Request By:
Mr. Tracy Farmer
Cynthiana
Kentucky 41031
Opinion
Opinion By: Steyen L. Beshear, Attorney General; By: Robert L. Chenoweth, Deputy Attorney General
You have asked the Office of the Attorney General to review whether there exists any conflicts of interests between your varied private interests and serving as the Secretary of the Kentucky Cabinet for Protection and Regulation, which state position Governor Brown has asked you to consider. The areas of private business interests you have brought to our attention were that of being a principle shareholder in a national bank located in Kentucky. You also stated you had an interest in certain restaurants which hold licenses to sell alcoholic beverages. You stated these licenses are available to anyone who owns a restaurant seating more than 100 people. You further informed us that you had an interest in certain buildings which are covered by all of the various codes, as are all other buildings of the Commonwealth. Lastly you stated you had an interest in certain Thoroughbred horses and hold an owner's license so that those horses may race at Kentucky race tracks. It is our belief there exists no conflicts of interest caused by those private business interests considered and the holding of the Cabinet Secretary position indicated.
The Cabinet for Public Protection and Regulation is referenced in KRS Chapter 12 in several sections. In KRS 12.020, Part II, the Cabinet for Public Protection and Regulation is listed as a Cabinet headed by an appointed officer. KRS 12.250(3) specifically establishes as a program cabinet the "Cabinet for Public Protection and Regulation. " The composition of this Cabinet is set out in KRS 12.265 as follows:
"A. Department of alcoholic beverage control
B. Department of banking and securities
C. Department of insurance
D. Department of labor
E. Department of mines and minerals
F. Kentucky registry of election finance
G. Energy regulatory commission and utility regulatory commission
H. Kentucky quarterhorse and appaloosa commission
I. Kentucky state racing commission
J. Kentucky harness racing commission
K. Kentucky board of tax appeals
L. Department of housing, buildings and construction
M. Board of Claims
N. Crime victims compensation board."
From those business interests stated in your letter, we believe laws relative to the Department of Alcoholic Beverage Control, the Department of Banking and Securities, the Kentucky State Racing Commission and the Department of Housing, Buildings and Construction especially must be considered.
Before looking at the particular statutes relating to the above singled-out Departments with the Cabinet for Public Protection and Regulation, we want first to note that we do not see that Kentucky Constitution Section 165 or KRS 61.080 are applicable. This constitutional and statutory provision governs the question of incompatibility between various governmental offices or positions. There is only one governmental office involved in your situation, that of Cabinet Secretary, which is held by Governor's appointment. KRS 12.255. By like token, since only one office would be held by you, we do not see that a so-called common law or functional incompatibility problem as existing. Such a problem exists when the function of two offices are inconsistent. See
Hermann v. Lampe, 175 Ky. 109, 194 S.W. 122, 126 (1917).
It is our position that if a conflict of interest is going to come into play as applies to you, it must be of a specific statutory nature. In support of our conclusion that no such statutory conflicts exist, we first point out the authority, powers and duties of a Cabinet Secretary listed in KRS 12.270 as follows:
"(1) The secretary of each cabinet shall:
(a) Be a member of the governor's cabinet and shall serve as the governor's liaison in carrying out the responsibilities for overall direction and coordination of the departments, boards and commissions included in the related cabinet;
(b) Recommend to the governor desired reorganization affecting the related cabinet;
(c) Advise the governor on executive actions, legislative matters and other steps that may be desirable for better program service;
(d) Evaluate and pass upon all budget requests originated by the departments, boards and commissions within such related cabinet;
(e) Advise the governor on the appointment of commissioners and heads of units included in the related cabinet, except for those whose election or selection is otherwise provided for by law.
(2) Each secretary is authorized to accept and expend funds from any source, whether public or private, in support of the duties and responsibilities of the related cabinet.
(3) Each secretary shall have any and all necessary power and authority, subject to appropriate provisions of the statutes, to create such positions and to employ the necessary personnel in such positions to enable the secretary to perform the functions of his office."
It is of considerable importance that while this section of law gives the Cabinet Secretary, "the responsibilities for overall direction and coordination of the departments, boards and commissions included in the related cabinet, " it in no respect makes the Secretary, as such, a member of the Departments, Boards or Commissions he heads or does it give the Cabinet Secretary voting authority or direct decision-making power over matters to come before such administrative bodies. The Secretary is simply an administrator who orchestrates the activities of the Departments, Boards and Commissions in his Program Cabinet in order to see that the work assigned by statute to each administrative body is accomplished in a "well done" fashion.
As noted earlier, we believe the statutes relative to four Departments within the Cabinet for Public Protection and Regulation must be reviewed in view of your private business interests. The first of these is the Department of Alcoholic Beverage Control. KRS Chapter 241 covers the administration and control of alcoholic beverages. The Alcoholic Beverage Control Board is established in KRS 241.030 and is composed of the Commissioner of Alcoholic Beverage Control and two persons appointed by the Governor. Nowhere in Chapter 241 do we find the Secretary of the Cabinet for Public Protection and Regulation mentioned. Although KRS 241.100(1) provides that "no member of the board or member of his immediate family or employe of the department shall have any interest in any premises or business where alcohlic beverages are manufactured, stored or sold," since we do not believe the Cabinet Secretary can be considered an employee of the Department, we are of the opinion this statute is inapplicable. We also find nothing elsewhere in KRS Chapter 241 to suggest that your ownership of restaurants which sell alcholic beverages presents a statutory conflict of interest if you were to be appointed Cabinet Secretary.
The second Department is that of Banking and Securities. KRS Chapter 287 creates and governs this Department. Pursuant to KRS 287.011(2), the Department of Banking and Securities is to "exercise all administrative functions of the state in relation to the regulation, supervision, chartering and licensing of banks, trust companies, savings and loan associations, petty loan companies, investment and industrial loan companies, and credit unions, and in relation to the regulation of securities." The scope of authority of the Department is primarily focused on state-chartered banking institutions, although national banks doing business in the Commonwealth are subject to limited scrutiny. See, for example, KRS 287.030(3) and OAG 70-36 and OAG 70-643. You stated you were a principle shareholder in a national bank. The direct administration of the Department of Banking and Securities rests with the Commissioner of Banking and Securities appointed, as you would be, by the Governor. KRS 287.011 and KRS 287.012. It is the Commissioner and not the Secretary who must make the final decision on approving the organization of state-chartered banks that would compete for banking business enjoyed by or hoped for by the national bank with which you are affiliated. In view of this fact, we do not believe this private business is such that a conflict of interest is created.
Thirdly, we take up the Kentucky State Racing Commission. The authority of the Commission is set out in KRS 230.260. This Commission is deemed an independent agency of state government and consists of members appointed by the Governor. KRS 230.220. Although this membership statute does require not less than three members of the Commission to be breeders of Thoroughbred horses in Kentucky, you, as Cabinet Secretary, would not be a member of the Racing Commission. We do not see how any conflict can be said to exist from the fact you own an interest in Thoroughbred horses and hold an owner's license. If anything, your knowledge and interest in the Thoroughbred industry of the Commonwealth should be viewed as an asset you would bring to the Cabinet Secretary position.
Lastly, we consider the Department of Housing, Buildings and Construction. KRS 198B.030. A Commissioner is appointed by the Governor to head this Department. Id. A Board of Housing, Buildings and Construction is also appointed by the Governor. KRS 198B.020. After reviewing the provisions of KRS Chapter 198B we see no conflict of interest stemming from the mere fact you have an interest in buildings which would be covered by various codes generally supervised by the Department or Board of Housing, Buildings and Construction.
In light of all the above considerations, we do not believe you would have any statutory conflicts of interest resulting from your business interests if you are appointed Secretary for the Cabinet of Public Protection and Regulation. The term "conflict of interest" of a public officer is discussed in 67 C.J.S., Officers, Section 204, as follows:
"As a general rule, the term 'conflict of interest' refers to a clash between public interest and the private pecuniary interest of the individual concerned, and there is a conflict of interest when a public officer votes on a matter in which he has a direct personal and pecuniary interest. The interest which disqualifies is a personal or private one, not such an interest as the public officer has in common with all other citizens. According to some authority, in order to constitute a disqualification, the personal pecuniary interest of the official must be immediate, definite, and capable of demonstration, and may not be remote, uncertain, contingent and speculative . . . ."
The Kentucky Supreme Court, then Court of Appeals, settled on basically the same position in
Commonwealth v. Withers, 266 Ky. 29, 98 S.W.2d 24. The Court stated at pages 25 and 26 as follows:
"It is a salutary doctrine that he who is intrusted 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 municiple body is a partner or a corporation of which he is an officer, or sometimes only a stockholder or employee.
Byrne & Speed Coal Co. v. City of Louisville, 189 Ky. 346, 224 S.W. 883;
Douglas v. Pittman, 239 Ky 548, 39 S.W.2d 979. Furthermore, it is not material that the self-interest is only indirect or very small.
However, the interest is not sufficient to disqualify the officer if the opportunity for self-benefit is a mere possibility or is so remote or collateral, such as being only a debtor, that it cannot be reasonable calculated to affect his judgment or conduct in the making of the contract or in its performance. Dillon on Municipalities, § 773. Cf.
Collingsworth v. City of Catlettsburg, 236 Ky. 194, 32 S.W.2d 982."
Again, it is a significant fact that a Cabinet Secretary has no statutory occasion to vote on any matter coming before a Department, Board or Commission within the Cabinet, whether there is a direct personal and pecuniary interest or not. The task of carrying out the statutory substantive mandates are given to Commissioners or independently Governor appointed Board and Commission members. In conflict of interest considerations, the question to be resolved inevitably becomes whether the circumstances could reasonably be interpreted to show that they have the likely capacity to tempt the public officer to depart from his public duty. We see nothing in your situation which would or could fall into this category.
As a general caveat and words of admonition, we must advise you, if appointed as Secretary to the Cabinet for Public Protection and Regulation, to be ever on guard and constantly looking for the development of any situation arising from your personal business interests which would create a statutory conflict of interest. It may be necessary from time to time for you to particularly refrain from any involvement, even indirectly, in the consideration of matters before any one of the Departments, Boards or Commissions composing the Cabinet for Public Protection and Regulation. Also, in recognition of the authority of a Cabinet Secretary "to accept and expend funds from any source, whether public or private, in support of the duties and responsibilities of the related cabinet" under KRS 12.270(2), we point out Kentucky Constitution Section 173 and KRS 61.190. These latter two provisions prohibit any public officer from receiving directly or indirectly any interest, profits or perquisites arising from the use or loan of public funds in his hands or raised through his agency. Additionally, we invite your consideration of KRS 45A.340 as to prohibited procurement conflicts of interest of public officers and employees.
If you have any questions concerning the statutory provisions addressed in this opinion, please do not hesitate to contact us.