AGO 1966 No. 69 - Jan 18 1966
OFFICES AND OFFICERS ‑- STATE ‑- CODE OF ETHICS ‑- PUBLIC OFFICIAL ‑- DIRECT FINANCIAL INTEREST ‑- REGULATORY AGENCY ‑- REPORT REQUIRED.
(1) Under § 6 of the 1965 Public Officials' Code of Ethics Act (chapter 150, Laws of 1965, Ex. Sess.), which requires "public officials" to make regular periodic written disclosures of certain financial interests and activities, the term "public official" includes (a) all state officers expressly mentioned in § 2 of the act, (b) all other state officials, and (c) state employees who are engaged in supervisory, policy making or policy enforcing work. The term includes, but is not limited to, appointive executive department or service agency heads, directors, assistant directors, executive secretaries, and managers; appointive members of state boards or commissions; assistant attorneys general; supervisory employees of the supreme court; and supervisory or policy making or enforcing deputies or assistants to elective officials. Any state employee believing his position is by reason of its function thus included who has any reportable financial interest or activity should file a report unless he has received reliable legal advice to the contrary.
(2) "Direct financial interest" as used in § 6 (1) of the 1965 Public Officials' Code of Ethics Act includes both proprietary and unsecured or nonproprietary rights of a monetary nature or which have a readily ascertainable cash value and are held by a public official or candidate directly in a state regulated corporation, firm or enterprise without the presence of an intervening agency or entity. The term includes, but is not limited to, a savings and loan association or credit union deposit account, share account, or savings account; the ownership of corporate stock; and the ownership of corporate bonds.
(3) A "regulatory agency" within the meaning of § 6 of the 1965 Public Officials' Code of Ethics Act, as defined in § 2 thereof, is ". . . any state board, commission, department or officer authorized by law to make rules or to adjudicate contested cases except those in the legislative or judicial branches." The term includes all state agencies possessed of rule‑making power or having authority to adjudicate the "rights, duties, or privileges of specific parties" in a contested case.
[[Orig. Op. Page 2]]
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January 18, 1966
Honorable Bernard G. Lonctot
Administrator, Securities Division
Department of Motor Vehicles
Cite as: AGO 65-66 No. 69
By letter previously acknowledged you have made reference to chapter 150, Laws of 1965, Ex. Sess., commonly referred to as the 1965 Public Officials' Code of Ethics Act. You have particularly noted § 6 (1) of this measure, which provides:
"Every public official shall on or before January 31st of each year, and every candidate shall within thirty days after filing a declaration of candidacy, file with the secretary of state, a written statement of:
"(1) The name of any corporation, firm or enterprise subject to the jurisdiction of a regulatory agency in which he has a direct financial interest of a value in excess of one thousand dollars: PROVIDED, That policies of insurance issued to himself or his spouse are not to be considered financial interests; . . ."1/
[[Orig. Op. Page 3]]
With reference to this provision you have submitted a number of questions for our consideration. Basically, however, your questions break down into three categories and thus lend themselves to the following paraphrasing:
(1) Who must report; i.e., what criteria may be used to determine whether a particular state officer or employee must file the written statement in question?
(2) What is meant by "direct financial interest;" i.e., does a direct financial interest include such financial indications of monetary worth as (a) a deposit account, share account, savings account, or interest in stock in excess of $1,000 in a state chartered credit union or state chartered savings and loan association; (b) contributions to a savings fund in a state retirement system; (c) the ownership of any stock issued by a state chartered bank or any other corporation regulated by a state agency; (d) the ownership of shares in a mutual fund; or (e) the ownership of corporate bonds issued by a corporation regulated by a state agency?
(3) What is a "regulatory agency;" i.e., are all of the some 139 state agencies which were listed by the code reviser in 1960 as having rule‑making authority to be regarded as "regulatory agencies" within the meaning of § 6 (1), supra?
We answer your questions in the manner set forth in our analysis.
Question (1): Who Must Report?
Before we answer this question in terms of who is a "public official" within the meaning of § 6 (1),supra ‑ which is the critical point raised by your inquiry ‑ we should make one or two brief observations. First, though your question is limited to the issue of who is a public official, it should be noted that the same report which is required of public officials is also required of "candidates" ‑ defined in § 2 of the act as follows:
"'Candidate' means any individual who declares himself to be a candidate for an elective office and who if elected thereto would meet the definition of public official herein set forth."
Secondly, we should make it clear that we find no mandate in the act for the filing of anegative report; i.e., a statement that the reporting official or candidate has no reportable "direct financial interest"2/ or other reportable [[Orig. Op. Page 4]] information under any of the provisions of § 6,supra. If a person desires to file such a statement he, of course, may do so ‑ but the act does not require this of him.
We turn now to your precise question of who is a "public official." Section 2, chapter 150, Laws of 1965, Ex. Sess., supra, defines this term as follows:
"'Public official' means every person holding a position of public trust in or under an executive, legislative or judicial office of the state and includes judges of the superior and supreme courts, members of the legislature together with the secretary and sergeant at arms of the senate and the clerk and sergeant at arms of the house of representatives, elective and appointive state officials and such employees of the supreme court, of the legislature, and of the state offices as are engaged in supervisory, policy making or policy enforcing work."
Clearly, therefore, the disclosure requirements of § 6 (1), supra, apply to the following:
(1) All members of the legislature;
(2) The secretary and sergeant at arms of the senate;
(3) The clerk and sergeant at arms of the house of representatives;
(4) All state supreme and superior court judges;
(5) All elective state officers (i.e., by process of elimination of those mentioned elsewhere, elective state officers of the executive branch of government).
In addition, however, the phrase "public official" is defined to include:
(6) Appointive state officials; and
(7) Suchemployees of the supreme court, legislature, and state offices ". . . as are engaged in supervisory, policy making or policy enforcing work."
Thus, the term "public official" as herein used must be regarded as being somewhat broader than the sometimes interchangeable [[Orig. Op. Page 5]] term "public officer"3/ in that it here includes as well certain subordinate appointive officials or employees of the state; i.e., those employed in supervisory, policy making or policy enforcing work.4/
Viewing the matter in the abstract, we can do little more than generalize as to the scope of this inclusion. On the one hand, certain fairly clear and obvious categories of persons thus included come to mind, such as appointive executive department or service agency heads, directors, assistant directors, executive secretaries, managers and the like; appointive members of state boards or commissions; assistant attorneys general; supervisory employees of the supreme court; and supervisory or policy making or enforcing deputies or assistants to elective officials.
In other cases the answer is not so clear. In such cases, knowledge of the particular functions being performed by a person who would ordinarily be regarded as merely an employee rather than an "officer" or "official" in the usual sense would be necessary before any informed determination could be made as to whether such person must file a statement under § 6 (1),supra, in the event he has reportable financial interests. Suffice it to say that any such state employee believing that his job may be of such nature as to require him to report should be advised to do so unless he has obtained reliable legal advice that he need not file.
[[Orig. Op. Page 6]] Question (2): What is a "Direct Financial Interest"?
Unfortunately this term, unlike the terms "public official," supra, and "regulatory agency" (see question (3)) is nowhere defined in the act here being considered. Accordingly, we can only attempt, applying recognized rules of statutory construction, to ascertain the true legislative intent as to the meaning of this phrase. If we should happen to miss the mark in this respect, we trust that the legislature will rectify the situation at its next opportunity, by supplying us with a precise and meaningful statutory definition.
As we view it, each of the three words in the phrase "direct financial interest" has a significance. We shall consider first the noun "interest," and then the two qualifying adjectives.
Query: Is the term "interest" here limited to some form of interest in the property of the subject corporation, firm or enterprise ‑ such as is held by a corporate shareholder5/ or a secured creditor6/ (e.g., mortgagee or secured bondholder) ‑ or does it also include the rights of an unsecured or general creditor of a regulated enterprise?
In our opinion, the term "interest" as used in § 6 (1) of chapter 150, Laws of 1965, Ex. Sess.,supra, includes both proprietary and unsecured or nonproprietary rights in a regulated corporation, firm, or enterprise. We base this conclusion principally upon the fact that the statute expressly excludes policies of insurance from being considered a financial interest; the pertinent proviso reading as follows:
". . . policies of insurance issued to . . . [a public official] or his spouse are not to be considered financial interests;"
A well-established general rule is that where a statute expressly provides for stated exceptions, no other exceptions will be implied. Insurance Co. of N. Am. Co. v. Sullivan, 56 Wn.2d 251, 352 P.2d 193 (1960), and cases cited therein. See also,In re Hoss' Estate, 59 Wash. 360, 109 Pac. 1071 (1910), in which the function of a proviso was described as follows:
"'The office of a proviso generally is either to except something from the enacting clause, or to qualify or restrain its generality, or to exclude some possible ground of misinterpretation of it, as extending to cases not intended by the legislature to be brought within its purview; . . .'"
[[Orig. Op. Page 7]]
It is generally understood that except to a limited extent in the case of mutual insurance companies,7/ the holder of an insurance policy has no interest in the property of the corporation which has issued the policy unless he is also a stockholder thereof.8/ Rather, a policy holder or his beneficiary is but a general creditor of the insurance company in the event of claim for payment or other disbursement of funds under the insurance policy. The relationship is described in 19 Appleman, Insurance Law and Practice, p. 667, § 11061, as follows:
". . . A policyholder stands in the relation of a creditor to the company, having an inchoate debt in his contract of insurance, which he has the same right to protect by an application to a court of chancery as a creditor of an ordinary corporation would have in case of its insolvency. Policyholders are, therefore, considered 'creditors' of the insurance company from the dates of their policies, being, in the event of insolvency, general unsecured creditors.
"Upon the insolvency of a life insurance company, its policyholders become creditors, with the same right as other creditors, to maintain a suit for the liquidation of its affairs, and the objection that they had not reduced their claims to judgment and issued executions thereon may be waived by the corporation. A final decree of dissolution of an insolvent company renders it incapable of carrying out its contracts, and its policyholders are present creditors to the amount of the equitable value of their respective policies, and entitled to share pro rata in its assets, and a settlement of its affairs cannot be postponed to await a determination of the contingencies on which its policies are dependent. Upon insolvency and dissolution, the claims of policyholders become debts due in praesenti, and the company cannot declare forfeitures of policies held by its members so as to terminate their memberships."
[[Orig. Op. Page 8]]
It is therefore to be seen that the inclusion in § 6 (1), supra, of the proviso exempting all policies of insurance9/ would have been unnecessary had the legislature intended to provide that the concept of a reportable financial interest is to be limited to a right in and to the property of the regulated enterprise ‑ as distinguished from the interest of a general creditor.
Next we turn to the qualifying adjectives ‑ "direct" and "financial." In regard to the second of these modifying words, there can be little doubt that "financial" simply means that to be reportable an interest in a regulated enterprise must be one of a monetary nature ‑ i.e., money, property or other investment having a readily ascertainable cash value. As stated in Webster's New International Dictionary (2d Ed.) at page 948:
"Financial is used of money matters in general, esp. as conducted on a large scale; . . ."
In this connection, we should point out and emphasize that under § 6 (1),supra, of the act here being considered:
(1) It is only those "direct financial interests" having a monetary value in excess of $1,000 that are reportable;10/ and
(2) The actual monetary value of an interest need not be reported in any event; rather, only the name of the regulated enterprise must be reported.11/
As for the adjective "direct," we find this word significantly defined by Webster as follows:
"Immediate; marked by the absence of an intervening agency or influence; . . ." (ibid, p. 738)12/
[[Orig. Op. Page 9]]
By way of contrast, the converse or opposite term "indirect" is defined as follows:
"Not resulting directly from an act or cause, but more or less remotely connected with, or growing out of, it; . . ." (ibid, p. 1267)13/
It is, of course, a well-established rule of statutory construction that words used in a statute are to be given their ordinary dictionary meaning in the absence of clear evidence of legislative intent to the contrary. Pacific Etc. Alloys v. State, 49 Wn.2d 702, 306 P.2d 197 (1957). We find no indication in the subject statute of any intent on the part of the legislature to use the word "direct" in any but its usual and ordinary way. Therefore, we conclude that the basic key to determining whether a particular financial interest held by a public official in a regulated enterprise is direct or not is the existence of nonexistence of an intervening agency or entity between the public official and the enterprise in which he has a financial interest.
By way of illustration of the foregoing we shall use one of the examples stated in your second question (as paraphrased). The owner of shares in a mutual fund, like the owner of shares of stock in any corporation, has a direct financial interest in the mutual fund corporation.14/ However, by reason of the intervening entity he has only a remote or indirect interest in the corporate securities in which the mutual fund corporation has invested. Therefore, if a public official has an interest having a value in excess of $1,000 in the form of shares in a mutual fund which is subject to the jurisdiction of a regulatory agency, he must report the name of the mutual fund; however, he need not report the names of any of the corporations in whose securities the mutual fund has invested.
Referring now to other specific examples stated in your question, and applying to them the foregoing analytical approach and reasoning, it is our opinion that the following interests are "direct financial interests":
[[Orig. Op. Page 10]]
(a) A savings and loan association or credit union deposit account, share account, or savings account;
(b) Ownership of corporate stock; and
(c) Ownership of corporate bonds.
Thus, any such interest having a value in excess of $1,000 is reportableif the corporation, firm or enterprise in which it is held is subject to the jurisdiction of a regulatory agency.15/
Similarly, other financial interests in regulated enterprises not specifically enumerated in your question would be subject to being reported16/ if "direct" under the above analysis ‑ but not otherwise. Obviously, we cannot here purport to pass upon every conceivable type of financial interest one may have; rather, we can merely set forth guidelines which, in our judgment, should be used in determining each separate factual case or example. This is what we have attempted by the foregoing discussion to do.
[[Orig. Op. Page 11]]
Question (3): What is a Regulatory Agency?
Here, as with the term "public official" which we considered in regard to your first question, the legislature has provided us with a statutory definition. Section 2, chapter 150, Laws of 1965, Ex. Sess., supra, provides in material part:
"'Regulatory agency' means any state board, commission, department or officer authorized by law to make rules or to adjudicate contested cases except those in the legislative or judicial branches."
Thus, in order for the name of a "corporation, firm, or enterprise" to be reportable by a "public official"17/ under § 6 (1), supra, by reason of his "direct financial interest"18/ therein, the corporation, firm, or enterprise must be subject to the jurisdiction of some state board, commission, department or officer of the executive branch of government authorized by law to enact rules or to adjudicate contested cases.
It is noteworthy that this definition of "regulatory agency" is identical to the definition of "agency" appearing in § 1 of our state administrative procedure act ‑ chapter 234, Laws of 1959. In our opinion it thus includes not only all state agencies possessed of rule‑making authority,19/ but also those administrative agencies having authority to adjudicate the "rights, duties, or privileges of specific parties" in a "contested case"20/ under the administrative procedure act.
The crucial question, of course, is whether a particular corporation, firm or enterprise in which a public official has a "direct financial interest" is subject to the jurisdiction of such an agency. This question must be answered in each case on the basis of such factors as the nature of business activity in which the enterprise is engaged, where the enterprise does its business, where and how it issues and sells its corporate securities, whether and to what extent it employs persons to work at jobs in the state of Washington, and so on.
[[Orig. Op. Page 12]]
However, we should observe in closing that in view of the large number of existing state regulatory agencies ‑ agencies having regulatory jurisdiction over virtually every aspect of a typical corporation or other enterprise doing business in this state including not only such specialized matters as utilities and transportation21/ or insurance22/ rate regulation but also more generally applicable matters such as the regulation of working conditions and the adjudication of workmen's compensation claims23/ - it is most difficult for us to conceive of any corporation, firm or enterprise which is doing any substantial amount of business in this state which is not subject to the jurisdiction of some state regulatory agency.24/
We do not necessarily mean to suggest application of the same test or approach as has been held applicable for purposes of determining whether a business enterprise is doing such business in this state as may make it constitutionally subject to the jurisdiction of our state courts. SeeInternat. Shoe Co. v. Washington, 326 U.S. 310, 90 L.Ed. 95 (1945). Manifestly our courts are by definition excluded from the category of regulatory agencies described by § 2, chapter 150, Laws of 1965, Ex. Sess., supra. However, given any degree or form of continuous or regular actual physical presence in this state on the part of a business enterprise ‑ particularly if its operations include the maintenance of a physical plant or office employing personnel ‑ and it becomes almost inconceivable that the enterprise will not be subject to the jurisdiction of at least one regulatory agency.25/
We trust the foregoing will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
PHILIP H. AUSTIN
Assistant Attorney General
*** FOOTNOTES ***
1/Other subsections require, in addition, a written statement of:
"(2) Every office or directorship held by him or his spouse in any corporation, firm or enterprise which is subject to the jurisdiction of a regulatory agency; and
"(3) The name of any person, corporation, firm, partnership, or other business association from which he receives compensation in excess of one thousand five hundred dollars during the preceding twelve month period by virtue of his being an officer, director, employee, partner or member of any such person, corporation, firm, partnership or other business association.
"(4) As to attorneys or others practicing before regulatory agencies during the preceding twelve month period, the name of the agency or agencies and the name of the firm, partnership or association of which he is a member, partner or employee."
For an expression of our views regarding certain aspects of these provisions, see AGO 65-66 No. 44 [[to Martin J. Durkan, State Senator on October 5, 1965]], copy enclosed. these provisions, see AGO 65-66 No. 44, copy enclosed.
2/Section 6 (1), supra.
3/See Canteline, et al. v. McClellan, 12 N.Y.S. 2d 642 (1939); andState ex rel. Brown v. Blew, 20 Wn.2d 47, 145 P.2d 554 (1944).
4/We have not overlooked the phrase ". . . every person holding a position of public trust in or under an executive, legislative or judicial office . . ." as it appears at the beginning of § 2, supra; however, in our opinion, this general phrase is limited in its scope by the enumeration of particular offices followed by a general description of employments contemplated as within § 2, supra. It is the rule that in construing statutes the mention of one thing implies the exclusion of another thing under the maxim of expressio unius est exclusio alterius. State ex rel. Port of Seattle v. Dept. P. S., 1 Wn.2d 102, 95 P.2d 1007 (1939); also, State v. Thompson, 38 Wn.2d 774, 232 P.2d 87 (1951); andBradley v. Dept. Labor & Ind., 52 Wn.2d 780, 329 P.2d 196 (1958).
5/See Gose, "Legal Significance of 'Capital Stock,'" 32 Wash. L. Rev. 1 (1957).
6/In re New York Title & Mortgage Co., 289 N.Y.S. 771, 160 Misc. 67 (1936).
7/Compare Clifford v. Metropolitan Life Ins. Co. et al, 34 N.Y.S. 2d 693, 264 App. Div. 168 (1942), and Fidelity & Cas. Co. of N.Y. v. Metropolitan Life Ins. Co., 248 N.Y.S. 2d 559, 42 Misc. 2d 616 (1963), with Oklahoma Benefit Life Ass'n v. Bird, 192 Okla. 288, 135 P.2d 994 (1943).
8/See Ohio Farmers Indemnity Co. v. Commissioner of Int. Rev., 108 F.2d 665 (1940).
9/And not merely policies issued by a mutual company.
10/Where the "public official" or candidate is a married person and his or her interest in the regulated enterprise is community property, its monetary value should be regarded as one‑half of the total value of the community interest. See RCW 26.16.030; also,In re Coffey's Estate, 195 Wash. 379, 81 P.2d 283 (1938), and cases cited therein.
11/This is not to say that an individual may not, if he so desires, report in addition the value and nature of his interest in a particular enterprise in order to explain his actual relationship to the enterprise.
12/See also, Black's Law Dictionary, 4th Ed., p. 546.
13/Ibid, p. 913
14/See footnote 5, supra.
15/Likewise, the remaining example stated in your question ‑ contributions to a savings fund in a state retirement system ‑ constitutes a "direct financial interest." However, such would in no way be an interest in a regulated "corporation, firm or enterprise" for the reason that our state retirement systems are themselves state agencies, as distinguished from private enterprises which are regulated by state regulatory agencies. See, e.g., RCW 41.40.020-41.40.030.
16/By identification of the corporation, firm or enterprise in which held.
17/See question (1) supra.
18/See question (2), supra, and note again particularly the requisite financial value of a reportable interest.
19/We are advised that the state code reviser's office maintains a complete list of state agencies determined to have rule‑making authority. Reference to this list may be of assistance to those having question as to whether a particular state agency has regulatory powers.
20/See RCW 34.04.010 (3).
21/State Utilities & Transportation Commission.
22/State Insurance Commission.
23/State Department of Labor & Industries.
24/Unquestionably, a regulated corporation, firm or enterprise would include any enterprise which is subject to such agencies as the State Utilities & Transportation Commission, Department of Labor & Industries, Department of Motor Vehicles, Department of Employment Security and State Tax Commission ‑ specifically mentioned or alluded to in your letter.
25/E.g., almost without exception, one or more of the agencies mentioned in footnote 24, supra.