Request By:
Thomas H. Lyons, counsel for University of Louisville
Opinion
Opinion By: A. B. Chandler III, Attorney General; Ross T. Carter, Assistant Attorney General
Opinion of the Attorney General
The University of Louisville is considering a proposal to hire Medical Assessment Center, Inc., to provide professional services to the university. This corporation is owned by Dr. Sy Auerbach, whose wife, Mynx, is a member of the university's board of trustees. Our opinion has been sought in order to resolve legal questions that arise because of the spousal relationship between the trustee and the contractor.
Our attention is directed specifically to KRS 45A.340(7), which states:
No member of a board of trustees or regents shall have an interest in any contract with a state university unless such contract shall have been subjected to competitive bidding in compliance with KRS Chapter 45A, unless such trustee or regent shall have been the lowest bidder and unless such trustee or regent shall have first notified in writing the remaining members of the board, and to the newspaper having the largest circulation in the county in which the university is located, of his intention to bid on such contract.
Two issues confront us: whether Minx Auerbach has an interest in the contracts of her spouse, and whether KRS 45A.340(7) applies in situations that do not otherwise require a contract to be publicly bid.
1. Contracts between government agency and spouse of public officer
We have dealt with this subject before. In OAG 91-110 we stated the general rule that statutes dealing with disqualifying interests of a public officer do not apply to interests of the officer's spouse. We noted that this is the majority view in the United States. We have reexamined our conclusion in OAG 91-110 and although today we depart slightly from the analysis in that opinion, we reaffirm the soundness of its conclusion.
In OAG 91-110 we cited various authorities supporting the view that a spousal relationship, or indeed any family relationship, is not in itself sufficient to taint a contract between the government and the spouse of a public official. We considered a case from Missouri, Githens v Butler County, 165 SW 2d 650 (Mo 1942), as representing the minority view. Further reflection reveals that Githens is in accord with the general principle rather than in conflict with it. The case involved the sale of land from a county to the spouse of the county judge. The court upheld a setting aside of the contract as a conflict of interest. The court cited two aspects of the marital relationship that united the wife's interest in the property with her husband's: the husband's legal obligation to support the wife, and the husband's dower interest. While courts today might disagree on the importance of the first reason, the second reason remains sound. The husband's dower interest automatically gave him a pecuniary interest in the property conveyed; that is, even though the wife purchased the land in her own name and with her own funds, a definable interest in that land passed immediately to her husband by operation of the real property laws.
We believe that Githens v Butler County does not depart from the majority view; rather, it deals specifically with conveyances of real property and correctly observes that in such transactions the interest of one spouse in the other's property is direct, certain, and measurable. The case does not hold that as a general matter all property interests of one spouse belong to the other spouse. We are not aware of any court that has taken such a position, community property states excepted.
Cases subsequent to Githens have reflected the dominant view that a marital relation in itself is insufficient to taint a contract with the spouse of a public official. In People v Simpkins, 45 Ill App 2d 202, 359 NE 2d 828, 833 (1977), the court found no conflict when a mayor's wife worked for the city. The court observed, "In almost every instance when the question has been presented to the courts of the various jurisdictions, the mere fact of relationship, without more, has been held to have no disqualifying effect." The court considered Githens and similar cases and concluded, "We think none of these cases weakens the general rule that the wife's interest is not necessarily the husband's interest, provided the contract is not a mere subterfuge for his own pecuniary interest. "
In Coyne v State ex rel Thomas, 595 P 2d 970, 974 (Wyo 1979), a case involving school trustees whose spouses were school employees, the court observed, "A majority of the courts have held that family relationship, without more, does not disqualify an officer from acting on a matter involving the relative." The court reversed a ruling that ousted the trustees from office.
In Forster v Delton School District, 176 Mich 582, 440 NW 2d 421, 424 (1988), suit was brought against a school district officer who negotiated a contract with teachers while his spouse was a teacher in the district. The court upheld the officer's actions, observing, "If the Legislature intended to preclude a public officer or employee from participating in contract negotiations under which their spouse might be one of the several beneficiaries, it could have expressly provided for such a situation by inserting the word 'spouse' in the statute."
As we pointed out in OAG 91-110, a disqualifying interest must be personal and pecuniary. For example, in Woodward v City of Wakefield, 236 Mich 417, 210 NW 322 (1926), the court invalidated a contract between a city and the wife of the mayor where the wife did not participate in the household's business affairs and considered her husband to be acting as her agent in the transaction. Because we are not sitting as a tribunal and can make no findings of fact, we cannot determine whether Minx Auerbach has in fact an interest in Medical Assessment Center, Inc. We rely on the parties to make candid disclosure of the facts and reasonable assessment of those facts. That process should be simplified now that we have clarified that the marital relationship by itself is not dispositive in this inquiry.
2. Application of KRS 45A.340(7)
The subsection in question establishes three rules that apply when a university trustee or regent has an interest in a proposed contract with the university:
. The contract must be subjected to competitive bidding in compliance with chapter 45A.
. The trustee or regent must be the lowest bidder.
. The trustee or regent must notify the board and the largest local newspaper of his intention to bid on the contract.
Obviously these rules presume that the contract will be reached through regular competitive bidding. But chapter 45A does not always require competitive bidding; in certain situations procurement may be made by competitive negotiation (KRS 45A.085) or noncompetitive negotiation (KRS 45A.095). Particular rules apply to personal service contracts (KRS 45A.695). The contract with Medical Assessment Center, Inc. is for personal services and, were a trustee not involved, would be exempt from the bidding requirements of chapter 45A. The question before us is whether KRS 45A.340(7) removes that exemption and requires the contract to be bid or, stated another way, whether it prevents a trustee or regent from participating in all procurements that are effected by means other than competitive bidding.
In OAG 87-65 we addressed another subsection of KRS 45A.340. Subsection 5 prohibits state officers from having contracts with the state "unless said contract, agreement, sale or purchase was made or let after public notice and competitive bidding. " We said that the restrictions in KRS 45A.340(5) do not apply when contracts are made through means other than competitive bidding. If we follow the thinking of OAG 87-65 to the subsection before us, KRS 45A.340(7), we must conclude that it does not apply when the contract is not publicly bid.
We decline to do this. While we do not overrule OAG 87-65 and do not propose a new construction of subsection 5, we believe the logic of OAG 87-65 is not sufficiently sound to warrant its extension to other subsections of KRS 45A.340.
Our reasoning is simple. Public bidding is without doubt the most open and collusion-free of the available methods of procurement. Other methods, such as competitive negotiation, provide needed flexibility at the cost of strict objective evaluation of competing contractors. Subsection 7 places some strict restraints on the procurement method that is already the most strict. We do not believe that those constraints should be less applicable when a more liberal procurement method is chosen; if anything, one would expect more restrictions, not fewer, as the procurement method slides farther away from highly objective, highly scrutinized public bidding. If collusive contracts with trustees cannot be prevent by the ordinary safeguards of competitive bidding, then there is no reason to believe that they can be prevented by the more lenient safeguards applicable to other procurement methods.
Subsection 7 plainly states that the contract must be subjected to competitive bidding. It does not say "unless a different method is authorized by statute," words that we supplied when construing subsection 5 and that we refuse to supply here. Just as the court in Forster v Delton School District was unwilling to insert the word "spouse" into a statute, we are unwilling to insert words into KRS 45A.340(7) . We construe KRS 45A.340(7) as allowing a trustee or regent to contract with the university only when the procurement is done by competitive bidding. Trustees and regents may not participate in other types of procurements.
3. Conclusion
If Minx Auerbach has some personal and pecuniary interest in Medical Assessment Center, Inc., then Dr. Sy Auerbach may not be awarded a personal services contract with the university. The university, on behalf of the Commonwealth, must conduct a reasonable inquiry in order to make this determination. While it may be difficult for Minx Auerbach to demonstrate no interest, direct or indirect, in the corporation, this is a fact finding process for the university to resolve. We recognize the delicacy of this task, involving as it does the flow of funds within the Auerbach household as well as the management, direction, and control of the corporation. Nevertheless, given the consequences of KRS 45A.990(3), all parties will benefit from a candid and good-faith disclosure of the facts.