New York State
Ethics Commission


Advisory Opinion No. 96-9: Application of Public Officers Law §74 to the Chair of the State Racing and Wagering Board.

INTRODUCTION

The following advisory opinion is issued in response to a request submitted by the law firm of Whiteman Osterman & Hanna on behalf of its client, Jerry Bilinski, Chair of the New York State Racing and Wagering Board ("Board"). Bilinski asks whether certain actions that he proposes to take with regard to his ownership of thoroughbred horses, including the creation of a trust for his ownership interests in two stallions, would place him in compliance with Public Officers Law §74.

Pursuant to the authority vested in it by Executive Law §94(15), the State Ethics Commission ("Commission") hereby renders its opinion that Bilinski's proposal, as submitted, would not bring him into compliance with Public Officers Law §74, as he would not be sufficiently screened from information regarding the sale of his breeding rights in two stallions nor would purchasers of such breeding rights be guaranteed to be unaware of his ownership.

BACKGROUND

Bilinski was confirmed as Chair of the Board on May 2, 1995 to fill the remainder of the term of the previous Chair. The Board has "general jurisdiction over all horse racing activities and all pari-mutuel betting activities, both on-track and off-track, in the state and over the corporations, associations and persons engaged therein." It has three members appointed by the Governor with the advice and consent of the Senate. No more than two of the members may belong to the same political party. The Governor designates one of the members to serve as Chair of the Board and to be the chief executive officer of the agency (Racing, Pari-Mutuel Wagering and Breeding Law §101).

The term to which Bilinski was originally appointed expired on February 28, 1996. His nomination for a full term was sent to the Senate by the Governor. However, before the Senate acted, the Commission opened an investigation with respect to certain activities of Bilinski related to the breeding of horses, and he requested that the Senate delay scheduled hearings on his confirmation pending the resolution of the investigation. As the investigation was drawing to a close in April 1996, Bilinski requested a formal advisory opinion from the Commission. He asked whether certain proposed actions he was prepared to take, including the creation of a trust, would assure that he was in compliance with Public Officers Law §74. At its April meeting, the Commission determined that it did not have enough information regarding the proposed arrangement to render an opinion. On May 15, 1996, Bilinski submitted a more detailed proposal, which was supplemented by a letter of May 24, 1996. It is this proposal that the Commission now considers.

The investigation into Bilinski's activities began when various newspapers reported, in February 1996, that his office telephone number at the Board had appeared in advertisements in the January 13, 1996 edition of The Blood Horse, a trade magazine in the thoroughbred industry, as the number to contact for the New York Stallion Station ("Stallion Station"), a private farm selling stud services of two stallions. As part of the investigation, the Commission also examined Bilinski's continued private business activities related to the Stallion Station in possible violation of Public Officers Law §74.

During its investigation, the Commission learned that Bilinski, prior to his appointment as Chair of the Board, practiced veterinary medicine in North Chatham, New York. He was President and half-owner of a professional corporation, "Jerry Bilinski DVM and Anina la Cour DVM, P.C.". The partnership operated the Equine Medical Center and the Chatham Small Animal Hospital, which is located on a 60 acre parcel owned jointly by Bilinski and la Cour. An adjacent 42 acre parcel containing stallion barns, known as the Stallion Station, is owned solely by Bilinski. A third parcel, known as the Waldorf Farm, contains Bilinski's home, as well as barns for mares, and is also owned solely by him.

Upon his appointment as Chair of the Board, Bilinski ceased practicing veterinary medicine and no longer receives compensation from the ongoing practice. He remains, however, as President and half-owner of the partnership.

In addition, upon taking office, he entered into an agreement by which his partner, la Cour, leased the parcels of property known as the Stallion Station and the Waldorf Farm. These parcels contain barns and fields for the horses which are patients of the veterinary clinic and for the horses which are part of a breeding business which operates on the premises. Two stallions, Go and Go and Cormorant, are kept there. Bilinski had been the Syndicate Manager for the syndicates that own these two horses, but he resigned from that position when he first assumed the position of Chair of the Board. The position, for each of the two syndicates, is now held by la Cour.

Stallion syndicates are groups of persons, or possibly business entities, who divide ownership of a stallion among themselves, usually into forty undivided fractional ownership interests. Each share in the syndicate represents a breeding right to the stallion, entitling the owner to one breeding session per season. These season breeding rights can be used by the share owner to breed his or her own mares or can be sold to and used by another mare owner. The syndicate sets a fee for each breeding season; however, a syndicate member may sell his or her season shares for any amount, or may enter into a foal sharing agreement, in which the compensation consists of a half-ownership interest in any foal which results from the breeding.

Although he resigned as Syndicate manager, Bilinski continues to own 28 of 40 shares in the Go and Go syndicate and 9 of 40 shares in the Cormorant syndicate. In addition, the stallions remain located on the property he owns and has leased to la Cour. They are treated by the Equine Medical Center, and the mares which are bred to the stallions are boarded on the property for various periods of time during the breeding season. Billing for the syndicates is handled separately but is done through the office of the Equine Medical Center. Bilinski's spouse is employed at the Medical Center and also serves as Secretary to the two syndicates.

In addition to his ownership interests in the stallions, Bilinski is the half-owner of approximately 20 broodmares and foals, as well as the full owner of a riding horse.

As a result of its investigation into Bilinski's activities, the Commission determined that there was reasonable cause to believe that he violated paragraphs (i) and (f) of Public Officers Law §74(3) by, while serving as Chair of the Board, selling breeding rights to individuals licensed by the Board and maintaining and creating partnerships in horses with individuals licensed by the Board. However, the evidence developed during the investigation did not demonstrate that Bilinski had a direct role in the placing of the advertisements which listed the Board's telephone number.

The Commission, simultaneously with this opinion, is issuing a Notice Of Reasonable Cause.

On May 15, 1996, Bilinski submitted a proposal to the Commission under which he would modify his current arrangements and the activities in which he engages through the creation of a trust, the termination of certain of his ownership interests and by taking other steps. He asked whether he would be in compliance with Public Officers Law §74 if he were to enter into the arrangement he proposed.

Bilinski's proposal has several elements. First, he proposes to dispose of all of his ownership interests in the thoroughbred horses (broodmares and foals) which he jointly owns with Martin Zaretsky, a licensee of the Board. Zaretsky would surrender his license and Bilinski would then transfer all his interests in the horses to Zaretsky. Zaretsky would make annual payments of principal and interest to Bilinski for five years in accordance with a schedule set forth as part of the bill of sale.(1)

Second, with regard to his ownership of shares in the Cormorant and Go and Go syndicates, Bilinski proposes a trust agreement, which was drafted to track the Model Qualified Blind Trust issued by the United States Office of Government Ethics. Pursuant to the agreement, the Trustee would be vested with the responsibility of managing the trust assets without the participation by or knowledge of Bilinski. However, the Trustee would not be involved in the marketing or sale of any of the season shares that would be transferred to him, nor would he manage, control or otherwise be involved in any aspect of the breeding activities of the syndicates.(2) Basically, the Trustee would receive the earnings from Bilinski's shares in the Go and Go and Cormorant syndicates and pay the horses' expenses. The Trustee could not reveal to Bilinski any details regarding these transactions, but would periodically distribute to him the net income of the trust.

The trust agreement specifically provides that the Trustee has no role in the selling of breeding rights. Beyond the trust agreement, Bilinski proposes that the syndicate manager of the two syndicates would handle the arrangements for sales of the season shares held by the trust of which he is the beneficiary.

In addition, Bilinski proposes that the following steps would be taken:

By letter dated May 24, 1996, Bilinski supplemented his proposal. He stated that, upon reflection, he realized that the handling of the administrative and clerical details of the breeding operations in the same building where his wife is employed could tend to dilute the goal of insulating him from the syndicate activities. He therefore proposed that all records and administrative details relating to the operation of the two breeding syndicates be handled at the residence of la Cour in Albany County rather than the office of the veterinary clinic.

In his submission of May 15, Bilinski also sought to address concerns that sources of information might identify syndicate interests specifically belonging to him; for example, whether a horse currently racing was a foal resulting from the sale of one of his breeding seasons. Bilinski stated that the Jockey Club records would identify the owner of the stallion as the stallion syndicate, rather than the syndicate member whose season was utilized to sire the foal. He further stated that official racing programs issued by track operators, as well as various racing forms and tip sheets, contain no more detailed information which would allow the reader to identify a season owner.(4)

APPLICABLE LAW

Public Officers Law §74 contains the code of ethics for State officers and employees. This code provides minimum standards against which State officers and employees are expected to gauge their behavior. It addresses both actual conflicts of interest and their appearance. Subdivision 2 contains the rule with respect to conflicts of interest:

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.

Standards which are contained in subdivision 3 include the following:

(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.

. . . .

(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 that are in violation of his trust.

(i) No officer or employee of a state agency employed on a fulltime basis nor any firm or association of which such an officer or employee is a member nor corporation a substantial portion of the stock of which is owned or controlled directly or indirectly by such officer or employee, should sell goods or services to any person, firm, corporation or association which is licensed or whose rates are fixed by the state agency in which such officer or employee serves or is employed.

DISCUSSION

As noted above, Public Officers Law §74 addresses not only actual conflicts of interest, but also appearances of conflicts of interest. As Bilinski, as Chair of the Board, has "general jurisdiction over all horse racing activities and all pari-mutual betting activities, both on-track and off-track" (Racing, Pari-Mutuel Wagering and Breeding Law §101), it is imperative that the public trust be maintained and that his actions are free from even the appearance of such a conflict.

Bilinski has asked the Commission whether his proposal, as submitted, would bring him into compliance with Public Officers Law §74.(5) He first proposes to dispose of all his ownership interests in horses which he now jointly owns with Zaretsky, a licensee of the Board, by transferring his interests to Zaretsky after Zaretsky surrenders his license from the Board, with annual payments of principal and interest to be made over five years. The Commission concludes this divestiture would comport with Public Officers Law §74 in that Bilinski would not dispose of horses to, or continue to jointly own horses with, a licensee of the Board.

With regard to the two stallions, Bilinski does not intend to similarly dispose of his interests. Instead, he proposes to enter into the trust agreement. The Commission notes that the trust, although drafted to track the Model Qualified Blind Trust issued by the United States Office of Government Ethics, would not qualify as a "blind" trust under federal law (5 CFR §2634.401[a][1][ii]), which defines such a trust as follows:

A trust is considered to be "blind" only with regard to those trust assets about which no interested party(6) has knowledge. When an interested party originally places those assets in trust, that party still possesses knowledge about those assets. The original assets remain financial assets of the Government official for purposes of ... conflict of interest statutes or regulations, until the trustee notifies the official either that a particular original asset has been disposed of or that the asset's value is less than $1000. (emphasis added)

Since the Trustee would not be obligated to dispose of Bilinski's interests in the two stallions, the trust, as proposed, is not blind as to its assets. This, however, is not fatal to his attempt to comply with §74.

It is critical, however, that Bilinski be shielded from the identity of those who purchase his breeding shares. Section 74(3)(i) prohibits Bilinski from selling these shares to any licensee of the Board of which he is Chair. This prohibition assures that Bilinski cannot use his authority to either favor or disfavor an individual with whom or an entity with which he engages in commercial dealings, and that the public does not perceive that he is so using his authority. If Bilinski were to learn of the identity of a purchaser who is licensed, this assurance would be lost. Therefore, the Commission will examine the proposal to determine whether there would be a sufficient shield.

The myriad of trust provisions which prohibit Bilinski from any knowledge of the corpus of the trust are useful, but they, alone, do not afford complete insulation since the Trustee will not be involved in the sale of season shares. Although not described in the trust agreement, Bilinski proposes that the syndicate manager of the two syndicates would handle the arrangements for sales of the shares that he beneficially owns but which are held by the trust.

The Syndicate Manager of the two syndicates is la Cour, who is Bilinski's business partner. While Bilinski proposes to resign as an officer of the professional corporation, there is no proposal to dissolve that corporation. Moreover, la Cour is the lessee of lands owned by Bilinski. In addition, in testimony before the Commission, la Cour stated that she and Bilinski are "good friends besides partners"; her description of his role in her career seems to be that of a mentor. Because of this relationship, there is a risk that the sales of his season shares will not be blind. There is no assurance that la Cour would not reveal to Bilinski details regarding the sale of his shares, including the identity of the purchasers; nor is there any legal prohibition on her doing so. Furthermore, purchasers are likely to know of the friendship and business relationship between Bilinski and la Cour, thus piercing any semblance of a shield with respect to Bilinski's involvement.

Bilinski's additional proposal that the records of the syndicates be transferred from the veterinary clinic office to la Cour's home does not eliminate the Commission's concerns. Regardless of where the records are kept, la Cour's role as syndicate manager would continue to present these concerns.

In addition, under the proposal, the stallions would remain on the property owned by Bilinski (albeit to be leased to la Cour), which is located across the road from the Equine Medical Center and one-half mile down the road from the Waldorf Farm, on which his home is located. This, along with the other factors, tends to give the appearance that Bilinski would not necessarily be screened from information regarding the sale of his stallion season shares.

Given the ease with which Bilinski could learn the identity of purchasers of his breeding shares who are licensed, the Commission concludes that the proposal, as submitted, would not bring Bilinski into compliance with Public Officers Law §74.(7)

CONCLUSION

The Commission concludes that Bilinski's proposal, as submitted, would not bring him into compliance with Public Officers Law §74, as he would not be sufficiently screened from information regarding the sale of his breeding rights in the stallions Go and Go and Cormorant nor would purchasers of such breeding rights be guaranteed to be unaware of his ownership.

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.

All concur:

Joseph M. Bress, Chair

Evans V. Brewster,
Angelo A. Costanza,
Robert E. Eggenschiller,
Donald A. Odell, Members

Dated: May 28, 1996


Endnotes

1. Bilinski has interests in three additional horses, none of which is co-owned with a licensee of the Board. Two of the horses are jointly owned with Senator Joseph Bruno, who had been a client of Bilinski's veterinary practice. Since Senator Bruno is the Majority Leader of the State Senate before which Bilinski's nomination is pending, it appears that it would be inappropriate for them to enter into negotiations for the disposal of those horses at this time. The remaining horse is neither a race horse nor a breeding stallion and will be retained for Bilinski's recreational riding purposes.

2. Although not specifically provided for in the Trust Agreement, Bilinski states that he will also assign to the Trustee his rights to receive awards from the New York State Thoroughbred Breeding and Development Fund Corporation, which awards will be forwarded directly to the Trustee without notification to Bilinski.

3. Bilinski and la Cour had drawn the existing agreement themselves, and although it is in writing, it is informal and somewhat vague. Bilinski notes that the more formal agreement to be drafted will, for example, exclude an eight acre parcel on which Bilinski's residence is located from the lease of the Waldorf Farm.

4. It should be noted that the official track program does identify the owner of the mare at the time that the foal was born. Therefore, Bilinski's name may appear in a program in that capacity.

5. This opinion considers only whether Bilinski's proposal would bring him into compliance with the provisions of the Public Officers Law, which the Commission is authorized to interpret. The Commission does not have jurisdiction to interpret or enforce the Racing, Pari-Mutuel Wagering and Breeding Law, certain provisions of which may be relevant to Bilinski's activities, and it expresses no opinion with regard to those provisions. For example, §101(2), provides, in part, that the Chair of the Board shall not:

engage in any private employment or in a profession or business, provided, however, that holding stock or office in a corporation which does not interfere or conflict with the performance or proper discharge of his duties in the public interest shall not be deemed engagement in private employment or a profession.

Section 101(7) provides:

No member, officer, official or employee of the board shall participate as owner of a horse or otherwise as a contestant in any horse race at a race meeting which is under the jurisdiction or supervision of the board, or have any pecuniary interest, direct or indirect, in the purse, prize, premium or stake contested for at any such horse race or in the operations of any licensee or franchisee of the board.

Section §107(3)(c) provides that the Chair of the Board may not:

sell, or be a member of a firm, or own ten per centum or more of the stock of any corporation, which sells any goods or services to any firm, association or corporation [which conducts its occupation, trade, or business at racetracks at which pari-mutuel race meets are conducted].

6. "Interested party" is defined as " a Government employee, his spouse, any minor or dependent child, and their representatives in any case in which the employee, spouse or child has a beneficial interest in the principal or income of a trust proposed for certification" (5 CFR §2634.401[a][1][i]). The Bilinski trust also uses this definition.

7. The Commission questions whether, other than through complete divestiture, Bilinski could, through a trust agreement or otherwise, meet the requirements of §74.



URL: http://www.nysl.nysed.gov/edocs/ethics/96-09.htm