[House Report 114-795]
[From the U.S. Government Publishing Office]
House Calendar No. 154
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-795
_______________________________________________________________________
IN THE MATTER OF ALLEGATIONS
RELATING TO REPRESENTATIVE
DAVID McKINLEY
__________
R E P O R T
of the
COMMITTEE ON ETHICS
September 28, 2016.--Referred to the House Calendar and ordered to be
printed
_________
U.S. GOVERNMENT PUBLISHING OFFICE
59-006 WASHINGTON : 2016
COMMITTEE ON ETHICS
CHARLES W. DENT, Pennsylvania, LINDA T. SANCHEZ, California,
Chairman Ranking Member
PATRICK MEEHAN, Pennsylvania MICHAEL E. CAPUANO, Massachusetts
TREY GOWDY, South Carolina YVETTE D. CLARKE, New York
SUSAN W. BROOKS, Indiana TED DEUTCH, Florida
KENNY MARCHANT, Texas JOHN B. LARSON, Connecticut
Report Staff
Thomas A. Rust, Chief Counsel/Staff Director
Patrick M. McMullen, Director of Investigations
Clifford C. Stoddard, Jr., Counsel to the Chairman
Daniel J. Taylor, Counsel to the Ranking Member
Molly N. McCarty, Investigator
Michael Koren, Investigative Clerk
LETTER OF TRANSMITTAL
----------
House of Representatives,
Committee on Ethics,
Washington, September 28, 2016.
Hon. Karen L. Haas,
Clerk, House of Representatives,
Washington, DC.
Dear Ms. Haas: Pursuant to clauses 3(a)(2) and 3(b) of rule
XI of the Rules of the House of Representatives, we herewith
transmit the attached report, ``In the Matter of Allegations
Relating to Representative David McKinley.''
Sincerely,
Charles W. Dent,
Chairman.
Linda T. Sanchez,
Ranking Member.
C O N T E N T S
----------
Page
I. INTRODUCTION......................................................1
II. HOUSE RULES, LAWS, REGULATIONS, AND OTHER STANDARDS OF CONDUCT....3
III.BACKGROUND........................................................4
A. HISTORY OF McKINLEY & ASSOCIATES.................... 4
B. INITIAL REQUESTS FOR ADVICE AFTER REPRESENTATIVE
McKINLEY'S ELECTION................................ 7
C. REPRESENTATIVE McKINLEY'S FORMAL ADVISORY OPINION... 9
D. FURTHER COMMITTEE ACTION AND INQUIRY................ 13
IV. FINDINGS.........................................................15
A. EIGA SECTION 502 AND HOUSE RULE XXV................. 15
B. HOUSE RULE XXIII, CLAUSES 1 AND 2................... 18
C. EIGA SECTION 501.................................... 21
V. CONCLUSION.......................................................22
VI. STATEMENT UNDER HOUSE RULE XIII, CLAUSE 3(c).....................22
APPENDIX A: LETTER OF REPROVAL................................... 23
APPENDIX B: EXHIBITS TO COMMITTEE REPORT......................... 27
APPENDIX C: REPRESENTATIVE McKINLEY'S SUBMISSIONS TO THE
COMMITTEE...................................................... 146
House Calendar No. 154
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-795
======================================================================
IN THE MATTER OF ALLEGATIONS RELATING TO REPRESENTATIVE DAVID MCKINLEY
_______
September 28, 2016.--Referred to the House Calendar and ordered to be
printed
_______
Mr. Dent, from the Committee on Ethics,
submitted the following
R E P O R T
In accordance with House Rule XI, clauses 3(a)(2) and 3(b),
the Committee on Ethics (Committee) hereby submits the
following Report to the House of Representatives:
I. INTRODUCTION
For more than thirty-five years, the Ethics in Government
Act (EIGA) has prohibited a Member of Congress from (1)
``receiving compensation for affiliating with or being employed
by a firm . . . which provides professional services involving
a fiduciary relationship,'' and (2) ``permit[ing] his name to
be used by any such firm[.]''\1\ House Rules have included a
corresponding prohibition for almost twenty-five years.\2\ The
Committee has consistently applied these restrictions to
certain firms providing professional services, including but
not limited to medicine, law, and architecture. Notably, the
restrictions on the use of a Member's name are absolute and are
not tied to the receipt of compensation by the Member or any
other affiliation with the firm. These restrictions can seem
onerous to new Members, particularly for those who have worked
hard over many years to build a business and their own
professional reputation. However, these restrictions are an
important part of the House's conflicts of interest
protections, and they are applied equally to all Members.
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\1\5 U.S.C. app. Sec. 502(a).
\2\House Rule XXV, cl. 2.
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As a part of its advisory function, the Committee routinely
provides new Members with confidential guidance on how to
comply with the fiduciary restrictions. EIGA expressly grants
the Committee sole authority to administer these restrictions
for Members of the House.\3\ Thus, every two years the
Committee instructs newly elected Members who are affiliated
with firms that implicate the fiduciary restrictions to take
steps to comply with the statute. This guidance can take the
form of either informal advice provided by the Committee's
nonpartisan professional staff or formal advisory opinions
issued by the Chairman and Ranking Member of the Committee.\4\
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\3\5 U.S.C. app. Sec. 503(1)(A).
\4\Formal advisory opinions confer upon the requesting individual
protection from any ``adverse action [by the Committee] in regard to
any conduct that has been undertaken in reliance on a written opinion
if the conduct conforms to the specific facts addressed in the
opinion.'' Committee Rule 3(k). In addition, the Committee is precluded
from using information provided to the Committee by a requesting
individual ``seeking advice regarding prospective conduct . . . as the
basis for initiating an investigation,'' provided that the requesting
individual ``acts in good faith in accordance with the written advice
of the Committee.'' Committee Rule 3(l).
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The fiduciary restrictions apply immediately upon a
Member's swearing-in. However, extricating a Member from a
firm, whether through winding down the firm or a sale of the
Member's interest along with a concomitant name change, can
take time.\5\ Thus, the Committee will take no adverse action
against a Member who continues to be affiliated with a firm
that provides professional services involving a fiduciary
relationship, so long as the Member is working with the
Committee in good faith to comply with the restrictions. If a
Member fails to work with the Committee in good faith, or
simply ignores the Committee's guidance, the Committee has no
choice but to take corrective action.
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\5\Some new Members attempt to convince the Committee that the
fiduciary restrictions do not apply to their firm. The Committee
considers any well-reasoned argument, but such consideration can delay
the advisory process.
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In 1981, Representative David McKinley founded the
engineering firm now known as McKinley & Associates (the Firm),
where he was a principal and worked as an engineer until his
election to Congress in 2010. The Firm also provides
architectural services. From at least November 2010, until June
2011, the Committee advised Representative McKinley regarding
the Firm. The Committee's advice, provided both informally and
in a formal advisory opinion letter dated June 24, 2011,
instructed Representative McKinley that the Firm, which carries
his name, would have to change its name, given its fiduciary
responsibilities.
Representative McKinley did not follow the Committee's
advice. Instead, after receiving the Committee's June 24, 2011,
letter, Representative McKinley ceased communicating with the
Committee and sold his shares in the Firm to the Firm's
Employee Stock Option Plan (ESOP), with the Firm's name intact.
When Representative McKinley filed his calendar year 2011
Financial Disclosure Statement, on May 15, 2012, that statement
indicated that the Firm still operated as McKinley &
Associates. The Committee then contacted Representative
McKinley, reiterated its guidance, and sought an explanation of
Representative McKinley's efforts to comply with the fiduciary
restrictions. Representative McKinley responded that, due to
the sale of the firm, he was now powerless to change the name
of the Firm, and absolved from doing so under the law.\6\
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\6\Representative McKinley also argued that, despite previous
Committee guidance to the contrary, the Firm should be permitted to
continue to operate under its current name given the relationship of
Representative McKinley's family name to the engineering industry in
West Virginia. As Section III discusses, the Committee considered these
arguments but concluded that they were either incorrect or insufficient
to affect the outcome.
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Given Representative McKinley's actions, the Chairman and
Ranking Member authorized Committee staff, pursuant to
Committee Rule 18(a), to investigate potential violations of
EIGA and House Rules related to the Firm, its name, and its
operations. Committee staff reviewed documents received from
Representative McKinley and from the Firm, and interviewed the
President of the Firm, who also serves as trustee for the ESOP.
Following its investigation, the Committee concluded that
Representative McKinley's decision to sell the Firm, with the
name intact, violated EIGA and the House rules, even though
Representative McKinley relied on the advice of his attorney
when making that decision. Therefore the Committee voted to
issue this Report, along with a Letter of Reproval to
Representative McKinley for his conduct.
II. HOUSE RULES, LAWS, REGULATIONS, AND OTHER STANDARDS OF CONDUCT
EIGA Section 502(a) prohibits a Member from ``receiv[ing]
compensation for affiliating with or being employed by a firm,
partnership, association, corporation, or other entity which
provides professional services involving a fiduciary
relationship,'' and from ``permit[ting] his name to be used by
. . . a firm, partnership, association, corporation, or other
entity [that provides professional services involving a
fiduciary relationship.]''\7\ For both of these prohibitions, a
threshold question is whether the entity in question provides
services involving a fiduciary relationship. The statute does
not define fiduciary. Generally, however, a fiduciary duty
implies an obligation to act in another person's best interests
or for that person's benefit, or a relationship of trust in
which one relies on the integrity, fidelity, and judgment of
another.\8\ By statute, the Committee has the sole authority to
administer these restrictions for Members of the House.\9\
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\7\5 U.S.C. app. Sec. 502(a). This Section of EIGA has been
incorporated into the House Rules at House Rule XXV, cl. 2.
\8\See Black's Law Dictionary 658, 1315 (8th ed. 2004).
\9\5 U.S.C. app. Sec. 503(1)(A).
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The concern posed by these sorts of services is twofold:
primarily, the House was concerned that a Member who held a
fiduciary duty to a private client or clients might be
susceptible to unique problems of conflicts of interest in his
official duties, but also, the House believed the compensation
ban was necessary to fully effectuate its ban on honoraria,
which it worried could reemerge in the form of professional
fees.\10\ The Ethics Task Force that developed these rules
advised that ``in order for the underlying purposes to be
achieved, `the term fiduciary [should] not be applied in a
narrow, technical sense.'''\11\ The Task Force thus said that
it ``intend[ed] the ban to reach, for example, services such as
legal, real estate, consulting and advising, insurance,
medicine, architecture, or financial.''\12\ The Committee, in
interpreting the ban, has relied on that list of professions,
as well as the treatment of the particular industry under state
agency law with respect to fiduciary duties, and regulations
issued for the executive branch.\13\
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\10\See House Ethics Manual (2008) at 215 (hereinafter Ethics
Manual) (citing House Bipartisan Task Force on Ethics, Report on H.R.
3660, 101st Cong., 1st Sess. (1989)).
\11\Id.
\12\House Bipartisan Task Force on Ethics, Report on H.R. 3660,
101st Cong., 1st Sess. at 16 (1989) (emphasis added).
\13\Ethics Manual at 216.
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If indeed a Member has an association with a firm providing
fiduciary services under this definition, Section 502 bans both
the receipt of compensation and the use of the Member's name.
Note that the use of the Member's name is specifically not tied
to compensation, so a Member cannot avoid that part of the ban
simply by foregoing any compensation for use of the name. The
ban, however, does not apply where the use of the Member's name
in fact reflects a ``family'' name. The Ethics Manual provides
an illustrative example:
Member Jane Doe is a certified public accountant. Prior
to her election, she was employed by the accounting
firm of Doe & Moe, named for its founder and her
father, Joe Doe. Since the firm was not actually named
for her, it does not have to change its name upon her
election.\14\
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\14\Id. at 222 (emphasis added).
Based on that advice, and based on the legislative history of
Section 502,\15\ the ``family name'' exception is fairly
specific--it refers to situations in which the ``name'' of the
firm does not actually refer to the Member, but rather to
someone in his or her family.
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\15\See House Bipartisan Task Force on Ethics, Report on H.R. 3660,
101st Cong., 1st Sess. at 16 (1989) (``the fact that a Member, officer,
or employee is presently associated with a law firm founded by, and
still bearing the name of, his father would not require the firm to
drop the `family' name.'').
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Another statute, 5 U.S.C. app. Sec. 501, prohibits firms
that practice before federal agencies from using the name of a
Member of Congress in advertising the business.
As a practical matter, when Members are elected to the
House and have associations with either of these sorts of
businesses, the Committee consistently advises them that the
appropriate course of action is to cease receipt of any
compensation and to remove their name from the business and its
materials.
Finally, House Rule XXIII, clauses 1 and 2, provide that a
Member ``shall behave at all times in a manner that shall
reflect creditably on the House,'' and ``shall adhere to the
spirit and the letter of the Rules of the House.''
III. BACKGROUND
A. HISTORY OF MCKINLEY & ASSOCIATES\16\
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\16\As discussed more fully below at Section III.C-E, the facts
regarding the nature of the Firm, its predecessors, Representative
McKinley's ownership of it, and Representative McKinley's father's
involvement with it have been the subject of much confusion, mostly due
to incorrect representations made by Representative McKinley's former
counsel. This section, rather than deal with those ambiguities,
attempts to compile the facts about the Firm as the Committee currently
understands them, after its investigation.
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Prior to Representative McKinley's election to the House,
he worked as a licensed professional engineer at the Firm, of
which Representative McKinley was also an officer and director.
According to its Web site, the Firm opened its doors in 1981.
Representative McKinley told the Committee that he left a large
industrial construction firm and ``struck out to be a sole
practitioner in architecture and engineering practice.''\17\
The Firm has operated as ``McKinley & Associates'' since 1989;
prior to that, Representative McKinley operated a sole
practitioner's office focused on engineering services known as
``McKinley Engineering,'' which he folded into the Firm once it
began offering architectural services as well.
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\17\Representative McKinley Appearance.
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The Firm ``engages in the businesses of professional
engineering and architecture through its employed
professionals.''\18\ West Virginia law deems architecture--the
primary service provided by the Firm--to be a profession that
involves fiduciary duties.\19\
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\18\Exhibit 1.
\19\See W.V. Code Sec. Sec. 30-12-2(4), 30-12-4. As noted in more
detail infra, Representative McKinley has disputed and continues to
dispute the finding that the Firm provides fiduciary services covered
by EIGA. His dispute is wholly unsupported by the law. See infra n. 70.
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The Firm has three offices, located in Wheeling, West
Virginia; Charleston, West Virginia; and Washington,
Pennsylvania, and employs more than 40 individuals. The Firm
provides services in the Pittsburgh Tri-state region and other
mid-Atlantic states. Its Web site indicates that past clients
have included many state- and local-level government entities,
as well as federal entities such as the U.S. Postal Service,
Department of Defense, the National Aeronautics and Space
Administration, and the Federal Aviation Administration. With
respect to the Postal Service contract, according to the
current President of the Firm, the Postal Service has a
certification process for eligibility to perform design,
construction, and renovation services for its buildings located
within a given region. The firm has historically submitted an
application for, and received, that certification. There is no
guarantee that the Firm will receive any work after being
certified, nor is it required to perform work that arises. The
certification has a five-year term, during which qualified
firms are eligible for selection to perform work as the Postal
Service assigns it. The Firm most recently submitted its
certification in August 2010, prior to Representative
McKinley's election, and has removed his name from all
contracting materials since his election, except for the name
at the top of the letterhead.
In January 2007, the Firm established a partial ESOP. In an
appearance before the Committee, Representative McKinley stated
that he formed the ESOP after ``my attorney and my financial
advisor advised me that as we get older . . . we need to think
about ownership transition . . . because I am not going to
practice forever.''\20\ Representative McKinley explained that
he did not want to sell the firm to a larger company, because
he believed ``they would have picked out the best people, and
then everyone else would have been gone.''\21\ ``So, what we
did in respect for our employees, out of the three offices, we
set up an ESOP.''\22\ The ESOP purchased 30 percent of the
company at that time and ``they had the right to purchase the
remaining 70 percent.''\23\
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\20\Representative McKinley Appearance.
\21\Id.
\22\Id.
\23\Id.
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Upon his election to Congress, Representative McKinley
still owned approximately 70 percent of the Firm's common
stock, with the remaining 30 percent owned by the Firm's
employees under the ESOP. Currently, the ESOP owns 100 percent
of the Firm's equity, which it purchased via a loan for which
Representative McKinley currently holds the note. (On his
Financial Disclosure Statement for 2015, Representative
McKinley reported two entries for ``McKinley & Associates ESOP
Notes Receivable,'' one worth between $1,000,001 and $5,000,000
and one worth between $100,001 and $250,000.\24\ Representative
McKinley told the Committee there is ``somewhere around $3
million probably left, 3.5 maybe'' on the notes.\25\)
Representative McKinley also owns the building in which the
Firm leases its office space; the Firm leases space back to
Representative McKinley for a personal office unrelated to his
official duties. Representative McKinley's wife serves as
Secretary of the Firm's Board and is a Vice President of the
Firm. His daughter-in-law is an employee of the Firm and
partial owner of the ESOP, and his oldest son is the ESOP's
financial advisor.
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\24\Representative McKinley Financial Disclosure Statement (2015).
\25\Representative McKinley Appearance.
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Representative McKinley's father, Johnson B. McKinley, was
also a licensed professional engineer. Johnson McKinley
maintained a one-man office as a consulting engineer in
Wheeling, West Virginia, from the 1950s until his retirement in
the 1980s. Johnson McKinley's practice during those years was
most commonly called ``Johnson B. McKinley, Consulting
Engineer,'' but Johnson McKinley also appears to have done
business under the following names:
Engineer--J.B. McKinley
Eng'r--J.B. McKinley
J.B. McKinley, Eng'r
J.B. McKinley, P.E.
J.B. McKinley Engineers
Johnson B. McKinley
Johnson B. McKinley, P.E.
Johnson McKinley Consulting Eng'r
Johnson McKinley Consulting Engineer\26\
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\26\Exhibit 2. Note that ``Eng'r'' is a common abbreviation for
``Engineer.'' The abbreviation for ``Engineering'' is ``Eng'g.'' See,
e.g., The Bluebook: A Uniform System of Citation (20th Ed.), at Table
6.
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Although this list did not include the name ``McKinley
Engineering,'' Representative McKinley, through his counsel,
has stated that the name ``Johnson B. McKinley Engineering''
was also used at some point. Regardless, it is notable that
each iteration of Johnson B. McKinley's business appears to
have used not only his last name, but also either his first
name or first and middle initials. This fact distinguishes
Representative McKinley's firm, McKinley & Associates, from
each of his father's businesses.
Representative McKinley worked with his father for
approximately two years prior to establishing the Firm in 1981,
which ultimately became ``custodian of all of the drawings,
files, and other assets accumulated'' by Representative
McKinley's father during his career as an engineer, and also
currently serves many of the same clients that his father
did.\27\ Representative McKinley's letters stress that the name
``McKinley'' has been associated with engineering services in
the Wheeling area since approximately 1950. Representative
McKinley, through counsel, has also asserted that the Firm also
made several payments to Johnson McKinley, acting as a
consultant to the Firm, in the 1980s.\28\ However, Johnson
McKinley was never on the payroll of the Firm, and maintained
his own business when his son started the Firm in 1981.
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\27\Exhibit 3.
\28\This assertion is based solely on Representative McKinley's
recollections. Representative McKinley's counsel noted that
Representative McKinley does not have access to any payment records
from this period, which was over 30 years ago. See Letter from J. Baran
and R. Walker to Chairman Dent and Ranking Member Sanchez, Apr. 19,
2016, at 1-2.
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B. INITIAL REQUESTS FOR ADVICE AFTER REPRESENTATIVE MCKINLEY'S ELECTION
Representative McKinley has told the Committee that on the
night of his election to the House, November 2, 2010, one of
his corporate consultants ``surprisingly asked me, he said, are
you sure you are going to be able to continue your relationship
with your company?'' To answer this question, Representative
McKinley turned to Committee staff several days later. On
November 5, 2010, following a call with Representative
McKinley, Committee staff provided informal guidance via email,
which stated staff's opinion that the Firm would need to change
its name, based on the legal regime discussed at Section
II.\29\ While Representative McKinley, in his appearance before
the Committee, characterized this informal advice as a
``maybe,'' his reaction at the time made clear that he
understood that the guidance was quite clear. As he wrote to
associates, ``How absurd is that advice. They expect me to
change the name of my company!!! . . . I told her that her
advice was BS.''\30\ Later, when an unnamed Committee staff
member told Representative McKinley during new Member
orientation, on or about November 14, 2010, that he may have to
change the firm's name, he replied that the next time they
heard from him it would be through his attorney.\31\ At this
time, Representative McKinley also personally met with the
then-Chairman of the Committee, Representative Jo Bonner, and
expressed his concerns. Representative Bonner apparently
mentioned the possibility of a waiver--although, because there
is no record of the meeting, it is unclear what he meant by
that--and suggested that Representative McKinley speak to the
then-counsel to the Committee Chairman.
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\29\Exhibit 4 (``The informal opinion of the Committee staff is
that these [fiduciary services] restrictions would necessitate changing
the name of your firm.'')
\30\See id.
\31\See Exhibit 6 at 7.
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Almost immediately upon receiving staff's informal advice,
Representative McKinley sought alternative advice from other
sources. On November 10, 2010, an official with the National
Republican Congressional Committee (NRCC) sent an email to
Representative McKinley, recounting the NRCC official's
conversation with a former counsel to the Committee, stating
that ``Mr. McKinley, if he doesn't want to worry about changing
the name of his firm, should probably think about who he plans
to divest his interest to. If it happens to be a familial
relative with the same name, he would most likely not have to
change the name of the whole firm. If it is to a different
individual, it likely would not be able to stay with his name
on it.''\32\
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\32\Exhibit 7 (emphasis added).
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This email from the NRCC official was the first of many
discussions between Representative McKinley and his advisors
about selling his stake in the Firm to obviate some or all of
the ethical questions surrounding it. Importantly, as discussed
more fully below, Representative McKinley did not inform
Committee staff of those discussions until after he had
received the Committee's formal opinion that he was required to
change the Firm's name, and after he had already agreed to sell
the Firm, with the name intact. Further, based on the
Committee's investigation, the matter of Representative
McKinley selling his stake in the Firm is only partially
related to his election to the House or the requirements of
EIGA. While it is true that Representative McKinley may have
mistakenly viewed full divestment as a solution to the ethical
issues the Firm presented for him, it is not the only reason
for such a sale. According to statements by the Firm's attorney
and its current president, Representative McKinley and others
at the Firm had long intended to convert the Firm to a fully-
employee-owned business, irrespective of Representative
McKinley's political ambitions.\33\ Moreover, at least this
initial email from the NRCC official recognized that selling
the Firm was not likely to remove the requirement to change its
name.
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\33\See Exhibit 8; Interview of Firm President.
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Eventually, however, Representative McKinley and his
advisors developed the incorrect theory that selling the Firm
would indeed allow it to continue operations as ``McKinley &
Associates.'' On November 24, 2010, Representative McKinley
received an email from his attorney, Charles J. Kaiser. Mr.
Kaiser, a West Virginia attorney who ``focuses his practice on
corporate law, commercial law and corporate
reorganizations,''\34\ and who, to the Committee's knowledge,
had not represented any individual before this Committee,
advised Representative McKinley that ``If McKinley & Associates
is considered to be a firm providing professional services
involving a fiduciary relationship, then it appears that you
are left with two choices: (1) change the name, or (2)
completely divest yourself of your interest in the company
(this appears to include [Mrs. McKinley] as well.)''\35\ Mr.
Kaiser provided no citation to authority to support his
assertion that the divestiture would negate the need for a name
change. Nor did he provide any reasoning for his analysis,
which was contrary to the assessment provided by the former
Committee counsel consulted by the NRCC official.
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\34\Phillips, Gardill, Kaiser & Altmeyer, PLLC, ``Kaiser, Charles
J.'' available at http://www.pgka.com/profiles_detail.php?profile_ID=7
(last accessed May 17, 2016).
\35\Exhibit 9.
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Mr. Kaiser repeated his analysis in an email to the NRCC
official on November 29, 2010.\36\ Again, he failed to provide
any rationale for why selling the firm to the ESOP would
resolve the problem of the Firm's name. The next day, Mr.
Kaiser wrote a letter to the then-Counsel to the Chairman of
the Committee. Mr. Kaiser was not nearly as certain of his
position in that letter, noting the Firm's desire to ``explore
the possibility of retaining the name McKinley & Associates,
Inc. if Congressman-elect McKinley would sever his other
relationships with the business.''\37\
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\36\Exhibit 10.
\37\Exhibit 1.
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A week later, on December 7, 2010, then-Counsel to the
Chairman and Committee staff responded to Mr. Kaiser's letter
via telephone; Mr. Kaiser memorialized his recollection of that
conversation in an email to Representative McKinley, the NRCC
official, and an employee of the Firm.\38\ Mr. Kaiser explained
that the staffers had provided their opinion that the Firm
would have to change its name unless it qualified for the
``family name exception.''\39\ He noted that staff suggested
that Representative McKinley request a written advisory
opinion, but that ``[b]ecause the Committee will have a number
of similar written advice requests from new Members, it may
well take some time to work through all of the opinions and the
name can remain the same until the opinion is rendered.''\40\
Finally, Mr. Kaiser's own words demonstrate that he recognized,
at this early juncture, that the question of the name of the
Firm was distinct from questions of Representative McKinley's
compensation or position on the board of the Firm: ``[b]ecause
the `family name exception' does not eliminate the other two
prohibitions (i.e. compensation and management affiliation), I
believe that [Representative McKinley] will have to deal with
the management structure and ownership of McKinley &
Associates, Inc. in any event.''\41\
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\38\Exhibit 11.
\39\Id.
\40\Id.
\41\Id. (emphasis added).
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C. REPRESENTATIVE MCKINLEY'S FORMAL ADVISORY OPINION
In early January 2011, Representative McKinley submitted a
formal request for an advisory opinion regarding the name of
the Firm. In that request, Representative McKinley's attorney
provided the following statement regarding Johnson McKinley's
affiliation with the Firm:
McKinley & Associates, Inc. and its predecessor
McKinley Engineering were the outgrowth of two licensed
professional engineers that have worked in the Wheeling
Area since approximately 1950. Johnson B. McKinley,
[Representative] McKinley's father, was a licensed
professional engineer who maintained an office as
consulting engineer in Wheeling for nearly 40 years.
During most of those years Johnson B. McKinley
maintained a one-person office, but David B. McKinley
and Johnson B. McKinley worked together for 2 years
prior to Johnson B. McKinley's retirement, and McKinley
& Associates, Inc. is the custodian of all the
drawings, files, and other assets accumulated by
Johnson B. McKinley over his career as a licensed
professional engineer.\42\
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\42\Exhibit 3(emphasis added).
This statement appears to have led Committee staff to believe--
incorrectly--that Johnson McKinley's firm was named McKinley
Engineering. In fact, the letter's reference to the Firm's
``predecessor'' was actually a reference to Representative
McKinley's own prior practice, not that of his father. But, as
is clear from the excerpted passage, there is no reference to
this prior practice, only to the businesses operated by Johnson
McKinley. Staff therefore concluded that, if there was an
appropriate ``family name'' for the business, it would be
McKinley Engineering.
Additionally, Representative McKinley's request did not
refer to any sale of Representative McKinley's interest in the
Firm. Rather, the request stated that Representative McKinley
would continue to hold his equity ``in a blind trust that will
be held for so long as he remains a Member of the House of
Representatives or otherwise holds an elected federal
office.''\43\ Representative McKinley conceded that the trust
arrangement would not, in fact, be blind: ``Congressman
McKinley will of course know that the trust holds his stock,
unless and until sold; however, Congressman McKinley will
receive no compensation from McKinley & Associates, Inc. and
will not be entitled to exercise voting rights.''\44\
---------------------------------------------------------------------------
\43\Id.
\44\Id.
---------------------------------------------------------------------------
Representative McKinley's formal request for advice painted
a much different picture of his strategy than that which was
actually taking place at the time. As early as November 29,
2010, the Firm's management was discussing the potential to
complete a sale of Representative McKinley's stake to the
ESOP.\45\ And Mr. Kaiser's internal discussions with
Representative McKinley and his team repeatedly referenced the
sale as a fully-fleshed alternative pathway to EIGA compliance.
But for whatever reason, Representative McKinley's letter did
not reference that plan.
---------------------------------------------------------------------------
\45\Exhibit 12.
---------------------------------------------------------------------------
A few weeks after Representative McKinley submitted his
request for a formal advisory opinion, Mr. Kaiser had a
teleconference with the Committee's then-Director of Financial
Disclosure. According to Mr. Kaiser's recollection of the
conversation, the Director of Financial Disclosure informed him
that the family name exception would apply to the Firm's name,
and that a name change would not be required.\46\ The then-
Director of Financial Disclosure does not recall this
conversation, and the Committee does not have its own record of
it. Thus, the Committee does not know what Mr. Kaiser told the
Director of Financial Disclosure regarding the facts of the
matter on this call, who initiated the call, or for what
purpose. Without this information, it is difficult for the
Committee to judge precisely why the then-Director of Financial
Disclosure may have believed that the Firm would not be
required to change its name. Regardless, it must be noted that,
according to Mr. Kaiser's summary of the call, the then-
Director of Financial Disclosure only stated the staff's view
regarding resolution of the matter; it was clear that only the
Committee could provide a final and formal opinion on
Representative McKinley's written request for guidance.
---------------------------------------------------------------------------
\46\Exhibit 13.
---------------------------------------------------------------------------
By March 31, 2011, a different Committee counsel had taken
over the responsibility for the advisory opinion after the
departure of the Director of Financial Disclosure from the
Committee's staff. The newly assigned Committee staffer spoke
with Mr. Kaiser that day and informed him that staff would
recommend that the Chairman and Ranking Member issue an
advisory opinion recommending that Representative McKinley
change the name of the Firm. Representative McKinley approached
Representative Bonner, who denied knowing about the Director of
Financial Disclosure's previous recommendation.\47\
---------------------------------------------------------------------------
\47\Exhibit 14.
---------------------------------------------------------------------------
Meanwhile, Representative McKinley's plan to sell his
equity in the Firm continued, independently from his
interactions with the Committee.\48\ On April 11, 2011,
Representative McKinley and the ESOP entered into a Memorandum
of Understanding (MOU) committing to a sale of Representative
McKinley's stake upon a valuation of the Firm's equity.\49\ At
this time, both Representative McKinley and executives at the
Firm understood staff's preliminary guidance that the Firm
would need to change its name. Neither the Firm nor
Representative McKinley contacted the Committee to notify them
of the MOU, the change in plans with respect to the blind
trust, or any other aspect of the sale. Nor is there any
indication that Representative McKinley told then-Chairman
Bonner, when they spoke immediately after Committee staff's
March 31, 2011 call with Mr. Kaiser, that Representative
McKinley was proceeding with plans to sell the Firm, with the
name intact.
---------------------------------------------------------------------------
\48\Representative McKinley, in a submission to the Committee,
argues that, in fact, his plan to sell his stake to the ESOP had been
``abandoned'' based on the Director of Financial Disclosure's informal,
staff-level advice in January 2011. See Exhibit 6 at 19. But there is
no other evidence that the sale went on hold, or, even if it did, when
precisely the process stopped and then started again. For example,
Representative McKinley's original request for advice contemplated not
a sale of his stake, but the transfer of that equity into a blind
trust, and at no point did he correct the record to state that he
intended to sell the firm. Moreover, Representative McKinley never
explained to the Committee that, because of its informal, staff-level
guidance, he was withdrawing any part of his request for formal advice.
\49\Exhibit 15.
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On April 13, 2011, a Committee counsel reminded Mr. Kaiser
that the Committee was still waiting for a written brief he had
offered to provide regarding the issue of whether engineers or
architects were fiduciaries under West Virginia law.\50\ The
next day, Mr. Kaiser sent a letter to the Committee counsel
setting out his arguments. Mr. Kaiser began the letter by
saying, ``I have delayed in responding to check the facts cited
in this letter.''\51\ Notably, he again did not mention the
sale, nor did he correct the misimpression the original letter
gave regarding the name of Johnson McKinley's practice.\52\ Mr.
Kaiser copied Representative McKinley on the letter.\53\
---------------------------------------------------------------------------
\50\Exhibit 17.
\51\Exhibit 16.
\52\Id.
\53\Id.
---------------------------------------------------------------------------
On June 24, 2011, the Chairman and Ranking Member of the
Committee issued an advisory opinion on these questions to
Representative McKinley.\54\ It is clear from the letter that
the Committee, or its then-Chairman and Ranking Member,
believed that Representative McKinley remained the majority
owner of the Firm,\55\ and the advisory opinion made no
reference to Representative McKinley's April 11, 2011,
agreement to sell the firm. The letter advised Representative
McKinley that the Firm would need to change its name. The
letter, in describing the facts upon which the Committee relied
in coming to this determination, explained:
---------------------------------------------------------------------------
\54\See Exhibit 21.
\55\See id. at 1 (``In January 2007, the Firm established a partial
Employee Stock Ownership Plan (ESOP). You own approximately 70% of the
Firm's common stock, with the remaining 30% owned by the Firm's
employees under the ESOP.'') Representative McKinley's counsel
strenuously argues that the six months during which the Committee
deliberated before providing its formal advice in response to
Representative McKinley's request constitutes an unreasonable delay.
Exhibit 6 at 22. This ignores that at least some of the deliberation
occurred due to a back-and-forth between Representative McKinley's
attorneys and the Committee regarding the legal issues in the case. As
late as April 14, 2011, Mr. Kaiser sent the Committee a letter arguing
that engineers and architects did not carry fiduciary duties. See
Exhibit 17. This letter came only after Committee staff reminded Mr.
Kaiser that the Committee was waiting on such a submission. See id.
After reading those arguments, the Committee determined them to be
without merit. See infra at n. 70. But the task of examining such
arguments requires time. Because the Committee needed to take such time
as was necessary to address Representative McKinley's arguments in a
deliberate and thorough manner, the length of time this matter took was
attributable in large part to Representative McKinley's own part in the
process. Indeed, it is inherently inconsistent of Representative
McKinley to first avail himself of the Committee's willingness to hear
his side of the matter, and then argue afterwards that the considered
nature of the process took too long.
In the case of the Firm, the Committee accepts your
representation that the current Firm can reasonably be
seen as a practical continuation of McKinley
Engineering, the business originally established in
1954 by your father, Johnson McKinley, for whom it was
named. However they are legally and factually distinct
---------------------------------------------------------------------------
entities.
The Committee also advised, however, that the Firm could
change its name to McKinley Engineering, so long as it made a
clear association between the Firm and Representative
McKinley's father, consistent with the family name exception
contained in the rules. Prior to issuing the formal advisory
opinion, staff informally explained its recommendation to
Representative McKinley's counsel, and provided Representative
McKinley with the opportunity to withdraw the request for an
advisory opinion.
As noted above, the conclusion that McKinley Engineering
was a name that fit within the family name exception was based
on a factual error--the Committee's belief that Representative
McKinley's reference to that name as a ``predecessor'' meant
that Johnson McKinley had used that name for his practice. He
had not. In an email to his advisers, Representative McKinley
noted the Committee's mistake: ``This makes no sense. [T]hink
about it: McKinley Engineering is OK but McKinley & Associates
is a problem. My father's company was not McKinley Engineering
and we never represented that it was. That name was the one I
used as a sole proprietor for the early years of the
company.''\56\ However, the factual error in the advisory
opinion appears to be based largely on the vague and confusing
syntax of Representative McKinley's counsel's introduction to
the history of the Firm, which described McKinley Engineering
as a ``predecessor'' of the Firm and discussed his father's
involvement in it in the same breath, without distinguishing
between the two. Additionally, when staff contacted
Representative McKinley's counsel prior to the issuance of the
letter, in order to explain its content, Representative
McKinley's counsel did not correct the factual error at that
time.
---------------------------------------------------------------------------
\56\Representative McKinley referred to himself as a ``sole
proprietor.'' This is consistent with his statement in an appearance
before the Committee that he ``struck out to be a sole practitioner.''
See Exhibit 18; Representative McKinley Appearance.
---------------------------------------------------------------------------
Representative McKinley consulted for a brief period with
attorney Stefan Passantino, who contacted Committee staff on
August 12, 2011.\57\ Mr. Passantino explained that Johnson
McKinley had not practiced at ``McKinley Engineering,'' but
rather at ``J.B. McKinley Engineering.''\58\ A Committee
attorney explained that she was unable to change the factual
record upon which the advisory opinion was based, but that
Representative McKinley could write to the Committee to explain
the misunderstanding.\59\ Committee staff further explained
that the opinion would not likely be changed absent a
significant change in facts.\60\ Representative McKinley never
did write in to the Committee to correct the record, although
he apparently approached Representative Bonner on the floor of
the House and stated, ``what the [heck] is this,'' and
explained the factual error.\61\ According to Representative
McKinley, during that conversation, which was several days
after the Committee issued its formal advisory opinion,
Representative McKinley stated that the Committee's
misunderstanding regarding the origins of the Firm's name did
not matter anymore ``because he had already sold the
company.''\62\
---------------------------------------------------------------------------
\57\See Exhibit 20.
\58\This contention is consistent with representations by
Representative McKinley's current counsel, but is not supported by a
review of corporate records that McKinley & Associates itself
performed. See Exhibit 2.
\59\Exhibit 20.
\60\Id.
\61\Exhibit 6 at 23.
\62\Id.; Exhibit 22 at 6.
---------------------------------------------------------------------------
Six months after receiving the Committee's letter
explaining the need to change the Firm's name, on December 31,
2011, Representative McKinley and the ESOP had finally
formalized their agreement for the ESOP to purchase
Representative McKinley's shares, via a loan for which
Representative McKinley held the note. The agreement to sell
apparently did not include an agreement to change the name, and
the name has not been changed. Because of legal requirements,
the sale closed four months later, on April 30, 2012.\63\
---------------------------------------------------------------------------
\63\Exhibit 19 at 5.
---------------------------------------------------------------------------
D. FURTHER COMMITTEE ACTION AND INQUIRY
Representative McKinley filed an annual Financial
Disclosure Statement for 2011, as required by EIGA, on May 15,
2012. This Financial Disclosure Statement listed the Firm--
still doing business as McKinley & Associates--as a source of
interest income based on a note receivable held by
Representative McKinley. Based on this and other publicly
available information, the Committee concluded that the Firm
had not changed its name as advised by the Committee.
Accordingly, the Chairman and Ranking Member of the Committee
sent Representative McKinley a letter on August 24, 2012,
stating:
The Committee expects you to change the name of the
Firm, as directed. Failure to do so may be viewed as a
knowing violation of the Ethics in Government Act and
House Rule XXV, clause 2, and may result in further
proceedings against you by the Committee. The Committee
thus requests a detailed explanation of the status of
your efforts to change the name of the Firm, and what
that name will be. If the Firm intends to use the name
McKinley Engineering, please inform the Committee how
the Firm will indicate the clear association between
the name and your father.\64\
---------------------------------------------------------------------------
\64\Exhibit 23 (Letter from Chairman Bonner and Ranking Member
Sanchez to Representative McKinley, Aug. 24, 2012, at 1).
After receiving the letter, Representative McKinley
telephoned the then-Committee Staff Director and Chief Counsel,
and informed him that he believed the issue had been resolved
because he had sold the Firm to the ESOP. Representative
McKinley also disagreed with many of the facts as stated in the
original advisory opinion letter. The Staff Director and Chief
Counsel responded by requesting that Representative McKinley
respond to the Committee's second letter with a request that
the Committee re-examine the issue based on accurate facts. The
Staff Director and Chief Counsel told Representative McKinley
that the Committee would ``start from scratch.'' This
conversation appears to be the first time in which
Representative McKinley notified the Committee of the sale of
his interest in the Firm.
In a letter dated September 14, 2012, Representative
McKinley responded through counsel to the Committee's August
24, 2012 letter. Representative McKinley noted that the Firm
had been sold to the ESOP, and that he no longer functioned as
an owner, board member, executive, employee, or consultant of
the Firm. Representative McKinley also noted:
`McKinley' is a well-known family and historical name
in West Virginia. The `McKinley' name in engineering
and building design was originally established in West
Virginia by Representative McKinley's father, Johnson
B. McKinley, and was reinforced by him through his
long, public association with McKinley & Associates.
Entirely independent of Representative McKinley's
status as a Member of Congress, `McKinley & Associates'
has long been--and remains--an established brand name
in the provision of the highest-quality engineering,
architectural, and interior design services.
However, Representative McKinley admitted that his father's
practice had operated under business names such as ``Johnson B.
McKinley, Consulting Engineer,'' ``Johnson B. McKinley
Engineering,'' and ``Penn Construction.'' McKinley &
Associates, Inc. was first used in 1989, when Representative
McKinley changed the name of the Firm (then ``McKinley
Engineering Company'') to reflect the fact that the Firm had
begun to offer architectural services. Moreover, while
Representative McKinley and his father worked together at his
father's firm from 1971 to 1973, Representative McKinley's
father ``maintained his own business'' when his son struck out
on his own in 1981.\65\ Representative McKinley nonetheless
argued that his father had:
---------------------------------------------------------------------------
\65\Id. at 4.
played an instrumental and very public role in
solidifying and expanding the reputation of [the Firm].
. . . Particularly during those periods when
[Representative] McKinley was required to be absent
from the Firm to attend the state legislature, Johnson
B. McKinley served as the eyes and ears for the Firm .
. . [and] attended many meetings with clients as the
representative of McKinley & Associates; he walked many
project sites with owners as the representative of
McKinley & Associates.\66\
---------------------------------------------------------------------------
\66\Id.
The Committee sent separate requests for information to
Representative McKinley and the Firm on March 18, 2013.
Representative McKinley responded on May 1, 2013, providing a
30-page letter and 554 pages of documents. In his response,
Representative McKinley repeated his assertion that he acted in
good faith and on the advice of counsel in selling the Firm. He
argued that the months-long history of his interactions with
the Committee and its staff left him with the impression that
he had resolved ethics concerns regarding the Firm. He also
argued that, while Johnson B. McKinley never worked as an on-
the-payroll employee of the Firm, he assisted his son on two
projects in 1981, and that ``Johnson B. McKinley's interest and
activities in assisting his son's business did not depend on
compensation, so to focus exclusively on records of financial
compensation in this context is to focus too narrowly.''\67\
---------------------------------------------------------------------------
\67\Exhibit 6 at 28.
---------------------------------------------------------------------------
In July 2015, the Committee notified Representative
McKinley that it was considering the adoption of a public
Report and Letter of Reproval regarding this matter. Before the
Committee decided how to resolve this matter, Representative
McKinley was invited to be heard in writing and/or in person.
Representative McKinley opted to both provide multiple written
submissions, via counsel, and to appear in person before the
Committee. The Committee carefully considered all of
Representative McKinley's written submissions and his
appearance before the Committee while deliberating how to
resolve the matter. Ultimately, the Committee determined that
the appropriate resolution of this matter was to issue this
Report, along with a Letter of Reproval to Representative
McKinley for his conduct.
House and Committee Rules impose some limitations on public
disclosure of investigative matters in the period of time
shortly before an election (the so-called ``blackout rule'').
In some situations, the Committee is prohibited from making
certain public statements, while in others the Committee has
the option of adhering to the rule. In general, the Committee
adheres to the spirit of these limitations, which are intended
to provide fairness to respondents and confidence in the ethics
process. In this matter, the Committee has determined to issue
this report at this time because of the unique circumstances of
the matter.
Representative McKinley has been on notice of the
Committee's intent to resolve this matter since July 2015. But
Representative McKinley did not personally review the proposed
resolution until November 2015, and did not offer a substantive
written response to the Committee's proposed resolution of the
matter until February 2016. In June 2016, the Committee invited
Representative McKinley to appear before the Committee in July
2016 to be heard in person. Representative McKinley informed
the Committee that he did not believe that was sufficient time
for him to prepare and asked if he could appear in September
2016, instead. The Committee granted that request, subject to a
clear written caution that if he chose that course the blackout
rule would not apply to any final resolution of the matter.
Representative McKinley chose to delay his appearance until
September 2016. Although he appeared before the Committee prior
to the start of the blackout period, the Committee's
deliberations continued into the blackout period, and the
Committee concluded its deliberations and voted to approve the
final resolution within the blackout period.
IV. FINDINGS
A. EIGA SECTION 502 AND HOUSE RULE XXV
Representative McKinley and his counsel have argued that
the Committee's initial advisory opinion contained factual
errors and legal infirmities, and should be revised to permit
the Firm to continue to operate as ``McKinley & Associates.''
His arguments boil down to three points: (1) that the Committee
made a factual error when it stated that ``McKinley
Engineering'' was a family name, given that Johnson McKinley
never used that name in his practice; (2) that the ``McKinley''
in ``McKinley & Associates'' should be read to include Johnson
McKinley, because of the McKinley reputation in the West
Virginia engineering and design community, and because of
Johnson McKinley's role in assisting his son's practice; and
(3) that the statute and House Rules should be read to permit
the use of the name in this case, where the danger of a
conflict of interest is low. The Committee has reviewed his
arguments, and judged them either incorrect in their own right,
or insufficient to affect the outcome.
First, Representative McKinley points out that his father
apparently never used the name ``McKinley Engineering,'' as the
Committee stated in its advisory opinion. Setting aside the
fact that the Committee's confusion resulted from the vague and
confusing syntax of his counsel's request, and setting aside
the additional fact that his own submissions repeatedly
misstated the names his father used for his practice, and
setting aside the third fact that Representative McKinley never
wrote to the Committee to correct the record until over a year
later, it is true that the ``family name'' suggested in the
Committee's advisory opinion is not actually a ``family name.''
Representative McKinley argues that, consequently, ``there
appears to be just as much basis for the Committee to determine
that `McKinley & Associates' is a family name as there is for
the Committee to determine that `McKinley Engineering' is a
family name.'' This is true. However, the correct conclusion is
the opposite: based on these new facts neither ``McKinley
Engineering'' nor ``McKinley & Associates'' qualify as a family
name, because both refer solely to Representative McKinley's
business and not to any of his father's businesses, all of
which included his father's first and last name or initials. As
Representative McKinley told the Committee in September 2016,
``I struck out to be a sole practitioner in architecture and
engineering practice.''\68\ The fact that the Committee misread
Representative McKinley's original statement of facts has no
bearing on whether the facts at present support the use of the
exception.
---------------------------------------------------------------------------
\68\Representative McKinley Appearance (emphasis added).
---------------------------------------------------------------------------
Second, Representative McKinley argues that, irrespective
of the factual error, the Committee failed to account for
certain other facts supporting a finding that ``McKinley &
Associates'' is a family name. Specifically, Representative
McKinley argues that, because of his family's historical
reputation in West Virginia, and particularly his father's
reputation as an engineer, the ``McKinley'' name is a brand
upon which the Firm trades, based on not just Representative
McKinley's work prior to his election, but his family's
goodwill in the area and in the industry. This argument, while
internally consistent, is simply not on all fours with the text
of the statute or the Committee's longstanding guidance. The
logic behind the concept that businesses with family names are
not covered by Section 502 is that certain family businesses
are not actually named for the Member, and therefore do not
violate Section 502.
Johnson McKinley's reputation, no matter how sterling,
cannot retroactively stand in for the ``McKinley'' for whom the
Firm is actually named. Johnson McKinley was never on the
Firm's payroll. He kept his own practice when his son started
the Firm in the 1980s. He did not appear on the Firm's
letterhead and, to the best of anyone's recollection, never
served as anything more than an outside advisor or consultant.
The Firm does not use a family name. It uses Representative
McKinley's name. EIGA prohibited that use the moment he became
a Member of Congress.
Third, Representative McKinley argues that, because the
Committee has expansively interpreted or applied Section 502 in
other areas--specifically, medicine--the Committee should
engage in a flexible reading of the statute in this case, to
reach the conclusion that the Firm's use of ``McKinley &
Associates'' does not pose a risk for ``trading on the prestige
of [a] Member[].''\69\ Representative McKinley believes such a
risk is low because the McKinley name is associated not only
with him but with his father and ancestors, and also because
architectural services do not pose the same hazards in this
regard as certain other fiduciary industries such as law or
lobbying.\70\ This argument--which amounts to a request for a
waiver--fails for at least three reasons. First, the arguments
about the ``McKinley brand'' simply restate the arguments
discussed above, and fail for the same reason. Second, while it
may be true that an architect may not be as susceptible to the
problems Section 502 was intended to address as some other
professionals, the risk still exists that a Member will have
some level of divided loyalty. Further, it is not inconceivable
that an architecture firm could trade on the prestige of a
Member of Congress--governments, after all, do build buildings
from time to time. Finally, with respect to the Committee's
guidance on the practice of medicine, the Committee has created
a limited exception to the compensation ban, insofar as Members
who are doctors accept fees for medical services that do not
exceed the ``actual and necessary expenses incurred'' by the
Member in connection with the practice.\71\ The Committee
created this waiver because doctors must continue to practice
to keep their licenses intact in some situations, and to
maintain insurance coverage. Notably, though, the waiver does
not extend to the ban on using the Member's name, and the
Committee has historically advised Members who are doctors that
their practices must remove mention of their name upon their
election.
---------------------------------------------------------------------------
\69\Exhibit 19 at 10-11.
\70\This argument could be considered a descendant of the arguments
Representative McKinley made prior to the issuance of the Committee's
advisory opinion, that architects and engineers are not fiduciaries
under West Virginia law. See Exhibit 17 at 2. This argument is infirm
for at least two reasons. First, the Committee is not bound by state
law determinations on the question of who is and is not a fiduciary;
state law is simply one authority among others to assist in answering
the question. The fact that another one of these authorities--the
legislative history of EIGA itself--specifically lists architecture as
one of the professions with which Congress was concerned is probably
enough to tilt the scales against Representative McKinley's argument on
its own. See House Bipartisan Task Force on Ethics, Report on H.R.
3660, 101st Cong., 1st Sess. at 16 (1989). But even if it were not
listed, West Virginia state law on architects is actually quite clear--
the licensure of architects requires that they meet the definition of
``good moral character,'' which is defined as ``such character as will
enable a person to discharge the fiduciary duties of an architect to
his client and to the public. ...'' W.V. Code 30-12-2(4) (emphasis
added). The fact that architects have a concomitant duty to the public
is of no moment--once state law holds them to a fiduciary standard with
respect to their individual clients, the question has been answered.
\71\Ethics Manual at 387.
---------------------------------------------------------------------------
Based on the foregoing, Representative McKinley violated
EIGA Section 502 and House Rule XXV by permitting the Firm to
continue to operate using his name.
B. HOUSE RULE XXIII, CLAUSES 1 AND 2
Normally, matters such as this are handled by the Committee
as a matter of advice and education, and that is how this
matter began. Representative McKinley received advice from the
Committee, in the form of informal staff-level guidance and in
the form of an official advisory opinion letter. The
Committee's letter carried with it a ``safe harbor'' for
actions Representative McKinley might have taken in accordance
with it.\72\
---------------------------------------------------------------------------
\72\See Committee Rule 3(k) (``The Committee may take no adverse
action in regard to any conduct that has been undertaken in reliance on
a written opinion if the conduct conforms to the specific facts
addressed in the opinion'').
---------------------------------------------------------------------------
Representative McKinley also received advice from his
former counsel, Mr. Kaiser. Mr. Kaiser's letter advised
Representative McKinley that he could engage in the course of
action he preferred--keeping the name ``McKinley & Associates''
on the Firm's door and selling the Firm, with that name, to the
ESOP. That is the course of action Representative McKinley
ultimately took. This course of action resulted in a number of
consequences that accrued to his benefit: the name ``McKinley &
Associates'' was a part of the Firm's valuation, increasing the
Firm's value when he sold it. Moreover, should Representative
McKinley leave Congress and return to his previous career, the
Firm still bears his name, easing his transition back to
practice. What this course of action did not accomplish,
however, was compliance with relevant statutes and House Rules.
If Representative McKinley had relied instead on the advice
provided by the Committee there would be little question of the
protection such reliance would have afforded him. Such
protection is, as mentioned above, written into the Committee
Rules and EIGA.\73\ Indeed, the Committee takes very seriously
its obligation to provide sound and dispassionate advice to the
Members of this House. Nothing in this Report should be read to
discourage Members from coming to the Committee with their
questions about the ethical ramifications of their conduct, and
the Committee has historically helped a great many Members
achieve the goals of their work while keeping within the
boundaries of the rules and the law.\74\ The disclosure in this
Report of Representative McKinley's appeals to that process is
not in any way a repudiation of the Committee's longstanding
commitment to providing Members with confidential counsel\75\
and safe harbor for acting in good faith in response to the
Committee's advice.\76\ On the contrary, the only way the
Committee can retain credibility in performing these services
for Members is to publicly address those rare situations in
which Members disregard the Committee's advice or fail to
disclose full and accurate facts during the advisory process.
Such is the case here.
---------------------------------------------------------------------------
\73\Committee Rule 3(k); 5 U.S.C. app. Sec. 503(1)(A).
\74\Comm. on Ethics, In the Matter of Allegations Related to
Representative Tom Petri, H. Rept. 113-666, 113th Cong. 2d Sess. at 9
(2014) (hereinafter Petri).
\75\See Committee Rule 7.
\76\See Committee Rules 3(k), (l); Petri at 6-9.
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However, relying on the advice of one's private counsel,
while it does not confer the same sort of safe harbor as
reliance on the Committee, can potentially mitigate the
seriousness of a violation, insofar as it makes it less likely
that a Member acted in bad faith. Members of Congress are
entitled, as all Americans are, to consult with an attorney to
inform their decision-making about a variety of situations. In
other contexts, courts have held that where someone ``(1) fully
disclosed all material facts to his attorney before seeking
advice, and (2) actually relied on his counsel's advice in the
good faith belief that his conduct was legal,'' such reliance
on the advice of counsel might show an absence of wrongful
intent or bad faith.\77\ The evidence suggests that
Representative McKinley did indeed disclose all pertinent facts
to Mr. Kaiser, and Representative McKinley appears to have
actually relied on the advice Mr. Kaiser gave him. However,
neither Representative McKinley nor Mr. Kaiser ever disclosed a
key fact to the Committee when seeking the Committee's guidance
on the Firm's name: the fact that if Representative McKinley
did not get the answer he wanted from the Committee, he
intended to sell the firm, with his name attached, to the ESOP.
---------------------------------------------------------------------------
\77\See, e.g., See United States v. Rice, 449 F. 3d 887, 897 (8th
Cir. 2006); see also United States v. West, 392 F. 3d 450, 447 (D.C.
Cir. 2004) (``A defendant may avail himself of an advice of counsel
defense only where he makes a complete disclosure to counsel, seeks
advice as to the legality of the contemplated action, is advised that
the action is legal, and relies on that advice in good faith.'')
---------------------------------------------------------------------------
Representative McKinley has asserted that his decision to
rely on Mr. Kaiser's advice, rather than the Committee's
guidance, was not made in bad faith. He further states: ``I
have since come to understand that the advice of my then
attorney in explaining and interpreting to me House Committee
on Ethics requirements and guidance, and my reliance on that
advice were mistaken. I regret relying on that advice.''\78\
The Committee appreciates this acknowledgement. But even
negligent violations of relevant statutes and House rules have
recently resulted in the issuance of letters of reproval.\79\
Further, Representative McKinley failed to take any steps to
determine whether his own attorney's advice was reasonable. He
never asked Committee staff whether selling the Firm would
resolve the problem with the Firm's name, and told the
Committee he was unaware whether his attorney asked that
question. (There is no evidence that he did).\80\ Had he asked
that essential, and obvious, question, the Committee could have
told him that he could not sell the Firm with his name
attached. Representative McKinley's failure to ask this
question is inexplicable in light of the advice he had
previously solicited and received from a former Committee
counsel--who was the counsel to two former Committee Chairmen--
that he would likely have to change the Firm's name to sell it.
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\78\See Exhibit 22.
\79\See, e.g., Comm. on Ethics, In the Matter of Representative Don
Young, H. Rept. 113-487, 113th Cong. 2d Sess (2014); Comm. on Ethics,
In the Matter of Allegations Relating to Representative Shelley
Berkley, H. Rept. 112-716, 112th Cong. 2d. Sess. (2012).
\80\The actions of Representative McKinley's attorney suggest that
even he may not have believed that selling the Firm would resolve the
legal prohibition against continuing to provide fiduciary services
while using the Member's name. On April 14, 2011, just three days after
Representative McKinley agreed to sell the Firm, Mr. Kaiser sent a
letter to Committee staff with additional arguments for the claim that
engineering and architecture are not fiduciary services. If Mr. Kaiser
believed that selling the Firm resolved these issues--and actually made
it impossible for Representative McKinley to change the Firm's name--
the natural reaction would have been to inform the Committee of the
sale and withdraw the request for a formal Advisory Opinion. Instead,
Mr. Kaiser continued to argue that Representative McKinley was not
required to change the Firm's name.
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The Committee has long stated that Members have a ``duty of
reasonable inquiry,'' which requires them to take ``reasonable
care'' to avoid violations of applicable standards of
conduct.\81\ That duty is heightened when a Member is ``placed
on notice of an ethical problem.''\82\ When a Member has such
notice of a potential problem, the Member should ask the
Committee, not a private attorney, for guidance. In these
circumstances, the Committee has found that a reproval may be
appropriate even when the Member sought legal advice from other
sources--but not the Committee--and where any violation of the
Rules or law was unintentional.\83\
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\81\See House Comm. on Standards of Official Conduct, In the Matter
of Representative Richard H. Stallings, H. Rept. 100-382, 100th Cong.
1st Sess. 5 (1987) (hereinafter Stallings).
\82\See id.
\83\In Stallings, the Committee found that Representative Stallings
was unaware of the applicable House Rule and had no intent to violate
it. Representative Stallings also contacted the Federal Election
Commission--but not the Committee--before taking the actions at issue,
and took steps to remedy his violation of House Rules when he was
informed of it. Based on these mitigating circumstances, the Committee
did not recommend a sanction, such as reprimand or censure, to be
issued by the House. However, the Committee still found that a public
reproval was warranted. See Stallings at 5-6. It is worth noting that
much of the mitigation found in Stallings--namely the Member's
ignorance of the applicable rule and his attempt to remedy the
violations once he learned of them--was not present in this matter. See
id.
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Here, Representative McKinley was placed on notice in
November 2010 that there was a problem with the name of his
company, McKinley & Associates, and that, pursuant to federal
law, the firm could not continue to operate under that name.
His attorney advised him that he could remedy this problem by
selling the company. This advice, which Mr. Kaiser did not
explain or provide any reasoning for, was contrary to the plain
meaning of the applicable federal statute, which provides that
a Member may not ``permit his name to be used by . . . a firm,
partnership, association, corporation, or other entity [that
provides professional services involving a fiduciary
relationship.]''\84\ By selling the Firm, with his name
attached, Representative McKinley did exactly that. Indeed,
this was the conclusion that another attorney, who was
previously a counsel to the Committee, gave to Representative
McKinley. In these circumstances, the duty of reasonable
inquiry required Representative McKinley, or his attorney, to
ask the Committee whether selling the company would resolve the
issue. Instead, when Representative McKinley was told that
staff would recommend the Committee issue an Advisory Opinion
that required the Firm to change its name, he decided to sell
the Firm quickly, with the name intact.\85\ Representative
McKinley never notified the Committee of this plan until it was
completed. Thus, Representative McKinley did not satisfy his
duty to inquire whether his actions complied with federal law.
Moreover, even if Representative McKinley believed his actions
were consistent with what the law required, that belief was
mistaken, as the Committee would have informed him, had he only
asked.\86\ In these circumstances, Committee precedent holds
that a public reproval is appropriate.\87\
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\84\5 U.S.C. app. Sec. 502(a).
\85\See Exhibit 6, at 18-19 (explaining that Representative
McKinley ``abandoned'' the plan to sell the Firm to the ESOP when he
believed the Firm's name would not have to change, and revived that
plan after receiving a contrary opinion from Committee staff on March
31, 2011).
\86\In his appearance before the Committee, Representative McKinley
was asked why he sold the Firm, 11 days after being told the Firm would
have to change its name, ``without waiting for a final opinion from the
people, the only people, who are entitled to give that opinion, and not
your attorney.'' Representative McKinley explained ``[m]y fear was
January 5,'' because he had been told he needed to resolve the issue of
the Firm's name before he took office. However, Representative McKinley
did not even submit his request for an Advisory Opinion until January
3, 2011, and his attorney continued to send legal briefs to Committee
staff after he entered an agreement on April 11, 2011, to sell the
Firm. More importantly, when Committee staff suggested that
Representative McKinley request a formal Advisory Opinion from the
Committee, they explained that the Committee's response would take some
time, but ``the [Firm] name can remain the same until the [advisory]
opinion is rendered.'' See Exhibit 11. The actual timing on the
transactions required to complete the sale of the Firm also raise
questions about Representative McKinley's claim that he felt the need
to act quickly. Representative McKinley told the Committee that the MOU
committed him to sell the Firm to the ESOP, but did not set a sale
price; that price could only be determined at the end of the calendar
year, and thus the sale could not be finalized before then. See Exhibit
6, at 25. Given this, it does not seem that rushing to sell the Firm--
before receiving the Committee's Advisory Opinion--would remove the
``January 5'' issue, as the sale could not be finalized until 2012,
regardless.
\87\See Comm. on Ethics, In the Matter of Allegations Related to
Representative Phil Gingrey, H. Rept. 113-664, 113th Cong. 2d Sess. 25
(2014) (finding violations of House Rules, and issuing a reproval, even
though ``the Committee credited Representative Gingrey's assertion that
he believed his actions were consistent with House Rules.''); Comm. on
Ethics, In the Matter of Allegations Relating to Representative Shelley
Berkley, H. Rept. 112-716, 112th Cong. 2d Sess. 10 (2012) (reproval was
appropriate even though ``[t]he ISC found that Representative Berkley
mistakenly believed the rules governing what assistance her office
could provide to her husband's practice required only that they treat
him in the same manner by which they treated any other constituent.'');
see also Stallings at 5-6 (Committee issued a public reproval where the
Member was unaware of the applicable House Rule and did not intend to
violate it).
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After considering all of the circumstances in this matter,
the Committee concluded that a letter of reproval is the
appropriate action both to express its dissatisfaction with
Representative McKinley's actions, as well as to encourage
Members to more properly utilize the Committee's advice
function.
C. EIGA SECTION 501
In addition to the problems that the Firm's name poses in
terms of EIGA Section 502 and House Rule XXV, the Firm
advertises to the public that it has performed work for certain
federal government clients, including the National Aeronautics
and Space Administration, United States Postal Service,
Department of Defense, ``Veterans Administration,'' Economic
Development Administration, Department of Housing and Urban
Development, Federal Aviation Administration, and Mine Safety
and Health Administration.\88\ In the Firm President's
interview and in the Firm's submission to the Committee, the
Firm indicated that only the U.S. Postal Service remains as a
client of the Firm. While the contracting process may not be
one that would be amenable to influence, the plain language of
Section 501 prohibits using the name of a Member in advertising
a business that practices before the United States. Here, that
name is a part of the Firm's advertising insofar as it is also
the name of the Firm, notwithstanding the fact that
Representative McKinley's full name no longer appears anywhere
else.
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\88\See McKinley & Associates, ``McKinley & Associates--Portfolio
(Government),'' available at http://www.mckinleyassoc.com/
government.htm (last accessed September 27, 2016).
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The Firm is not within the Committee's adjudicatory
jurisdiction. Nevertheless, in order to provide the Firm with
an opportunity of its own to comply with the law, the Committee
has authorized the Chairman and Ranking Member to send a letter
to the Firm informing them of its interpretation of the facts
and application to the law, and urging them to change the name
or cease working with the U.S. Postal Service.
V. CONCLUSION
Representative McKinley wanted the Firm to continue to
operate while he was a Member in the same fashion it had prior
to his election. It was the view of the Committee, and of the
Chairman and Ranking Member of the Committee in the 112th
Congress, that this was impossible under EIGA, at least as far
as the name of the Firm was concerned. The Committee
communicated this view to Representative McKinley repeatedly,
through a variety of channels. Two different staffers with
years of experience interpreting these rules advised him of
this interpretation, and the Chairman and Ranking Member of the
Committee adopted that interpretation formally in an advisory
letter to him. A former staff member of the Committee, who was
consulted by an NRCC official on Representative McKinley's
behalf, independently reached the same conclusion as the
Committee, and cautioned that the Firm likely could not be sold
to a non-family member without changing the name.
Representative McKinley also received advice from a private
attorney and relied on that attorney's counsel in taking a
course of action that diverged from the one recommended by the
Committee. The choice to follow his own counsel's advice,
rather than the Committee's opinion, ultimately led
Representative McKinley to sell the Firm with his name still
attached, which left him powerless to effectuate the
Committee's advice, and which effectively stymied the
Committee's oversight of a Member's compliance with EIGA.\89\
The Committee disapproves of such tactics.
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\89\5 U.S.C. app. Sec. 503(1)(A).
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Based on his violations of House Rules and federal law, the
Committee has sent a letter of reproval to Representative
McKinley for his conduct in this matter. The Committee has also
sent a letter to the Firm advising them of the Committee's
position with respect to the legality of the use of the name
``McKinley & Associates.'' Upon the issuance of these letters
and the publication of this Report, the Committee will consider
this matter closed.
VI. STATEMENT UNDER HOUSE RULE XIII, CLAUSE 3(C)
The Committee made no special oversight findings in this
Report. No budget statement is submitted. No funding is
authorized by any measure in this Report.
House of Representatives,
Committee on Ethics,
Washington, September 28, 2016.
Member's Personal Attention:
Hon. David McKinley,
House of Representatives,
Washington, DC.
Dear Representative McKinley: On September 27, 2016, the
Committee on Ethics (Committee) voted to issue you this letter
of reproval in response to your knowing disregard of the
Committee's advice regarding the name of your former
engineering and architecture firm, McKinley & Associates (the
Firm), in a fashion that resulted in a violation of House Rules
and the Ethics in Government Act (EIGA), 5 U.S.C. app.
Sec. 502(a). The Committee has also voted to adopt and publish
the attached Report to the House of Representatives.
The conduct for which you are being reproved includes your
choice to ignore advice provided by this Committee, given from
at least November 2010 until June 2011, both informally and in
a formal advisory opinion letter dated June 24, 2011, in which
the Committee counseled that the Firm should change its name,
given its fiduciary responsibilities and the consequences that
such responsibilities triggered under House Rules and EIGA.
Instead of complying with the advice of the Committee, which
has the sole authority under EIGA to administer these
restrictions for Members of the House, you chose not to change
the name of the Firm, and instead sold your interest in the
Firm, with the name intact. Further, you did not inform the
Committee of this action until after you had taken it.
With respect to this conduct, you violated 5 U.S.C. app.
Sec. 502, which provides that a Member shall not ``permit [his]
name to be used by'' firms providing professional services
involving a fiduciary relationship. Such behavior is also
prohibited by House Rule XXV, clause 2. In failing to comport
with this standard, you also violated House Rule XXIII, clauses
1 and 2, which state that ``[a] Member . . . shall behave at
all times in a manner that shall reflect creditably on the
House,'' and ``shall adhere to the spirit and the letter of the
Rules of the House.''
The Committee found that prior to your election to the
House, you worked as a licensed professional engineer at the
Firm, which you established and at which you were also an
officer and director. The Firm used the name ``McKinley &
Associates''' since 1989; prior to that, you operated a sole
practitioner's office in West Virginia, focused solely on
engineering services, known as ``McKinley Engineering,'' which
you folded into the Firm once it began offering architectural
services. Under West Virginia law, architecture is a profession
that involves fiduciary duties. While your father was also a
licensed professional engineer, and while you and your father
had informal professional relationships throughout your career
until his retirement, your father did not establish or co-found
the Firm, was never on the payroll of the Firm, and maintained
his own separate business when you started the Firm.
After you were elected to the House in 2010, you sought the
advice of Committee staff regarding the Firm. Staff's original
advice was that the Firm would need to change its name. You
disagreed with that advice, and responded to it in two
independent ways. First, you continued to dispute, through
counsel, the Committee's advice, in an attempt to change the
Committee's position. The Committee considered your arguments,
but you and your counsel were repeatedly advised that the
Committee would likely require you to the change the name of
the Firm.\1\ On June 24, 2011, the Committee issued a formal
advisory opinion to you, informing you that House Rules and
federal law required the Firm to change its name.\2\ Second,
based on your own counsel's legal advice, you began the process
of selling your interest in the Firm to the Firm's Employee
Stock Option Plan (ESOP), without changing the name. While you
and the Firm had contemplated the sale prior to your election
to the House, the process of selling the Firm took some time,
culminating in a formal agreement of sale on December 31, 2011
(six months after the Committee's advisory opinion), and a
closing date of April 30, 2012. Despite the Committee's advice,
at no point in the process of selling the Firm did you require
that the Firm change its name, based on the contrary advice of
your own lawyer, which misconstrued the rules and relevant
federal law. The Firm still uses the name McKinley & Associates
today.
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\1\You have contended that at some point in early 2011, in one
telephone conference with one Committee staffer, that staffer informed
you that you would not need to change the Firm's name. As more fully
discussed in the accompanying Report, the evidence of precisely what
transpired during that informal conference is unclear, and in any
event, cannot override the consistent and contrary opinion of the
Committee and its staff throughout the advisory process, much less the
formal advisory opinion issued later that year. On March 31, 2011, your
attorney was informed by Committee counsel that the staff would
recommend that the Committee issue a formal advisory opinion concluding
that you must change the Firm's name. You signed a Memorandum of
Understanding, in which you agreed to sell the Firm without changing
its name, 11 days later.
\2\The Committee's letter advised you that it would be permissible
to change the name of the Firm to ``McKinley Engineering,'' on the
basis that your father had operated a business using that name. As
discussed more fully in the accompanying Report, this was a factual
error that appears to be based largely on vague and confusing syntax in
a submission by your own lawyer. That factual error notwithstanding,
you did not choose to rename the Firm ``McKinley Engineering,'' and you
did not request that the Committee revise its opinion to accord with
accurate facts, despite notice and opportunity to do so.
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With respect to EIGA Section 502 and House Rule XXV, the
Firm used and continues to use your name while providing
fiduciary services. Specifically, architecture is a service
defined as one involving fiduciary responsibilities--both as a
matter of West Virginia law and within the legislative history
of EIGA itself The statute and House Rule were designed to
prevent conflicts of interest between a Member's duty to the
public and his fiduciary duties to his client. As a practical
matter, when Members are elected to the House and have
associations with these sorts of businesses, the Committee
consistently advises them that the appropriate course of action
is to cease receipt of any compensation and to remove their
name from the business and its materials.\3\ Having disregarded
this advice, you acted in a manner contrary to House rules and
federal law.
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\3\The Committee is aware of your position, taken repeatedly
throughout this process, that the Finn's name refers not only to you,
but to your father. Accordingly, you wish to rely on an exception to
EIGA and House Rule XXV permitting an entity that provides fiduciary
services to continue using the name of a Member where that name is
associated with a family business. The accompanying report provides a
fulsome view of the Committee's analysis of the family name exception,
but in short, it does not apply here. Your father's reputation in the
West Virginia engineering community notwithstanding, the facts of this
case demonstrate that the Firm is not named for your father. It is
named for you. EIGA prohibits the use of your name now that you are a
Member of Congress.
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Your disregard for the Committee's advice and processes not
only led to a substantive violation of these principles, it
impaired the Committee's function in enforcing the standards
set by your peers. Thus, your actions failed to comply with the
spirit and letter of House Rules, and did not reflect
creditably on the House.
Accordingly, based on your conduct in this matter, the
Committee has determined that you should be publicly reproved.
Now that this letter has issued and the Committee has publicly
noted its reproval of your conduct, the Committee has
determined that this matter is closed.
Sincerely,
Charles W. Dent,
Chairman.
Linda T. Sanchez,
Ranking Member.