Are the Maryland Legal Services Corporation's board members and staff bound by the state's public ethics law?

Plain-English summary

The Chairman of the newly created Maryland Legal Services Corporation asked the Attorney General whether the Corporation, its board of directors, and its employees were subject to Maryland's Public Ethics Law. The opinion concluded they were not. Even though the Corporation had some government-like features, a board appointed by the Governor with Senate consent, open-meeting requirements, and reporting obligations to the Governor and legislature, the statute that created it, the Maryland Legal Services Corporation Act, structured it as a nonstock, nonprofit corporation similar to other charitable organizations rather than as a state executive agency. The Act expressly stated that board members were not state officers or employees, that the Corporation's employees were not state employees, and that the Corporation itself was not a state department, agency, or instrumentality, and the opinion found nothing in the Act creating an exception for ethics-law purposes.

Currency note

This opinion was issued in 1982. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The opinion applied Article 40A (Maryland's Public Ethics Law) and the newly enacted Article 10, sections 45A through 45-O (the Maryland Legal Services Corporation Act), both as they read shortly after the Corporation's creation in 1982. Maryland's ethics law and the statutes governing the Legal Services Corporation have likely been recodified or amended since 1982. Anyone researching whether the Maryland Legal Services Corporation or a similar entity is currently subject to state ethics or conflict-of-interest rules should verify the current statutory text rather than relying on this opinion's 1982 analysis.

Common questions

Why wouldn't a corporation created by state law and appointed by the Governor count as a state agency?
The opinion explained that Maryland's Public Ethics Law applies to "executive agencies," a term defined to mean government bodies that are part of state government but not the legislative or judicial branch. The Legal Services Corporation Act, by contrast, deliberately structured the Corporation as a nonstock, nonprofit corporation with powers under Maryland's general nonprofit corporation law, similar to other charitable organizations that happen to be established under state law but are not part of the government itself.

Did the statute itself say anything directly about this?
Yes, and the opinion treated this as decisive. The Act expressly stated that the Corporation's board members are not officers or employees of the state, that the Corporation's employees are not state employees, and that the Corporation itself is not a state department, agency, or instrumentality, except where the Act itself says otherwise. The opinion found no provision in the Act creating such an exception for ethics-law purposes.

What other features convinced the Attorney General this was a nonprofit, not a state agency?
The opinion pointed to the Corporation's tax-exempt status, its authority to hold and dispose of money and property in its own name, and the fact that if the Corporation dissolved, its assets would go to another similar tax-exempt charitable organization rather than reverting to the state treasury, features the opinion said would be superfluous or out of place if the Corporation had been designed as an ordinary state agency.

Background and statutory framework

The Maryland Legal Services Corporation was created by Chapter 829, Laws of Maryland 1982, effective July 1, 1982, which enacted new sections 45A through 45-O of Article 10 of the Maryland Code, the Maryland Legal Services Corporation Act. The Act's primary purpose was to establish the Corporation as a nonstock, nonprofit corporation to receive and distribute funds to grantees providing legal assistance in noncriminal matters to eligible clients.

The opinion first laid out the Public Ethics Law's scope: it defined "public official" as an individual in an "executive agency" meeting certain criteria, "State employee" as a person, other than a public or state official, employed by an executive agency, and "executive agency" itself as a commission, board, council, or other body in state government that is not part of the legislative or judicial branch. The question was whether the newly created Corporation fell within that "executive agency" definition.

The opinion acknowledged the Corporation had some government-like attributes: a board of directors appointed by the Governor with the advice and consent of the Senate, an open-meetings requirement for board meetings (subject to closure under Article 76A, section 11), and various reporting obligations to the Governor, the General Assembly, and the Department of Budget and Fiscal Planning for annual audits. But it concluded these features did not make the Corporation an executive agency, pointing to a series of provisions in the Act that structured it instead as a nonprofit corporation: the Corporation was designated a "nonstock corporation" with the powers of a nonstock corporation under the Corporations and Associations Article, required to maintain a principal office and a registered agent for service of process like any other corporation, and limited in its activities to what is permitted for organizations qualifying under section 501(c)(3) of the Internal Revenue Code or receiving deductible charitable contributions under section 170(c)(2). The Corporation was also authorized to receive, hold, and dispose of money and property in its own name, and, notably, its assets would not revert to the state upon dissolution but would instead transfer to another similar tax-exempt charitable organization. The opinion further noted the Act's tax-exemption provision, exempting the Corporation from state and local taxes, documentary stamps, and transfer taxes, and its provision allowing the Legislative Auditor to audit the Corporation's finances only when state funds financed its operations, both of which the opinion found would be unusual or superfluous language if the Corporation had been designed as an ordinary state agency subject to Article 40's general audit requirements for state departments and agencies.

Finally, and most directly, the opinion relied on express statutory language: the Act stated that board members "are not officers or employees of the State," that the Corporation's employees "are not employees of the State," and that, except as otherwise provided in the subtitle, the Corporation "is not a department, agency, or instrumentality of the State." The opinion found no provision anywhere in the Act that created an exception to this disclaimer in the specific context of the Public Ethics Law, and on that basis concluded the Corporation, its board, and its employees fell outside the Ethics Law's coverage. An Editor's Note attached to the opinion states it was originally written as a letter of advice and published in revised format because of the Corporation's unusual nature.

Citations

Statutes:

• Article 40A, §1-201(aa)
• Article 40A, §1-201(i)
• Article 40A, §1-201(l)
• Article 40A, §1-201(w)
• Article 40A, §1-201(dd)
• Article 10, §45D(a)
• Article 10, §45D(b)
• Article 10, §45D(c)
• Article 10, §45D(d)
• Article 10, §45E(a)
• Article 10, §45E(c)
• Article 10, §45E(i)
• Article 10, §45F(b)(3)
• Article 10, §45G(a)
• Article 10, §45G(c)
• Article 10, §45G(g)
• Article 10, §45H(c)
• Article 10, §45H(d)
• Article 10, §45H(e)
• Article 10, §45H(f)
• Article 10, §45K(a)
• Article 10, §45K(b)
• Article 10, §45-O
• Article 76A, §11
• Article 40, §61B(a)
• Chapter 829, Laws of Maryland 1982
• Corporations and Associations Article §5-201 et seq.
• Internal Revenue Code §501(c)(3)
• Internal Revenue Code §170(c)(2)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1982/Volume67_1982.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

LEGAL SERVICES CORPORATION

Ethics—Public Officers/Employees—Public Agencies—Legal Services Corporation, its Directors and Employees, Not Subject to Public Ethics Law

August 3, 1982

Benjamin R. Civiletti, Esquire
Chairman, Maryland Legal Services Corporation

You have requested our opinion on whether the Maryland Legal Services Corporation, its board of directors, or its employees are subject to the Maryland Public Ethics Law.

For the reasons below, we conclude that they are not.

I
The Public Ethics Law

Article 40A of the Maryland Code, the Maryland Public Ethics Law, applies in varying degrees to "executive agencies", "public officials", "State officials", and "State employees". As these terms are defined in Article 40A, it is clear that the Public Ethics Law applies to those agencies, officials, and employees generally deemed to be a part of our State government.

Thus, for example, "public official" is defined, in relevant part, as referring to an individual "in an executive agency" who meets certain specified criteria [§1-201(aa)]. Similarly, "State employee" is defined, in relevant part, as referring to "any person, other than a State or public official, employed by an executive agency" [§1-201(i)]. "Executive agency", in turn, is defined as meaning "a commission, board, council, or other body in State government [that] is established by law but . . . is not a part of either the legislative branch or the judicial branch" [§1-201(l)].1

1 See also Article 40A, §1-201(w) and (dd), which defines "official" and "State official", respectively.

II
The Legal Services Corporation

The Maryland Legal Services Corporation (the "Corporation") was created by Chapter 829, Laws of Maryland 1982, effective July 1, 1982.

Chapter 829 enacted new §§45A through 45-O of Article 10 of the Maryland Code (the "Maryland Legal Services Corporation Act"), for the primary purpose "of establishing the Maryland Legal Services Corporation as a nonstock, nonprofit corporation, to receive and distribute funds to grantees that provide legal assistance in noncriminal proceedings or matters to eligible clients".

III
Analysis

To be sure, the Corporation is an entity that has been "established by law" and that, in some respects, bears various attributes of a State agency.2 Nevertheless, it is evident from the provisions of Article 10, §45A et seq., that the Corporation was not intended by the General Assembly to be an "executive agency" of the type subject to the operation of the Public Ethics Law. Rather, the Corporation is primarily designed to operate as a nonstock, nonprofit corporation, in a manner not wholly unlike that of other charitable, but nongovernmental, corporations established in accordance with State law.

2 See, e.g., Article 10, §45E(a), which provides that the Corporation is to have a board of directors "appointed by the Governor, with the advice and consent of the Senate"; §45E(i), which requires all meetings of the board to be open to the public unless closed in accordance with Article 76A, §11 of the Code; and §§45G(g) and 45K, which require various reports to be filed with the Governor, the General Assembly, and, as to annual audits, the Department of Budget and Fiscal Planning.

For example, the new law specifies that the Corporation is a "nonstock corporation" [§45D(a)], with "the powers conferred upon a nonstock corporation by the Corporations and Associations Article, §5-201 et seq. of the Code" [§45G(a)]. It is to have a "principal office" in this State and is required to appoint a "designated agent to accept service of process for the Corporation" [§45D(b)]. The activities of the Corporation are specifically limited so as to preclude it, as is true of other nongovernmental charitable organizations, from "conduct[ing] or carry[ing] on any activities not permitted to be conducted or carried on by an organization qualified under §501(c)(3) of the Internal Revenue Code or by an organization, contributions to which are deductible under §170(c)(2) thereof" [§45H(e)].3

3 See also the specific limitations set forth in Article 10, §45H(c), (d), and (f).

Although the Corporation may be the recipient of State funds appropriated to assist it in its activities [§45-O], it is nevertheless authorized to receive, hold, and dispose of all money and property in its own name [§45G(c)]; in the event of the Corporation's "liquidation, dissolution or winding up", its assets do not revert to the State but, rather, are to be transferred to "one or more corporations or associations" that have a "similar or analogous character or purpose" and that "qualify under the provisions of §501(c)(3) of the Internal Revenue Code" [§45H(f)].

We also find certain other provisions that, if the Corporation were designed to be a typical State agency, would be superfluous or otherwise inappropriate as written. Thus, for example, the statute provides that the Corporation "is exempt from all special and ordinary taxes and from documentary stamps and transfer taxes imposed by the State or any political subdivision thereof" [§45D(c)]. Also, in addition to the statutory requirement that the Corporation be audited annually by independent certified public accountants [§45K(a)], the statute also provides that the "financial transactions of the Corporation for any fiscal year during which State funds are available to finance any portion of its operations may be audited by the Legislative Auditor" [§45K(b)].4

4 Cf. Article 40, §61B(a) of the Maryland Code, which already provides generally that the Legislative Auditor "shall audit and report on every department, board, commission, or other agency of State government".

Finally, to the extent that the various provisions noted above might be viewed as something less than dispositive of this matter, the new law expressly provides that "[t]he members of the [b]oard [of directors of the Corporation] are not officers or employees of the State" [§45E(c)]; that "[e]mployees of the Corporation are not employees of the State" [§45F(b)(3)]; and that, "[e]xcept as otherwise provided in this subtitle, the Corporation is not a department, agency, or instrumentality of the State" [§45D(d)]. In the specific context of the Maryland Public Ethics Law and its possible application to the Corporation, we have found no provision anywhere in the Maryland Legal Services Corporation Act that, even given the caveat quoted above, might be construed as an exception "otherwise provided in this subtitle".5

5 Whether and to what extent the Corporation might be considered to be a State entity for other purposes is a matter we need not, and, therefore, do not, here address.

IV
Conclusion

In summary, it is our opinion that the Legal Services Corporation, its board members, and its employees are not subject to or governed by the Maryland Public Ethics Law.

Stephen H. Sachs, Attorney General
Avery Aisenstark, Chief Counsel,
Opinions and Advice

Editor's Note: The preceding opinion was originally written as a letter of advice. It is published here, in a slightly revised format, because of the unusual nature of the Legal Services Corporation and, therefore, of the issues addressed.