Court Opinion

ID: 7318926
Source: CourtListenerOpinion
Date Created: 2022-07-25 21:10:44.006698+00
Date Added: 2024-06-11T16:19:45.267273
License: Public Domain

BRODY, J.A.D.,
dissenting.
The Director of the Division of Purchase and Property (the Director) erred in the standard he applied and the procedures he used in rejecting the Keyes Martin bid. Deferring to what he understood to be the view of the Lottery Commission (the Commission), the Director concluded that “public confidence in the integrity of the lottery operations would be impaired” if Keyes Martin engaged in “any business relationship” with Palley while Palley was the Commission chairman and Keyes Martin its advertising agency. By expressly declining to consider “the extent of the relationship,” the Director could have rejected the bid because Keyes Martin had merely purchased a trinket at Palley’s Atlantic City Boardwalk store. Without *68specific findings we do not know the basis for his action and must reverse.1
I dissent because, unlike the majority, I would not simply reverse and award the contract to Keyes Martin in the face of still unanswered questions concerning its private business dealings with Palley while he was the Commission chairman. These dealings and an unsuccessful attempt to engage in similar dealings with another vendor, Syntech International, Inc., produced conflicts of interest charges against Palley before the Executive Commission on Ethical Standards (the Ethics Commission) and an indictment charging him with criminally obstructing the investigation of the charges regarding Syntech. These startling events occurred while bids were being considered and Palley was still a Lottery Commissioner. Both proceedings were pending when the Director awarded the contract to Venet Advertising, Inc. and they are still pending. Only Palley faces formal charges. However, if he unlawfully engaged in a six-month course of private business dealings with a major Commission vendor such as Keyes Martin, it would be reasonable to infer that the vendor is also tainted and could therefore be suspended from the bidding process while its involvement is being investigated. This is especially so where the dealings were forbidden so that Palley as a Commission member would not favor or have reason to favor the vendor at the expense of the public weal. I would therefore remand for proper proceedings and findings.
The success of the State Lottery,, an important source of public revenue, depends upon the effectiveness of its advertising. Unlike most State vendors, the Lottery’s advertising *69agency works continuously with the Commission and its Director. An agency representative attends Commission meetings. At almost every meeting the Commission considers new advertising ideas, including changes in the way the games are played, and authorizes or curtails advertising expenditures. There is no rigid advertising budget. The amount spent in advertising, and therefore the income of the advertising agency, is continually determined by the Commission throughout the year. The request for proposals to bid on the present contract requires bidders to assume a minimum two and a half million dollar annual advertising budget.
Keyes Martin was the Commission’s advertising agency under a September 1980 two-year contract. The Commission extended the contract for six months in June 1982 without competitive bidding after its Director reported that she needed more time to prepare the request for proposals for the new contract. There is evidence that shortly thereafter, Palley, acting on behalf of China Interface Corporation (China Interface), undertook increasingly more intensive business dealings with Keyes Martin which ended abruptly in January 1983 when he learned that these transactions were the subject of an investigation by the Attorney General. Palley owned one-third of China Interface stock.
Although the majority tend to minimize the extent of those dealings and the casualness of Palley’s participation in them, we have no findings and there is evidence to the contrary. For example, the majority state that Palley merely “recommended the services” of Keyes Martin “to certain third parties.” One recommendation is contained in an October 22, 1982 letter to a business associate. Its fervor is demonstrated by the following hyperbolic excerpt:
Most important is redesigning of label and carrier. I suggest that you immediately contact Dan Gaby at his advertising agency.
Keyes Martin, Inc.
(201) 376-7300
*70Ask him to redesign the product for the market. His agency has a contract to handle all of Chinese advertising and promotion in things from Shanghai and he would be extremely important to you. He has just returned from Shanghai and knows and understands the people here very well. His imprimature [sic] on this project will not do you any harm. I am sending him a copy of this letter.
In addition to sending Gaby a copy of the letter, Palley wrote to Gaby the next day stating in part, “I insisted that you be brought into the promotion end as the creative agency because of your ‘experience in China.’ ” There is no evidence in this record that Keyes Martin had any experience in China except for Palley’s activities there on its behalf.
As another example, the majority correctly state that Gaby denied agreeing to purchase the China Interface stock Palley was promoting. However, Gaby also admitted telling Palley that he “would seriously consider the matter;” he had his secretary open a China Interface file and placed in it a memo from Palley concerning the “internal structure” of China Interface; and he never turned down Palley’s offer. The Attorney General’s investigation became known in January, two months before the date noted in Palley’s diary when Gaby would pay for the stock.
By the time the Attorney General’s investigation became publicly known, the contract had already been advertised and bids were in. The Director appointed an Evaluation Committee composed of staff from the Commission and the Division of Purchase and Property to review the bids. On the basis of cost and quality-of-work factors, the Committee recommended that the contract be awarded to Keyes Martin. The Committee recommendation was filed March 22. The next day the Ethics Commission filed a complaint against Palley charging that China Interface’s dealings with Keyes Martin and Syntech violated the New Jersey Conflicts of Interest Law, N.J.S.A. 52:13D-12 et seq., and the Lottery Commission Code of Ethics.
The next two months leading up to the May 31 contract award to Venet were hectic and traumatic for all concerned. On April 19, 1983 the Attorney General’s office advised the *71Commission that a grand jury was hearing evidence against Palley in connection with his business dealings with Syntech. Like Keyes Martin, Syntech received a bill from Palley for reimbursement of the fees of a consultant and an interpreter Palley claimed to have engaged on its behalf during his July trip to China.2 Unlike Keyes Martin, Syntech refused to pay the bill.3
The Commission had already extended the Keyes Martin contract another month and the Attorney General requested one more month’s extension to allow time for the grand jury to act before the new contract was awarded. At its April 28 meeting, which Palley did not attend, the Commission understandably denied this request. Although it was vital to have a functioning advertising agency, in light of the charges brought against Palley the Commission could not countenance the spectacle of giving more business to Keyes Martin — at least while Palley was still one of its members. The next day Palley was indicted.
Palley refused to resign from the Commission. On May 9 the Governor suspended him “as a Member of the New Jersey Lottery Commission, pending disposition of the Indictment and resolution of the Conflicts of Interest charges before the Executive Commission on Ethical Standards.” A week later the Attorney General wrote the Treasurer a letter advising that the Director should reject the Keyes Martin bid. He said that to award the contract to Keyes Martin in the face of the conflicts of interest charges pending before the Ethics Commission “would impair public confidence in the integrity of the operations of the State lottery.” Two days later the Director, by his *72deputy, reconvened the Evaluation Committee and it issued a new report on May 23 recommending that the contract be awarded to Venet. The Lottery Commission concurred by resolution of May 25 and the Director awarded the contract. The precise question in this case is whether the Director was justified in awarding the contract to Venet and not Keyes Martin on May 31.
In adopting the New Jersey Conflicts of Interest law, the Legislature expressly found that public officials must “avoid conduct ... which creates a justifiable impression among the public that [the public] trust is being violated.” N.J.S.A. 52:13D-12(a). The act itself establishes specific standards of conduct and authorizes others to be established by each agency of government “to meet [its] specific needs and conditions.” N.J.S.A. 52:13D-12(b). Pursuant to N.J.S.A. 52:13D-23, the Commission adopted its own Code of Ethics which was duly approved by the Ethics Commission.
An agency code must conform to eight “general standards” of prohibited conduct listed in N.J.S.A. 52:13D-23(e). The list includes:
(1) No State officer or employee should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity, which is in substantial conflict with the proper discharge of his duties in the public interest.
(4) No State officer or employee should act in his official capacity in any matter wherein he has a direct or indirect personal financial interest that might reasonably be expected to impair his objectivity or independence of judgment.
(5) No State officer or employee should undertake any employment or service, whether compensated or not, which might reasonably be expected to impair his objectivity and independence of judgment in the exercise of his official duties.
(6) No State officer or employee should accept any gift, favor, service or other thing of value under circumstances from which it might be reasonably inferred: that such gift, service or other thing of value was given or offered for the purpose of influencing him in the discharge of his official duties.
(7) No State officer or employee should knowingly act in any way that might reasonably be expected to create an impression or suspicion among the public having knowledge of his acts that he may be engaged in conduct violative of his trust as a State officer or employee.
*73Standard (1) prohibits “any business or transaction” which results in a “substantial conflict.” The corresponding provision in the Lottery Code prohibits “any business or transaction ... which is in conflict with the proper discharge” of a commissioner’s duties. Even if an ethical violation by Palley would taint Keyes Martin, neither the statute nor the Lottery Code prohibits Palley from having “any business relationship” at all with Keyes Martin. Because the Director determined no more than that, his determination cannot be the basis for rejecting Keyes Martin’s bid. Without a finding of a “conflict” under the Lottery Code or a “substantial conflict” under the statute it cannot be said that Palley — much less Keyes Martin— has done anything wrong relating to standard (1).
Standards (4), (5), (6) and (7) appear in the Lottery Code virtually verbatim. They all depend in one way or another on “appearances” to the public but in each instance the appearance must be a reasonable inference from evidence that a conflict or violation of trust exists. As with all conflicts standards, the evidence need not demonstrate that the official forsook his public trust, but only that his private interests were in conflict with his public duty. See Griggs v. Princeton Borough, 33 N.J. 207, 220 (1960).
In my view if the Director had evidence that Keyes Martin was doing business with Palley’s corporation to the extent that Palley was presented with a substantial conflict between his business interest with Keyes Martin and his duty to the public, he could properly have suspended Keyes Martin from bidding on this contract pending further investigation. N.J.A.C. 17:12-7.6. The fact that the Commission only later adopted regulations expressly barring a vendor from such conduct does not mean that in the absence of such regulations the conduct must be disregarded. Whether Keyes Martin should have been suspended here depends on the facts before the Director on May 31 and his evaluation of them.
*74The Director rejected the Keyes Martin bid under the authority of N.J.S.A. 52:34-12 which requires him to award a contract to a “responsible bidder” but permits him to reject “any bid” when he “determines that it is in the public interest to do so.” The Supreme Court has held that “ ‘responsible’ embraces moral integrity just as surely as it embraces a capacity to supply labor and materials.” Trap Rock Industries, Inc. v. Kohl, 59 N.J. 471, 481 (1971), cert. den. 405 U.S. 1065, 92 S.Ct. 1500, 31 L.Ed.2d 796 (1972) (corporate bidder’s principal indicted for bribery). The Director overruled Keyes Martin’s objections after a hearing officer conducted an informal conference, the minimum procedural safeguard to which the maker of a rejected bid is entitled under Commercial Cleaning Corp. v. Sullivan, 47 N.J. 539, 550 (1966). That was the wrong procedure to use in this case.
The informal conference procedure called for in Commercial Cleaning should be limited to resolving disputes concerning a bidder’s compliance with bid requirements and his ability to perform the contract in question. Where other disabilities arise such as the moral integrity of the bidder, including, as alleged here, conduct placing an official’s public and private interests in substantial conflict, the Director should use the procedures established by regulation pursuant to Executive Order No. 34 (1976) for debarment, suspension and disqualification of a bidder. N.J.A.C. 17:12-7.1 et seq. These procedures, the Conflicts of Interest Law (L. 1971, c. 182) and Trap Rock reflect a clear purpose of the three branches of government in the decade following Commercial Cleaning to establish broad standards administered under specific procedures that will assure ethical conduct and the appearance of ethical conduct in all phases of governmental activity.
N.J.A.C. 17:12-7.5 authorizes the Director to suspend “in the public interest ... a person for any cause specified in N.J.A. C. 17:12-7.2 [which lists reasons for debarment] or upon adequate evidence that such exists.” N.J.A. C. 17:12-7.2(12) authorizes debarment for any cause “affecting responsibility as a State *75contractor of such serious and compelling nature as may be determined by purchase and- property to warrant debarment____” To be effective the Director’s action must be approved by the Attorney General, N.J.A.C. 17:12-7.6. The suspension may not “be based upon unsupported accusation, but upon adequate evidence that cause exists or upon evidence adequate to create a reasonable suspicion that cause exists,” N.J.A.C. 17:12-7.6(a)(3), and may only be “for a temporary period pending the completion of an investigation and such legal proceedings as may ensue.” N.J.A.C. 17:12 — 7.7(a)(l)(iii).
On May 31 the Director could have had a “reasonable suspicion” that Keyes Martin knew or should have known that its private business dealings with Palley were forbidden under the Conflicts of Interest Law and the Lottery Code. If the Director had such a suspicion he could have suspended Keyes Martin with the approval of the Attorney General pending completion of an investigation, and his award of the contract to Venet would have been proper.
The State had an opportunity to proceed properly but failed to do so. Further proceedings will consume more contract time that may belong to Keyes Martin. I would nevertheless be indulgent of the State for several reasons: the Director and the Attorney General were caught up in a whirlwind of extraordinary events that distracted everyone when these matters were being considered below; it was urgent to have someone immediately under contract; and there was uncertainty in the law regarding the applicability of the debarment, suspension and disqualification procedures. Above all, I would give the State another chance in consideration of the following pronouncement by our Supreme Court:
Nonetheless the purpose of a procurement program is not to advance the interest of those who want the State’s business. On the contrary, the purpose is to serve the State’s interest as purchaser. [Trap Rock Industries, Inc. v. Kohl, supra, 59 N.J. at 479]
I would remand for further proceedings consistent with this dissent.

The Director noted in his opinion that the hearing officer "found that Keyes Martin ‘adequately established' its position that ‘no decision in their business transactions included special favors based on Palley’s position.”' But he neither accepted nor rejected that conclusory finding because he determined that "the existence of any relationship" between them warranted rejection of the bid. [Emphasis in original.]

The Syntech bill was for $675 because H included additional items of “out-of-pocket expenses.”

The indictment charges that Palley fabricated and forged evidence that purported to blame his secretary for mistakenly sending the Syntech bill without his knowledge.