2. NC House Speaker Tim Moore’s legal contract with start-up raises questions
BY DAN KANEdkane@newsobserver.com
September 24, 2018 03:34 PM
Updated September 24, 2018 05:36 PM
A short time into Anne Whitaker’s tenure as chief executive officer of KNOW Bio, a Triangle-based pharmaceutical start-up, she learned of a legal services contract given to an attorney she had never heard of.
The company already had lawyers handling internal and external matters and she didn’t understand why KNOW Bio needed yet another lawyer — one whose services she felt were of questionable value for a company that in early 2017 was barely a year old.
The lawyer was Tim Moore, a Cleveland County Republican and speaker of the N.C. House — one of the state’s three most powerful officials. When she learned the details of his contract and his work, which struck her as federal lobbying, she said she terminated it with the support of company board members.
“He was working on really, something about how [limited liability corporations] were treated, the tax treatment of LLCs, as well as trying to drive awareness around antibiotic resistance with, I guess with, the politicians, and trying to get incentives for antibiotics to be developed,” Whitaker said. “At least that’s what I understand his purpose was, but we were a small company, and to me it wasn’t a priority.”
Whitaker said KNOW Bio’s co-founder and board chairman Neal Hunter had given Moore the contract. What Whitaker, who left the company in April, said she didn’t know is that four years earlier, Moore as the powerful Rules Committee chairman had helped Hunter with a controversial development that was in danger of failing. Moore ran legislation that forced the city of Durham to provide water and sewer for the 751 South project, which will place 1,300 residences and 600,000 square feet of offices and shops on 166 acres near Jordan Lake.
Hunter sold the land to the developers, Alex Mitchell of Durham and Tyler Morris of Raleigh, for $18 million a decade ago. He received $8 million up front and financed the rest, with interest, and he obtained a non-voting share in their company. Hunter and Mitchell are cousins.
Mitchell is a friend and campaign supporter of Moore’s. In 2015, when Moore became speaker, the House voted Mitchell to the UNC Board of Governors. State election records show since 2013, Mitchell and his wife have contributed $30,300 to Moore’s campaign fund; Hunter and his wife have given $33,300.
In an interview, Moore would not confirm he previously had a contract with KNOW Bio, but he said he does not have the company as a client now. He said attorney-client privilege prevents him from identifying private clients. In addition, state ethics laws do not require state lawmakers who are private attorneys to identify their clients. The lawmakers do have to recuse themselves in votes involving their clients.
He insisted he has never improperly mixed his private business with his public responsibilities.
“Know this: Anytime I take on a client I ensure there are no conflicts with other legal matters I’m handling, and I’m always double extra careful to make sure there’s no conflicts or anything with my legislative role,” Moore said.
Jane Pinsky, director of the N.C. Coalition for Lobbying and Government Reform, said she is troubled by the financial connections between Moore and two of the 751 South project’s partners. She said Moore needs to be forthcoming about how he got the work, how much he was paid, what he did for KNOW Bio and any other financial ties between the principals.
“Without disclosure, it’s not going to pass the smell test for North Carolinians,” Pinsky said.
Hunter and Mitchell did not respond to several attempts by a News & Observer reporter to contact them via phone and letter over the past two weeks. The News & Observer tried to visit them at their homes, but they both live in a section of Colvard Farms where no-trespassing signs are posted.
A controversy-filled journey
The project’s mix of offices, shops, townhomes and single-family houses is being built within two miles of Jordan Lake, a man-made source of drinking water for much of the Triangle that has long been polluted by stormwater runoff. The project broke ground in April, but getting to that point was a long journey filled with controversy.Hunter originally owned the property, which is adjacent to Colvard Farms, a high-end housing community he previously developed that is continuing to expand. Hunter is a co-founder of Cree, an LED manufacturer, and is a well-known entrepreneur in the Triangle.
In 2006, Hunter won a land designation change for the property from Durham’s planning director, making it acceptable for development without the involvement of state officials. Hunter then sold the property to Mitchell and Morris.
The Durham county attorney later said the planning director lacked the authority to make the change. That triggered the start of a protracted battle that included lawsuits and the developers giving a slice of their land to the state transportation department to invalidate a protest petition from neighbors that might have killed it.
In the end, only the City of Durham stood in the way of the development by voting against extending city water and sewer. That’s when Moore stepped in with his legislation. It had failed by one vote in 2012 in the Republican-controlled state legislature but passed the following year. Only one lawmaker from Durham’s state delegation — state Sen. Floyd McKissick Jr. — voted for the legislation, and that was after he said helped negotiate some concessions from the developers.
The state law also requires extending water and sewer to Colvard Farms.
Moore said he pushed the legislation aiding the 751 South project because Durham had treated the developers unfairly. He said Durham had “overstepped the property rights of individuals who lawfully tried to develop their property.”
It was a rare example of state lawmakers stepping into local land-use matters. Gerry Cohen, an attorney who spent nearly all of his 37 years at the legislature as head of bill drafting before becoming a lobbyist in 2015, said he could only recall two other instances when lawmakers passed legislation affecting local land use.
Eugene Brown was a veteran Durham City Council member who cast the deciding vote against extending water and sewer services to 751 South in 2013. He said the legislature’s decision to “become our planning department” prompted his no vote.
He, too, said Moore’s legal work for KNOW Bio raises questions that need answers.
“I would suggest that sunshine is the best disinfectant, and more of it needs to be shined on this entire episode, including the past history and what’s happening currently,” Brown said.
The law and conflicts of interest
State ethics laws require many public officials to file an annual report disclosing potential conflicts of interest such as their employers and business partners. But the law does not require attorneys to disclose their clients. Instead, they must report the categories of law in which they earned more than $10,000. Fourteen categories are listed, as well as one for “other.”Moore’s report for 2017 doesn’t mention KNOW Bio. It shows he checked the categories of administrative, decedent’s estates, local government, tort litigation, corporate and criminal.
The law also requires reporting investments of $10,000 or more. Moore’s 2017 report shows a financial interest in Novan, the company KNOW Bio was spun from. Hunter is a founding investor and former chairman of Novan.
Moore confirmed he’s bought Novan stock, but he said he hasn’t made any money.
Whitaker said Hunter gave Moore the contract sometime before she joined KNOW Bio in February 2017. She said she does not have a copy of the contract and could not recall how much Moore was paid. She recalled meeting him, but she never sought any work product related to the contract.
“You wouldn’t normally find any sort of contract like that,” Whitaker said. “We’re a small, early-stage company with limited cash flow. It didn’t seem necessary and I didn’t want to take it any further, given the cost, and we didn’t need it. And I didn’t understand why the speaker of the House would be our consultant.”
She said she thought Moore’s work involved lobbying. Moore would be prohibited from lobbying his colleagues in the legislature, but he could lobby the federal government, so long as he registered as a lobbyist.
Federal records show he hasn’t done that. Moore confirmed he hasn’t, but said, in general, he could handle some federal government matters as a private attorney without having to register.
Whitaker said she brought the contract to the attention of some members of KNOW Bio’s board of directors. One of them, Harry Smith, a businessman from Greenville who is now chairman of the UNC Board of Governors, largely confirmed Whitaker’s account.
Smith said as part of joining the board and investing $1 million, he brought in John Oakley as the chief financial officer. Oakley had served in that role for Smith when he led Flanders Corporation. Smith said Oakley and Whitaker are highly qualified company executives.
Oakley and Whitaker reviewed the retainer agreement for Moore’s services and terminated it as part of what Smith called “minimizing cash-burn.”
“We stopped a lot of vendors,” Smith said. “We were trying to preserve and protect cash flow, and that’s the extent.”
Smith said he could not discuss how much money Moore had received and he did not know what work Moore had done for KNOW Bio. He said he knew little about Moore’s prior efforts to help the 751 South project, while Whitaker said she wasn’t aware of that controversy at all.
Smith and two others joined the board at the same time in mid-2017. He said all three left six months later, after Oakley and Whitaker had discovered Moore’s contract. Smith said his exit was not driven by Moore’s contract, and had to do with pursuing other opportunities he considered more lucrative.
One of those former board members is Haywood Cochrane, a biotech executive who is the current chairman of UNC-Chapel Hill’s board of trustees. He could not be reached for comment.
Public clients, private clients
Moore said he has about 100 to 150 clients in his law practice, which is based in his hometown of Kings Mountain in Cleveland County. He said he also has a small satellite office in Raleigh. The only clients he said he can talk about are public entities: Cleveland County, where he serves as county attorney; and the Cleveland County Water District.He said his other clients do not include companies or individuals with significant business interests before the legislature. A written opinion from state ethics officials clears him to work as Cleveland County’s attorney. He said he’s also received three informal opinions that haven’t been made public clearing him to represent other clients he said he couldn’t disclose.
“I like to err on the side of caution,” he said.
A decade ago, state lawmakers discussed whether disclosure of legal clients should be part of a package of ethics, lobbying and campaign finance reforms in the wake of the scandals in former House Speaker Jim Black’s administration. Black, a Matthews Democrat, served three years in prison for taking $25,000 in cash and a $4,000 check from chiropractors to push through legislation they sought; he had given some of the money to another House member to persuade him to switch parties and keep Black in power.
The lawmakers didn’t include client disclosure among the reforms.
“You run into the legal ethics of client confidentiality, which is so well-established over many generations that the conflict between full disclosure and full confidentiality was resolved in favor of the client,” said former Rep. Joe Hackney, a Democrat and Chapel Hill attorney who was House speaker when the reform package passed.
Client confidentiality can be important. An attorney may be helping a client in a criminal investigation that ultimately determines no crime was committed. But in other legal matters, the disclosure of an attorney-client relationship would cause little harm to a client while exposing potential conflicts of interest for an elected official.
Federal ethics rules, for example, require candidates who are attorneys in private practice to disclose clients who have paid more than $5,000 a year for their services. There are limited exceptions for situations in which that disclosure would cause harm to the client.
Whitaker said she left KNOW Bio in April after realizing it would take longer to bring a product to market than she had anticipated. Two months later, the Kilpatrick Townsend & Stockton law firm filed federal lobbying reports saying it was representing a company with the same name, but with a Morrisville address, on “tax policy on investments.”
Among the three lobbyists listed is Nelson Freeman, whose bio identifies him as a former top advisor to Moore on “tax policy, information technology policy, Alcohol Beverage Control, and economic development. “
He could not be reached for comment.
Brian Murphy of McClatchy DC contributed to this report.
Dan Kane: 919-829-4861, @dankanenando