WHITEMAN OSTERMAN a HANNA LLP

Attorneys at Law www woli.con:

One Commerce Plaza Albany, New York 12260 518 -487-7600 phone

51B. 487-7777 fax

Michael G. Sterthous Partner 518 487 7620 phone msterthousspwoh.com

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ATTORNEY I CLIENT PRIVlLEGED

CONFIDENTIAL

MEMORANDUM

TO:

Supervisor Rienbeck

FROM:

Michael G. Sterthous and Todd M. Mathes

RE:

Potential Conflicts of Interest Involving Wind Energy Projects

DATE:

July 8~ 2008

Thismemorandum addresses the issue of potential board member conflicts of interest .. arising in the consideration of wind energy facility projects in the Town of Cape Vincent. Specifically, this memorandum includes: (i) a general description of the law of conflicts of interest involving land use decisions in New York State; (ii) an analysis of potential conflicts of interest affecting the Town of Cape Vincent Town Board and Planning Board; and (iii) recommendations for addressing any such potential or actual conflicts of interest,

1. Overview of General MUllicipal Law

Article 18 of the General Municipal Law sets forth circumstances in which conflicts of interest may arise. Specifically. section 801 of the General Municipal Law provides that municipal officers, such as members of Town Board and Planning Board, shall not hold any interest which creates a conflict with their official duties. Section 800 of the General Municipal defines the term "interest" as "a direct or indirect pecuniary or material benefit accruing to a municipal officer or ... his spouse, minor children and dependents .. ,"' Accordingly, the prohibition set forth under section 801 of the Law applies to interests held by munici pal officers,

their spouses and dependents. .

To avoid violating the general prohibition of section 801~ board members must not participate in any government action affecting that interest. Thus, recusal is generally always required when any such interest exists. Additionally. section 803 of the Law also requires the municipal officer to "publicly disclose the nature and extent of any such interest in writing to his

or her immediate supervisor and to the governing body thereof as soon as he or she has knowledge of such actual or prospective interest."

General Municipal Law §§ 804 and 805 set forth the consequences in the event there is a violation of the general prohibition against conflicts of interest, or a failure to disclose the conflict in accordance with section 803 of the Law. Under General Municipal Law § 804, any contract willfully entered into by or with tile Town (or any town official), in which there is a prohibited interest is null) void and wholly unenforceable. General Municipal Law § 805 provides that failure to comply with the Law constitutes a misdemeanor.

Courts have interpreted the prohibition against conflicts of interest by board members as a basis for nullifying government actions, including approvals or permits! when board members having such interests have participated in the action. See Tuxedo Conservation & Taxpayers Association v. Town Board ofTuxedo~ 69 A.D.2d 320 (2d Dep't 1979) (annulling town board's preliminary plat approval because the controlling vote in favor was cast by a board member who was vice-president of an advertising agency of which the applicant corporation's parent corporation was a client).

In land use matters) courts have required a higher standard of conduct. I Courts have held municipal officers and employees strictly accountable for conduct which is not prohibited literally by the conflicts of interest statutes or other laws formulating ethical standards, but which violates the spirit and intent of those laws. For example, in Matter of Zagoreos v. Conldin, the Court nullified a 5 to 2 vote of a zoning board where 2 of the members voting in support of the application were employees of the applicant, Orange and . Rockland Utilities, Inc. ("0 and R, Inc."), 1 09 A.D.2d 281, 287 (2d Dep't 1985); The Court also nullified a 3 to 2 vote of the town

. board where 1 of the town board membersvotingin support ofO and R. Inc.ts application was an employee of the company. Importantly, the employment of the zoning board and town board members did not constitute an interest in a contract prohibited under the General Municipal Law. Pursuant to section 802 of the General Municipal Law, the various board members' employment was expressly exempt from the recusal and disclosure requirements of the Law. The Court nevertheless nullified the action of the zoning board and town board, stating that a contlict of interest may be found even without a violation of a specific provision of the General Municipal Law or local regulations.

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The New York State Comptroller has also opined that "any [) board member should

consider abstaining from discussions and voting on any matter which, while not violating Article 18 or the town's code of ethics, suggests even an appearance of self-interest) partiality or economic impropriety." N.Y. Op. St. Compt. 88-68. Recusal must be complete from deliberation! discussion and voting. See 1995· N.Y. Op. (Tni) Att'y Gen. 1003 (finding that planning board member's self acknowledged . conflict of interest required recusal from deliberations and voting).

Members of the Town Board and Town Planning Board should also be aware that the Public Integrity Unit of the NYS Attorney General's Office is actively investigating and working

I lowns may also adopt a more stringent standard of conduct by adopting a local ethics law. This memorandum

assumes the Town has not adopted any such law. .

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toward prosecution of municipal conflicts throughout smaller communities in upstate New York, such as Cape Vincent

2. Potential Conflict« of InterestDisclosed by TOWIl Board and Planning Board Members

Since at least 2007, the Town of Cape Vincent has been considering issues involving wind energy development in the Town. This has included consideration of a local law to regulate wind energy projects and the Planning Board's initial review of site plan and special use permit applications submitted by St. Lawrence Wind Powe~ and BP Wind Energy. At the request of the Town Supervisor, members of the Town Board and Planning Board have disclosed the existence of certain interests in these projects. -These disclosures are summarized below.

A. Town Board
• Thomas Rienbeck
• Donald Mason
• Marty Mason
• Mickey Orvis
• Joseph Wood
:8 •. .. Planning Board No interest.

Lease with New York Wind Power, LLC.

Leases with both 8t. Lawrence Wind Power and BP Wind Energy.

No interest.

Leases with S1. Lawrence Wind Power,

• • •

Richard Edsall George Mingle Andrew Binsley

Lease with BP Wind Energy. No interest.

Relatives (not spouse, child or parent) with leases

with st. Lawrence Wind Power and BP Wind Energy.

No interest.

Relatives (not spouse or parent, but SOI1, brother and nephew) with eases with St. Lawrence Windpower.

Thomas Ingersoll Karen Bourcy

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Leases between S1. Lawrence Wind Power or BP Wind Energy and members of the

Town Board or Planning Board, or their relatives, may constitute interests which are or may become conflicts which require disclosure and recusal, For example, it is clear that Town Board members with leases have a direct conflict while acting in their capacity as Board members in the consideration of agreements proposed between the Town and the specific wind project developer with which they have leases. It is less clear, however, whether such leases create a contlict when such members participate in the legislative process of enacting local laws

2 St Lawrence Wind Power, LLC is an affiliate of New Yo;k Wind Power, n.c

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generally applicable to wind development projects. Likewise, leases involving Planning Board members) or their spouses or dependents) create direct conflicts with the Planning Board's review of the specific wind project developer's application before the Planning Board. However, the disqualifying effect of the interest is less clear when the lease involves a more distant relative. Accordingly, the remainder of this memorandum considers the risks and ramifications of these leasehold interests on official actions by the respective boards.

3. Recommendationsfor 'Protecting TOWII A aions

A. Disclosure

First, the identification of potentialconflicts of interest must be publicly disclosed.

Accordingly, we recommend that all interests that were disclosed to the Town Supervisor be made part of the public record; including those interests that may not yet rise to the level of a direct conflict. The Town Board should consider acknowledging the disclosures made to the Supervisor in May of 2008. These could be listed in the "correspondence received" section of the next regularly scheduled Town Board meeting agenda or otherwise acknowledged by the Supervisor on the record., Such disclosures. by Town Board and Planning Board members would satisfy the requirement of the General Municipal Law and provide a foundation for each of the boards to keep in mind and consider as they conduct official business with regard to the particular projects andlor respond to public conunents and questions should they arise.

B. Potential Conflicts of Interest Affecting the Town Board

. i.· . Consideration of weal Law to Regulate Wind Projects

The Town Board is currently considering enacting a local law regulating wind energy projects in the Town. The law being considered by the Town Board is one of general applicability, intended to regulate both pending and future projects being considered by the Planning Board. The legislation is not intended to provide a privilege or other special benefit or right to any particular wind developer or project. It is notable that in the legislation being considered, the Town Board retains no site plan or special permit approval authority over wind projects. Accordingly, by virtue of the general nature of the Town Board's legislative action, it is our view that the identified lease interests in particular wind projects would not rise to the level of a direct conflict of interest.

This position is supported by Supreme Court decisions considering the issue in two other municipalities in upstate New York. See Hosmer v, Howard, Index. No. 97333 (Steuben Co. 2008); Friedhaber v. Town Bd. of Town of Sheldon, 2007 N.Y. Slip Op. S1772(U) (Wyoming Co. 2007). In both of those circumstances, the lower courts sustained the legislative decisions of town boards, holding that the legislative decisions at issue (a local law and waiver) did not provide any form of entitlement to the wind energy companies and, therefore) that the decisions did not rise to the level of a prohibited "contract" within the meaning of the General Municipal Law. This is not to say, however, that any legislative action by the Town Board would be immune from legal challenge or a different result. Rather, as in these other communities, we would argue that a law regulating wind projects .in Cape Vincent would apply uniformly to the

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St. Lawrence Wind Project, BP Wind Energy and any other potential future wind project, thus not entitling either developer with any rights or advantages to construct or operate their project. Moreover, given the "public utility" determination previously made by the Town's Zoning Board and upheld by the Jefferson County Supreme.Court, any such legislation would not create any new or greater rights for existing applicants than they currently possess. Rather, proposed legislation would only serve to clarify existing rights and provide a set of standards to further regulate these rights,

In sum, disclosure should suffice to sustain a challenge to the consideration or adoption of a local law regulating wind projects in the Town, including the St. Lawrence Wind Power and BP Wind Energy projects. Thus, after the necessary disclosures are made public, all members of the Town Board may deliberate and vote on the potential adoption of a law.

Such disclosure will not, however, preclude a judicial challenge or guarantee that any such local law ultimately adopted by the Town will be upheld by a court To completely avoid the risk of a legal challenge would require either no action by the Town Board or the recusal of those Town Board members with lease interests in particular projects. Concerning the no action alternative, the Planning Board has discretion to require compliance with similar standards as are set forth in the draft law. Concerning the recusal of various Town Board member, under the current makeup of the Board, such recusals would render the Board unable to take any action on the legislation since three current Board members have identified lease interests.

Il, Consideration Qf the St. Lawrence Wind Power Project

. In the event 1m agreement or some other discretionary matter relating directly to the St.

Lawrence Wind Power project comes before the Town Board, Town Board members Donald Mason, Marty Mason and Joseph Wood would have a prohibited conflict of interest affecting the subject agreement. For this reason, it is highly likely that a court would sustain a legal challenge and nullify any actions taken by the Town Board involving the st. Lawrence Wind Power project

if these Board members participated, ... •

Under the current makeup of the fivemember Board, the consequence of recusal by all three members would prohibit any action being taken whatsoever. Nevertheless, it is possible that when and if any such matters ultimately come before the Town Board, either the composition of the Town Board or the existence and extent of the conflict will have changed. The Board would need to analyze any such conflicts when and if they arise at that time. Accordingly, While we recommend disclosure of the Board member interests, we do not believe that a full discussion of these future scenarios need be conducted at this time.

Finally, in the event the conflicts remain, the Town Board could defer the negotiation of host community agreements to the Jefferson County IDA and Town Planning Board on the Town's behalf This could include negotiating the conveyance of what would have been host community payments as additional PILOT payments to the Town, and having bonding, decommissioning and road use obligations settled by the Planning Board in the context of its review.

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iii. Consideration of BPWind Energy Project

As above, in the event an agreement or some other matter relating directly to the BP Wind Energy project comes before the Town Board, Town Board member Marty Mason would have a prohibited interest affecting the subject agreement. However, this interest would not affect the ability of the Town Board to negotiate and execute agreements with BP Wind Energy provided the interest is disclosed and Mr. Mason recuses himself Thus, in order to satisfy the requirements of the General Municipal Law and avoid litigation, it would be advisable for Mr. Mason to recuse himself from deliberation and voting upon any matters directly involving the BP Wind Energy project.

c. Potential Conflicts of Interest Affecting the Planning Board

Based on the foregoing analysis of the law and the lease interests identified to the Supervisor, the. following identifies potential conflicts of interest by individual Planning Board members in particular projects and how the Town should address them.

i. St. Lawrence Wind

Karen Bourcy appears to have a prohibited direct interest in the 81. Lawrence Wind Power project arising from her son's leasehold interest in theproject.' Accordingly, Ms. Bourcy should disclose the interest and recuse herself from deliberation and voting on this project Indeed, for the reasons set. forth above, a court would likely sustain a challenge to and nullify any Planning Board decision in which Ms. Bourcy participated.

Andrew Binsley has a less direct interest i~ the 81. Lawrence Wind Power project which does not appear to be prohibited under the literal definition of "interest" set forth under the General Municipal Law. This is because it is Mr. Binsley's in-laws, as opposed to child or spouse, who have leasehold interests in the project Mr. Binsley might, nevertheless, consider recusing himself from deliberation and voting onproject related matters to avoid potentially compromising any future decision by the Planning Board, Indeed, as demonstrated above, courts have nullified decisions of planning board's where the nexus between a planning board member and an applicant fell outside the literal direct interest prohibition of the General Municipal Law.

Recusal by Mr. Binsley, however, willleave the Board with a slim voting majority, meaning any adverse recommendation by the: County Planning Agency could not be overcome by a supennajority vote. To address this circumstance, we recommend that the Town Board consider amending its law regarding the composition of the Planning Board and allow for the appointment of two alternate members to serve in the event of absence or recusal, Authority and procedures for appointing alternates is set forth in Article 16 of the Town Law.

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3 We are unaware of whether Ms. Bourcy's son is a minor or dependent, as provided for in the definition of interest set forth under section 800 of the General Municipal Law. However, relying on this distinction would present a more difficult defense than for a more distant or non-blood relative.

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ii. BP Wind Energy

Richard Edsall appears to have a prohibited direct interest in the BP Wind Energy project. Accordingly, Mr. Edsall must disclose the conflict and recuse himself from deliberation and voting,

The same analysis regarding Mr. Binsley and the Sf. Lawrence Wind Power project also applies here. Disclosure and recusal are strongly suggested, but not required. Likewise, providing for the use of alternates is highly recommended,

Conclusion

Disclosure and recusal are generally advised when actual and even perceived conflicts of interest arise, however remote, in order to <avoid the risk of nullification of board actions. However, recusal may not always be practicable and, in less obvious or direct interest scenarios, may not lead to impermissible conflicts as set forth in the law. In these situations, boards need to consider the risks of nullification of their actions against the necessity of having the board able to take action. These risks can be reduced through full and early disclosure of interests that might be construed as leading to conflicts, The risks can also be reduced by preparing a clear and complete record of an unbiased proceeding,

Thus, for the Town Board, there appears to be no prohibited conflict of interest and the full Town Board may deliberate and voteconcerning a draft local law of general applicability to regulate wind projects in the Town. Regarding any decisions directly affecting the BP Wind

Energyproject, Board member Marty Mason must recuse himself in order to eliminate. the risk . for nullification of Town Board actions. Regarding Town Board actions directly affecting the St. Lawrence project, current Town Board members Donald Mason, Marty Mason and Joseph Wood would need to recuse themselves to avoid nullification. However, in such an event, the Board would be left with only two eligible membersveffectively preventing the Town Board from taking any action. Since no Town Board action. needs to be taken currently regarding the St. Lawrence Wind project, potential conflicts should be re-analyzed at a future point to determine whether the composition of the Board or existence and extent of conflicts has changed.

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As to the Planning Board, Ms. Bourey should recuse herself from deliberation and voting regarding the S1. Lawrence Wind Power project. Mr. Edsall should recuse himself from deliberation and voting regarding the BP Wind Energy project. It is advisable, but not necessary for Mr. Binsley to recuse himself from deliberation and voting as to both projects, especially if the Town Board appoints alternates to the Planni~g Board.

The foregoing analysis and recommendations are based on an analysis of existing law as applied to the facts provided by the Town. Notwithstanding our conclusions, there is no guarantee that legal challenges based on conflicts of interest will not be made or sustained, as this area of law is still evolving. We remain: available to further discuss the foregoing analysis and measures to reduce or avoid the risks associated with Board member conflicts of interest.

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