Reply To: Ann Reed Administrative Division
(919) 716-6800 (fax)919-716-6755
June 24, 1999
William Owen Cooke Cooke & Cooke Attorneys At Law First Citizens Bank Building 100 South Elm Street Greensboro, North Carolina 27401
RE: Advisory Opinion: Conflict of Interest; Transactions Between Public Officials and Banks; N.C.G.S. § 14-234(a) and (c1)
Dear Mr. Cooke:
In your letter of June 17, 1999, you request our opinion concerning whether a conflict of interest may arise between the Piedmont Triad Airport Authority and two members of its Board of Directors if the Authority decides to re-fund some of its outstanding bonds, which will likely involve entering into a contract with a financial institution to underwrite the issuance of such bonds.
The facts set out in your letter are briefly summarized as follows. Piedmont Triad Airport Authority is considering re-funding some of its outstanding bonds. If the Authority decides to proceed, it will solicit bids from various financial institutions. Among the members of the Authority’s Board of Directors are the Senior Executive Vice President and General Counsel of one banking institution (referred to as Director A and Bank A) and a member of the board of directors of another banking institution (referred to as Director B and Bank B). Banks A and B are likely to submit proposals to the Authority to provide underwriting services.
Your questions concern the participation of Directors A and B in this process. You have asked six separate questions. The first is whether, except for the proviso to the statute, Director A would violate N.C.G.S. § 14-234(a) if the Authority awarded a contract to Bank A, assuming Director A disclosed his interest and did not vote on the award. Your letter does not indicate that Director A is an owner of Bank A, and we have assumed for purposes of this response that he does not own as much as 10% of Bank A. N.C.G.S. § 14-234(c1) provides:
The fact that a person owns ten percent (10%) or less of the stock of a corporation or has a ten percent (10%) or less ownership in any other business entity or is an employee of said corporation or other business entity does not make the person “in Mr. Cooke June 25, 1999 Page 2
any manner interested” or “concerned or interested in making such contract or in the profits thereof,” as such phrase is used in subsection (a) of this section, and does not make the person one who “had a financial association,” as defined in subsection (c) of this section; provided that in order for the exception provided by this subsection to apply, such undertaking or contracting must be authorized by the governing board by specific resolution on which such public official shall not vote.
Assuming that Director A owns 10% or less of Bank A, as long as he discloses his interest and the Authority Board passes a specific resolution on which Director A does not vote, our answer to question 1 is no.
Your second question is whether the proviso contained in N.C.G.S. § 14-234(a) would apply even if the answer to question 1 were yes. That proviso reads, in relevant part: “Provided, that this section shall not apply to public officials transacting business with banks or banking institutions…” Though our answer to question 1 is no, it may be helpful to you to know that in our opinion the proviso does apply to the contemplated transaction.
Your third question is whether the Authority may enter into a valid contract for underwriting services with Bank A or a group of which Bank A is a member if Director A discloses his interest in Bank A and refrains from voting on the award. The further proviso to N.C.G.S. § 14-234(a) states: “Provided further, that such undertaking or contracting shall be authorized by said governing board by specific resolution on which such public official shall not vote.” Thus, even if Director A owns 10% of Bank A, as long as the Authority board authorizes the undertaking by a specific resolution on which Director A does not vote, the contract will be valid.
Your fourth, fifth and sixth questions ask these same three questions with regard to Director B and Bank B. Our answers are the same as above.
If you have any additional questions, or if this office can be of additional assistance to you or the Authority, please do not hesitate to call.
Sincerely,
Ann Reed Senior Deputy Attorney General
AR