Court Opinion

ID: 4130463
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:04:35.749628+00
Date Added: 2024-06-11T14:06:57.095391
License: Public Domain

January 12, 1989

Honorable Mike Driscoll            OpiniOn    No.   JM-1006
Harris County Attorney
1001 Preston, Suite 634            Re: Whether a county judge
Houston, Texas 77002               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 a county judge:

                May a county judge     [of Harris County]
             serve simultaneously as county judge and as a
             member of the Board of Directors of a private
             corporation which contracts or does 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 to his wife's employer,
             the City of Houston?

     In answer to your first question,. it is our opinion
that the activity you describe creates a conflict         of
interest contrary to public policy.    Inasmuch as we have
been informed by letter dated September 28, 1988, from the
county judge that effective September 15, 1988, his wife has
left her employment with the city, we find it unnecessary to
address your second question.

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

                                  p. 5173.
Honorable Mike.Driscoll   - Page 2   (JM-1006)

wholly owned subsidiary   of HII. In addition to HLLP, HI1
is also the parent company of Utility Fuels, Inc.~ (coal
supplier), Primary Fuels (oil and gas exploration),   Innova-
tive Controls,  Inc.   (outside lighting manufacturer),   XBL
Communications,  Inc.   (cable   television  supplier),   and
Houston Industries Finance, Inc.   (purchaser of HL&P delin-
quent bills).

     Since his election to the board of directors, the judge
has sold his stock in the company and has filed many
naffidavits of substantial interest n disclosing his position
with the companies.  In his capacity as county judge, he has
recused himself on many 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 all present or future compensa-
tioniu 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    inter-
actions between   HLhP and the county.    YOU state,    "HL&P
constructs, uses and maintains its lines and facilities   on,
over, and across virtually  every Harris County road right-
of-way." We need not recount the many 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 by both parties; the construction,
relocation, repair, and maintenance of both roads and power
lines; and the county's use of HL&P's      light poles    for
traffic signals.

     In addition to his position on the HL&P board of
directors, the county judge sits on the board of directors
of a nonprofit corporation established to treat indigent and
paying AIDS patients   in the county.   The county judge has
informed us by letter, dated September 28, 1988, that' he
will not receive   any compensation for his services on the
board of directors   of the nonprofit  corporation.  In that
same letter, the county judge poses the possibility that the
county may contract with the nonprofit corporation,     while
you anticipate that the hospital district may contract with
the corporation for the care of indigent AIDS patients     in
the county. We will respond to both possibilities.

     Public policy has long prohibited 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

                               p. 5174
Honorable Mike Driscoll - Page 3   (JM-1006)

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

        These safeguards   in letting contracts were
        not provided with the thought that the public
        official was corrupt, but that, in        the
        expenditure of public
                         __.    money,
                                 --_   the  strictest
        regulrement snoulc be followed.     our raw-
        makers were wise in trying, not only to
        remove temptation,   but to place the public
        official even above the suspicion of wrong-
        doing. The idea of keeping the public in the
        confidence of the official would bring co-
        operation and loyalty in the administration
        of government   and enforcement of law, and
        these principles underlie the security of our
        government.

Mevers v. Walker, suvra, at 307.

     That case was grounded in the common law prohibition on
public officers' conflict of interest. However, in 1983 the
legislature adopted a mechanism    whereby  a local public
officer could hold an interest in a business entity, declare
that interest, and recuse himself on matters concerning that
business entity: thus allowing the remainder of the govern-
ing body to vote on and conduct business with that entity.
Lot. Gov't Code, ch. 171.      It has been suggested     that
chapter 171 allows the county judge to sit on the board of
directors and recuse himself on county matters pertaining to
the corporation.  However, that chapter applies only when a
local public official has a "substantial interest"      in a
business entity or real property, and l'substantial interest"
is defined   in exclusively financial and -familial terms.
Lot. Gov!t Code § 171.002. The fact that the county judge
has waived all compensation for his services to the corpora-
tion removes him from the purview 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 an oath that they will
not be directly or indirectly interested    in any contract

                             p. 5175
Honorable Mike Driscoll - Page 4   (JM-1006)

with or claim against the county,        except as expressly
authorized by law. It was that oath that provided the basis
for the holding in another case where a county officer had
no apparent interest in a questioned 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 a voting machine company to be its sole
representative and salesman in the state except in his own
county and would receive a commission on every machine    sold
in the state, except those sold to his own county.           A
taxpayer in the 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 no money from the sale of the machines to his
county.    In affirming   the trial courtts grant of the
injunction, the court said:

        [The commissioner] is obligated to give his
        best efforts to the carrying     out of his
        appointment, and to  render such services  in
        connection therewith as may be reasonable and
        necessary.

            .   .   .   .

           Under all of the circumstances,      it is
        presumed that Ploch was not in a position   to
        give to Bexar County his undivided    loyalty
        and support in seeing to it that Bexar County
        got the very best deal possible        in the
        purchase of 100 new voting machines, when he
        was at the same time obligated    to use his
        best efforts to promote and exploit the sale
        of Shoup voting machines     throughout    the
        State, except in Bexar County. The fact that
        he was not to receive any money from such a
        sale in Bexar County would not prevent     him
        from having an indirect interest in promoting
        and exploiting  Shoup voting machines    else-
        where in the State by a sale in Bexar County.

Bexar Countv v. Wentworth, SYEIg, at 129.

     In that case, as in this inquiry, the ultimate interest
of the county officer is unknown,   and, superficially,  his
actions appear to be within the letter of the law.       The
county judge in the current instance    is a director of a
corporation and as such has a considerably larger interest
in the private company than had the voting machine salesman.

                              p. 5176
Honorable Mike Driscoll - Page 5   (JM-1006)

It is well. established in Texas law that an individual   who
sits on the board of directors of a 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 in the 8exar County
case extends to the question before us. The county judge of
Harris County is not in a position to give to Harris  County
his undivided loyalty and support, when he is at the same
time obligated to exercise the care of a fiduciary on behalf
of the corporation.   We conclude that   public policy pro-
hibits a county judge from sitting on the board of directors
of a corporation that does business with that county.

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

           In all cases the principal is entitled to
        the best 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 to his duty.

Scott v. Kelso, sunra, at 611.

     In Attorney 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 in Attorney
General Opinion H-1309   (1978), this office said "public
policy severely limits the ability of a public entity to
contract with a private entity when the same persons   serve
in management  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
in both capacities as a practical 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   is the same. The Harris     County
Flood Control District was created under Acts 1937 of the

                             p. 5177
Honorable Mike Driscoll - Page 6   (JM-1006)

45th Legislature, chapter   360,   at 714.   Section 1 of that
act establishes the district     as wa governmental agency and
body politic and corporatew and designates 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 in regard 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 for profit does not
a'ffect the public 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. e a.    Attorney  General  Opinions
JM-884   (1988): H-1309 (1978)'; i-714 (1970). In fact, we can
hypothesize that his conflict may be greater in the case of
a corporation in whose 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 of managers of the district.      V.T.C.S.
art. 4494n, g 5B. 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 a matter of law, find that a business      trans-
action between  the hospital district        and the nonprofit
corporation is invalid simply because of the county 'judgets

                              p. 5178
    Honorable Mike Driscoll - Page 7     (JM-1006)
L

    interest in the corporation.   However, we also believe   that
    should such a contract be questioned      in a 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 (5th cir.),    cert. denied, 78 S. Ct.
93 (1957); Stat    Bankina Bd. v. Vallev Nat'1 Bank, 604
S.W.2d 415   (Texe 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 a corporation 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 a corporation on whose board of

                                       J I-
           directors a county judge serves.

                                       Very truly you

                                            i-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

                                   p. 5179