December 19, 2001
Dear Madam:
Your letter has been referred to me for reply.
In my opinion the situation you describe would not constitute a prohibited conflict of
interests for the commissioner, although it might create the appearance of impropriety and cause
political problems. The requirement that wrecker services must either reside in the city or have
their businesses in the city, however, probably is preempted and thereby rendered invalid by
federal statutes that deregulated the motor carrier industry, including towing or wrecker
businesses.
There are two (2) general statutes that regulate conflicts of interest for municipal officials:
Tennessee Code Annotated, '' 6-54-107 and 12-4-101. These statutes are similar in all
respects pertinent to your inquiry. Both prohibit direct conflicts of interest, i.e. contracts between
the city and the official or a business in which the official is the sole proprietor, a partner, or a
person holding a controlling interest. In the situation you posit, it appears the contract is not
between the city and the wrecker service but between the owner or driver of the vehicle being
towed and the wrecker service. I doubt that the city’s maintenance of a list of wrecker services
as a public service and convenience when there is no consideration paid by the wrecker
company to be placed on the list would be considered a prohibited conflict of interests. If for
argument’s sake it is conceded that the inclusion of the commissioner’s company on the list is a
conflict of interests, then under the facts presented, the commissioner probably would come
under the “sole supplier” exception in '' 6-54-107(b) and 12-4-101(b). Under this exception, if
an official has what would otherwise be an unlawful direct conflict but is the sole supplier of
services in a municipality, the direct conflict is converted into an indirect conflict. To cure an
indirect conflict, the official must simply acknowledge the conflict publicly. The “sole supplier”
exception was placed in the law so that in small towns with only one (1) store or business Of a
particular type, the city would not be prohibited from contracting with that business simply
because the owner was on the city’s governing body.
The city’s requirement that wrecker companies must be located in the city before they will
be placed on the list appears to be a regulation of service that is preempted by federal law. In
1994 the U.S. Congress passed a preemption statute that is codified as 49 United States Code,
' 14501(c)(1). This section provides in pertinent part that “a State, political subdivision of a
State, or political authority of 2 or more States may not enforce a law, regulation, or other
provision having the force and effect of law related to a price, route, or service of a motor
carrier...with respect to transportation of property.” There are two (2) exceptions to this
preemption: (1) A “State” may enact and enforce safety regulations ( See 49 U.S.C. '
14501(c)(2)(A)); and (2) A State or political subdivision may enact and enforce regulations
relating to price of for- hire motor vehicle transportation by a tow truck if the transportation is
without prior consent of the owner or operator of the vehicle. (See 49 U.S.C. ' 14501(c)(2)(C)).
The Sixth Circuit Court of Appeals has interpreted these statutes in Petrey v. City of
Toledo, 246 F.3d 548 (6th Cir. 2001). The result of these statutes and the Petrey case is that
most business regulation of wrecker or towing companies has been preempted. For these
companies that are not contracting with the city, the only thing the city can regulate is the price of
non-consensual tows.
A solution that would take care of both the potential conflict of interests problem and the
preemption problem would be for the city to stop recommending wrecker companies and let the
vehicle operator choose his/her own. Another would be to let all wrecker companies be placed
on the list and let the vehicle operator choose from the list. If a wrecker company is left off the
list because of residency, it would probably have a cause of action for violation of its right not to
be regulated under the federal law. Another significant holding of the Petrey case is that the city
can be held liable under 42 U.S.C. ' 1983 for violating wrecker companies’ rights. 246 F.3d at
565.
I hope this information is helpful. If you have further questions, please call.
Sincerely,
Dennis Huffer
Legal Consultant