Filing Number: 16-05
Subject: Appearance of Impropriety
Keywords: appearance of impropriety, board member, business, compensation, conflict, County official, County policy, County resources, disclosure, elected official, Executive Office, financial interests, impropriety, non delegable, outside employment, private advantage or gain, private business, public policy, recusal, undue influence
Decision By: Eric Monzo (Vice Chairperson), Beatrice Patton Dixon, Paula Jenkins-Massie, Sally Jensen, Robert Ralston and Christopher Simon
Contact Email: admin@nccethics.org
 
Status: Active

Question:

Whether a newly-elected County official, who, during the timeframe between his election and his taking the oath of office has been in the process of reducing his role and ownership level in his sole member limited liability corporation, may take office while remaining the sole owner of such private enterprise, which: (a) is registered under the laws of the country of Kenya, Africa; (b) has its sole American office in Wilmington, Delaware; and (c) which does not and will not do any business with New Castle County?

Conclusion:

Under the facts presented here, yes, the requester may continue his ownership of his sole member limited liability corporation (the “Company”), which does not do business with New Castle County, when he takes office, provided that the following conditions are met:  (a) the Company does not do business with New Castle County; (b) all appropriate and relevant information on this matter is disclosed in any Statements of Financial Interests filed with this Commission and other documents required by the Code; (c) if a conflict or potential conflict arises with respect to the Company and the requester’s County duties and responsibilities, the requester must follow the recusal procedures set forth in 2.03.103.A; and (d) the requester must establish procedures for handling Company business in a manner that ensures that County time and resources are not used for the benefit of the Company. Further, if any one or more of these conditions is or cannot be met, or the circumstances change from those provided to the Commission in requesting this advisory opinion, the requester must inform the Commission and further review and response.   

Facts:

The requester, who is a recently elected official, is the sole owner of a sole member limited liability company (the “Company”) which is formed and registered under the laws of Kenya, Africa.  Its only office in the United States is located in Wilmington, Delaware.  Serving East Africa, the Company is only a few years old and it engages in wholesale and retail e-commerce of durable goods.  Its Wilmington, DE, office is used primarily as a base for its shipping operations.  The Company provides seamless no-credit card customer purchases and provides timely home delivery of products from American retailers to nations in East Africa.  The Company ships goods and products to large cities in East African nations where their residents can purchase the goods through financial accounts saved on their mobile phones. 
 
In its short lifespan, the Company has received acclaim from business development authorities for its innovative methods.  The requester, since he began his bid for County office, has been working to limit his involvement in the Company, and, since his election, has been in active negotiations with investors and investor groups to sell some or all of his interests in the Company. While it is possible that such negotiations will be completed prior to his taking the oath office of office, it is more likely that the requester will retain some or 100% ownership in the Company.  Once the requester sells most or all of his interest in the Company, it is currently undetermined what the requester’s role may be with the Company.  The requester has informed the Commission that he may negotiate a sale of the Company which includes his attendance at annual or quarterly Company board meetings, which would take the form of a 3 or 4-hour commitment for such meetings.  Also, a negotiated sale may result in the requester retaining a majority or a minority shareholding stake in the Company.   The requester has asked the Commission for guidance under these circumstances

Code or Prior Opinion:

Relevant provisions in the definition section of the Ethics Code, Section 2.03.102, include the following:
 
Appearance of impropriety means conduct which is prohibited by Section 2.03.104A.
Business means any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, self-employed individual, holding company, joint stock company, receivership, trust or any legal entity organized for profit.
Business with which he or she is associated means any business in which the person is a director, officer, owner or employee; or a business in which a member of the person's immediate family is a director, officer, owner or has a financial interest.
Closely held corporation means a corporation in which the stock is held by fewer than ten (10) investors and is not publicly traded.
Compensation means any money, thing of value or any other economic benefit of any kind or nature whatsoever conferred on or received by any person in return for services rendered or to be rendered by oneself or another.
Conflict or conflict of interest means conduct which is prohibited by Section 2.03.103.
Contract means an agreement or arrangement for the acquisition, use or disposal by the County of consulting or other services or of supplies, materials, equipment, land or other personal or real property. "Contract" shall not mean an agreement or arrangement between the County as one (1) party and a County official or County employee as the other party concerning his or her expense, reimbursement, salary, wage, retirement or other benefit, tenure or other matters in consideration of his or her current public employment with the County.
County means New Castle County and including any County Department.
County official means any person elected or appointed to any County office, board, commission or the New Castle County Council Audit Committee provided, however, that for purposes of Sections 2.03.103(B)(2), 2.03.103(C), and 2.03.104(C). "County official" does not include any member of a board or commission which operates solely in an advisory capacity, and whose members are not compensated, other than reimbursement for expenses.
Financial interest means any interest representing more than five (5) percent of a corporation, partnership, sole proprietorship, firm, enterprise, franchise, organization, holding company, joint stock company, receivership, trust, or any legal entity organized for profit.
Governmental body means any department, authority, commission, committee, council, board, bureau, division, service, office, official, administration, legislative body, or other establishment in the executive, legislative or judicial branch of a state, a nation or a political subdivision thereof or any department performing a governmental function.
Governmental body with which a County official or County employee is or has been associated means the governmental body within County government by which the County official or employee is or has been employed or by which the County official or employee is or has been appointed or elected and subdivisions and offices within that governmental body.
Income means any money, thing of value or other pecuniary benefit received or to be received in return for, or as reimbursement for, services rendered or to be rendered. The term does not include gifts; governmentally mandated payments or benefits; retirement, pension or annuity payments funded totally by contributions of the County official or employee; or miscellaneous, incidental income of minor dependent children.
Person means a business, governmental body, individual, corporation, union, association, firm, partnership, committee, trust, joint venture, club or other organization or group of persons.
Private enterprise means any activity conducted by any person, whether conducted for profit or not for profit and includes the ownership of real or personal property. Private enterprise does not include any activity of the federal, State or local government or of any department, authority or instrumentality of the federal, State or local government.
Recusal means, including but not limited to, withdrawing from sponsorship, deliberation, vote, research, preparation, discussion, negotiation, contract formation, policy making, planning, decision making, and/or implementation of a matter. It also includes a prohibition on conducting, in an official capacity, any private or public discussion of a measure raising a conflict or improper appearance. As soon as a potential conflict or improper appearance arises or is recognized, an official or employee must end direct or indirect participation, advice, input, direction, recommendation, or discussion, as well as refraining from vote, if the person is a not an elected official. Elected officials may choose to avoid recusal and may vote if they follow the alternate process described in Subsection 2.03.103.A.2.
Regulated by New Castle County means that an entity operating in New Castle County as a business or nonprofit organization requires approval from or regulation by New Castle County in order to lawfully conduct one or more business activities.
Source means any person who is a provider of an item reportable under Section 2.03.107 and the term includes identification of all members of a group of persons who act in concert to provide the reportable item.
 
Code of Conduct Provisions
 
            Certain portions of the New Castle County Ethics Code are relevant to this opinion, including the following:
Section 2.03.101. - Purpose of Division.
 
A.  It is hereby declared that public office is a public trust and that any effort to realize personal financial gains through public office other than compensation provided by law is a violation of that trust. It is further declared that the people have a right to be assured that the financial interests of holders of or nominees to or candidates for public office do not conflict with the public trust. Because public confidence in government can best be sustained by assuring the people of the impartiality and honesty of public officials, this Division shall be liberally construed to promote complete financial disclosure as specified in this Division. Furthermore, it is recognized that clear guidelines are needed in order to guide public officials and employees in their actions. Thus, this Division intends to define as clearly as possible those areas which represent conflict with the public trust.
 
B.  It is recognized that many public officials are citizen-officials who bring to their public offices the knowledge and concerns of ordinary citizens and taxpayers. They should not be discouraged from maintaining their contacts with their community through their occupations and professions. Thus, in order to foster maximum compliance with its terms, this Division shall be administered in a manner that emphasizes guidance to public officials and public employees regarding the ethical standards established by this Division.
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Section 2.03.103. - Prohibitions relating to conflicts of interest.
 
A. Restrictions on exercise of official authority.
 
1.  No County employee or official knowingly or willfully shall use the authority of his or her office or employment or any confidential information received through his or her holding County office or employment for the personal or private benefit of himself or herself, a member of his or her immediate family or a business with which he or she is associated. This prohibition does not include an action having a de minimis economic impact or which affects to the same degree a class consisting of the general public or a subclass consisting of an industry, occupation or other group which includes the County official or employee, a member of his or her immediate family or a business with which he or she or a member of his or her immediate family is associated. There will be a rebuttable presumption of a knowing or willful violation of this section if the action benefits the County official or employee, his or her spouse, or his or her dependent children (whether by blood or by law).
 
2.  In any case where a person has a legal and/or statutory responsibility with respect to action or non-action on any matter where the person has a personal or private interest and there is no provision for the delegation of such responsibility to another person, the person may exercise responsibility with respect to such matter, provided that promptly after becoming aware of such conflict of interest, the person files a written statement with the Commission fully disclosing the personal or private interest and explaining why it is not possible to delegate responsibility for the matter to another person. If the matter is one in which the legal and/or statutory responsibility requires the person to vote upon the issue, the written statement filed with the Commission shall be read into the public record prior to the time the person's vote is cast. Any person choosing to abstain from voting on an issue where or she has a conflict shall state the reasons for his or her conflict on the record; an abstaining voter need not file the written statement with the Commission required when acting on, rather than abstaining from, an issue involving a conflict.
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Section 2.03.104. - Code of conduct.
 
A.  No County employee or County official shall engage in conduct which, while not constituting a violation of Subsection 2.03.103.A.1., undermines the public confidence in the impartiality of a governmental body with which the County employee or County official is or has been associated by creating an appearance that the decisions or actions of the County employee, County official or governmental body are influenced by factors other than the merits.
 
B.  No County employee or County official shall acquire a financial interest in any private enterprise which such employee or official has reason to believe may be directly involved in a decision to be made by such official or employee in an official capacity on behalf of the County.
 
C.  Any County employee or County official who has a financial interest in any private enterprise which is subject to the regulatory jurisdiction of, or does business with, any County Department shall file with the County Human Resources Office a written statement fully disclosing the same. Such disclosure shall be confidential and the County Human Resources Office shall not release such disclosed information other than to the Commission and to the Department head of an employee, except as may be necessary for the enforcement of this Division. The filing of such disclosure statement shall be a condition of commencing and continuing employment or appointed status with the County.
 
D.  No County employee or County official shall use such public office to secure unwarranted privileges, private advancement or gain.
 
E.  No County employee or County official shall engage in any activity beyond the scope of such public position which might reasonably be expected to require or induce such County employee or County official to disclose confidential information acquired by such employee or official by reason of such public position.
 
F.  No County employee or County official shall, beyond the scope of such public position, disclose confidential information gained by reason of such public position nor shall such employee or official otherwise use such information for personal gain or benefit.
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Section 2.03.106. - Financial disclosure: statements required.
 
A.  Each designated County official and County employee shall file a statement of financial interests for the preceding calendar year with the Commission no later than May 1st of each year that he or she holds such a position and of the year after he or she leaves such a position. The General Manager or individual of equivalent rank of the Office of Human Resources shall provide the Commission with the names of the individuals required to file statements of financial interest by January 31st each year such statements are required to be filed. For purposes of this Section, the phrase "designated County official and County employee" shall mean:
 
1.  All elected County officials;
 
2.  All County officials who perform work that is non-ministerial in nature;
 
3.  Members of the Board of Adjustment, Planning Board, Historic Review Board, Pension Board, License, Inspection and Review Board, Board of Assessment Review, New Castle County Financial Advisory Council, New Castle County Audit Committee, and the Ethics Commission. Members of any County Board or Commission not listed in this paragraph are not required to file statements of financial interest.
 
4.  The Chief of Police;
 
5.  All Department General Managers and personnel of equivalent rank;
 
6.  All Department Division Heads and persons of equivalent rank;
 
7.  All purchasing agents, public works contract officers and personnel of equivalent or higher rank;
 
8.  All assessors, assessment technicians, right-of-way agents and personnel of equivalent or higher rank;
 
9.  All Code Enforcement Officers, all inspectors, all plan examiners including architects and engineers, all permit processors, and personnel of equivalent or higher rank;
 
10. All housing rehabilitation specialists and personnel of equivalent or higher rank;
 
11. All land use planners and personnel of equivalent or higher rank within the Department of Land Use;
 
12. With the exception of the Chief of Police, no police officer shall be required to file a statement of financial interests within the meaning of this division unless the officer serves on one of the boards, councils, or commissions named in Subsection 3. of this section.
 
B.  Each candidate for County office shall file a statement of financial interests for the preceding calendar year with the Commission not later than seven (7) days after the last day for giving notice of candidacy pursuant to 15 Del. C. § 3106 (Filing of candidacy for nomination at a primary election).
 
C.  Each nominee for County office who is subject to confirmation shall file a statement of financial interests for the preceding calendar year with the Commission and with the official or body that is vested with the power of confirmation at least ten (10) days before the official or body shall approve or reject the nomination. Each nominee to the New Castle County Farmland Preservation Advisory Board, established under the authority of 3 Del. C. § 906 or its successor, shall file a statement of financial interests for the preceding calendar year with the Commission and with New Castle County Council at least ten (10) days before County Council shall approve or reject the nomination.
 
D.  No County official, candidate for County office, or employee shall be allowed to take the oath of office or enter or continue upon his or her duties, nor shall he or she receive compensation from County funds, unless he or she has filed a statement of financial interests as required by this division.
 
1.  If the Commission determines that a filing has not been made or that a filing is deficient, the Commission shall provide a written notice to the individual required to file, identifying the deficiency or delinquency and reciting the penalties for failure to file.
 
2.  The individual notified in accord with Subsection D.1. has ten (10) calendar days from the mailing date of the notice to correct the delinquency or deficiencies.
 
3.  If the individual fails to file or correct the noted deficiencies by the conclusion of the ten (10) day period, the Commission may issue a notice by certified mail to the individual that a civil penalty of ten dollars ($10.00) per day is being imposed for each calendar day the statement of financial interests remains delinquent or deficient beyond the ten-day period. The individual shall pay any such penalty before the Commission may accept a filing from the individual.
 
4. The penalty described in Subsection D.3. is in addition to other penalties provided by law and the filing of a statement of financial interests in compliance with this section does not otherwise obviate the failure to comply with Subsections 2.03.106.A, B, or C.
 
5. An individual who receives the notice described in Subsection 2.03.106.D.3 and who knowingly or willfully fails to pay the penalty imposed by the Commission shall be subject to the sanctions contained in Section 1.01.009.
 
6. An individual against whom a financial penalty has been imposed pursuant to Subsection D.3. may contest the imposition of the penalty in whole or in part by filing an appeal in writing with the Commission within thirty (30) days after payment of the assessed penalty. If the penalty amount is overturned in whole or in part, the Commission shall refund the appropriate amount of the penalty to the appellant. The successful appellant shall not be entitled to interest or any other costs.
 
E. All statements of financial interests by a County official, candidate for County office or nominee for County office pursuant to this Division shall be made available for public inspection and copying during regular office hours. All statements of financial interests by a county employee containing financial information of a privileged or confidential nature shall not be deemed a public record for purposes of 29 Del. C. Ch. 100 (Freedom of Information Act). Nothing in this subsection shall be construed as prohibiting access by the Commission to all statements of financial interests filed in accordance with this Division. Nothing in this subsection shall be construed as prohibiting access by any general manager or individual of equivalent rank to all statements of financial interests filed by a County employee in accordance with this Division.
 
Case Law and Commission Precedent
 
The New Castle County Ethics Code prohibits conduct on the part of County officials or employees which either creates the appearance of impropriety even where no direct conflict of interest is present.  Specifically, conduct which creates an appearance of impropriety is prohibited by Section 2.03.104(A) of the New Castle County Code.  To determine if an appearance of impropriety exists, the Delaware courts have stated that “[t]he test is… if the conduct would create in reasonable minds, with knowledge of all relevant facts, a perception that an official’s ability to carry out [his or] her duties with integrity, impartiality and competence is impaired.”  Hanson v. Delaware State Public Integrity Com’n, 2012WL3860732, at *16 (Del.Super. 2012), aff’d, 69 A.3d 370 (Del.Supr. 2013); and “[t]he test for appearance of impropriety is whether the conduct would create in reasonable minds, with knowledge of all the relevant circumstances that a reasonable inquiry would disclose, a perception that the [official’s] ability to carry out [the official’s] responsibilities with integrity, impartiality and competence is impaired.”  In re Williams, 701 A.2d 825, 832 (Del.Super. 1997).  The courts have advised the Commission to look at the totality of the facts presented, and this Commission has historically applied this standard when reviewing the conduct of County officials and employees.
 
In Advisory Opinion 06-15, the Commission was asked whether a senior County manager in the Special Services Department could perform private consulting services similar to those he performs for the County for private entities located outside New Castle County which do not do conduct business in the County and whether the employee may perform such consulting for a firm which is owned and operated by his spouse which is located in and conducts business in New Castle County.  The Commission decided that any joint enterprise with the employee’s spouse’s County business is prohibited by the Code’s conduct rules if that business is regulated directly or indirectly in any way by the Special Services Department.  However, the Commission further decided that the employee may perform private consulting services for entities located outside New Castle County which do not do any business within New Castle County that is subject to regulation by his department. 
 
In Advisory Opinion 05-03, the Commission issued a decision where a County employee, who is publicly identified with, speaks for, and represents the County Executive, may continue as owner and editor of an advertiser-supported specialty newspaper which does not receive revenue from New Castle County and whether the employee may continue to be an officer in and spokesperson for a non-profit association which receives County funds, as well as a member and spokesperson for another County supported non-profit organization.  In rendering its decision on these questions, the Commission determined that the appearance of impropriety provision in the Ethics Code will not be violated if the employee retains his ownership share of the newspaper provided that his conduct or representation of its interests confirms to the restrictions recited in the Code, and he relinquishes all authority over its content.  The Commission also found that the employee may maintain his membership in the volunteer association and organization but that he must resign from leadership and spokesperson roles in the association.  Also, the employee must limit his public comment on behalf of the organization to operational matters not connected with the relevant Executive departments’ public positions, policies, or procedures.  
 
In Advisory Opinion 11-07, an employee, who owns an outside business, asked the Commission whether he could secure financial services from institutions that have or currently contract with, or in the future may bid for business with, New Castle County.  The Commission decided that the employee who owns a non-conflicting outside business may seek financial services from financial institutions that have contracted, or currently contract, with New Castle County, as long as he avoids using his senior status with his County department to secure financial services for the outside business.  He is also prohibited from entering into contracts with those institutions which create the appearance that he is using his County employment to secure unwarranted advancement for that business.  The Commission further stated that he must disclose the fact and extent of his relationship to the selected institutions to his superiors and completely recuse from the exercise of County authority in relation to the institutions he selects and to his competitors.   

Analysis:

The New Castle County Ethics Code recognized that County official and employees are members of communities and have concerns and activities beyond their lives as County employees, as discussed in  Section 2.03.101.B:

It is recognized that many public officials are citizen-officials who bring to their public offices the knowledge and concerns of ordinary citizens and taxpayers. They should not be discouraged from maintaining their contacts with their community through their occupations and professions. Thus, in order to foster maximum compliance with its terms, this Division shall be administered in a manner that emphasizes guidance to public officials and public employees regarding the ethical standards established by this Division. 

Nevertheless, every County official and employee must consider the ethical rules stated in the Code of Conduct to determine whether his or her “outside” activities create an actual conflict and/or an appearance of conflict with his or her County duties.
 
In Section 2.03.103.A of the Code, government conduct on the part of County employees or officials for personal or private financial benefit is prohibited. Further, Section 2.03.104.A.1 prohibits the creation of an impression in the reasonable mind of a member of the public that an official or employee’s official action is affected by personal interests which impairs his or her competence, integrity and honesty, or that the department in which he serves will look as though it is showing partiality in a given matter.    
 
The question presented to the Commission in this request for an advisory opinion is a novel one, but prior Commission decisions are instructive on the issues raised here.  The Commission recognizes and commends the fact that the requester sought this opinion before taking office.  The requestor is a newly-elected official who is currently the sole owner of a private business which does not do business with County government, and the nature and practice of the Company to date does not lend itself to the likelihood of contracting with the County in the future.  The requester has informed the Commission that he may divest himself entirely of interests in the Company, or he may retain some interests which may or may not have a financial component, and that negotiations in this regard are ongoing.  The Commission lauds the efforts of the requester to divest himself of sole ownership of the Company, but does not find that such measures are required by the Ethics Code. To the extent that such negotiations remain active after the requester takes office and/or the requester retains an interest in the Company after he takes office, the requester must, however, do what is necessary to avoid the use of County time and resources to the benefit of the Company. Toward that end, the requester must establish procedures that are clearly articulated within his department which will negate the possibility services will be performed for the Company while working on County time or using County resources.  If such procedures are not carefully implemented and followed, the appearance of impropriety, at the least, provisions of the Code may be implicated and violated.
 
The Commission prefers not to speculate on matters but it is appreciative of the unusual circumstances present here.  In the event that the requester retains an ownership interest in the Company, and the Company does not do business with New Castle County nor is it regulated by the County, in addition to the appearance of impropriety Code provisions discussed above, the requester must also adhere to the conflicts and recusal provisions in the Code, set forth above.  Further, the requester must complete the requirements contained in Section 2.03.104.C, also set forth above.  The requester informed the Commission that possible outcomes of current negotiations include elimination of the requester’s involvement in the Company entirely, a sale of a portion of his interest in the Company, and/or a sale of the company that may include the requester’s participation in board meetings. Given the understandable incomplete nature of the underlying facts to support this request for an advisory opinion, and, further, in light of the potential for misinterpretation by persons without knowledge of the known facts involved, the requester must provide the Commission with updated information regarding his status or ownership of the Company at such time as the private business arrangement is becoming or has become final, so that this Commission may revise or supplement its decision on this question with the benefit of a more complete fact pattern. 

Finding:

Under the facts presented here, when the requester takes office, he may continue his ownership of the Company, given that the Company does not do business with New Castle County, provided that the following conditions are met:  (a) the Company does not do business with New Castle County; (b) all appropriate and relevant information on this matter is disclosed in any Statements of Financial Interests filed with this Commission and other documents required by the Code; (c) if a conflict or potential conflict arises with respect to the Company and the requester’s County duties and responsibilities, the requester must follow the recusal procedures set forth in 2.03.103.A; and (d) the requester must establish procedures for handling Company business in a manner that ensures that County time and resources are not used for the benefit of the Company.  Further, if any one or more of these conditions is or cannot be met, or the circumstances change from those provided to the Commission in requesting this advisory opinion, the requester must inform the Commission for further review and response.  And, the requester is directed to provide this Commission with additional information on this question as the situation progresses toward a final transaction.  In rendering this advisory opinion, this Commission has applied the New Castle County Ethics Code, which establishes the minimum level of ethical conduct required of County officials and employees.
 
BY AND FOR THE NEW CASTLE COUNTY ETHICS COMMISSION
ON THIS 7TH DAY OF DECEMBER, 2016.
                       
            _______________________
             Eric Monzo, Vice Chairperson
                           New Castle County Ethics Commission
 
Decision:  Unanimous