Can a North Carolina town swap easements with a corporation when a town commissioner owns a major stake in that corporation?
Plain-English summary
The Town of Huntersville wanted to swap easements with X Corporation. Tract 1 belonged to the corporation; Tract 2 belonged to the town; each side wanted an easement over portions of the other's tract. Town Commissioner A happened to be a major stockholder of X Corporation. The town's attorney wrote to the AG to ask whether the deal could go forward.
Special Deputy Attorney General Charles J. Murray, signing for AG Michael F. Easley, said no. North Carolina's general self-dealing statute, G.S. § 14-234, is broad: any commissioner or director of a public trust "wherein the State or any county, city or town may be in any manner interested" who "shall become an undertaker, or make any contract for his own benefit, under such authority, or be in any manner concerned or interested in making such contract, or in the profits thereof, either privately or openly, singly or jointly with another" is guilty of a misdemeanor. The statute covers indirect interests as well as direct ones. State v. Williams, 153 N.C. 597, 68 S.E. 897 (1910), explained that "[t]o become so interested in the contract, it is not necessary that he make profits on the same. But it is sufficient if . . . he is personally interested in the proceeds of the contract of sale, and received the same, or part thereof, or has some pecuniary interest or share in the contract." A major stockholder of X Corporation has exactly that kind of indirect pecuniary interest in any deal that benefits X Corporation.
Two statutory exemptions came in for analysis and both fell out. G.S. § 14-234(c1) carves out minority stockholders, but Commissioner A held a major (controlling) stake. G.S. § 14-234(d1) exempts certain transactions for "goods and services" in less populated counties and cities, but an easement in real property is neither "goods" nor "services."
The opinion then considered a variation: what if X Corporation simply allowed the town to use the easement without a reciprocal grant? Murray cautioned that even that arrangement could be read as an implied contract that runs afoul of § 14-234(a). The statute's prohibition on self-dealing is not expressly limited to dollar-for-dollar profit transactions; an informal use arrangement could supply the predicate "contract" that the statute reaches. The safer course is to avoid any contractual framing.
The two clean alternatives were a true outright donation and eminent domain. An unconditional donation of an easement over Tract 1 by X Corporation to the town, with no consideration flowing back, "is probably not prohibited by N.C.G.S. § 14-234." But Commissioner A would need to make full disclosure of his interest in X Corporation and not participate in any town deliberation or action on the donation. The donation has to be one-way: as soon as the town promises something in return (cash, deference, a future zoning vote), the gift starts to look like a contract and the statute reactivates.
The eminent domain path comes from David M. Lawrence's treatise, Local Government Property Transactions § 209 (1987). Eminent domain is a non-consensual taking. There is no contract between the property owner and the condemning authority; there is a statutory process that produces a judicial determination of just compensation. Because § 14-234(a) reaches "contracts," it does not reach the eminent domain process. Lawrence's caution applied here: Commissioner A would still need to disclose his X Corporation interest and recuse from any town vote on whether to condemn.
Currency note
This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
G.S. § 14-234 has been amended significantly since 1994 and the cross-reference structure has been recodified more than once. The minority-stockholder threshold, the goods-and-services exemption for smaller jurisdictions, and the disclosure mechanics have all evolved. Any modern conflict-of-interest analysis for a NC municipal officer should start with the current version of § 14-234 and the most recent NC AG guidance on it. The underlying principle, that an indirect financial interest in a contract is enough to trigger the prohibition, has not changed.
Common questions
Q: Does it matter whether the commissioner actually personally profits from the deal?
A: No. State v. Williams reads § 14-234 to reach any "pecuniary interest or share in the contract," not just direct profit to the officer. A major-stockholder commissioner has a pecuniary share through the corporation's gain or loss. The statute applies even if no dollar ever lands in the commissioner's personal account.
Q: Why didn't the minority-stockholder exemption save the deal?
A: Because the exemption is keyed to ownership share, and the facts said Commissioner A was a "major stockholder" of X Corporation. The opinion did not draw the exact percentage line, but the statutory exemption in § 14-234(c1) was clearly designed for small holdings, not controlling positions.
Q: Could the parties have structured the transaction differently to avoid the statute?
A: The opinion identified two clean paths. First, an outright donation in one direction (corporation to town) without consideration. Second, eminent domain. Any structure that ran money or value back to the corporation would have re-engaged the statute through the indirect-interest doctrine.
Q: What about a market-rate sale of the easement at fair value?
A: The opinion did not address that scenario, but the answer in 1994 would have been no for the same reason. A market-rate sale is still a "contract for his own benefit" under § 14-234(a), and Williams treats indirect pecuniary interest as sufficient even when the price is fair. The statute is structural; it does not turn on whether the deal is a good one.
Q: Could Commissioner A just abstain from voting and let the deal go through?
A: Recusal helps but does not cure a § 14-234(a) violation by itself. The statute prohibits the contract, not just the vote. The commissioner's continuing role as a public officer who has an interest in a contract with the town is what the statute targets. Recusal plus an outright unconditional donation might work; recusal plus a swap that still benefits the corporation would not.
Q: How does eminent domain solve the problem?
A: Eminent domain is a statutory taking, not a contract. The corporation does not negotiate; it receives whatever the condemnation court determines as just compensation. Without a "contract" in the picture, § 14-234(a) does not reach the transaction. Commissioner A still owes the town a recusal from any decision to condemn so that he is not personally directing public action that benefits his corporation.
Background and statutory framework
G.S. § 14-234 is one of North Carolina's oldest public-officer conflict-of-interest statutes. The statutory language reaches a broad category of public servants ("any person appointed or elected a commissioner or director to discharge any trust"), prohibits a broad category of self-dealing ("become an undertaker, or make any contract for his own benefit . . . or be in any manner concerned or interested in making such contract, or in the profits thereof"), and imposes criminal liability (misdemeanor). The exemptions in subsections (c1) and (d1) chip back narrow corners of the prohibition for small holdings and routine goods-and-services contracts in smaller jurisdictions.
State v. Williams set the dominant gloss on the statute almost a century before this opinion: indirect pecuniary interest is enough. Williams quoted Doll v. State, 45 Ohio St. 445, for the same proposition. Together they make § 14-234 a structural prohibition that does not depend on proving personal enrichment.
The opinion's treatment of donations and eminent domain is consistent with David M. Lawrence's longstanding guidance to NC municipalities. Donations and condemnations side-step the contract predicate. Anything else, whether labeled "exchange," "license," "use agreement," or "swap," requires the parties to come within an express statutory exemption or risk the misdemeanor.
The opinion is also a good example of NC's separation of legal advice from political advice. Murray told Huntersville what § 14-234 prohibits and what alternatives existed. He did not advise the town to take any specific path. That choice belonged to the town board, and Commissioner A's disclosure and recusal would attach to whichever path the board chose.
Citations
- N.C.G.S. § 14-234 (Director of public trust contracting for his own benefit; participation in business transaction involving public funds; exemptions)
- N.C.G.S. § 14-234(a) (general prohibition on self-dealing contracts)
- N.C.G.S. § 14-234(c1) (minority-stockholder exemption)
- N.C.G.S. § 14-234(d1) (goods-and-services exemption for less populated counties and cities)
- State v. Williams, 153 N.C. 597, 68 S.E. 897 (1910)
- Doll v. State, 45 Ohio St. 445
- David M. Lawrence, Local Government Property Transactions § 209 (1987)
Source
Original opinion text
FORMAL OPINION
DATE: February 7, 1994
SUBJECT: Conflict of Interests; N.C.G.S. § 14-234 Transfer of Real Property
REQUESTED BY: Robert B. Blythe, Huntersville Town Attorney
QUESTION: May a corporation which is the owner of real property enter into a contract with a town for the transfer of an easement interest in the corporation's property in exchange for an easement interest in real property owned by the town where a town commissioner is a major stockholder of the corporation.
CONCLUSION: No
DISCUSSION:
Commissioner A of the Town of Huntersville is a major stockholder of X Corporation which owns tract of land number 1. The Town owns tract of land number 2. It has been proposed that the Town obtain an easement over portions of tract number 1 in exchange for an easement to X Corporation over portions of tract number 2. N.C.G.S. § 14-234, which is set out below, prohibits persons who hold public office from dealing with their unit of government in matters affecting their own self interests, and while the statute does contain several exceptions, none appears to be applicable. Because Commissioner A is a major stockholder in X Corporation, the exemption for minority stockholders set out in N.C.G.S. § 14-234(c1) is not applicable. Because the contemplated transaction involves an interest in real property, the exemption in regard to goods and services for less populated counties and cities set out in N.C.G.S. § 14-234(d1) is also inapplicable.
N.C.G.S. § 14-234(a) reads, in pertinent part, as follows:
§ 14-234. Director of public trust contracting for his own benefit; participation in business transaction involving public funds; exemptions.
(a) If any person appointed or elected a commissioner or director to discharge any trust wherein the State or any county, city or town may be in any manner interested shall become an undertaker, or make any contract for his own benefit, under such authority, or be in any manner concerned or interested in making such contract, or in the profits thereof, either privately or openly, singly or jointly with another, he shall be guilty of a misdemeanor . . .
The discussion of the statutory language of N.C.G.S. § 14-234 by the North Carolina Supreme Court in State v. Williams, 153 N.C. 597, 68 S.E. 897 (1910) supports the position that a violation of the statute occurs only when there is at least some pecuniary benefit passing to the official. In the opinion of that case, the Supreme Court stated as follows:
Nor is it necessary to show that defendant directly profited by the contract. In Doll v. State, 45 Ohio St., 445, it is held that: "To become so interested in the contract, it is not necessary that he make profits on the same. But it is sufficient if, while acting as such officer, he sell the property to the city for its use, or is personally interested in the proceeds of the contract of sale, and received the same, or part thereof, or has some pecuniary interest or share in the contract."
153 N.C. at 600. As a major stockholder of X Corporation, Commissioner A would benefit indirectly if X Corporation obtained an easement over tract number 2 and therefore, the statute prohibits the exchange of easements.
Your request for an opinion also asks if the results would be the same if X Corporation merely permitted the Town to use the easement. The statute, through its very broad language says, in essence, that an official, who is a member of a local government governing body should not have any self-dealing with the government body for which he or she is an officer. See David M. Lawrence, Local Government Property Transactions, § 209 (1987). The statutory language prohibiting self-dealing is not expressly limited to situations where there is a financial benefit passing to the official and N.C.G.S. § 14-234(a) could be interpreted literally to prohibit even an informal arrangement for the use of the property by the Town. Such an arrangement could be seen to be an implied contract in violation of N.C.G.S. § 14-234 and would very likely create significant legal problems for Commissioner A and the Town in the future. However, an outright donation of an easement over tract number 1 by the X Corporation to the Town without any consideration is probably not prohibited by N.C.G.S. § 14-234. Any acceptance of an express outright donation of an easement in X Corporation's property by the Town should only be made after full disclosure by Commissioner A and without any participation by him.
Finally, your letter asks if there are other possible courses of action. In David M. Lawrence, Local Government Property Transactions, § 209 (1987) the author suggests that real property owned by a city council member may be acquired by the city by eminent domain because such acquisition is non-consensual and does not involve contracts which are the focus of N.C.G.S. § 14-234(a). As Mr. Lawrence points out, should a decision be made to condemn an interest in tract number 1, Commissioner A should make disclosure of his interest in X Corporation and take no part in any deliberation or action regarding the property.
MICHAEL F. EASLEY Attorney General
Charles J. Murray Special Deputy Attorney General