Docket No. 320

In the Matter of Robert P. Sullivan

October 30, 1987

Decision and Order




Appearing:

Robert A. Levite, Esq.
Counsel for Petitioner

John H. Cunha, Jr., Esq.
Counsel for Respondent

Commissioners:

Diver, Ch., Basile, Burns, Epps, Gargiulo

DECISION AND ORDER

Page 312


I. Procedural History

The Petitioner initiated these adjudicatory proceedings on
December 8,1986 by filing an Order to Show Cause pursuant to the
Commission's Rules of Practice and Procedure, 930 CMR 1.01 (5)(a).
The Order alleged that Respondent Robert P. Sullivan had violated
G.L. c. 268A, s.17(c) on three occasions, Specifically, Respondent
allegedly acted as agent for the Bradford Development Corporation
(BDC) by personally appearing before the Tewksbury Planning Board
(Board) on August 13, September 26, and October 9,1984, and by
discussing particular matters in which the Town of Tewksbury (Town)
was a party or had a direct and substantial interest.

The pre-hearing conference was held on July 30, 1987, at which
time the parties waived the adjudicatory hearing and agreed to
stipulated facts. 930 CMR 1.01(9). Respondent has raised two
procedural defenses. The first is that Petitioner's action is
barred by a two year statute of limitations contained in G.L. c.
260, s.5. The other procedural defense is that Petitioner's failure
to initiate an Order to Show Cause within 90 days of the initiation
of a preliminary inquiry entitles Respondent to an Order of
Dismissal. Specifically, on June 10,1986, the Commission voted to
initiate a preliminary inquiry into whether Respondent violated
s.17. On September 15, 1986, the Commission voted to extend the
preliminary inquiry of the case. Therefore, the vote to extend took
place 97 days after the initial vote to initiate the preliminary
inquiry.

The parties filed briefs and presented oral arguments before
the Commission on October 5,1987. In rendering the Decision and
Order, the Commission has considered the evidence and arguments of
the parties.

II. Findings of Fact

1. Mr. Sullivan at all relevant times served as an elected
member of the Board. He has been on the Board for seven years.


2. In 1982, the BDC began development of the Patten Green
Condominiums in the Town. Mr. Sullivan was President of BDC.
Frederick Baldwin was treasurer and clerk. Mr. Sullivan and Mr.
Baldwin each owned a 50 percent interest in BDC and are the two
directors.

3. Prior to forming BDC with Mr. Sullivan, Mr. Baldwin had
Hodgkin's Disease, for which he had been treated. Due to his health
problems, Mr. Baldwin formed BDC so that Mr. Sullivan could assume
some of the work that Mr. Baldwin had previously performed himself
as a developer. Mr. Baldwin needed to avoid tiring himself and did
not want to work in the evening hours.

4. The Town, under the authority of the Board, requires each
multi-family dwelling developer and the financing bank to enter
into a tri-party agreement with the Town, by which the bank retains
$500 per unit from money it is providing the developer until proper
recreational facilities are constructed at the developmeni BDC was
subject to this requirement.

5. At its meeting of August 13, 1984,[1] Mr. Sullivan stepped
down as a member of the Board for the discussion on Patten Green
and remained in the room. The remaining Board members discussed the
possible waiver or release of 26 units from the requirement of a
tri-party agreement as described in paragraph 4 above. Mr. Sullivan
stated to the Board that he was seeking the waiver or release of
units from an agreement because a recreational structure already
constructed on the property cost more than the $500 per unit
required to be held back for 26 units. Mr. Sullivan did not
participate in his capacity as a Board member in the subsequent
vote to release the 26 units from the requirements of the
agreement. No other person employed by or associated with BDC was
present at this meeting.

6. At the Board meeting on September 26,1984, Mr. Sullivan
stepped down as a member of the Board for the discussion on Patten
Green and remained in the room. There was an agenda item regarding
whether the special permit granted by the Board for the
construction of Patten Green allowed for loft space in the attic
areas of two condominium units. The remaining Board members
discussed BDC's difficulties in obtaining occupancy permits, which
were required for completion of the sale of two condominium units
at Patten Green. The occupancy permits were being denied because
the Town's building department claimed that BDC had added a floor
to the units in contravention of the original special permit. The
remaining Board members discussed the building department's denial
of the occupancy permits. Mr. Sullivan stated to the Board that the
additional floor was a loft which had been included in the original
plans.

Page 313

He stated that two of the units had pull-down stairs installed with
the loft space above. Mr. Sullivan also stated that the roof size
was not increased as a result of the installation of the pull-down
stairs and loft. No other person employed by or associated with BDC
was present at this meeting. The agenda item regarding the loft
space was continued to the meeting of October 9,1984.

7. At the Board meeting of October 9,1984, Mr. Sullivan stepped
down as a member of the Board for the discussion on Patten Green
and remained in the room. The remaining Board members again
discussed the building department's determination regarding the
occupancy permits for the two condominium units. A letter dated
October 4,1984, from the building inspector regarding the two units
stated that he must refuse a building permit to add a loft in the
attic of the units. The letter further suggested that BDC return
to the Board to seek an amendment of the special permit and stated
that the plans submitted to the building inspector did not show
lofts in the two units. Mr. Sullivan then stated that the plans did
show an alternate loft. A motion was made and seconded to set up
a public hearing to consider amending the special permit. The Board
voted to set up such a hearing. Mr. Sullivan did not participate
in his capacity as a Board member in this vote. No other person
employed by or associated with BDC was present at this meeting.

III. Decision

A. Statute of Limitations

The Commission has promulgated a three-year statute of
limitations pursuant to its regulatory authority. G.L. c. 268B,
s.3(a); 930 CMR 1.02(10).[2]

There is no dispute that the Order to Show Cause was issued
within three years after the violations alleged therein, as
required by the regulation. Nor does Respondent allege as a defense
that the three year statute of limitations promulgated in 930
CMR 1.02(10) has run. Therefore, there was no need for Petitioner to
show that a disinterested person learned of the violation no more
than three years before the Order was issued by affidavit or
otherwise. See, 930 CMR 1.02(1 0)(c).

Respondent argues that 930 CMR 1.02(10) is unlawful because it
is inconsistent with G.L. c. 260, s.5, which establishes a two year
statute of limitations in actions for penalties under penal
statutes if the penalty "is given .. to the Commonwealth." The
Commission concludes that this statute does not apply because an
enforcement proceeding pursuant to G.L. c. 268B, s.4 is not
reasonably construed as enforcement of a penal statute.

The essence of a civil enforcement action under G.L. c. 268B is
a breach of official duty or fiduciary obligation of a public
employee.

In upholding the use of a civil standard of proof in Commission
proceedings, the Supreme Judicial Court has held, "The sanctions
which the Commission may impose do not implicate particularly
important individual interests or rights." Craven v. State Ethics
Commission, 390 Mass. 191,200(1984). The controlling purpose of an
adjudicatory proceeding under G.L. c. 268B, s.4 is not punishment.
The Commission's purpose is remedial in nature, to enforce civilly
the provisions of G.L. c. 268A, to provide advice and education,
(see, G.L. c. 268B, s.3(g)), and to act as a repository of
disclosures and other information. See, c. 268A, s.6, s.7(d).
Although G.L. c. 268A provides for a criminal penalty enforceable
by criminal law enforcement agencies, as well as civil relief, the
existence of a criminal penalty does not defeat the broad civil
remedial purposes of G.L. c. 268A and G.L. c. 268B. The fact that
the Commission may potentially impose a civil fine after an
adjudicatory hearing does not render the proceeding penal. The
Commission's regulation, establishing a three year statute of
limitations, reasonably rejects the application of G.L. c. 260, s.5
to a civil administrative agency which has no criminal enforcement
authority.

The reasonableness of the regulation is further supported by
examination of precedents. The Supreme Judicial Court held in the
case of Beinecke v. Nantucket, 379 Mass. 345(1979) that the essence
of an action under G.L. c. 268A, s.21 is a breach of official duty
which sounds in tort, and therefore the three year statute of
limitations applies.[3]

A regulation by a duly constituted administrative agency has the
full force and effect of law and is entitled to "all rational
presumption in favor of its validity... Levy v. Board of
Registration, 373 Mass. 519,525(1979) cited in Borden v.
Commissioner of Public Health, 388 Mass. 707(1984). Given the broad
civil remedial nature of an enforcement proceeding under G.L. c.
268B, s.4 and relevant prior case law, there is no inconsistency
between 930 CMR 1.02(10) and G.L. c. 260, s.5 so as to render the
regulation void.

B. The Seven Day Delay

There is no merit to Respondent's contention that the delay in
the vote to extend the preliminary inquiry, which took place 97
days after the initial vote to initiate the preliminary inquiry,
requires dismissal of the case. Dismissal is not required as a
matter of law because the 90 day rule derives from internal
enforcement policy, and not by statute, regulation or other
authority having the force of law; therefore, the policy is not
jurisdictional.

It is well established that "a statute imperative in phrase ...
where it relates only to the time of performance of a duty by a
public officer and does not go to the essence of the thing to be
done ...is only a regula-

Page 314

tion for the orderly and convenient conduct of public business and
not a condition precedent to the validity of the act done," Chencey
v. Coughlin, 201 Mass. 204,211 (1909). Accord, Cullen v. Building
Inspector of North Attlebororngh, 353 Mass, 671,679-680(1968)
(decision of appeal from issuance of a building permit filed five
days late); Monico's Case, 350 Mass. 183,185-186(1966) (decision
of Industrial Accident Board filed over 10 months late); Amherst-
Pelham Regional School Committee v. Department of Education, 376
Mass. 480,496-497(1978). (failure of Department of Education to
timely issue decision in contravention of own internal procedure).

Even assuming that Respondent has suffered expense, humiliation,
anxiety and public suspicion as a result of Petitioner's
proceedings,[4] there has been no showing that Respondent suffered
prejudice as a result of the seven-day delay in initiating the
preliminary inquiry. This case is thus indistinguishable from the
case of In the Matter of Thomas W. Wharton, 1984 Ethics Commission
182, where we held


The 90-day rule is not based on any statute, but reflects the
Commission's desire that inquiries be conducted as
expeditiously as possible. Its principle purpose is to make the
Commission aware of the length of inquiries and to require its
acquiescence for them to go beyond 90 days. That purpose is
satisfied whether the extension is granted before or after the
initial 90-day period ends. With respect to the time period
after the finding of reasonable cause, it should be noted that
neither the provisions of c. 268B dealing with investigations
(see s.4) nor the Commission's procedures impose any
requirement as to when the Order to Show Cause must issue. Here
again, there is no showing that Mr. Wharton was prejudiced or
that the Petitioner gained any undue advantage by the delay
Accordingly, this Motion to Dismiss is denied, Accordingly, the
seven-day delay in initiating the preliminary inquiry does not
require dismissal.

C. Substantive Violations

The relevant portion of s.17(c) applicable to this case states
that no municipal employee shall, otherwise than in the proper
discharge of his official duties, act as agent for anyone in
connection with any particular matter in which the same city or
town is a party or has a direct and substantial interest.
Respondent has conceded all of the elements of a s. 17(c)
violation, except the element of acting as agent. Respondent agrees
that he was a municipal employee at all relevant times, He also
agrees that the August 13,1984 Board discussion and vote on the
waiver or release of 26 units from a tri-party agreement were in
connection with a particular matter in which the Town of Tewksbury
is a party or has a direct and substantial interest. He further
agrees that the determination of whether to require a tri-party
agreement between BDC, the Town and the financing bank was a
particular matter in which the Town of Tewksbury is a party or has
a direct and substantial interest, and the September 26 and October
9,1984 Board discussions and vote regarding the Town building
department's denial of occupancy permits for two Patten Green
condominium units were in connection with a particular matter in
which the Town of Tewksbury is a party or has a direct and
substantial interest. Respondent further agrees that the occupancy
permits sought by BDC are particular matters in which the Town is
a party or has a direct and substantial interest. Therefore,
Respondent acted in connection with particular matters in which the
Town had a direct and substantial interest, This leaves the issue
of whether Respondent acted as "agent" within the meaning of the
conflict law.

The Commission concludes that Respondent, as president, director
and 50% stockholder of BDC was acting as agent for BDC in his
discussions with the Planning Board. The term agent is not defined
in G.L. c. 268A and is not susceptible to a simple definition and
can differ widely in meaning depending on the context in which it
is used. Therefore, it is incumbent upon the Commission to
interpret the term in light of the overall purpose and intent of
G.L. c. 268A. Massachussetts Organization of State Engineers and
Scientists v. Labor Relations Commission, 389 Mass, 920,924(1983),
Furthermore, the Commission must be guided in its interpretation
by certain general principles. First, the substantive provisions
of the conflict law should be construed "broadly" to carry out the
remedial purposes which the statute manifests, United States v.
Evans, 572 F. 2d 455,480(5th Cir., 1978). Secondly, the Commission
has adopted the approach of the federal courts construing the
federal counterpart of s.17(c) which have utilized an expansive
definition of the term agent and has stated that the definition is
not limited to its "strict common law notion," See, United States
v. Sweig, 316 F. Supp. 1148,1157 (S.D.N."". 1979). In the Matter
of James M. Collins, 1985 Ethics Commission 228.

The basic principle set forth by s.17(c) is that "public
officials should not in general be permitted to step out of their
official Rules to assist private entities or persons in their
dealings with government." Perkins, The New Federal Conflict Law,
76 Harv.L.Rev. 113,1120(1963). Regardless of whether any evil
results from the conduct, "confidence in government is undermined
because the public cannot be sure that no [evils] will result."
Buss, The Massachusetts Conflict of Interest Statute: An Analysis,
45 B.U.L. Rev. 299,322(1965). Buss suggests that "merely speaking
or writing on behalf ofa non-state party would be acting as agent."
Buss, supra, at 326. Consistent with the above remedial
purpose, the Commission has concluded that the distinguishing factor of

Page 315

acting as agent within the meaning of the conflict law is "acting
on behalf of" some person or entity, a factor present in acting as
spokesperson, negotiating, signing documents and submitting
applications. EC-COI-84-116.

Upon reviewing the facts, the Commission concludes that
Respondent was acting on behalf ofBDC and Mr. Baldwin, the other
shareholder, The fact that Respondent may have been acting
consistent with his own personal interest does not negate this
conclusion. Members of the Board were dealing with the corporate
entity and not with Respondent as an individual. The tri-party
agreement was not an agreement between the Town, the financing bank
and himself. The financing bank provided money to the corporate
entity. The agreement involved the Town, the bank and the corporate
entity. Similarly, the two Patten Green Occupancy permits which
were denied by the Building Department were not being denied to
Respondent individually. They were being denied to the corporate
entity. Therefore, the benefit of a vote to release 26 units from
a tri-party agreement would not run to Respondent individually, but
rather would go to the corporate entity. Likewise, the need to seek
an amendment to the special permit, as a result of the denial of
occupancy permits, was not a requirement thrust upon Respondent
individually; rather it was a requirement thrust upon the corporate
entity.

The Commission has previously dealt with an analogous case, In
EC-COI-84-117 the Commission held that where a trust is a distinct
legal entity, a trustee acts on behalf of the trust entity. As
stated in said opinion:


As a trustee, however, you are acting on behalf of another. As
the legal representative ofa trust, any appearances before
municipal boards are on behalf of that trust, a distinct legal
entity. Regardless of whether you and immediate family members
are the sole beneficiaries of that trust, such appearances fall
within the purview of the s.17(c) prohibition.


This precedent is determinative of this case. In this case BDC is
a distinct legal entity[5] and Respondent acted as representative
of the corporation.

Although the Commission is not restricted to the common law
definition of agency, a review of the common law supports the
Commission's finding of agency within the meaning of the conflict
law. In some states the mere fact that a person is a corporate
officer in a closely held corporation results in the individual's
status as an agent for the corporation. See e.g. Sons of Norway v.
Boomer, 519 P.2d 28,32 (Wash., 1974). Massachusetts has held that
officers who are also shareholders and/or directors are agents of
the corporation for certain purposes. See e.g. Commonwealth v.
Colonial Motor Sales Inc., 11 Mass App. Ct 800,811(1981) (agency
found for purposes of liability); Kanavos v. Hancock Bank and
Trstst Co., l4 Mass App Ct 326,332(1982) (agency exists where
person's actions are within scope of corporation's ordinary
business); Comeau Co. Builders Inc. v. Paradiso, 39 Mass App. Dec
86(1960) (officer was agent for purposes of execution of a
contract); and Juergens v. Venture Capital Corp. 1 Mass App. Ct
274,278(1973) (president and major stockholder was agent for
purposes of granting refunds to stockholders seeking to return
purchased shares).[6]

The Commission need not decide that a president, director and
stockholder of a closely held corporation is an agent of a
corporation in all situations for conflict of interest law
purposes. It is sufficient to conclude that such an officer is an
agent of the corporation in the ordinary scope of carrying out its
usual business before a municipal agency on the facts of the case.
It is stipulated that Mr. Baldwin delegated management to Mr.
Sullivan due to Mr. Baldwin's ill health. Appearing before the
Board regarding the tri-party agreement and occupancy permits was
within the ordinary course of developing Patten Green Condominiums.

Directors and officers of a corporation in charge of its
management, in the performance of their corporate duties, are under
obligations of trust and confidence in all of its regular dealings
to the corporation and to it's stockholders. 13 Am Jur,
Corporations, part XVII, sub 1, cited in Holloway v. International
Bankers Life Ins., Co., 354 S.W. 2d 198,203 (Texas, 1962).
Massachusetts has applied this principle to closely held
corporations. In Donahue v. Rodd Electric Co. of New England, 367
Mass. 578,586(1975), it was held that stockholders in a closely
held corporation owe one another a fiduciary duty in the operation
of a business. Id. at 586, 593. The Donahue case states that each
stock owner is dependent on the other for the conduct of the
affairs of the business. There is an obligation of trust,
confidence, and absolute loyalty. Self-seeking conduct on the part
of any stockholder regarding the corporate business cannot be
tolerated because it might endanger the survivability of the
corporation. Id. at 587. Given the scrupulous fidelity and strict
duty of loyalty that the Respondent owed to the corporation and the
other stockholder it cannot be assumed that the Respondent was
advancing his own personal interest exclusively in his discussions
with the Planning Board regarding the affairs of the corporation.
Given the fiduciary duty that exists among stockholders, members
of the Planning Board would reasonably presume or infer that
Respondent was acting on behalf of, and with the knowledge and
consent of, the other stockholder(s) in the corporation; for if he
were not doing so, he would be in violation of his fiduciary duty.


If the conduct of the parties is such that an inference is
warranted that one is acting on behalf of and with knowledge and
consent of another, an agency exists as a matter of law. Choates
v. Board of Assessors of Boston, 304 Mass. 298,300(1939). There is
no evidence in the



Page 316

record that Respondent was engaged in self-seeking conduct which
was inconsistent with the interests of the corporation or the
knowledge or consent of his business partner.[7] Therefore, an
agency exists even under the common law.


In conclusion, Respondent had the authority to, did in fact,
speak in furtherance of the interests of BDC. When one person acts
on behalf of another person or entity, he is an agent for conflict
law purposes. See, LaBonte v. White Construction Co., Inc. 363
Mass. 4l (1973). U.S. v. Sweig, 316 F. Supp, 1148,1157 (S.D.N.Y.
1979). Therefore, Respondent violated G.L. c. 268A, s.17(c) on two
occasions: the Board meeting of August 13,1984 and the Board
meeting of September 26,1984 (continued to October 9,1984).

IV. Sanction


The Commission may require a violator to pay a civil penalty of
not more than two thousand dollars for each violation of G.L. c.
268A. G.L. c. 268B, s.40)(3). Although the potential maximum fine
in this case is $4,000, we believe that the imposition of the
maximum fine is not warranted. Respondent made an effort to comply
with G.L. c. 268A by not participating as a municipal employee in
particular matters in which the corporation had a financial
interest. See G.L. c. 268A, s.19. There is insufficient evidence
for the Commission to assume that Respondent's participation had
any determinative effect on the outcome of decisions made by the
Board. Finally, there was no effort by Respondent to conceal his
participation.

The violations in this case, on the other hand, cannot be viewed
as technical. As a member of the Board, Respondent was in a
position to exert, consciously or subconsciously, undue influence
upon the actions of the other members of the Board. The public
could reasonably ask how members of the Board could make an
objective, unbiased decision when a presentation was being made by
one of the Board's own members, who had just previously
participated in official deliberations. The very credibility and
impartiality of the Board's decision-making process may be called
into question when Board members are permitted to speak on behalf
of private entities before other Board members. Moreover, there is
no evidence that the Respondent sought advice as to the propriety
of his conduct prior to engaging in what an ordinary person would
understand to be questionable. Therefore, a fine reflecting these
facts is appropriate.

V. Order

On the basis of the foregoing pursuant to its authority under
G.L. c. 268B, s.4, the Commission orders Mr. Sullivan to pay one
thousand dollars ($1,000) to the Commission as a civil penalty for
violations of G.L. c. 268A, s.17(c).

---------------


[1] All of the Board meetings referred to in the findings of fact
were in the evening hours.

[2] Statute of Limitations: (a) An order to show cause must be
issued within three (3) years after a disinterested person learned
of the violation. (b) A respondent must set forth affirmatively a
statute of limitations defense. (c) When a statute of
limitations
defense has been asserted, the petitioner will have the burden of
showing that a disinterested person learned of the violation no
more than three (3) years before the order was issued. That burden
will be satisfied by: 1. an affidavit from the investigator
cutreniny responsible for the case that the Enforcement Division's
complaint files have been reviewed and no complaint relating to the
violation was received more than three (3) years before the order
was issued, and 2. with respect to any violation of c. 268A other
than s.23, affidavits from the Department of the Attorney General
and the appropriate office of the District Attorney that,
respectively, each office has reviewed its files and no complaint
relating to the violation was received more than three (3) years
before the order was issued.

[3] Even in the absence of a duly promulgated regulation, the use
of a three year statute of limitations codified in G.L..c. 260,
s.2A would be appropriate to this case. The essence of the
allegation of violations of s.17(c) is that Respondent violated his
duty to the public, which sounds in tort.

[4] This claim was made by Respondent's attorney, although there
is nothing in the record to support it.

[5] The fact that BDC is a close corporation does not mean it does
not have a status separate from its principals. A closely held
corporation retains the benefits peculiar to the corporate form
such as limited liability, perpetuity, and the like. see Donahue
v. Rodd Electric Co. of New England, Inc. 367 Mass 578, 586(1975).
Even if we were to disregard the corporate entity, we would
conclude that Respondent was acting on behalf of his "business
partner," Mr. Baldwin. (see Findings of Fact, paragraph 3).

[6] On the other hand, an officer would not be deemed an agent for
all purposes, such as selling most of the assets of the corporation
in the absence of express authority. See Kanavos, infra.

[7] The presence of a recognized spokesperson for the corporation,
other than Respondent, such as an attorney. might dispel the
appearance of an agency, but the record specifically precludes a
finding of other representation. (see Findings of Fact, paragraph
7).