| Date: | 10/24/1988 |
|---|---|
| Organization: | State Ethics Commission |
| Docket Number: | 332 |
The Petitioner initiated these adjudicatory proceedings on
April 28, 1987 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 Norman McMann (Respondent), Honeydew
Donut Shop owner, violated G.L. c. 268A, s. 19[1] and 20[2] by:
1. voting 18 times as a member of the Bristol-Plymouth
Regional School Committee (School Committee) to approve
payment of a cafeteria warrant which included payments to
McKee Enterprises (McKee); and
2. having a direct or indirect financial interest in the daily
contract made by the Bristol-Plymouth Regional Technical
School District (School District), from April, 1984 to
January, 1986, a municipal agency of the same municipality
where Respondent serves on the School Committee.
Respondent filed an Answer on May 19, 1987 in which he raised
two affirmative defenses:
1. that the statute of limitations or laches barred the
proceedings; and
2. that the Commission denied Respondent's right to due
process by not permitting Respondent to present his side of
the case to the Commission at the time it found reasonable
cause.
The parties stipulated that, during the relevant time, Respondent
was a member of the School Committee and the owner of the donut
shop. Respondent's answer denied all other material allegations
contained in the Order.
An adjudicatory hearing was held on October 29, 1987 before
Commission Chairman Colin S. Diver, a duly designated presiding
officer. At the close of Petitioner's case, the Respondent moved
to dismiss on the grounds that Petitioner did not establish there
was a contract with the School District and that Respondent had
no financial interest in the School District's payments to
McKee. The hearing officer denied the motion inasmuch as only the
full Commission may grant such a motion. 930 CMR 1.01(6) (d).
Respondent's grounds for dismissal are repeated in his brief
opposing the Petitioner's allegations in the Order to Show Cause.
Accordingly, this Decision and Order addresses those grounds.
The parties filed post-hearing briefs and presented oral
argument before the Commission on September 14, 1988. In
rendering this Decision and Order, the Commission has considered
the testimony, evidence and arguments of the parties.
1. Respondent was, at all relevant times, a member of the
School Committee and, therefore, a municipal employee.
2. The School Committee was responsible for approving payment
of bills from vendors who supply goods to the School cafeteria.
3. A cafeteria warrant includes cafeteria expenses for the
month and a line item for each vendor who provided supplies.
Supporting documentation for the warrant, including individual
bills or receipts, was available to the School Committee.
4. When the School Committee approved the warrant, it was
thereafter submitted to the School District treasurer who would
in turn pay the vendor.
Page 380
5. At all relevant times, Respondent was president and part
owner of Silver City Donut, Inc., a corporation which owned and
operated a Honeydew donut franchise (the Donut Shop) in Taunton,
MA. Brenda Dean (Dean) was also a part owner of the corporation.
Respondent was also, at all applicable times, an employee of the
corporation.
6. Prior to Respondent's election to the School Committee,
the School purchased donuts from the Donut Shop. The cafeteria
manager testified that she purchased all the food, that she
turned all her bills into the business manager, and that the
School Committee had to approve whether or not to pay the bills.
The donuts were then delivered to the School by Respondent,
Wilbur McKee or Dean. The donuts were delivered in boxes with a
Honey-dew logo.
7. The sale of donuts to the School represented 10% of the
Donut Shop's business.
8. In 1984, the School Committee raised a question of
conflict of interest if Respondent continued to sell donuts to
the School. The School Committee requested a legal opinion on
this issue from the School Committee attorney, David Gay.
9. In a letter dated January 25, 1984, Respondent requested
an opinion from Attorney Gay it is legally permissible for
[Respondent) to continue any business transaction with the
School."
10. On February 15,1984, Attorney Gay wrote an opinion to
Respondent that stated [I]n my opinion, your election to the
Bristol-Plymouth School Committee requires that your business
corporation cease its contractual relationship with the School."
In a separate cover letter of the same date to Respondent,
Attorney Gay stated am sorry that there is no method to allow the
business to continue..."
11. After Respondent was notified to stop selling donuts to
the School, he had a conversation with his baker, Wilbur McKee
informing him of the conflict of interest.
12. McKee asked Respondent if McKee could legally sell the
Donut Shop donuts to the School. Respondent stated that he would
ask Attorney Gay if this solution was permitted. Respondent later
told McKee that it was permitted.
13. Respondent informed the cafeteria manager that Respondent
would no longer sell donuts to the School but that, if she
wanted, the cafeteria manager could purchase donuts from McKee
Enterprises. Respondent did not pressure the cafeteria manager to
buy from McKee. Respondent informed the manager of McKee's name
and address for purposes of school payment.
14. McKee then delivered the donuts to the School in plain,
white boxes. Donut Shop donuts were delivered to another school
and wholesale account in Honeydew logo boxes.
15. Prior to this arrangement with Respondent, McKee did not
sell donuts to customers although he did provide a few dozen a
week to his wife (at no cost) and to his cousin.
16. McKee had no permit to make wholesale sales. He had no
letterhead as McKee Enterprises. The checks he issued to pay the
Donut Shop for the School's donuts were drawn on his personal
account. McKee Enterprises was a name McKee used only for his
business with the School.
17. When Respondent and McKee arranged that McKee would sell
the Donut Shop donuts to the School, the donuts were ordered the
same way they had been ordered when the Donut Shop sold the
donuts to the School directly. The cafeteria manager placed the
orders and someone at the Donut Shop, Respondent, Dean or any of
the other employees, took the order. McKee baked the donuts
nightly and the delivery slips were filled out by Dean.
18. After Respondent and McKee arranged that McKee would sell
donuts to the School, Respondent rather than McKee, kept records
of the School sales and delivery slips. Respondent also arranged
with McKee that he would give McKee 10% of whatever the sale was
going to the School. When the School paid McKee for the donuts,
McKee either signed the check over to Respondent who gave him 10%
back or McKee wrote Respondent a check for 90% of the total he
received from the School.
19. The 10% amount retained by McKee was given by Respondent
to McKee in exchange for the service of delivering donuts to the
school.
20. The Donut Shop would receive payment from McKee when and
if McKee received his check from the School.
21. Respondent decided what price to charge the School for
donuts, both before and after McKee was selling the donuts to the
School.
22. On September 3, 1985, Respondent gave a deposition under
oath in the Honeydew Associates, Inc. v. Silver City Donut, Inc.
(Bristol Sup. Ct. No. 18498) where he testified that, as of that
date, the Donut Shop had one wholesale account, the
Bristol-Plymouth School. He did not mention McKee Enterprises as
a wholesale account.
23. From March, 1984 to December, 1985, the School purchased
$13,782.00 in donuts from McKee Enterprises. These purchases
involved a total of 319 separate orders and deliveries. During
that time, McKee paid $12,403.80 to the Donut Shop.
24. From April, 1984 to January, 1986, Respondent voted 18
times as a School Committee member to approve cafeteria wants
each of which included payment to McKee Enterprises. The total
amount approved in these warrants for McKee Enterprises for
donuts was $13,782.00. Respondent knew that the payments to
Page 381
McKee were for donuts sold by the Donut Shop and that Respondent
would receive 90% while McKee would receive 10%.
25. Respondent's testimony that he thought that if he sold to
another person he would not violate the law is not credible.
Respondent specifically arranged to use McKee as a "straw" to
conceal his s. 19 and 20 violations.
For the reasons stated below, the Commission concludes that the
Respondent violated G.L. c. 268A, s. 19 on 18 separate occasions
by participating in 18 votes involving particular matters in
which he had a financial interest and that the Respondent
violated G.L. c. 268A, s. 20 on 319 separate occasions by having
a financial interest in a contract with the School District. The
Commission further concludes that these violations were willful
and involved a course of conduct constituting both the s. 19 and
20 violations as well as an effort to conceal these violations.
The Commission has promulgated a regulation concerning the
assertion of a statute of limitations de-tense. 930 CMR 1.02 (10)
(c)[3] Where a statute of limitations defense has been asserted,
Petitioner has the burden of showing that a disinterested person
learned of the violation no more than three years before the
Order was issued. Petitioner has submitted the affidavits of Dan
Curhan, Richard Krant and William Durette to satisfy this burden.
We find these sufficient to satisfy the burden found in 930 CMR
1.02 (10) (c).
Respondent contends that his due process rights were violated
because he was not allowed, at the time the Commission found
reasonable cause, to present his side of the case. This defense
was fully addressed by the Commission in a 1980 case indicating
that an Order to Show Cause, valid on its face, would not be set
aside on the ground that evidence presented to the Commission was
inadequate or insufficient, since the adequacy and sufficiency
of the evidence could and should be tested, in the first
instance, at the administrative hearing. See, In the Matter of
John Buckley, 1980 Ethics Commission 2.
Municipal employees are prohibited by s. 20 of G.L. c. 268A
from having a direct or indirect financial interest in contracts
made by the municipality. The Commission has previously concluded
in EC-COI-82-25 that a "regional school district is considered an
independent `municipal agency' for purposes of G.L. c. 268A." See
also, EC-COI-83-74. Respondent was clearly holding office in and
performing services for an independent municipal agency within
the meaning of G.L. c. 268A, s. 1(g) and therefore was a
municipal employee.
Respondent contends that, even if he was a municipal employee
of an independent municipal agency when he served on the School
Committee, the express language of s. 20 indicates that its
prohibition applies only to a municipal employee who has a
financial interest in a contract made by a municipal agency and
does not extend to a financial interest in a contract made by an
independent municipal agency. This reading of s. 20 contradicts
the Commission's determination that a regional school district is
a municipal agency for the purposes of the conflict law, as well
as the Commission's mandate to give the statute a workable
meaning. See, EC-COI-82-25; Graham v. McGrail, 370 Mass. 133, 140
(1976). EC-COI-82-25 reflects the Commission's affirmation of the
Attorney General's determination that school districts perform
municipal functions under municipal control and are, therefore,
municipal agencies. See, AG. Conflict Opinion No. 98.
Respondent's argument is also rebutted by the general intent of
G.L. c. 268A's drafters to produce comprehensive legislation.
Respondent advances no reason why the drafters would have chosen
to exclude independent municipal agencies from the broad
prophylactic rule articulated in s. 20. Indeed, the School
Committee's own counsel offered the Respondent an opinion on the
legality of his direct contract with the School District that
interpreted s. 20 consistent with this Commission precedent.
Respondent contends that there was no contract made by a
municipal agency in this case because:
(a) The parties stipulated that the municipal agency alleged
to have made the contract is the Bristol-Plymouth
Regional Technical School District and a district cannot
be a municipal agency;
(b) The cafeteria manager did not have statutory authority to
bind the School District to a contract; therefore, there
was no contract;
(c) Section 20 of G.L. c. 268A only addresses contracts for
personal services;
(d) The cafeteria manager and the superintendent did not
believe there was a contract to purchase donuts.
None of these contentions has merit.
The Commission concluded in EC-COI-82-25 that a regional
school district is considered a `municipal agency' for purposes
of G.L. c. 268A."
Page 382
The fact is that, based on her testimony, the cafeteria manager
routinely bound the School District to contracts for the purchase
of cafeteria goods. When there is bargained-for exchange, offer,
acceptance, and consideration," there is a contract. See, Quinn
v. State Ethics Commission, 401 Mass. 210, 216 (1987). Here, the
Donut Shop (either Respondent or McKee) offered to sell donuts to
the School, the cafeteria manager accepted that offer on behalf
of the School and the School paid money, consideration, for the
donuts. We credit the testimony of the cafeteria manager that she
purchased the cafeteria food, turned all bills in to the business
manager, and it was then left to the School Committee to pay the
bills or not. In every instance of the sale of donuts, the School
Committee voted to approve of payment and the School District did
pay for the donuts. See, Conley v. Ipswich, 352 Mass. 194, 204
(1967) (each time a sale is made, there is a separate contract).
Therefore, even if the cafeteria manager had no actual authority
to bind the School Committee to purchase donuts she had apparent
authority to purchase donuts which authority was subsequently
ratified.
It is well settled that s. 20 of G.L. c. 268A applies to
contracts for the sale of goods as well as personal service
contracts. Section 20 applies to all municipal contracts. There
is no language in s. 20 which exempts contracts for the sale of
goods. Sections 7 and 20 have been interpreted to include the
sale of goods consistently since prior to 1965. See, Buss
Conflict of Interest Law; an analysis, 45 B.U.L. Rev. 299, 368
(1965):
The Company which sells office supplies, no less than the
company which plies bulldozers makes state contracts...
Respondent's final argument that the superintendent and
cafeteria manager do not believe a contract existed neither
reflects the actual testimony nor has any relevance as a
legal argument.
The Commission has consistently recognized that a person who
is not a party to a contract may still fairly be said to have a
financial interest in it. See, EC-COI-83-125(contractual
financial interest of spouse may be imputed to state employee,
where there is shared control of contract); Buss, (s. 7 applies
not only to contracts awarded to the employee's own company but
companies with which his company does business. Id., at 374).
More recently, in EC-COI-87-14, the Commission found that a state
employee was prohibited from participating in a Home Ownership
Opportunity Program of EOCD where EOCD's contract was not with
the developer but with participating lending institutions. In
that case, the Commission's conclusion rested on the fact the
price which the employee charged for the unit was dependent on
EOCD's contractual relationship with the participating lending
institutions.
In this case, Respondent had a financial interest in McKee's
delivery of donuts to the school. The total amount of money
McMann received from McKee depended on a percentage of whatever
the sale was going to be to the school. Further, Respondent made
the decisions about price changes regarding the contract price of
the donuts to the school.
Section 19 of G.L. c. 268A prohibits Respondent from
participating as a municipal employee in a particular matter in
which, to his knowledge, he or a business organization in which
he is associated in certain ways has a financial interest.
Respondent is a municipal employee. Each decision by the School
Committee to approve a cafeteria warrant which included a line
item for McKee Enterprises was a particular matter. For the same
reasons as stated in the discussion of s. 20, Respondent and the
corporate entity of which he was 50% owner and employee had a
financial interest in the sale of donuts by the corporation.
Since the decision by the School Committee to approve the
cafeteria warrant was necessary in order for McKee to be paid for
donuts sold and for Respondent to receive his 90% share,
Respondent had a financial interest in the decision to approve
the cafeteria warrant.
Respondent admits knowing that on each occasion when the
School Committee approved a cafeteria warrant including a McKee
Enterprises line item, he was aware of the same and knew that
ninety per cent of those proceeds would be going to the Donut
Shop. Consequently, the evidence satisfies the "to his knowledge"
requirement in s. 19. Respondent's votes to approve the cafeteria
warrant constitute personal and substantial participation as
well. These roles involved a decision making role, despite the
fact that they involved little controversy. See, In the Matter of
James Geary, 1987 SEC 305. We find Respondent's actions
distinguishable from conduct which we found peripheral in
EC-COI-87-92. In that opinion, the municipal employee's conduct
was limited to signing an undisputed payroll warrant, where the
correctness of the hours had been approved previously by the
police chief over whom the employee exercised no active
supervision. We expressly limited the opinion to those facts and
declined to extend the holding to the Respondent. Here the
Respondent's personal involvement commenced long before the
approval vote. In view of the 1984 Town Counsel opinion, the
propriety of the Respondent's donut sales, which formed the basis
of the warrant approval, was already in dispute. The safeguards
which the Commission regarded as sufficient in EC-COI-87-92 to
protect the integrity of the underlying contract are therefore
not present here.
Page 383
There is substantial evidence that Respondent willfully
attempted to evade detection of his s. 19 and 20 violations
in this case. On February 15, 1984 Respondent received an
emphatic letter from Town Counsel which said he could not sell
donuts to the School. Less than three weeks later, on March 1,
1984, McKee started delivering donuts. Respondent has offered no
legitimate business purpose to justify his change in the way
donuts were sold to the school.
McKee did not previously have a wholesale business, nor is
there any evidence he intended to establish one independent of
the Respondent and the School. He had no other wholesale
customers except the 319 deliveries to the School. Even though
Respondent was on notice that donut sales to the School were
prohibited, he did not check out the new arrangement with Town
Counsel, the School Committee, or this Commission.
In addition, this Commission has specifically found not
credible Respondent's testimony that he thought that if he sold
to another person, he would not violate the law.
This was a significant series of contracts and a series
of votes on cafeteria warrants involving significant amounts of
money. The total gross receipts from illegal sales was $12,000.00
to $14,000.00. There is an entire course of conduct and not just
an isolated incident at issue here as well. Respondent's
continued financial interest in the contract after he was put on
notice by Attorney Gay and the cover up are serious aggravating
factors here. The Commission has noted elsewhere that attempts to
conceal violations show a clear awareness of impropriety. See, In
the Matter of James M. Collins, 1985 Ethics Commission 228. A
fine reflecting these aggravating factors is appropriate.[4]
On the basis of the foregoing, pursuant to its authority under
G.L c. 268B, s.4, the Commission orders Respondent to pay ten
thousand dollars ($10,000.00) to the Commission as a civil
penalty for 18 violations of G.L. c. 268A, s. 19 and 319
violations of G.L. c. 268A, s. 20.
