OFFICE OF THE ATTORNEY GENERAL

. STATE OF TEXAS

JOHN CORNYN

October 22,200l

Dr. Ann Stuart, Chancellor Texas Woman’s University P.O. Box 425497 Denton, Texas 76204-5497 Opinion No. JC-0426 Re: Whether a state university may contract with a bank that employs a member of the board of regents as an officer (RQ-0387-JC)
Dear Dr. Stuart: Anew regent atTexas Woman’s University isan employee and officer ofabank with which the university has a continuing banking relationship. * The regent is not a stockholder, has no ownership interest in the bank, and does not participate in managing the university account with the bank.* You ask whether the regent has apecuniary interest in that bank and whether the university may continue to contract with the bank if contracts are awarded upon the basis of sealed bids and the regent refrains from voting on matters relating to such contract after fully disclosing his interest. Under the common-law conflict of interest rule, an employee or officer of abank has apecuniary interest in the bank. When aregent of Texas Woman’s University has such interest in abank, the university board of regents may not enter into a contract with the bank. The board of regents of Texas Woman’s University “has the power incident to its position and to the same extent, as far as applicable, asis conferred on the board ofregents ofThe University of Texas System.” TEX. EDUC. CODEANN. $ 107.41 (Vernon 1991); see id. 0 107.44 (authority of board to adopt rules). Accordingly, the board of Texas Woman’s University may exercise, with respect to that institution, the contracting powers conferred upon the board of regents of the University of Texas System. The board of the University of Texas System has broad power to govern, operate, support, and maintain each of the institutions included in the system. See id. 8 65.3 1(a); see also id. 865.34 (Vernon 1991& Supp. 2001) (contracts must be approved by the board of the University of Texas or otherwise entered into in accordance with rules of the board). Thus, the board of regents of Texas Woman’s University exercises the university’s authority to contract with banks.

‘BrieffiomMr. JohnLawhon, General Counsel, TexasWoman’s University, toHonorable JohnComyn, Texas Attorney General (Mar. 22,200l) (on file with Opinion Committee).Dr. Ann Stewart - Page 2 (JC-0426)

A strict common-law conflict of interest rule applies to contracts entered into by the governing bodies of state agencies, including the governing boards of state universities. See Tex. Att’y Gen. Op. Nos. DM- 18 (199 1) (member ofBoard of Examiners in the Fitting and Dispensing of Hearing Aids); JM-671 (1987) (regent of Texas A & M University); MW-179 (1980) (member of Board of Health); Tex. Att’y Gen. LO-97-052 (board member of Texas Agricultural Finance Authority). The court inMeyers v. Walker, 276 S.W. 305 (Tex. Civ. App.-Eastland 1925, no writ) stated this rule as follows:

If apublic official directly or indirectly has apecuniary interest in a contract, no matter how honest he may be, and although he may not be influenced by the interest, such acontract so made is violative of the spirit and letter of our law, and is against public policy. Id. at 307. The enactment of section 572.058 of the Government Code did not repeal the common-law rule. See Tex. Att’y Gen. Op. No. JM-671 (1987) at 6 (discussing predecessor of section 572.058, Government Code). This statutes provides that a member of a state agency board “who has a personal or private interest in a measure, proposal, or decision pending before the board” shall disclose that interest and refrain from voting on the matter. TEX. GOV’T CODEANN. fj572.058(a) (Vernon 1994). Neither the language nor the legislative history ofthis provision indicates that itwas intended to apply to contracts. Id. If the new regent has a pecuniary interest in the bank, the common-law conflict of interest rule would bar the board ofregents of Texas Woman’s University from contracting with it. In Attorney General Opinion H-91 6, this office determined that a school trustee who was employed by apaper company in amanagerial capacity had apecuniary interest in the company’s contracts, because of his interest in the financial success ofthe company. Tex. Att’y Gen. Op. No. H-9 16(1976) at2; see also Tex. Att’y Gen. LO-93-01 2(state university may not contract with alaw firm in which aregent is apartner); Tex. Att’y Gen. Op. No. DM- 18(199 1)(employee of ahearing aid company has a financial interest in company for purposes of statute regulating the fitting and dispensing of hearing aids). As an officer and employee of the bank, the new regent of Texas Woman’s University would have apecuniary interest in the bank, and the common-law conflict of interest rule would prevent the board of regents from entering into a contract with it. We note that section 51.923 of the Education Code modifies the common-law conflict of interest rule for certain contracts between a university and a corporation in which a regent is economically interested. An institution of higher education may contract with a corporation even though one ormore members ofthe governing board holds stock in itor serves as adirector, as long as no board member has a beneficial interest in more than five percent of the corporation’s outstanding capital stock. TEX. EDUC.CODEANN. Q51.923(c) (Vernon 1996). In addition, the contract must be “an affiliation, licensing, or sponsored research agreement” ormust be awarded by competitive bidding or competitive sealed proposals, and the board member having aninterest intheDr. Ann Stewart - Page 3 (JC-0426)

contract or transaction must disclose that interest in apublic meeting and refrain from voting on the contract or transaction. Id. 6 51.923(c), (d). An affirmative majority ofthe board members voting on the contract or transaction must approve it. Id. 551.923(d). Section 51.923, however, does not expressly change the common-law rule when aregent is an officer or employee of the corporation. It might be argued that section 51.923 impliedly authorizes contracts in which the regent is interested as an officer or employee, on the ground that these positions involve lesser pecuniary interests in the bank than the positions of director or shareholder. However, we must read this statute according to its clear terms and may not read language into it,unless this isnecessary to effect aclear legislative intent. SeeRepubZicBankDaZZas, iV.A. v.Interkal, Inc., 691 S.W.2d 605,607 (Tex. 1985) (statute must be construed according to its plain language); Bouldin v.Bexar County Sher$‘s Civil Serv. Comm ‘n, 12 S.W.3d 527, 529 (Tex. App.-San Antonio 1999, no pet.) (additional words may not be inserted into a statute unless it is necessary to effect a clear legislative intent). As introduced, the bill that became section 51.923 of the Education Code provided that an institution of higher education or auniversity system was not prohibited from contracting with a business entity because a member of the governing board was “a stockholder, officer, director, or employee” of the business entity. Tex. S.B. 1569, 71st Leg., R.S. (1989). The bill included this language at its first public hearing before the Senate Committee on Education, at which it was referred to asubcommittee. Hearings on Tex. S.B. 1569 Before the Senate Committee onEducation, 71stLeg., R.S. (Apr. 19,1989) (audio tape available from Senate Staff Services Office). The Senate Committee on Education ultimately approved acommittee substitute from which the terms “officer” and “employee” were deleted. Hearings on Tex. S.B. 1569 Before the Senate Committee on Education, 71st. Leg., R.S. (Apr. 19 & May 3, 1989) (audio tapes available from Senate Staff Services Office). Given the deletion of these terms, we will not assume that section 51.923 of the Education Code impliedly applies to an “officer” or “employee.” Accordingly, when a regent of Texas Woman’s University is an employee and officer ofabank, the university board ofregents may not enter into a contract with that bank.Dr. Ann Stewart - Page 4 (JC-0426)

SUMMARY Under the common-law conflict ofinterest rule, an employee or officer of a bank has a pecuniary interest in the bank. When a regent ofTexas Woman’s University is an officer and employee of a bank, the university board of regents may not enter into a contract with that bank. Section 51.923 of the Texas Education Code authorizes a university to enter into certain contracts with a corporation in which one or more members ofthe governing board has apecuniary interest as a stockholder or a director, as long as no board member has a beneficial interest in more than five percent of the corporation’s outstanding capital stock. This Education Code provision does not, however, modify the common-law conflict of interest rule if the regent is an employee or officer of abusiness entity. Accordingly, section 51.923 ofthe Education Code does not authorize the board of regents ofTexas Woman’s University to contract with abank where aregent serves as an officer and employee.

Attorney General of Texas

HOWARD G. BALDWIN, JR. First Assistant Attorney General NANCY FULLER Deputy Attorney General - General Counsel SUSAN D. GUSKY Chair, Opinion Committee Susan L. Garrison Assistant Attorney General, Opinion Committee