ADVISORY OPINION NO. 117
This is an advisory opinion of the Ethics Commission [Commission] regarding the retention of a real estate salesman's license [license] by an investigator for a City agency with licensing authority.
The Commission is of the opinion that the investigator's license should be inactivated.
The Commission considers the following facts, obtained from his testimony, to be germane to the applicable standard of conduct provisions found in the Revised Charter of Honolulu 1973 (1979 Supp.) [RCH] and the Revised Ordinances of Honolulu 1978, as amended [ROH], and the discussion, conclusions and recommendation herein:
1. The employee is an investigator for a City agency with licensing authority.
2. As an investigator, his primary duty is to enforce observance of all statutes and the rules and regulations promulgated by the agency [laws].
3. To enforce observance of the laws, he is assigned by his supervisors to inspect property of applicants for licenses.
4. To enforce the laws, he is authorized to issue citations if he observes violations of any law.
5. The investigator suffered an injury as a City employee and could no longer function in his prior duties, so he prepared himself to obtain a real estate license.
6. After the granting of such license, he applied for a position as an investigator with the City agency in question.
7. Upon such employment, he stated that he filed a Form CC-8 (Disclosure of Interest), regarding his license, which was reviewed by his appointing authority and who subsequently advised him that there was no conflict of interest.
8. In his previous position he was aware of the departmental rule which prohibits employees from engaging in outside activities involving solicitation because of enforcement powers.
9. Since obtaining his license, he has not engaged in any real estate sales, and his reason for maintaining an active license is to handle family real estate interests.
10. Inasmuch as there are (specific number) members of the public subject to the jurisdiction of his enforcement powers, he has ample opportunity to solicit real estate sales.
11. Confidential instructions are issued to investigators such as changes in investigator assignments.
The Commission is not impugning the investigator's integrity or character, nor that of any other member of the enforcement staff of the City agency, with the illustrations and discussion herein. Its conclusion is bottomed on the rule of law in 63 Am.Jur .2d, Public Officers and Employees Sec. 281, which states:
It is generally held that a public officer owes an undivided duty to the public whom he serves and is not permitted to place himself in a position which will subject him to conflicting duties or expose him to the temptation of acting in a manner other than in the best interests of the public. [At 794]
The Commission is of the opinion that in the instant case the following factors are fraught with opportunities wherein Section 11-102.3, RCH, may apply:
1. According to his testimony, there are approximately (specific number) persons in the general public who come under his jurisdiction as an investigator.
2. Solicitation is generally involved in effecting a real estate transaction.
3. He has the discretion to issue or withhold citations for breach of laws by an owner of licenses property.
4. An average single real estate transaction generally results in a lucrative commission; e.g., approximately 3 percent of the sales price of a piece of real property.
The basic issue in his case is whether his duties as an investigator can be compromised because of his license. The Commission is of the opinion that his duties as an investigator can be compromised to enhance his real estate transactions. Section 11-102.3, RCH, relating to incompatibility of a business or financial interest in relation to his official duties, may be applicable.
Section 11-102.3, RCH, provides that no officer or employee shall:
[E]ngage in any business transaction or activity or have a financial interest, direct or indirect, which is incompatible with the proper discharge of his official duties or which may tend to impair his independence of judgment in the performance of his official duties.
The cited provision indicates that an employee shall not have a business or financial interest incompatible with his duties, an interest which would establish a situation or condition in which his judgment may be impaired or cause him to improperly carry out his duties as an investigator.
The Commission can relate numerous hypothetical situations in which the investigator's having a license may place him in a position in which he would have to decide between acting on behalf of the public's interest to enforce all laws or the shirking of such duty because of his business or financial interest in real estate. To avoid repetitiveness, the Commission submits two hypothetical situations which might occur because: (1) solicitation is involved in making a sale or purchase; (2) real estate transactions generate lucrative commissions; (3) he is able to target a particular group for his clientele; and (4) he has discretionary authority to issue citations. The hypothetical situations are:
1. An owner of licensed property is the investigator's active real estate client. As the investigator is inspecting the licensed property, he witnesses a violation of a law. Ordinarily, he would issue a citation and submit a report to the agency. However, because the owner is his active real estate client to whom he is trying to sell real estate, he does not issue a citation and submit his report to the agency. In this case, the prospect of a lucrative commission impairs his judgment or causes him to improperly carry out his duties as an investigator.
2. The owners of licensed property are aware that the investigator is a real estate salesman. An owner may decide to use his services as a real estate salesman so that he will be beholden to him for commissions he may realize from any real estate transactions. Subsequently, in the course of inspecting licensed property, he witnesses such licensee violating the law. He informs the owner that he will have to issue a citation and file a report to the agency for such violation. However, he decides not to do so when the owner threatens to pull out of the real estate transaction if he does issue the citation.
Note that in both hypothetical situations the investigator is forced to make a choice between enforcing the laws or succumbing to his business and financial interests. Under such circumstances, he is in situations incompatible with his responsibility to enforce the law.
The investigator may question the hypothetical situations on the basis that their occurrence will be unlikely, but from the public's perception regarding City employees with off-duty activities relating to real estate, the hypothetical situations reflect occurrences that are more the rule than exceptions to the rule. Such perception is bolstered by instances in which State and City officers and employees have had financial interests in private land development and ventures. Further, the public is aware of the selective enforcement practiced by State and City officers and employees who have enforcement powers. Moreover, the public is led to believe that such selective enforcement is done to enhance the personal financial interests of such officers and employees. Therefore, the general perception of the public of a government officer or employee with a license plus enforcement powers is that this combination provides opportunities – often taken advantage of – for the officer or employee to enhance his private financial interests to the detriment of the public interest. In short, the public views the situation as being ripe for abuse and assumes the abuses occur not infrequently. The Commission makes the foregoing statements because the foregoing perceptions have been expressed by the public to members of this Commission. When the Commission has responded that no City officer or employee with enforcement power plus a license has been charged with a violation of any standard of conduct, the stock response of the member of the public has been to point out that absence of such charge is no proof such activity is absent. The Commission's position is that he as a City officer with enforcement powers is in a particularly sensitive position in terms of potential for abuse of standards of conduct. Consequently, he should avoid any condition which may place him in a compromising position, a position incompatible with discharge of his duties or in which the opportunity for conflict of interest or appearance of conflict may exist. Such a situation is the combination of enforcement power plus possession of a real estate salesman's or broker's license.
To continue – another consideration: The investigator's retention of an outside activity which involves solicitation, such as real estate sales, may involve the use of City time, equipment or material. City time may be involved should he attempt to contact an active client during working hours or do real property financial calculations during working hours. City equipment may be involved because he may utilize the telephone on his desk to contact a client. As to materials, a pen, pencil or pad of paper purchased with City funds may be utilized by him for his real estate transactions. The use of the foregoing time, equipment or materials by him may be a violation of Section 11-102.3, RCH, relating to incompatibility. Such use may be a violation on the grounds that his judgment as impaired because he neglected his duty for his real estate activity or his real estate activity caused him to improperly discharge his duties.
Another section which may be applicable because of the investigator's license is Section 6-1.2(2), ROH, relating to official action by an officer or employee. This section provides that no officer or employee shall acquire a financial interest in a business enterprise which any officer or employee has reason to believe may be directly involved in official action to be taken by an officer or employee. The language, "acquire a financial interest in a business enterprise," is applicable to his license. The language, "official action," is applicable to his authority such as the issuance of a citation for violation of a law. The language, "which any officer or employee has reason to believe will come before an officer or employee for official action," is applicable to the applicant's being his real estate client. Therefore, since an applicant for a license may turn out to be his real estate client, he has a "financial interest in a business enterprise which may come before him for official action." Consequently, he may be alleged to have acquired a financial interest in a business enterprise which he has reason to believe may come before him for his official action – specifically, enforcement of the laws and citation of owners of licensed property who may violate such laws.
Other standards of conduct which may be applicable, if the appropriate facts are present, are Sections 11-102.2 and 11-104, RCH. Section 11-102.2, RCH, may apply when the investigator divulges confidential information to an owner of licensed property who is also his real estate client. Section 11-104, RCH, may apply when he makes a decision to issue a citation against an owner who is not his real estate client and he does not issue a violation against another owner who is also his real estate client. Under this example, he is not treating non-clients fairly and equally. In both instances, these standards of conduct are applicable regardless of whether or not he has a license and whether the owner is or is not his active real estate client. However, because of his license, the public's perception is that he is more likely than not to disclose confidential information and not to issue a citation to an owner who is also his real estate client.
To summarize, the Commission concludes that because the investigator's license is a business or financial interest and his enforcement power is his official duty, Section 11-102.3, RCH, and Section 6-1.2(2), ROH, may be applicable in his case. Section 11-102.3, RCH, may be applicable because having a license may be incompatible with his official duty because the situation resulting from having such license may tend to impair his judgment in carrying out such official duty. The incompatibility of such interests is reflected in the hypothetical situations related herein. Section 6-1.2(2), ROH, may apply because he has a business interest which may come before him for official action. The business interest is his license. Such interest may come before him for official action when he has to issue a citation to an active real estate client who is an owner. The official action is represented by his power to issue a citation.
Two additional standard of conduct provisions may apply if the facts warrant such application. The essential facts concern disclosure of confidential information to a real estate client who is an owner, thereby enhancing his ability to close a real estate transaction with such client. In the foregoing example, Section 11-104, RCH, may be applicable because the investigator is not treating all owners fairly and equally. That is, if an owner is his real estate client, he may disclose to him such confidential information as may prove beneficial to his business interests, while neglecting to disclose such information to owners who are not his real estate clients. Such selective enforcement would be contrary to Section 11-104, RCH.
The Commission's objective is to prevent the hypothetical situations from becoming actual. Moreover, the Commission’s recommendation to the investigator and his acceptance of same should enhance the public's confidence in his integrity and that of his fellow investigators which, in turn, enhance the public's confidence in City government. Such objective is expressly prescribed in Section 11-101, RCH, as follows:
Section 11-101. Declaration of Policy -
Elected and appointed officers and employees shall demonstrate by their example the highest standards of ethical conduct, to the end that the public may justifiably have trust and confidence in the integrity of government. They, as agents of public purpose, shall hold their offices or positions for the benefit of the public, shall recognize that the public interest is their primary concern, and shall faithfully discharge the duties of their offices regardless of personal considerations.
In view of the foregoing, the Commission recommends that the investigator inactivate his license so that the key element which may cause him to violate a standard of conduct is removed. Perhaps he may be able to handle his family's real estate transactions because he may activate his license for such purpose. After he has completed such transaction, he may inactivate his license. If he has another family real estate transaction, he is permitted to activate his license again. The foregoing statements are based on the attached copy of a letter from the Real Estate Commission, responding to questions posed on behalf of the Ethics Commission.
The Commission appreciates the investigator's cooperation in appearing before, and responding to the questions posed by its members. It requests that his decision, whether or not to accept its recommendation, be filed in writing with this Commission within fifteen (15) days after the date noted on this advisory opinion. This deadline has been established by Section 3-2.4(e), ROH.
Dated: March 7, 1983
MAZEPPA K. COSTA
Chair, Ethics Commission
By law, hearings conducted by either the State or City Ethics Commissions are closed to the news media unless the subject officer or employee request an open hearing. However, there were two cases which received much publicity in the media. The City Ethics Commission [Commission] surmises that these cases were leaked to the news media by others, rather than the Commission, but the Commission presents these cases as examples of conflict of interest cases which shake the confidence of the public in the integrity of State and City governments.
A. The case involving the State employee is where he received a car as a gift from a car rental agency. His duty was to administer the parking areas at the Honolulu International Airport assigned to car rental agencies. The car rental agency was a tenant at the Honolulu International Airport with an assigned parking area. In this case, the car, as a gift, was intended to influence the State employee's actions concerning the parking situation affecting car rental agencies. The State employee was disciplined for his infraction of a State standard of conduct.
B. This case involved Board of Water Supply employees who were employed by a private engineer who had a contract to do projects for the Board of Water Supply. These employees did survey, drafting and engineering work for the private engineer. The same survey, drafting or engineering work was reviewed and recommended for approval to their superiors by the same employees who did the original work for the private engineer. The Board of Water Supply employees failed to file their disclosures of outside employment and had a financial interest which was in conflict with their duties as Board of Water Supply employees. They were all disciplined for their infraction of City standards of conduct.
List of prior opinions in which the City Ethics Commission recommended either inactivation of a real estate license or advised against obtaining a real estate license. These opinions are in the City Ethics Commission's Advisory Opinion Pamphlet (9th Ed. 1980):
Number Date of Issuance Position of Officer or Employee
1 June 7, 1967 Liquor Investigator
2 May 7, 1969 City Planning Clerk
12 June 26, 1970 Building Inspector Aide
13 February 1, 1971 Deputy Chief of Police
19 September 21, 1971 Housing Programs Administrator
47 October 30, 1975 Civil Engineer V
53 April 15, 1976 Civil Engineer I
54 April 15, 1967 Deputy Corporation Counsel
57 May 11, 1976 Architectural Drafting Technician
60 June 29, 1976 Elected Official
66 January 18, 1977 Civil Engineer
78 February 14, 1978 Fire Captain
83 September 28, 1978 Police Officer
86 November 15, 1978 Rehabilitation Loan Specialist
93 October 24, 1980 Police Officer
94 November 24, 1980 Landscape Architect
There were two, much publicized cases involving violations of standards of conduct by a State employee and a group of Board of Water Supply employees which the Commission believes affected the public's confidence in government. These two cases are summarized in Exhibit A, Section I, which is attached hereto.
This Commission has been consistently recommending inactivation of a real estate salesman's or broker's license or recommending denial to obtain a real estate salesman's or broker's license whenever an employee has enforcement powers, or under other circumstances which may be incompatible with the duties of the employee. See opinion numbers listed in Exhibit A, Section 2, which is attached hereto.