Can a Kentucky utility employee buy a vehicle the utility used to lease from its contractor?

Plain-English summary

The Paintsville Utilities Commission leases vehicles from a contractor. When a lease ends, the contractor assigns the vehicle a fair market value and sells it. The Commission asked whether its own employees could buy those end-of-lease vehicles from the contractor without running into conflict-of-interest rules.

The Attorney General concluded that, under the facts described, nothing in state law or the common law forbids it. First, KRS 82.083(4)(g) bars selling city property to a city officer or employee, but the vehicles belong to the contractor, not the city, so that statute does not apply. The opinion also noted that KRS 45A.455(1), which restricts procurement employees with a financial interest, does not apply because the City of Paintsville has not adopted the Model Procurement Code.

Second, the opinion examined the common-law rule that a person entrusted with others' business cannot turn that business into personal profit. It noted a wrinkle: because the contractor rolls the sale proceeds back into the Commission's lease program, a lower price paid by an employee means less money for the Commission, which creates some tension between the employee's interest and the Commission's. But the opinion concluded there is no inherent conflict if two conditions hold: the Commission is not involved in setting the sale price, and the buyer is not a commissioner, an officer, or an employee with procurement or contract-administration authority. Those employees, the opinion said, should not take part in these purchases. Finally, the opinion declined to interpret Paintsville's two local ethics ordinances, pointing out that the city has its own Board of Ethics to issue advisory opinions on them.

What this means for you

Municipal utility officials and public employees

Under this opinion, a utility employee may buy an end-of-lease vehicle from the contractor that owns it, because the vehicle is not city property under KRS 82.083. The opinion conditions this on the Commission staying out of price negotiations and on the buyer not being a commissioner, officer, or procurement/contract-administration employee.

Procurement officers

The opinion holds that commissioners, officers, and employees with procurement authority or administrative authority over the relevant contract should not engage in these purchases, because their duty to maximize funds for the lease program could conflict with their interest as a buyer.

City attorneys and ethics boards

The opinion expressly declined to interpret Paintsville's local ethics ordinances (§ 39.10 and § 39.11), deferring to the city's own Board of Ethics, which is authorized to issue advisory opinions on those ordinances.

Common questions

Q: Can a city utility's employees buy vehicles the utility used to lease?
A: Under the facts in this opinion, yes, when the contractor (not the city) owns the vehicles and the buyer has no procurement or contract-administration role.

Q: Why doesn't the ban on selling city property apply?
A: KRS 82.083(4)(g) only covers city property. The opinion explains the leased vehicles are the contractor's property, not the city's, so the statute is not triggered.

Q: Who should not buy these vehicles?
A: The opinion says commissioners, officers, and employees with procurement authority or administrative authority over the contract should not, because of the potential conflict between their public duty and their personal interest.

Q: Did the Attorney General rule on the city's ethics ordinances?
A: No. The opinion declined to interpret Paintsville Code §§ 39.10 and 39.11, noting the city's Board of Ethics can issue advisory opinions on those local ordinances.

Background and statutory framework

KRS 82.083(4)(g) prohibits selling city property to a city officer or employee, but the opinion concluded the leased vehicles are the contractor's property, so the statute does not apply. KRS 45A.455(1) restricts procurement employees with a financial interest, but only where the Model Procurement Code has been adopted; Paintsville has not adopted it (see KRS 45A.343(1) and KRS 45A.735(1)). On the common law, the opinion quoted Commonwealth ex rel. Vincent v. Withers (collecting Nunemacher v. City of Louisville, Byrne & Speed Coal Co. v. City of Louisville, and Douglas v. Pittman) for the principle that a public officer may not make the public's business a source of personal profit, and cited Howard v. Saylor (via KRS 83A.010(10)) for the definition of a city officer and OAG 93-33 (citing Housing Authority of City of New Haven v. Dorsey). The opinion concluded no inherent conflict exists where the Commission does not set the price and the buyer lacks procurement or contract-administration authority.

Citations and references

Statutes:
- KRS 82.083; KRS 82.083(4)(g)
- KRS 45A.455(1); KRS 45A.343(1); KRS 45A.735(1)
- KRS 83A.010(10)

Cases:
- Nunemacher v. City of Louisville, 98 Ky. 334, 32 S.W. 1091
- Byrne & Speed Coal Co. v. City of Louisville, 189 Ky. 346, 224 S.W. 883
- Douglas v. Pittman, 239 Ky. 548, 39 S.W.2d 979
- Commonwealth ex rel. Vincent v. Withers, 98 S.W.2d 24 (Ky. 1936)
- Howard v. Saylor, 204 S.W.2d 815 (Ky. 1947)
- Hous. Auth. of City of New Haven v. Dorsey, 320 A.2d 820 (Conn. 1973)

Source

• Landing page: https://www.ag.ky.gov/Opinions/Pages/default.aspx
• Original PDF: https://www.ag.ky.gov/Resources/Opinions/Opinions/Opinion%20of%20the%20Attorney%20General%2021-11.pdf

Original opinion text

The full opinion as issued by the Office of the Kentucky Attorney General:

Commonwealth of Kentucky
Office of the Attorney General
Daniel Cameron, Attorney General
Capitol Building, Suite 118, 700 Capital Avenue, Frankfort, Kentucky 40601
October 6, 2021
OAG 21-11
Subject: Whether Paintsville Utilities Commission employees may purchase vehicles formerly leased by the Commission.
Requested by: A. David Blankenship, Counsel, Paintsville Utilities Commission
Written by: James M. Herrick, Assistant Attorney General
Syllabus: The purchase of vehicles by Paintsville Utilities Commission employees from a contractor that formerly leased the vehicles to the Commission is not governed by KRS 82.083 because the vehicles are not city property. These transactions do not implicate common-law conflict-of-interest principles if the Commission is not involved in negotiating the sale price and if the purchasers are not commissioners, officers, or employees responsible for procurement or administration of the contract.

Opinion of the Attorney General

The Paintsville Utilities Commission ("Commission") asks this Office whether, consistent with prohibitions against conflicts of interest, Commission employees may privately negotiate with a contractor for the purchase of the vehicles at the end of the Commission's lease of those vehicles.

As a leased vehicle approaches the end of its lease term, the contractor replaces it with a new vehicle after assigning a fair market value to the old vehicle and disposing of it by sale on the open market or otherwise. According to the Commission, the difference between the sale price and any balance remaining on the lease "is rolled into the [Commission's lease] program regardless of who purchases the vehicle." If permitted, the contractor would entertain purchase offers from the Commission's employees.

While the contractor has authorized the Commission "to set the sales price in the case of an employee," the Commission says that it would not "be inclined to do so." Thus, this opinion presumes that such transactions would be negotiated independently between the contractor and the employee. This opinion also assumes that those purchasers would be Commission employees who do not have procurement authority or administrative authority over the relevant contract, rather than commissioners, officers,[1] or employees with authority in relation to the relevant contract.

First, State law does not prohibit the proposed transaction under the facts described. KRS 82.083(4)(g) prohibits the sale of city property to a city officer or employee. But the vehicles leased by the Commission are the sole property of the contractor and not owned by the city. Thus, KRS 82.083 does not apply. Furthermore, KRS 45A.455(1), which prohibits employees with procurement authority from participating directly in any matter in which they have a financial interest, does not apply because the City of Paintsville has not adopted the Model Procurement Code. Cf. KRS 45A.343(1) (permitting a local public agency to adopt portions of the Model Procurement Code); KRS 45A.735(1) (same).

Second, there does not appear to be any common law conflict of interest that would preclude the proposed transaction. The former Court of Appeals previously described common law conflicts of interest principles:

It is a salutary doctrine that he who is intrusted with the business of others cannot be allowed to make such business an object of profit to himself. This is based upon principles of reason, of morality, and of public policy. These are principles of the common law and of equity which have been supplemented and made more emphatic by . . . statutory enactments. Nunemacher v. City of Louisville, 98 Ky. 334, 32 S.W. 1091, 17 Ky. Law Rep. 933. In their application and operation it is impossible to lay down any definite rules defining the nature of the interest of the officer, or indicating the line between that which is proper and that which is unlawful. In general, the disqualifying interest must be pecuniary or proprietary by which he stands to gain or lose something. Falling within the principle are contracts with firms in which the member of the municipal body is a partner or a corporation of which he is an officer, or sometimes only a stockholder or employee. Byrne & Speed Coal Co. v. City of Louisville, 189 Ky. 346, 224 S.W. 883; Douglas v. Pittman, 239 Ky. 548, 39 S.W.(2d) 979. Furthermore, it is not material that the self-interest is only indirect or very small.

Commonwealth ex rel. Vincent v. Withers, 98 S.W.2d 24, 25 (Ky. 1936).

Here, in negotiating the sale of a vehicle, the contractor would presumably know that the purchaser was an employee of the Commission, with which it has a contract. This might create an appearance that the transaction was not entered into at arm's length. Nevertheless, if the Commission is not involved in negotiating the sale price, and if the purchaser is not a commissioner, an officer, or an employee with procurement authority or administrative authority over the relevant contract, the transaction would not constitute an inherent common law conflict of interest.

This Office has noted that "[a] public officer may not place himself in a position where his private interest conflicts with his public duty." OAG 93-33 (citing Hous. Auth. of City of New Haven v. Dorsey, 320 A.2d 820 (Conn. 1973)). Under the Commission's contractual arrangement with the contractor, the net proceeds of a sale are applied back to the Commission's lease program. Thus, the lower the purchase price paid by the employee, the less money would accrue to the Commission for use in leasing future vehicles. This would render the pecuniary interest of the employee in such a transaction, to some degree, adverse to that of the Commission. But if the Commission has authorized certain employees to enter into independent purchase transactions with the contractor, the employees would not have a public duty to maximize available funds for the lease program, unless they were commissioners, officers, or employees responsible for procurement or administration of the contract. Thus, such purchases would not pose an inherent conflict of interest under common law principles.

For these reasons, under the facts presented by the Commission, this Office is unaware of any statutory or common-law prohibition that would forbid the Commission's employees from purchasing vehicles previously leased by the Commission from the contractor. However, commissioners, officers, or employees having procurement authority or administrative authority over the contract should not engage in such transactions.

Finally, the Commission also asks whether the proposed transactions would conflict with local ethics ordinances. The City of Paintsville has adopted two municipal ethics ordinances, Paintsville Code of Ordinances § 39.10 and § 39.11, which prohibit certain conduct by city officers and employees. But the City of Paintsville has established a Board of Ethics that can render advisory opinions interpreting municipal ethics ordinances.[2] Thus, this Office declines to render an opinion on the interpretation and application of those ordinances.

Daniel Cameron
Attorney General
James M. Herrick
Assistant Attorney General

[1] For the definition of a city "officer," see KRS 83A.010(10) (codifying the principles of Howard v. Saylor, 204 S.W.2d 815, 817 (Ky. 1947)).
[2] See Paintsville Code of Ethics, available at https://perma.cc/29RN-YQGP.