Opinion ID: 901137
Heading Depth: 1
Heading Rank: 4

Heading: Gross Profits

Text: [¶ 10.] City requested a damage award of $77,000. This is the amount of money SEA sold property for on the same day the trade/sale was approved by City. The trial court found that the wrong lay at the creation of the void transaction. As a result, the court ordered the defendants to relinquish the $77,000 gross profit. This award is consistent with this Court's holdings in Carlson, supra ; Speckels, supra ; and Himrich, supra . [¶ 11.] Conflict of interest statutes have their origins in the general principal that no man can faithfully serve two masters, whose interests are or may be in conflict. San Diego v. S.D. & L.A.R.R.Co., 44 Cal. 106, 1872 WL 1247 (1872). The general rule is strict enforcement of conflict of interest statutes so as to provide a strong disincentive for officers who might be tempted to take personal advantage of their public offices. Thomson v. Call, 38 Cal.3d 633, 214 Cal.Rptr. 139, 699 P.2d 316 (1985). [¶ 12.] In Carlson, supra, the defendants, while city councilmen, received money from the city for goods and merchandise sold to the city individually or through corporations in which they were interested. This Court held that even though the councilmen were not acting fraudulently, they were bound to refund to the city the money paid to them on the sales in view of the statute making such transactions unlawful, null and void. Carlson, 75 S.D. at 434-36, 67 N.W.2d at 150-51. Similarly, in this case, SEA must refund to City money paid to it on the sale in light of the fact that the transaction was unlawful, null and void. In fact, such a conclusion is even more appropriate here because the trial court found actual fraud in this case. See City of Aberdeen, 2001 SD 55 at ¶ 23, 625 N.W.2d at 587. [¶ 13.] In Speckels, supra, the Custer City Attorney entered into a lease-purchase agreement with the city where a for-profit corporation in which the attorney was a principal leased land from the city for twenty years. That same day, the attorney's corporation sublet the property to another corporation. This Court held that $700,000 in lease payments were unlawfully appropriated by the attorney and a fellow investor and that those payments had to be repaid to the city because the rent received by the investors deprived the city of that amount of money. Speckels, 512 N.W.2d at 175-176. Similarly, in this case, the defendants have deprived the city of $77,000. This money should be returned to City in accordance with this Court's holding in Speckels. [¶ 14.] Finally, in Himrich, supra, the Custer City Attorney and fellow investor from Speckels, supra, argued that they were entitled to recover under the equitable defense of unjust enrichment. This Court recognized that, `he who comes into equity must come with clean hands[.]' Himrich, 1997 SD 116 at ¶ 22, 569 N.W.2d at 573 (quoting Myers v. Smith, 208 N.W.2d 919, 921 (Iowa 1973)). Since the attorney and his fellow investor engaged in a purposeful violation of their fiduciary duties as public officers when they entered into a contract with the city for personal gain, this Court refused to condone that conduct and found no entitlement to equitable relief. See Himrich, 1997 SD 116 at ¶¶ 19-22, 569 N.W.2d at 573-574. This Court continues to adhere to the principles set forth in Himrich and, therefore, denies equitable relief and affirms the trial court's award of the $77,000 in gross profits. [¶ 15.] Strict enforcement of conflict of interest laws has been the principle adhered to by courts throughout this country. In Thomson, supra, the taxpayer plaintiffs challenged the validity of a transaction in which the defendant purchased a parcel of land from a husband and wife and then conveyed that parcel to the City of Albany while the husband was a member of the Albany City Council. Despite the fact that the husband and wife were not acting fraudulently, they were liable to the city for the proceeds they received from the sale, plus interest, while the city retained title to the land. This was consistent with the policy that the city or agency is entitled to recover any consideration which it has paid, without restoring the benefits received under the contract. Thomson, 214 Cal.Rptr. 139, 699 P.2d at 324. [¶ 16.] The ruling in Thomson is consistent with this Court's holding in Bozied v. City of Brookings, 2001 SD 150, 638 N.W.2d 264, that parties cannot be paid under void public contracts. In Bozied, a construction company was awarded a construction contract with the City of Brookings after the owner of the company resigned from the planning committee responsible for developing the project package. After construction began, the city issued a series of change orders. Those change orders were never submitted for public bidding, but were completed by the original construction company. The change orders were held to be a void contract. This Court determined that no matter how innocent a contractor may be, there can be no recovery on a void contract, even to right a gross injustice. Bozied, 2001 SD 150 at ¶ 19, 638 N.W.2d at 272. [¶ 17.] This Court also recognized that, absent a showing of `fraud, undue influence, or collusion, in the making of the payment,' several courts have allowed a contractor to retain funds already paid but not to recover additional funds. Bozied, 2001 SD 150 at ¶ 20, 638 N.W.2d at 272 (quoting Tobin v. Town Council of Sundance, 45 Wyo. 219, 17 P.2d 666, 674 (1933)). See also Elview Construction Co. Inc., v. North Scott Community, 373 N.W.2d 138, 144 (Iowa 1985); Gamewell Company v. City of Phoenix, 216 F.2d 928, 941 (9th Cir.1954); Village of Pillager v. Hewitt, 98 Minn. 265, 107 N.W. 815, 816 (1906); Robert A. Shapiro, Right of Municipal Corporation to Recover Back From Contractor Payments Made Under Contract Violating Competitive Bidding Statute, 33 ALR3d 397 (1970). However, [s]uch a conclusion, will by necessity, be tempered by the facts of each case. Bozied 2001 SD 150 at ¶ 23, 638 N.W.2d at 273. Since this case involves fraud and deceit, the defendants should not be allowed to retain funds already paid. See id. [¶ 18.] Therefore, this Court affirms the trial court's award of $77,000 gross profits and will not allow any equitable relief to the defendants. Furthermore, in accordance with the agreement of the parties and in compliance with this Court's policy of strict enforcement of conflict of interest laws, City is entitled to keep all of the benefits of the void contract pursuant to the holding in Bozied, supra . This includes the return of City's land, City's retention of the property and the $817 conveyed to it by SEA and an award of the gross profits to City. Since the parties agreed to a set-off, it will be upheld. [6]