Court Opinion

ID: 4130652
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:06:53.044762+00
Date Added: 2024-06-11T14:32:53.830057
License: Public Domain

October 28, 1987

Mr. Robert J. Provan                   Opinion.No.    JM-817
General Counsel
Stephen F. Austin                      Re:   Whether a state univer-
    State 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   a close corporation.       A person
recently   appointed     to the   Board of    Regents   owns a    .2%
interest of the firm's       equity without a voting interest.
Her husband owns over 6% of the firm's equity and controls
over 12% of its voting interest.          He is an employee    of the
firm and serves as chairman of the board of directors,            but
does not hold an elected office in the firs.           You moreover
inform us    that    the   new   regent's    spouse   acquired    his
interest   in the corporation     prior to the marriage     and that
he asserts    that his     ownership   interest    is his   separate
property.

       You   finally   inform   us that:

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

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

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

      State universities      are subject to the common law rule
which prohibits     a public     officer from having a direct or
indirect   financial   interest in a contract         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      in a public
contract.    In Attorney      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   a pecuniary     interest    in the firm       which would
bar the Board of Regents       from contracting     with the firm.

      Under Texas community      property  law, one    spouse has a
community   property   interest in the other spouse's       earnings
from employment    and    in the income    of the 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      of York,    613 S.W.Zd    764 (Tex.    Civ. App.      -
Amarillo   1981, no writ) (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, no writ) (husband's salary is community
property).

      Section 5.22 of the        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 in the community            property    subject to
the separate management       of    the other spouse.         a    Family
Code 55.61 (all community        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     of Wvlv     v. Commissioner       of
mernal     Revenue,   610 F.2d 1282 (5th         Cir. 1980) (spouse's
interest   in "sole    management"      community    property     is only
an "abstract"    ownership).      In our opinion,        the regent has
a personal   pecuniary    interest in her husband's          salary from
the close corporation      and     in the 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 in one half,of
her husband's     salary     as an   employee       of a    health     care
facility    did   not    constitute      a    'substantial      pecuniary
interest   in   a facility"     that would        disqualify    her    from
serving on the      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     in Attorney
General Opinion      JM-126    does    not control        the   case    you
inquire about.      Attorney   General Opinion JM-126 considered
whether a board      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 on a fixed 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    on the    given      facts, Attorney       General
Opinion JM-126 concluded        that the       commission     member    did
not have a "substantial       pecuniary      interest     in a facility"
as defined by statute.

      The present case involves         a strict 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     to purchase     its goods.

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

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

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

(employment   of regent'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     is accountable     to the    board for his
decisions   about the contract       and for his     job performance
generally.    If a dispute      with the contractor       arises, the
board will very likely participate         in resolving     it.   Thus,
the board cannot divest        itself of responsibility         for the
contract with the      firm, even though       subordinate    officers
or employees   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   of a
         firm in which a regent.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        of Texas

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