CONFLICTS OF INTEREST -- Maintenance Contracts (fire commissioner who is president and stockholder of company servicing district vehicles) -- Exceptions (abstention from voting not an exception)
GENERAL MUNICIPAL LAW, §§800(3)(c),(d), 801(1); TOWN LAW, §176(4-a): A fire district commissioner who is also the president and chief stockholder of an automotive dealership would have a conflict of interest if fire district vehicles are serviced by his company unless the pertinent exceptions in General Municipal Law, §802 apply. Abstention from voting on matters relating to the contracts between the district and his company would not be curative.
You ask if a fire district may engage a local automotive dealership to service its vehicles if a member of the board of fire commissioners is the president and chief stockholder of the automotive dealership and abstains from voting with respect to any matters relating to the service contracts.
Article 18 of the General Municipal Law (§§800, et seq.) contains provisions of law which relate to conflicts of interest of municipal officers and employees. Pursuant to General Municipal Law, §800(3), a municipal officer or employee has an interest in any contract with his municipality if he receives a direct or indirect pecuniary or material benefit as a result of that contract. In addition, an officer or employee is deemed to have an interest in a contract of a corporation of which he or she is an officer, director or employee, or a stockholder (General Municipal Law, §800(3)[c],[d]). That interest is prohibited if none of the exceptions contained in Article 18 are applicable and the officer or employee 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 powers or duties (General Municipal Law, §§801, 802). Any contract willfully entered into by or with a municipality in which there is a prohibited interest is null, void and unenforceable (General Municipal Law, §804). Further, section 805 of the General Municipal Law provides that any municipal officer or employee who willfully or knowingly violates the conflict of interest provisions of Article 18 shall be guilty of a misdemeanor.
In the instant situation, the board member is deemed to have an interest in any contract between the fire district and the dealership both because he is the president and a stockholder of the company. Therefore, unless exceptions contained in section 802 are applicable, that interest would be prohibited because he, in his capacity as a board member, will have the power or duty to negotiate, prepare, authorize or approve the contracts with the company and to audit claims and approve payments made under the contracts (General Municipal Law, §801; Town Law, §176[4-a], ).
General Municipal Law, §802 contains several exceptions for contracts which would otherwise be prohibited by section 801 which may be pertinent here. Section 802(1)(h) excepts any contract entered into prior to the time the officer or employee was elected or appointed, but does not except any renewals thereof. Subdivision 1(b) of section 802 provides an exception in those instances where an interest is prohibited solely by reason of employment as an officer or employee of a corporation if (1) the remuneration of such employment will not be directly affected as a result of such contract and (2) the duties of such employment do not directly involve the procurement, preparation or performance of any part of such contract. Finally, subdivision 2(a) provides an exception when an officer or employee has an interest by reason of stockholdings if less than 5% of the outstanding stock of the corporation is owned or controlled directly or indirectly by the municipal officer or employee. Pursuant to General Municipal Law, §803(1), written disclosure of an interest excepted under either subdivisions (1)(b) or (1)(h) of section 802 is required. However, subdivision two of section 803 provides that disclosure shall not be required in the case of an interest in a contract described in General Municipal Law, §802(2).
As to the applicability of General Municipal Law, §802(1)(h), which pertains to contracts made prior to the officer's or employee's election or appointment, we note that this provision would not apply unless a service contract was in effect when the fire commissioner was elected to office. Therefore, since your letter does not suggest the repair work would be undertaken pursuant to a preexisting agreement, this exception would not appear to be applicable. Accordingly, unless the exceptions in both subdivisions (1)(b) and (2)(a) apply, the board member would have a prohibited conflict of interest in any contract entered into after his election or any renewal after his election of a contract entered into prior to his election. Although we do not have sufficient facts to determine whether the exception in subdivision (1)(b) is applicable, it would appear that the exception in subdivision (2)(a) would not apply since you have indicated that the board member is the "chief" stockholder of the company. Further, we note that even if both exceptions apply, the board member would still have a prohibited interest in any contract entered into or renewed after his election if he receives a direct or indirect pecuniary or material benefit as a result of the contract or is a director of the corporation (General Municipal Law, §800).
In your letter, you state that the board member would refrain from participating in any board business relating to the contracts with his corporation. Under Article 18 of the General Municipal Law, however, it is the existence of the statutory power or duty of an officer or employee to perform section 801 functions which gives rise to the conflict of interest under that section without regard to whether those functions are actually performed (Dykeman v Symonds, 85 Misc 2d 567, 380 NYS2d 567, affd 54 AD2d 159, 388 NYS2d 422; 1983 Opns St Comp No. 83-180, p 226; 1987 Opns St Comp No. 87-75, p __). Therefore, abstention by the board member will not enable a fire district to enter into a contract which is otherwise prohibited by Article 18 of the General Municipal Law.
February 29, 1988