1. macdc Intercounty Drain Procedures Training
Drainage Board Dispute Resolution
Stacy Hissong
Lizzie Mills
Fahey Schultz Burzych Rhodes PLC
February 15, 2017
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2. Summary Significant Level of Responsibility Across the Board
Fiduciary Role
Statutory Conflicts
Dispute Resolution
Serving as a member of an intercounty drainage board brings with it a significant level of responsibility.
Many of the responsibilities are self-evident, such as the importance of establishing or maintaining a particular project, the commitment to provide open meetings and maintain public records, etc.
But an oft-overlooked issue is the fiduciary nature of a board members’ role, as well as the many statutory grounds that act as obstacles or outright prohibitions on participation by board members in certain cases.
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3. Fiduciary Duty At a minimum: Board members owe this fiduciary duty to
due care
loyalty
confidentiality
Board members owe this fiduciary duty to
the drainage board;
property owners; and
the public
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4. Fiduciary Duty – Due Care
Act in Good Faith
Voting
Legal duties
Fairness and diligence
Honesty
Avoiding conflicts of interest
Fiscal responsibility
The duty of due care requires members to act in good faith and with reasonable care carrying out responsibilities, which requires:
Fulfilling statutory duties;
Acting in an honest and non-discriminatory manner;
Protecting the financial interests of the board;
Casting informed votes on all decisions before the drainage district;
Engaging in fair dealings with disinterested skill, zeal and diligence for the benefit of the public; and
Avoiding conflicts of interest.
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5. Fiduciary Duty – Loyalty
Act in the best interests of the intercounty drainage board
Unity after a decision is reached
The duty of loyalty is inherent in administering government. This duty requires board members to act in the best interests of the intercounty drainage board, and to avoid acting contrary to those interests.
Each board member is required to conduct him or herself in manner that reflects the unity of the board behind any action taken by the board.
For instance, indicating disfavor of a board action—or refusal to follow-through on board action—undercuts the board member’s duty of loyalty to the board and drainage district.
Notably, if a board member feels that maintaining loyalty to the drainage board will in some capacity breach fiduciary duties owed to his or her county, the most apt remedy is to refrain from acting on the matter at the intercounty drainage board
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6. Fiduciary Duty – Confidentiality

7. Fiduciary Duty – Confidentiality
Protect confidential and sensitive drainage board information
Example: Attorney-client privilege belongs to the drainage board.
An individual board member must take care not to waive (or attempt to waive) this privilege.
An important part of a board member’s duties of loyalty and due care is the protection of confidential and sensitive drainage board information, such as a legal opinion from counsel to the board.
The attorney-client privilege is a personal privilege of the entire board as an entity; the privilege does not belong to a particular member of the board. This means that only the intercounty drainage board acting as a whole can waive the privilege.
An individual member breaches his or her fiduciary duty when releasing confidential or privileged communication without the board’s express permission. While such disclosure may not necessarily waive the inherent attorney-client privileged nature of the communication, it nevertheless harms the board as a whole, both in efficacy as a body, and in the public eye, if not in litigation.
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8. Consequences for Breaching Fiduciary Duties

9. Consequences for Breaching Fiduciary Duties
Civil liability (board and individual member)
Forced rescission of board actions
Resignation from office
Money damages
Criminal Liability (can be broad!)
FELONY (Neglect of duty; Failing to keep safe public money)
MISDEMEANOR (False Statements; Unauthorized expenses)
Breach of fiduciary duties
Forced rescission of board actions.
Resignation from office.
Civil court
Criminal Liability
Neglect of duty – felony punishable by up to 1 year of imprisonment or a fine of up to $1,000 per violation
Making false statements regarding finances - misdemeanor punishable by up to 90 days of imprisonment or a fine of up to $500, or both
Failing to keep safe public moneys – felony punishable by up to 2 years of imprisonment or a fine of up to $1,000, and potential continuing exposure to prosecution for embezzlement
Making unauthorized expenditures – misdemeanor punishable by up to 90 days of imprisonment or a fine of up to $500, or both
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10. Conflicts of Interest Under State Law
“The office of county drain commissioner is especially susceptible to conflicts of interest ” People v Barry, 53 Mich App 670, 682 (1974)
Disqualification
Type of Project.
Petitioned project
Maintenance project (with day of review)
Revision to drainage district boundary (with day of review)
Standard Basis for Disqualification:
Owning land liable for assessment or otherwise disqualified from making the apportionment of benefits
A commissioner is not disqualified if he merely holds a mortgage on land within the district.
Land owned by:
board member
spouse
child
Appointment of a Special Commissioner
Member must file with the probate court:
a copy of the project petition
a signed statement showing that the member is disqualified to act in making apportionment of benefits for the project
Within 15 days, probate court will appoint a special commissioner of an adjoining or nearby county to make the apportionment of benefits on the drain.
Special Commissioner then must make and file apportionments with the disqualified commissioner. The apportionment is adopted and subject to the standard rights of appeal.
Disqualified commissioner must furnish the Special Commissioner with a copy of the final order of determination.
Effect of Disqualification.
At a minimum, the member may not participate in apportionment proceedings.
In order to prevent or avoid entirely the appearance of impropriety, it has been the practice that a disqualified commissioner not participate in the entire process. This is consistent with the fiduciary duty owed to his or her county and the intercounty drainage board.
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11. Conflicts of Interest Under Sections 381-384 of the Drain Code
Type of Project
Basis for Disqualification
Notice of Disqualification
Appointment of a Special Commissioner
Effect of Disqualification.

12. Conflicts of Interest Under State Law
Section 601 of the Drain Code speaks to financial interest in contractor’s profit
Look for:
Arms-length transactions
Extent to which was solicited, and by whom
Timing of the arrangement (pre or post-bid?)
Consequences
Criminal misdemeanor
Removal from office – and ineligible to hold again
More than a personal benefit or gain to a member: focus on impact to contractor’s profit
Previous version of Section 601 only restricted the role in securing signatures on a petition for a new drain
Look for:
Arms-length arrangements
Extent to which the arrangement is solicited, and by whom
Timing of the arrangement (before, during or after bids, for instance)
Consequences:
Criminal misdemeanor
Removal from office
Ineligible to hold the office of drain commissioner again
Contracts of Public Servants with Public Entities, Act 317 of 1968
Contracts of Public Servants with Public Entities, MCL et seq, (“Act 317”) governs conflicts of interest arising out of contracts between public servants and public entities. Intercounty drainage board members meet the definition of a public servant, just as the board itself qualifies as a public entity for purposes of this law. Act 317 generally prohibits public servants from being interested in, soliciting, negotiating or approving contracts with the public entity they serve, with a few select exceptions to that general rule.
Act 317
No Contracts.
No Solicitation.
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13. Conflicts of Interest Under State Law
Contracts of Public Servants with Public Entities (Act 317 of 1968): Speaks to contracts between the drainage board and the board member(s).
No Contracts
No Solicitation

14. Conflicts of Interest, continued
More state laws:
Standards of Conduct for Public Officers and Employees (Act 196 of 1973)
Michigan Incompatible Public Offices Act (Act 556 of 1978)
Don’t Forget About Other Sources of Law and Regulation
County policy, resolution or ordinance
Contract language
Drainage Board Standards of Conduct
Act 196 of 1973 standards of conduct for public officers and employees.
Retaliation
Termination of employment or office
Withholding ordinary salary increases
Withholding ordinary promotions
Demotion
Transfer of employment location
It is noteworthy that the Act itself explains that it is “intended as a code of ethics for public officers and employees and not as a rule of law for public contracts.” It is important to review this Act and related County or other local policies, ordinances and similar employment related restrictions on board action
The Michigan Incompatible Public Offices Act was enacted to prohibit a public officer or employee from holding two or more positions that, when performing the duties of those positions, results in any of the following:
The subordination of 1 public office to another.
The supervision of 1 public office by another.
A breach of duty of public office.
If positions held by a member of the drainage board become incompatible, the member must resign one of the positions in order to cure the potential incompatibility.
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15. Conflicts of Interest and Board Disputes
Remember: It is the perception of a conflict of interest that drives public concern and fuels board disputes.
To reduce and prevent against actual and perceived conflicts of interests (and board disputes), consider adopting a board Standard of Conduct addressing:
Required disclosures
Expectations of conduct at meetings or with the press and public
Managing confidential information
Contact and communication by and for the board
Authority to consult or procure advice of legal counsel or other consultants
Notice of intent to rely on a deputy and clarification that a member is liable for the acts and omissions of his or her deputy
Rules pertaining to closed session attendance by non-board members
Recusal standards above and beyond minimum statutory obligations
Utilizing staff of a member county
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16. Dispute Resolution—Legal Action
Arbitration Board under Section 106
Composed of drain commissioners from unaffected counties.
Chairperson convenes arbitration board at MDARD
Legal Action
Costs
Time
Resources
Finality
Arbitration Board.
Composed of drain commissioners from unaffected counties.
Chairperson convenes arbitration board at MDARD, where they select 1 or 2 more disinterested members to join the arbitration board (the number selected must result in an odd number for the arbitration board).
The arbitration board then provides notice of and holds a public meeting to review the fairness of the apportionment. 
Legal Action is the ultimate dispute resolution mechanism, which is typically reserved to compel or prohibit acts/action, or seek recourse for past action or failure to act. If the board pursues legal action against one of its own board members, consider the responsibility of the board to provide counsel, if any, as well the significant cost and length of time required to pursue such action.
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17. Alternative Dispute Resolution
Mediation:
Arbitration:
Neutral third party
Most closely aligned with traditional litigation
Process is less formal.
Confidentiality
Legal Counsel
Focus on communication
Can be binding or non-binding
Voluntary and non-binding process
Extraordinarily limited review
Mediation:
Neutral third party facilitates dialogue in a structured process to allow the parties themselves to reach a conclusive and, ideally, mutually satisfactory agreement.
Process is less formal.
Confidentiality of the process is critical.
Mediators aid the parties in identifying interests (as opposed to positions), priorities, obstacles, and the like.
Focus on communication between the parties, relying on the mediator’s facilitative skills to overcome impasse at difficult stages.
Voluntary and non-binding process that can produce a binding agreement between the parties, if the parties so choose.
Arbitration:
Most closely aligned with traditional litigation, in that the rules of evidence, witness testimony and standard trial format is typically used.
Different perspectives presented to a private, independent third party (or panel of third parties) who will determine the resolution.
Typically utilize legal counsel to present the case for the parties
Can be binding or non-binding
Arbitrators are not per se bound by existing law or other arbitral decisions
Extraordinarily limited review by the court
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18. Questions? Stacy Hissong Fahey Schultz Burzych Rhodes PLC
4151 Okemos Road, Okemos, MI 48864
Tel: (517)
Website:
Lizzie Mills Fahey Schultz Burzych Rhodes PLC 4151 Okemos Road, Okemos, MI Tel: (517) Website:
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