This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
CONFLICTS OF INTEREST -- Insurance Transactions (fire district treasurer as officer and stockholder of insurance agency)
GENERAL MUNICIPAL LAW, §§800(3), 801, 803; TOWN LAW, §177: A fire district treasurer who is an officer and stockholder of an insurance agency with which the fire district contracts has an interest in the contract. The interest must be disclosed pursuant to General Municipal Law, §803, but is not prohibited.
You ask whether a fire district treasurer who is an officer and stockholder of the insurance agency which was the successful bidder for the fire district's insurance business would have a prohibited conflict of interest in the fire district's contract with the agency. You note that the treasurer receives no share of the premium or commission from the agency's fire district business and that the firm was the agent for the fire district prior to the treasurer's election to office. For purposes of this opinion, we assume the treasurer owns 5% or more of the outstanding stock of the agency.
General Municipal Law, Article 18 (§800 et seq.) contains provisions of law relative to conflicts of interest of municipal officers and employees (see General Municipal Law, §800,). A municipal officer or employee has an "interest" in any contract with the municipality if he or she receives a direct or indirect pecuniary or material benefit as the result of the contract (General Municipal Law, §800). In addition, an officer or employee is deemed to have an interest in any contract of a corporation of which the officer or employee is an officer, director, employee or stockholder (General Municipal Law, §800[c],[d]). For this purpose, a "contract" includes any express or implied claim, account or demand against or agreement with a municipality (see General Municipal Law, §800). An interest in a contract is prohibited if the officer or employee, individually or as a member of a board, has the power or duty to: (a) negotiate, prepare, authorize or approve the contract or approve payments thereunder; (b) audit bills or claims under the contract; or (c) appoint an officer or employee who has any such duties (General Municipal Law, §801), and none of the exceptions contained in Article 18 are applicable (see General Municipal Law, §802).
Any contract willfully entered into in which there is a prohibited interest is null, void and unenforceable (General Municipal Law, §804), and any officer or employee who willfully and knowingly violates these provisions may be guilty of a misdemeanor (General Municipal Law, §805). We also note that, if an officer or employee has an interest in any actual or proposed contract that is not prohibited under the provisions of Article 18, General Municipal Law, §803 generally requires that the nature and extent of the interest be disclosed in writing as soon as the officer or employee has knowledge of the actual or prospective interest. The written disclosure must be included in the official record of the governing board's proceedings. Disclosure is not required under section 803 in the case of an interest in a contract which is not prohibited under subdivision two of section 802 (General Municipal Law, §803).
Based on the foregoing provisions, the agreement between the fire district and the agency, as well as any renewal thereof, is a "contract" because it is an agreement with the fire district (see General Municipal Law, §800). The treasurer is deemed to have an "interest" in that contract because he or she is an officer of and owns stock in the corporation (see General Municipal Law, §800[d]). That interest is prohibited if the treasurer has any of the powers or duties specified in General Municipal Law, §801, unless one of the exceptions in General Municipal Law, §802 is applicable.
As to whether a fire district treasurer has any of the powers and duties specified in General Municipal Law, §801, we note that the general powers and duties of the fire district treasurer are set forth primarily in Town Law, §177. The treasurer's duties include acting as the chief fiscal officer of the fire district, receiving and having custody of the funds of the fire district and disbursing those funds for authorized purposes, generally, when so ordered by the board of fire commissioners. These powers and duties are not among those listed in section 8011.
Accordingly, the treasurer's interest in the contract would not be prohibited in this instance. Disclosure pursuant to section 803, however, is required.
Even if the treasurer were determined to have section 801 powers, the exception in General Municipal Law, §802(1)(h) may apply here. That provision excepts from the prohibition in section 801 contracts (but not renewals thereof) which were entered into before the municipal officer was elected to office. Thus, if the current contract was entered into prior to the treasurer's election to office, and is not a renewal, this exception would apply. The treasurer, nonetheless, would still be required to disclose his or her interest in the contract in accordance with General Municipal Law, §803.
Although there is no prohibited conflict of interest in this case, the fire district's code of ethics, if it has adopted one, should be consulted to determine whether it contains any pertinent provisions. In this regard, we note that pursuant to General Municipal Law, §806 fire districts are authorized to adopt codes of ethics which contain standards relating to the conduct of officers and employees, including standards relating to private employment in conflict with official duties. Such codes of ethics may regulate or prescribe conduct which is not expressly prohibited by Article 18, but may not authorize conduct otherwise prohibited2.
October 15, 1997
William H. Price, Jr., Esq., Attorney at Law
East Marion Fire District
1 With respect, in particular, to the power of a municipal treasurer to disburse moneys, we have, in prior opinions, cautioned that, although the power to issue checks does not literally constitute a power or duty enumerated in General Municipal Law, §801, a court might find that a local government treasurer has a prohibited conflict of interest in a contract between a local government and a business of which the municipal treasurer is an officer and stockholder (1991 Opns St Comp No. 91-8, p 18; 1989 Opns St Comp No. 89-32, p 74; 1986 Opns St Comp No. 86-7, p 11; 1979 Opns St Comp No. 79-146, p 28). We based that comment (1) on caselaw holding public officials to a high standard of conduct and negating certain actions, which, while not violating the literal provisions of Article 18 violated the spirit and the intent of the statute, were inconsistent with public policy, or suggested self interest or partiality or economic impropriety, and (2) the principle that under certain circumstances a municipal treasurer has an obligation to protect municipal funds by not issuing checks to pay claims which have already been approved by the auditing body or officer. Nonetheless, in the absence of a definitive court decision, it continues to be our opinion that the disbursement of funds is not a section 801 power.
2 Since the fire district awarded the contract pursuant to competitive bidding in this instance, we need not discuss the requirements of General Municipal Law, §104-b, applicable to contracts which are not subject to competitive bidding, including contracts for the procurement of insurance and the engaging of an insurance agent (Surdell v City of Oswego, 91 Misc 2d 1041, 399 NYS2d 173; Lynd v Hefferman, 286 App Div 597, 146 NYS2d 113 cf. 1996 Opns St Comp No. 96-6, p 13).