Settlement Agreement Was Void Due to Trustee’s Conflict of Interest and Board’s Failure to Properly Approve

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[authors: Maria Mazza and Brian Crowley]

In a recent case, People v. Bertrand, the Appellate Court held that a settlement agreement entered into by Joseph Bertrand, a trustee of the Board of Trustees of Bremen Township, was void because Bertrand had a conflict of interest prohibited by Section 3(a) of the Public Officer Prohibited Activities Act (POPA Act) and because it was not properly approved by the board. Section 3(a) of the Act provides that a person holding an office cannot be financially interested in any contract in which the officer may be called upon to act.

Bertrand prevailed in an election for a seat as a trustee on the board, which was composed of two other trustees, Julienne Mallory and Michael Duggan. The Board refused to seat Bertrand, claiming that he was not eligible because he resided in the same district as Mallory. Bertrand filed suit seeking an order that the board seat him as a trustee and also sought damages and attorneys fees because of alleged civil rights violations. Bertrand prevailed on his claim to be seated as trustee, however, the other claims remained pending.

During a meeting attended only by Bertrand and Mallory, the board went into an executive session to discuss a proposed settlement of Bertrand’s lawsuit. At the conclusion of the executive session, Mallory moved for the board to approve the settlement, which was seconded by Bertrand, and the matter was put to vote. Mallory voted in favor of the motion while Bertrand abstained. Considering the motion approved, Mallory instructed the board’s legal counsel to prepare a settlement agreement. The Attorney General then filed suit against the board, Bertrand, and Mallory, alleging that the settlement was void because it was not properly approved by the board and was in violation of the POPA Act.

Bertrand argued that the settlement agreement was not a “contract” subject to Section 3(a) of the POPA Act because it was not a business-type transaction but rather a means of disposing of litigation. The Appellate Court rejected this argument, finding that the settlement agreement was exactly the type of contract subject to the POPA Act because the consideration of the settlement agreement placed Bertrand in a position where his personal financial interests came into conflict with his duty to not use his elected office for personal financial gain. Thus, the Appellate Court concluded that the settlement agreement was void under Section 3(a) of the POPA Act.

Further, the Appellate Court found that the settlement agreement was void because it was not properly approved by the board. The Court held that while two trustees were present, constituting a quorum, only one person voted for this agreement, and one is not a majority of two.

The Court held that the Prosser rule was inapplicable, which rule holds that in certain circumstances an abstention constitutes acquiescence with the majority. Here, because Bertrand had a prohibited interest, classifying his abstention as a yea vote would create an end-run around the POPA Act, which is not the intention of the Act.

The Bertrand case serves as a reminder to public officials to avoid participating in the approval of contracts which could be construed as providing a personal financial benefit. When considering such contracts, boards should exercise care because actions taken might later be invalidated if not affirmatively approved by a majority that does not include the vote of the interested board member.

 

Published In: Administrative Agency Updates, Business Organization Updates, Business Torts Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Franczek Radelet P.C. | Attorney Advertising

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