| Date: | 10/30/1987 |
|---|---|
| Organization: | State Ethics Commission |
| Docket Number: | 320 |
- Appearance for Petitioner: Robert A. Levite, Esq.
- Appearance for Respondent: John H. Cunha, Jr., Esq.
- Commissioners: Diver, Ch., Basile, Burns, Epps, Gargiulo
- This page, In the Matter of Robert P. Sullivan, is offered by
- State Ethics Commission
Decision
Decision In the Matter of Robert P. Sullivan
Table of Contents
I. Procedural History
Page 312
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 development 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 regulation
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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 Attleborough, 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. Massachusetts 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 of a 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
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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 of BDC 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 of a 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 Trust 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
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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).