MEM QRANQQM

CALFO HARRIGAN LEYH & EAKES LLP

TO:      Craig Watson, General Counsel, Port of Seattle

FROM:   Timothy G. Leyh and Katherine Kennedy'w /M__

DATE:    September 10, 2012

RE:      Port CEO's Participation on Expeditors' Board

1.      Issue and Short Answer

This memo addresses the issue of whether the Port of Seattle's Code of Conduct:

Workplace Responsibility Employee Handbook ("Employee Code of Conduct"), Code of Ethics

for Port Commissioners ("Commissioners' Code"), or RCW 42.23, Washington's Code ofEthics

for Municipal Ofcers ("Statutory Ethics Code"), preclude Port CEO Tay Yoshitani from sitting

Inc. ("Expeditors"), a for-
on the Board of Directors of Expeditors International of Washington,
profit corporation. We conclude that there is no ethical prohibition under the circumstances

presented here, as described below.
I].    Assumed Facts

of $367,000. Mr.
Tay Yoshitani is CEO of the Port of Seattle, receiving an annual salary

Yoshitani's employment contract with the Port permits him to participate in an outside

corporation's Board of Directors. The contract states, in pertinent part:

of
During the term of this Agreement, CEO may on his own time (e.g. after close
business or while on Paid Time-0ft), participate as a member of a Board of
Directors for a private entity; provided, that prior to accepting such appointment,
the Port's General Counsel determines that CEO's participation would not create
is contrary to any other provision of
or appear to create a conict of interest, or
the Port's Code of Ethics for Employees.

We understand that the term allowing Mr. Yoshitani to serve on a private company board was

specically negotiated as part of his current employment agreement, which was approved by the
Port Commission in 2011. We understand that Mr. Yoshitani regarded this term as material to

his decision to remain with the Port. We think a reviewing court would nd these facts

signicant, because they suggest a particular focus on this right as a part of Mr. Yoshitani's

employment agreement.
In August 2012, the Expeditors Board of Directors announced that it had elected Mr.

Yoshitani to its nine-member Board of Directors, effective August 6. Mr. Yoshitani was

simultaneously appointed to Expeditors' Audit Committee, Compensation Committee, and the

Nominating and Corporate Governance Committee. We understand that Mr. Yoshitani did not

solicit the invitation to the Board; it was advanced by Expeditors in light of Mr. Yoshitani's

extensive experience and unique perspectives on international trade.

Board membership requires attendance at four meetings a year. The Board provides

overall management of the "affairs, property and interest of the corporation" and is not involved

in day-to-day operations. The Committees are vested with such powers as the Board designates,

but may not usurp the functions of the Board. Expeditors pays its directors, including Mr.

Yoshitani, a $30,000 a year retainer, plus $1,000 for each day they attend board meetings or do

other company work, and gives them restricted stock each year, potentially worth $200,000.

Mr. Yoshitani, on May 21, 2012, provided a Conflict of Interest Disclosure Form to the

Port, stating:

I have joined the board of directors of Expeditors International. Expeditors is a
It has no contracting
company specializing in seabom [sic] cargo logistics.
relationship with the Port of Seattle and as a member of the board I do not
anticipate any circumstance that would lead to a conict or perceived conict
with my rol[e] as Port of Seattle CEO. I[t] any such circumstance does arise I
understand that I would recuse myself from participation in that matter on behalf
of Expeditors lntl.

The Port's General Counsel conducted an analysis of the Port's Code of Ethics for Employees

("Employee Code of Conduct") and RCW 42.23, and concluded that "CEO Yoshitani has

fullled his obligations under contract, statute and policy."I

Expeditors is an international company offering air and ocean freight consolidation and

forwarding, vendor consolidation, customs clearance, cargo insurance, distribution, and other

logistics services. It is a Fortune 500 company with more than 13,000 employees worldwide.
We understand that in 201 1, about 37% of Expeditors' consolidated net revenues were

from airfreight services, either as a freight consolidator or an agent for the airline that carries any

given shipment. When acting as a freight consolidator, Expediters purchases cargo space from

airlines and resells that space to its customers.

About 23% of Expeditors' consolidated net revenues were attributable to ocean freight

services. Among other ocean freight functions, Expeditors operates an entity that contracts with

number of containers between various
ocean shipping lines to obtain transportation for a xed
points at an agreed rate. The company also may prepare documentation, procure insurance,
consultation.
arrange for packing and crating services, and provide

The remaining 40% was attributable to customs brokerage and other services. The

documentation,
company assists importers to clear their shipments through customs by preparing
calculating and providing for payment of duties and other taxes on behalf of the importer,

arranging for the required government inspections, and arranging for delivery (as well as other
valueadded services at destination).


I
In that analysis, General Counsel Craig Watson notes that Mr. Yoshitano was "ofcially invited to join the board"
of Expediters in August 2012. Mr. Yoshitani's Conict of Interest Disclosure Form in May 20l2 stated that he
We understand
already had joined the board, while in fact he was not formally elected to the board until August.
that Mr. Watson, in the Spring of 2012, provided Mr. Yoshitani with an oral opinion stating that there would be no
ethical violations, and that Mr. Watson's written opinion was provided when Mr. Yoshitani was, in fact, elected to
the board.
3

The Port of Seattle is a public agency whose primary mission is to invest public resources

to advance trade and commerce, promote industrial growth, stimulate economic development,

and createjobs. The Port owns and operates cargo and airport facilities, marinas, parking

four thousand acres of industrial
garages, conference facilities, and grain terminals, as well as

and commercial property.

Expeditors has no contracts or other direct relationship with the Port of Seattle, although

Expeditors has contracts with shippers who use Port of Seattle facilities.
[11.   Legal Authorities and Analysis

A.   General Standards.
According to Eugene McQuillian, The Law ofMunicipal Corporations  122173.22 (3d
ed. 2012),

[p]ublic condence requires that municipal ofcials avoid conicting interests
that convey the perception that a personal rather than the public interest might
affect decision-making on matters ofconcem. Ofcials must be free of even the
potential for entangling interests that will erode public trust in government
actions. Thus, it is the potential for conict, rather than proof of an actual conict
or of actual dishonesty, that commands a public ofcial to disqualify himself from
acting on a matter of public interest.

The general rule is that there should be strict enforcement of conict of interest
statutes so as to provide a strong disincentive for officers who might be tempted
to take personal advantage of their public ofces. The test for disqualication is
fact-sensitive and depends on whether, under the circumstances, a particular
interest had the likely capacity to tempt the official to depart from his sworn
public duty.
Mr. Yoshitani's relationship with the Port is governed by his employment contract, which

was approved by the Port Commission, including the provision that Mr. Yoshitani could, on his

own time, participate as a board member for a private entity as long as the Port's General

Counsel determined that such participation would not create or appear to create a conict of

interest or otherwise violate the Port's Code of Ethics for Employees (in the Code of Conduct).

Mr. Yoshitani has complied with the requirements of his employment contract, obtaining an

opinion from General Counsel that the CEO's participation on Expediters' Board of Directors
violates no relevant ethical rule. If the Port Commission sought to force Mr. Yoshitani from

Expediters' Board of Directors after it specically approved the contract permitting Mr.
Yoshitani to so serve, the Port could be faced with a breach-of-contract lawsuit.

B.   Employee Code of Conduct: Workplace Responsibility Handbook

The Port's Employee Code of Conduct (referred to in Mr. Yoshitani's employment

contract as "the Port's Code of Ethics for Employees") applies to all employees, including the

CEO, requiring that they "serve the Port with the highest standards of ethical conduct and . . .

avoid situations that create a real or perceived 'conict of interest." The Code states that "the

Port's interests [must] come rst," and requires employees to disclose all potential conicts of

interest as well as to report any potential violations.

In particular, the provisions of the Code of Conduct addressing "Employee Ethics and

Conict of Interest" state:

A "conict of interest" exists when an employee's duty to give undivided loyalty
to the Port is inuenced, or could be inuenced, by personal interest. The fact of
a conict of interest is not in itself a violation of the policy. Instead, it is
something that should be reported (see Section IV) so the Port may ensure that
decisions are not made that could be inuenced by the conict of interest, or
perceived to have been inuenced by it.

Port employees must avoid real, or perceived, conicts of interest between their
private activities and their duties and responsibilities as employees. At a
minimum, potential conicts should be reported so that the Port may consider
what, if any, actions should be taken to ensure that decisions are not inuenced
(or perceived to be inuenced) by personal interests.
While the Code of Conduct addresses "perceived" conicts as well as "real" ones, the

perception of a conict must meet an objective, "reasonable person" standard. A conict must
be either actually apparent or reasonably apparent based on the actual facts, not supposition. See

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Code at III ("Employees must avoid circumstances in which it appears, or to a reasonable person

might appear, that the employee is requesting or otherwise seeking special consideration,
treatment or advantage because of the employee's position with the Port"); see also, Tatham v.

Rogers, 2012 Wash. App. LEXIS 1939 (Aug. I4, 2012) (under the appearance of fairness

doctrine, the test to determine whether "impartiality might reasonably be questioned is an

objective test that assumes that 'a reasonable person knows and understands all the relevant

facts."').

The Employee Code of Conduct gives examples of di'erent types of actual and potential

conicts. "Conicts from business relationships" may arise when an employee "has a Financial

with
or Benecial Interest in . . . an organization that competes with the Port, is doing business

the Port; or plans to do business with the Port." No employee may have a nancial or benecial

interest, direct or indirect, in any contract by "or for the benet of the Port." The Code of

Conduct also precludes an employee from "participat[ing] in any decision-making, review,

approval, selection, authorization or supervisory activity concerning any contract or Port
transaction in which he/she                             "Financial or Benecial
. . .
has a Financial or Benecial Interest."

Interest" is dened to include an "ownership interest in an amount or value in excess of $1,500,"

althoughunlike the Commissioners' Codethe denition does not expressly mention

ownership of stock. The Code of Conduct does state that employees should "avoid owning

interests in or operating companies that compete with the Port, or that sell (or plan to sell)

products or services to the Port, other than minimal amounts of stock in publicly-traded

companies)"

Mr. Yoshitani stated in his Conict of Interest Disclosure Form that neither he nor any

relative has any nancial or business interests in Expeditors, and that Expeditors "has no

contracting relationship with the Port of Seattle." Even if the CEO's stock ownership in

Expeditors (after he began service on the Board) is considered a nancial or business interest, we
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understand that Expeditors does not compete with the Port, do business with the Port, or plan to

do so. The "direct or indirect" language of this Policy modies "nancial or benecial interest"

in a contract, and because there apparently are no contracts or other direct dealings between

Expediters and the Port, the language would not apply here.
The Code of Conduct also states that "conflicts from outside employment" may arise

from "[w]orking with any organization that has a business relationship with the Port, or seeks to

have one, [where] that business receives, or may receive, more favorable treatment as a result of

the employee's relationship with the business."

As a result, working for those with whom the Port has a business relationship is
prohibited unless expressly approved in writing by the Workplace Responsibility
Ofcer.

Even if outside employment is with an organization that does that does not have a
business relationship with the Port, conicts of time and energy may arise.
Accordingly, salaried, exempt employees must obtain prior written approval from
his or her Department Head before holding ajob with another organization. If
such approval is granted, the employee acknowledges that satisfactory job
performance with the Port must be maintained and that no conict of interest can
exist. (Emphasis added.)

All employees with other jobs will continue to be judged by the same
performance standards and will be subject to the Port's scheduling demands,
regardless of any existing outside work requirements. If the Port determines that
the
an employee's outside work interferes with performance or the ability to meet
Port's changing requirements, employees may be asked to terminate outside
employment in order to continue employment with the Port.
The "time and energy" considerations of this provision could be implicated in Mr.

Yoshitani's case even if Expeditors has no business relationship with the Port. Under his

employment contract, however, Mr. Yoshitani may participate in Expeditors' matters on his own
time (e.g., after close of business or on his time off). The fact that Mr. Yoshitani's contract with

the Port specically allows him to participate on a private entity's Board, provided that General

Counsel determines that such a role will not "create or appear to create a conict of interest, or is

the
contrary to any other provision of the Port's Code of Ethics for Employees," corroborates

conclusion that Mr. Yoshitani has complied with the Employees' Code of Conduct regarding

"conicts with outside employment."

Another provision of the Code, "Use of Position for Personal Benefit," addresses the type

of conict that may arise "when an employee is in a position to exploit his or her role with the

Port to advance his or her personal interest."

Employees must avoid circumstances in which it appears, or to a reasonable
otherwise seeking special
person might appear, that the employee is requesting or
consideration, treatment or advantage because of the employee's position with the
Port.

It could possibly be argued that Mr. Yoshitani used his position as Port CEO to obtain the

"special privilege" of serving on Expeditors' Board. However, I have found no authority for the
notion that membership on a board (particularly when expressly permitted by an employment

contract) is a "special privilege" within the contemplation of the ethics rule; the term appears

intended, instead, to refer to such things as "abuse of ofce" by doling out "favors" contrary to

law and the public interest. See. e.g., Hubbard v. Spokane County, 146 Wn.2d 699, 50 P.3d 692

(2002) (County planning director waiving compliance with zoning laws for a hotel development

could constitute giving a "special privilege" to another, contrary to RCW 42.23.070(1)).

Furthermore, the Expeditors' Press Release announcing Mr. Yoshitani's election to the Board

cited his "wealth of experience and a distinctive set of talents" that qualified him for the position,

as well as his "unique" perspective on international trade. These were the motivating factors for
Expeditors' action with regard to Mr. Yoshitani, not his current position at the Port.
The Employee Code ofConduct, in "Duty to Report Conicts of Interest," reiterates that

"the fact of a conict of interest is not, in and of itself, a policy violation. Rather, it is the failure

to disclose a real or potential conict of interest, and/or taking action on behalf of the Port when

there is a real or perceived conflict of interest that is of concern to the Port." No "real" conict

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of interest has been identied here, and Mr. Yoshitani provided the Port with a "Conict of

Interest Disclosure Form" agreeing to recuse himself in the event of an actual or perceived

conict.

The Code states that after disclosure, the "Workplace Responsibility Ofcer" should

"document the disclosure and determine any steps that should be taken to avoid the employee's

participation in any decision." Mr. Yoshitani's contract effectively gave that role to the Port's
General Counsel. The General Counsel documented the disclosure and conducted an analysis.

He concluded that that there was "no direct conict," and indeed that "a thriving Port of Seattle

is directly aligned" with Expeditors' business strategies. He stated: "It can even be argued that

CEO Yoshitani's participation on the Expediters Board will give him a unique insight into the

needs of businesses engaged in the shipment of goods that will benet the Port." Any potential

for a perceived conict was cured by Mr. Yoshitani's "express commitment to recuse himself

from participation in any Expeditor's matter." These conclusions appear reasonable under the

circumstances.

C.   Commissioners' Code

The Code of Ethics for Port Commissioners was enacted by Resolution 3583 on

September 11, 2007. While it does not by its terms apply to the Port's CEO, its standards likely
are applicable to him at least by analogy.2 The Preamble states, in pertinent part:

The Code is intended to provide guidance in the event of conicts between a
Commissioner's personal or professional interests and the interests of the Port. It
is not intended to be comprehensive in scope addressing every perceived conict
or issue; rather, it should be viewed as a framework which Commissioners and the
public can apply to particular circumstances. Commissioners are elected ofcials
entrusted with public condence.

2
It is not referenced in Mr. Yoshitani's employment contract, which requires that the Port's General Counsel
determine that "CEO's participation [in a private entity] would not create or appear to create a conict of interest, or
is contrary to any other provision of the Port's Code of Ethics for Employees (i.e.. the ethics provisions in the Code
of Conduct: Workplace Responsibility Employee Handbook).

9

It is assumed and expected that a Commissioner will act in accordance with
applicable law and with integrity, and will strive to avoid any appearance of
impropriety in the conduct of his/her ofce. Ultimately, ethics for Port
Commissioners are a matter of personal honesty, common sense and good
judgment. Neither this, nor any other code, can be an adequate substitute for
those attributes.3

The Code's "Standard of Conduct," Section 2, adds:

A Commissioner shall perform his/her ofcial duties consistent with the highest
standards of ethical conduct and in accordance with the Port of Seattle By-laws, in
of King
a manner that reects the duciary duty to the Port and the residents
County that is required and expected of elected ofcials.
In its "Conict of Interest" provisions, Section 4, the Code prohibits Port Commissioners

from knowingly engaging in activities "which are in conict, or which have the potential to

create a conict, with the performance of ofcial duties." Such a conict, for example, may

exist where a Commissioner "inuences . . . the conduct of business between the Port and any

entity when the Port Commissioner . . . ." The Code. . . has a Financial Interest in that entity

denes "Financial or Benecial Interest" to include an "ownership interest (including without

limitation, ownership evidenced by stock purchase) in an amount or value in excess of $1500

In addition, Section 3, "Use of Ofce," parallels the prohibition in the Employee Code of

Conduct and RCW 42.23.0700) against using a Port ofce to obtain special treatment for

another entity (among other prohibitions). The relevant language is as follows:

A Port Cormnissioner shall not use his or her position to secure special privileges
or exemptions for himself, herself, members of his/her Family or others.

The circumstances here, however, do not appear to implicate these prohibitions. Because

Expeditors has no direct relationship or any contracts with the Port, and Mr. Yoshitani has

3
The Commissioners' Ethics Code creates a Board of Ethics comprised of ve members, none ofwhom is a Port
Commissioner or employee, empowered to receive and investigate any suspected or alleged violation of the Code
and render written opinions. including advisory opinions regarding questions of ethics and conicts of interest.
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pledged to recuse himself from any situations that pose actual or perceived conflicts of interest,
Mr. Yoshitani presumably will not be in a position to "influence the conduct of business"

between the Port and Expediters, or use his Port position to secure "special privileges or

exemptions" for Expeditors, despite his ownership of stock in the corporation. Furthermore, as

discussed above, it is unlikely that Mr. Yoshitani could be found to have violated this provision

by using his position as Port CEO to obtain the "special privilege" of serving on Expediters'

Board. Mr. Yoshitani did not solicit the Board position, but (as stated in an Expeditors Press

Release) was elected in view of his wide experience and unique perspective on international

trade.

D.   Statutory Ethics Code (RCW 42.23)

The provision in Mr. Yoshitani's employment contract permitting him to sit on the board

of a private corporation under certain circumstances is not dispositive of the ethics issue, nor is

compliance with the Port's Employee Code of Conduct or Commissioners' Code, unless those

provisions incorporate and/or are consistent with state ethics law. In fact, the Port Codes are

very similar to RCW 42.23.

RCW 42.23.030, "Interest in contracts prohibitedExceptions," states, in relevant part:

No municipal ofcer shall be benecially interested, directly or indirectly, in any
contract which may be made by, through or under the supervision of such ofcer,
in whole or in part, or which may be made for the benet of his or her ofce, or
accept, directly or indirectly, any compensation, gratuity or reward in connection
with such contract from any other person benecially interested therein.

In addition, RCW 42.23.070, "Prohibited Acts," states:

(1)   No municipal ofcer may use his or her position to secure special
privileges for himself, herself, or others;

(2)   No municipal ofcer may, directly or indirectly, give or receive or agree
to receive any compensation, gift, reward, or gratuity from a source except
the employing municipality, for a matter concerned with or related to the
ofcer's services as such an officer unless otherwise provided for by law.

ll

(3)   No municipal ofcer may accept employment or engage in business or
professional activity that the ofcer might reasonably expect would
require or induce him or her by reason of his or her ofcial position to
disclose condential information acquired by reason of his or her ofcial
position.

(4)   No municipal officer may disclose condential information gained by
such
reason of the ofcer's position, nor may the ofcer otherwise use
information for his or her personal gain or benet.

A provision that potentially could apply in the current circumstances is RCW 42.23.0700),

whichlike similar provisions in the Employee Code of Conduct and the Commissioners'

Codeprecludes use of an ofcer's position to secure "special privileges or exemptions   for
. . .
others," i.e., for the private corporation on whose board a municipal ofcer sits.

In Hubbard v. Spokane County, 146 Wn.2d 699, 50 P.3d 692 (2002), the Washington

Supreme Court applied that provision to nd genuine issues of material fact regarding whether a

County planning director violated RCW 42.23.0700) by allegedly ignoring zoning requirements

for the benet of "others," i.e.. a hotel developer. even though there was no evidence that the

planning director had any interest in the hotel development.

Hubbard involved a claim for wrongful termination in violation of public policy, where

plaintiff claimed the public policy was stated in the Ethics in Public Service Act. The Court of

Appeals held there could be no such claim because of the absence of any interest by defendant in
the hotel development. The Supreme Court reversed, holding:

RCW 42.23.0700) creates a valid public policy in favor of prohibiting municipal
ofcers from granting special privileges or exemption to others. In so holding,
we recognize the burden this may place on public ofcials. However, because
public ofcials serve the interests of the citizens of Washington, consistent with
the Ethics in Public Service Act, we nd it appropriate to hold them to a high
standard.



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1d. at 713. The Court noted that RCW 42.23.070, as original enacted, addressed only conict-of-

interest situations, but in 1994, it was amended to include the prohibition on use of an ofcial

position to obtain special privileges for others.
Under RCW 42.23.070( 1) and the case law applying it, the analysis of Mr. Yoshitani's

potential ethical violations cannot be limited to contractual conict-of-interest situations. Mr.
Yoshitani also may not use his position as Port CEO to "secure special privileges or exemptions"

for Expeditors or himself. Again, the fact that the Port does not deal with Expeditors is relevant

to the remote likelihood that Mr. Yoshitani would be in a position to seek special treatment for

the corporation. And his commitment to recuse himself from any "conict or perceived conict"

situation would obligate him in any situationif any were to arisewhere Expeditors could

potentially receive special treatment.
This conclusion is buttressed by Citizensfor Des Moines, Inc. v. Petersen, 125 Wn. App.

760, 106 P.3d 290 (2005), where Division 1 of the Court of Appeals held that a City Council

member did not violate the "benecial interest in a contract" provision of RCW 42.23.030 when

there was no contract between the City and the towing company owned by the councilmember.

In that case, the City's police had historically called on "Pete's Towing" for towingjobs, but

there was no contract between the City and Pete's.

There is no evidence in this record that Councilman Petersen self-dealt with
respect to any individual towing transaction or with respect to towing transactions
generally. Instead, after Peterson took ofce, towing transactions were handled as
they had been for decades previouslypolice ofcers and other authorized city
staff decided which towing company to call, and not because Petersen took office
but because they had always done it that way, they almost always caused Pete's
towing. Thus, the trial court's ruling (nding a violation of RCW 42.23.030) is
tantamount to a ruling that, given the preference among city police and other
authorized officials to use Pete's Towing due to the superior service it provided,
Petersen was simply disqualied 'om serving as a city council person for so long
as he held any interest in Pete's Towing.


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The City of Des Moines has not made any such contract, express or implied, with
Pete's Towing. . . . Not only has Councilman Petersen engaged in no self-
dealing, but even if inclined to do so, his ability, and that of the city council as a
whole to affect the exercise of discretion by police is limited, both by statute and
the Fourth Amendment.

Id. at 766, 768-69.

Similarly, in In re. Petition to Recall Cynthia Olsen, 154 Wn.2d 606, 116 P.3d 378

(2005), the Washington Supreme Court held that the "benecial interest" provision ofRCW

42.23.030 did not apply to noncontractual acts or decisions by a Port commissioner who had

voted on a motion for the Port District to defend and indemnify the commissioner in an action

alleging violations of the Open Meetings Act. The Court held that the decision to indemnify did
not involve a contract; "we cannot see how Olsen has a benecial interest in a contract between

the port and counsel." 1d. at 612-13.

Mr. Yoshitani cannot be prohibited, under his employment contract and the various ethics

rules discussed herein, from serving on the Expeditors Board and committees when Bxpeditors

has no contractual or other relationship with the Port. The CEO has committed to recuse himself

from participating in any situations that would involve a conflict or perceived conict between

the Port and Expeditors. He cannot reasonably be foreclosed from sitting on Expeditors' Board

of Directors on his own time.








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