Ethics: Advisory Opinion No. 1994-3

Advisory Opinion No. 1994-3
Advisory Opinion No. 1994-3

 Application Of The Ban On Contingent Fee Lobbying To
A Government Relations Contract Incentive Payment

Thomas J. McLaughlin, a registered lobbyist employed by a lobbying firm, has requested an advisory opinion from the State Ethics Commission regarding the following situation:

The lobbying firm has a contract with a client to provide governmental relations services in support of the client’s efforts to obtain State Certificate of Need authority, State issued bonds, and/or Quasi-Public Agency financing in order to develop a Continuing Care Retirement Community (CCRC) in Connecticut.  Under the contract, the services to be performed do not include legislative representation.  As compensation for the work performed, the contract provides that the firm shall receive a monthly payment for as long as the agreement is in force and, in addition, an incentive payment if the financing in question is secured.

The client has now requested that the firm also represent it on a directly related legislative issue.  Specifically, the client is seeking a change in Connecticut law regarding the provision of guaranteed life care by CCRCs.  According to Mr. McLaughlin’s request for advice, “Such a change in law would clearly contribute to the Client’s obtaining the financing it seeks, although arguably it is not absolutely necessary.”

Given this set of facts, the firm wishes to know whether, under the Code of Ethics for Lobbyists, Conn. Gen. Stat. Chapter 10, Part II, it can contract with the client to provide, for a monthly fee, the requested legislative representation, while the prior contract concerning government relations services also remains in effect.

Under the provisions of the Lobbyist Code, “No person shall be employed as a lobbyist for compensation which is contingent upon the outcome of any administrative or legislative action.”  Conn. Gen. Stat. 1-97(b).  In essence, the General Assembly enacted this prohibition to prevent the undue pressure for lobbying success, and consequent pressure to engage in unethical conduct, inherent in a contingent payment arrangement.

The government relations services in question are not being provided for the purpose of influencing any “Administrative action” or “Legislative action” as those terms are defined in the Code.  Conn. Gen. Stat. 1-91(a) and (j).  Consequently, these services do not constitute regulated lobbying.  Conn. Gen. Stat. 1-91(k).  As a result, at present, the ban on contingent fee agreements does not apply to the “incentive payment” the firm will receive if it secures the financing sought by the Client.  If, however, the firm undertakes the requested legislative work, it will, unquestionably, be engaging in lobbying.  Id.

Whether, under these altered circumstances, the prior incentive payment agreement at issue remains permissible is a question of first impression under the Lobbyist Code.  The legislative history of 1-97(b) is silent on the specific issue of the legality of such distinct, but related, contractual arrangements.  Therefore, under the rules of statutory construction, the Commission must interpret and apply the term “contingent” according to its commonly approved and understood meaning.  Conn. Gen. Stat. 1-1(a).  “Contingent” is commonly understood to mean “dependent on, associated with, or conditioned by something else…dependent for effect on, or liable to modification by, something that may or may not occur…”  Webster’s Third New International Dictionary Volume I at p. 493, Merriam & Webster (1986).

While the sought after legislative amendment may not, according to Mr. McLaughlin, be “absolutely necessary” it will “clearly contribute” to the client obtaining its financing and, consequently, to the firm obtaining its contingent incentive payment.  Therefore, the incentive payment can logically be viewed as being, in a very real sense, substantially “dependent” on the legislative outcome in question.  And such substantial dependence equates to the generally understood usage of the term “contingent”:  i.e., that an outcome is considered to be contingent if it is materially dependent on, although not necessarily totally determined by, the occurrence of a condition precedent.  Additionally, although the legislative work is to be performed for a set monthly fee, it will be humanly impossible for the lobbying firm’s personnel to set aside their knowledge that legislative success may very well result in the subsequent receipt of an additional incentive payment; thereby creating the very pressure for results that 1-97(b) was enacted to eliminate.

As a consequence, the State Ethics Commission advises that Mr. McLaughlin’s firm not engage in the proposed lobbying work as long as its prior contract with the client contains the incentive payment provision in question.  Alternatively, another lobbyist may perform the requested legislative work, or Mr. McLaughlin’s firm may undertake the work after amending its existing government relations contract to eliminate the contingent payment component.

By order of the Commission,

Christopher T. Donohue

Content Last Modified on 9/7/2005 8:00:43 AM