October28,1987

Mr. Robert J. Provan Opinion.No. JM-817 General Counsel Stephen F.Austin Re: Whether astate univerState 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 aclose corporation. Aperson recently appointed to the Board of Regents owns a .2% interest ofthe firm's equity without a voting interest. Her husband owns over 6%ofthe firm's equity and controls
over 12% of itsvoting interest. He isan employee ofthe firm and serves aschairman ofthe board ofdirectors, but does not hold an elected office inthe firs. Youmoreover inform us that the new regent's spouse acquired his interest inthe corporation prior tothemarriage and that he asserts that his ownership interest ishis separate property.

You finally inform us that:

[T]he purchases by SFA 'of the firm's products inthe past have not been of the kind that required the action orapproval of the Board ofRegents. None ofthe purchases
were submitted to the Board ofRegents in the past. So far ascan bedetermined at this time, none ofthe prospective purchases of the firm's products during the new regent's term will require the action or approval ofthe Board 

### ofRegents.

you ask whether an unlawful conflict of interest exists if the university purchases the products of the close corporation under the facts have outlined. and circumstances you

p.3875Mr. Robert J. Provan -Page 2 (JM-817)

State universities are subject tothe common law rule which prohibits apublic officer from having a direct or indirect financial interest inacontract 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 ina public contract. InAttorney 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 apecuniary interest inthe firm which would bar the Board ofRegents from contracting with the firm.

Under Texas community property law, one spouse has a community property interest inthe other spouse's earnings from employment and inthe income ofthe 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 ofYork, 613 S.W.Zd 764 (Tex. Civ. App. - Amarillo 1981, nowrit) (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, nowrit) (husband's salary iscommunity property).

Section 5.22 ofthe 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 inthe community property subject to the separate management of the other spouse. a Family Code 55.61 (allcommunity 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 ofWvlv v. Commissioner of mernal Revenue, 610 F.2d 1282 (5th Cir. 1980) (spouse's interest in "sole management" community property isonly
an "abstract" ownership). Inour opinion, the regent has
apersonal pecuniary interest inher husband's salary from the close corporation and inthe 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 inone half,of her husband's salary asan employee **of** a health care facility did not constitute a 'substantial pecuniary interest in afacility" that would disqualify her from serving onthe 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 inAttorney General Opinion JM-126 does not control the case you inquire about. Attorney General Opinion JM-126 considered whether aboard 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 onafixed 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 onthe given facts, Attorney General Opinion JM-126 concluded that the commission member did not have a "substantial pecuniary interest inafacility"
asdefined by statute.

The present case involves astrict 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 topurchase its goods.

The fact that the Board ofRegents 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 isresponsible for the general control andmanagement ofthe university and for purchasing. Educ. Code 595.21 (powers of Board of Regents, State Senior Colleges): see Educ. Code 5101.41 (granting Board ofRegents ofStephen F.Austin University
same powers and duties of management and control over university as are conferred onBoard ofRegents, State Senior Colleges, with respect to its component institutions).

A subordinate officer oremployee has authority to contract for the university only because the board has adopted arule, regulation ororder delegating such power. Educ. Code %95.21(b). Cf. better Advisory No. 148 (1977)

p.3877Mr. Robert J. Provan -Page 4 (JM-817)

(employment ofregent'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 isaccountable to the board forhis decisions about the contract and forhis job performance generally. Ifadispute with the contractor arises, the board will very likely participate inresolving it. Thus, the board cannot divest itself ofresponsibility for the contract with the firm, even though subordinate officers
oremployees 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 ofa firm inwhich aregent.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 ofTexas

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