The judge finds that Henry Duque was not dishonest but rules he should have known of the conflict of interest.

San Francisco Daily Journal

SAN FRANCISCO – In a tentative ruling, a San Francisco judge has ousted a state utility commissioner from office because he owned stock in a company regulated by the commission.

Public Utilities Commissioner Henry Duque’s broker bought the shares of Nextel Communications stock. Duque claimed he didn’t know Nextel was regulated by the PUC.

But he should have, Superior Court Judge Alfred Chiantelli ruled. Commissioners have a duty to detect any conflict of interest between their public responsibilities and private investments, Chiantelli said.

“Duque had a duty to keep himself informed of his investments so that he would not be in conflict with his position of trust,” Chiantelli wrote. “His failure to fulfill this duty should not serve as a defense, otherwise the law would encourage willful blindness and moral precepts would be undermined.”

Chiantelli also wrote: “This court does not find that Duque is dishonest. This is not a case of bad faith but bad judgment.”

The ruling, issued Tuesday, becomes final after 10 days.

       

Duque’s lawyer, Joseph Remcho, released a written statement vowing he will appeal the decision and seek a stay allowing Duque to maintain his post pending a higher court ruling.

“We are of course disappointed with the court’s tentative ruling,” wrote Remcho, a name partner at Remcho Johansen & Purcell. “But [we are] gratified that he found as a matter of fact that Commissioner Duque acted in an ‘honest belief’ that he was not violating any law. In our view, the law provides no penalty for innocently holding the stock, let alone the harsh remedy of exclusion from office.”

If Duque is indeed kicked out of office, Gov. Gray Davis would choose a replacement.

Duque, speaking through his secretary, declined to comment.

Plaintiffs attorneys championed the decision as a victory for the public at large. Pam Pressley, an attorney with the nonprofit Foundation for Taxpayer and Consumer Rights, said this was the first time a court had imposed a duty on public utilities commissioners to detect financial conflicts of interest.

“I do think it has finally vindicated the public’s interest in making sure officials remain clear of influence,” she said. “He’s the one who holds a position of public trust, and he’s the one who has the duty to know which companies are regulated.”

Duque’s broker bought 700 shares of Nextel, a wireless communications company, in May 1999. The buy was made without Duque’s knowledge, but he received a confirmation of the purchase a few days later.

Duque then called his broker, who said the FCC regulates the stock. Duque mistakenly concluded that the PUC did not also regulate the company, and he kept the stock.

In fact, the PUC regulates all public utilities in the state, including several aspects of the wireless communications industry.

Over the next year, issues concerning wireless carriers in general or Nextel in particular came before the PUC five times, according to Chiantelli. In some cases, Duque took no action. On at least one occasion, he voted against Nextel‘s interests, Chiantelli said.

In August 2000, in reaction to phone calls from a San Francisco Chronicle reporter, Duque directed his broker to sell the shares. He made a gross profit of about $70,000.

In a rare quo warranto lawsuit on behalf of the people of the state, the nonprofit foundation represented by Pressley filed a lawsuit seeking to throw Duque off the commission. People v. Duque, 318146.

The foundation pointed to the state Constitution, which prohibits commissioners from holding a financial interest in corporations they regulate. It also invoked the state Public Utilities Code, which provides any commissioner who acquires such an interest involuntarily a reasonable time to divest.

Much of Chiantelli’s opinion deals with the meaning of the term “voluntarily” in the statute. Duque argued that he didn’t violate the statute because his broker acquired the stock and because he wasn’t aware that the PUC regulated Nextel.

Chiantelli rejected both those arguments, saying if Duque didn’t know the extent of the PUC‘s reach, he should have. His ruling notes that Duque didn’t consult with PUC staff members who might have advised him about the conflict.

“The matter of which Duque claims ignorance is within the fair scope of expertise which he reasonably can be expected to possess as a Public Utility Commissioner,” the judge wrote. “To allow reliance upon one’s agent would be to encourage “stockbroker shopping,” collusion and other corruption.”

Chiantelli also tentatively ordered Duque to pay a $5,000 fine and the costs of the suit.

 Appointed by Gov. Pete Wilson in 1995, Duque is the sole Republican left on the PUC. The other four members are Davis appointees.

Before being appointed to the commission, Duque was vice president and senior marketing office for Trust Services of America and a senior vice president for the northern division of California Federal Bank. A biography on the PUC‘s Web site says Duque has taken a “hands on” approach to the job, including inspections of telecommunications sites throughout the state.