Person Serving on Both Board of Health and Nonprofit Board

Subject:

Requested By: Cliff Swindell County Manager Hyde County

Question: Does G.S. 14-234 prohibit a person from serving both on the Hyde County Board of Health and the Hyde Rural Health Corporation Board of Directors?

Conclusion: Yes.

The Hyde Rural Health Corporation is a nonprofit corporation. The corporation and the Hyde County Board of Health cooperate in providing health services to the residents of Hyde County. The corporation and the health department share the same facility. The corporation provides services to the health department, such as laboratory services, x-rays, instrument sterilization, and milk analysis. The corporation chargers for some services. Patients are referred from one agency to another.

G.S. 14-234 prohibits a public official from (i) becoming an undertaker with the governmental agency which he serves, (ii) making any contract for his own benefit with the agency which he services, or (iii) being "in any manner concerned or interested in making such contract, or in the profits thereof, either privately or openly, singly or jointly with another." This Office has recently concluded that "a public officer, who is either a stockholder or officer of a corporation which enters into a contractual relation with the officer or the public body of which he is a member, violates a statute which prohibits such public officer from having a direct or indirect interest in any such contract, and is also against public policy as declared by the common law," (Opinion to John F. Kime, Town Manager, Liberty, 48 N.C.A.G. 68 (1978)). The present question is whether the same construction of G.S. 14-234 applies to a board member of a nonprofit corporation. n1

n1 The 1979 exception to the prohibition of G.S. 14-234 for small towns and counties only applies to certain contracts between the physician, pharmacist or dentist board member himself and the board on which he serves.

"A contract made by a public officer is against public policy, and unenforceable, if it interferes with the unbiased discharge of his duty to the public in the exercise of his office, or if it places him in a position inconsistent with his duty as trustee for the public or even if it has a tendency to induce him to violate such duty." Am. Jur. 2d, Public Officers and Employees, s. 308.

The above quotation illustrates that the conflict of interest prohibited by the common law need not be a pecuniary one. G.S. 14-234 refers both to the profits of a contract and to "any manner (by which the public official may be) concerned or interested in making such contract." In Miller

v. City of Martinez, 82 P. 2d 519, 523 (1938), the court stated that:

"It would thus appear that the "interest" need not involve any direct financial gain upon the part of the public official. It may be an interest which would prevent him from exercising absolute loyalty and undivided allegiance to the best interest of the municipality he serves. He should be absolutely free from any influence other than that which may grow out of the obligations he owes the public."

Although Miller dealt with an employee of a for profit corporation, the court was concerned not with pecuniary profit to the employee but with divided loyalty and questionable independence in exercising his public trust. As often stated by our Supreme Court, "No man can serve two masters." Lexington Insulation Company v. Davidson County, 243 N.C. 252, 254, 90 S.E. 496 (1955).

Although the cases address instances where there is a pecuniary interest or a possibility of pecuniary interest vis-a-vis the public official and the contracting party, it is the opinion of this Office the provision of G.S. 14-234 are applicable to instances where the relationship between the board member and the contracting party prevent the official from "exercising absolute loyalty and undivided allegiance to the best interest of the (agency) he serves." Miller, supra. The board of directors manage the affairs of the corporation, whether it be profit or nonprofit. See G.S. 55A-19. Although it may not be the usual practice, nonprofit corporations "may pay compensation in a reasonable amount to its members, directors, or officers for services rendered. . . ." G.S. 55A-28. One’s responsibility for management of Hyde Rural Health Corporation and one’s responsibility on the Hyde County Board of Health (see G.S. 130-17(e)) will inevitably present occasions where the interests of both organizations and therefore one’s loyalty to both organizations will be in conflict.

Rufus L. Edmisten Attorney General

Robert R. Reilly Assistant Attorney General