. The Port serves over 70 ocean carriers with in excess of 2,300 annual port visits. The Port includes not only the six public terminals, but also about twenty-nine private terminals and a variety of shipyards, government vessels, and chandlery services.

MPA is charged with the marketing of the Port worldwide, and maintaining the efficient and safe operation of the public terminals. It has an annual appropriation in excess of $190 million with approximately 300 State authorized positions. MPA is organized into various divisions to accomplish its statutory purpose of increasing waterborne commerce at the Port. The divisions include: Security; Marketing; Communications; Planning and Environment; Engineering; Finance; Maritime Commercial Management, and Operations. The Operations Division, headed by the Director of Operations, is responsible for the day-to-day operation of the public Port terminals, including the coordination of the use of port facilities by shipping carriers, the handling of cargo, and the maintenance of necessary equipment and facilities. The offices in the Operations Division include a Crane Maintenance Office, a Facility Maintenance Office, an Intermodal and Rail Logistics Office, a Maryland International Terminals, Inc. Office, a Terminal Operations Office, and an Operations Systems Office. The Director of Operations directly supervises the managers of these offices. Large numbers of the employees in this Division are skilled trade specialists such as crane mechanics and electricians, welders, carpenters, and plumbers.

The Director of Operation's brother has worked for the American subsidiary of the international shipping Carrier since 1983. The Carrier is a privately owned, and a family owned business based in Taiwan. It is an independent carrier with the world's largest ocean-going containerized vessel fleet operating in destinations in more than eighty countries. It is the second largest carrier serving North America and has operated at the Port of Baltimore since the 1970's. The brother is a Vice President and the senior executive of the Carrier's office in Charleston, South Carolina. He oversees commercial contracts with shippers in the South Atlantic region. The Port of Baltimore is not located in this region and the brother does not have any operational functions for the Carrier's operation into the Port of Baltimore. His job responsibilities focus on marketing and sales to shippers to use the Carrier's service and administration of the Charleston office.

The Director of Operations has been employed by the MPA for six years. The Carrier presently is in the third year of a five-year terminal services agreement with MPA for cargo handling services at the public port facilities. Cargo ships of the Carrier berth at the Port on average of one ship per week. The services MPA provides to the Carrier (and other carriers) are provided through a contract for stevedoring services to load and unload cargo, place it on the marine terminal or the ship, and/or transfer it to truck or rail for inland destination. The MPA terminal services agreements with carriers provide a compensation "rate" to be paid to MPA for "shipside" and "landside" costs. The rates take into account MPA's costs associated with crane rental, dockage or "tie-up" costs, "wharfage" or costs to move cargo over the pier, and land costs.

This request involves two types of participation issues for the Director of Operations. As we have discussed in two recent opinions, Section 15-501(a) of the Ethics Law provides in part that an official or employee may not participate as a State employee or official in a matter if a party to that matter is a business entity that employs the official's or employee's spouse, parent, child, brother or sister. ¹ The law allows us to grant exceptions to this non-participation by opinion. We have done so where we found that the overall circumstances and relationships were sufficiently remote to warrant an exception. ²

The first participation issue relates to situations that may arise during the day-to-day operation of the Port and may involve or impact the Carrier. Agency officials have given as an example the build up of the Carrier's empty containers at the terminal. The "build up" may cause some logistic problems for MPA operations. If the agency program manager could not obtain a satisfactory resolution, the question may be presented to the Director of Operations. Another agency example related to the "assignment of berths" between cargo carriers. These day-to-day issues would not seem to rise to the level of a "matter" involving the Carrier as a party as we have defined this term in prior opinions. ³

The second area of potential participation relates to the MPA's anticipated negotiation with the Carrier prior to the expiration of the current five-year contract. Participation in any aspects of the new contract negotiations would be considered participation in a "matter." The Executive Director has requested this opinion to allow the Director of Operations to be able to participate as a MPA team member in negotiations between MPA and the Carrier. He has made this request because the Director of Operations participates in procuring the stevedoring services contract for MPA and the costs of this contract has a relationship to carrier terminal services agreements for use of MPA Port facilities. The Director of Operations is the contract administrator for the stevedoring contract. His involvement with carrier terminal services agreements is related to anticipated use of Port facilities and the rates to be charged for the services. The rates that will be negotiated and charged to the Carrier for use of Port facilities relate in part to the stevedoring services costs established in the contract. According to the Executive Director, the Director of Operations could not influence rates for the new contract that would be established by MPA's Director of Finance consistent with State practices and procedures and the requirements of the Federal Maritime Commission. He indicates that all rates MPA presents to a steamship line carrier during the negotiation process are approved by Finance and run through a mathematical "financial model" to ensure that the rates are consistent with industry standards. The MPA's Director of Maritime Commercial Management has the responsibility to ensure that the contract is commercially sound and meets State requirements. Additionally MPA's Risk Manager, an Assistant Attorney General, and the Executive Director are part of MPA's review of the contract.

According to MPA's Executive Director, the Carrier's practice has been to negotiate a terminal services agreement initially with MPA through its local office. However, it is not a final agreement because the Carrier's practice is to send the proposed agreement for further review and negotiation to its American headquarters in New Jersey. The Carriers' office in New Jersey negotiates the agreement further with MPA. This second level review is followed by a final review and negotiation with the Carrier's corporate headquarters staff in Taipei, Taiwan. The Carrier's Charleston office (where the brother is employed) does not have any involvement in any of the negotiations between MPA and the Carrier's local office in Baltimore, its American headquarters, or the corporate headquarters in Taiwan.

We conclude that the proposed participation by the Director of Operations in matters involving the development and negotiation of a new terminal services agreement with the Carrier would be prohibited under §15-501 of the Ethics Law. However, we have been asked to consider granting an exception pursuant to §15-501(b) of the law.

After a full review of the facts, we conclude that the present situation is sufficiently remote to allow an exception. We looked at the factors that we considered previously in allowing exceptions. ⁴ In this instance, the brother in his present position with the Carrier is not involved in any chain of command where he has responsibilities or duties related to the Port of Baltimore. He does not have an ownership interest in the Carrier. He works at a location of the Carrier, in Charleston, South Carolina, that has not done business with MPA in the past and given the present organization of the Carrier will not in the future. The MPA officials also advise us that the agency's team negotiation process and procedures reduce, in the agency's view, any actual or potential appearance of impairment or lack of independence of judgment by the Director of Operations.

We conclude, therefore, that under these particular facts, the Employee may participate in matters involving the business entity that employs his brother. The Director of Operations should disclose the relationship on Schedule I of his annual financial disclosure statement. This exception will need further review should the Director of Operations or his brother change positions with their respective employers or be assigned additional responsibility or authority in any interaction between the MPA and the Carrier. We further advise that MPA should continue to monitor the situation and should any concerns arise bring those issues to our attention.

Julian L. Lapides, Chair
   Dorothy R. Fait
   Daryl D. Jones
   Janet E. McHugh
   Robert F. Scholz

Date: December 8, 2005

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¹ See Opinions Nos. 04-02 and 05-01.

² See also Opinion Nos. 90-2 and 90-15.

³ See discussion of "matter" in Opinion No. 80-17.

⁴ See Opinion Nos. 90-2, 90-15, and 04-02.