Docket No. 425
In the Matter of James H. Smith
DATE: November 26, 1991
This Disposition Agreement (Agreement) is entered into between the State Ethics Commission (Commission) and James H. Smith (Mr. Smith) pursuant to section 5 of the Commission’s Enforcement Procedures. This Agreement constitutes a consented to final Commission order enforceable in the Superior Court pursuant to G.L. c. 268B, §4(j).
On June 10, 1991, the Commission initiated, pursuant to G.L. c. 268B, §4(a), a preliminary inquiry into possible violations of the conflict of interest law, G.L. c. 268A, by Mr. Smith. The Commission has concluded that inquiry and, on September 9, 1991, found reasonable cause to believe that Mr. Smith violated G.L. c. 268A.
The Commission and Mr. Smith now agree to the following findings of fact and conclusions of law:
1. At all times here relevant, Mr. Smith was a member of the Board of the Woods Hole, Martha’s Vineyard and Nantucket Steamship Authority (Authority). In 1963, Mr. Smith was first appointed to the three member Board of the Authority (Board) by the Falmouth Board of Selectmen as the Board member representing Falmouth. Mr. Smith was subsequently reappointed by the Falmouth Selectmen to the Board position several times. The other two Board members represented Nantucket and Martha’s Vineyard, respectively. At all times here relevant, Mr. Smith was also an attorney in private practice and a partner and principal of the Falmouth law firm of Smith & Connolly, P.C. (Smith & Connolly).
2. The Authority is a state agency as that term is defined in G.L. c. 268A, §1(p). Members of the Board serve without compensation. As a member of the Board, Mr. Smith was a special state employee as that term is defined in G.L. c. 268A, §1(o). As a special state employee, Mr. Smith was subject to the provisions of the state conflict of interest law, G.L. c. 268A.
3. David V. Peterson (Peterson) is a real estate developer with a principal residence in Falmouth.
4. D.T.B., Inc. (DTB) is a Massachusetts corporation with a principal place of business in Falmouth.
5. DTB was incorporated in March 1981 for the purpose of conducting the business of purchasing and developing real estate. Mr. Smith’s law firm did the legal work involved in forming DTB and Mr. Smith was named in DTB’s corporate papers as the incorporator of the corporation. As originally incorporated, the directors of DTB were Peterson, Peterson’s wife, Anne R. Peterson (Mrs. Peterson), and Mr. Smith. As originally incorporated, DTB’s president was Peterson, its treasurer was Mrs. Peterson, and its clerk was Smith. In June 1981, Mrs. Peterson resigned as treasurer and became vice president of DTB. At the same time, Peterson became treasurer of DTB as well as president. At all times from 1981 through September 1988, Mr. Smith remained a director and the clerk of DTB and, as DTB’s clerk, kept in his possession the DTB corporate book and seal. There is no evidence of any other action by Mr. Smith as a DTB director and as the DTB clerk after 1982.
6. In addition to serving as the clerk and as a director of DTB, Mr. Smith provided legal services to DTB and Peterson. Mr. Smith represented Peterson in numerous real estate related matters during the period from the mid-1960s through 1988. During 1988, Mr. Smith had an active and ongoing attorney-client relationship with Peterson and DTB. There is no evidence that Mr. Smith otherwise participated in the corporate affairs of DTB (except as discussed in paragraph 5 above).
7. During the first six months of 1988, James Prouty and C. Althea Prouty (the Proutys) attempted without success to sell 40 acres of undeveloped land owned by them on Blacksmith Shop Road in North Falmouth (hereinafter referred to as “the Prouty land”) at a price ranging from $725,000 to $475,000. On June 23, 1988, DTB and Peterson entered into a purchase and sale agreement with the Proutys pursuant to which DTB agreed to purchase the 40 acres of land on Blacksmith Shop Road from the Proutys for $300,000 and a two acre house lot. The purchase and sale agreement provided for a closing date of October 1, 1988. At the time of the execution of the purchase and sale agreement, DTB paid the Proutys a $10,000 down-payment.
8. Sometime after the purchase and sale agreement was executed, but in any event no later than July 20, 1988, Peterson took a copy of the purchase and sale agreement to Mr. Smith’s law office. Peterson gave the purchase and sale agreement to a member of Mr. Smith’s secretarial staff in order to have Mr. Smith’s law firm prepare the deeds necessary for the transaction between DTB and the Proutys.
9. Between late July 1988 and September 13, 1988, Mr. Smith’s new secretary, Susan Bragdon (Bragdon), prepared the two deeds for the Proutys’ transfer of the Prouty land to DTB and DTB’s transfer of a two acre lot of land on Blacksmith Shop Road to the Proutys. During the time that she worked on the two deeds, Bragdon informed Mr. Smith that she was preparing the two deeds for Peterson. Mr. Smith instructed Bragdon to charge Peterson $75 each for the preparation of the two deeds.
10. In 1988, the Authority was seeking to purchase real estate for use as Authority parking facilities in order to deal with traffic congestion problems in Woods Hole and downtown Falmouth created by Authority passengers driving into those areas to reach the Authority’s existing parking facilities. At a Falmouth Selectmen’s meeting on July 18, 1988, attended by Mr. Smith, the Selectmen, Mr. Smith and members of the public discussed the parking issue, including the desirability of having Authority passengers park before reaching Woods Hole.
11. In late July or early August 1988, Falmouth real estate agent Richard L. Kinchla, Jr. (Kinchla), who was aware of the Authority’s interest in acquiring land in Falmouth for parking, approached Peterson and asked if he had a parcel of about ten acres of land that he would be interested in selling. Peterson responded that he was not interested in selling ten acres, but that he did have 40 acres of land on Blacksmith Shop Road (the Prouty land) that he would sell for $30,000 an acre. When Kinchla identified the prospective purchaser of the land as the Authority, Peterson told Kinchla that he would sell the land to the Authority only if the transaction were not made public, as he was concerned about becoming involved in a public dispute or law suit over the use of the Prouty land for parking.
12. On or about August 3, 1988, Mr. Smith, Authority General Manager Barty Fuller (Fuller), and Authority Public Relations Director Ray Martin (Martin) did a “drive by” inspection of the Prouty land. During the “drive by,” Mr. Smith mentioned to Fuller and Martin that he had handled real estate closings for Peterson concerning residential real estate located on the opposite side of Blacksmith Shop Road from the Prouty land. Mr. Smith did not, however, fully disclose to Fuller or Martin the facts of his relationship to Peterson and DTB.
13. On or about August 4, 1988, Fuller, on behalf of the Authority, and Peterson, on behalf of DTB, entered into an agreement giving the Authority an option to purchase the Prouty land from DTB at a price of $30,000 per acre. The Authority paid DTB $1,000 for the option, which was to expire on August 19, 1988.
14. On or about August 12, 1988, Fuller sent each member of the Board, including Mr. Smith, a copy of the agenda for the executive session of the Board’s meeting on August 18, 1988. Among the items listed on the agenda was the topic of a “Real Estate Acquisition” by the Authority. On August 18, 1988, Fuller gave each member of the Board, including Mr. Smith, a copy of a revised agenda for the Board meeting which listed, as “Item No. 1,” “Real Estate Acquisition - Oral and visual presentation will be made on various properties, including Consiglio and DTB, Inc.”
15. On August 15, 1988, Fuller retained an appraiser to appraise the Prouty land.
16. When the Board met in executive session on August 18, 1988, Mr. Smith, in his capacity as the Board member representing Falmouth, vigorously advocated the purchase of the Prouty land by the Authority. According to the minutes, Mr. Smith’s comments concerning the Prouty land included, “You’ve got to see it. I have twice. I’m high on it and I think we ought to grab it.” “It’s a steal.” “The beauty of the property is that it is so close to the highway.” “What are we waiting for? I’ll move it.” At the August 18, 1988 meeting, the Board voted in favor of the purchase of the Prouty land at a price of $30,000 per acre subject to several contingencies, including an appraisal of the property. On Mr. Smith’s motion, Smith and Board member Robert Stutz (Stutz) voted in favor of the purchase. The third member of the Board, Bernard Grossman (Grossman), either voted in favor of the purchase or abstained (the record is unclear). At no time prior to or during the August 18, 1988 Board meeting did Mr. Smith disclose to his fellow Board members or to the Authority’s staff the facts of his relationship with DTB and Peterson (except as described in paragraph 12 above).
17. On August 19, 1988, the $1,000 option expired. On that same date, Fuller, on behalf of the Authority, made a counteroffer of $1 million to Peterson through Kinchla. The counteroffer was rejected by Peterson.
18. By a letter to Kinchla dated August 22, 1988, Fuller agreed on behalf of the Authority to buy the Prouty land from DTB for $1.2 million subject to certain contingencies, including a satisfactory appraisal.
19. Sometime between August 23, 1988 and September 9, 1988, Peterson, on behalf of DTB, and Fuller, on behalf of the Authority, signed the purchase and sale agreement by which the Authority agreed to purchase the Prouty land for $1.2 million. The purchase and sale agreement, which was dated August 23, 1988, provided for a closing date on the transaction of September 22, 1988, and was contingent on, among other conditions, “[a] satisfactory review and acceptance of the appraisal.” By enclosure with a letter-memorandum dated September 9, 1988, Fuller sent a copy of the signed purchase and sale agreement to each member of the Board, including Mr. Smith. Fuller’s letter-memorandum stated its subject to be the “Purchase and Sale Agreement with DTB, Inc.” Mr. Smith does not recall receiving Fuller’s letter-memorandum on or about September 9, 1988. On September 7, 1988, the Authority issued and delivered to Peterson a $100,000 check payable to DTB as a down-payment for the Prouty land.
20. Sometime between September 1, 1988 and September 22, 1988, on a date Mr. Smith cannot recall, Mr. Smith had a conversation with Peterson in Mr. Smith’s law office during which he discussed with Peterson the Authority’s pending purchase of the Prouty land. Mr. Smith informed Peterson that he was in favor of the Authority’s purchase of the Prouty land.
21. On Friday, September 9, 1988, the appraisers retained by the Authority gave Fuller a verbal report that the Prouty land had a value of $1 million. Fuller was advised by the appraisers to renegotiate the purchase price.
22. On Monday, September 12, 1988, Fuller, on behalf of the Authority, again offered DTB $1 million for the Prouty land. Peterson again rejected the offer.
23. On September 12 or 13, 1988, Fuller telephoned Grossman and Mr. Smith (Stutz was out of the country). Fuller obtained Grossman’s and Mr. Smith’s verbal approval to close on the Prouty land on September 22, 1988 (the date stipulated in the purchase and sale agreement dated August 23, 1988).
24. On September 13, 1988, Smith & Connolly secretary Bragdon gave Peterson the two deeds she had typed for the Proutys/DTB transaction. Peterson was billed a total of $150 by Smith & Connolly for the preparation of the deeds. Peterson paid this $150 amount with a DTB check, dated September 20, 1988, payable to Mr. Smith. The DTB check subsequently was deposited into a Smith & Connolly account.
25. On September 19, 1988, the closing occurred on the sale of the Prouty land from the Proutys to DTB. The two deeds prepared for Peterson by Mr. Smith’s office were used in the transaction, however, Peterson was represented at the closing by an attorney other than Mr. Smith, who had no connection to Mr. Smith’s law firm. On or shortly after that same date, the attorney who was handling the legal aspects of the purchase of the Prouty land from DTB for the Authority, first learned that DTB had until that date not owned the Prouty land and had on that date purchased the Prouty land for $300,000, plus the conveyance of a two acre lot. The Authority’s attorney informed the Authority’s treasurer, Wayne Lamson (Lamson), of these facts.
26. On or about September 21, 1988, Fuller, who was out of state, was informed by Lamson of the price difference between what the Authority was paying DTB and what DTB had paid the Proutys for the Prouty land. Fuller took no action based on this information. According to Mr. Smith, Fuller subsequently informed him that, notwithstanding what DTB had paid for the Prouty land, he (Fuller) and the Authority staff supported the acquisition of the Prouty land by the Authority and he (Fuller) was comfortable with and could fully defend the purchase price paid by the Authority.
27. On September 22, 1988, the Authority closed on the purchase of the Prouty land from DTB, making a final payment of $1.1 million to DTB.
28. On September 30, 1988, at a regular meeting of the Board on Martha’s Vineyard, the Board, including Mr. Smith, voted to confirm the purchase of the Prouty land from DTB without discussion. On the ferry trip to Martha’s Vineyard prior to the meeting, Mr. Smith alluded, in conversation with Authority staffers, to the fact that he had done legal work for Peterson in the past. Mr. Smith did not, however, prior to or during the September 30, 1988 Board meeting, fully disclose to his fellow Board members or to the Authority staff the facts of his relationship with DTB and Peterson.
29. At no time prior to the Board’s September 30, 1988 vote, did Mr. Smith make any disclosure to his appointing authority, the Falmouth Board of Selectmen, concerning the facts of his relationship with DTB and Peterson or seek the Selectmen’s authorization to participate as a Board member in matters in which DTB or Peterson had a financial interest. At no time did the Falmouth Selectmen authorize Mr. Smith to participate officially as a Board member in matters in which DTB or Peterson had a financial interest.
30. During October 1988, Smith gave the DTB corporate book and seal to Peterson and forwarded to DTB’s corporate accountant documents effecting his resignation as clerk and director of DTB.
31. Except as otherwise permitted by that section, G.L. c. 268A, §6, in pertinent part, prohibits a state employee from participating as such in a particular matter in which, to his knowledge, an organization in which he is serving as a director or an officer has a financial interest. None of the exceptions to G.L. c. 268A, §6 applies in this case.
32. The decision by the Authority’s Board to purchase the Prouty land was a “particular matter” as defined in G.L. c. 268A, §1(k).
33. When Mr. Smith advocated the purchase of the Prouty land at the August 18, 1988 Board meeting, when Mr. Smith, on September 12 or 13, 1988, verbally approved Fuller’s request to close on the Prouty land on September 22, 1988, and when Mr. Smith voted at the September 30, 1988 Board meeting to confirm the Prouty land purchase, Mr. Smith personally and substantially involved himself in the Board’s decision to purchase the Prouty land. In so doing, Mr. Smith “participated” in that particular matter as that term is defined in G.L. c. 268A, §1(j).
34. On each of the three above-described occasions when Mr. Smith so participated, he knew that Peterson (and DTB) was the seller of the Prouty land. Therefore, Mr. Smith knew that DTB had a financial interest in that particular matter when he so participated as described above.
35. On each of the three above-described occasions when Mr. Smith so participated, he was an officer and director of DTB.
36. Therefore, by participating as a Board member in the Authority’s decision to purchase the Prouty land from DTB, a decision in which he knew DTB had a financial interest, all while he was an officer and director of DTB, Mr. Smith violated §6 on each of the three occasions identified above.
37. Section 23(b)(3) of G.L. c. 268A prohibits a state employee from knowingly, or with reason to know, acting in a manner which would cause a reasonable person, having knowledge of the relevant circumstances, to conclude that any person can improperly influence or unduly enjoy his favor in the performance of his official duties.
38. By promoting (and/or otherwise being involved in) as a Board member the Authority’s purchase of the Prouty land from DTB, while he was an officer and director of DTB and was also acting as DTB’s and Peterson’s legal counsel on other matters, Mr. Smith engaged in conduct that would cause a reasonable person to conclude that DTB and/or Peterson could unduly enjoy his favor in the performance of his official duties. In addition, Mr. Smith knew or had reason to know, no later than July 20, 1988, when his law firm opened a file on that matter, that his law firm was handling the Proutys/DTB transaction. Thus, at the time he acted as a Board member on the Prouty land purchase, Mr. Smith knew or should have known that his law firm had prepared the two Blacksmith Shop Road land deeds for Peterson and knew or should have known that those deeds were the deeds by which DTB was acquiring the very land it was selling to the Authority. None of these facts were disclosed to Mr. Smith’s appointing authority (the Falmouth Selectmen), to his fellow Board members or to the Authority staff. Therefore, by his above-described conduct Mr. Smith violated §23(b)(3).
In view of the foregoing violations of G.L. c. 268A, §§6 and 23(b)(3), the Commission has determined that the public interest would be served by the disposition of this matter without further enforcement proceedings on the basis of the following terms and conditions agreed to by Mr. Smith:
1. that he pay to the Commission the sum of $4,000.00 for his violations of G.L. c. 268A; and
2. that he waive all rights to contest the findings of fact, conclusion of law and terms and conditions contained in this Agreement in this or any related administrative or judicial proceeding to which the Commission is or may be a party.