Does Lynn McCrory have a financial conflict in the dispute over levels of commercial boating in Hanalei that would preclude her voting on any change in boating issues there?
She posed this question to the state Ethics Commission and the Department of Attorney General. Both parties determined she was not conflicted to the point of preventing her participating in a board vote on the subject.
The Ethics Commissions opinion, which ran to some seven pages, contained a detailed analysis of the provisions of the Ethics Code as it applied in McCrory’s case. The opinion she received from the attorney general’s office, however, was merely an oral thumbs-up.
The state Ethics Code defines conflict to occur when a state employee, including a board member, has a “direct” financial interest in the outcome of an agency action. Members of the Board of Land and Natural Resources must not only comply with the Ethics Code, but also with a stricter standard, which is found in Section 1-4, Hawai’i Revised Statues. Under that law, any interest, “direct or indirect,” in a matter before the board is sufficient to disqualify a member from voting on or even participating in the discussion on the subject.
The Pahio ‘Concept’
The question of a potential conflict arises because of McCrory’s employment as president and chief operating officer of Pahio Management Inc. In her memo to the Ethics Commission of October 3, 1997, McCrory describes the relationship of this company to other Pahio companies as follows:
“There is an overall concept called ‘PAHIO.’ PAHIO is a group of separate corporations whose purpose is to develop, construct, sell and market, and manage vacation ownership (timeshare) resorts. There are multiple companies, i.e., PAHIO Resorts, Inc.; PAHIO Development, Inc.; The Shearwater, Inc.; Bali Hai Villas, Inc.; PAHIO Construction, Inc.; PAHIO Vacation Ownership, Inc. (‘PVOI’); and PAHIO Management, Inc. (‘PMI’). The reason for the different companies are primarily bonding and financing related. There is not one company which owns the majority of the stock in any of the other companies. None of the above companies is a subsidiary of any other company.
“There is, however, one common thread amongst all the above companies. That is the ownership of the stock is primarily with one person, David E. Walters, the Developer. In the development companies, he is the general partner. In the construction, sales, and marketing and management companies, he is the majority (and in some cases, the only) share-holder.”
McCrory goes on to say that her “boss” is Walters, in his role as CEO and chairman of PMI.
In May 1997, one of the Pahio facility members – Pahio Vacation Ownership, Inc. – was named as a defendant in a lawsuit filed by permitted boaters. The lawsuit claims that the activity desks of various resorts, including Pahio, by selling and promoting tickets for unpermitted boat tours, are harming the permitted boaters.
PVOI rents space from Pahio Management for its sales and marketing activities, McCrory says. In addition, PVOI “leases an activity booth from one of the non-permitted boaters.” If PVOI is rendered unable to pay its rent to PMI as a result of this lawsuit, McCrory says, her company could suffer: “It could… bankrupt PMI. This would severely impact me personally, as I would not have a job.”
Another aspect to the conflict, she notes, is that she could be subject to pressure from her employer, Walters, to make sure that nothing the Land Board does harms PVOI. However, she notes, “I do not believe that David Walters would do this as I have worked for him for eight years.”
In any event, if PVOI cannot sell or promote unpermitted boat tours as a result of this action, the company would still “continue to sell activities of other companies or types to our owners and guests,” such as helicopter or kayak tours.
McCrory concludes her memo with an enthusiastic description of her reasons for becoming involved in the problems facing Hanalei. First is her desire to “heal the community.” Next, she wants to “collect the 2 percent gross permit fees we should have been collecting since 1988.” Third is her wish to “enforce the rules as we adopt them.”
Fourth is her wish to “set up a long-term community-based monitoring and planning process called He Ho’olala Pau ‘Ole No Na Pua – Sustainability,” which she translates as “an everlasting plan for future generations – sustainability.”
No ‘Direct’ Conflict
On October 13, Virginia Chock, a staff attorney with the Ethics Commission, responded to McCrory’s memo. Chock recited the state law regarding conflicts of interest, as provided in Section 84-14, Hawai’i Revised Statutes. That law provides, in part, that “no [state] employee shall take any official action directly affecting a business or other undertaking in which he has a substantial financial interest.” (When McCrory any other member of a board or commission acts in that capacity, he or she is technically an employee of the state.) Anyone who is an employee or director or officer of a business is deemed to have a financial interest in the business, by state law, Chock notes.
“From what you have described,” Chock concludes, “it does not appear that official action you take with respect to the administrative rules would directly affect PMI. Instead, it appears that your official action would directly affect all commercial boating companies who use the Hanalei River, including those boaters who do business with PMI’s tenant, PVOI…
“While the outcome of the lawsuit may have a negative financial impact upon PVOI… it does not appear that you have a financial interest in the lawsuit. Moreover, the official action you take on the administrative rules would not appear to directly affect the lawsuit. And, although the approval of the administrative rules could help establish available boating industry from which PVOI can draw business, the financial survival of PVOI and ultimately, the financial survival of PMI, do not appear to be directly and completely dependent upon the approval of the administrative rules.
“Looking at the totality of the circumstances, we do not believe you would have a conflict of interest… should you take official action with respect to the administrative rules.”
Chock noted that her determination applied only to McCrory’s situation as covered in Chapter 84, HRS. She suggested McCrory ask the attorney general for a determination “as to whether any laws outside of the state Ethics Code apply to your situation… In particular, you may wish to inquire as to how HRS Section 171-4, which addresses the issue of conflicts of interest with respect to BLNR members, applies to you.”
Silence from the AG
As noted earlier, Section 171-4 contains a stricter standard of conflict than the general Ethics Code. Among other things, board members are required to disqualify themselves from voting or even participating in the discussion of any matter before the board in which they have “any interest, direct or indirect.”
On October 16, McCrory wrote a memo to Sonia Faust in the Attorney General’s office, asking that Faust’s office make a determination about whether McCrory’s business ties to Pahio posed a conflict under Section 171-4. Faust responded the following day, saying the question had been given to Pam Matsukawa, a deputy attorney general.
Matsukawa did not provide McCrory with a written response. However, a note in McCrory’s hand at the bottom of Faust’s letter says, “10-28-97, per Pam no conflict of interest cleared and can vote.”
When Environment Hawai’i asked Matsukawa if she had examined McCrory’s case with special regard to the “indirect interests” McCrory might have, Matsukawa refused to say anything. She was precluded from making any comment on the matter by attorney-client privilege, she said. When asked whether she would discuss the issue if McCrory herself waived that privilege, Matsukawa would make no promise to do so.
Environment Hawai’i then asked McCrory whether Matsukawa had given her an analysis of her position with respect to the stricter standards of Section 171-4. According to McCrory, she had received only a short oral opinion from Matsukawa. While Matsukawa had promised McCrory to provide her with a written opinion, McCrory said, she had received nothing as yet. Until she herself received something from Matsukawa, she told Environment Hawai’i, she would prefer not to have Matsukawa discuss the matter.
Volume 8, Number 6 December 1997