Glazer v. Commission on Ethics for Public Employees

• Decision Date: 04 April 1983
• Docket Number: No. 82-C-1853,82-C-1853
• Parties: Jerome S. GLAZER v. COMMISSION ON ETHICS FOR PUBLIC EMPLOYEES.
• Court: Louisiana Supreme Court

Page 752

431 So.2d 752

Jerome S. GLAZER v. COMMISSION ON ETHICS FOR PUBLIC EMPLOYEES.

No. 82-C-1853.

Supreme Court of Louisiana.

April 4, 1983.

Rehearing Denied June 10, 1983.

R. Gray Sexton, Baton Rouge, for applicant.

Charles L. Stern, Jr., Phillip A. Wittmann, Stone, Pigman, Walther, Wittmann & Hutchinson, Harvey H. Posner, Watson, Blanche, Wilson & Posner, Baton Rouge, for respondent.

DENNIS, Justice.

The principal issue in this governmental ethics case is whether a public official can avoid an unlawful conflict of interest by using his wholly-owned and controlled corporation to do what the official is clearly prohibited from doing himself. The Commission on Ethics for Public Employees found a conflict of interest, ordered the public official to resign, and barred him from future public service in that capacity for four years. The court of appeal reversed the commission's order, holding that Sections 1111(C)(2)(d) and 1112(B)(5) of the governmental ethics code do not prohibit business dealings between state mineral lessees and legal entities wholly-owned, controlled and operated by a Mineral Board member. 417 So.2d 456. We reverse. Separate corporate identity is a privilege conferred by law to further important underlying policies, such as the promotion of commerce and industrial growth. Consequently, the privilege may not be asserted for a purpose which does not further these objectives in order to override other significant public interests which the state seeks to protect through legislation or regulation. No proper use or function is served when separate corporate capacity is used to thwart the strong public interests embodied in the proscriptions of the Code of Ethics for Governmental Employees. Under the circumstances of this case, the actions of the public official's wholly-owned and controlled corporation were his own and not that of a separate person. The Commission correctly found that an unlawful conflict of interest existed. The case will be remanded, however, for further findings and clarification with respect to the sanctions imposed.

Mr. Jerome S. Glazer has been a member of the State Mineral Board since 1972. The State Mineral Board administers the state's proprietary interest in minerals, and has authority to lease for the development and production of minerals, oil, and gas, any lands belonging to the state, or the title to which is in the public. La.R.S. 30:121(D), 124.

Mr. Glazer is also the sole stockholder, chief administrative officer, president, and chairman of the board of Glazer Steel Corporation. His son, Bradford Glazer, a salaried employee, Morris Klein, and an attorney, Warren Goldstein, are the only other members of the board of Glazer Steel. From April 1, 1980 to March 31, 1981, Glazer Steel Corporation made sales on a non-bid negotiated basis to seven companies which held mineral leases with the State of Louisiana for a total sales volume of $458,639.85. ¹ After an investigation by the Commission began, Glazer Steel received notification from three of its larger oil company customers--Exxon, Texaco and Shell Oil Company--that purchases from Glazer Steel Corporation would be discontinued to avoid possible violations of the conflicts of interest provisions of the Code of Ethics, though Glazer Steel continued to solicit business from these three companies. Up to this time and during Mr. Glazer's tenure on the Mineral Board, Glazer Steel Corporation had sold $4,173,423.87 worth of industrial steel products to these three companies.

The Commission on Ethics for Public Employees found that Mr. Glazer, by permitting his wholly-owned and controlled corporation to sell steel to state mineral lessees during his tenure as a State Mineral Board Commissioner, had engaged in conduct constituting a conflict of interest below the ethical standards established for public servants under La.R.S. 42:1111(C)(2)(d) and 1112(B)(5). The Commission required his removal from the State Mineral Board, suspension for four years, and notification of state mineral lessees that had done business with Glazer Steel that payments for services rendered would constitute a violation of La.R.S. 42:1117.

The court of appeal reversed, holding that the activities of Mr. Glazer's wholly-owned and controlled corporation could not be attributed to him personally for purposes of the Code of Ethics for Governmental Employees.

Art. 10 § 21 of the 1974 Louisiana Constitution directed the legislature to enact a code of ethics for all officials and employees of the state and its political subdivisions and to create one or more boards to administer the code. Pursuant to this mandate, the legislature enacted the Code of Ethics for Governmental Employees. La.R.S. 42:1101 et seq. Among its multiple policy objectives are impartiality, fairness and equality of treatment toward those dealing with government; assurance that decisions of public importance will not be influenced by private considerations; maintenance of public confidence in government (wherein enters the matter of appearances); and prevention of use of public office for private gain. La.R.S. 42:1101(B). Cf. Perkins, The new Federal Conflict of Interest Law, 76 Harv.Law Rev. 1113, 1118 (1963).

The Code is not a criminal statute whose aim is the apprehension and punishment of persons guilty of public wrongdoing. Instead, the primary objective of the legislation is to prevent public officers and employees from becoming involved in conflicts of interests. A conflict of interest is a situation which would require an official to serve two masters, presenting a potential, rather than an actuality, of wrongdoing. The wrongdoing does not have to occur in order for a prohibited conflict to exist. A public official may have done no wrong in the ordinary sense of the word, but a conflict of interest may put him in danger of doing wrong. See United States v. Mississippi Valley Generating Co., 364 U.S. 520, 549-50, 81 S.Ct. 294, 309-10, 5 L.Ed.2d 268, 288 (1961). The Code is aimed at avoiding even this danger. For this purpose, the Code of Ethics for Governmental Employees identifies certain types of conflicts of interests and prohibits conduct by public officials which would bring these conflicts into being. Additionally, the Code empowers the Commission on Ethics to determine when a conflict of interest exists and to impose certain sanctions. La.R.S. 42:1134-35, 1141, and 1151-56.

The prohibited conflict of interest situation involved in this case is one in which the public servant receives private compensation from persons having business with his public agency for services rendered by the servant to that person outside the servant's regular government employment. The danger in the conflict, of course, is that the public servant's official dealings with the person may be unduly influenced contrary to the public interest by the public servant's receipt of private compensation from the same person. The danger exists even if the public servant actually performs bonafide services for his outside income. Accordingly, The Code of Ethics for Governmental Employees specifically prohibits any public servant from receiving anything of economic value for or in consideration of services rendered to or for any person if such public servant knows or reasonably should know that such person has or is seeking to obtain contractual or other business or financial relationships with the public servant's agency. La.R.S. 42:1111(C)(2); 42:1115(A). ²

There is no doubt that if Mr. Glazer during his tenure on the Mineral Board had personally sold steel products to the state mineral lessees, he would have violated the conflict of interest prohibition embodied in 42:1111(C)(2)(d). It is undisputed that Mr. Glazer is subject to the regulations embodied in this section because he is a public servant subject to the code's strictures, La.R.S. 30:121(D) and 42:1102(18)(b), 1102(19), that the sale of steel constitutes a "service," La.R.S. 42:1102(24), and that the proceeds received from these sales constitute "things of economic value," i.e. money, La.R.S. 42:1102(22). It is also undisputed that state mineral lessees are persons who have or seek to obtain contractual or other business or financial relationships with the State Mineral Board, and thus Mr. Glazer could not sell steel to state mineral lessees and avoid a conflict of interest. La.R.S. 42:1111(C)(2)(d); 42:1115(A). Therefore, if the sale of steel by Glazer Steel Corporation to state mineral lessees constitutes sale of steel by Mr. Jerome Glazer under the Code of Ethics, an obvious conflict of interest exists for which the Commission on Ethics is authorized to impose sanctions.

Corporate identity is separate and distinct from the identity of its shareholders. La.Civ.Code art. 435. What is due to a corporation is not due to any of the individuals who compose it, or vice versa, and a creditor of a corporation cannot compel any of its members to pay what may be due him by the corporation. La.Civ.Code art. 437. Liberto v. Villard, 386 So.2d 930 (La.App.Cir.3d 1980); Smith-Hearron v. Frazier, Inc., 352 So.2d 263 (La.App.2d Cir.1977), cert. denied 353 So.2d 1337 (1978). The purpose of the insulation and limited liability of shareholders is to promote commerce and industrial growth by encouraging them to make capital contributions to corporations without subjecting all of their personal wealth to the risks of business. See Johnson v. Kinchen, 160 So.2d 296 (La.App. 1st Cir.1964), 1 Hornstein, Corporation Law and Practice § 20 (1959), p. 20; Barber, Piercing the Corporate Veil, 1981-1982 Corp.Prac.Comm. 610, 611 (1982); Comment, Piercing the Corporate Veil in Louisiana, 22 Loy.Law Rev. 993, 994 (1976).

It is not unusual for a court in this country to disregard the corporate entity, or in synonymous terms "pierce the corporate veil," when corporate form has been used to "defeat public convenience, justify wrong, protect fraud, or...