This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

CONFLICTS OF INTEREST -- Interest in Contract (fire commissioner as officer and stockholder of company contracting with fire district) -- Maintenance Contracts (fire commissioner who is secretary/treasurer and stockholder of company performing snow removal and lawn maintenance) -- Exceptions (abstension and competitive bidding not exceptions); (limited exception for municipalities in counties having a population of 200,000 or less)

GENERAL MUNICIPAL LAW §§801, 802(1)(b),(j), (2)(a): A member of the board of fire commissioners of a fire district located within a county having a population of more the 200,000 who is an officer and owner of 33 1/3% of the stock of a corporation would have a prohibited interest in a contract for snow plowing and lawn maintenance between the fire district and the corporation, even if the fire district solicits bids for the work, the corporation is the sole bidder, the commissioner recuses himself from discussions relative to the contract and abstains from voting on matters relating to the contract.

You ask whether a member of a fire district board of commissioners would have a prohibited interest in a contract with a corporation for snow plowing and lawn maintenance service under the following circumstances. The commissioner owns 33 1/3% of the stock of the corporation and is the corporation's secretary/treasurer. The commissioner does not perform any of the labor portion of the contract and his compensation from the corporation is not directly related to the contract. The fire district has solicited competition in the past for this work and no other firms have responded. The commissioner would recuse himself from discussions relative to this contract. The amount of the consideration paid by the fire district under the contract would be approximately $2,000. The fire district is located in a county having a population of more than 200,000.

General Municipal Law, article 18 (§800 et seq.) contains provisions relative to conflicts of interest of municipal officers and employees and, inter alia, prohibits certain interests in municipal contracts. A municipal officer or employee has an "interest" in any contract with the municipality he or she serves if he or she receives a direct or indirect pecuniary or material benefit "as the result of the contract" (General Municipal Law §800[3]). A municipal officer or employee is also deemed to have an interest in contracts of a firm, partnership or association of which the officer or employee is a member or employee, and a corporation of which the officer or employee is an officer, director, employee or stockholder (General Municipal Law §800[3][b]-[d]). Unless an exception applies (see General Municipal Law §802), an interest in a contract is prohibited if the officer or employee, individually or as a member of a board, has the power or duty to: (a) negotiate, prepare, authorize or approve the contract or approve payment under the contract; (b) audit bills or claims under the contract; or (c) appoint an officer or employee who has such powers and duties (General Municipal Law §801[1]). Any contract willfully entered into by or with a municipality in which there is a prohibited interest is null, void and wholly unenforceable (General Municipal Law §804). In addition, any municipal officer or employee who willfully and knowingly violates the interest in contract provisions of article 18 shall be guilty of a misdemeanor (General Municipal Law §805). General Municipal Law §803 requires written disclosure of certain interests in contracts.

In the instant situation, the board member is deemed to have an interest in any contract between the fire district and the corporation because of his status as both an officer and a stockholder of the company. Therefore, unless any exceptions contained in section 802 are applicable, that interest would be prohibited because he, in his capacity as a board member, will have the power or duty to negotiate, prepare, authorize or approve the contracts with the corporation and to audit claims and approve payments made under the contracts (General Municipal Law §801; Town Law §176[4-a], [9], [23-a]).

General Municipal Law §802 contains several exceptions for interests in contracts which would otherwise be prohibited by section 801 that should be examined here. Subdivision 1(b) of section 802 provides an exception in those instances where an interest is prohibited solely by reason of employment as an officer or employee of a corporation if (1) the remuneration of such employment will not be directly affected as a result of such contract and (2) the duties of such employment do not directly involve the procurement, preparation or performance of any part of such contract. Further, subdivision 2(a) provides an exception when an officer or employee has an interest by reason of stockholdings if less than 5% of the outstanding stock of the corporation is owned or controlled directly or indirectly by the municipal officer or employee. Finally, section 802(1)(j) provides an exception for "purchases or public work" by a municipality located within a county having a population of 200,000 or less in which a member of the governing board or body has a prohibited interest when the following criteria are met: (1) the member of the governing board or body is elected and serves without salary (see, e.g., Town Law §174[2], [3]); (2) the "purchases",¹ in the aggregate, are less than $5,000 in any fiscal year, the governing board or body has followed its procurement policies and procedures (see General Municipal Law §104-b) and the procurement process indicates that the contract is with the lowest dollar offeror; and (3) the contract for "purchase or public work" is approved by resolution of the governing board or body by the affirmative vote of each member thereof except the interested member who must abstain.

Since the commissioner owns more than 5% of the outstanding stock of the corporation and his interest is not prohibited solely by reason of his position as secretary/treasurer of the corporation, the exceptions in section 802(1)(b) and (2)(a) do not apply here (see People v Speach, 49 AD2d 210, 374 NYS2d 210). Further, since the fire district in question is located in a county having a population of more than 200,000, the exception in section 802(1)(j) also is not applicable. Consequently, the commissioner's interest in the contract of the corporation would be prohibited.

We note also that, except as noted above in connection with section 802(2)(j), article 18 contains no exception for contracts let pursuant to competitive bidding or, in the case of contracts exempt from competitive bidding, let pursuant to the alternative competition requirements of a political subdivision's procurement policies and procedures adopted under General Municipal Law §104-b (see 1981 Opns St Comp No. 81-113, p 116; cf. Public Officers Law §73[14][a], relative to state officers and employees). Similarly, there is no general exception for situations where, historically, the firm in question is the only one to have responded to a solicitation for bids, proposals or quotations, as the case may be. Further, abstention and recusal does not cure an otherwise prohibited interest in a contract (Dykeman v Symonds, 85 Misc 2d 289, 380 NYS2d 567 affd 54 AD2d 159, 388 NYS2d 422; 1988 Opns St Comp No. 88-8, p 13).

Accordingly, a member of the board of fire commissioners of a fire district located within a county have a population of more the 200,000 who is an officer and owner of 33 1/3% of the stock of a corporation would have a prohibited interest in a contract for snow plowing and lawn maintenance between the fire district and the corporation, even if the fire district solicits bids for the work, the corporation is the sole bidder, the commissioner recuses himself from discussions relative to the contract and abstains from voting on matters relating to the contract.

May 8, 2000
William N. Young, Jr., Esq., Attorney at Law
Fort Hunter Fire District

¹ Although the criterion set forth in section 802(1)(j) (2) literally applies only to "purchases", it is apparent, when read in context with the rest of paragraph j, that it was intended to apply to "public work" as well (see Memorandum to the Governor from the Office of the State Comptroller for S-3377-A of 1996, July 22, 1996).