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3

C. H. Dean, Jr.

CONTRACT BETWEEN TVA, STONE & WEBSTER ENGINEERING
CORPORATION, AND STEMAR CORPORATION

Despite the problem's long history, its extent has in no way diminished. A special committee of the Association of the Bar of the City of New York described the situation accurately, if somewhat colorfully, in its 1960 report entitled “Conflict of Interest and Federal Service":

As seen in the executive branch of the
government, the conflict of interest problem
is essentially a day-to-day problem. It is
not a single dragon to be slain and then
enshrined in song; it is a nagging harpy
constantly near at hand (at 189).

For a discussion of accusations as to alleged conflicts of interest and related ethical problems involving senior executive branch officials during the past several years, see Newsweek, April 2, 1984, at 22-29. See also the December 4, 1984 Report of the Committee on Standards of Official Conduct (H. R. Rep. No. 1169, 98th Cong., 2d Sess.) on the financial interests of Representative Geraldine A. Ferraco, the 1984 Democratic candidate for Vice President. During the past week, the Director of the Office of Government Ethics asked the Department of Justice to investigate whether the conflict-of-interest laws had been violated by former Presidential assistant Michael K. Deaver, N.Y. Times, April 26, 1986, at 1. Also, only about a week ago, the United States Supreme Court, in Aetna Life Ins. Co. v. Lavoie, 54 U.S.L.W. +381 (April 22, 1986). reversed a decision by the Alabama Supreme Court which had upheld a $3.5 million punitive damages judgment against Aetna for alleged bad faith failure to pay in full certain claims for hospital expenses. The reversal was based on the fact that one of the Alabama Supreme Court Justices who participated in its decision was himself interested in two suits against other insurers which also involved claims of bad faith failure to pay claims. The United States Supreme Court concluded that the Alabama Justice had a conflict of interest, and that his participation in the Alabama Supreme Court's consideration and disposition of the Aetna case unconstitutionally deprived Aetna of due process of law and therefore required invalidation of the Alabama Supreme Court decision.

4

C. H. Dean, Jr.

CONTRACT BETWEEN TVA, STONE & WEBSTER ENGINEERING
CORPORATION, AND STEMAR CORPORATION

The conflict-of-interest problem seems a particularly acute one from the standpoint of the TVA Board in view of the special emphasis which the legislative history and provisions of the TVA Act place on the Board's responsibility and accountability, commensurate with the broad authority given it, for the manner in which TVA'S activities are conducted. Thus, the Statement of the Managers on the part of the House, appended to the Conference Committee report on the original TVA legislation, contained the following:

We are fully persuaded that the full success
of the Tennessee Valley development project
will depend more upon the ability, vision,
and executive capacity of the members of the
board than upon legislative provisions.
We have given it ample power, and tried to
prevent the perversion and abuse of that
power. We have set bounds to prevent its
liberty from becoming license (H.R. Rep.
No. 130, 73d Cong., 1st Sess. 19 (1933) 1.1/

In 1959 testimony on the 1959 Revenue Bond Amendment to the TVA Act, Senator Lister Hill of Alabama, who while a member of the House of Representatives authored the 1933 House Bill which became the TVA Act, enlarged on the point:

"We wanted TVA to be efficient, so we accepted the basic principle of modern management. We gave authority, Mr. Chairman, commensurate with responsibility, and we determined to judge by results. By law we freed the agency from the rigidities of the classified civil service. We told the Board to select its own employees, but in the act we expressly barred political considerations in appointments. We authorized the Board to buy or condemn the land, to purchase the equipment required, to advance its program objectives, and to sell whatever proved to be surplus. The Board could enter into contracts, to sue and be sued in the courts, and it could be held accountable for all of its acts (Revenue Bond Financing by TVA: Hearings on S. 931 and H.R. 3460 Before a Subcomm. of the House Comm. on Pub. Works, 86th Cong., 1st Sess. 9-11 (1959))." Emphasis supplied herein unless otherwise noted.

5

C. H. Dean, Jr.

CONTRACT BETWEEN TVA, STONE & WEBSTER ENGINEERING
CORPORATION, AND STEMAR CORPORATION

It may be recalled also that early in TVA's history a fullscale congressional investigation, by a joint committee of Senators and Representatives specially created by statute (52 Stat. 154 (1938)), was triggered by charges of improper conduct against the two majority members of the Board by the Chairman and Minority Member, Dr. A. E. Morgan. When the charges were made, President Roosevelt asked that Dr. Morgan substantiate them in a hearing before him. Dr. Morgan refused to do so, claiming that the charges should be considered in a congressional investigation.

See M. Owen, The Tennessee Valley Authority 39-49 (1973). The President removed him from office for contumacy, and the validity of the removal was later upheld in Morgan v. Tennessee Valley Authority, 115 F.2d 990 (1940), cert. denied, 312 U.S. 701 (1941). The congressional investigation which Dr. Morgan had urged nevertheless went forward. By the terms of the statute which provided for it, it comprised "a full and complete investigation of the administration of the Tennessee Valley authority Act," and specifically included, inter alia:

(r) whether extravagance, mis management, and
illegal conduct, if any, by the Board has
dissipated funds appropriated to the
Tennessee Valley Authority 152 Stat. 155
(1938)).

The investigation resulted in a report favorable to the
majority Board members and to TVA as an organization,
S. Doc. No. 56, 76th Cong., lst Sess. (1939), but only
after a year-long examination which involved extensive
testimony and documentary presentations by the Board
members and virtually all of TVA's senior managers.

1

(cont.) This combination of authority and accountability finds expression in Section 2(g) of the TVA Act, 16 U.S.C. § 831a(g) (1982), which provides that: "(9) The board shall direct the exercise of all the powers of the Corporation," and in Section 4(E) of the Act, 16 U.S.C. S 8310(E) (1982), which provides that:

"(A)ny member of said board may be removed from office at any time by a concurrent resolution of the Senate and the House of Representatives."

6

C. H. Dean, Jr.

CONTRACT BETWEEN TVA, STONE & WEBSTER ENGINEERING
CORPORATION, AND STEMAR CORPORATION

Development of Federal Common and Statutory Law on the Transaction of Government Business by Government Employees with Private Companies in which They Are Financially Interested

Transaction of Government business by Government employees with companies in which they are financially interested represents a particular kind of potential conflict of interest which Federal law has long regulated. More than 130 years ago, the Supreme Court in Marshall v. Baltimore & O.R.R., 57 U.S. (16 How.) 334, 356 (1853), recognized as "an undoubted principle of the common law" the need for public officials to avoid not only actual corruption but any act "which tends to corrupt or contaminate, by improper influences, the integrity of our social or political institutions."

For centuries, that principle has been a part of the AngloSaxon traditions on which our la! is based. Blackstone's historical Commentaries on the Laws of England describes members of the ancient body of the king's principal advisers, the privy council, as being required to take an oath to "avoid corruption." Cooley's Blackstone, Book I, at 230 (1879). It was a high misdemeanor against the king to "I prefer the interests of a foreign potentate," including "doing or receiving any thing that may create an undue influence in favour of such extrinsic power; as, by taking a pension from any foreign prince without the consent of the king." Id., Book IV, at 122.

In Mississippi Valley Generating Co., the Supreme Court traced the prohibitions to "the Biblical admonition that no man may serve two masters," noting that it "is especially pertinent if one of the masters happens to be economic self interest." 364 U.S. at 549. See to similar effect The New Federal Conflict-ui-interest Law, 76 Harv. L. Rev. 1113 (1963), which, in discussing several basic principles relating to the law on conēlict of interest, states:

Among the multiple policy objectives con
which such principles rest) are ... assur-
ance that decisions of public importance
will not be influenced by private considera-
tions; efficiency and economy in carrying on
the business of government; maintenance of
public confidence in government (wherein

7

C. H. Dean, Jr.

CONTRACT BETWEEN TVA, STONE & WEBSTER ENGINEERING
CORPORATION, AND STEMAR CORPORATION

enters the matter of appearances); and
prevention of use of public office for
private gain.

The most basic principle of conflict-of-
interest protection is aimed at the most
obviously unacceptable conduct: namely, the
act of a public official, taken in his
public capacity, in dealing with himself in
his private capacity. The situation of the
mayor who awards a building contract to the
construction company which he owns is an
obvious example. Less obvious is the action
of a consulting scientist of the Defense
Department who develops specifications for a
key part in a missile guidance system which
(whether he so intended or not) can probably
be expeditiously manufactured only by his
own company.

The principle is clear: public officials
must disqualify themselves from participat-
ing in government action when 3 particular
course os government action may signifi-
cantly affect their personal economic
interests (at 1118; emphasis in originall.

II. Statutory Development and Interpretation Congress first undertook to deal legislatively with this problem in 1863 following the disclosure by a House committee "of scandalous corruption on the part of government agents whose job it was to procure war materials for the Union armies during the Civil War." Mississippi Valley Generating Co., 364 U.S. at 548 (1961). The statutory provisions enacted in that year, 12 Stat. 698 (1863), were later carried into the United States Criminal Code as 18 U.S.C. § 434. Following minor amendments over the years, this section provided, at the time of its supercession in 1963 by 18 U.S.C. § 208, that:

Whoever, being an officer, agent or member
of, or directly or indirectly interested in
the pecuniary profits or contracts of any

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