Can a company that's partly owned by a Tennessee Board of Regents member bid as a subcontractor on a TBR contract?

Subject

Opinion No. 13-38, Conflict of Interest of Board Member of the Tennessee Board of Regents, May 7, 2013

Plain-English summary

Chancellor John G. Morgan asked whether a company co-owned by a member of the Tennessee Board of Regents (TBR) could bid as a subcontractor on a contract with a TBR institution that requires TBR approval.

The AG said no. Tenn. Code Ann. § 49-8-203(d) provides:

It is unlawful for any member of the board to be financially interested in any contract or transaction affecting the interests of any institution governed by the board. . . . A violation of this subsection (d) shall subject the member so offending to removal by the governor or the board.

The statute's text is broad. "Any" contract or transaction. "Any" institution governed by the board. The financial interest restriction is "not limited to contracts" with the institution; it extends to "any transaction 'affecting'" the institution. Subcontracting clearly falls within this scope.

The AG drew on a 1975 opinion analyzing the parallel statute for the University of Tennessee Board of Trustees, § 49-9-207. The 1975 opinion concluded that allowing a UT board member's company to subcontract for work at the University violated § 49-9-207. The reasoning was: subcontract revenue creates a financial interest, and § 49-9-207 explicitly extends to any transaction "affecting" the University. The same reasoning applies to TBR under § 49-8-203(d).

The opinion further noted that this would be true whether or not the contract requires TBR approval. The statute's prohibition is on the financial interest itself, not on the approval requirement.

§ 49-8-203(d) is stricter than the general state board conflict-of-interest rule at § 12-3-106(b). The general rule has thresholds (1% equity ownership) and ties the conflict to membership on a board responsible for letting or approving the contract. § 49-8-203(d) has no thresholds and applies to any institution governed by TBR. The specific TBR statute controls over the general state board statute. Keough v. State, 356 S.W.3d 366, 371 (Tenn. 2011) (specific statute prevails over general).

The opinion also surveyed the common-law conflict-of-interest doctrine. Tennessee has long applied a strong public policy against public officials placing themselves where personal interests may conflict with public duty. Madison County v. Alexander (1906); Anderson v. City of Parsons (1972); Low v. Madison (1948); Housing Authority of New Haven v. Dorsey (1973). The TBR statute codifies this common-law principle for board members.

Currency note

This opinion was issued in 2013. 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.

In 2017, the Tennessee Board of Regents was restructured. Several state universities (formerly TBR institutions) became autonomous, leaving TBR with primary responsibility for the community college and applied technology college systems. Anyone analyzing a current TBR-related conflict question should check the current versions of §§ 49-8-203 and 49-9-207 and the institutional governance structure at the time of the transaction.

Background and statutory framework

Tennessee Board of Regents. TBR governed Tennessee's state universities and community colleges before the 2017 restructuring. Board members are appointed by the Governor. Board responsibilities include broad oversight of campus operations, budgets, and major contracts.

Common law conflict-of-interest principle. Tennessee follows the common-law rule that a public official may not place himself in a position where personal interest may conflict with public duty. Anderson v. City of Parsons, 209 Kan. 337, 496 P.2d 1333 (1972). The policy is not limited to one category of officials. Low v. Madison, 135 Conn. 1, 60 A.2d 774 (1948). The good faith of the official is not relevant; the policy exists to prevent the official from being influenced by anything other than the public good.

Statutory codification for TBR: § 49-8-203(d).

It is unlawful for any member of the board to be financially interested in any contract or transaction affecting the interests of any institution governed by the board. . . . A violation of this subsection (d) shall subject the member so offending to removal by the governor or the board.

The text is intentionally broad: "any" contract or transaction; "affecting the interests of any institution"; removal as a remedy.

Parallel statute for UT: § 49-9-207 (formerly § 49-3308). Identical language for UT Board of Trustees members. The AG had opined in 1975 (unnumbered opinion) that a UT trustee whose company sought to subcontract for UT-related work violated § 49-9-207:

Any financial interest by a Board member is prohibited. Importantly, the restriction . . . is not limited to contracts with the University of Tennessee. It extends to any transaction "affecting" the University. The statute is specific and unambiguous. Thus a subcontract is within the proscription.

The same logic carries over to § 49-8-203(d).

Comparison with general state board conflict rule (§ 12-3-106(b)).

[I]t is a conflict of interest for any person or any company with whom such person is an officer, a director, or an equity owner having an ownership interest greater than one percent (1%) to bid on any public contract for products or services for a governmental entity if such person or a relative of such person is a member of a board or commission having responsibility for letting or approving such contract.

The general rule has three distinguishing features: a 1% equity threshold; the conflict requires the board member to be on a board responsible for "letting or approving" the specific contract; it doesn't sweep in indirect "affecting" transactions.

§ 49-8-203(d) is much broader: no ownership threshold, no link to the specific contract approval, and the "affecting the interests" language sweeps in any transaction touching any TBR institution.

Specific vs. general. When two statutes appear to address the same subject, the more specific controls. Keough v. State, 356 S.W.3d 366, 371 (Tenn. 2011). § 49-8-203(d) is the specific TBR-member conflict rule. It governs over § 12-3-106(b)'s general state board rule.

"Co-ownership" includes any ownership interest. The AG's opinion footnote 2 specified that "co-ownership" of a company includes "any ownership interest in the company." So even a small ownership stake by a TBR board member triggers § 49-8-203(d).

Common questions

Can a TBR board member own a company that does business with a TBR institution?

Not if the company has a financial interest in a contract or transaction affecting the institution. § 49-8-203(d) is broad. Subcontracts are covered. Indirect involvement (through subsidiaries, parent companies, etc.) likely qualifies.

Does the contract have to be one TBR approves?

No. The opinion was explicit: the prohibition applies "regardless [of] whether the contract required TBR approval." The financial interest itself is what's banned.

What's the difference between the TBR rule and the general state board rule?

The general rule (§ 12-3-106(b)) has a 1% ownership threshold and applies only to contracts the relevant board is responsible for letting or approving. The TBR rule (§ 49-8-203(d)) has no threshold and applies to any transaction affecting any TBR-governed institution. TBR rule is stricter.

What about other state university or college boards?

The University of Tennessee Board of Trustees has an essentially identical rule at § 49-9-207. The TBR rule and UT rule are textually parallel. After the 2017 restructuring, individual university trustees (at universities formerly in TBR) likely have their own statutory conflict rules; verify those against current statute.

What if a TBR board member discloses the interest?

Disclosure doesn't cure the violation under § 49-8-203(d). The statute makes the financial interest itself unlawful. The good-faith common-law principle (Anderson v. City of Parsons) is that disclosure isn't the test; the position itself is the test.

What's the remedy if a TBR member violates the rule?

§ 49-8-203(d) provides "removal by the governor or the board." That's a substantial consequence and reflects the seriousness Tennessee places on the rule.

Citations

Tenn. Code Ann. § 49-8-203 (TBR conflict of interest, especially subsection (d)); § 49-9-207 (UT Board of Trustees conflict of interest); § 12-3-106 (general state board conflict of interest, especially subsection (b)). Cases: Madison County v. Alexander, 116 Tenn. 685, 94 S.W. 604 (1906); Anderson v. City of Parsons, 209 Kan. 337, 496 P.2d 1333 (1972); Low v. Madison, 135 Conn. 1, 60 A.2d 774 (1948); Housing Authority of New Haven v. Dorsey, 164 Conn. 247, 320 A.2d 820 (1973); Keough v. State, 356 S.W.3d 366 (Tenn. 2011). Prior AG opinions: Op. 12-104 (Nov. 9, 2012); Op. 85-036 (Feb. 14, 1985); Op. 83-278 (Aug. 15, 1983); Op. 78-088 (May 16, 1978); 11 Tenn. Att'y Gen. Op. (Sept. 4, 1975) (unnumbered); Op. 90-22 (Feb. 26, 1990).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-038.pdf

Original opinion text

S T A T E O F T E N N E S S E E
OFFICE OF THE
ATTORNEY GENERAL
PO BOX 20207
NASHVILLE, TENNESSEE 37202

May 7, 2013

Opinion No. 13-38

Conflict of Interest of Board Member of the Tennessee Board of Regents

QUESTION

Is a company co-owned by a board member of the Tennessee Board of Regents ("TBR") prohibited from bidding as a subcontractor on any contract that is with the TBR institution and must be approved by the TBR?

OPINION

Yes.

ANALYSIS

Tennessee has a longstanding common law policy that precludes public officials from placing themselves in a position where their personal interests conflict with their public duties. This Office recently explained the rationale for this policy as follows:

At common law, "the essence of the offense [of having a conflict of interest] was acting or appearing to act inconsistently with the best interest of the public . . ." Note: Conflicts of Interests: State Government Employees, 47 Va. L.R. at 1048. In Anderson v. City of Parsons, 209 Kan. 337, 496 P.2d 1333 (1972), the common law principle was described as not permitting the public officer "to place himself in a position that will subject him to conflicting duties or cause him to act other than for the best interests of the public." Id. at 1337. This policy is not limited to a single category of officers, but applies to all public officials. Low v. Madison, 135 Conn. 1, 60 A.2d 774 (1948); Housing Authority of the City of New Haven v. Dorsey, 164 Conn. 247, 320 A.2d 820 (1973), cert denied 414 U.S. 1043.

The common law principle has been followed in several opinions of this office. For example, this office has stated:

[t]here exists a strong public policy which opposes an official placing himself in a position in which personal interest may conflict with public duty . . . A public office is a trust conferred by the public. The duties of that office must be exercised with fairness and impartiality. The good faith of the officer is not a consideration, for the policy exists to prevent an officer being influenced by anything other than the public good.

Op. Att. Gen. 83-278 (August 15, 1983). See also Op. Att. Gen. 78-088 (May 16, 1978).

Tenn. Att'y Gen. Op. 12-104 (Nov. 9, 2012) (quoting Tenn. Att'y Gen. Op. 85-036 at 2 (Feb. 14, 1985)).

Conflicts of interest for board members of the TBR are governed by statute. Tenn. Code Ann. § 49-8-204(d) states in relevant part:

It is unlawful for any member of the board to be financially interested in any contract or transaction affecting the interests of any institution governed by the board. . . . A violation of this subsection (d) shall subject the member so offending to removal by the governor or the board.

(emphasis added). Tennessee courts have recognized that conflict of interest statutes such as Tenn. Code Ann. § 49-8-203(d) are designed to ensure "that a public official may not contract with the body of which he is a member, because it may lead to other contracts very detrimental to the public interest." Madison County v. Alexander, 116 Tenn. 685, 688, 94 S.W. 604 (1906).

This Office in interpreting Tenn. Code Ann. § 49-9-207 (formerly Tenn. Code Ann. § 49-3308), which applies to board members of the University of Tennessee Board of Trustees ("UTBT") and has language identical to Tenn. Code Ann. § 49-8-203(d), has opined that allowing a company whose president is a board member of the UTBT to subcontract to do work for the University of Tennessee violates Tenn. Code Ann. § 49-9-207. 11 Tenn. Att'y Gen. Op. (Sept. 4, 1975) (copy attached).

As this Office succinctly explained:

Any financial interest by a Board member is prohibited. Importantly, the restriction . . . is not limited to contracts with the University of Tennessee. It extends to any transaction "affecting" the University. The statute is specific and unambiguous. Thus a subcontract is within the proscription of T.C.A. § 49-3309 (currently Tenn. Code Ann. § 49-9-207).

Id. (emphasis in original). See also Tenn. Att'y Gen. Op. 90-22 (Feb. 26, 1990) (observing that Tenn. Code Ann. § 49-9-207 is "apparently intended to prohibit board members from deriving a financial gain from any of the University's contracts or transactions").

The reasoning of the opinion issued by this Office on September 4, 1975, is equally applicable to the language of Tenn. Code Ann. § 49-8-203(d). Thus Tenn. Code Ann. § 49-8-203(d) prohibits a company co-owned by a TBR board member from bidding as a subcontractor on any contract that is with a TBR institution and must be approved by the TBR. Indeed this statute by its terms would prohibit a company co-owned by a TBR board member from bidding on any contract with a TBR institution, regardless whether the contract required TBR approval.

The conflict of interest provisions for TBR board members under Tenn. Code Ann. § 49-8-203(d) are stricter than the general conflict of interest provisions governing other members of State boards set forth at Tenn. Code Ann. § 12-3-106(b). Compare Tenn. Code Ann. § 49-8-203(d) (providing it "is unlawful for any member of the [TBR] board to be financially interested in any contract or transaction affecting the interests of any institution governed by the board") with Tenn. Code Ann. § 12-3-106(b) (stating that "[i]t is a conflict of interest for any person or any company with whom such person is an officer, a director, or an equity owner having an ownership interest greater than one percent (1%) to bid on any public contract for products or services for a governmental entity if such person or a relative of such person is a member of a board or commission having responsibility for letting or approving such contract"). The specific provisions of Tenn. Code Ann. § 49-8-203(d) describing conflicts for TBR board members take precedence over the general conflict of interest standards for other State board members established by Tenn. Code Ann. § 12-3-106(b). See, e.g., Keough v. State 356 S.W.3d 366, 371 (Tenn. 2011) (stating general rule of statutory construction that a special statute will prevail over a general provision in another statute).

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

EUGENIE B. WHITESELL
Senior Counsel

Requested by:
The Honorable John G. Morgan
Chancellor
Tennessee Board of Regents
1415 Murfreesboro Road, Suite 340
Nashville, TN 37217-2833