TEEEATTORNEY GENERAL
OF TEL%biS
Hon. ZollieSteakley opinionHo. w-202
Secretaryof State
Austin,Texas Re: House BillI?o.3, Acts 55th
Legislature,Article6252-9,
Dear Mr. Steakley: V.C.S.
Your opinionrequestconcernsprimarilySection3(b) of House
Bill 3, Acts 55th Legislature,RegularSession,Chapter100, page 2l3,
(Article6252-9,Vernon'sTexas Civil Statutes).
Section3(b) provides:
"If an officeror employeeof a stateagency,legislator
or leglelativeemployeeis an officer,agent, or member of,
or owns a controllinginterestineny corporation,firm, part-
nership,or othe? businessentitywhich is under thf,jurls-
dictionof any state regulatoryagencyhe shall file a sworn
statementwith the Secretaryof State disclosingsuch inter-
est."
You have asked seven questions. We have taken the libertyof
rearrangingthe order of these questions. Each questionwill be set'out
immediatelyabove the discussiongenwne to the respectivequestion.
Three of the questionsare:
"1. Are the varioueRiver Authorities,such as the Lower
ColoradoRiver Authority,state agencies,and are their members
and employeesrequiredto file the sworn statementrequiredby
Section3(b) if otherwiseapplicable4
"2. Is the Texas Commissionon HigherEducationa 'State
agency',and are its xaen@ers
and staff requiredto file the
sworn statementrequiredby Sectionj(b), if otherviseappli-
cable?
“3. Is the State Bar of Texas a 'Stateagency'and are
its officersand employeesrequiredto file the sworn state-
ment requiredby Section3(b) if otherwiseapplicable?"
Section2(a) of House Bill 3 defines"Stateagencies"as:
Hon. Zollie Steakley,page 2 (w-202)
I
any office,department,commissionor board of
. . .
the executivedepartmentof government."
The statutorydefinition,however,&es not fully answerthe
question. Consideration must be given to the legislativeintent. Arti-
cle 10, R.C.S.,provides:
WE followingrules shall govern in constructionoft
all civil statutoryenactments.
11
. . .
“6. In all Interpretations, the court shall look dili-
gentlyfor the intentionof the.Legislature, keepingin view
at all times the old law, the evil end the remedy.
...
. . .
"8. The rule of the commonlaw that statutesin dero-
gatlonthereofshallbe strictlyconstruedshall have no ap-
plicationto the revisedstatutes;but the said statutesshall
constitutethe law of this State respectingthe subjectsto
which they relate;and the provisionsthereofshallbe liber-
ally construedtith view to effecttheir objectsand to pro-
mote justice."*
The evil that the statutewas designedto curb is showu In Sec-
tion 1 of House Bill 3, which providesas follows:
"It is hereby declaredto be the policyof the Legisla-
ture that no officeror employeeof a stateagency,Member of
the Legislatureor legislativeemployeeshouldhave any in-
terest,financialor otherwise,director indirect,or engage
in any busiuessor transactionor professionalactivityor
incurany obligationof any naturewhich is in substantial
conflictwith the proper dischargeof his duties in the pub-
lic interest. To Implementsuch policyand to strengthenthe
faith and confidenceof the people of Texas in their Covern-
med., there is herein enacteda code of ethics settingforth
standardsof conductto be observedby state officersand
employeesIn the performanceof their officialduties. ,It is
the intentof the Legislaturethat this code shall serve not
only as a guide for officialconductof the State'spublic
servantsbut also as a basis for disciplineof those who
refuseto abide by its terms."
~*Fimphases
suppliedthroughout.
Hon. Zollie Steakley,&WP 3 (m-202)
The languageof Section1 indicatesthat the statuteis intended
-to regulateState officialsand employeesas distinguishedfrom local
governmentaloffici.aleand employees. This coustructionexcludesgovern-
mental officersand employeesof subdivIsIons of the State, such as coun-
ties and cities,and other strictlymunicipalcorporationswhose operations
and jurisdictionpertainonly to a particularlocalewithin the State.
The variousRiver Authoritiessuch as the Lower ColoradoRiver
Authorityare all orgaeizedpursuantto specialenactmentsof the Legis-
laturewhich are found in Chapterl2 of Title l28 (Water),V.C.S.,and
pursuantto the constltuticmal authorityfound In Section59, Article
XVI of the Texas Constitution.By the expressterms of ArticleXVI, Sec-
tion 59, such River Authorities"shallbe governmentalagenciesand bodies
politicand corporate.. . ." They are alllimited inthelrarea of opera-
tion to a particularlocalewithinthe State by the respectiveenabling
statutes. The enablingstatutesvary considerably, but It my be said
that River Authoritiesincoruorated uursuautto ArticleXVI. Section59
of the Constituti~, are q&.muni&al corporations.Tri&ty Fresh
Water SupplyDistrictNo. 2 v. Mann, 135 Tex. 280, 142 S.W.2d945 (1940).
In the case of Willacy CountyWater Controland ImprovementDistrictNo. 1
v. Abendroth,142 Tex. 320, 177 S.W.2d936 (1944)the SupremeCourt stated:
"Irrigationdistricts,navigationdistricts,levee and
Improvementdistricts,and like politicalsubdivisionscreated
under Section59a of ArticleXVI of the Constitution,and stat-
utes enactedthereundercar.mim out the mruoses of such con-
stitutionalprovision,are n&z &assed wlih &micipal corpora-
tions, but are held to be politicalsubdivisionsof the State,
performinggovernmentalfunctions,and standingupon tbe~same
footingas countdeeand other poltticalsubdl~lsionsestab-
lishedby law. (Citations)."
The Lower ColoradoRiver Authorityand similarRiver Authori-
ties, which are quasi municipalcorporationsand politicalsubdivisions
of the State, are not among those governmentalagencieswhich were in-
ten&d to be regulate@by House Bill 3. The evil intendedto be regu-
lated is an evil existentin governmentalagenciesthat are state-wide
in their jurisdictionand operationas distinguishedfrom jurisdiction
end operationlimitedto a local area.
Furthermore,such River Authoritiesare not commonlyunderstood
to be "offices,departments,comissions, or boards",and as such would
not fall within the definitionset forth in Section2(a) of House Bill 3.
The Texas ConmissIonon Higher Educationwas establishedby
Article2919e-2,V.C.S. Its purposeIs to coordinatethe activitiesof
the publicagenciesof higher educationthroughoutthe State, and as such
it certainlyis state-widein its operationas distinguishedfrom a gov-
ernmentalagency that is merelylocalizedin its j+sdiction or operation.
Hon. Zollie Steakley,page 4 (WV-202.)
It is readilyapparentthat it is a com~@sslonwithin the meaningof Ssc-
tlon 2(a).
Is it a cownissionof the executivedepartisent,of the govern-
ment? The Legislature,iu using the phraseologyin Section2(a) of House
Bill 3, "executivedepartmentof the government",did not mesh to restrict
that languageto the officerssuumeratedand designatedas "The Executive
Departmentof the State" set out in Article IV, Section1 of the Consti-
tution. If such were the case there would be no meaningthat could bs
given to the words, "commissionor board" found In Section2(a) for the
reasonthat Section1, ArticleIV of the,Constitution doss not include
any comlssion or board. The phraseology,"executivedepartmentof the
govemmsnt" must thereforerefer to such of the governmentalagencies
of the Statewhose jurisdiction and operationsare state-widein scope
and which have and exerciseexecutivepowersand functions. The Texas
Commissionon HigherEducationIs such a commissionof the executiveda-
partmentof the governmentwithin the meaningof Section2(a) of House
Bill Ho. 3. It performsfunctionsthat are executivein natureand state-
wide In scope as-disclosedby Article2glge-2,Vernon'sTexas Civil Stat-
utes.
This commissionhas functionsand powersthat are executive
in natura,and for the reason8statedwould come within ths.provisionb'
of Section3(b).
The State Bar of Texas,by the expresstermsof Section2 of
Article3X)(a)-1,V.C.S., is constituted"au administrative agency of
. the JudicialDepartmentof the State". It would.not,therefore,be an
"office,department,commission,or board of the executivedepartment
of the government",and a State agency within the meaningof the Act.
You also ask:
“4. Is an officeror employeeof a State agency,leg-
islatoror legislativeemployeewho is a minoritystockholder
in a corporationneverthelessrequiredto file the sworn
statementunder Section3(b), assumingthe corporationto be
under the jurisdictionof eitherthe Board of InsuranceCom-
missioners,the BankingDepartment,the RailroadCommission,
or the Texas LiquorControlBoard?" "
The Act itselfIs a conflictsof interestsstatuteas set out
in the quotedportionsof Ssction1, supra. The Legislatureevidently
felt that a substantialconflictof interestswould not result from stock
ownershipper se, for filing of the affidavitis requiredonly when one
is "an officer,agent, or memberof, or owns a controllinginterestin
any corporation,firm, partnershipor otherbusinessentity. . . ."
As explainedhereafter,the pbrase "memberof" does not apply to stock
'ownership.
. I
. ..r*.
Eon. Zollie Steakley,page 5 (W-202)
A minoritystockholderclearlycouldbe an agent or officer
of a corporationand would be requiredto file the affidavit. A minority
. stockholdercan controla corporation.The percentageof stockrequired
to controla 'corporationIncludesmauy matters,such as stock distribu-
tion amongstthe stockholders, emouut of stockvoted by proxy,by whom
the proxieswere held, and the outsidebusinessand personalrelationships
betweenthe stockholders to the corporation.
One vote or share over fifty per cent (@) of the stockowner-
ship will be controllingas a matter of law. Ownershipof fifty per cent
(50%)or less can be controllingunder certaincircumstances.It Is a
questionof fact to be determinedin each such case. Initially,it is
for the individualstockholderto determineif his interestis controlling,
but his decisionIs not final. The individualstockholdergenerallyknows
if his Interestis controlling; however,in this matter his determination
will be subjectto reviewby his superiors,and if necessary,by the courts
Therefore,a minoritystockholder,in those cases in which his interest
is a controllinginterest,would be requiredto file the affidavitrequire<
by Section3(b) of the Act.
Two other of your questionsare:
"Is an officeror employeeof a State agency,legislator
or legislativeemployeerequiredto file the sworn stat-t
under Section3(b) If he Is a member of a creditunion organ-
ized under the provisionsof Title 46, R.C.S. of Texas, and
which is subjectto the jurisdictionof the RankingDepartmentt’
“6. IS an officeror employeeof a State agency,legis-
lator or legislativeemployeerequiredto file the sworn state-
ment under Section3(b) if he is the owner of a policy of ln-
suranceIn a mulpl life, mutual casualtyor fire insurance
companyunder the jurisdictionof the Board of InsuranceCom-
missioners?"
Section3(b) is not designedto requirethe disclosureof every
financialinterestor investmentby the affectedpersonnel. This is clear
indicatedby requiringonly disclosureby officers,agents,members,or
ovnersof designatedinterests. This Bill, accordingto Section1, is
directedonly againstsubstantialconflictsof interestsIn the discharge
of public duties. Every financialinvestmentin a businesssubjectto
the jurisdictionof the State regulatoryagenciescould,under some cir-
cumstances,cause some degree of conflictof interests,but every conflict
will not be substantial.Accordingly,the dividingline betweenInterests
that are requiredto be disclosedby Section3(b) and those that are Mt
requiredto be disclosedis whether the financialinterestis of such
nature, quality,and quantumas to tend to createa substantialconflict.
Hon. Zollie Steakley,page 6 (WV-2021
The dominantrelationship between the creditunion and Its mem-
ber is that of borroweror investor,as the case may be. The dominant
relationship betweenthe owner of a mutual insurancepolicyand the in-
sursncecompanyis that of the insuredand the insurer. In both cases
the participation in managementupon the part of most membersis, as a
practicalmatter,negligible.Members of creditunionsandmutualin-
surancecompaniesare not primarilyinterestedin the managementaspects,
nor Q they regardthemselvesas being the ownersof interestsin busi-
ness entitles. Such interests,per se, are not substantialenoughto
tend to causea substantialconflictof interestswithinthe meaningof
the Act. This is not true of an officeror agent of such entitles,or
of someonewho might hold a "controllinginterest",but is true of the
ordinarymember.
One who makes depositsor borrows from a bank and one who ovns
stock in an insurancecompany1s not required,per se, to file the 3(b)
affidavit. For the purposesof this Act there is no justifiabledistinc-
tion betweenthe bank depositoror borrowerend membershipin a credit
wan. Nor Is there a dlstlnctionbetweenownershipof stock in a corpo-
rationand ownershipof a mutual insurancecompanypolicy.
Furthermore,the use of the word, "member",is not ordinarily
and usuallyappliedin connectionwith a corporation.Creditunionsunder
the jurisdiction
of the BankingCommlsslonare corporations.Most mutual
Insurancecompaniesare corporations.Article 10, Section1, V.C.S.,states:
'The ordinarysignification shallbe appliedto words, except
words of art or words connectedwith a particulartrade or subject
matter,when they shallhave the signification attachedto them by
expertsin such art or trade with referenceto subjectmatter."
The word, "member",Is not a word of art and the ordinarymeaning
shouldbe attachedto it. It would be a strainedinterpretation to apply
it to corporations.The Legislaturemeant to apply the word, "membership",
to firms,partnerships,and other businessentitiesor associations.
The 1957 amendment2to Article 1.06 of the InsuranceCode is
calculatedto prevent substantialconflictsof Interestsin the State
Board of Insurance. It specificallystatesthat the inellgibi1ity.shal.l
not extendto or apply to personswho are merely insuredby insurer,which
would necessarilyincludepersonswho are holdersof mutual insurance
policies. This statuteis in pari materiato H.B. 3, and shouldbe con-
sideredas definitiveof the legislativeintent. It is to be noted that
the amendmentto Article1.06 sets up more rigid standardsthan does House
Bill 3. This supportsthe conclusionthat the legislators,in enacting
House Bill 3, did not contemplatedisclosureof ownershipof mutual in-
surancepolicies.
The only remainingquestionIs:
:; *.
. IA _:
Eon. Zollie Steahley,page 7 (WW-202)
"7. Is au officeror employeeof a State agency,leg-
islatoror leglslatlveemployee,requiredto file the sworn
statementunder Section3(b) if he is an officer,agent,or
member of, or owns a controllinginterestin auy corporation,
firm, partnership,or other businessentitywhich Is under
the jurisdictionof a State agency other than the Board of
InsuranceCommissioners, the BankingDepartment., the Rail-
road Conmission,andTexas Liquor ControlBoard; for Instance,
the State Departmentof Health?"
The Act is clear. Section2 states:
"In this Act unlessthe contextotherwiserequires:
. . .
"(b) 'Regulatory agency'means the Board of Iusurance
Commissioners, BanhlngDepartment,RailroadConmIssion,and
Texas Liquor ControlBoard.*
By specificallynamingthese agenciesthe Legislatureexcluded
agenciesnot named. This Act providesdisciplinary measuresfor those
employeeswho fail to complytith Section3(b). It shouldbe construed
in suchawaythatthe enployeewouldknowwhat.regulatoryagenclesare
intendedto be coveredby Section3(b). That is the purposeof the defl-
nltion. To wly that other agenciesthau'thosensmed are includedwould
&feat this purpose. If the Legislaturedesiresto broadenthe applica-
tion it can and shoulddo so. This questionmust be answeredin the nega-
tive.
Withtithe meaningof H.B. 3 the State Bar
of Texas is not a part of the ExecutiveBe-
partment. The variousRiver Authorities,
such as the Lower ColoradoRiver Authority,
are not State agencies. The Texas Comnis-
sion on HigherEducationis a State agency.
An officeror employeeof a State agency,
legislatoror legislativeemployeewho is
a minoritystockholderin a corporation
under the jurisdictionof a State regula-
tory agency is requiredto file the sworn
statementrequiredby Section3(b) of H.B.
3 if he owns a controllingInterestin such
corporation.
An officeror employeeof a State agencyor
legislatoror legislativeemployeewho is
Hon. Zollie Steakley,page 8 (UW-202)
simplya member of a creditunion ore;anieed
under the provisionsof Title 46, R.C.S. of
Texas, and which is subjectto the jurisdic-
tion of the Bsukin~Department,or who is
simplythe owner of a policy of insuranceiu
a mutual life, mutual casualty,or fire in-
surancecompanyunder the jurisdictionof
the State Board of Insuranceis not required
to file the affidavitdescribedin Section
3(b) of H.B. 3.
The affidavitprovidedby Section3(b) of
the Act must only be filed when the corpo-
ration,partnership,firm, or other busi-
ness entity in questionis under the jur-
isdictionof the regulatoryagencies
specifically nomad in Section2(b).
Very truly yours,
WILL WIISON
AttorneyGeneralof Texas
WallaceP. Finfrock
Assistant
I?PF:lm
APPROVED:
GPIHIORcm
H. GradyChendler,Chairman
1
JamesR.Ludlum
C. K. Richards
W. V. Geppert
J. C. IIavis,
Jr.
BY: Gee. P. Blackburn
Hon. Zollie Steakley,page 9 (WW-202)
lf 'The ExecutiveDepartmentof the State shall consistof a Governor,
who shall.be the Chief ExecutiveOfficerof the State,a LieutenantCov-
ernor,Secretaryof State,Comptrollerof PublicAccounts,Treasurer,
Commissionerof the GeneralLand Office,and AttorneyGeneral." Art. Iv,
Sec. 1, Texas Constitution.
&?I "No personwho is a stockholder,director,officer,attorney,agent
or employeeof any insurancecompany,insuranceagent, insurancebroker,
or.insuranceadjuster,or who is in any way directlyor indirectlyinter-
ested in any such businessshallbe a member of the StateBoard of Insur-
ance, be Commissionerof Insurance)or be appointedto, or accept,any
office or employmentunder said Board or Commissionerof Insurance,pro-
vided,however,that such ineligibilityshall. not extend or apply to per-
sons who are merely insuredby an insurer,or are merelybeneficiaries
of such insurance;or who, in their officialcapacity,are appointedas
a receiver,liquidator,or conservatorfor an insurer." S.B. 222, Acts
1957,55thI-=%.
Untitled Texas Attorney General Opinion
Combined Opinion