Untitled Texas Attorney General Opinion

’ OFFICE or- THE ATTORNEY GENERAL . STATE OF TEXAS

JOHN CORNYN

May 24,2002

The Honorable Rick Perry Opinion No. JC-0507

Governor of Texas

Office of the Governor Re: Clarification of Attorney General Opinion

P. 0. Box 12428 JC-0426: Whether a state university may contract

Austin, Texas 78711 with a bank that employs a member of the board

of regents as an officer (RQ-0473-JC)

Dear Governor Perry:

You request reconsideration of Attorney General Opinion JC-0426, which determined that

the common-law conflict-of-interest rule barred Texas Woman’s University (“TWU” or “the

University”) from contracting with a bank in which a regent of the University was pecuniarily

interested as an officer and employee. ’ That opinion addressed section 5 1.923(c) of the Education

Code, which modifies the common-law conflict-of-interest rule by allowing a university to contract

with a corporation even though a regent is a director or stockholder in the corporation. This office

concluded that Education Code section 51.923(c) did not modify the common-law conflict-of-

interest rule for a regent who was an officer or employee of a business entity as opposed to a director

or stockholder and, accordingly, did not authorize the University board of regents to contract with

the bank that employed its regent.

Attorney General Opinion JC-0426 did not consider whether Government Code section

404.0211 authorized the bank in question to serve as a depository bank for the University. You ask

us to consider whether this statute applies to an institution of higher education, such as Texas

Woman’s University. See Pemberton Brief, supra note 1, at 2-4. You also ask us to address other

issues, including the legislative history of Education Code section 51.923(c) and judicial and

legislative developments relevant to Texas common-law conflict-of-interest. See id. at 4-5. We have

considered these matters and conclude that Government Code section 404.0211 does not apply to

the selection of a depository by an institution of higher education and that Attorney General Opinion

JC-0426 was correctly decided.

Section 404.0211 of the Government Code provides that a bank may serve as a depository

for funds of a state agency even though one or more officers of the agency who have the duty to

select the depository “are officers or directors of the bank or own or have a beneficial interest,

*Brief from Bo b Pemberton, Deputy General Counsel, Office of the Governor, to Honorable John Comyn,

Texas Attorney General at 2 (Dec. 4,200l) (on file with Opinion Committee) [hereinafter Pemberton Briefl.

The Honorable Rick Perry - Page 2 (JC-0507)

individually or collectively, in 10 percent or less of the outstanding capital stock of the bank.” See

TEX. GOV’T CODEANN. 9 404.0211 (Vernon 1998). This provision does not modify the common-

law conflict-of-interest rule for state agency officers who are employees of the bank. CJ: TEX. EDUC.

CODEANN. 8 45.204(a) (Vernon 1996) (bank is not disqualified from serving as a school district

depository even though member of school board is a stockholder, officer, director, or employee of

a bank). Thus, even if section 404.0211 of the Government Code did apply to the board of regents

of Texas Woman’s University, the regent about whom you inquire, as a bank employee, has an

interest in the bank that bars the University from contracting with it as a depository. The question

you have raised is nonetheless an important one which we will address in full.

Chapter 404 of the Government Code sets out duties of the Comptroller of Public Accounts

that were formerly assigned to the State Treasurer. See TEX. GOV’T CODEANN. 8 404.02 11 (Vernon

1998). Section 404.0211 is found in subchapter C, chapter 404 of the Government Code, which

addresses the designation of state depositories and the investment of state funds. With certain

exceptions, state agencies are to deposit all funds they collect or receive in the state treasury. See

id. $5 404.093-.094 (Vernon 1998 & Supp. 2002); see also Tex. Att’y Gen. LO-92-069, at 2-5

(auctioneer education and recovery fund collected by Texas Commission of Licensing and

Regulation did not have to be placed in state treasury). The Comptroller is required by law to

deposit state funds in state depositories, which are financial institutions that the Comptroller has

designated to serve as depositories. See TEX. GOV’T CODEANN. 8 404.021 (Vernon 1998) (financial

institutions eligible to be designated by Comptroller as state depositories). He or she is authorized

to “adopt and enforce rules governing the establishment and conduct of state depositories . . . that

are not inconsistent with the law governing the depositories.” See id. 5 404.013; see also id. tj fj

404.022 (Vernon 1998 & Supp. 2002) (application process for designation as state depository); .022 1

(Vernon 1998) (eligible collateral); ,023 (Vernon 1998 & Supp. 2002) (Comptroller shall designate

state depository banks in cities to use for clearing checks); .024(a) (Comptroller may determine

amount of state funds to be deposited in time deposits). Thus, the Comptroller is primarily

responsible for choosing depositories for state funds.

Section 404.0211 of the Government Code, however, applies where persons other than the

Comptroller participate in choosing a depository bank. It provides that “[a] bank is not disqualified

from serving as a depository for funds of a state agency” if “one or more officers or employees of

the agency who have the duty to select the agency’s depository are officers or directors of the bank

or own or have a beneficial interest, individually or collectively, in 10 percent or less of the

outstanding capital stock of the bank.” Id. 8 404.0211 (Vernon 1998). A majority of the board

members must vote in favor of choosing the bank and the interested officer or employee may not

vote or take part in the proceedings. Id. Section 404.0211 thus applies to a state agency board

authorized to choose a depository for its funds instead of depositing them in the treasury. Id.; see

also id. 9 2306.119 (Vernon 2000) (Department of Housing and Community Affairs shall choose

depository for operating funds of housing finance division); Tex. Att’y Gen. Op. No. MW-264

(1980) (authority of Texas Housing Agency to choose a depository for its revenues and funds under

prior law); Tex. Atty. Gen. LA-l 32 (1977) (state agencies with authority under former law to hold

funds outside of state treasury). The predecessor of section 404.0211 was adopted in 1967 as “[a]n

The Honorable Rick Perry - Page 3 (JC-0507)

Act relating to the selection and qualification of depositories of all agencies and political

subdivisions of the state.” Act of April 26,1967,6Oth Leg., R.S., ch. 179,1967 Tex. Gen. Laws 370

(former article 2529~ of the Revised Civil Statutes); see also TEX. LOC.GOV’T CODEANN. 8 13 1.903

(Vernon 1999) (present codification of language relating to depositories of political subdivisions).

Section 404.0211 modifies the common-law conflict-of-interest rule by allowing a governmental

body to choose a bank as its depository even though one of its members has a pecuniary interest in

the bank, and the 1967 enactment acknowledged this change. See Act of April 26,1967,6Oth Leg.,

R.S., ch. 179, 6 2, 1967 Tex. Gen. Laws 370, 371 (stating that common-law rules in conflict with

the act are modified).

You maintain that section 404.0211 on its face applies to Texas Woman’s University because

a state university is a state agency. See Pemberton Brief, supra note 1, at 2. You cite in support of

this conclusion section 572.002( 1O)(B) of the Government Code, which defines “state agency” to

include “a university system or an institution of higher education as defined by Section 6 1.003,

Education Code, other than a public junior college.” TEX. GOV’T CODEANN. 5 572.002( 1O)(B)

(Vernon 1994 & Supp. 2002). The University is an institution of higher education as defined by

Education Code section 61.003 and is thus a “state agency” for purposes of Government Code

chapter 572. See TEX. EDUC. CODE ANN. 4 61.003(3), (4), (8) (Vernon 1996 & Supp. 2002).

However, Government Code section 572,002(10)(B) defines “state agency” only for purposes of

chapter 572, which relates to financial disclosure, standards of conduct, and conflict of interest of

state officers and employees. See TEX. GOV’T CODE ANN. $4 572.001 (Vernon 1994) (policy

statement); .002( 1O)(B) (V emon 1994 & Supp. 2002) (giving meaning of state agency “[i]n this

chapter”). This definition does not apply to section 404.0211 of the Government Code. Section

404.02 11 does not define “state agency” or assert that it applies to an institution of higher education.

See id. 8 404.0211 (Vernon 1998). We do not agree that section 404.0211 applies on its face to

TWU.

We look to the rule of construction that “[wlords and phrases shall be read in context and

construed according to the rules of grammar and common usage.” Id. 5 3 11 .Ol 1(a) (Vernon 1998).

The legislature has enacted a number of statutes that distinguish between a “state agency” and a

“state institution of higher education.” The term “state agency” is sometimes defined to include an

“institution of higher education.” See id. $9 556.001(2)(B) (V emon 2002) (political activities of

certain public entities and individuals); 2167.005 (Vernon Supp. 2002) (delegation by Texas

Building and Procurement Commission of authority to enter into lease contracts for space);

2256.001-.002(13) (Vernon 2000 & Supp. 2002) (Public Funds Investment Act). Other statutes

define “state agency” to exclude “an institution of higher education.” See id. $0 404.092 (Vernon

1998) (State Funds Reform Act); 2053.001( 1) (Vernon 2000) (report by Governor on organization

and efficiency of state agencies); see also Allis-Chalmers Mfg. Co. v. Curtis Elec. Co., 264 S.W.2d

700, 701 (Tex. 1954) (board of directors of Texas A&M College is an agency of the state within

statute applicable to formal contract “‘with this state or its counties or school districts . . . for the

construction of any public building”‘). Given the legislative practice of expressly stating that the

term “state agency” does or does not include an “an institution of higher education,” we cannot say

that the term “state agency” by common usage includes an institution of higher education.

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We next look at the context in which section 404.02 11 appears. It is included in subchapter

C of chapter 404 of the Government Code, a comprehensive set of provisions governing the deposit

of state agency funds in the treasury and in state depositories. In contrast, a different group of

provisions governs the management and deposit of funds received by institutions of higher

education. Sections 5 1.OOl through 5 1.009 of the Education Code provide for the control of certain

funds by institutions of higher education, as that ten-n is defined by section 61.003 of the Education

Code. See TEX. EDUC. CODE ANN. 5 51.001 (Vernon 1996); see also id. tj 61.003(3), (4), (8)

(Vernon 1996 & Supp. 2002) (TWU is an institution of higher education.). The governing body of

an institution of higher education is authorized by section 5 1.002 of the Education Code to retain

control of certain sums of money collected at the institution, such as student fees, charges for use

of dormitories, receipts from meals, and receipts from school athletic activities. See id. tj 5 1.002(a)

(Vernon 1996); see also id. 0 54.525 (Vernon 1996 & Supp. 2002) (authorizing TWU board of

regents to levy fixed student fee to fund student centers and to deposit in depository bank designated

by board). It may select one or more depositories for those funds pursuant to section 5 1.003 of the

Education Code and “shall require adequate surety bonds or securities to be posted to secure the

deposits.” Id. tj 5 1.003(a)-(b) (V emon 1996). The depository bank must pay interest on the deposits

“at a rate agreed on by the depository and the governing board.” Id. $ 5 1.003(d). The governing

body may deposit funds under its control as provided in section 5 1.003 or invest them in accordance

with Government Code chapter 2256. See id. 5 5 1.003 1 (Vernon 1996 & Supp. 2002); see also id.

4 5 1.004(d) (V emon 1996) (crediting interest received from depository banks). Section 5 1.008(b)

of the Education Code provides that every state institution of higher education shall deposit in the

state treasury all cash receipts accruing to any college or university under its control, except for

receipts from auxiliary enterprises, noninstructional services, Constitutional College Building

Amendment funds, and certain other specified sources. See id. 8 5 1.008(b) (Vernon 1996 & Supp.

2002). Section 5 1.008(a) directs the governing board of every state institution of higher education

“to designate special depository banks, subject to the approval of the comptroller, for the purpose

of receiving and keeping certain receipts [the receipts described in section 51.008(b)] of the

institution separate and apart from funds now deposited in the state treasury.” Id. fj 5 1.008(a).

Thus, one group of provisions governs the deposit of receipts of institutions of higher

education and another group of provisions governs the deposit of state agency receipts. Looking at

Government Code section 404.0211 in context, it applies to the state agency receipts subject to

Government Code chapter 404. Section 404.02 11 does not refer to the deposit of funds received and

managed by institutions of higher education. See TEX. GOV’T CODE ANN. 9 404.0211 (Vernon

1998). Accordingly, we conclude that “state agency” within Government Code section 404.0211

does not include an institution of higher education such as TWU.

Legislative history supports our conclusion that depositories for university receipts and

depositories for state agency receipts are governed by separate provisions and that article 404.02 11

applies only to the choice of depositories for state agency receipts. Legislation authorizing

institutions of higher education to retain control of certain funds and place them in local depository

banks was adopted in 1933 at a time when provisions governing state depositories were already in

place. See Act of June 1,1933,43d Leg., R-S., ch. 221,1933 Tex. Gen. Laws 746 (depositories for

The Honorable Rick Perry - Page 5 (JC-0507)

institutions of higher education); see also Act of Feb. 24, 1923,38th Leg., R.S., ch. 34, 1923 Tex.

Gen. Laws 60 (providing for state depositories). The emergency clause of the 1933 enactment

concerning depositories for institutions of higher education stated as follows:

The fact that under the present laws all the above institutions

are withholding certain sums of money under a practice which has

been established by them for a considerable period of time, and the

fact that said institutions are scattered in various portions of the State

and it would work a great hardship on said schools to place their

moneys in the local funds in the State Treasury and the further fact

that existing laws do not provide for security of deposits placed in

local depositories, and the further fact that existing laws do not

provide for any adequate system of accounting . . . creates an

emergency. . . .

Act of June 1, 1933,43d Leg., R.S., ch. 221,1933 Tex. Gen. Laws 746,749 (former article 2654d

of the Revised Civil Statutes); see Act of May 3 1, 195 1, 52d Leg., R.S., ch. 474, 195 1 Tex. Gen.

Laws 841 (former article 2543~ of the Revised Civil Statutes and predecessor to Education Code

section 5 1.008); see also Act of May 22,197 1,62d Leg., R.S., ch. 1024, art. 1, $1, art. II, 5 48,197l

Tex. Gen. Laws 3072,3076-78,3363 (repealing provisions governing receipts and depositories of

institutions of higher education and recodifying as Education Code sections 5 1.OO1 through 5 1.008

in a nonsubstantive revision of higher education laws).

The predecessor of Government Code section 404.0211 was adopted in 1967.* The session

of the legislature that adopted the predecessor of Government Code section 404.02 11 in 1967 also

amended the statutes authorizing “the governing boards of the . . . institutions” of higher education

“to select depository banks” for certain receipts. See Act of May 25,1967,6Oth Leg., R.S., ch. 48 1,

1967 Tex. Gen. Laws 1092 (former articles 2543c, section 3 and 2654d, section 2 of the Revised

Civil Statutes). The latter amendment did not mention the common-law rule. The legislature has

dealt with the selection of depositories for state agencies separately from the selection of depositories

for institutions of higher education, without modifying the common-law conflict-of-interest rule for

the latter. Therefore, section 404.0211 of the Government Code has no effect on the conclusion of

Attorney General Opinion JC-0426.

*See Act of April 26,1967,6Oth Leg., R.S., ch. 179, $2,1967 Tex. Gen. Laws 370,371; see aZsoAct of May

15, 1985,69th Leg., R.S., ch. 240, $6 1-2, 1985 Tex. Gen. Laws 1204, 1205-07, 1215 (repealing state depository law,

except for article 2529c, Revised Civil Statutes, and one other provision, and adopting “Treasury Act,” which includes

provisions governing state depositories); Act of April 30,1987,7Oth Leg., R.S., ch. 147, $8 1,5, 1987 Tex. Gen. Laws

3 16, 346, 534 (adopting nonsubstantive revision of statutes relating to executive branch of government, including

Government Code chapter 404); Act of May 4,1993,73d Leg., R.S., ch. 268, $0 19,46,1993 Tex. Gen. Laws 583,969,

986 (conforming amendment adding section 404.02 11 to Government Code and repealing article 2529c, Revised Civil

Statutes).

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You also question whether Attorney General Opinion JC-0426 interpreted Education Code

section 5 1.923 correctly. The opinion addressed this Education Code provision as follows:

As introduced, the bill that became section 5 1.923 of the Education

Code provided that an institution of higher education or a university

system was not prohibited from contracting with a business entity

because a member of the governing board was “a stockholder, officer,

director, or employee” of the business entity. Tex. S.B. 1569, 71st

Leg., R.S. (1989). The bill included this language at its first public

hearing before the Senate Committee on Education, at which it was

referred to a subcommittee. Hearings on Tex. S.B. 1569 Before

the Senate Committee on Education, 71st Leg., R.S. (Apr. 19,1989)

(audio tape available from Senate Staff Services Office). The Senate

Committee on Education ultimately approved a committee substitute

from which the terms “officer” and “employee’ were deleted.

Hearings on Tex. S.B. 1569 Before the Senate Committee on

Education, 71st Leg., R.S. (Apr. 19 & May 3, 1989) (audio tapes

available from Senate Staff Services Office). Given the deletion of

these terms, we will not assume that section 5 1.923 of the Education

Code impliedly applies to an “officer” or “employee.”

Tex. Att’y Gen. Op. No. JC-0426 (2001) at 3.

You assert that the legislative history of section 5 1.923 demonstrates that the legislature did

not intend to exclude officers or employees from the class of interested persons who are covered by

the bill. You write that the bill analysis that the legislature had before it “repeatedly reflects its

understanding that the Senate Committee Substitute to S.B. 1569, not simply the original introduced

version, authorized higher education institutions to enter into contracts where a governing board

member is also ‘a stockholder, officer, employee, or director of the entity.“’ Pemberton Brief, supra

note 1, at 5 (emphasis in orginal); see also SENATECOMM. ON EDUC.,BILLANALYSIS,Tex. S.B.

1569,71st Leg., R.S. (1989).

Even assuming that we may rely on a bill analysis to supplement the plain language of the

statute, the bill analysis for the companion to Senate Bill 1569 does not support your argument. See

HOUSE COMM. ON HIGHEREDUC., BILLANALYSIS,Tex. Comm. Sub. H.B. 1655,71st Leg., R.S.

(1989) (companion to Senate Bill 1569). The analysis of the Committee Substitute to House Bill

1655 prepared by the House Research Organization states that it “would allow institutions of higher

education and university systems to enter into contracts with businesses in which a governing board

member owned less than 10 percent of the capital stock? HOUSERESEARCH ORGANIZATION, BILL

ANALYSIS,Tex. Comm. Sub. H.B. 1655,71st Leg., R.S. (1989); seealsoPISCALNOTE, Tex. Corm-n.

Sub. H.B. 1655, 71st Leg., R.S. (1989) (bill would clarify the qualifications of board members of

universities as to voting on contractual issues relative to ownership in business not being greater than

10 percent).

The Honorable Rick Perry - Page 7 (JC-0507)

More importantly, we cannot ignore the plain meaning of the statute, nor may we add to it

in the guise of construction. Gaddy v. First Nat ‘I Bank, 283 S.W. 472,474 (Tex. 1926); State v.

Millsap, 605 S.W.2d 366, 369 (Tex. Civ. App.-Beaumont 1980, no writ). If a statute is clear and

unambiguous, it is not necessary to resort to rules of construction or other extrinsic aid to construe

it. See Tune v. Tex. Dep ‘t of Pub. Safety, 23 S.W.3d 358,363 (Tex. 2000). Every word of a statute

must be presumed to have been used for a purpose, and every word excluded from a statute must also

be presumed to have been excluded for a purpose. Laidlaw Waste Sys., Inc. v. City of Wilmer, 904

S.W.2d 656, 659 (Tex. 1995) (quoting Cameron v. Terre1 & Garrett, Inc., 618 S.W.2d 535, 540

(Tex. 1981)). Section 5 1.923 provides that a corporation is not disqualified from entering into a

contract or other transaction with an institution of higher education even though one or more

members of the governing board “also serves as a stockholder or director of the corporation.” TEX.

EDUC.CODEANN. 0 5 1.923(c) (Vernon 1996). It does not mention service as an officer or employee

of a corporation. This provision may be contrasted with the conflict-of-interest provision applicable

to a school district’s selection of a depository bank:

If a member of the board of trustees of a school district is a

stockholder, officer, director, or employee of a bank, the bank is not

disqualified from bidding and becoming the school depository of the

school district if the bank is selected by a majority vote of the board

of trustees of the district or a majority vote of a quorum when only a

quorum is present.

Id. 8 45.204(a) (Vernon 1996) (emphasis added); see id. 8 45.204(b) (member of the board of

trustees who is a stockholder, ofIicer, director, or employee may not vote on contract). We affirm

our conclusion in Attorney General Opinion JC-0426 that section 5 1.923 of the Texas Education

Code does not authorize the board of regents of the University to contract with a bank where a regent

serves as an officer and employee.

You also suggest that our conclusion in Attorney General Opinion JC-0426 is not consistent

with the rule that restrictions on the right to hold public office should be strictly construed in favor

of eligibility. See Brown v. Meyer, 787 S.W.2d 42,45 (Tex. 1990). The common-law conflict-of-

interest rule does not restrict the regent’s right to serve in that capacity. Instead, it disqualifies the

bank from contracting with the University.

Finally, you argue that our opinion did not correctly reflect Texas judicial decisions and

legislative policy. You point out that no Texas judicial decision supports the proposition that the

common-law conflict-of-interest principles can invalidate a contract based on an employment

relationship and refer to the federal court decision in Crystal City v. Del Monte Corp., 463 F.2d 976

(5th Cir. 1972), cert. denied, 409 U.S. 1023 (1972). Pemberton Brief, supra note 1, at 5-6. In

Cvstal City, the Fifth Circuit Court of Appeals reviewed a summary judgment holding that a

contract between the city and Del Monte Corporation was invalid because a member of the city

council that approved it was employed by Del Monte. See Crystal City, 463 F.2d at 978. The

appellate court held that the fact of the city councilman’s employment did not support a conclusion

The Honorable Rick Perry - Page 8 (JC-0507)

under the cited Texas statutory law or the Texas case law that the contract was void or voidable, and

that no authority was cited for this proposition. See id. at 980. Whether the city councilman had

“any interest - direct, indirect, personal or pecuniary - in the contract is a material fact disputed

by the parties.” Id. Thus, a hearing on the merits was necessary to clarify this issue, and

requirements for summary judgment were not met. See id.

A federal court decision interpreting Texas law is not binding on Texas courts. See Long-view

Bank & Trust v. First Nat ‘I Bank, 750 S.W.2d 297, 300 (Tex. App.-Fort Worth 1988, no writ);

Woodard v. Tex. Dep ‘t of Human Res., 573 S.W.2d 596,598 (Tex. App.-Amarillo 1978, writ ref d

n.r.e.) (citing Tex. Oil & Gas Co. v. Vela, 405 S.W.2d 68,73-74 (Tex. Civ. App.-San Antonio 1966),

judgm ‘tset aside on othergrounds, 429 S.W.2d 866 (Tex. 1968)); Tex. Att’y Gen. Op. No. DM-426

(1996) at 3; see also Duson v. Poage, 3 18 S.W.2d 89, 94-95 (Tex. Civ. App.-Houston 1958, writ

ref d n.r.e.) (decision of United States Supreme Court on construction of state constitution would

be highly persuasive). Neither the Texas courts nor the Attorney General is required to follow the

Crystal City court’s decision on Texas conflict-of-interest law.

In addressing requests for advice about the common-law conflict-of-interest doctrine, the

Attorney General relies on Texas judicial decisions and prior attorney general opinions on that

subject. SeeMeyers v. Walker, 276 S.W. 305 (Tex. Civ. App.-Eastland 1925, no writ); see also City

ofEdinburg v. Ellis, 59 S.W.2d 99 (Tex. Comm’n App. 1933, holding approved); Bexar County v.

Wentworth, 378 S.W.2d 126 (Tex. Civ. App.-San Antonio 1964, writ ref d n.r.e.); Starr County v.

Guerra, 297 S.W.2d 379 (Tex. Civ. App.-San Antonio 1951, no writ); Knippa v. Stewart Iron

Works, 66 SW. 322 (Tex. Civ. App.-San Antonio 1902, no writ). While the Texas Supreme Court

may change its earlier pronouncements on common law, see Johnson & Higgins of Tex., Inc. v.

Kenneco Energy, Inc., 962 S.W.2d 507 (Tex. 1998) (altering its common-law prejudgment interest

calculation rules to conform to statutory standards), the Office of the Attorney General cannot

overrule a judicial decision. See Tex. Att’y Gen. Op. Nos. JM-623 (1987), H-373 (1974); see also

Tex. Att’y Gen. Op. No. JM-1116 (1989) (predicting on the basis ofjudicial decisions from Texas

courts and the courts of other states that the Texas Supreme Court would overrule one of its

opinions).

In resolving questions about common-law conflict-of-interest, this office has sometimes

found judicial decisions of other states to be persuasive. See Williams v. Cimarron Ins. Co., 406

S.W.2d 173, 175 (Tex. 1966); Wirtz v. Sovereign Camp, W.O.W., 268 S.W. 438 (Tex. 1925)

(decisions of courts of other states not binding on Texas courts, but may be persuasive). Attorney

General Opinion H-91 6 relied on out-of-state cases to determine that a school district could not

contract with a company that employed a member of the district’s board of trustees in a managerial

capacity, even though the trustee derived no direct financial benefit from the contract. Tex. Att’y

Gen. Op. No. H-91 6 (1976) (relying on People ex rel. Pearsall v. Sperry, 145 N.E. 344 (Ill. 1924);

EdwardE. Gillen Co. v. City ofMilwaukee, 183 N.W. 679 (Wis. 1921); Stockton Plumbing& Supply

Co. v. Wheeler, 229 P. 1020 (Cal. Dist. App. 1924)). Since the issuance of Attorney General

Opinion H-91 6, this office has consistently said that an employee of a company has at least an

indirect pecuniary interest in the company and accordingly, a governmental body may not contract

The Honorable Rick Perry - Page 9 (JC-0507)

with a company that employs one of its members. See, e.g., Tex. Att’y Gen. Op. Nos. DM-18

(1992), JM-884 (1988), JM-171 (1984); Tex. Att’y Gen. LO-93-012. We continue to rely on this

long-standing conclusion of this office.

We also believe that the conclusion in Attorney General Opinion JC-0426 that a bank

employee has a pecuniary interest in the bank is consistent with legislative policy. We have already

noted that section 45.204 of the Education Code provides that a bank is not disqualified from

becoming the school depository if a member of the board of trustees is a stockholder, officer,

director or employee of the bank. In this statute, adopted in 1967, the legislature determined it

necessary to expressly except a school trustee employed by a bank from the common-law conflict-of-

interest rule. See Act of May 25, 1967,6Oth Leg., R.S., ch. 456, § 4, 1967 Tex. Gen. Laws 1040,

104 1. In Local Government Code chapter 17 1, which allows certain local political subdivisions to

contract with a business entity in which a member of the contracting body has a substantial interest,

subject to procedures set out in the statute, the legislature has defined “substantial interest in a

business entity” in a way that would in many cases include earnings from employment. See TEX.

LOC. GOV’T CODEANN. ch. 17 1 (Vernon 1999 & Supp. 2002). If funds received from a business

entity exceed 10 percent of a person’s gross income for the previous year, that person has a

“substantial interest” in the business entity. See id. 9 171.002(a)(2); see also Tex. Att’y Gen. Op.

Nos. JC-0407 (2001) at 13-14, JC-063 (1999) at 9, JM-424 (1986) at 4. This definition demonstrates

to us that the legislature considers an individual’s interest in his or her employment with a business

entity sufficient to raise a conflict of interest under chapter 17 1 of the Local Government Code. We

believe that Attorney General Opinion JC-0426 reached a correct result, and we affirm its

conclusions.

The Honorable Rick Perry - Page 10 (JC-0507)

SUMMARY

Section 404.0211 ofthe Government Code, which changes the

common-law conflict-of-interest rule for state agency officers who

select a depository for the funds of a state agency, does not apply to

an institution of higher education such as Texas Woman’s University.

Attorney General Opinion JC-0426 is affirmed.

Attorney General of Texas

HOWARD G. BALDWIN, JR.

First Assistant Attorney General

NANCY FULLER

Deputy Attorney General - General Counsel

SUSAN DENMON GUSKY

Chair, Opinion Committee

Susan L. Garrison

Assistant Attorney General, Opinion Committee