Request By:
Donald W. Webb, Esq.
500 First Federal Plaza
Vine at Upper Street
Lexington, Kentucky 40507
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter raising a question concerning the meaning of KRS 154.160 dealing with the financial interests of members, officers or employes of the Industrial Development Finance Authority. That statute provides:
"No member of the authority or officer or employe thereof shall either directly or indirectly be a party to or be in any manner interested in any contract or agreement with the authority for any matter, cause or thing whatsoever by reason whereof any liability or indebtedness shall in any way be created against such authority. If any contract or agreement shall be made in violation of the provisions of this section the same shall be null and void and no action shall be maintained thereon against such authority."
In your opinion the statute is rather unusual in that the conflict of interest provision does not apply to any member of the Industrial Development Finance Authority unless some liability or indebtedness shall be created against the authority. You assume this means that if, by virtue of a contract or agreement (with which same member of the authority had some affiliation), the authority would have a financial liability or indebtedness to a creditor, loan applicant or that authority member, then the statute would apply. In your opinion a conflict of interest would also occur if a member voted or participated in a loan application discussion in which the member had a direct or indirect financial interest even if KRS 154.160 did not exist.
You further state that in your opinion KRS 154.160 would not prohibit an individual from serving as a member of the authority, by virtue of the fact that a customer or client in his private business might also be an applicant for a loan from the authority, so long as the member in no way became involved in the discussion of the merits of the loan or voted on making the loan, since no liability or indebtedness would in any way be created against the authority. You ask whether this office agrees with your interpretations of the statute.
We agree with your conclusion that the conflict of interest provision contained in KRS 154.160 is somewhat different in its wording than most such statutory enactments. It prohibits a member, officer or employe of an Industrial Development Finance Authority from directly or indirectly being a party to or in any manner being interested in any contract or agreement with the authority for any matter whatsoever where any liability or indebtedness shall in any way be created against the authority. The prohibited interest occurs where any liability or indebtedness is created against the authority. This provision, however, may be more inclusive than it appears at first blush since most contracts or agreements between the authority and other parties, particularly those involving goods and services, will probably subject the authority to liability or indebtedness.
In addition to the statutory provisions involved we also direct your attention to McQuillin Mun. Corp. (3rd Ed.), Vol. 10, § 29.97, where the following appears:
". . . [I]t is generally held that whenever a public officer enters into a contract the execution of which may make it possible for his personal interests to become antagonistic to his faithful discharge of a public duty, such contract will be held void as against public policy. It is the existence of such interest which is decisive, and not the actual effect or influence, if any, of the interest; if there is a potential conflict, the contract is invalid. . . ."
Furthermore, in
Commonwealth ex rel. Vincent v. Withers, 266 Ky. 29, 98 S.W.2d 24, 25 (1936), the Court said:
"It is a salutary doctrine that he who is entrusted with the business of others cannot be allowed to make such business an object of profit to himself. This is based upon principles of reason, of morality, and of public policy. These are principles of the common law and of equity which have been supplemented and made more emphatic by the foregoing and other statutory enactments.
Nunemacher v. City of Louisville, 98 Ky. 334, 32 S.W. 1091, 17 Ky. Law. Rep. 933. In their application and operation it is impossible to lay down any definite rules defining the nature of the interest of the officer, or indicating the line between that which is proper and that which is unlawful. In general, the disqualifying interest must be pecuniary or proprietary by which he stands to gain or lose something. Falling within the principle are contracts with firms in which the member of the municipla body is a partner or a corporation of which he is an officer, or sometimes only a stockholder or employee. . . ."
See also OAG 77-415, copy enclosed, where we said that when a public officer is not personally involved in the execution of a contract as an agent for an insurance company and received no commission resulting from the contract, a statutory violation did not occur. However, if the contract is awarded to an insurance company of which the officer is an agent, he should as a matter of public policy refrain from voting in the awarding of that contract.
Thus, in our opinion, you have correctly interpreted KRS 154.160 and the conflict of interest provision set forth therein. The prohibited interest in the statute occurs where any liability or indebtedness shall in any way be created against the authority. We would also suggest, however, that members, officers and employes of the authority keep in mind the concept of common law conflicts of interest and that certain activities are prohibited as being against public policy.