ADVISORY OPINION NO. 2018-1

From Hawaii State Ethics Commission, February 22, 2018--Published April 3, 2018 (excerpts)

(Editor’s Note: The Ethics Commission does not name the Legislator in question nor the LLC, but per his 2016 Financial Disclosure report, the facts outlined match Sen Donovan Delacruz and the LLC matches DTL.)

A legislator (“Legislator”) requested an advisory opinion from the Hawaii State Ethics Commission (“Commission”) as to how the State Ethics Code, Hawaii Revised Statutes (“HRS”) Chapter 84, applies to his dual roles as a legislator and part owner of a private business. The Legislator asked: (1) whether the State Ethics Code prohibits him from being a part owner of the business; (2) whether his minority ownership interest in the business constitutes a “controlling interest” for purposes of the State Ethics Code’s Contracts law; and (3) what must he or the business do to ensure compliance with the State Ethics Code.

Based on the facts of this case, the Commission concludes as follows: (1) the State Ethics Code does not prohibit the Legislator from being a part owner of the business; (2) the Legislator’s minority ownership interest does not constitute a “controlling interest” in the business for purposes of the Contracts law; and (3) the Legislator must comply with the Confidential Information, Fair Treatment, and Conflicts of Interests provisions of the State Ethics Code….

I. Facts

Having reviewed the information provided by the Legislator, the Commission understands the facts to be as follows.

In addition to serving as a member of the State Legislature, the Legislator is also a “Member” of a Limited Liability Company (“LLC”) and is employed by the LLC. The LLC has adopted an Operating Agreement (“Operating Agreement”), which sets forth the ownership and management structure of the LLC. Pursuant to the Operating Agreement, the Legislator owns a 10% share of the LLC and receives a yearly payment from the business. The LLC’s “Managers” have the exclusive right to manage “the business, property and affairs” of the LLC. The Legislator represented to the Commission that he is not a “Manager” of the LLC and does not exercise any managerial control over any employees of the LLC. The Legislator described his role with respect to the LLC as being strictly advisory.

II. Issues Presented

The Legislator requested an advisory opinion addressing the following issues:

(1) Whether the State Ethics Code prevents the Legislator from being a part owner of the LLC while serving as a state legislator;

(2) Whether the Legislator’s minority ownership interest in the LLC constitutes a “controlling interest” for purposes of the State Ethics Code’s Contracts law, HRS § 84-15; and

(3) What steps must the Legislator or the LLC take to ensure compliance with relevant provisions of the State Ethics Code.…

In this case, the Legislator is a “Member” of the LLC and owns a 10% interest in the LLC. As a “Member,” the Legislator is neither an officer nor a director of the LLC. Moreover, the Operating Agreement confers on the “Managers” of the LLC “full, complete and exclusive authority” to manage and control the business. The Legislator was not named as a “Manager” in the Operating Agreement and has informed the Commission that he does not exercise any managerial control over any employees of the LLC. He described his role as being strictly advisory. The Legislator is also employed by the LLC but in that capacity, again, he exercises no authority to manage or control the business. Given the Legislator’s lack of managerial control with respect to the LLC, the Commission concludes that the Legislator’s 10% interest in the business, standing alone or combined with his private employment, does not constitute a “controlling interest” for purposes of HRS § 84-15(a).

That said, the Commission notes that nothing prohibits the LLC from disclosing the Legislator’s ownership interest in the LLC when attempting to secure a contract with the State of Hawaii....  

(Are you laughing yet?)

Another section of the Conflicts of Interests law requires an employee’s recusal from official action that directly affects a business in which the employee holds a financial interest. HRS § 84-14(a). This restriction, however, does not apply to legislators; thus, the State Ethics Code does not require the Legislator to recuse himself from taking official action as a legislator affecting the LLC. For example, the State Ethics Code does not require the Legislator to recuse himself from voting on a bill affecting the LLC. The Legislator should, however, consult with the head of his legislative house as to whether legislative rules require recusal in a particular situation. He may also voluntarily recuse himself from a matter even if recusal is not mandated…. 

(See how this works?)

Under the facts and circumstances as presented to the Commission, the State Ethics Code permits the Legislator to work for the LLC while serving as a state legislator. The Commission believes that the Legislator’s current ownership and employment interests in this business do not preclude the LLC from applying for contracts with the State of Hawaii. The Legislator may continue to work for the LLC, and the LLC may continue to seek work with the State of Hawaii, so long as the Legislator complies with HRS §§ 84-12, -13, and -14. …

IV. Conclusion

Based on the foregoing, the Commission concludes that the Legislator is permitted to work for the LLC while serving as a state legislator, and that he does not have a “controlling interest” in the LLC for purposes of the Contracts law, HRS § 84-15(a). The Legislator may not use his state position to give confidential information to, steer business towards, or otherwise use state resources to benefit, the LLC; however, neither the Confidential Information law, the Fair Treatment law, nor the Conflicts of Interests law prohibits the LLC from seeking work with the State of Hawaii….

read … Full Report 

PDF: Sen Donovan Delacruz Financial Disclosure Report (10% ownership of DTL and DTL VP of Communications paid between $50K-$100K)

BREG: DTL, LLC 

Precisely as Explained: Kakaako: How to Buy Hawaii State Senators--Legally