Request By:
Honorable William H. Cull
General Counsel
Wilkinson Enterprises, Inc.
500 Quality Place
300 E. Main Street
Lexington, Kentucky 40507
Opinion
Opinion By: David L. Armstrong, Attorney General; Walter C. Herdman, Assistant Deputy Attorney General
In your request for an Opinion, you initially ask this Office to review the following sections of the Constitution and statutes as well as the common law concerning their applicability, if any, to Mr. Wilkinson's financial ventures that may involve the state if and when he assumes the Office of Governor on December 8, 1987:
1. Section 173 of the Constitution;
2. KRS 61.190;
3. KRS 45A.340;
4. Common law conflict of interest principles.
We have concluded that all of the above referred to sections of the Constitution and statutes, as well as the common law rules that apply to conflicts of interest, would indeed be applicable to any person holding the Office of Governor.
Section 173 of the Constitution, concerning the receipt of profit or perquisites from the use or loan of public funds, refers to "any officer of the Commonwealth," and contains the provision that the receipt of such funds by such officer shall constitute a felony and an offense punishable as prescribed by law which shall include disqualification from holding office. The implementing statute referred to in this section is KRS 61.190, which contains the same basic language.
See
A & W Equipment Co. v. Carroll, Ky., 377 S.W.2d 895 (1964). We would thus construe this section of the Constitution referring to "officers of the Commonwealth" as referring to all officers, particularly those named in the Constitution, which would include the Office of Governor.
Thus, we would construe the disqualification from office provision in Section 173 as an additional constitutional disqualification to be considered along with the impeachment section, Section 68, of the Constitution and the general qualification section for Office of Governor under Section 72 of the Constitution. It is, of course, true that the legislature cannot add additional qualifications or disqualifications for constitutional officers not specifically recongnized in the Constitution as held in the case of
Hales v. Lagford, Ky., 446 S.W.2d 647 (1969). In
Broughton v. Pursifull, 245 Ky. 137, 53 S.W.2d 200 (1932), we find the following statement:
"'. . . the Constitution names the qualifications for a constitutional office, the legislature has no authority to prescribe additional qualifications, or to remove any of the requirements provided for in the Constitution, unless that instrument, expressly or by implication, gives the legislature such power.'"
However, the separation of powers principle enunciated in these cases would obviously not be applicable to the disqualification provision found in Section 173 of the Constitution, and for the matter the same disqualifying provision implemented in KRS 61.1908 which Section 173 mandated the legislature to enact, as the Broughton case points out. The appropriate enforcement mechanism for violation of Section 173 and its implementing statute, KRS 61.190, as against a Governor is the impeachment section, Section 68.
While it is our conclusion that Ky. Constitution § 173 and KRS 61.190 are applicable to a Governor, a reading of this Opinion will indicate that we have not applied § 173 or KRS 61.190 to any of the issues discussed herein. This is because no information has been submitted to us that would clearly warrant invoking these provisions. Only if and when Mr. Wilkinson becomes Governor and only if he ever receives any "interest, profit or perquisites arising from the use or loan of public funds in his hands" will the prohibitions of Ky. Constitution § 173 and KRS 61.190 possibly be violated.
We next consider the state conflict of interest statute, particularly KRS 45A.340(2) and (5), which provides:
"(2) No officer or employe of an agency or member of a state board or commission, may be in any manner interested, either directly or indirectly, in his own name or in the name of any other person, association, trust, or corporation, in any contract for the performance of any work in the making or letting or administration of which such officer or employe may be called upon to act or vote. No such officer or employe may represent, either as agent or otherwise, any person, association, trust or corporation, with respect to any application or bid for any contract or work in regard to which such officer or employe may be called upon to act or vote. Nor may any such officer or employe take, solicit or receive, either directly or indirectly, any money or other thing of value as a gift or bribe or means of influencing his vote or action in his official character. Any contract made and procured in violation hereof is void. For the purposes of this section the holding of less than five per cent (5%) of the stock of a corporation is not considered an interest.
* * *
"(5) No officer or employe of an agency or appointee shall knowingly himself or by his partners or through any corporation which he controls or in which he owns or controls more than ten per cent (10%) of the stock, or by any other person for his use or benefit or on his account, undertake, execute, hold or enjoy, in whole or in part, any contract, agreement, sale or purchase of the value of twenty-five dollars ($25) or more, made, entered into, awarded or granted by any agency, unless said contract, agreement, sale or purchase was made or let after public notice and competitive bidding. "
We believe KRS 45A.340(2) and (5) would apply to the Governor.
The term "agency" is defined under KRS 45A.335 to mean any department of state government. At the same time, KRS 12.020 as amended in 1986 lists the various departments of state government and provides the following:
I. Cabinet for General Government -- Departments Headed by Elected Officers:
1. The Governor
Thus it appears clear from the above that the conflict of interest statute would apply to the Office of Governor, a designated department of state government. As a consequence, OAG 60-242 is reaffirmed.
We also believe the common law rules governing conflicts of interest would equally apply to all public officers including the Office of Governor, irrespective of any statutory conflict of interest provision such as KRS 45A.340, unless the latter covers or contradicts the common law, as for example the bidding exception hereinafter referred to.
The common law is not repealed if there is no repugnancy between it and the statutes, and it does not appear that the legislature intended to cover the whole subject.
Commonwealth v. Ky. Distillery & Warehouse Co., 154 Ky. 787, 159 S.W. 570 (1913), and
Hill v. Halmhuber, 225 Ky. 394, 9 S.W.2d 55 (1928). See also
Commonwealth v. Do, Inc., Ky., 674 S.W.2d 519 (1984). Also, in construing a statute it will be presumed that the legislature did not intend to make any change in the common law beyond those clearly indicated by statute.
Alfrey v. Shouse, 163 Ky. 333, 173 S.W. 792 (1915).
At this junction we will point out certain basic common law conflict of interest principles by initially referring to McQuillin, Mun. Corps., Vol. 10, Sec. 29.97, where we find the general rule expressed as follows:
". . . It 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 antagon istic to his faithful discharge of a public duty, such contract will be held void as against public policy. . . ."
Next referring to the case of
Arms & Short v. Denton, 212 Ky. 43, 278 S.W. 158 (1925) we find:
"Public policy is defined to include and embrace all acts or contracts which tend clearly to injure the public health, the public morals, the public confidence in the purity of the administration of the law, or to undermine that sense of security of individual rights, whether of personal liberty or of private property, which any citizen ought to feel. 6 R.C.L. 712. . . ."
Also, referring to the case of
Commonwealth ex rel. Vincent v. Withers, 266 Ky. 29, 98 S.W.2d 24 (1936), we find the Court of Appeals stating that:
"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. . . ."
In 67 C.J.S., Officers, § 204, it is stated that a public office is a public trust and the officeholder may not use it directly or indirectly for personal profit or to further his own interest, since it is the policy of the law to keep an official so far from temptation as to insure his unselfish devotion to the public interest. See
Katz v. Brandon, Conn., 245 A.2d 579 (1968). Officers are not permitted to place themselves in a position in which personal interest may come into conflict with the duty they owe to the public. In addition, the following appears in 67 C.J.S., supra, at page 668:
"Whether a particular interest is sufficient to disqualify is a factual question, depending upon the circumstances of the particular case, and the question is always whether the circumstances could reasonably be interpreted to show that they had the likely capacity to tempt the official to depart from the sworn public duty. The public officer's personal advantage, pecuniary or otherwise, is one of the elements to be considered in determining whether a conflict of interest situation exists, but it is not the only test, and the officer's good faith is not of controlling importance. . . ."
In
Bracey v. City of Long Branch, 73 N.J. Super, 91, 179 A.2d 63 (1962), it is stated that, "The public is entitled to have its representatives perform their duties free from any personal or pecuniary interest which might affect their judgments. 'The law tolerates no mingling of self interest; it demands exclusive loyalty.'" A public officer may not place himself in a position where his private interest conflicts with his public duty.
Housing Authority of City of New Haven v. Dorsey, 164 Conn. 247, 320 A.2d 820 (1973); 63 Am.Jur.2d, Public Officers and Employees, §§ 280 and 281; McQuillin, Mun. Corps., Vol. 3, § 12.130.
We also might point out here that under the common law rule the awarding of a contract on a bid basis would not relieve the officer from being subject to a conflict of interest. The case involving the bidding question as it relates to the common law is
Arms & Short v. Denton, supra. However, this common law principle would be negated by the contract is let on a bid basis (unless KRS 45A.340(2) is applicable to the particular situation).
Here we might point out the possibility that any contracts existing before Mr. Wilkinson, if elected, enters office that remain unchanged during his term would not create a common law conflict of interest as held in
Collingsworth v. City of Catlettsburg, 236 Ky. 194, 32 S.W.2d 982 (1930) from which we quote the following:
"The interest must exist at the time the contract is made. If at the time a contract is executed no officer of the city has a pecuniary interest in it, it is valid and it will not be invalidated merely because an officer subsequently acquires an interest therein, provided there is no evidence of any conspiracy or criminal understanding between the contractor and the city officer at the time the principal contract was entered into."
On the other hand, KRS 45A.340(5), which requires all contracts between a state officer and a state agency be let on a competitive bid basis, may prohibit the continuation of such contracts during his term unless executed on a competitive basis prior thereto, since the statute contains the words "or holds or enjoys such contract." This language has not previously been subject to court interpretation.
Furthermore, as to contracts existing prior to the next administration, if Mr. Wilkinson becomes Governor and as such may be called upon to act or vote as to the administration of a state contract in which he or his corporation is interested, such contract may become void under the terms of KRS 45A.340(2).
Given this discussion of the relevant conflict of interest law, we will now seek to apply this law to the issues you have presented.
We will begin by listing the various businesses controlled by Mr. Wilkinson, followed by a discussion of the issues presented as to each business:
1. The Capital Plaza Hotel;
2. Wilkinson Flying Service;
3. Bowling Green Bank and Trust;
4. New Farmers National Bank of Glasgow;
5. Numerous farms in Central Kentucky;
6. Coal Investments;
7. Park Plaza, an apartment complex currently under construction in Lexington;
8. Nandino Properties, including several warehouses on Nandino Boulevard in Lexington;
9. Wallace's College Bookstore;
10. Quality Place, an office building in downtown Lexington;
11. Executive Park, a planned office building development in Fayette County.
State Bank
We first refer to your inquiry as to whether there is any inherent conflict of interest involved with Mr. Wilkinson's ownership of the Bowling Green Bank & Trust Company, a state chartered bank. State-chartered banks are closely regulated (KRS Chapter 287), and pursuant to KRS 287.011 and 287.020, the Commissioner of the Department of Financial Institutions is head of the Department responsible for regulation of all state chartered banks. The Commissioner is appointed by the Governor.
While there probably is no inherent conflict of interest involved in ownership of a state bank and taking office as Governor, it appears there would be potential conflict of interest during the course of a four year term. For example, under KRS 287.450 the Commissioner must see that an examination of each state bank is performed at least every 24 months to determine whether the state bank has failed to comply with the state laws and regulations relating to banks. To the extent regulation and examination of Bowling Green Bank and Trust revealed or should have revealed a violation of law, an illegal conflict of interest would exist. In this situation, if Mr. Wilkinson were Governor and appointer of the Commissioner, he would be in a position in which his private interest may conflict with his public duty. See Dorsey, supra.
Given the potential conflict of interest, it is recommended that if Mr. Wilkinson wins the November election, he take the necessary steps to convert the bank to a federally chartered one.
Flying Service
You next refer to the Wilkinson Flying Service and present the following facts for consideration:
". . . Wilkinson Flying Service (WFS) has FAA approval to act as a commercial charter service. We currently do business with the Commonwealth upon call by Air Transport.
"Only when Air Transport calls the Flying Service and charters an aircraft is there a business transaction. In this event, absent competitive bidding, is it an inherent conflict for Wilkinson Flying Service to do business with the Commonwealth? With competitive bidding, and an award to WFS, may Mr. Wilkinson as Governor fly on the aircraft?"
Under the above facts (which assume that Mr. Wilkinson is elected and takes office as Governor) and based upon the previously cited law [KRS 45A.340(5)] the state could not, in our opinion, execute contracts with the Wilkinson Flying Service unless such contracts were based on competitive bidding in compliance with KRS 45A.340(5) or KRS 45A.080. If contracts for flying service are awarded to his company as a result of competitive bidding, we see no legal objection to Mr. Wilkinson, as Governor, utilizing his flying service for official business. However, we note that the current practice is for the state to not utilize competitive bidding when obtaining air transportation.
Regardless, another relevant factor that should be considered as to this matter is concern for avoiding even the appearance of impropriety.
Executive Park and Quality Place
Your next question involves the activities of the Executive Park and Quality Place, Wilkinson enterprises concerning which you relate the following facts:
". . . Wilkinson Enterprises is a real estate development firm which currently is marketing commercial lots at Executive Park and leasing office space at Quality Place. The question arises as to whether our firm has a conflict if it sells or leases to companies doing business with the state. Two companies, E. F. Hutton and Citizens Fidelity Bank, who lease and own, respectively, have historically done State business. Please advise as to any legal conflict, and suggest reasonable remedial action for even the appearance conflict."
Based on the bare details cited above which do not indicate any contractual involvement between the state and Wilkinson Enterprises, a statutory conflict under KRS 45A.340(5) would not apply. Also, the fact that Wilkinson Enterprises sells or leases properties to companies that in turn contract with the state would not appear to pviolate the common law principles. Referring to McQuillin, Mun. Corps., Vol. 10, Sec 29.97, we quote the following text:
"The interest of an officer which renders void a contract with a city is a present, personal and pecuniary interest. "
Referring to 67 C.J.S., Officers, Sec. 204, it is stated that:
". . . 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. . . ."
We also refer you to
Commonwealth v. Withers, supra, and
Chadwell v. Commonwealth, 288 Ky. 644, 157 S.W.2d 280 (1941).
Farms, Coal Investments, Warehouses, National Bank
Your reference to Mr. Wilkinson's ownership of numerous farms in central Kentucky, coal investments and the Nandino property which includes several warehouses does not indicate any contractual relationship with state government. Any such contracts would, of course, be governed by KRS 45A.340(5).
No facts have been presented to us regarding these holdings that would indicate an illegal conflict of interest should Mr. Wilkinson assume office as Governor.
As to the New Farmers National Bank of Glasgow, since it is federally, not state, chartered there is no state regulation of this Bank and therefore no conflict of interest issue to consider.
Bookstore
With reference to Wallace's College Bookstore and possible sales to or agreements with any state agency, including state universities, all such contracts, if Mr. Wilkinson becomes Governor, must be executed on a bid basis as provided in KRS 45A.340(5).
Capital Plaza Hotel
As to the Capital Plaza Hotel (Hotel) , you report that the state is the primary user of the Hotel, and you ask whether this substantial linkage would constitute an inherent legal conflict.
If and when Mr. Wilkinson takes office as Governor, it will be inevitable that state employees and state agencies will continue to expend state funds for use of Hotel rooms and Hotel conference areas on a daily basis. While these daily transactions will typically exceed $25 each, these transactions will not involve competitive bidding. Therefore, these transactions may involve an illegal conflict of interest in violation of KRS 45A.340(5), as quoted above, unless the Department of Finance finds in complying with KRS 45A.080 that one of the other statutory means enumerated under Chapter 45A by which state contracts may be executed, would be applicable.
You have asked whether a lease of the Hotel for a fixed sum to a manager would avoid Mr. Wilkinson having a conflict of interest as Governor when state agencies use the Hotel. While this proposed leasing arrangement may make the conflict of interest less direct and thus arguably not a violation of KRS 45A.340(5), at the least it appears that the common law conflict of interest principles may be violated (see pp. 4-8 above). To the extent the lessee does well, Mr. Wilkinson would do well, as at least the market value of the Hotel, the ability to operate the Hotel after the lease agreement expires, and full performance of the lease agreement would be at stake. A public officeholder may not use his office directly or indirectly for personal profit or to further his own interest, since it is the policy of the law to keep an official so far from temptation as to insure his unselfish devotion to the public interest. See, 67 C.J.S., Officers, § 204, and
Katz v. Brandon, Conn., 245 A.2d 579 (1968).
As to the role of the Governor to request continued appropriation to fund the bond debt service relating to the Capital Plaza Complex, including the Hotel, this would not seem to constitute an illegal conflict of interest for Mr. Wilkinson if he is Governor. The Commonwealth's commitment as to these bonds was made prior to the next administration and is an existing obligation of the Commonwealth to the purchasers of the state's economic development bonds. The Commonwealth's reputation in the bond market is at stake, and it is a routine duty of the Governor to seek such continued debt service appropriation.
Finally as to the Hotel, you report that Wilkinson Enterprises manages the Conference Center (the public areas of the Hotel) , which was financed by state economic development bonds, pursuant to an annually renewable agreement. You inquire as to whether this arrangement may be continued.
In response, we note KRS 45A.340(2), quoted above, which in effect prohibits the Governor, as a state officer or member of a state board or commission, from being even indirectly interested in the making or the administration of a contract for the performance of any work as to which he may be called upon to act or vote. Pursuant to KRS 58.215 the Governor is Chairman of the Capital Plaza Authority (Authority), and pursuant to KRS 56.450 the Governor is Chairman of the State Property and Buildings Commission (Commission), both of which to our understanding are parties involved in the annually renewable agreement. In his capacity as Chairman of the Authority and/or the Commission, the Governor may be called upon to act or vote on such matters as whether to renew or cancel the agreement and/or whether to take action for any breach of the agreement. As a result, if Mr. Wilkinson becomes Governor, his continued interest in the administration of the renewable agreement and his positions as Chairman of the Authority and the Commission, concerning which he may be called upon to act or vote, would violate the terms of KRS 45A.340(2).
In sum, a conflict of interest in violation of KRS 45A.340 may be unavoidable if Mr. Wilkinson becomes Governor, unless the Hotel is sold. Regarding this you have advised that the Hotel has been placed on the market.
Park Plaza
The information you have provided indicates that Park Plaza is an apartment complex located in Lexington and financed through multi-family housing bonds. These bonds were issued by the Urban County Government and approved by the state.
You further report that the parking structure which sits under the Park Plaza Apartment Complex is owned by the Commonwealth and it is to serve Park Plaza, the new public library, and the general public in downtown Lexington.
Regarding this situation, you first ask whether the Governor's role to request continued appropriation to fund the bond debt service on the parking garage would constitute an illegal conflict of interest for Mr. Wilkinson if he is Governor. The same reasoning applied to this issue above regarding the Hotel applies here. As a result, this does not appear to involve an illegal conflict of interest.
However, there may be a problem with the management arrangement for the parking structure. By agreement, the Commonwealth calls upon Park Plaza, a partnership owned primarily by Mr. Wilkinson, to manage the parking structure.
KRS 45A.340(2), which was previously discussed in relation to the Hotel, would in effect prohibit Mr. Wilkinson, as Governor and Chairman of the State Property and Buildings Commission, from being interested in the making or administration of a contract for the management of the parking structure as to which he may be called upon to act or vote. In his capacity as Chairman of the Commission, Mr. Wilkinson may be called upon to act or vote on such matters as whether to renew or cancel the agreement and/or whether to take action for any breach of the agreement. Therefore, if Mr. Wilkinson becomes Governor, his interest in the administration of the parking structure management agreement and his position as Chairman of the Commission, concerning which he may be called upon to act or vote, would violate the terms of KRS 45A.340(2).
Given this conclusion, it seems that a conflict of interest in violation of KRS 45A.340 is probably unavoidable if Mr. Wilkinson becomes Governor, unless Mr. Wilkinson's partnership withdraws from the parking structure management agreement.
Blind Trust
Finally, you inquire as to whether creation of a "blind trust" and the placement therein of Mr. Wilkinson's "state-related assets" would solve the potential conflicts. We know of no reference to blind trusts in Kentucky law. In contrast, by federal law assets placed in a qualified blind trust by a federal official are considered his or her financial interests for purposes of any conflict of interest statutes until the trustee disposes of such assets and notifies the federal officeholder (or the assets fall below a value of $1,000). Thus, the trust is considered blind only as to assets subsequently purchased by the trustee. See 5 C.F.R. § 734.401(b)(3).
Likewise, if Mr. Wilkinson were to elect to create a blind trust for his "state-related assets," it would seem that any illegal conflicts or potential conflicts of interest, as discussed above, would continue to exist until the trustee disposed of those assets and then so notified Mr. Wilkinson. Until that time, Mr. Wilkinson would continue to "knowingly hold" for his benefit the certain contracts or agreements that would be proscribed by KRS 45A.340(5), as previously discussed. As a result, in terms of seeking to avoid a violation of KRS 45A.340(5), it does not appear that creation of a blind trust would provide a quicker resolution of the problem. Either way, the problem is not resolved until the Hotel is sold.
CONCLUSION
Given the length of this Opinion, we provide the following summary of the conclusions we have reached as to the issues raised:
1. Kentucky Constitution § 173, KRS 61.190, KRS 45A.340, and the common law rules that apply to conflicts of interest are applicable to anyone holding the Office of Governor.
2. Ownership of a state bank and holding office as Governor would involve a potential conflict of interest.
3. There appears to be no violation of law involved if a Governor owns a flying service company which is awarded a state contract as a result of competitive bidding.
4. If Mr. Wilkinson becomes Governor, there will be no illegal conflict of interest if companies which traditionally contract with the state have purchased or leased properties from Wilkinson Enterprises.
5. As to the farms, coal investments, warehouses and National Bank owned by Mr. Wilkinson, no facts have been presented which would indicate an illegal conflict of interest should Mr. Wilkinson assume office as Governor.
6. If Mr. Wilkinson becomes Governor, any possible sales or agreements by Wallace's College Bookstore to or with any state agency must be on a competitive bidding basis as required by KRS 45A.340(5) and KRS 45A.080.
7. If Mr. Wilkinson becomes Governor, it will be inevitable that state employees and agencies will continue to expend state funds for the use of the facilities of the hotel, and while these transactions will typically exceed $25 they will not involve competitive bidding and thus probably violate the provisions of KRS 45A.340(5) and KRS 45A.080.
8. Leasing the Capital Plaza Hotel for a fixed sum to a manager may not avoid Mr. Wilkinson having a conflict of interest as Governor when state agencies use the Hotel.
9. As to the role of the Governor to request continued appropriation to fund the bond debt service relating to the Capital Plaza Complex, including the Capital Plaza Hotel, and the Park Plaza parking structure, this would not appear to constitute an illegal conflict of interest for Mr. Wilkinson if he is Governor.
10. If Mr. Wilkinson becomes Governor, his interest in the administration of the management agreement for the Conference Center in the Capital Plaza Hotel and his positions as Chairman of the Capital Plaza Authority and Chairman of the State Property and Buildings Commission would probably make a violation of the terms of KRS 45A.340(2) unavoidable.
11. In reference to the Capital Plaza Hotel, unless the Hotel is sold, a conflict of interest in violation of KRS 45A.340 may be unavoidable if Mr. Wilkinson becomes Governor.
12. KRS 45A.340(2) would prohibit Mr. Wilkinson, as Governor and Chairman of the State Property and Buildings Commission, from being interested in the making or administration of a contract for the management of the Park Plaza parking structure as to which he may be called upon to act or vote.
13. If Mr. Wilkinson becomes Governor, creation of a "blind trust" would not satisfy the mandates of KRS 45A.340(5) until the Capital Plaza Hotel is sold. Therefore, there is probably no advantage for Mr. Wilkinson in creating a blind trust, as either way the problem is not resolved until the Hotel is sold.