|Advisory Opinion No. 95-13:||Application of Public Officers Law §74 to directors of the New York State Thoroughbred Breeding and Development Fund Corporation.|
Pursuant to the authority vested in it by Executive Law §94(15), the State Ethics Commission ("Commission") hereby renders its opinion that, given the unusual statutory language governing the operations of the Fund, members of its Board of Directors who are eligible to receive awards from the Fund may participate in matters involving allocation of the Fund's resources and in matters concerning the requirements for qualification of thoroughbreds as New York-bred without violating Public Officers Law §74. However, they must recuse themselves from deliberating and voting on any matter from which they may directly and personally benefit due to their activities as owners or breeders of thoroughbred horses. Moreover, any member of the Board of Directors of the Fund who is also a director or officer of New York Thoroughbred Breeders, Inc. ("NYTB") must recuse himself or herself from consideration of and vote on any matter involving payment or subsidies to NYTB or involving a contract between the Fund and NYTB. Fund directors who are members of NYTB but who do not hold any office may vote on such matters.
In 1994, the statute was amended to add to the Board six members appointed by the Governor, "all of whom are experienced or have been actively engaged in the breeding of thoroughbred horses in New York State." One of these six new members must be the President or Executive Director of a statewide thoroughbred breeders organization representing the majority of breeders of registered thoroughbreds in New York State. Of the other five, four are appointed upon the recommendation of each of the legislative leaders. The statute was also amended to provide that the Governor shall designate the Chair from among the sitting members.
The statute was further amended to provide the following:
Such members, except as otherwise provided by law, may engage in private employment, or in a profession or business including the breeding and racing of thoroughbred horses. The fund, its members, officers and employees shall be subject to the provisions of sections seventy-three and seventy-four of the public officers law (Racing, Pari-Mutuel Wagering and Breeding Law §245).
By statute, the Fund receives a percentage of the pari-mutuel handle and breakage from thoroughbred races in New York. It is authorized and directed to distribute the money it receives as breeder awards (to breeders of New York-breds finishing first through fourth in pari-mutuel races run in New York State not restricted to New York breds); as owner premiums (to owners of New York-breds finishing first through fourth in pari-mutuel races run in New York State not restricted to New York breds); as stallion awards (to stallion owners whose New York stallions have sired New York breds finishing first through fourth in pari-mutuel races run in New York State); and as purse enrichment (purse monies for races exclusively for New York breds, the conditions of which have been approved by the Fund). These distributions are to be made pursuant to schedules promulgated by the Fund, within statutory maximums. The Fund is also directed to distribute up to five percent of its receipts to activities to promote breeding and raising of thoroughbreds, and two percent of its receipts for the promotion of equine research to an approved veterinary college facility (Racing, Pari-Mutuel Wagering and Breeding Law §247). The Fund also administers the registry of New York-bred thoroughbred horses (Racing, Pari-Mutuel Wagering and Breeding Law §244).
The six new members of the Board, constituting a majority of the eleven members, were appointed last year. According to the Fund, the new Chair of the Board is not actively engaged in the breeding of thoroughbred horses in New York State and owns no New York-bred race horses; he will not, therefore, be eligible to receive monies from the Fund. The other directors are eligible to receive awards or purses as owners of New York-breds or as breeders of New York-breds or as owners of stallions which have sired New York-breds. According to records of the Fund, three of the new directors collected $143,893 in 1994, either directly or through entities in which they have an interest. Of the six new members of the Fund, four are members of NYTB, the association representing the majority of thoroughbred breeders in New York State; of those four members, two are officers (President and Vice-President) of NYTB.
In order to qualify a horse as a "New York-bred" or a stallion as a "New York stallion", the owner of the horse must apply to the New York State Bred-Registry, which is administered by the Fund. No one is eligible to receive awards from the Fund unless the horse earning the award or competing successfully in a New York-bred race has been registered. To support the activities of NYTB, a percentage of the registration fees received are paid to the association pursuant to an agreement, dated December 14, 1988, between the Fund and NYTB . In 1993, registration fees paid to NYTB amounted to $117,795; in 1994, they amounted to $80,050.(1) In addition, from time to time, NYTB has made requests to the Fund for participation in its activities; in 1994, the Board of the Fund approved such expenditures of $70,737.57 on behalf of NYTB.
As previously noted, under Racing, Pari-Mutuel Wagering and Breeding Law §247, the Fund is authorized to distribute the monies it collects "in accordance with distribution schedules promulgated by the Fund and adopted in the rules and regulations of the [State Racing and Wagering Board]". Pursuant to this provision, the Fund annually adopts distribution schedules by promulgated rule. The rules provide that "the Board of Directors may, from time to time, adjust the Fund's distribution schedule by majority vote" (9 NYCRR 4082.3). Such action is authorized by the statute which provides that "schedules may be adjusted, from time to time, by majority vote of the board of directors, for the following purposes . . ." (Racing, Pari-Mutuel Wagering and Breeding Law §247). The statute then goes on to delineate the maximum amounts which may be awarded in the various areas.(2)
At its December 7, 1994 meeting, the directors of the Fund adopted the following allocations:
Breeder Awards $4,320,000 33.75%
Stallion Awards 1,070,000 8.4%
Owner Awards 2,453,000 19.15%
Purse Enrichment 3,549,000 27.7%
Promotion 640,000 5.0%
Administration 512,000 4.0%
Cornell Equine Research 256,000 2.0%
At that meeting, the directors also adopted new rules which change the basis on which thoroughbred foals may qualify as New York-breds for participation in the Fund's awards program. The Fund makes determinations as to the qualifications of breeders and owners to receive awards, and, when necessary, conducts hearings relating to such determinations.
No officer or employee of a state agency . . . should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his duties in the public interest.
Following the rule with respect to conflicts of interest, Public Officers Law §74(3) provides standards of conduct which address actual as well as apparent conflicts of interest. Of relevance to this inquiry are the following:
(d) No officer or employee of a state agency . . . should use or attempt to use his official position to secure unwarranted privileges or exemptions for himself or others.
(e) No officer or employee of a state agency . . . should engage in any transaction as representative or agent of the state with any business entity in which he has a direct or indirect financial interest that might reasonable tend to conflict with the proper discharge of his official duties.
(f) An officer or employee of a state agency . . . should not by his conduct give reasonable basis for the impression that any person can improperly influence him or unduly enjoy his favor in the performance of his official duties, or that he is affected by the kinship, rank, position or influence of any party or person.
(g) An officer or employee of a state agency should abstain from making personal investments in enterprises which he has reason to believe may be directly involved in decisions to be made by him or which will otherwise create substantial conflict between his duty in the public interest and his private interest.
(h) An officer or employee of a state agency . . . should endeavor to pursue a course of conduct which will not raise suspicion among the public that he is likely to be engaged in acts in violation of his trust.
In his memorandum upon approving the 1994 legislation, the Governor stated that the bill was a significant step toward "returning the responsibility for decisions affecting the future of horse racing in New York to the people who have invested their time and money into the industry". The Governor noted that, "for too long, we in government have dictated to the breeders . . . rather than listened to them". The bill, therefore, was intended to "give an active voice to the breeders in the State" and implement the recommendation of the Commission on Racing in the Twenty-First Century that "the Legislature and the Governor should set broad racing policy and allow that policy to be carried out by those who are most affected by it, in this instance the breeders". In giving an active voice to the breeders, the Legislature also specifically directed that Public Officers Law §74 continue to be applicable to these members of the Fund.
The Commission recognizes that the Legislature specifically determined that private sector individuals with interests in thoroughbred breeding and racing should be permitted to serve on the public entity which sets eligibility standards and allocates money for awards to thoroughbred owners and breeders. The Commission must determine how to apply Public Officers Law §74 to those Board members who have a personal interest in the actions taken by the Board.
The Commission is guided by the fundamental principle of statutory construction that statutes will not be construed in such a way as to render them ineffective:
[T]he intention is not to be lightly imputed to the Legislature of solemnly enacting a statute which is ineffective. Statutes are to be interpreted workably, and a statute must not be construed in such a way that would result in the Legislature having performed a useless or vain act.
A construction which would render a statute ineffective must be avoided, and as between two constructions of an act, one of which renders it practically nugatory and the other enables the evident purposes of the Legislature to be effectuated, the latter is preferred (McKinney's Statutes §144).
Moreover, when dealing with apparently irreconcilable provisions of a statute, the provisions should be read compatibly so as to preserve the Legislative intent. As stated in McKinney's Statutes §98:
[W]hen confronted with inconsistent provisions of a statute, the court must view the statute as a whole, and consider its scheme and history and purpose in an effort to find the legislative intent, and then harmonize the inconsistencies in such a way as to carry out that intent . . .
Thus, in determining how to apply Public Officers Law §74 to those Board members who have an interest in the actions taken by the Board, the Commission must presume that the Legislature would not have enacted a law which would in implementation become a nullity, and must read the provisions compatibly in order to carry out the legislature's intent. It is clear that the intent of Racing, Pari-Mutuel Wagering and Breeding Law §245 is to "return  the responsibility for decisions affecting the future of horse racing in New York to the people who have invested their time and money into the industry". The Legislature chose to amend this statute to provide that Board members "may engage . . . in a profession or business including the breeding and racing of thoroughbred horses". For the Commission to hold that §74 precludes a Board member who has an interest in actions taken by the Board from performing his or her Board functions would be to render the legislation a nullity.
How, then, does the Commission harmonize the provision permitting members to be engaged in the breeding and racing of thoroughbreds with the provision that Board members shall be subject to the provisions of Public Officers Law §74? In Advisory Opinion No. 94-11, the Commission set forth the basic rule that:
Under the Code of Ethics, as contained in §74, State officers and employees, including those who serve in unpaid or per diem status, must avoid a conflict between their private interests and their public duties.
In that opinion, the Commission cited an opinion of the Attorney General (No. 83-F20) on the application of §74 to members of the Temporary State Commission on Banking, Insurance and Financial Services:
. . .The knowledge and experience which Commission members bring from the various sectors enumerated in the creating statute must be devoted to the advancement of the public good and not the private interests from which the members come. In accepting a public office and the opportunity to shape public policy, the Commission members and employees assume an obligation to adhere to the standards of conduct which the public rightfully expects of those holding a public trust. Those standards are expressed in section 74 of the Public Officers Law . . .
Likewise, in this case, actions of the directors of the Fund must be devoted to the advancement of the public good and not their own private interests. As directors, they assume the obligation to adhere to the standards of conduct which the public rightfully expects of those holding a public trust. The Commission therefore determines that directors of the Fund, in order to meet their obligation to the public trust, must recuse themselves from deliberating and voting on any matter from which they may directly and personally benefit due to their activities as owners or breeders, but they may fully participate in other matters.
With these principles as guidelines, the Commission now addresses each of the specific questions that has been presented.
|Question 1.||May directors of the Fund who are eligible to receive payments from the Fund as breeders, stallion owners or owners of New York-breds participate in deliberations of the Fund board and vote on resolutions dealing with the allocation of the Fund's resources; e.g., the percentages to be paid to breeders, to stallion owners, in owner awards, and to purses?|
Directors of the Fund who are eligible to receive payments from the Fund as breeders, stallion owners or owners of New York-breds may deliberate and vote on resolutions dealing with the general allocation of the Fund's resources. To disqualify directors from this function would clearly frustrate the legislative intent to "return  the responsibility for decisions affecting the future of horse racing in New York to the people who have invested their time and money into the industry". It is important to note that the power to make allocations is severely limited, as they must be made within parameters established by statute. In addition, any individual director's potential to benefit from the allocation of the awards is speculative, as an award would be received only if the director's horse places first through fourth in an eligible race to be held in the future. Moreover, directors have the potential to share in the awards only by virtue of their status as members of a particular category of horse breeder or owner (such as a stallion owner), and not as individuals. As noted above, the Commission has determined that, given the statutory scheme, Public Officers Law §74 requires recusal only when a decision would directly and personally benefit a particular owner or breeder who is a director. In making allocations, directors who are owners or breeders would benefit only indirectly and by category. Thus, recusal is not required.
|Question 2.||May directors of the Fund who are eligible to receive payments from the Fund in the form of breeder awards, stallion owner awards, owner awards or purses participate in deliberations of the board and vote on resolutions fixing the amount of awards and purses and the conditions of the New York-bred races?|
Directors of the Fund who are eligible to receive payments from the Fund may deliberate and vote on resolutions fixing the amount of awards and purses and the conditions of the New York-bred races. As with question one, above, the potential to receive awards is speculative, as it depends on whether a horse places first through fourth in a future race. Again, directors have the potential to share in the awards only by virtue of their status as members of a particular category. As decisions do not directly and personally benefit particular owners and breeders, recusal is not required.
|Question 3.||May directors of the Fund who are eligible to receive awards from the Fund and to earn purses in races for New York-breds funded by the Fund participate in deliberations and vote on resolutions to set the qualifications of the horses earning those payments?|
In addition to the allocation of Fund resources, a primary function of the Board is to set the qualifications for New York-bred eligibility. The Fund administers the registry of New York-bred thoroughbred horses pursuant to Racing, Pari-Mutuel Wagering and Breeding Law §244 and is authorized to establish and promulgate regulations concerning domicile and registration requirements (9 NYCRR part 4081). Like allocation of resources, the determination of requirements for eligibility is a fundamental duty of the Board. To hold that directors who are eligible to receive awards from the Fund may not perform this duty would be to thwart the intent of the Legislature in permitting such individuals to serve on the Board. Thus, in general, directors may participate in adopting rules concerning the basis on which thoroughbred foals may qualify as New York-breds for participation in the Fund's awards program. They must recuse themselves, however, from participation in any matter from which they may directly and personally benefit. For example, the Board, when necessary, conducts hearings relating to determinations as to the qualification of breeders and owners to receive awards. A director could not participate in any matter involving his or her own qualifications; nor could a director participate in a matter involving the approval of a qualification that would allow his or her horse to participate where, absent approval, the horse could not.
|Question 4.||May directors of the Fund who are members of NYTB, including its President or Executive Director, participate in deliberations and votes on resolutions dealing with payments or subsidies to NYTB or other arrangements with such group?|
The Commission determines that Public Officers Law §74 requires that directors of the Fund who are also directors or officers of NYTB recuse themselves from participation in deliberations and votes on resolutions dealing with payments or subsidies to NYTB. These NYTB directors owe a fiduciary duty to that organization (see, Advisory Opinion No. 93-3). However, mere membership in the NYTB, which is comprised of the majority of those involved in breeding thoroughbreds in New York State, does not create the same concerns, as the same fiduciary duty is not present. For this reason, those directors of the Fund who are members, but not directors or officers, of NYTB may participate in deliberations and votes on resolutions dealing with payments or subsidies to NYTB.
|Question 5.||May the Fund continue to pay over to NYTB a percentage of the New York-bred foal registration fees and New York stallion registration fees collected by the Fund's New York Bred Registry for which NYTB does not, in fact, render any services?|
The percentage of registration fees is paid pursuant to a written agreement between the Fund and NYTB. The 1994 legislation cannot and does not affect that agreement. Thus, the payments may continue.
The Commission notes, however, that the agreement, which was entered into in 1988, provides that either party may cancel with 60 days notice. Since it was not until 1994 that the statute was amended to provide for breeders to serve as directors of the Fund, and specifically for "the president or the executive director of the statewide thoroughbred breeders association representing the majority of breeders of registered thoroughbreds in New York state" to serve as a director, there was no conflict when the contract was executed. Any director of the Fund who is also a director or officer of NYTB would have to recuse him or herself from participation in any deliberations and votes concerning cancellation or modification of the agreement for the same reasons discussed supra.
This opinion, until and unless amended or revoked, is binding on the Commission in any subsequent proceeding concerning the person who requested it and who acted in good faith, unless material facts were omitted or misstated by the person in the request for opinion or related supporting documentation.
Joseph M. Bress, Chair
Barbara A. Black
Angelo A. Costanza
Robert E. Eggenschiller
Donald A. Odell. Members
Dated: April 25, 1995
1. The 1988 agreement provides that all registration fees shall be fixed by the Fund, but that no increase shall be instituted until the Board of Directors of NYTB is consulted. The allocation of fees for the year 1989 was 20% to the Fund and 80% to NYTB; thereafter, the allocation was 40% to the Fund and 60% to NYTB. NYTB agreed "at its own cost and expense to maintain its promotional, public relations, advertising and educational activities heretofore and hereafter undertaken to advance and improve the breeding and development of Thoroughbreds in New York State . . . ". These activities, include, e.g., "development and administration of a New York Stallion Stakes Series Program or other similar programs" and "maintaining a bloodstock research computer service for the use of New York breeder members of NYTB and the Fund". The agreement provides that either party may terminate with 60 days notice.
2. The maximum amounts allowed by statute are as follows: an amount not in excess of 43% to breeders of New York-breds finishing first through fourth in pari-mutuel races run in New York State; not more than 33% to owners of New York-breds placing first through fourth in races not restricted to New York-breds; not more than 15% to stallion owners whose New York-breds have finished first through fourth in pari-mutuel races run in New York State; not more than 44% for purse enrichment for races exclusively for New York-breds, the conditions of which are set by the Fund (provided, however, that the Fund must set aside 40% of these funds for tracks operated by associations or corporations licensed or franchised in accordance with certain provisions of the Racing, Pari-Mutuel Wagering and Breeding Law); not more than 5% to promote breeding of thoroughbreds in the State; not more than 4% for administration of the Fund; and not more than 2% to equine research.
3. As noted above, Racing, Pari-Mutuel Wagering and Breeding Law §245 states, inter alia, that members of the Fund shall be subject to Public Officers Law §§73 and 74. Public Officers Law §73, however, exempts from its coverage officers of boards "who receive compensation other than on a per diem basis" (§73[i][iv]). The only provision of §73 which is applicable to per diem officers who also file financial disclosure statements, as members of this Board do, is §73(3)(b), which prohibits compensated appearances against the State's interest in the Court of Claims.