Public Officers and Employees; Conflict of Interest

Subject:

Requested By: James F. Creekman Attorney for Trend Community Mental Health Services

Question: Does G.S. 14-234 prohibit members of the Trend Community Mental Health Services from serving as members of the Board of Directors of Trend Foundation, Incorporated?

Conclusion: No.

Trend Community Mental Health Services, hereinafter referred to as Trend, is an Area Mental Health, Mental Retardation and Substance Abuse Authority established under the provisions of Article 2F, Chapter 122, North Carolina General Statutes, to serve the mental health needs of two counties. Trend Foundation, Incorporated, hereinafter referred to as the Foundation, is a nonprofit corporation created to facilitate the delivery of mental health services within the same catchment area by, among other things, effectively utilizing funding provided in accordance with

G.S. 122-35.53(b). The Trend board selects all members of the Board of Directors of the Foundation, and, in practice, it is contemplated that at least some of the board members of Trend will be appointed as directors of the Foundation.

Review of the Articles of Incorporation and the By-Laws of the Foundation reveals several very significant provisions:

(1)

No part of the net earnings may be paid to the directors, employees, etc. of the Foundation except that the Foundation may pay reasonable compensation for services rendered.

(2)

The directors serve without compensation.

(3)

Upon dissolution, the directors are prohibited from distributing any of the corporate assets to themselves.

G.S. 14-234, as pertinent here, provides as follows:

"(a) If any person appointed or elected a commissioner or director to discharge any trust wherein the State or any county, city, or town may be in any manner interested shall become an undertaker or make any contract for his own benefit, under such authority, or be in any manner concerned or interested in making such contract, or in the profits thereof, either privately or openly, singly or jointly with another, he shall be guilty of a misdemeanor."

This Office has previously issued two published opinions dealing with situations similar to the one presented here. The first of those opinions, dated January 18, 1980, appears at 49 N.C.A.G.

102. The other opinion, dated September 15, 1980, appears at 50 N.C.A.G. 12.

In the former opinion, it was concluded that no violation of G.S. 14-234 existed, based upon the following rationale:

"The request for opinion . . . states that the corporate directors receive no remuneration or other thing of value for their services as such, and, further, that neither the directors nor any member of their immediate families will realize any direct or indirect personal benefit by reason of the contractual or other relationships between the non-profit corporation and the County Department of Social Services. Upon these facts, there is no violation of G.S. 14-234." (Opinion cited at page 107.)

However, in the later opinion issued in September, a contrary conclusion was reached. There, the conclusion was based upon a premise that personal pecuniary gain is not a prerequisite to finding a conflict of interest under G.S. 14-234. Under the rationale of the September opinion, the key factor in determining whether G.S. 14-234 is violated is whether the official would be placed in a position which would be inconsistent with his duties as a public official. However, it was fairly recognized in the September opinion that there are no North Carolina recorded decisions dealing with non-profit corporations nor are there any North Carolina decisions which have found a conflict of interest to be present where there is no pecuniary interest or possibility thereof vis-avis the public official and the contracting party.

G.S. 14-234 is a criminal statute; as a result, its language must be strictly construed. Literally taken, the language of the statute does not comport with levying criminal culpability in situations wherein, at a minimum, the possibility of personal gain to the official is not present. Under the facts presented here, there is no such possibility of personal gain. Additionally, under the facts here, there is no apparent danger that the area board member will be placed in a position inconsistent with his official duties by virtue of being a director of the non-profit corporation. Perhaps the best evidence of this is found in the portion of the By-Laws of the Foundation dealing with the purposes of the corporation. Therein it is stated that the corporation is organized:

"Exclusively for the benefit of, to perform the functions of, and to carry out the purposes of Trend Community Mental Health Services, a local governmental entity created by the laws of the State of North Carolina for the purpose of the delivery of mental health and mental retardation services to the citizens and residents of Henderson and Transylvania Counties, North Carolina."

In view of all of the factors involved, it must be concluded that the holding of the two positions described in the question presented here falls outside the purview of the criminal proscriptions of

G.S. 14-234. Any language or opinion contrary to this conclusion which is found in the prior Opinion of the Attorney General promulgated at 50 N.C.A.G. 12 is expressly withdrawn.

Rufus L. Edmisten Attorney General William F. O’Connell Special Deputy Attorney General