AO 99-014

July 7, 1999

Mr. Daniel F. McLawhorn

General Counsel

Department of Environment and Natural Resources

Raleigh, North Carolina 27611-7687

Re: Coastal Resources Commission (AO-99-014)

Ethics Advisory Opinion Requests

1. Request from Daniel F. McLawhorn, General Counsel, NCDENR, dated 3/18/99

2. Request from Derb S. Carter, Jr., Senior Attorney, Southern Environmental Law Center, dated 3/24/99,through Daniel F. McLawhorn

Dear Mr. McLawhorn:

As you know, this is the third preliminary advisory opinion addressing the above-referenced requests.1 Because of the questions, concerns, and apparent confusion surrounding the previous responses, I believe it is best to "wipe the slate clean" and start afresh. Consequently, the opinions dated March 22, 1999 (AO-99-006), and April 27, 1999 (AO-99-009), are rescinded and hereby superseded by this preliminary advisory opinion.2

The following preliminary advisory opinion is issued by the staff of the Board of Ethics ("BOE" or "the Board") according to the Board's "Rules and Regulations" and may be relied upon until and unless it is formally modified or rescinded by the full Board. Once the Board formally approves, modifies, or otherwise disposes of the preliminary opinion, all pertinent parties will be so notified.

All advisory opinions, both preliminary and final, are based upon the particular facts presented and issues raised in the specific request for an advisory opinion. As such, the scope of each opinion is limited to the request made and should only serve as a recommendation to the particular parties involved. It may, however, serve as a general guide to other individuals similarly situated.

I understand the basic facts to be as follows. Members of the Coastal Resources Commission ("CRC" or "the Commission") are appointed pursuant to N.C.G.S. §113A-104. By statute, most of its members are required to have certain backgrounds or fields of expertise. This includes one member "who at the time of appointment [is] actively associated with a State or national conservation organization." Two Commission members are active board members of conservation and/or environmental advocacy groups that appear regularly before the Commission. Such groups often take positions in matters under consideration by the Commission. One of the two Commission members is also a member of the national board of a public interest law firm that represents other advocacy groups, both in contested cases and in rulemaking. Neither of the Commission members holds the seat that is required to be filled by a person "who at the time of appointment [is] actively associated with a State or national conservation organization." If I am mistaken about any of the foregoing facts, or if there is additional relevant information needed for a complete understanding of the issues involved, please let me know at once.

Before answering the specific questions raised in the individual requests, however, I would like to address a general criticism leveled, both directly and indirectly, at the April 27 preliminary opinion. Apparently, there was some mistaken belief that the Board or its staff was attempting to disadvantage conservation or environmental advocacy groups vis-à-vis other (presumably business) interests. Let me assure you that this could not be further from the truth. The Board of Ethics is charged with interpreting and applying Executive Order 127 ("EO 127" or "the Order") in an evenhanded, impartial, and fair manner. It takes that charge very seriously. Executive Order 127 makes it exceedingly clear that State government should function honestly, fairly, and free from all forms of impropriety, favoritism, and undue influence. Thus, to the extent called for in the appropriate context, the Board's goal is and will be to treat all CRC members the same, regardless of any group he or she might belong to.

Appointees to State boards and commissions are often selected to "represent" the perspective of different, even opposing, interests, be they political, economic, philosophical, or otherwise.3 In this respect, these bodies are merely a legislatively-mandated microcosm of our overall system of representative government. Such is the case with the CRC.4 North Carolina General Statutes §113A-104 expressly provides that "[a]ppointments shall be made to provide knowledge and experience in a diverse range of coastal interests." Of the 15 CRC members, 12 must have active connections or experience in areas ranging from coastal land development to conservation organizations. Thus, the potential for "bias" in the sense of a general preference or inclination is intentionally built into the CRC structure.5

Traditionally, this is an acceptable part of the legislative/quasi-legislative process, like most rulemaking. Courts will generally not concern themselves with the underlying motives or rationale for legislative/quasi-legislative decisions, particularly if such motivations are non-financial. Partisan interests are superseded, however, by basic considerations of fairness and due process in judicial/quasi-judicial situations, such as contested cases, where an unbiased, impartial decision-maker is deemed essential.6

A key issue in the present situation is whether the Governor intended to incorporate this conflict of interest dichotomy into his Executive Order 127 or, as is his right to do, alter it for all of his covered Public Officials. This question has not heretofore been addressed by the Board. It is the Board's responsibility to interpret the provisions of the Order, and such interpretations are binding on those subject to its jurisdiction. Any conflict between the Order and other North Carolina law, however, is resolved in favor of the law. Section 4 (i).

The overall spirit of the new Order is one of impartiality and fairness in all contexts.7 Consistent with this, the basic rule of conduct for all covered Public Officials8 is that they "perform their official duties in a manner to promote the best interests of the public."9 Section 7. This general statement is followed by rules governing both conflicts of interest and appearances of conflict.

Conflict of interest rules are aimed primarily at avoiding undue financial gain as a result of one's official position. The basic conflict provision is found in section 7 (a) (1):

A Public Official shall not knowingly use his or her position in any manner which will result in financial benefit, direct or indirect, to the Public Official, the Official's family, or an individual with whom or business with which the Public Official is associated.10

Appearances of conflict cover a broader spectrum of conduct. Section 7 (b) (1) states,

A Public Official shall make every effort to avoid even the appearance of a

conflict of interest. An appearance of conflict exists when a reasonable person

would conclude from the circumstances that the Public Official's ability to protect

the public interest, or perform public duties, is compromised by personal interests.

An appearance of conflict could exist even in the absence of a true conflict of interest.

Section 7 (b) (2) adds,

A Public Official shall recuse himself or herself from any proceeding in which the Public Official's impartiality might reasonably be questioned due to the Official's familial, personal, or financial relationship with a participant in the proceeding. A "participant" includes, but is not limited to, an owner, shareholder, partner, employee, or agent of a business entity involved in the proceeding.

If the intent of Executive Order 127 was to completely eliminate the general judicial/legislative conflict of interest/"bias" analytical dichotomy, it is not clearly stated. In the absence of a clear directive on such an important point, such intent should not be construed lightly.

However, there is evidence of an intent to alter it slightly, at least in the context of quasi-legislative decision-making. For example, the Preamble states that government must function "free from all forms of impropriety, threats, favoritism, and undue influence." Other introductory provisions state that officials cannot use their power "to advance narrow interest[s] for [themselves], other persons or groups" and that "self interest, partiality and prejudice have no place in decision making for the public good" (emphasis added). The Board of Ethics is expressly directed to review prospective appointees' Statements of Economic Interest to determine whether "the financial interests and other information reported reveals an actual or potential conflict of interest" (emphasis added). Section 4 (c) (3). The head of each State Agency must periodically remind Public Officials of their duty to "continually monitor, evaluate, and manage his or her personal, financial, and professional affairs to ensure the absence of conflicts of interest or appearances of conflict" (emphasis added). Section 6 (g); see also Section 7 (c) (2). Finally, all prospective Public Officials must now list all directorships on all boards of which he or she is a member. Section 8 (c) (2) (o). This requirement was added by Executive Order 131 in March of 1998. While directorships may certainly create a financial conflict or appearance of conflict (it is, after all, included on the Statement of Economic Interest ), one cannot ignore the presumed desire to identify and address the personal, professional, and other information mentioned in the Order. Read as a whole and in the context within which it was issued, a reasonable construction of the Order is that it imposes a higher ethical standard across the board, even in the typically hands-off arena of quasi-legislative rulemaking.

Therefore, read together and in the overall context of the Order, sections 7 (b)(1) and (b)(2) provide the following general guidelines. In all situations, Public Officials must "make every effort to avoid even the appearance of a conflict of interest." This is a flexible, open-ended standard applicable on a case-by-case basis. The "personal interests" that can give rise to an impermissible appearance of conflict are broader than strictly financial or familial interests. If the intent was to restrict an appearance of conflict to purely financial situations, the Order could and presumably would have said so.11 In addition, reading sections (b)(1) and (b)(2) together, "personal" must mean something other than "familial" or "financial" or it is redundant. Thus, a reasonable construction is that the Governor intended that "personal interests" include non-financial/familial interests in the proper situations.

In certain situations, the appearance of conflict is so great that Public Officials cannot participate in the decision-making process. This occurs when the Official's impartiality might reasonably be questioned due to a "familial, personal, or financial relationship with a participant in the proceeding." In common parlance and in the overall spirit of the Order, "any proceeding" includes rulemaking.12 A "personal" relationship includes one in a policy-making position in an organization or group. This would include membership in the governing body, such as officers and directors. Mere membership in an advocacy group would normally not constitute such a "personal relationship." Finally, a "participant" includes an organization or group which has petitioned for rulemaking or has some specific, unique, and substantial interest, financial or otherwise, in the rulemaking.

Therefore, because an unbiased, impartial decision-maker is essential to due process, in the context of quasi-judicial proceedings a Public Official's impartiality might reasonably be questioned as a result of both financial conflicts of interest and impermissible legal bias. According to the North Carolina Supreme Court, this type of bias may include preconceptions about facts, policy, or law; a person, group, or object; or a personal interest in the outcome of some determination.13 These determinations will need to be made on a fact-specific, case-by-case basis.

In quasi-legislative matters (like most rulemaking14) Public Officials have more, but not unfettered, leeway in the degree of participation allowed. They should not participate in quasi-legislative matters involving their own specific, substantial, and readily identifiable financial interests, except where the financial interest is shared equally by others. Moreover, they should recuse themselves when their impartiality might reasonably be questioned due to their personal relationship with a participant in the proceeding.

In all situations, a "personal" interest includes close family or business (both profit and nonprofit) associations. "Financial interests" include such pecuniary interests as salary or wages from businesses or governmental entities, consultant fees, and directorship fees from both profit and nonprofit entities. In addition, a full and complete public disclosure is necessary to help identify and address conflict and appearance of conflict issues.

I will attempt to apply these general principles to the specific questions asked.

Question 1: Will the participation of a Commission member, who is also a board member of an advocacy group, in the debate or decision of matters on which the advocacy group has taken a position constitute an action barred or limited by Executive Order No. 127? These individuals are not required by statute to be members of any advocacy group. Is there a different answer if the Commission member occupies the seat required to be filled by a person "who at the time of appointment be actively associated with a State or national conservation organization."

Response to Question 1: This question could arise in both quasi-judicial (contested case) proceedings and quasi-legislative (rulemaking) situations. The fact that a CRC member occupies the seat required to be filled by someone actively associated with a State or national conservation organization does not make a difference.

Initially, the member should identify for the record and fully explain, to the satisfaction of other Commission members and adequate for a reasonable understanding by members of the public in attendance, his or her familial, personal, and/or financial interest. This would include, but not be limited to, the name and nature (if it is not self-evident or commonly known) of the advocacy group or groups, the position or positions taken, and the member's role in formulating or establishing such position. Thereafter, the permissible degree of participation depends upon the nature of the matter at hand.

CRC members may participate fully in quasi-legislative matters absent a personal financial interest15 in the matter or a personal relationship with a participant in the matter which would cause a reasonable person to question the member's impartiality. They may not participate in quasi-legislative matters involving their own specific, substantial, and readily identifiable financial interests, except where the financial interest is shared equally by others. Nor may they participate in rulemaking when the advocacy group of which they are a board member is the petitioner for a rule. The fact that the member's advocacy group has merely commented on a rule does not, in and of itself, disqualify the member from participation.

In quasi-judicial proceedings, legal impartiality is required, and the member must avoid both conflict of interest and bias. Consequently, members in policy-making positions (like board members) of advocacy groups may not participate in contested cases involving their advocacy group or where their impartiality might reasonably be questioned as a result of their association with such group.

Again, the fact that a CRC member occupies the seat required to be filled by someone actively associated with a State or national conservation organization does not make a difference in either quasi-judicial or quasi-legislative situations.

Question 2: Will the participation of a Commission member, who is also a board member of the national board of a public interest law firm, in the debate or decision of matters on which the public interest law firm has taken a position on behalf of a client constitute an action barred or limited by Executive Order No. 127? Is there a different answer if the public interest law firm does not appear on behalf of a client or fails to identify the client for which the appearance is made?

Response to Question 2: The answer to this question is essentially the same as that for question 1 above. In the interest of full disclosure and conflict/bias analysis, the public interest law firm should also state for the record the client for whom the appearance is made.

Question 3: Should Commission members disclose their affiliation with and any offices in advocacy groups that may appear before the Commission in the disclosure form submitted pursuant to Executive Order No. 127?

Response to Question 3: Yes. Executive Order 127, as amended by Executive Order 131, indicates that the filing Public Official shall list all directorships on all boards of which he or she is a member. Question 5 on the disclosure form affords the opportunity to list professional relationships that could represent a conflict of interest or the appearance of a conflict of interest while performing official duties. Question 6 on the form requires the listing of directorships on boards. Question 13 addresses not-for-profit businesses and civic organizations. Finally, Question 16 gives an individual the opportunity to address any areas of conflict of interest that do not fit neatly into the previous categories.

Question 4: If an advocacy group is legally recognized under state and federal law as a nonprofit, public interest corporation, can a member or board member of the organization who derives no financial benefit from affiliation with the organization16 participate in matters before the Coastal Resources Commission on which the organization has taken a position?

Response to Question 4: The fact that an advocacy group is legally recognized under state and/or federal law as a nonprofit, public interest corporation does not eliminate conflict of interest or appearance of conflict of interest issues for members of the group who serve on boards and commissions. There is ample evidence that Executive Order 127 intended to reach such organizations.17 The same guidelines discussed above would apply.

Question 5: Does Executive Order No. 127 bar or limit the participation by a CRC member who is an elected local government official, or an employee of a local government, in matters before the CRC on which the local government has taken a position or is directly involved as a party?

Response to Question 5: The answer to this question is essentially the same as that for questions 1 and 2 above. In the interest of full disclosure and conflict/bias analysis, the elected local government official, or employee of a local government, should identify for the record and fully explain, to the satisfaction of other Commission members and adequate for a reasonable understanding by members of the public in attendance, his or her personal and/or financial interest. This would include, but not be limited to, the name of the local government for which he or she works, his or her job with such entity, the position or positions taken by the local government, and the member's role, if any, in formulating or establishing such position.

Question 6: Are CRAC [Coastal Resources Advisory Council] members subject to Executive Order No. 127?

Response to Question 6: No. For purposes of this question, the Order only covers members appointed by the Governor to non-advisory boards, commissions, and councils. The Board of Ethics is charged with determining whether such boards, commissions, and councils are advisory or non-advisory. Section 3(g); see also section 4 (i). The Governor does not appoint members to the CRAC. CRAC appears to have advisory functions and duties. See NCGS §113A-105.

Question 7: Should CRC members who, either individually or through their employer, have interests in property and/or the development of property that may be affected by decisions of the CRC participate in discussions or vote on matters that affect their property or development interests?

Response to Question 7: The answer to this question is essentially the same as that for question 1 above.

Question 8: Do NCGS §113A-104(c) and/or Executive Order 127 prevent a member from serving on the CRC because he derives his income from land development and real estate sales? If a member is appointed in violation of the statutory requirements, does participation by that member in decisions by the CRC affect the legality of those decisions?

Response to Question 8: The Board of Ethics does not issue advisory opinions on legal questions. By copy of this letter, we are referring your legal questions to Ms. Robin Smith, Environmental Section, Department of Justice.18 This question appears directed to Mr. Robert R. Emory. The Board of Ethics addressed the ethical aspects of your question in its evaluation of Mr. Emory's Statement of Economic interest. The Board found that Mr. Emory had a potential for conflict of interest and must recuse himself as appropriate when matters before the Board may be perceived as affecting his pecuniary interest. I am unaware of any specific allegations that Mr. Emory has failed to follow this guidance. Otherwise, the general principles outlined above apply.

I hope this preliminary opinion adequately addresses your questions and concerns. If it does not, please do not hesitate to call on me for further clarification and explanation, to the extent possible.

Sincerely,

Perry Y. Newson

Executive Director

cc: Mr. George F. Bason, Chairman, Board of Ethics

Ms. Robin W. Smith, CRC Ethics Liaison

Mr. Gene Tomlinson, CRC Chairman

Mr. Derb S. Carter, Jr., Southern Environmental Law Center

1 According to the Board's normal procedure, the Executive Director prepares a "preliminary opinion" for presentation to the full Board. "Rules and Regulations," §VI (d). The previous two preliminary opinions (March 22, 1999, and April 27, 1999) have not been presented to or formally acted upon by the full Board.

2 The Chairman has been consulted about and concurs with this approach.

3 Partisan "representation" must yield, however, to the extent it conflicts with or compromises the public interest. See, e.g., EO 127, § 7; N.C.G.S. §113A-104 (c).

4 In its findings, the General Assembly acknowledged that the coastal area has recently been subjected to increasing pressures which are the result of "the often-conflicting needs of a society expanding in industrial development, in population, and in the recreational aspirations of its citizens." N.C.G.S. §113A-102 (a).

5 Depending upon the nature and degree of such bias, as well as the context within which it is found, it may or may not rise to the level of impermissible or unconstitutional "legal" bias.

6 Many situations will not fall neatly into "quasi-legislative" or "quasi-judicial" categories and will require a case-by-case determination of which standard to apply. A given situation may call for application of some "hybrid" standard resulting in something less than an "all-or-nothing" level of participation (e.g., discussion but no voting). Decisions determining individual rights or benefits (like grant awards) would usually require application of quasi-judicial standards of conflict of interest/bias. See also County of Lancaster vs. Mecklenburg County, 334 N.C. 496, 507 (1993) ("[Quasi-judicial zoning] decisions involve two key elements: the finding of facts regarding the specific proposal and the exercise of some discretion in applying the standards of the ordinance"); Crump vs. Board of Education, 326 N.C. 603, 622 (1990). A comprehensive analysis of all such situations and predetermination of all results is beyond the scope of this opinion.

7 This is very evident in the Preamble to the Order. For example, it is stated that government must function "free from all forms of impropriety, threats, favoritism, and undue influence" and that "at every turn those who represent the people of this State must be certain that it is the interests of the people, and not their own, that are being served. Officials should be prepared to remove themselves immediately from decisions, votes, or processes where even the appearance of a conflict of interest exists...."

8 "Public Officials" are those persons listed in section 3 of the Order and those made subject to the Order pursuant to section 9.

9 CRC legislation mirrors this ethical truism: "The members of the Commission shall serve and act on the Commission solely for the best interests of the public and public trust, and shall bring their particular knowledge and experience to the Commission for that end alone." N.C.G.S. §113A-104 (c) (emphasis added).

10 This provision does not apply to financial and other benefits derived by a Public Official that he or she would enjoy to an extent no greater than that which other citizens of the State would or could enjoy. Section 7 (a) (1) (a).

11 Section 7 (a) speaks of a "financial benefit," "personal financial gain," and "personal financial interest" in the context of actual conflicts of interest. It is reasonable to assume that the omission of these or similar terms was intentional in section 7 (b) dealing with appearances of conflict.

12 See EO 127, Preamble ("to maintain the public trust it is essential that government function honestly and fairly, free from all forms of impropriety, threats, favoritism, and undue influence"; "self interest, partiality and prejudice have no place in decision making for the public good"; "at every turn those who represent the people of this State must be certain that it is interests of the people, and not their own, that are being served"; "Officials should be prepared to remove themselves immediately from decisions, votes, or processes where even the appearance of a conflict of interest exists....") (emphasis added); see also N.C.G.S. §150B-21.2 (the Administrative Procedure Act, which speaks generally of "rulemaking proceedings"). This despite the fact that the terms "proceeding" and "recusal" have strong judicial and quasi-judicial connotations.

13 Crump vs. Board of Education, 326 N.C. 603, 615 (1990); see also County of Lancaster vs. Mecklenburg County, 334 N.C. 496, 511 (1993) ("Additional considerations beyond these financial interests require no participation in quasi-judicial zoning decisions. A fixed opinion that is not susceptible to change may well constitute impermissible bias, as will undisclosed ex parte communication or a close familial or business relationship with an applicant").

14 Whether some particular type of rulemaking or administrative process is more akin to quasi-judicial decisionmaking is largely fact-dependent and must be left to a case-by-case determination.

15 This would include the financial interest of the particular advocacy group on whose board the CRC member sits.

16 This would include the receipt of directorship fees.

17 The Preamble, for example, states that government must function "free from all forms of impropriety, threats, favoritism, and undue influence" and that officials cannot use their power "to advance narrow interest for [themselves], other persons or groups" (emphasis added). The Board of Ethics is expressly directed to review prospective appointees' Statements of Economic Interest to determine whether "the financial interests and other information reported reveals an actual or potential conflict of interest" (emphasis added). Section 4 (c) (3). The head of each State Agency must periodically remind Public Officials of their duty to "continually monitor, evaluate, and manage his or her personal, financial, and professional affairs to ensure the absence of conflicts of interest or appearances of conflict" (emphasis added). Section 6 (g); see also section 7 (c) (2).

18 I would ask that the Board be provided with a copy of the response.