January 12, 1989

Honorable Mike Driscoll Harris County Attorney 1001 Preston, Suite 634 Houston, Texas 77002 OpiniOn No. JM-1006

Re: Whether a county judge may simultaneously serve as a member of the board of directors of a corporation which does business with the county, and related questions (RQ-1506)

Dear Mr, Driscoll:

You ask the following questions regarding possible conflicts of interest of acounty judge:

In May a county judge [of Harris County] serve simultaneously as county judge and as a member of the Board ofDirectors of aprivate corporation which contracts ordoes business with Harris County, the Harris County Flood Control District and/or the Harris County Hospital District?

Whether the county judge should file an affidavit of substantial interest regarding agenda items relating tohiswife's employer, the City ofHouston?

answer to your first question,.it isour opinion that the activity you describe creates a conflict of interest contrary topublic policy. Inasmuch aswe have been informed by letter dated September 28, 1988, from the county judge that effective September 15, 1988,his wife has lefther employment with the city, we find itunnecessary to address your second question.

You state that the current county judge in Harris County was first elected to that position in 1975. In 1988hewas elected to the board-of directors of Houston Industries, Inc. (HII),and consequently also serves on the board ofdirectors ofHouston Lighting and Power (HL&P), a

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wholly owned subsidiary ofHII. In addition toHLLP, HI1 isalso the parent company of Utility Fuels, Inc.~ (coal supplier), Primary Fuels (oiland gas exploration), Innovative Controls, Inc. (outside lighting manufacturer), XBL Communications, Inc. (cable television supplier), and Houston Industries Finance, Inc. (purchaser ofHL&P delinquent bills).

Since his election to theboard ofdirectors, the judge has sold his stock in the company and has filed many naffidavits of substantial interestndisclosing his position with the companies. Inhis capacity as county judge, he has recused himself onmany votes taken at county commissioners court meetings relating to business between the county and the companies.. The judge has also filed a letter with the corporation waiving "any and allpresent or future compensationiu including expense reimbursement during the time he
serves both on the corporation boards and as a county judge.

As detailed in your brief, there are frequent interactions between HLhP and the county. YOU state, "HL&P constructs, uses andmaintains its lines and facilities on, over, and across virtually every Harris County road rightof-way." Weneed not recount themany types of interactions between the county and the company, but they include the county's payment of bills for electrical service: the acquisition of easements byboth parties; the construction, relocation, repair, andmaintenance ofboth roads and power lines; and the county's use of HL&P's light poles for traffic signals.

Inaddition to his position on the HL&P board of directors, the county judge sits on the board of directors of anonprofit corporation established to treat indigent and paying AIDS patients inthe county. The county judge has informed usby letter, dated September 28, 1988, that' he will not receive any compensation for his services on the board ofdirectors of the nonprofit corporation. In that
same letter, the county judge poses thepossibility that the county may contract with the nonprofit corporation, while you anticipate that thehospital district may contract with the corporation for the care of indigent AIDS patients in the county. Wewill respond toboth possibilities.

Public policy has longprohibited public officers from holding other positions, executing contracts, or engaging in private activities that conflict with their public duties. That policy has been engrafted in the Texas Constitution

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and statutes. See. e.cr.,Tex. Const. art. III, gg 18, 22; V.T.C.S. art. 6252-933:Local Gov't Code, ch. 171, 5 81.002.

The leading Texas case inthis area of law isMevers v. Walker, 276 S.W. 305 (Tex. Civ.App. - Eastland 1925, no writ). Although that case involved city officials who had a pecuniary interest inacontract, the court's restatement of thepublic policy behind such prohibitions is instructive to our current inquiry. The court said:

These safeguards in letting notprovided with the thought official was corrupt, but expenditure of public money, __. --_ contracts were

that the public that, in the the strictest regulrement snoulc be followed. our rawmakers were wise in trying, not only to remove temptation, but to place the public official even above the suspicion of wrongdoing. The idea ofkeeping thepublic inthe confidence of the official would bring cooperation and loyalty inthe administration ofgovernment and enforcement of law, and these principles underlie the security of our government.

Mevers v.Walker, suvra, at 307.

That casewas grounded inthe common lawprohibition on public officers' conflict of interest. However, in 1983 the legislature adopted a mechanism whereby a local public officer could hold an interest inabusiness entity, declare that interest, and recuse himself onmatters concerning that business entity: thus allowing the remainder of the governingbody tovote on and conduct business with that entity. Lot. Gov't Code, ch. 171. It has been suggested that chapter 171allows the county judge to sit on theboard of directors and recuse himself on county matters pertaining to the corporation. However, that chapter applies onlywhen a local public official has a "substantial interest" in a business entity orreal property, and l'substantialinterest" isdefined in exclusively financial and -familial terms. Lot. Gov!t Code § 171.002. The fact that the county judge haswaived all compensation for his services to the corporation removes him from thepurview of chapter 171.

Section 81.002 of the Local Government Code requires that prior to undertaking the duties of office, county judges and county commissioners take anoath that they will not be directly or indirectly interested inany contract

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with or claim against the county, except as expressly authorized by law. Itwas that oath that provided the basis for the holding inanother casewhere a county officer had
no apparent interest inaquestioned contract. Dexa Coun y v.Wentworth 378 S.W.2d 126 (Tex.Civ.App. - San rAntonio 1964,writ r;f'd n.r.e.), involved a county commissioner who had contracted with avoting machine company tobe its sole representative and salesman inthe state except inhis own county andwould receive acommission 

### onevery machine sold in the state, except those sold tohis own county. A taxpayer inthe county brought suit to enjoin the sale of that company's voting machines to the county. The court said that the record was undisputed that the commissioner would receive nomoney from the sale of themachines to his county. In affirming the trial courtts grant of the injunction, the court said:

[Thecommissioner] is obligated togive his best efforts to the carrying out of his appointment, and to 

### rendersuch services in connection therewith asmay be reasonable and necessary.

. . . . Under all of the circumstances, it is presumed that Plochwas not inaposition to give to Bexar County his undivided loyalty and support in seeing to itthat Bexar County got the very best deal possible in the purchase of 100newvoting machines, when he
was at the same time obligated touse his best efforts topromote and exploit the sale of Shoup voting machines throughout the State, except inBexar County. The fact that hewas not to receive anymoney from such a sale inBexar County would notprevent him fromhaving an indirect interest inpromoting and exploiting Shoup voting machines elsewhere inthe State by a sale inBexar County.

Bexar Countv v.Wentworth, SYEIg, at 129.

In that case, as inthis inquiry, the ultimate interest of the county officer isunknown, and, superficially, his actions appear tobe within the letter of the law. The county judge in the current instance isa director of a corporation and as such has a considerably larger interest inthe private company than had thevoting machine salesman.

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It iswell.established in Texas lawthat an individual who sits on theboard ofdirectors ofa corporation owes to that corporation the exacting duty of a fiduciary. E.q., State Hankina Bd.v.Vallev Nat'1 Ban&, 604 S.W.Zd 415 (Tex. Civ. APP. - Austin 1980, writ ref'd n.r.e.); Canion v. Texas Cvcle Suu~lv. Inc., 537 S.W.2d 510 (Tex.Civ.App. - Austin 1976,writ ref'd n.r.e.): mtv-Universal Insurance Co.v. Maxwell, 101 S.W.2d 606 (Tex.Civ.App. -Austin 1937, writ dism'd).

We believe the logic of the court inthe 8exar County case extends to the question before us. The county judge of Harris County isnot inaposition to give to Harris County his undivided loyalty and support, when he isat the same time obligated to exercise the care ofa fiduciary onbehalf of the corporation. We conclude that public policy prohibits a county judge from sitting on theboard ofdirectors of acorporation that does business with that county.

Our conclusion is buttressed by the public policy prohibition ofdual agency. InScott v. Kelso, 130 S.W. 610 (Tex.Civ.App. 1910) the court opined:

Inall cases theprincipal isentitled to thebest effort and unbiased judgment of his agent, and the law, for reasons founded in public policy, forbids the agent's assumption of a relation which affords temptations antagonistic tohis duty.

Scott v. Kelso, sunra, at 611.

InAttorney General Opinion O-2929 (1942), this office relied on the quoted language to find that state employees had effectively resigned their public employment when they took positions in the private sector that were in direct competition with their public employment. Again inAttorney General Opinion H-1309 (1978),this office said "public policy severely limits the ability of a public entity to contract with aprivate entity when the same persons serve inmanagement positions on both. Thus, while one person technically may serve in both capacities, the conflicts of interest thereby raised will often prevent him from acting inboth capacities asapractical matter." Id. at 2.

The same public policy applies to business dealings between the Harris County Flood Control District and HL&P or HII, and our conclusion isthe same. The Harris County Flood Control District was created under Acts 1937 of the

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45th Legislature, chapter 360, at 714. Section 1of that act establishes the district as wagovernmental agency and body politic and corporatew anddesignates the commissioners court of Harris County as the governing body of the district. The county judge is still subjected to the same divided loyalty whether he is sitting as a member of the commissioners court or on the governing body of the flood control district.

We reach the same conclusion inregard to contracts or other business dealings between the county and the nonprofit corporation established to treat AIDS patients. The fact that the corporation was established not forprofit does not a'ffectthepublic policy considerations: the county judge has a fiduciary duty to the corporation, and there is no less opportunity for his public duty to conflict with his private interest. See. ea. JM-884 (1988):H-1309 (1978)' Attorney General ;i-714 Opinions

(1970). In fact,we can hypothesize that his conflict may be greater inthe case of
a corporation inwhose beneficial goals the public official strongly believes.

The same considerations do not apply, however, to contracts between the AIDS corporation and the Hospital District.

The Harris County Hospital District was established pursuant to article 4494n,V.T.C.S. The commissioners court appoints the board ofmanagers of the district. V.T.C.S. art. 4494n, g5B. The commissioners court must also approve the district's budget, & 5 8, and all contracts of the district. &L 5 5b. The commissioners court may prescribe purchasing and accounting practices of the district. Id. § 6. Although, under the statute, the county commissioners court retains some responsibilities in regard to the hospital district, the district is a separate political subdivision of the state. Bexar Countv HOSD. Dist. v. Crosby, 327 S.W.2d 445 (Tex. 1959);Attorney General Opinion WW-886 (1960). The commissioners court does not act as the governing body of the hospital district, which, under the facts presented, may have a continuing contractual relationship with the nonprofit corporation. We believe that a court would not, as amatter of law, find that abusiness transaction between the hospital district and the nonprofit corporation is invalid simply because of the county 'judgets

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L

interest inthe corporation. However, we also believe that

should such acontract be questioned ina court of law, the court would examine it with the strict scrutiny to which transactions between corporations with interlocking directorships are subjected. m United Towina Co. v. PhilliDS, 242 F.2d 627 (5thcir.), cert. denied, 78 S.Ct. 93 (1957); Stat S.W.2d 415 (Texe Bankina Bd. v. Vallev Nat'1 Bank, 604 Civ. APP. - Austin 1980, writ ref'd n.r.e.).
SUMMARY

Public policy prohibits a county judge from simultaneously serving on the board of directors of acorporation that does business with the county, even where the county judge receives no compensation from the corporation. A county hospital district may contract or do business with acorporation onwhose board of directors acounty judge serves.
Very truly you 

# J Ii-m JIM MATTOX Attorney General of Texas

MARYKELLER First Assistant Attorney General

MU MCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared by Karen C.Gladney Assistant Attorney General

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