STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6005

November 2, 1981

CONFLICT OF INTEREST:

Members of a city council who are employees of a corporation seeking quasi-judicial decisions of the council

OAG, 1981-1982, No 5864, p 64 (March 17, 1981), holding that members of a public body possessing quasi-judicial authority may not act upon matters submitted by a corporation which also employs them, applies generally to municipal public bodies exercising quasi-judicial authority.

A member of a city council who is employed by a corporation seeking specific quasi-judicial action from the city council is in a conflict of interest and may not participate in, nor vote upon, such official action.

The rule of necessity may not be applied to permit disqualified members of a city council to participate or be counted for quorum purposes in quasi-judicial municipal action requested by a corporation employing them.

Honorable Michael D. Hayes

State Representative

Capitol Building

Lansing, Michigan

Honorable Robert D. Young

State Senator

Capitol Building

Lansing, Michigan

On behalf of the city attorney for the City of Midland, you have requested my opinion on four questions pertaining to OAG, 1981-1982, No 5864, p 64 (March 17, 1981). OAG, No 5864, supra, concluded that a temporary member of the State Site Approval Board created pursuant to the Hazardous Waste Management Act, 1979 PA 64; MCLA 299.501 et seq; MSA 13.30(1) et seq, who is employed by the applicant for a hazardous waste disposal facility construction permit is in conflict of interest and must resign, permitting a new temporary member to be appointed so that a duly constituted nine member State Site Approval Board may be convened.

As stated in the city attorney's letter to you, the Dow Chemical Company and Down Corning Corporation, located in the City of Midland, each maintain a large work force and many of their workers reside within the city. 'As a consequence of the foregoing, and as you might expect, many of these individuals are actively engaged in civil and governmental affairs and in all facets of life in the city.' At the present time, employees of the Dow Chemical Company constitute three members of the five-member city council.

The four questions which have been directed to me may be phrased as follows:

In response to your first question, the factual setting in OAG, 1981-1982, No 5864, supra, involved a state site approval board convened pursuant to 1979 PA 64, supra, Sec. 17. Thus, the holding in OAG, 1981-1982, No 5864, supra, is particularly applicable in all instances where a site approval board is convened in Michigan under 1979 PA 64, supra.

The principles pertaining to conflict of interest, as discussed in OAG, 1981-1982, No 5864, supra, flow from two essential sources: statutory provisions and the common law as articulated by the courts. In both instances, evolving concepts of public policy play a prominent role.

A. STATUTORY PROVISIONS

Const 1963, art 4, Sec. 10, stating that no member of the Legislature nor any state officer shall be directly or indirectly interested in any contract with the state or any political subdivision which shall cause a substantial conflict of interest, has been implemented by the Legislature. 1968 PA 317; MCLA 15.321 et seq; MSA 4.1700(51) et seq, relates to the conduct of public servants, other than members of the Legislature and state officers, in respect to contracts with public entities. ⁽¹⁾ It must also be noted that the City of Midland Charter, ch 3, Sec. 3.15, also prohibits city officers from having a direct or indirect pecuniary interest in any contract, job or service performed for the city.

The Legislature also enacted 1968 PA 318, MCLA 15.301 et seq; MSA 4.1700(21) et seq, which relates to substantial conflicts of interest in respect to contracts on the part of members of the Legislature and state officers. ⁽²⁾ In OAG, 1973-1974, No 4799, p 116, 119 (February 1, 1974), it was held that 1968 PA 318, supra, Sec. 3, was unconstitutional for the reason that it purported to restrict the term 'state officer' as employed in Const 1963, art 4, Sec. 10, which provision 'was intended to apply to 'persons who serve the state in elected or appointed positions,' . . ..'

A third statute relevant to standards of conduct for public officers and employees is the state ethics act, 1973 PA 196, as last amended by 1980 PA 481, MCLA 15.341 et seq; MSA 4.1700(71) et seq. ⁽³⁾ 1973 PA 196, supra, Sec. 2, contains ethical standards which the Legislature has imposed upon public officers, public employees and members of state boards. See, OAG, 1981-1982, No 5864, supra. Under 1973 PA 196, supra, Sec. 3, there is created the State Board of Ethics which, pursuant to sections 1(b)-(c) and 5 of the act, possesses jurisdiction over complaints against classified or unclassified employees within the executive branch of government, and over persons appointed by the Governor or executive department officials. See, OAG, 1977-1978, No 5156, p 66, 73-74 (March 24, 1977).

Amendatory 1980 PA 481, supra, in amending 1973 PA 196, supra, has imposed the ethical standards of section 2 of the act upon employees and officers of local units of government by providing local officers and employees with protection against job-related retaliation for 'blowing the whistle' upon local conduct in violation of the ethical standards set forth in section 2 of the act. See, also, The Whistleblowers' Protection Act, 1980 PA 469, MCLA 15.361 et seq; MSA 17.428(1) et seq. However, while amendatory 1980 PA 481, supra, extended the ethical constraints of 1973 PA 196, Sec. 2, supra, to local officials and employees, the amendatory act did not expand the jurisdiction of the State Board of Ethics to hear complaints concerning allegations of unethical conduct at the local government level. ⁽⁴⁾ With respect to the ethical constraints imposed upon local officials and employees, the ethical standards set forth in 1973 PA 196, Sec. 2, supra, pertinently provide:

As noted in OAG, 1981-1982, No 5864, supra, 'the public policy of the state, as contained in 1973 PA 196, Sec. 2(6)-(7), supra, declares it to be unethical conduct for a public officer, employee, or member of a state board to take official action on permits or other regulations relating to a a business entity in which such officer has a pecuniary or personal interest.'

B. THE COMMON LAW

Where statutory regulation of conflict of interest is not applicable, it is appropriate to refer to the common law regarding conflict of interest of public officials and employees. OAG, 1981-1982, No 5916, p 218 (June 8, 1981).

The common law of the state furnishes the second source of the law of conflict of interest. In People v Township Board of Overyssel, 11 Mich 222, 225-226 (1863), the court stated:

See OAG, 1981-1982, No 5864, supra, and OAG, 1977-1978, No 5404, p 720 (December 14, 1978).

OAG, 1981-1982, supra, cited at length from Pyatt v Mayor & Council of Borough of Dunellen in Middlesex County, 9 NJ 548; 89 A2d 1, 4 (1952), where the Supreme Court of New Jersey voided, on conflict of interest grounds, municipal ordinances vacating a street and detouring trafffic to another street where two of four councilmen voting in favor were employed by a corporation which would be benefitted thereby. The court characterized the council's deliberations on the ordinance as akin to that of a quasi-judicial tribunal, calling for the exercise of discretion. 'Therefore, the ordinances are voidable if any one of the councilmen who participated as quasi-judges was at the time disqualified by reason of private interest at variance with the impartial performance of his public duty. . . .' [Citations omitted.]

To like effect, see Wilson v Iowa City, 165 NW2d 813, 819-820 (Iowa 1969); Baker v Marley, 8 NY2d 365; 170 NE2d 900 (1960); Aldom v Borough of Roseland, 42 NJ Super 495; 127 A2d 190 (1956), cited in Barkey v Nick, 11 Mich App 381, 385; 161 NW2d 445 (1968). Cf Abrahamson v Wendell, 76 Mich App 278, 281-282; 256 NW2d 613 (1977) (on rehearing). Under the Pyatt, supra, line of authority, participation in municipal action by an official or employee with a personal or financial interest may result in the final decision being held void. OAG, 1981-1982, No 5864, supra. On the other hand, other courts which have considered the issue 'have held that the vote of a disqualified public officer does not vitiate official action where the tainted vote was not necessary to pass the issue, particularly where there are multiple votes, only one of which is illegal. These decisions hold such official action is voidable.' [Citations omitted.] OAG, 1981-1982, No 5864, supra.

Viewing both lines of authority, the rule that may be deduced is that participation by a member of a local legislative body in formulating quasi-judicial municipal action, where such person is employed by the beneficiary of such action, results in subjecting such municipal action to direct attack as being void or voidable. It has been stated that a city council acts in a quasi-judicial capacity when it grants or denies a privilege or benefit. Blankenship v City of Richmond, 188 Va 97; 49 SE2d 321, 323 (1948). Quasi-judicial municipal action indicates official acts based on investigation, consideration, and deliberate human judgment, involving the exercise of discretion. Oakman v City of Eveleth, 163 Minn 100; 203 NW 514, 517 (1925); State v Leyse, 60 SD 384; 244 NW 529, 531 (1932); Pyatt, supra. Where a general rule is applied to a specific interest, as in the case of a zoning change involving a specific parcel of property, a variance or conditional use permit, such action is quasi-judicial in nature. Allison v Washington County, 24 Or App 571; 548 P2d 188, 191 (1976).

In 4 McQuillin, Municipal Corporations, Sec. 13.03c, p 514 (3d Rev Ed) it is stated:

Thus, where a councilmember is employed by a specific party who will be benefitted by a municipality's actions of a quasi-judicial nature in a particular case, as above illustrated, and such person takes part in such action and votes thereon, the municipality's action may be held void or voidable.

In Wilson, et al v Township Board of Burr Oak, 87 Mich 240; 49 NW 572 (1891), the unanimous action of the four-member township board in ordering the laying out of a highway pursuant to statute was held void where two members of the board were personally and financially interested in the highway's construction. The court stated: 'We think, also, that the township board erred in proceeding to lay out the highway, if . . ., two members of said board, or either of them, were financially interested in its being laid out.' Wilson, supra, 87 Mich 240, 248. It should be noted that the board had rejected the plaintiff's request that the two members in question be removed from the board, and two new appointments made, pursuant to statute. Wilson, supra, 87 Mich 240, 244. See, OAG, 1981-1982, No 5864, supra. See, also, Woodward v City of Wakefield, 236 Mich 417; 210 NW 322 (1926); Abrahamson, supra; Barkey v Nick, supra.

These common law authorities, the statutes discussed above, and OAG, 1981-1982, No 5864, supra, must collectively be applied in concrete factual situations in order to determine whether a conflict of interest (or ethical violation of 1973 PA 196, as last amended by 1980 PA 481, supra) exists.

Thus, in response to your first question, it is my opinion that OAG, 1981-1982, No 5864, supra, and the authorities therein and here cited, have general application to the subject of conflict of interest in Michigan extending beyond the state site approval board.

The ethical constraints of 1973 PA 196, Sec. 2, supra, are mandatory provisions which 'shall' be followed by local governmental officials and employees. As stated in my answer to your first question, and as held in OAG, 1981-1982, No 5864, supra, where a municipal official is employed by the corporate beneficiary of specific municipal action which is quasi-judicial in character, such person is in conflict of interest and may not participate in, or vote upon, such action. In the event such person who is in conflict of interest does participate in quasi-judicial municipal action, the official action may be held either absolutely void or voidable where the person's vote was determinative. See, Stockwell v The Township Board of White Lake, 22 Mich 341, 352 (1871).

Thus, in response to your second question, it is my opinion that under the common law doctrine of conflict of interest as judicially articulated, and pursuant to the ethical constraints of 1973 PA 196, Sec. 2, supra, a local governmental official or employee who is also employed by the applicant or beneficiary of specific quasi-judicial municipal action is in conflict of interest, and may not participate in nor vote upon such official action.

The most authoritative statement of the rule of necessity appears in United States v Will, ---- US ----; 101 S Ct 471, 481; 66 L Ed 2d 392, 406 (1980). There, the United States Supreme Court held that the federal district court, and the Supreme Court, possessed jurisdiction of plaintiff federal judges' suit concerning constitutionality of statutes affecting judicial salaries, despite the fact that all federal judges and Justices are interested in the outcome of the case. Grounding its decision upon the rule of necessity, the Court quoted from Evans v Gore, 253 US 245, 247-248; 40 S Ct 550; 64 L Ed 887 (1920):

Where another body, or another person, is able to act in place of the disqualified body or person (or persons), or where the body without the disqualified member may still act, the rule of necessity does not apply. Will v United states, supra; Stockwell, supra; Bliss v Caille Brothers Co, 149 Mich 601; 113 NW 317 (1907). See Annotation, Necessity As Justifying Action By Judicial Or Administrative Officer Otherwise Disqualified To Act In Particular Case, 39 ALR 1476, 1479-1482. Cf Shinavier v Liquor Control Commission, 315 Mich 188, 192; 23 NW2d 634 (1946).

The rule of necessity has been held by courts in other jurisdictions to be applicable to state administrative agencies exercising quasi-judicial powers. First American Bank & Trust Co v Ellwein, 221 NW2d 509, 514-517 (ND, 1974), cert den 419 US 1026; 95 S Ct 505; 42 L Ed 2d 301, reh den 419 US 1117; 95 S Ct 798; 42 L Ed 2d 816; State ex rel Miller v Aldridge, 212 Ala 660; 103 So 835 (1925); Brinkley v Hassig, 83 F2d 351 (Cir 10, 1936); Kachian v Optometry Examining Board, 44 Wis2d 1; 170 NW2d 743 (1969).

In Stockwell, supra, which involved a four-member township board convened for removal of an officer, the court, in holding void the board's action based on one member's conflict of interest stated, in dicta, that the facts did not call for application of the rule of necessity.

However, it has been held that the rule of necessity is inapplicable where there is no need for prompt adjudication of a matter. In State, ex rel Miller v Aldridge, supra, the court declined to apply the rule of necessity where the three-member State Board of Public Accountancy sought to revoke petitioner's public accountant certificate. One of the three members had disqualified himself based on interest, bias, and prejudice, but the remaining two members declined to do so. The court, in disqualifying the two remaining members of the board, stated:

Thus, the court in State, ex rel Miller v Aldridge, supra, disqualified the board from acting in its quasi-judicial capacity in seeking to revoke Miller's license, viewing the matter of agency action in cases of disqualification of members of quasi-judicial entities as one for legislative action.

The public policy of Michigan, as enunciated and applied by the courts in cases of disqualification, is consistent with the reasoning of the Alabama Supreme Court in State, ex rel Miller v Aldridge, supra. In voiding the township board's action in Stockwell, supra, based on one board member's conflict of interest, the Michigan Supreme Court stated:

In OAG, 1981-1982, No 5916, supra, it was held that three members of a five-member township board were disqualified from participating (or being counted for quorum purposes) in the approval of the transfer of a property tax exemption certificate for an agricultural cooperative, where the three members in question were members or stockholders of the cooperative. See People v Township Board of Overyssel, supra, and my answer to your second question.

Thus, where a member (or members) of a local legislative body is in conflict of interest in the exercise of quasi-judicial municipal action, then such person is disqualified from participation. The Legislature may wish to consider the enactment of legislation which will address instances where quasi-judicial agency or local legislative action is affected by disqualification of a member (or members) of such body. Eg, OAG, 1981-1982, No 5916, supra, fn 2 thereof.

In the situation at hand, three of the five members of the Midland City Council are employed by the Dow Chemical Company. TheMidland Charter, ch 4, Sec. 4.6(3) provides that '[t]hree (3) members of the Council shall be a quorum for the transaction of business at all meetings of the Council . . ..' OAG, 1981-1982, No 5916, supra, further concluded that a member of a local legislative body who is disqualified from voting may not be counted for purposes of establishing a quorum. See, also, 56 Am Jur 2d, Municipal Corporations, Sec. 172, pp 224-225, and fn 9. It also should be noted that with respect to the two lines of authority holding void or voidable quasi-judicial municipal action where a disqualified official participates in decision-making, as discussed in my answer to your second question, the deciding courts did not apply the rule of necessity to overcome the disqualification. Thus, the three members of the five-member Midland City Council who are employed by the Dow Chemical Company may not participate in, nor be counted for quorum purposes, in any matter of a quasi-judicial nature involving their employer, Dow Chemical.

It is my opinion, therefore, that the rule of necessity may not be applied to permit otherwise disqualified members of a local legislative body to participate, or be counted for quorum purposes, in quasi-judicial municipal action. OAG, 1981-1982. No 5916, supra.

Thus, in response to your third question, it is my opinion that the rule of necessity may not be applied to allow the three members of the five-member Midland City Council employed by Dow Chemical to participate or be counted for quorum purposes in any quasi-judicial matter involving their employer. This is a matter for the Legislature. In the absence of appropriate legislation, this matter must be resolved by the electors of the city.

OAG, 1977-1978, No 5404, p 720 (December 14, 1978), stated that where a city council person is also employed by a private corporation seeking tax relief authorized by statute, the council person must abstain from voting on the matter if he or she owes a fiduciary obligation to the private employer. The determination whether a fiduciary obligation to the private employer exists was stated to be dependent upon the position held by the person involved. This opinion did not reach the question whether or not the proposed action was quasi-judicial in nature.

OAG, 1977-1978, No 5404, supra, was grounded solely upon the common law regarding fiduciary obligation a public official owes the public entity which is served. The Legislature has, subsequently to OAG, 1977-1978, No 5404, supra, further addressed conflict of interest pursuant to imposing the ethical constraints of 1973 PA 196, Sec. 2, supra, upon local governmental officers and employees, by virtue of amendatory 1980 PA 481, supra. See, OAG, 1981-1982, No 5864, supra.

Thus, in response to your last question, under the facts presented, 1973 PA 196, Sec. 2, supra, and OAG, 1981-1982, No 5864, supra, require modification of OAG, 1977-1978, No 5404, supra. It is my opinion, therefore, that OAG, 1977-1978, No 5404, supra, is modified to the extent that a city councilperson or other municipal official who is employed by the intended beneficiary of quasi-judicial municipal action is in conflict of interest and may not participate in official action involving the employer of such person.

Frank J. Kelley