Advisory Opinion No. 2013-14

Re: Retirement Board of the Employees’ Retirement System of the State of Rhode Island

QUESTION PRESENTED

The Petitioners, the Retirement Board of the Employees' Retirement System of the State of Rhode Island, by unanimous vote have requested an advisory opinion concerning the ability of certain individual members to participate in discussions and decision-making, or to receive confidential information, regarding lawsuits against the Retirement Board and other state officials that are pending in the Rhode Island Superior Court.

RESPONSE

It is the opinion of the Rhode Island Ethics Commission that the Code of Ethics requires those members of the Retirement Board of the Employees' Retirement system of the State of Rhode Island who hold leadership positions in an organization that initiated litigation against the Retirement Board to recuse from Retirement Board matters, including discussions and decision-making, relative to the litigation. However, those members of the Retirement Board who are either named as a defendant in an official capacity, or who were appointed to a public office by such a named defendant, are not required to recuse from matters relating to the litigation.

The Petitioners are the members of the Retirement Board of the Employees' Retirement System of the State of Rhode Island ("Retirement Board"). The Employees' Retirement System of the State of Rhode Island ("ERSRI") was statutorily established "for the purpose of providing retirement allowances for employees of the State of Rhode Island . . . ." R.I. Gen. Laws § 36-8-2. The Municipal Employees' Retirement System of the State of Rhode Island ("MERS") was similarly established "for the purpose of providing retirement allowances for employees of participating municipalities . . . and benefits to the survivors of those employees." R.I. Gen. Laws § 45-21-32. Together, the ERSRI and the MERS are commonly referred to as the "retirement system," which is managed by the Retirement Board.

The Retirement Board is an independent board, created and established in the office of the General Treasurer, to "hold and administer, in trust, the funds of the retirement system . . . [and] to perform such functions as authorized by law." Section 36-8-4. The "general administration and the responsibility for the proper operation of the retirement system . . . are . . . vested in [the] retirement board." Section 36-8-3.

The Retirement Board has fifteen (15) members and is statutorily constituted as follows:

(1) The General Treasurer or designee;

(2) The Director of Administration or designee;

(3) A representative of the Budget Office, appointed by the Director of Administration;

(4) The President of the League of Cities and Towns or designee;

(5) & (6) Two active state employee members of the retirement system, or officials from a state employee union, elected by active state employees;

(7) & (8) Two active teacher members of the retirement system or officials from a teachers union, elected by active teachers;

(9) An active municipal employee member of the retirement system or an official from a municipal employees union, elected by active municipal employees;

(10) & (11) Two (2) retired members of the retirement system, elected by retired members of the system;

(12) & (13) Two public members skilled in finance, accounting or pensions, appointed by the Governor; and

(14) & (15) Two public members skilled in finance, accounting or pensions, appointed by the General Treasurer.

Section 36-8-4.

Although many of the individual members of the Retirement Board are statutorily required to be drawn from the various pension stakeholder groups, the Petitioners note that their members are fiduciaries of both ERSRI and MERS and are expressly required to discharge their duties in accordance with a good faith interpretation of the law governing the retirement system in the interests of the participants and beneficiaries of the plans. See § 36-8-4.1.

In 2009 and 2010, the Rhode Island General Assembly enacted certain amendments to the state retirement system that were intended to strengthen the system and lower the state's required contributions, but which would result in somewhat diminished retirement benefits for many participants. Following these amendments, several statewide labor organizations filed suit in Superior Court ("the 2010 litigation") against the Governor, the General Treasurer and the ERSRI, by and through the Retirement Board, seeking to obtain a declaratory judgment that the 2009 and 2010 legislation violated the Contracts and Takings Clauses of the Rhode Island Constitution, to enjoin the state from implementing the amendments, and to recover the costs of the lawsuit. The 2010 litigation is presently pending before the Superior Court.

In 2011, the General Assembly enacted the Rhode Island Retirement Security Act of 2011 ("RIRSA"), which also contained a number of changes to the state retirement system that, like the prior amendments, were intended to strengthen the system and lower the state's required contributions, but which would result in somewhat diminished retirement benefits for many participants. Following the RIRSA's enactment, several lawsuits were filed in Superior Court ("the 2012 litigation") by statewide labor organizations, their local affiliates and associations of retired public employees against the Governor, the General Treasurer and the ERSRI, by and through the Retirement Board. Similar to the 2010 litigation, the plaintiffs in the 2012 litigation sought to obtain a declaratory judgment that the RIRSA violated the Contracts, Takings and Due Process Clauses of the Rhode Island Constitution, to enjoin the state from implementing the Act, and to recover the costs of the lawsuits. The 2012 litigation is also presently pending before the Superior Court.

All of the named defendants in the 2010 litigation, including the ERSRI by and through the Retirement Board, are primarily represented by a single private attorney who is paid with funds budgeted to the retirement system and the Department of Attorney General. That same attorney also represents all defendants in the 2012 litigation except the Governor and General Treasurer in their official capacities, who are represented by the Department of Attorney General. The 2012 litigation has been referred to mediation by the Superior Court. It is expected that any agreements reached through the mediation process will also apply to and impact the 2010 litigation. The Petitioners represent that there is a substantial overlap among the legal issues, theories and facts involved in all of the cases that make up the 2010 and 2012 litigation and that, accordingly, any discussions relating to litigation strategy, defense and legal theory will likely be applicable to all of the cases in litigation.

To date, the Retirement Board, as an entity, has not been involved in providing direction or decision-making to its private defense counsel relative to the litigation or mediation. Members of the Retirement Board have asked defense counsel to appear and apprise them of the status of the pending litigation and mediation, and have asked that the litigation be included as a recurring executive session agenda item at the Retirement Board's monthly meetings. After some concerns were raised regarding potential conflicts of interest between certain Retirement Board members' public duties and their leadership affiliations with organizations that are party plaintiffs in the litigation, and regarding the disclosure of confidential and/or privileged attorney-client communications, the Board unanimously voted to seek an Ethics Commission advisory opinion prior to receiving any confidential/privileged litigation information or to making any decisions relating to the litigation.

In its request for an advisory opinion, the Retirement Board has asked both specific and general or hypothetical questions relating to a member's ability to participate in discussions and decision-making relative to the 2010 and 2012 litigation. It is the Ethics Commission's policy to not opine on non-specific, general or hypothetical issues because the proper application of the Code of Ethics is dependent upon the unique facts presented; even minor changes in circumstances may alter an analysis. Furthermore, once it has been determined that a particular public official is required to recuse, principles of judicial/administrative economy lead us to decline to evaluate numerous additional bases for requiring recusal.

However, the Petitioners have asked four (4) specific questions that identify eleven (11) particular members of the Retirement Board, and have provided sufficient facts and representations to enable us to offer our opinion as to the proper application of the Code as to these members in light of an identified potential conflict. These questions, and our responses, are provided below.

I. "Does a Retirement Board member who holds a leadership position in a labor union, labor organization, federation of labor unions, coalition, or other entity that is a named plaintiff in a lawsuit naming the Retirement Board as a defendant, have an impermissible conflict of interest, and if so, is the affected member required to recuse him or herself from all matters relating to the 2010 or 2012 litigation?"

It is the opinion of the Ethics Commission that Retirement Board members who hold a leadership position in any of the organizations that are named plaintiffs in the 2010 or 2012 litigation are required to recuse from Retirement Board matters, including discussions and decision-making, relative to the any of the cases making up the 2010 or 2012 litigation.

The Petitioners have represented that seven (7) members of the Retirement Board also currently serve, in their private capacities, in positions of leadership in at least one organization that is a named plaintiff in the 2010 litigation, the 2012 litigation, or both. These members and their affiliations are as follows:

Roger Boudreau. Mr. Boudreau was elected to serve on the Retirement Board by retired members of the retirement system. He is the President of the R.I. AFT/R Local 8037, which is a party plaintiff in the 2012 litigation (C.A. No. PC12-3166). The R.I. AFT/R Local 8037 is also a member of the Rhode Island Public Employees' Retiree Coalition, which is a party plaintiff in the 2012 litigation (C.A. No. PC12-3166). Mr. Boudreau also serves on the Executive Board of the Rhode Island Federation of Teachers and Health Professionals, which is a party plaintiff in the 2010 litigation (C.A. No. PC10-2859).

Michael Boyce. Mr. Boyce was elected to serve on the Retirement Board by retired members of the retirement system. He is the Municipal Vice President of AFSCME Chapter 94 Retirees, which is a named plaintiff in the 2012 litigation (C.A. No. PC12-3166). He is also the Financial Secretary/Treasurer of the Providence Central Federated Council ("PCFC"), which is affiliated with the AFL-CIO but is not a named plaintiff in the pension litigation.

William Finelli. Mr. Finelli was elected to serve on the Retirement Board by active teacher-members of the retirement system. He is an Area Vice President of the National Education Association Rhode Island ("NEARI") which is a named plaintiff in the 2010 litigation (C.A. No. PC10-2859), and is a Retired-Director of NEARI-Retired and the Vice-Chairman of the Rhode Island Public Employees' Retiree Coalition, both of which are named plaintiffs in the 2012 litigation (C.A. No. PC12-3166).

John Maguire. Mr. Maguire was elected to serve on the Retirement Board by active teacher-members of the retirement system. He is the Treasurer of the Rhode Island Federation of Teachers and Health Professionals, a statewide labor organization which is a named plaintiff in the 2010 litigation (C.A. No. PC10-2859), and he is also the President of the North

Providence Federation of Teachers, a local labor organization that is a named plaintiff in the 2012 litigation (C.A. No. PC12-3168). He is also an Executive Board Member of the Rhode Island AFL-CIO, an umbrella labor organization to hundreds of local labor organizations, many of which are named plaintiffs in the 2012 litigation.

John Meehan. Mr. Meehan was elected to serve on the Retirement Board by active state employee-members of the retirement system. He is the Recording Secretary of the Rhode Island Brotherhood of Correctional Officers, which is a named plaintiff in both the 2010 Litigation (C.A. No. PC10-2859) and the 2012 litigation (C.A. No. PC12-3168).

Claire Newell. Ms. Newell was elected to serve on the Retirement Board by active state employee-members of the retirement system. She is the Recording Secretary of AFSCME, Council 94, which is a named plaintiff in the 2010 litigation, and is the Local President of Council 94, AFSCME, Local 2872, Department of Elementary and Secondary Education, which is a named plaintiff in the 2012 litigation (C.A. No. PC12-3168). She is also an Executive Board Member of the Rhode Island AFL-CIO, an umbrella labor organization to hundreds of local labor organizations, many of which are named plaintiffs in the 2012 litigation.

Louis Prata. Mr. Prata was elected to serve on the Retirement Board by active municipal employee-members of the retirement system. He is President of Local 1491, AFSCME, Town of Johnston Employees and Library Workers, which is a named plaintiff in the 2012 litigation (C.A. No. 12-3167). He is also a member of the Executive Board Member of the AFL-CIO, an umbrella labor organization to hundreds of local labor organizations, many of which are named plaintiffs in the 2012 litigation.

All of the above Retirement Board members hold at least one leadership position in an organization that is a named plaintiff in a lawsuit filed against the Retirement Board as part of the 2010 or 2012 litigation, or both. As is discussed in further detail below, this type of relationship between a public official and an outside organization creates a conflict of interest when the public body to which the official belongs takes up discussion and makes decisions that are likely to impact the affiliated outside organization.

Under the Code of Ethics a public official, such as a member of the Retirement Board, may not participate in any matter in which he or she has an interest, financial or otherwise, which is in substantial conflict with the proper discharge of his or her duties in the public interest. R.I. Gen. Laws § 36-14-5(a). A public official will have an interest in substantial conflict with his or her public duties if it is likely that a "direct monetary gain" or a "direct monetary loss" will accrue, by virtue of the public official's activity, to the official or to his or her business associate, employer, or any business that the public official represents. Section 36-14-7(a). A "business associate" is defined as any individual or entity joined with a public official "to achieve a common financial objective." Section 36-14-2(3).

A public official is also prohibited from using his or her public position or confidential information received through his or her position to obtain financial gain, other than that provided by law, for him or herself, a business associate, or any business by which he or she is employed or represents. Section 36-14-5(d).

In past advisory opinions, this Commission has concluded that public officials are "business associates," as the term is defined in section 36-14-2(3), of those outside entities in which they served as either a member of the Board of Directors or in other leadership positions that permitted them to affect the organization's financial objectives. We note that this business association analysis applies to any type of outside organization, not only to labor organizations, and our past advisory opinions reflect this diversity. However, among these numerous past advisory opinions are those in which we have found business associations to exist between labor organizations and their officers, directors and leaders. See A.O. 2000-77 (South Kingstown School Committee member was the business associate of bargaining unit URI/NEA/Professional Staff Association by virtue of her position of Treasurer of that organization); A.O. 98-156 (Retirement Board member, who was also President of North Providence Federation of Teachers, Treasurer of Rhode Island Federation of Teachers and Health Professionals, and Executive Board member of the AFL-CIO, was a business associate of these organizations by virtue of his leadership positions); A.O. 98-44 (Fire Commissioner, who was also the President of the International Association of Firefighters, Local 799 (Local 799), and who served on the Executive Board of the City of Providence Central Labor Council, was the business associate of both organizations and was required to recuse from appeals involving real estate that was owned by them); A.O. 97-91 (member of State Labor Relations Board who was the President and Business Manager of Public Service Employees' Local Union 1033, and was also the President of the Rhode Island Laborers' District Council, was the business associate of both organizations and he, therefore, could not participate in matters concerning either organization that came before the Labor Relations Board).

Consistent with these prior opinions, in the instant matter seven (7) members of the Retirement Board are business associates of at least one outside organization that filed suit against the Retirement Board to obtain injunctive and declaratory relief, as well as the payment of costs of suit. These seven (7) Retirement Board members' positions of leadership in these plaintiff organizations go beyond mere union membership (which would not necessarily create a business association) to create a relationship where the person and organization are joined together to achieve common financial objectives.

Just as our past opinions firmly support our finding of a business association between the seven (7) Retirement Board members and one or more of the plaintiff organizations, prior opinions also make clear that a public official must recuse from his or her agency's discussion of a lawsuit in which the official or his or her business associate is the plaintiff who initiated the litigation. For example, in Advisory Opinion 2002-3 we opined that members of the Jamestown Harbor Management Commission ("HMC"), who were part of a small grassroots organization that filed suit against the Town of Jamestown to challenge the legality of its mooring fees, must recuse from participation in HMC matters relating to the litigation. See also A.O. 2012-8 (Charleston Town Council member, who was the plaintiff in a wrongful termination lawsuit against the Town, was required to recuse from any Council matters pertaining to her lawsuit); A.O. 2010-59 (Tiverton Town Council member was prohibited from participating in any Town Council discussions or decisions involving any litigation in which he or his spouse was currently a party); A.O. 95-37 (Westerly Town Council member required to recuse from participation in any Council matter that affected her pending litigation against the Town). Compare A.O. 2004-31 (Jamestown Town Council member may participate in Town Council's discussion of litigation against an engineering firm that the member had previously done business with, because the business association had terminated).

In summary, the Code of Ethics requires that public officials recuse from participating in matters that are likely to financially impact their business associates. Public officials are business associates of outside organizations in which they have assumed a leadership position such as officer or director. Seven (7) members of the Retirement Board hold such leadership positions in one or more of the organizations that have filed suit against the Retirement Board. The Retirement Board wishes to receive litigation updates and engage in potential decision-making relative to the litigation during an executive session. Such litigation updates may involve frank discussions and direction to legal counsel regarding settlement options, tactics, strategy and other matters that are confidential and/or privileged and that may impact the outcome of the 2010 and 2012 litigation. Under these circumstances, it is the opinion of the Ethics Commission that the seven (7) Retirement Board members who hold leadership positions in a plaintiff organization are required to recuse from matters relating to the 2010 and 2012 litigation. Notice of recusal should be filed with the Ethics Commission pursuant to section 36-14-6.

The Retirement Board has also unanimously requested that the Ethics Commission address whether or not three (3) other specific members of the Retirement Board, who are either a named defendant or were appointed to public office by a named defendant, are required to recuse from the Retirement Board's discussions and decision-making relative to the 2010 and 2012 litigation.

II. "Does the General Treasurer, Gina M. Raimondo, who is Chairperson of the Retirement Board, and who is also a named defendant in the 2010 and 2012 litigation in her official capacity, have an impermissible conflict of interest by virtue of having been named as a defendant in the cases, and if so, is she required to recuse herself from any matters relating to the 2010 or 2012 litigation?"

Retirement Board Member Gina M. Raimondo ("Treasurer Raimondo") has been named as a defendant in the 2010 and 2012 litigation in her official capacities as both the General Treasurer and as the Chairperson of the Retirement Board. Initially, we note the obvious difference between Treasurer Raimondo's role in the litigation and those of the seven (7) Retirement Board members previously discussed; namely, she is not a plaintiff in the litigation and has no business association with any of the plaintiffs. Given those facts and her status as a defendant represented by the attorney who would provide the litigation update to the Retirement Board, there is no risk of improper disclosure or use of confidential/privileged information when her attorney shares information and strategy with her.

Furthermore, Treasurer Raimondo's role as a defendant is solely in her official capacity. It would be a startling and absurd result if we were to opine that a plaintiff could disqualify a public official from participating in her agency's defense of a lawsuit merely by naming her as an additional defendant. See A.O. 2012-8 (Charleston Town Council members who were named in official and individual capacities as defendants in lawsuit could participate in Town Council discussions of lawsuit provided that they recused on litigation issues that had a direct financial impact upon them, such as questions of their personal indemnification).

Finally, Treasurer Raimondo has no personal financial interest in the litigation that is any different than the interests of the thousands of other participants in the retirement system. As to that interest, we have previously issued several analogous advisory opinions to legislators who were also beneficiaries of the retirement system, stating that the Code of Ethics' "class exception" permits their participation in legislation concerning the retirement system as long as they were not affected to any greater extent than any other similarly situated member of a significant and definable class. A.O. 2003-57 (opining that a state senator, who was a public school teacher in Rhode Island and a member of the retirement system, could participate in legislation that proposed a freeze/ceiling in the cost of living adjustment for the state pension plan because his personal interests would not be affected to a greater or lesser extent than that of the approximately 30,000 state employees and teachers who were also members of the plan). See also A.O. 95-64; A.O. 95-55.

For the reasons stated above, it is the opinion of the Ethics Commission that the Code of Ethics does not require Treasurer Raimondo to recuse from the Retirement Board's discussion and decision-making relative to the 2010 or 2012 litigation.

III. "Does the Director of Administration, [Richard Licht,] who is also a Retirement Board member, and an appointee of the Governor, who is also a named defendant in the 2010 and 2012 litigation in his official capacity, have an impermissible conflict of interest, and if so, is he required to recuse himself from any matters relating to the 2010 or 2012 litigation?"

IV. "Does the State Budget Officer, Thomas Mullaney, who is also a Retirement Board member and an appointee of the Director of Administration, subject to the approval of the Governor, have an impermissible conflict of interest, and if so, is he required to recuse himself from any matters relating to the 2010 or 2012 litigation?"

For the reasons previously set forth relative to Treasurer Raimondo, we similarly conclude that neither Richard Licht nor Thomas Mullaney are required to recuse from the Retirement Board's discussions and decision-making relative to the 2010 or 2012 litigation. Neither Licht nor Mullaney have an affiliation with any of the plaintiff organizations, neither is named as a defendant, and neither has a personal financial interest in the litigation that is any different than the interests of the other members of the retirement system, a significant and definable class. Rather, the question presented notes only their status as appointees and subordinates of a named defendant, the Governor. Just as a public official's inclusion in litigation as a defendant under these circumstances does not disqualify his or her participation in the Retirement Board's discussion of the litigation, such a defendant's subordinates, who are members of the Retirement Board, are similarly free to participate.