Opinion 97 - 19
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The opinion may no longer represent those views if, among other things, there have been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
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 801(1).
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 prohibited(2).
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).