n           ”




                                   The Attorney General of Texas
                                                     January 10. 1985
    JIM MAnOX
    Attorney General


    Supreme Court Bullding         Mr. Charles E. Nemir                             Opinion No. JM-296
    P. 0. BOX 1254S                Executive Director
    Austin. TX. 78711. 2545        Texas Department of Water Resources              Re:    Whether a developer of
    512/4752501                    P. 0. Box 13087, Capitol Station                 property   within    a   water
    Telex 01015711387
    Telecopier 512I475-0255        Austin, Texas    787 11                          control and improvement dis-
                                                                                    trict  may serve as director
                                                                                    of that district
    714 Jackson. Suite 700
    Dallas. TX. 75202.4508
                                   Dear Mr. Nemir:
    2141742-5944

                                         You have ask,cd our opinion          as to whether two developers    of
    4S24 Albert. Ave.. Suite 180   property     within  t’he territorial     boundaries   of Brushy Creek Water
    El Pea, TX. 799052793          Control and Improvement District         No. 1 [hereinafter   “District”] are
    91563334S4
                                   disqualified     by tt,e Texas Water Code from serving on the board of
                                   directors    of the D!.r;trict.   Your letter  states:
       1 Texas, Suite 790
     ,~urton. TX. 77002-3111                      Either: section 50.026 or section 51.0721 of the
    71312235888                               Texas Wllt:er Code,      or possibly     both    of    these
                                              sections,,   is applicable     to Brushy Creek Water
                                              Control ,uld Improvement District      Flo. 1, depending
    SC6 Broadway. Suite 312
    Lubbock. TX. 79401-2479                   on whether It is a special          law district        or a
    SC6/747-5235                              general Law district.       Both sections    provide that
                                              a develcper     of property    in a district        is dis-
                                              qualified     from serving      as a member of            the
     4309 N. Tenth. Suite B
     McAlkn. TX. 7SYWlSS5
                                              governing     board   thereof    if   the   District       is
     5121(x)24547                             proposln~~ to provide or actually        providing     water
                                              and sewer services     or either of these services         to
                                              househoLi users as the principal        functions     of the
     200 Main Plaza. suits 100                District,
     tin Antonio. TX. 7B2M.2797
     5121225.4191
                                                  The District   has never provided sever services
                                              to household users as a principal       function of the
                                              District.     Bowever,   the District      has recently
                                              filed an application    with the Texas Department of
                                              Water Resources to have the District       designated as
                                              the entity to provide the vastewater         collection,
                                              treatment,    and/or disposal,    system or systems to
                                              serve all or part of a defined area, as authorized
                                              by chapter 26, subchapter C. of the Texas Water
                                              Code.     IE the District      is    so designated       and
                                              constructs   a regional sewage disposal     facility.     it




                                                           p. 1327
Mr. Charles   E. Nemir - Page 2       (JR&296)




           proposes    to provide capacity       in that facility        to
           various political       eubdivisfons,     including     munlci-
           palities    and municipal utility       districts.    but does
           not propose at this ,time to provide sewer services
           directly      to    household     users.        The    customer
           political      subdivisfcons    would,    however,      provide
           sewer services        to household       users     within    the
           territorial     confines of the District.

      We limit our conclusion      ‘to the specific   facts presented.       There
are no reported cases construing        section 50.026 or section      51.0721 of
the Texas Water Code.      Therefore,    the rules of statutory     construction
must be applied      in order KO interpret         the statutes.      Calvert    v.
British-American    Oil Producing: Co., 397 S.W.2d 839, 842 (Tex. 1966).
The fundamental rule in the caction              of statutes     is to ascertain
and give effect    to the inten: of the legislature.         Jessen Associates.
Inc.   v. Bullock,     531 S.W.Z!CI 593, 599 (Tex.        1975).     Courts will
construe the language of a statute liberally          in order to give effect
to the legislative    intent.   ;ity of San Marco6 v. Lower Colorado River
Authority.   508 S.W.2d 403 (l’ex. Civ. App. - Austin 1974). aff’d             523
S.W.2d 641 (Tex. 1975).

       The Code Construction       Act:, article    5429b-2. V.T.C.S.,     sets out in
section     3.01 several      presuniptions of legislative        intent    applicable
here:     “(3)   s just and reasonable         result   is intended:     (4) a result
feasible     of execution    is intended; and (5) public interest           is favored
over any private          interest,”      The Code Construction           Act further
provides in section 3.03, subsections             (1) and (5). that in construing
a statute a court may consider,          among other matters, the object sought
to be attained       by the statute      and the consequences       of a particular
cor.str”ction.      These principles        of construction      require      that the
legislative     purposes be determined from the statute as a whole rather
than from a literal          application     of particular     statutory      language.
Brown v. Patterson,        609 S.W,.:!d 287 (Tex. Civ. App. - Dallas 1980. no
writ).

       In 1973, the legislature       amended the Texas Water Code to add four
statutes    (sections    50.024 [mrrent      section 50.026).     51.0721,   53.0631.
54.1021) which provide for disqualification,             in particular   situations,
of the board members of certain types of water districts:                special   law
districts,     general law districts,        fresh water supply districts,         and
municipal utility      districts.     Acts 1973, 63rd Leg., ch. 635, at 1748,
amended by Acts 1975, 64th Leg.. ch. 248, at 600.                With the exception
of section 53.0631, pertaining          to fresh water supply districts,         these
disqualification      statutes are virtually       identical.    Therefore.   whether
section    50.026 or section      ljI.0721 is applicable       to the District       is
iavaaterial to our result.




                                     p. 1328
Mr. Charles    E. Nsmir - Page 3              (JM-296)




       Sections    50.026   and 1,1.0721,   the            statutes   applicable   to   the
District,    provide,   in pertinent  part:

               (a)   A person is disqualified   from serving as a
           member of      a governing     board   of   a district
           proposing   to provi’ie or actually    providing    wster
           and sewer servicez; or either of these services         to
           household users arr the principal     functions   of the
           district    and croated    by special      act   of   the
           legislature   if:

                        .   .     .    .

                        (3)           he III a developer   of property   in the
                 district;

                        .   .     .    .

Water Code $50.026.

                  (a)  A person j.s disqualified  from serving as a
              member of the board of a district        proposing    to
              provide   or actually    providing  water and sawer
              services  or either of these services    to household
              users as the principal    functions  of the district,
              if:

                        .     .   .    .

                        (3)           he i:r a developer   of property   in the
                 district;

                        . . . .

Water Code 151.0721.

      The disqualification       atatutes  were part    of  a fourteen-bill
 package of remedial legisla,::Lon involving water. df.stricts  submitted as
 emergency legislation    by thscu Governor Dolph Briscoe with these words:

                  The    wst    n‘uearous      category     of    special
              districts.   apart from school districts,        ere water
              districts.     They have been referred         to as ‘the
              least    known, least     understood,    and least    cared
              about class of gcvernments in the United States.’
              They desperately      need increased      supervision    and
              regulation   over th#sir formation and the conduct of
              their financial    alfairs.     The abuses to which they
              have been subject are designed to be corrected by




                                              p. 1329
Mr. Charles    E. Nemir - Page 4      (J%296)




            these bills.   Enactment of         these bills     will help
            maintain the confidence  of         our citizens     in their
            local government.

S.J. of Tex.. 63rd L.eg., Reg.         Sess.    421   (1973);   R.J.   of   Tex.,   63rd
Leg.. Reg. Sess. 1285 (1973),,

      Disqualification     statutes    are    significantly        different       from
statutes   designed to preven’t or punish specific          acts of misconduct.
The 1973 statutes       are intt,nded to preclude        conflicts       of interest
between developers     and the board of directors       of a district       providing
water or sewer services      to residents    by disqualifying        the developers
from serving    on the board of directors.      The disqualification         statutes
also serve to maintain the rublic’s        trust and confidence         In the board
of directors    and in their decisions.

      The statutory  provisiclcs  relating    to defined regional sewage
systems are contained in chz:pter 26, subchapter C. of the Texas Water
Code.    Water Code J§26.081-26.087.       The purpose of such regional
systems is

              to serve the waste disposal  systems needs of the
              citizens of the state and to prevent pollution and
              maintain and enhance the quality   of water in the
              state.

Water  Code 126.081 (a).     After the Ti?xas Water Development Board has
defined the regional     area, it then designates  “the person to provide
the waste collection,      treatment,  or disposal  system or systems to
serve all or part of the are!a. defined.”    Water Code 126.083(c).

       The District,      a designated     regional   entity.    will construct    and
operate or oversee a regionul. waste treatment facility.              This facility
~111 treat sewage from houtieholds within the defined area, Including
households within the terr,LI:orial           boundaries   of the District,     after
the sewage is collected          by municipalities     and other water districts.
Your letter     states     that Bln.shy Creek Water Control and Improvement
District   No. 1 does not propose at this time to provide sewer service
directly   to household user:).          The implication      of ymr  statements     is
that the sewer service          to b’e provided by the District       would be made
available    to political      subdivisions    within the regional area and only
indirectly    to household users.         We conclude that the prohibition        from
serving on the governing beard of a district              providing water or sewer
service found in sections          50.026 and 50.0721 of the Water Code applies
whether the service         to household users is supplied directly            by the
district   or indirectly      through intermediary governmental entities.

      The question of wheth~zr sections 50.026             and 51.0721 can validly
 be extended to bar membership on a district’s               board of directors   to




                                      p. 1330
Nr. Charlas E. Nemir - Page 5            (m-296)




persons who supply water and sewer servicer              only  indirectly      to
household users is a novel oue.       As we indicated earlier,    there ate no
reported cases construing    these statutes,     and our research has found
no other case which directly       addresses  this issue.     We have turned,
therefore,   to case lav const:nting statutes and other provisions        of law
prohibiting,   as a conflict  o:! interest , certain conduct by officers      or
employees of municipalities,      and used as s basis to invalidate         con-
tracts entered into by the city when a conflict        of interest   was found
t.0 exist.

       Thus, in Delta Electrg:         Construction    Company v. City of San
Antonio, 437 S.W.2d 602 (Tex. Civ. App. - San Antonio 1969. writ ref’d
n.r.c.1,    the president    and a major shareholder of a contracting          firm
was a &aber of the city’s        EL~act&al Examining and Supervising Board.
The city,      through its VatIs Works Board of Trustees,              executed    a
contract with the firm.        In affirming    the trial court’s    judgment that
the contract was null and void. the court of civil              appeals found it
immaterial that the firm president/electric            board member did not in
any manner influence       the award of the contract       to his firm.     Id. at
604. 609.     Instead.  the court. interpreted      the scope of the prohibited
conflict   of interest    very broadly:

            ‘It is the general rule that municipal contracts
            in which officers        or employees of the city have a
            personal      pecuniary       interest         are     void.     . . .
            [Citations     omittei;].     It   has long been the public
            policy    of this s’tste to prohibit               officers       of a
            city from having ;r personal pecuniary interest                       in
            contracts     with     the city          and this        policy       is
            specifically     exprtssed in both the penal and civil
            statutes.       See article          373,     Penal      Code,      and
            article     9887.C.S.          1925.       The   foregoing         rule
            rests on sound prblic            policy.      Its object        is to
            insure to the city strict             fidelity      upon the part
            of those who reprs?aent it and manage its affairs.
            The rule prohibiting          public      officers       from being
            interested       in      public       contracts         should       be
            scrupulously     enforced.
                                    --    ’ (Emphasis added).

Id. at 609 (quoting from=2    of Edinburg V. Ellis,                     59 S.P.Zd      99 (Tex.
?&im’n App. 1933, opinion approved)).

            ‘[IIt   is generalL:y held that vhenever s public
            officer   enters irto a contract,     the execution     of
            which may make :It possible         for    his   personal
            interests   to becc%e antagonistic      to his faithful
            discharge of a public duty such contract will be
            held void as aaeznst nub&         ~olicv.      It is the
            existence   of suck. interest which is deci,sive       and



                                        p. 1331
Yr. Charles     E. Nemir - Page ti        (JM-296)




             not the actual efl’cct   or influence,    if            any[ .I of
             the interest:    if there is a potential                conflict,
             the contract   is invalid.’      (Citation              omitted).
             (Emphasis supplied).

g&    Accord,  International   Bank of Commerce of                     Laredo V. United
National  Bank of Laredo.    653 S.W.Zd 539, 547-48                    (Tex. App. - San
Antonio 1983. writ ref’d n.r.e.1.

       This ruling by the Delta Electric                court indicates      that it is the
public policy        of thins stat;          to construe     the prohibition       against     a
conflict    of interest       broadly enough both to include the indirect                   use
of official      influence      to fwther       one’s private pecuniary interest            and
to incl.ude the mere possib:.l.ity               that such influence        might be used.
This conclusion        follow       fro!a the fact that the Del.ta Electric               court
found that the firm president/electric                  board member was involved in a
conflict    of interest,        even though he did not serve on the city board
through which the contraft was awarded and even though he exercised                           no
influence     on its award.             ::his situation      is analogous to the facts
which we confront           in this opinion,           because developers        of property
serving     on water district              boards,     though not providing           services
directly     to household         users,      would   be   identified    closely     with   the
political     entities      formally providing          these services      and would thus
have the possibility          of influencing        the provision     of these services       to
their personal pecuniary benefit.                  In these circumstances,         therefore,
we find that it is proper w apply this broad public policy                             against
conflicts      of interest         and to include          developers     serving     on such
district    boards within the smbit of sections 50.026 and 51.0721.

      If the District     is designated    as a regional entity,           conflicts   of
interest,    which the 1egislal:ure    sought to proscribe          by section 50.026
and section    51.0721.    could t,hus exist     for developers         of property in
the District    who serve on the board of directors            of the District.       The
board of directors      can potentially      affect     land values substantially
within the District     by mak1r.g decisions     which might influence the rate
and direction      of grovth within       the District          and which might be
improperly influenced       if the~re were a conflict         of interest     betveen a
person’s   duty as a board mealber and his or her pecuniary interest                 as a
developer.      For instance,      the board will       determine the number and
location   of all treatment and disposal          facilities,       which ~111 affect
land values and could deternine          the order in which portions               of the
defined    area would be se:3red.         The board can oppose or support
applications     by others     fo:: waste treatment          facilities      within   the
defined area.      The board can also request the Texas Water Cotmaission
to issue an order under sec:t,ion 26.084 of the Water Code which would
prohibit   or limit other treatment facilities           within the defined area.

        Section 50.026 and sa:tion 51.0721 also require,                      however. that
 the   providing of water or sever services  to household                      users be the




                                         p. 1332
Mr. Charles    E. Nemir - Psge 7    (JM-296)




"principal   functions"   of the district.   We find the facts    in the
request insufficient    to dei:ermine whether the sever services.   which
the District   will provide a;1 a regional entity, will be the principal
function of the District.

       The District    was created       as a couservation        and reclamation
district   which was subsequently         "validated"    by the l.egislature    and
given the status and authority           of a water control       and improvement
district.     Acts 1957, 55th Leg., ch. 341. at 807.            Your request does
not set out the nature and sN:ope of what other functions,              if any, the
District   will have beyond its functions          as a regional entity that are
pertinent to determining vhother a conflict           of interest   exists.   While
the District's    functions as a regional entity concerned with water and
sever services     will undoubm!dly involve a substantial            comitment   of
time and financial      resources,    it cannot be determined from the facts
given whether these         part:lcular     functions   will   be the principal
functions of the District.

      In conclusion,     the DiHrict,    if designated as an entity for the
operation or oversight of a regional waste treatment system. would be
providing  or proposing to pcowide sever services          to household users
within the meaning of sectilms 50.026 and 51.0721.          The two developers
of property within the District         would thereby be disqualified      from
serving on the District's       hoard of directors    if those sever services
were the principal      function of the District.     Under the facts set out
in the opinion       request,   ve are unable to determine whether such
services would be the principal       function of the District.

                                   SUMMARY

                 Any developer o,f property within the boundaries
              of the Brushy Crt:ek Water Control and Improvement
              District   No. 1 is disqualified  from serving on the
              District's     board of directors    if and when the
              District   is desigmted   as the entity to operate or
              oversee a regional waste treatment system if the
              District's    functions as a regional entity are its
              principal    functions.




                                              J k
                                                   Very truly    your


                                                         k
                                                   JIM        MATTOX
                                                   Attorney    General of Texas

 TOMGREER
 First Assistant    Attorney   General



                                         p. 1333
Mr. Charles   E. Nemir - Page ,3   (Jt+296)




DAVID R. RICHARDS
Executive Assistant Attorney   'General

RlCK GILPIN
Chairman, Opinion Committee

Prepared by Paul Elliott
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Paul Elliott
Susan Garrison
Tony Guillory
Jim Matthews
Nancy Sutton




                                   p. 1334
Mr. Charles   E. Nemir - Page 9      (J'M-296)




        1.  The Delta Electric   court relied    on two statutes      in reaching
its judgment. one of which, article        988. V.T.C.S..     prohibited    a city
officer    from being "directl!f  or indirectly   interested"    in the business
affairs    of the city.    Thus :it is arguable that because that statute
contained     the words "direc:tly    or indirectly,"      and neither     section
50.026 nor section       51.0721 does,     the Delta Electric        decision     is
inappropriate    here.   Delta Electric,    supta. at 608-09 a nn. 3, 4, 5.
We decline to accept this pwition,        however. on two grounds:

      (1)   Article   968 was repealed by the legislature           and replaced
with article    988b. V.T.C.S.    Acts 1983, 68th Leg., ch. 640, at 4079.
The new conflict-of-interest        statute    for local   officials,     article
988b. is far more compreh~msive than its predecessor               but does not
contain   the words "directly     or indirectly."       We doubt that by the
omission of these words the legislature          meant to restrict     the broad
scope of conflict-of-interest      prohibitions    applied under article      988.
Thus, the Delta Electric      amtement of policy      should retain viability
and should be applicable       to other statutes,     such as sections     50.026
and 51.0721, which do not cmtsin these words.

       (2)    The Delta E1ectri.c court also relied     on article    373 of the
Texas Penal Code which has &ce          been repealed.   Acts 1973, 63rd Leg.,
ch. 399, at 991.        That statute did not contain the words "directly        or
indirectly"      and thus was a basis        on which the court       could have
bottomed its opinion without relying           on express   ststutory     language
meeping      indirect   conduct vithin    the scope of the prohibition.          (A
city    charter provision      cited by the court also contained         the term
"directly      or indirectly,"     but the court appeared not to base its
decision    exclusively    on this provision.)   -Id. at 609.




                                   p.   1335
