If Maryland waives its sovereign immunity and loses a contract lawsuit, can the legislature still refuse to pay by cutting the judgment out of the budget?

Plain-English summary

A state senator asked the Attorney General whether Maryland's 1976 waiver of sovereign immunity in contract actions had taken away the General Assembly's power to strike or reduce the specific budget items the Governor includes each year to pay judgments against the State. The opinion concluded it had not. It found that the waiver statute, Chapter 450 of the Laws of Maryland 1976, let courts hear contract suits against the State and its agencies and required the Governor to place funds for any final judgment into the annual Budget Bill, but that nothing in the statute's text, title, preamble, or legislative history bound the General Assembly itself to fund those judgments once the Governor's Budget Bill reached the legislature. The opinion traced two prior vetoes by Governor Mandel of earlier versions of the bill, in which he specifically flagged the absence of any guarantee that the legislature would appropriate the money, and found that lawmakers enacted the final version with that gap unaddressed, supporting the conclusion that they intended to preserve their own constitutional budget-cutting power under Article III, §52(6). The opinion also rejected the argument that this result was unconstitutional, concluding that neither the Contract Clause nor Due Process and Equal Protection principles guarantee a contractor who sues the State a right to actually collect a judgment, because a state's waiver of immunity creates only the rights the waiver itself defines.

Currency note

This opinion was issued in 1983. 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's own footnotes record that, by the time it issued, the statutes governing Maryland's waiver of sovereign immunity in tort claims and contract actions had already been recodified, without substantive change, into Title 12 of the new State Government Article, and the opinion added bracketed cross-references to that recodification throughout. Maryland's sovereign immunity and appropriations statutes, and the constitutional budget process described here, may have changed further since 1983, and the federal constitutional case law on sovereign immunity, the Contract Clause, and due process has continued to develop as well. Verify the current State Government Article provisions and current case law before relying on any specific description of the State's exposure to contract judgments or the General Assembly's budget authority.

Common questions

If someone sues Maryland for breach of contract and wins, is the state guaranteed to pay?
Not according to this opinion. It concluded that even though the Governor was required to include funds for the judgment in the annual Budget Bill, the General Assembly retained its constitutional power under Article III, §52(6) to strike out or reduce that budget item, so payment was not guaranteed.

Did Maryland's waiver of sovereign immunity in contract cases mean courts could no longer dismiss a contract suit against the state on immunity grounds?
Yes, within the statute's scope. The opinion found that Chapter 450 of the Laws of Maryland 1976 barred the State and its agencies from raising sovereign immunity as a defense in contract actions based on written contracts executed by an official or employee acting within the scope of authority.

Was it unconstitutional for Maryland to let people sue and win, but still let the legislature refuse to pay?
No, the opinion concluded. It found that neither the Contract Clause nor the Due Process or Equal Protection Clauses require a state to guarantee payment of a judgment against itself, because a state's waiver of immunity creates only the rights the waiver itself defines, and a string of U.S. Supreme Court cases upheld similar state schemes leaving payment to legislative discretion.

Why did the opinion think the legislature intended to keep the power to cut judgment funding, if the statute required the Governor to include it in the budget?
The opinion pointed to the fact that two earlier versions of the bill were vetoed by Governor Mandel specifically because they did not guarantee legislative funding, and the General Assembly went on to enact the final version, Chapter 450, without adding any language binding itself, which the opinion read as evidence the gap was intentional rather than an oversight.

Background and statutory framework

The opinion built its analysis around Maryland's longstanding "Maas doctrine," from University of Maryland v. Maas, under which a suit against a state agency cannot be maintained unless money has been appropriated to pay any judgment or the agency is independently authorized to raise it. Against that backdrop, the opinion parsed Chapter 450, Laws of Maryland 1976, which barred the State from raising sovereign immunity in contract suits (Article 21, §7-101, later recodified as State Government Article §12-202(a)) and separately required the Governor to include funds for final contract judgments in the annual Budget Bill (Article 21, §7-104, later §12-204). The opinion found this structure legally significant but incomplete: it obligated only the Governor, the first actor in Maryland's constitutional budget process, and said nothing about the General Assembly's own role once the Budget Bill reached the legislature, in contrast to a parallel set of provisions in Sections 2 through 5 of the same Chapter 450 that bound local governing bodies, including their legislative bodies, to fund judgments against counties and municipalities.

The opinion traced this asymmetry to a specific legislative history: two prior attempts to enact a similar waiver, House Bill 5 (1974) and House Bill 1672 (1975), were both vetoed by then-Governor Mandel, whose veto messages explicitly flagged that neither bill bound the General Assembly to appropriate the necessary funds and that satisfaction of a judgment therefore remained uncertain under the Maas doctrine. Because the General Assembly went on to enact Chapter 450 in 1976 without adding language addressing that specific gap, and legislative committee files showed no evidence the funding problem was revisited, the opinion concluded lawmakers most likely intended exactly the result that a literal reading of the statute produced: a right to sue and win a judgment, but no guarantee that the judgment would be paid, since the General Assembly retained its independent constitutional authority under Article III, §52(6) to strike or reduce any budget item, including one covering a court judgment. The opinion supported this reading with Katz v. Washington Suburban Sanitary Commission, where the Court of Appeals held that a comparable statutory scheme (tax-certification authority rather than a funding guarantee) was still sufficient to let judgments be entered, and closed by finding no federal constitutional bar to this result under the Contract Clause or Due Process and Equal Protection Clauses, citing a line of U.S. Supreme Court cases, including South & North Alabama R.R. v. Alabama and Board of Regents v. Roth, holding that a state's waiver of immunity defines the full scope of the claimant's rights and does not itself create a constitutionally protected right to collect.

Citations

Statutes:

• Article III, §52(6) of the Maryland Constitution (General Assembly's power to strike or reduce Budget Bill items)
• Article 21, §7-101 of the Maryland Code, later State Government Article §12-202(a) (waiver of sovereign immunity defense in contract actions)
• Article 21, §7-104 of the Maryland Code, later State Government Article §12-204 (Governor's duty to fund final contract judgments in the annual budget)
• Article 21, §7-102 of the Maryland Code, later State Government Article §12-202(b) (preclusion of punitive damages)
• Article 21, §7-103 of the Maryland Code, later State Government Article §12-203 (one-year limitation on filing suit)
• Chapter 450, Laws of Maryland 1976 (enactment of the contract immunity waiver)
• Article 41, §10A of the Maryland Code (original codification of the waiver, before transfer to Article 21)
• Article 23A, §1A(d); Article 25, §1A(d); Article 25A, §1A(d); and Article 25B, §13A(d) of the Maryland Code (parallel funding obligations for counties and municipalities)
• Article III, §29 of the Maryland Constitution (a law's title cannot grant powers not expressly in the body of the act)
• Article 64A, §56(b), (c), (d) of the Maryland Code (comparable 1980 waiver for Merit System proceedings)
• Article 15A, §11 of the Maryland Code (Governor's authority to reduce certain budget items)
• Article III, §§34, 52(4)(d), and 52(6) of the Maryland Constitution (protections for State debt obligations in the budget process)
• Article I, §10 of the United States Constitution (Contract Clause)
• United States Constitution amend. XIV, §1 (Due Process and Equal Protection)
• Article 24 of the Maryland Declaration of Rights (Maryland due process analogue)

Cases:

• Charles E. Brohawn & Bros., Inc. v. Board of Trustees, 269 Md. 164, 166 (1973)
• Jackson v. Housing Opportunities Commission, 289 Md. 118, 123 (1980)
• Board of Trustees of Howard Community College v. John K. Ruff, Inc., 278 Md. 580, 588 (1976)
• University of Maryland v. Maas, 173 Md. 554, 558 (1938)
• Katz v. Washington Suburban Sanitary Commission, 284 Md. 503, 513 (1979)
• County Commissioners v. Stephans, 286 Md. 384, 388 (1979)
• Department of State Planning v. Hagerstown, 288 Md. 9, 14 (1980)
• United States Trust Co. v. New Jersey, 431 U.S. 1, 17 (1977)
• Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 257-60 (1827)
• Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 435 (1934)
• South & North Alabama R.R. v. Alabama, 101 U.S. 832 (1880)
• Memphis & Charleston R.R. v. Tennessee, 101 U.S. 337 (1880)
• Maryland Port Admin. v. I.T.O. Corp., 40 Md. App. 697, 711-12 (1978)
• Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241 (1978)
• Lynch v. United States, 292 U.S. 571, 581 (1934)
• McCullough v. Virginia, 172 U.S. 102, 124 (1898)
• Board of Regents v. Roth, 408 U.S. 564 (1972)
• Monaco v. Mississippi, 292 U.S. 313 (1934)
• Hans v. Louisiana, 134 U.S. 1 (1890)
• Nevada v. Hall, 440 U.S. 410 (1979)
• State v. Ambrose, 191 Md. 353 (1948)
• Department of Highways v. Shamrock Corp., 501 S.W.2d 584 (Ky. 1973)
• George A. Fuller Co. v. Massachusetts, 21 N.E.2d 529 (Mass. 1939)

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/1983/Volume68_1983.pdf

Original opinion text

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

SOVEREIGN IMMUNITY

Budgetary Administration—General Assembly—Waiver of Contract Immunity—Governor Required to Provide in Budget for Satisfaction of Judgments—General Assembly Retains Authority to Strike or Reduce Appropriation.

February 8, 1983

The Honorable John A. Cade
Senate of Maryland

You have asked for our opinion on whether the State's waiver of sovereign immunity in contract actions has affected the authority of the General Assembly to determine appropriations.* Your specific question is whether, after the Governor provides an item in the annual Budget Bill for the satisfaction of a judgment in an action covered by the statutory waiver, the General Assembly may nonetheless then exercise its authority under Article III, §52(6) of the Maryland Constitution "to strike out or reduce" that item.1

We have considered this question with great care, because it affects a large number of transactions to which the State is a party. For the reasons given below, we have concluded as follows: although (i) the statute permits State courts to enter judgments against the State and its agencies,2 and although (ii) the Governor is required by statute to provide in the Budget for the satisfaction of these judgments, nevertheless (iii) the waiver of sovereign immunity has not affected the General Assembly's constitutional authority to strike out or reduce items in the Governor's Budget Bill.

• [Editor's Note: The statutes governing the State's waiver of sovereign immunity in tort claims and contract actions have since been recodified, without substantive change, as Title 12, Subtitle 1 ("Maryland Tort Claims Act") and Subtitle 2 ("Actions in Contract") of the new State Government Article ("SG" Article). Cross-references to the new codification have been added to the text in brackets.]

1 The State has also waived its sovereign immunity in certain tort actions. Title 5, Subtitle 4 ("Maryland Tort Claims Act") of the Courts Article [SG Title 12, Subtitle 1]. However, because payments of judgments resulting from that waiver are funded through an insurance program, the same issues are not necessarily presented. See note 11 below.

2 The statute applies to the State "and every officer, department, agency, board, commission, or other unit of State government". Article 21, §7-101 [SG §12-202(a)]. For convenience, we refer to these entities in this Opinion as "the State and its agencies".

I
Sovereign Immunity

Under the common law of Maryland, the State enjoys sovereign immunity and a litigant is precluded from asserting a cause of action against the State or a State agency unless that immunity has been expressly waived by statute or by necessary inference from a statute. Charles E. Brohawn & Bros., Inc. v. Board of Trustees, 269 Md. 164, 166 (1973), and cases there cited.

The Court of Appeals has repeatedly refused to abrogate sovereign immunity by judicial determination and has said that any waiver of immunity must come from the General Assembly. See, e.g., Jackson v. Housing Opportunities Commission, 289 Md. 118, 123 (1980). In this regard, the Court has ruled that a statute empowering a State agency "to sue and be sued" manifests consent on the part of the General Assembly to suits against that State agency, at least insofar as those suits concern matters within the scope of the agency's powers and duties. Board of Trustees of Howard Community College v. John K. Ruff, Inc., 278 Md. 580, 588 (1976).

Nevertheless, even suits against State agencies empowered "to sue and be sued" may not be maintained "unless money has been appropriated for the payment of such damages as may be awarded, or the agency itself is authorized to raise money for that purpose". University of Maryland v. Maas, 173 Md. 554, 558 (1938). See also American Structures, Inc. v. Baltimore, 278 Md. 356, 359 (1976); Lohr v. Upper Potomac River Commission, 180 Md. 584, 591 (1942), and cases there cited.

II
Waiver of Immunity—Statutory Text

The State's waiver of sovereign immunity in contract actions was enacted by Chapter 450, Laws of Maryland 1976 ("Chapter 450").3 It is now codified at Title 7, Subtitle 1 of Article 21 of the Maryland Code [SG Title 12, Subtitle 2].4

In Article 21, §7-101 [SG §12-202(a)], the General Assembly has provided as follows:

"Unless otherwise specifically provided by the laws of Maryland, the State of Maryland, and every officer, department, agency, board, commission, or other unit of State government may not raise the defense of sovereign immunity in the courts of this State in an action in contract based upon a written contract executed on behalf of the State, or its department, agency, board, commission, or unit by an official or employee acting within the scope of his authority."

In Article 21, §7-104 [SG §12-204], the General Assembly has further provided that:

"In order to provide for the implementation of this [subtitle], the Governor annually shall provide in the State budget adequate funds for the satisfaction of any final judgment, after the exhaustion of any right of appeal, which has been rendered against the State, or any officer, department, agency, board, commission, or other unit of government in an action in contract as provided in this [subtitle]."5

3 Section 1 of Chapter 450 related to the immunity of the State and is dealt with in this Opinion. Sections 2 through 5 of the Act dealt with the immunity of counties and municipal corporations and are not considered here, except insofar as they may aid in construing Section 1.

4 The waiver of State contract immunity was originally codified at Article 41, §10A of the Maryland Code. It was later transferred, without amendment, to Article 21 ("Procurement") by Chapter 775, Section 8, Laws of Maryland 1980.

5 Although §7-104 [SG §12-204] refers to "the implementation of this section", and "an action in contract as provided in this section", this usage is an accidental carryover from the time when Chapter 450 was codified as several subsections of but one section, former §10A of Article 41. See note 4 above. As the statute is presently codified, §7-104 [SG §12-204] must be understood as referring to the various sections that now constitute an entire subtitle. These sections: provide for the basic waiver of contract immunity (§7-101) [SG §12-202(a)]; preclude the award of punitive damages (§7-102) [SG §12-202(b)]; impose a one-year limitation on the filing of suits (§7-103) [SG §12-203]; and require the Governor to provide funds for the satisfaction of final judgments (§7-104) [SG §12-204].

In construing statutes, including those involving an actual or alleged waiver of sovereign immunity, the Court of Appeals has emphasized that the cardinal rule is to effectuate the legislature's intent. See, e.g., Jackson v. Housing Opportunities Commission, 289 Md. 118, 123 (1980); Katz v. Washington Suburban Sanitary Commission, 284 Md. 503, 513 (1979). In searching for what the General Assembly intended in enacting Chapter 450, we look first to the provisions of the Act itself. See County Commissioners v. Stephans, 286 Md. 384, 388 (1979) (legislative intent must first be sought from the words of the statute, given their ordinary meaning).

Article 21, §7-101 [SG §12-202(a)] forbids a State defendant to "raise the defense of sovereign immunity" in certain contract actions. The Act does not expressly make the defendant liable to any judgment rendered in such an action, but that is its clear and necessary implication.6 Indeed, the statute expressly establishes procedures "to provide for the implementation of" the immunity waiver and the payment of "judgment[s]" obtained as a result of that waiver: Article 21, §7-104 [SG §12-204] requires the Governor "annually [to] provide in the State budget adequate funds for the satisfaction of any final judgment, after the exhaustion of any right of appeal, which has been rendered against the State".7

6 In the past, the Court of Appeals has emphasized that the failure to raise the defense of sovereign immunity does not amount to a waiver of it. See, e.g., Charles E. Brohawn & Bros., Inc. v. Board of Trustees, 269 Md. 164, 166 (1973); Board of Education of Charles County v. Alcrymat Corp., 258 Md. 508, 516 (1970). Indeed, in one case the Court of Appeals asserted the defense sua sponte, even though it was not raised, tried, or decided below or presented on appeal. Board of Trustees of Howard Community College v. John K. Ruff, Inc., 278 Md. 580 (1976).
Nevertheless, we do not believe that the courts themselves would raise the defense of sovereign immunity in actions within the scope of Chapter 450, that is, where the statute precludes the State and its agencies from raising the defense. A court's assertion of the defense would defeat the plain intention of the General Assembly and would violate the rule of statutory construction that statutes are not to be rendered meaningless. See, e.g., Rome v. Lowenthal, 290 Md. 33, 41 (1981); Welsh v. Kuntz, 196 Md. 86, 98-99 (1950). See also Board of Trustees of Howard Community College v. John K. Ruff, Inc., 278 Md. at 585 (noting that Chapter 450 did not apply to the contract at issue in the case).

7 As we read this language, the Governor need take no action until after the judgment has been rendered and any right of appeal is exhausted. See Recent Legislation, Abrogation of Sovereign Immunity in Contract Cases in Maryland, 6 U. Balt. L. Rev. 337, 343-44 (1977).

Thus, in order to discharge the liability implicitly acknowledged in §7-101 [SG §12-202(a)], §7-104 [SG §12-204] calls for the Governor to take the initial step in the constitutional process by which State funds are appropriated. See Article III, §52(3), (4), and (5) of the Maryland Constitution (Governor to submit Budget annually; contents of Budget; Governor to deliver Budget and Budget Bill).8

Article 21, §7-104 [SG §12-204] says nothing, however, about what happens after the Governor submits the Budget to the General Assembly. Therefore, we look to other portions of Chapter 450 to see whether they shed light on the legislative intent.9 First of all, the purpose clause of the title to Chapter 450 reads, in relevant part, as follows:

"F[or] the purpose of providing that the State, and all units of State government, [as well as counties and municipal corporations, and units of their governments] may not raise the defense of sovereign immunity in the courts of this State in an action in contract based upon certain written contracts . . . ; and requiring that the State, and the counties and municipal corporations provide adequate funds for the satisfaction of a final judgment rendered against them ... in such actions in contract."

Chapter 450 also includes a rather lengthy preamble, portions of which are as follows:

8 Article III, §52 was amended in 1978 to require the Governor, in preparing the Budget, to comply with statutory directives that provide for particular levels of program funding. §52(11) and (12). We assume that Article 21, §7-104 [SG §12-204] is such a directive. See generally 65 Opinions of the Attorney General 108, 110 (1980).

9 In determining legislative intent, a court must read statutory language in context and in relation to all of the statute's provisions. Department of State Planning v. Hagerstown, 288 Md. 9, 14 (1980). See also Comptroller v. John C. Louis Co., 285 Md. 527, 538 (1979). That the title of an act is relevant to ascertain its intent and purposes is well settled. Mass Transit Admin. v. Baltimore County Revenue Auth., 267 Md. 687, 695-96 (1973). A preamble may also be resorted to in aid of interpretation, but only if the meaning of the statutory language is doubtful. Compare State v. Loscomb, 291 Md. 424, 434 n. 12 (1981), and Dillon v. State, 277 Md. 571, 583 (1976), with Elchin v. State, 47 Md. App. 358, 363 (1980), cert. denied, 289 Md. 735 (1981).

"WHEREAS, The Court of Appeals of Maryland has held that, as a result of the common law doctrine of sovereign immunity, a suit cannot be maintained against the State or its political subdivisions, unless authorized by the Legislature, and funds are available to satisfy any judgment rendered; and

WHEREAS, The Court of Appeals further has stated that any change in the doctrine of sovereign immunity must be made by the Legislature; and

WHEREAS, The Governor's Commission to Study Sovereign Immunity believes that there exists a moral obligation on the part of any contracting party, including the State or its political subdivisions, to fulfill the obligations of a contract; and

WHEREAS, The Governor's Commission to Study Sovereign Immunity has concluded that the doctrine is no longer appropriate to actions on certain contracts, and that the effects of this doctrine should be limited by legislative action ... ".

Finally, in Sections 2 through 5 of Chapter 450, the General Assembly addresses the obligation of local subdivisions to fund judgments, as follows:

"In order to provide for the implementation of this section, the [governing body of the jurisdiction] shall make available adequate funds for the satisfaction of any final judgment, after the exhaustion of any right of appeal, which has been rendered against the [municipal corporation or county], or any officer, department, agency, board, commission, or other unit of government in an action in contract as provided in this section." Article 23A, §1A(d); Article 25, §1A(d); Article 25A, §1A(d); and Article 25B, §13A(d) of the Maryland Code.

These portions of the Act do not, in our view, definitively resolve the issue of whether the General Assembly may strike or reduce amounts placed in the Budget to fund judgments in contract actions. The title to Chapter 450 arguably shows that the General Assembly intended to require the State to provide adequate funds to satisfy final judgments, just as it required the governing bodies of municipal corporations and counties to provide such funds. There is a significant difference, however, between the provisions relating to the State and those relating to local governments: Sections 2 through 5 of Chapter 450, by their terms, bind all officials (including the legislative body) involved in a local government's appropriation process; thus, they guarantee the appropriation of funds necessary to satisfy contract judgments against these localities. In contrast, Article 21, §7-104 [SG §12-204] purports to bind only one element of the State appropriation process, the Governor. The General Assembly was certainly well aware of its own vital role in the appropriation process, yet it did not purport to bind itself.10

10 Article III, §29 of the Maryland Constitution provides: "nor shall any Law be construed by reason of its title, to grant powers, or confer rights which are not expressly contained in the body of the Act". Here, we do not believe that Chapter 450 can be construed, by reason of its title, to impose limitations on the constitutional powers of the General Assembly that are not expressly imposed in the body of the Act.

The preamble shows that the General Assembly was aware, when it enacted Chapter 450, of case law holding that "a suit cannot be maintained against the State . . . , unless authorized by the Legislature, and funds are available to satisfy any judgment rendered" (emphasis added). The preamble also suggests that the legislators acknowledged a moral obligation on the part of the State to fulfill the obligations of State contracts and, further, that they believed the doctrine of sovereign immunity was no longer appropriate to actions based on written contracts executed on behalf of the State or a State agency by an official or employee acting within the scope of his or her authority (that is, the "actions on certain contracts" covered by the text of the Act).

On the other hand, the final paragraph of the preamble states that "the effects of [the doctrine of sovereign immunity] should be limited by legislative action" (emphasis added). Perhaps the choice of the word "limited" instead of the word "abolished", a term used elsewhere in the preamble, indicates an intent to do less than sweep the doctrine away in its entirety, even with respect to the contract actions covered by the text.11 Furthermore, the acknowledgement of a moral obligation suggests acceptance of something less than an absolute legal obligation.

11 In this regard, it is noteworthy that the State's waiver of sovereign immunity in certain tort actions is accompanied by the following statement of legislative intent: "It is the intent of the General Assembly that this subtitle be interpreted broadly to assure that injured parties have a remedy." §5-402(a) of the Courts Article [SG §12-102]. No such statement appears in Chapter 450. Moreover, as indicated in note 1 above, the statute waiving immunity in the specified tort actions provides for the satisfaction of judgments through an insurance program. §5-407(c) of the Courts Article [cf. SG §§12-104(b) and 12-106(c); Article 95, §§27(d) and 32].

In sum, we do not believe that your question can be resolved on the face of Chapter 450 itself. Therefore, we look to the legislative history of the Act for further elucidation. See County Commissioners v. Stephans, 286 Md. 384, 390-91 (1979); Department of State Planning v. Hagerstown, 288 Md. 9, 14 (1980).

III
Waiver of Immunity—Legislative History

Chapter 450 (introduced at the 1976 Session of the General Assembly as House Bill 885) was proposed by the Governor's Commission to Study Sovereign Immunity. The Commission delivered the bill, together with an interim report, to the Governor on February 2, 1976. Nine months later, it published a voluminous Final Report of the Governor's Commission to Study Sovereign Immunity (November, 1976) ("Final Report"). The Final Report gives a detailed account of the history of Chapter 450.

Before the 1976 Session of the General Assembly, there had been three legislative attempts to modify the doctrine of sovereign immunity in contract. The first bill, House Bill 1119, was introduced in 1973; although it was passed by the House, it died in a Senate committee.

In 1974, House Bill 5 was enacted.12 Then-Governor Mandel vetoed the bill, citing several reasons: First, it did not make funds available for satisfying judgments and, therefore, under the law stated in University of Maryland v. Maas, 173 Md. 554 (1938), it was uncertain whether the bill would have any effect in permitting suits against the State and its subdivisions. Second, the bill was broad enough to permit a wide range of tort-like suits framed in the guise of contract actions. Finally, the bill might preclude State and local governments from raising the defense of unauthorized contracts, or it might result in the disallowance of counter-suits and set-off claims. See Veto Message (H.B. 5) from Marvin Mandel, Governor, to John Hanson Briscoe, Speaker of the House (May 31, 1974), reprinted in Laws of Maryland 1974 at 3087-89. The Governor concluded his Veto Message by stating that the question of whether, how, and to what extent the doctrine of sovereign immunity should be modified must be given much more careful study. He therefore announced his intention to reconstitute a Commission to Study Sovereign Immunity. Id. at 3088-89.

12 Section 1 of House Bill 5, dealing with the State, provided simply: "Unless otherwise specifically provided by the laws of Maryland, the State of Maryland, and every officer, department, agency, board, commission, and other unit of government of the State of Maryland is liable in any action of contract, and may not raise the defense of sovereign immunity, for any contract made by the State, or any officer, department agency, board, commission or other unit of the government of the State."

Again in 1975, both houses of the General Assembly passed a bill on the subject, House Bill 1672. In response to the Governor's 1974 Veto Message, House Bill 1672 made the State and its subdivisions, as well as their officers and agencies, liable only for written contracts. The bill also included language, very similar to that of Chapter 450, concerning the obligations of State and local officials to make funds available to satisfy judgments.13 That is, House Bill 1672 provided, with respect to the State, that "the Governor shall annually provide in the State budget adequate funds for satisfaction of any judgment".

13 Chapter 450 added the concept that the judgment must be final and that any right of appeal must be exhausted before the provision requiring funding becomes operative.

Governor Mandel again vetoed the legislation, observing: "There is no provision in the bill, as indeed there could not be, binding the General Assembly not to reduce or delete those funds from the Budget." Veto Message (H.B. 1672) from Marvin Mandel, Governor, to John Hanson Briscoe, Speaker of the House (May 15, 1975), reprinted in Laws of Maryland 1975 at 4067-69.

This Veto Message again cited the rule of University of Maryland v. Maas, and concluded: "[A]s there is no assurance that the General Assembly will approve such funds, it would seem that compliance with the Maas test is, at best, uncertain. A final judgment probably could not be entered until the General Assembly approves the following year's budget, and then only to the extent that the Governor has, in fact, included sufficient funds and the General Assembly has approved them." Id. at 4068-69.

The Governor also complained that the fiscal impact of the bill was uncertain. He pointed out that he had reconstituted the Commission to Study Sovereign Immunity and indicated his desire to await completion of its study. Id. at 4069.

Neither the interim nor the final report of the Governor's Commission to Study Sovereign Immunity indicates that the Commission addressed the specific issues raised by the Governor about the funding provisions of House Bill 1672. In submitting the legislation that became Chapter 450, the Chairman of the Commission merely noted: "Judgments obtained in actions on contracts executed after July 1, 1976 would, under the terms of the proposed legislation, be paid when appropriate funds are provided in the State budget." Final Report at J-l. The Commission simply described Chapter 450 as "mandat[ing] that each governmental entity allocate funds for the satisfaction of adverse final judgments". Id. at 100. Likewise, legislative committee files on House Bill 885 (Chapter 450) contain no evidence that the funding problems raised by the Governor's 1975 Veto Message were addressed by the General Assembly.

Given the Governor's Veto Message, however, we must assume that the General Assembly was fully aware of the fact that Chapter 450 did not guarantee the appropriation of funds to satisfy contract judgments against the State and its agencies. Under the circumstances, we cannot ignore the likelihood that the legislators intended precisely this result, one consistent with a literal interpretation of Chapter 450.14

14 Our conclusion is supported by the fact that the General Assembly enacted Chapter 726, Laws of Maryland 1980, to modify the 1978 statutory waiver of the State's sovereign immunity "in any administrative, arbitration, or judicial proceeding held pursuant to [Article 64A of the Maryland Code, 'Merit System'], to the rules and regulations of the Secretary of Personnel, or [to] the personal policies, rules, and regulations for classified employees of the University of Maryland involving any type of employee grievance or hearing". Article 64A, §56(b). In words similar to those of Chapter 450, the 1980 statute required the Governor to "provide in the annual State budget adequate funds for the satisfaction of any final monetary or benefit award or judgment". §56(c). The statute also expressly provided for the role of the General Assembly: "Upon appropriation of funds by the Legislature, the Comptroller of the Treasury shall satisfy existing awards in order of date of award." §56(d).

IV
Effect of the Statutory Waiver

As discussed in Parts I and III above, the statutory waiver of sovereign immunity must be construed against the background of the "Maas doctrine": suits against State agencies may not be maintained "unless money has been appropriated for the payment of such damages as may be awarded, or the agency itself is authorized to raise money for that purpose". University of Maryland v. Maas, 173 Md. 554, 558 (1938). Although Chapter 450 does not absolutely guarantee the funding of judgments, we do not think that Maryland courts would invoke the Maas doctrine and decline to entertain contract actions against State agencies. The Court of Appeals, in Katz v. Washington Suburban Sanitary Commission, 284 Md. 503 (1979), recently refused to apply the doctrine in a case involving a statute somewhat similar to Chapter 450.

Katz involved tort actions against the Washington Suburban Sanitary Commission, which had statutory authority to sue and be sued and to certify to the county a tax rate sufficient to satisfy adverse judgments. The Commission invoked the defense of sovereign immunity. It argued that the authority to certify a tax rate did not necessarily guarantee that funds would be appropriated; therefore, under the Maas doctrine, immunity was not waived.

Rejecting this argument, the Court of Appeals concluded that the pertinent statute permitted the entry of a judgment against the Commission. The Court observed that the statute clearly contemplated both the filing of suits and the recovery of judgments. The Court concluded: "Whether the county council actually imposes and collects the mandated tax is not determinative of the waiver of [the Commission's] sovereign immunity." 284 Md. at 515.15

15 In an even more recent case, Jackson v. Housing Opportunities Commission, 289 Md. 118, 130 (1980), the Court relied on comparable statutory language as manifesting the General Assembly's expectation that judgments would be entered against the governmental agency in question.

Our conclusion, that Chapter 450, like the statute considered in Katz, permits the entry of judgments but does not absolutely guarantee that funds will be made available to satisfy those judgments, does not violate generally recognized principles of sovereign immunity. As the Final Report of the Governor's Commission to Study Sovereign Immunity pointed out, a considerable number of states have set up claims boards to hear claims against those states and their agencies. These boards issue rulings that guide, but do not bind, the state legislatures in appropriating funds. Final Report at 7 (listing 13 states). The United States Claims Court similarly entertains suits and renders judgments against the federal government, but the satisfaction of its judgments depends on appropriations by Congress.16 See also State v. Ambrose, 191 Md. 353 (1948) (judgment against State in condemnation case not an ordinary pecuniary judgment). See generally Department of Highways v. Shamrock Corp., 501 S.W.2d 584 (Ky. 1973); George A. Fuller Co. v. Massachusetts, 21 N.E.2d 529 (Mass. 1939).

16 "Every final judgment rendered by the United States Claims Court against the United States shall be paid out of any general appropriation therefor". 28 U.S.C. §2517(a). In 31 U.S.C. §724a, enacted in 1956 and since amended, Congress has made a permanent appropriation, "out of any money in the Treasury not otherwise appropriated", to pay final judgments, awards, and compromise settlements under 28 U.S.C. §2517 and certain other statutes.

In sum, we believe that Chapter 450 should be construed to permit Maryland courts to entertain suits and enter judgments against the State and its agencies in actions based on written contracts executed by officials or employees acting within the scope of their authority. We also believe that the portion of Chapter 450 now codified as Article 21, §7-104 [SG §12-204] requires the Governor to place items in the annual Budget Bill to cover final contract judgments.17 We do not believe, however, that Chapter 450 diminishes the constitutional power of the General Assembly to strike out or reduce those Budget items.18

17 Subject to certain exceptions, the Governor may reduce, by no more than 25% and with the approval of the Board of Public Works, any item of appropriation that the Governor "deem[s] unnecessary". Article 15A, §11 of the Maryland Code. In 65 Opinions of the Attorney General 45 (1980), we concluded that a statutory mandate requiring the Governor to include in the annual Budget Bill a minimum level of funding would not prevent the Governor from later reducing the appropriation for that program in accordance with Article 15A, §11.

18 The inability to compel payment of a judgment does not mean that the judgment is worthless. There is no reason to believe that the General Assembly will not appropriate funds needed to cover judgments obtained under Chapter 450. Moreover, in some cases, State creditors are well protected even though they might not be able to execute judgments against the State. For example, holders of bonds backed by the full faith and credit of the State receive significant protection from provisions of the State Constitution. See Article III, §§34, 52(4)(d), and 52(6) of the Constitution (law authorizing State debt must provide for collection of tax to pay principal and interest; annual Budget must estimate appropriations for debt repayment; General Assembly may not amend Budget to affect debt obligations). See also Article 15A, §11 of the Maryland Code (Governor's authority to reduce an item of appropriation does not include authority to reduce an appropriation to pay State debt).

V
Constitutional Questions

A suggestion has been made that the constitutional rights of parties who in good faith enter into written contracts with the State and its agencies would be violated if Chapter 450 were to be construed other than as a full guarantee of enforcement of the State's obligations. We find little support for this suggestion in the case law.

A. Contract Clause

The Contract Clause of the United States Constitution provides that "[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts". Article I, §10. This provision severely restricts the states in modifying their own contracts as well as those between private parties. United States Trust Co. v. New Jersey, 431 U.S. 1, 17 (1977). However, since the beginning of American legal history, the Contract Clause has not been interpreted, as far as we are aware, to make it unconstitutional for a state to maintain its immunity from suit.

The "obligations" of a contract have long been regarded as including not only the express terms of the contract but also the contemporaneous state law pertaining to interpretation and enforcement of that contract. United States Trust Co. v. New Jersey, 431 U.S. at 19 n. 17; Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 257-60 (1827). In Ogden, the Supreme Court held that a state bankruptcy law did not violate the Contract Clause with respect to debts contracted after the passage of the law. After stating the proposition that the law of the country where a contract is made or to be executed forms a part of that contract and of its obligation, Justice Washington concluded that "it would seem to be somewhat of a solecism to say that [the law] does at the same time impair that obligation". 25 U.S. at 260.

Indeed, "[n]ot only are existing laws read into contracts in order to fix the obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order." Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 435 (1934). Thus, the immunity asserted or maintained by a state is read into each contract into which the state enters.

In cases where a state has waived its immunity so as to permit its courts to entertain suits and enter judgments against the state, but where satisfaction of those judgments has nevertheless rested within the power of the legislature, the Supreme Court has ruled that those who contract with the state have no rights against the state that are protected by the Contract Clause. Therefore, even the repeal by the state of an existing waiver of immunity does not violate the Contract Clause. South & North Alabama R.R. v. Alabama, 101 U.S. 832 (1880); Memphis & Charleston R.R. v. Tennessee, 101 U.S. 337 (1880).19

19 The Court of Special Appeals of Maryland cited these and similar cases in support of its holding that a 1970 Act, effectively reinstating sovereign immunity for the Maryland Port Administration, did not violate the Contract Clause. Maryland Port Admin. v. I.T.O. Corp., 40 Md. App. 697, 711-12 (1978), cert. denied, 284 Md. 745 (1979).

B. Due Process and Equal Protection

Just as we believe that the maintenance of sovereign immunity does not violate the Contract Clause, we also conclude that it does not violate the Due Process and Equal Protection provisions of the United States and Maryland Constitutions. United States Constitution amend. XIV, §1; Article 24 of the Maryland Declaration of Rights.20

20 Although the Contract Clause was "perhaps the strongest single constitutional check on state legislation" during the early history of America, it "receded into comparative desuetude with the adoption of the Fourteenth Amendment, and particularly with the development of the large body of jurisprudence under the Due Process Clause of that Amendment in modern constitutional history". Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241 (1978).

In the absence of a waiver of immunity, a claimant against the state has no legally cognizable right. Indeed, the Supreme Court has stated that even the consent of a sovereign to suits against itself accords a privilege and not a property right protected by the Constitution. Lynch v. United States, 292 U.S. 571, 581 (1934). Certainly, insofar as a state waives its immunity, the terms of that waiver form a part of and define the claimant's rights. See Schultz v. Greater New Orleans Expressway Commission, 250 F.Supp. 89, 97 (E.D. La. 1966) ("a state may waive its immunity from suit and specify such limitations on the exercise of that immunity as it deems proper"). See also McDonald v. Illinois, 557 F.2d 596, 601 (7th Cir. 1977) (state can limit waiver of immunity to actions brought in its own courts "and, indeed, even as to particular state courts"). Cf. Engle v. Cumberland, 180 Md. 465 (1942) (General Assembly can grant right of action against municipality on any conditions that General Assembly chooses to prescribe). As Justice Washington observed in Ogden v. Saunders, "it would seem to be somewhat of a solecism" to say that the same law that creates and defines a claimant's rights at the same time deprives the claimant of rights.

A statutory waiver of immunity that permits claims against the sovereign to be reduced to judgment, while leaving the satisfaction of those judgments to the discretion of the legislature, does not give claimants a constitutionally protected right to satisfaction, although successful claimants may have vested rights in the judgments themselves. See McCullough v. Virginia, 172 U.S. 102, 124 (1898) ("[i]t is not within the power of a legislature to take away rights which have been once vested by a judgment"). The rights vested in a judgment holder are precisely those rights created by the law in effect at the time the judgment becomes final and unreviewable. See Hospital Association v. Toia, 435 F.Supp. 819, 828-30 (S.D.N.Y. 1977) (modern concepts of the finality of judgments recognize that a plaintiff has no constitutionally protected vested right in a judgment until it has become final and unreviewable).

In Board of Regents v. Roth, 408 U.S. 564 (1972), the Supreme Court discussed the nature and source of constitutionally protected property rights:

"Property interests [protected by the Due Process Clause], of course, are not created by the Constitution. Rather they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law, rules or understandings that secure certain benefits and that support claims of entitlement to those benefits." 408 U.S. at 577.

The Court also stated: "To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it." Id.

In our view, it is clear that a claimant who recovers a judgment against the State under Chapter 450 has no constitutionally protected right to the final appropriation of funds to satisfy that judgment.21

21 But see Evans v. Chicago, 522 F.Supp. 789 (N.D. Ill. 1980). In that case, an Illinois statute empowered the City of Chicago to pay any tort judgment on a delayed schedule if the governing body found that the amount was so great that undue hardship would arise from prompt payment. Although citing the language of the Roth case, quoted above, the court nevertheless found that holders of tort judgments against the City had property interests "aris[ing] from the judgment itself rather than the statute" and that the delayed payment scheme might deprive them of due process.
Notwithstanding any rights that the claimants in Evans may have had against the City of Chicago, we do not believe that one who obtains a judgment against the State of Maryland under Chapter 450 obtains any rights against the State not derived from that statute.

Our conclusion is supported by the cases of South & North Alabama R.R. v. Alabama, 101 U.S. 832 (1880), and Memphis & Charleston R.R. v. Tennessee, 101 U.S. 237 (1880). In each of those cases, the Supreme Court had before it a state statute that permitted the recovery of judgments against the state, but left the ultimate satisfaction of those judgments to the state legislature. In Alabama, the Court described the effect of the statutes in the two cases: "Under both the Tennessee and Alabama statutes the courts are made little else than auditing boards. If funds are not voluntarily provided to meet the judgment, the courts are not invested with the power to supply them." 101 U.S. at 834.

Nevertheless, the Court found no constitutional infirmity in the statutes.22

22 The statutes themselves were not attacked in the Alabama and Tennessee cases. Rather, their repeal was challenged as a violation of the Contract Clause.

Our conclusion is also supported by "an unbroken line of Supreme Court opinions since the passage of the Eleventh Amendment", in which the Court has rejected the proposition that the common law doctrine of sovereign immunity is unconstitutional. Ellison v. Stephens, 581 F.2d 584, 585 (6th Cir. 1978). For example, in Monaco v. Mississippi, 292 U.S. 313 (1934), Chief Justice Hughes, writing for the Court and relying on the earlier case of Hans v. Louisiana, 134 U.S. 1 (1890), explained that the cognizance of suits and actions unknown to the law was not contemplated by the framers of the Constitution and that "[t]he suability of a State without its consent was a thing unknown to the law". 292 U.S. at 327.23 On at least two occasions, the Supreme Court has dismissed, for want of substantial federal questions, appeals challenging state sovereign immunity. Huffman v. Kentucky, 435 U.S. 991 (1978); Krause v. Ohio, 409 U.S. 1052 (1972).24

23 There has been some controversy over what the framers of the Constitution intended in providing that "[t]he judicial Power shall extend ... to Controversies . . . between a State and Citizens of another State . . . , and between a State . . . and foreign States, Citizens or Subjects". United States Constitution, Article III, §2. See Nevada v. Hall, 440 U.S. 415, 419 (1978). However, it has been quite clear since the passage of the Eleventh Amendment that the judicial power of the United States does not extend to "any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State". Id. The Eleventh Amendment was interpreted in Hans v. Louisiana, to prevent federal courts from entertaining suits against states by their own citizens and in Monaco v. Mississippi, to prevent those courts from entertaining suits against states by foreign nations.

24 In Krause, a lower state court had found that the doctrine of sovereign immunity violated the Equal Protection Clause of the Fourteenth Amendment. The Supreme Court of Ohio decisively reversed that ruling. Krause v. State, 285 N.E.2d 736, 744-45 (1972).

The Supreme Court discussed the doctrine of sovereign immunity at some length in Nevada v. Hall, 440 U.S. 410 (1979). In that case, the Court ruled that the doctrine does not support a claim of immunity by one state in the courts of a sister state. It went on to sustain a tort judgment rendered against the State of Nevada and its state university by a California court. In doing so, the Court concluded that nothing in Article III, in the Eleventh Amendment, or elsewhere in the Constitution incorporated the doctrine of sovereign immunity.25

25 Justice Blackmun, dissenting, argued that the sovereign immunity of the states is implicitly guaranteed as an essential component of federalism. 440 U.S. at 427. Justice Rehnquist, also dissenting, expressed his belief that sovereign immunity was a concept clearly incorporated in the constitutional plan or scheme. 440 U.S. at 432.

Nevertheless, the Court distinguished between what it saw as two quite different concepts making up the doctrine. The first is the notion that a sovereign is immune from suit in its own courts; the second, that it is immune in the courts of another sovereign. Although it rejected the argument that the Constitution protected a state from suits brought in another state, the Supreme Court at the time indicated support for the sovereign immunity of a state in its own courts. The majority opinion, written by Justice Stevens, quoted earlier defenses of the doctrine by Justices Jay and Holmes and said: "This explanation adequately supports the conclusion that no sovereign may be sued in its own courts without its consent." 440 U.S. at 415-16.26

26 Other recent cases have dealt with Eleventh Amendment immunity issues. For example, in Employees of Dept. of Public Health & Welfare v. Missouri, 411 U.S. 279 (1973), the Supreme Court held that federal courts could not entertain a suit brought under the Fair Labor Standards Act against certain state agencies. In Edelman v. Jordan, 415 U.S. 651 (1974), a 5-4 decision, the Court ruled that the Eleventh Amendment precluded the recovery of benefits wrongfully withheld by a state under a federal-state program of aid to the aged, blind, and disabled. The state's participation in the program was held not to constitute a waiver of its immunity. See also Florida Dept. of Health v. Florida Nursing Home Assn., 450 U.S. 147 (1981); Quern v. Jordan, 440 U.S. 332 (1979).
In Fitzpatrick v. Bitzer, 427 U.S. 445 (1976), however, the Court ruled that the Eleventh Amendment would not bar an award of backpay to claimants who alleged that Connecticut had violated the Civil Rights Act of 1964, as amended. The principle of state sovereignty embodied in the Amendment was said to be limited by §5 of the Fourteenth Amendment. Insofar as Congress has, by a statute passed under §5, specifically authorized suits against states, the federal courts may entertain such suits. See also Maher v. Gagne, 448 U.S. 122 (1980); Hutto v. Finney, 437 U.S. 678 (1978).

VI
Conclusion

In summary, it is our opinion that Chapter 450, Laws of Maryland 1976, authorized Maryland courts to entertain suits and enter judgments against the State and its agencies on written contracts executed by officials or employees acting within the scope of their authority. Furthermore, Chapter 450 and the State Constitution require the Governor to provide in the annual Budget Bill for the satisfaction of final contract judgments. However, Chapter 450 does not preclude the General Assembly from exercising its constitutional power to strike out or reduce items in the Governor's Budget, including those items inserted to provide for the satisfaction of judgments.

In closing, we think it important to point out that the State is not powerless to remedy any difficulties that might be created by this result. For example, without any change in the statute, the Governor is free, although not required, to anticipate future judgments and, in his or her discretion, to include in the Budget for a particular year funds that could be used to pay any judgments that might become final in that year. Should a statutory amendment be thought necessary, the State can provide a funding mechanism based on insurance or some other similar means, not directly dependent on annual legislative appropriations.27 If necessary, the State Constitution can be modified to take away the power of the General Assembly to strike out or reduce Budget items relating to the payment of judgments against the State and its agencies.28

Stephen H. Sachs, Attorney General
Judith A. Armold, Assistant Attorney General
Avery Aisenstark
Chief Counsel
Opinions and Advice

27 The State has chosen to do precisely this in subjecting itself to certain tort actions. See §§5-403 and 5-407(c) of the Courts Article [SG §§12-104 and 12-106].
The General Assembly might also amend Article 15A, §11 of the Maryland Code to preclude the Governor from reducing items of appropriation for the payment of judgments. See note 17 above.

28 Article III, §52(6) of the Maryland Constitution already prohibits the General Assembly from amending the Budget Bill so as to affect debt obligations of the State, provisions for the public schools, or the payment of constitutionally mandated salaries.