If two members of an airport authority's board are also senior bank executives, can the authority award the bank a bond underwriting contract without running afoul of NC's conflict-of-interest law?

Plain-English summary

The Piedmont Triad Airport Authority was considering refunding some of its outstanding bonds. Refunding meant soliciting bids from financial institutions to underwrite the issuance. Two members of the Authority's board had bank ties: Director A was Senior Executive Vice President and General Counsel of Bank A; Director B sat on the board of Bank B. Both banks were likely to bid on the underwriting.

Counsel for the Authority asked six questions, three for each director, structured to test how N.C.G.S. § 14-234 would handle the situation. Senior Deputy AG Ann Reed's answers worked out the same way for both directors:

Direct question (1 and 4): Would Director A/B violate § 14-234(a) if the Authority awarded the contract to Bank A/B, assuming the director disclosed his interest and did not vote?

No, assuming the director owns 10% or less of the bank. § 14-234(c1) provides that owning ≤10% of a corporation does not make the person "interested" or "concerned or interested in making such contract or in the profits thereof," so long as the public board passes a specific resolution authorizing the contract on which the conflicted official does not vote.

Proviso question (2 and 5): Would the § 14-234(a) "banks or banking institutions" proviso save the contract independently?

Yes. § 14-234(a) contained a proviso: "this section shall not apply to public officials transacting business with banks or banking institutions . . ." The AG concluded that proviso reached the contemplated bond-underwriting transaction. Even if the (c1) ownership exception did not apply (because the director owned more than 10%), the banking proviso would.

Validity question (3 and 6): Can the Authority enter into a valid contract for underwriting services with Bank A/B if the director discloses and refrains from voting?

Yes. Even if Director A owns more than 10% of Bank A, the second proviso of § 14-234(a) said "such undertaking or contracting shall be authorized by said governing board by specific resolution on which such public official shall not vote." So with the specific-resolution / non-voting procedure, the contract remains valid.

The opinion is a clean illustration of how NC's conflict statute is structured: a general criminal prohibition (§ 14-234(a)), several provisos within that subsection (including the banking-business carve-out), and additional safe harbors in (c1) for stockholders ≤10% and employees, all conditioned on disclosure plus a specific authorizing resolution from which the conflicted official abstains.

Currency note

This opinion was issued in 1999. 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.

§ 14-234 has been substantially restructured since 1999. The 10% threshold language and the banks-or-banking-institutions proviso may now appear in different subsections or with different conditions. Anyone applying § 14-234 to a current public-authority bond transaction must pull the current text and verify which exception (if any) is still in force. The methodology (disclose, specific resolution, no vote by conflicted official) remains a sound default even where the exact statutory exceptions have shifted.

Common questions

Q: What is the "10% or less" rule?
A: § 14-234(c1) (as it stood in 1999) said that owning 10% or less of the stock of a corporation, having 10% or less ownership in any other business entity, or being an employee, did not make a person "interested" in a public contract with that corporation or entity. The exception applied only if the governing board passed a specific resolution on which the conflicted public official did not vote.

Q: What is the "banks or banking institutions" proviso?
A: § 14-234(a) had a stand-alone carve-out: the prohibition did not apply to public officials transacting business with banks or banking institutions. The AG read this as a separate, sector-specific exception. Even where the (c1) ownership exception failed (because the director owned more than 10%), the bank proviso would still cover ordinary bank-business contracts.

Q: Does the bank proviso reach bond underwriting?
A: Yes, in the AG's view. The opinion concluded that "in our opinion the proviso does apply to the contemplated transaction." Bond underwriting is a core banking business, so transacting with a bank for underwriting services fell within the carve-out.

Q: What does "specific resolution on which such public official shall not vote" require?
A: Two things. First, the resolution must be specific to the particular contract or undertaking (not a blanket pre-authorization). Second, the conflicted official must not vote on it. Disclosure of the interest before the vote is implicit (otherwise the rest of the board cannot meaningfully act).

Q: Why is the question structured as three sub-questions per director?
A: Counsel was layering the analysis. First question: does (c1) save it (assuming ≤10% ownership)? Second question: if not, does the bank proviso save it independently? Third question: if neither saves it under (a), is the contract still valid because of the specific-resolution requirement? Layered questions like this are useful in opinion practice because they get answers good across multiple factual scenarios.

Q: Why does the AG note "we have assumed for purposes of this response that he does not own as much as 10% of Bank A"?
A: Because the answer to question 1 depends on the ownership level. If Director A owned more than 10%, the (c1) exception would not apply by its terms. The bank proviso would still cover the transaction, but the structure of the answer matters for risk analysis.

Background and statutory framework

The Piedmont Triad Airport Authority is a public airport authority created by the General Assembly to operate Piedmont Triad International Airport. Like other NC public authorities, it can issue bonds for capital projects. When market conditions are right, it can refund (refinance) outstanding bonds to lower interest costs.

Bond refunding requires underwriters to bid on placing the new bonds. NC public boards routinely include local business leaders, and local bank executives are common board members. The conflict-of-interest tripwire arises any time the public board is considering a contract with a bank where one of its members is an officer, director, or significant shareholder.

§ 14-234 had been around for decades by 1999, and the legislature had added refinements over time:

• The (c1) ownership/employee exception responded to the practical reality that public-board members often hold modest stakes in local businesses that might do business with the board.
• The banking proviso in (a) responded to the equally practical reality that public bodies have to bank somewhere, and small communities often have only one or two local banks (whose executives are likely on the public board).
• The specific-resolution / non-voting procedure runs through both exceptions, providing a clean procedural safeguard.

The 1999 opinion's significance is mostly its clarity. It walks through the layered exceptions methodically, with answers that hold across the most common factual variations. Public-authority counsel cite this kind of opinion when structuring board-member recusal procedures for bond transactions.

Citations

• N.C. Gen. Stat. § 14-234(a) (criminal conflict of interest; banks-or-banking-institutions proviso; specific-resolution requirement)
• N.C. Gen. Stat. § 14-234(c1) (ownership / employee exception, ≤10% threshold)

Source

• Landing page: https://ncdoj.gov/opinions/conflict-of-interest-transactions-between-public-officials-and-banks/

Original opinion text

Reply To: Ann Reed Administrative Division
(919) 716-6800 (fax) 919-716-6755

June 24, 1999

William Owen Cooke
Cooke & Cooke
Attorneys At Law
First Citizens Bank Building
100 South Elm Street
Greensboro, North Carolina 27401

RE: Advisory Opinion: Conflict of Interest; Transactions Between Public Officials and Banks; N.C.G.S. § 14-234(a) and (c1)

Dear Mr. Cooke:

In your letter of June 17, 1999, you request our opinion concerning whether a conflict of interest may arise between the Piedmont Triad Airport Authority and two members of its Board of Directors if the Authority decides to re-fund some of its outstanding bonds, which will likely involve entering into a contract with a financial institution to underwrite the issuance of such bonds.

The facts set out in your letter are briefly summarized as follows. Piedmont Triad Airport Authority is considering re-funding some of its outstanding bonds. If the Authority decides to proceed, it will solicit bids from various financial institutions. Among the members of the Authority's Board of Directors are the Senior Executive Vice President and General Counsel of one banking institution (referred to as Director A and Bank A) and a member of the board of directors of another banking institution (referred to as Director B and Bank B). Banks A and B are likely to submit proposals to the Authority to provide underwriting services.

Your questions concern the participation of Directors A and B in this process. You have asked six separate questions. The first is whether, except for the proviso to the statute, Director A would violate N.C.G.S. § 14-234(a) if the Authority awarded a contract to Bank A, assuming Director A disclosed his interest and did not vote on the award. Your letter does not indicate that Director A is an owner of Bank A, and we have assumed for purposes of this response that he does not own as much as 10% of Bank A. N.C.G.S. § 14-234(c1) provides:

The fact that a person owns ten percent (10%) or less of the stock of a corporation or has a ten percent (10%) or less ownership in any other business entity or is an employee of said corporation or other business entity does not make the person "in any manner interested" or "concerned or interested in making such contract or in the profits thereof," as such phrase is used in subsection (a) of this section, and does not make the person one who "had a financial association," as defined in subsection (c) of this section; provided that in order for the exception provided by this subsection to apply, such undertaking or contracting must be authorized by the governing board by specific resolution on which such public official shall not vote.

Assuming that Director A owns 10% or less of Bank A, as long as he discloses his interest and the Authority Board passes a specific resolution on which Director A does not vote, our answer to question 1 is no.

Your second question is whether the proviso contained in N.C.G.S. § 14-234(a) would apply even if the answer to question 1 were yes. That proviso reads, in relevant part: "Provided, that this section shall not apply to public officials transacting business with banks or banking institutions…" Though our answer to question 1 is no, it may be helpful to you to know that in our opinion the proviso does apply to the contemplated transaction.

Your third question is whether the Authority may enter into a valid contract for underwriting services with Bank A or a group of which Bank A is a member if Director A discloses his interest in Bank A and refrains from voting on the award. The further proviso to N.C.G.S. § 14-234(a) states: "Provided further, that such undertaking or contracting shall be authorized by said governing board by specific resolution on which such public official shall not vote." Thus, even if Director A owns 10% of Bank A, as long as the Authority board authorizes the undertaking by a specific resolution on which Director A does not vote, the contract will be valid.

Your fourth, fifth and sixth questions ask these same three questions with regard to Director B and Bank B. Our answers are the same as above.

If you have any additional questions, or if this office can be of additional assistance to you or the Authority, please do not hesitate to call.

Sincerely,

Ann Reed
Senior Deputy Attorney General

AR