When Maryland bailed out its savings and loan associations after the 1985 crisis, was the emergency legislation authorizing state control and bond funding constitutional?

Plain-English summary

A state senator asked the Attorney General to review nine legal questions about three emergency laws Maryland's General Assembly passed at a May 1985 Special Session in response to a run on Maryland savings and loan associations that had eroded public confidence in the industry. Chapter 4 authorized $100 million in state bonds to fund purchases of "net worth certificates" from troubled associations seeking federal deposit insurance; Chapter 5 set the terms for issuing those certificates and gave the Secretary of Licensing and Regulation sweeping management powers, including the ability to replace directors or merge an association, over any institution that accepted the certificates; and Chapter 6 dissolved the Maryland Savings-Share Insurance Corporation (MSSIC) and replaced it with a new state entity, the State of Maryland Deposit Insurance Fund Corporation (the Fund).

The opinion found no constitutional problem anywhere in the package. It concluded the Board of Public Works and the Fund Director had complementary, not conflicting, authority over net worth certificates; that authorizing associations to issue certificates "notwithstanding" their own charters did not impair the Contract Clause because the historically heavy regulation of the industry meant associations had no reasonable expectation of insulation from new regulatory statutes, and because the state's compelling interest in restoring thrift-industry stability justified any impairment that did occur; that the Secretary's sweeping takeover powers under the certificate program did not violate due process because only associations that voluntarily accepted state assistance in exchange for those powers faced them, a form of constitutional waiver; that the grant of discretion to the Secretary was not an unconstitutional delegation of legislative power, given the well-established line of cases allowing broad discretion in complex economic and regulatory areas; that dissolving MSSIC, a specially chartered public-purpose entity rather than a general corporation with true "incorporators," and replacing it with the Fund did not impair any contract; that the Fund could lawfully withhold former MSSIC members' capital contributions pending resolution of the crisis, both because no enforceable contract right to their return existed and because any impairment was justified by the public purpose of protecting depositors; that Chapter 4's bond-bill title was constitutionally sufficient even without expressly mentioning the accompanying tax levy, consistent with long-standing Maryland bond-bill drafting practice; and that the statute expressing the state's "policy" to appropriate funds to protect depositors was not an unconstitutional pledge of the state's credit, because it created only a policy commitment rather than an unconditional legal obligation, similar to the analogous federal commitment to FSLIC-insured depositors.

Currency note

This opinion was issued in 1985. 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.

Common questions

Could the state legally take over a savings and loan association that accepted emergency financial assistance in 1985?
The opinion concluded yes: the Secretary of Licensing and Regulation's power under FI §9-224(a)(7) to replace directors, remove officers, or force a merger applied only to associations that voluntarily issued net worth certificates in exchange for state assistance, which the opinion treated as a constitutional waiver of whatever due process or contract rights the association might otherwise have asserted.

Did dissolving MSSIC and replacing it with a new state fund violate any contract with the savings and loan associations that belonged to it?
The opinion found no such violation, reasoning that MSSIC was a specially chartered public-purpose entity without true "incorporators" who could claim a contract with the state, that the replacement fund actually advanced MSSIC's original insurance purpose rather than defeating it, and that the legislature had repeatedly emphasized the heavily regulated nature of the industry.

Could the new Fund refuse to return savings and loan associations' MSSIC contributions right away?
Yes, according to the opinion. It found the former law created no enforceable contractual right to return of capital contributions, that any right under MSSIC's own bylaws would have been discharged by the unforeseen mass exodus triggered by the crisis, and that even if a contract right existed, withholding the funds to protect depositors served a sufficiently important public purpose to justify the impairment.

Did the 1985 bond bill funding the S&L bailout need to mention the accompanying tax in its title?
No. The opinion found Maryland's constitution does not require a bond bill's title to describe every instrumentality used to carry out its purpose, and pointed to a consistent practice of state bond bills, including several other 1985 bond acts, that did not reference the accompanying tax levy in their titles.

Did Maryland legally promise its "full faith and credit" to bail out failed savings and loan depositors?
No, according to the opinion. It distinguished a statute merely declaring state "policy" to appropriate funds "to the extent necessary" from an unconditional pledge of the state's faith and credit, which the Maryland Constitution's Article III, §34 forbids extending to private entities; the provision at issue was a policy statement rather than a binding legal guarantee, comparable to the analogous congressional commitment behind federal deposit insurance.

Background and statutory framework

Maryland had regulated savings and loan associations as a business "affected with a public interest" since 1961, Chapter 205, Laws of Maryland 1961, and created MSSIC the following year as a nonprofit, perpetual corporation whose primary purpose was to insure member associations' savings accounts, Chapter 131, Laws of Maryland 1962. Maryland Savings-Share Ins. Corp. v. United States, 308 F.Supp. 761 (D. Md. 1970), described MSSIC's insurance and liquidity functions, both funded through member contributions governed by MSSIC's own bylaws rather than statute. When a wave of withdrawals in early 1985 threatened several MSSIC-insured associations, the General Assembly convened a special session and passed twelve pieces of legislation, with Chapters 4, 5, and 6 forming the core of the response: state bond authority to fund purchases of net worth certificates, the terms and state management powers attached to those certificates, and the statutory merger of MSSIC into the newly created Fund.

The opinion's Contract Clause analysis under Article I, §10 of the United States Constitution relied on the principle that heavily regulated industries carry a diminished reasonable expectation against new regulation, Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400 (1983), and that even a substantial impairment is permissible when it serves a significant public purpose, a standard the opinion found comfortably met by legislation aimed at restoring "the fiscal integrity and financial stability of the thrift industry." Its due process analysis rested on the voluntary, contractual nature of an association's decision to accept net worth certificates, drawing on the "knowing waiver" line of cases including Puentes v. Shevin, 407 U.S. 67 (1972), and on precedent upholding similarly sweeping federal takeover powers over troubled savings institutions, Fahey v. Mallonee, 332 U.S. 245 (1947). Its nondelegation analysis applied Pressman v. Barnes, 209 Md. 544 (1956), and Governor v. Exxon Corp., 279 Md. 410 (1977), aff'd 437 U.S. 117 (1978), both of which allowed broad, unguided administrative discretion in complex regulatory and economic contexts. Finally, the opinion's analysis of Article III, §29's bill-titling requirement and Article III, §34's ban on pledging the state's credit to private entities relied on a long line of Maryland Court of Appeals decisions, including Johns Hopkins University v. Williams, 199 Md. 382 (1952), and Maryland Industrial Development Financing Authority v. Meadow-Croft, 243 Md. 515 (1966), distinguishing a genuine, unconditional pledge of state credit from the state's own use of its credit to borrow money that it then lends or grants for a public purpose.

Citations

Statutes:

• Chapter 4, Laws of Maryland 1985 (First Special Session) (state bond authority, Savings and Loan Association Capital Stabilization Fund)
• Chapter 5, Laws of Maryland 1985 (First Special Session) (terms for issuance of net worth certificates)
• Chapter 6, Laws of Maryland 1985 (First Special Session) (repeal of MSSIC statute, creation of the Fund)
• Chapter 11, Laws of Maryland 1985 (First Special Session) (preamble describing the crisis)
• Chapter 1, Laws of Maryland 1985 (First Special Session) (Governor's authority to exercise Fund Director powers)
• FI §9-224(a)(7) (Secretary's management/takeover powers over certificate-issuing associations)
• FI §9-224(a)(1) (Secretary and Fund Director approval for net worth certificate issuance)
• FI §9-224(a) (net worth certificate provisions generally)
• FI §10-116 (state policy to appropriate funds to protect depositors)
• FI §10-110(a)(2)(ii) (Fund Director's role in net worth certificates)
• FI §10-112(b) (return of capital contributions to withdrawing members)
• FI §10-113(b)(1) (nonrefundable premiums in lieu of capital deposits)
• FI §8-102 (savings and loan business affected with public interest)
• former Article 23, §161A(a) (original 1961 declaration of public interest)
• former Article 23, §161D (1961 requirement altering association charters/bylaws)
• Chapter 205, Laws of Maryland 1961 (original comprehensive S&L regulation)
• Chapter 131, Laws of Maryland 1962 (creation of MSSIC)
• former FI §10-103 (MSSIC central insurance/liquidity fund purposes)
• former FI §10-105(a) (MSSIC central insurance fund)
• former FI §10-106 (MSSIC membership qualification)
• former FI §10-107 (MSSIC Board admission of members)
• former FI §10-107(c) (member obligation to pay assessments)
• former FI §10-111 (MSSIC bylaw adoption authority)
• former FI §10-111(b) (Director's bylaw disapproval authority)
• former FI §10-113(a) (MSSIC net earnings accumulation)
• Chapter 33, Laws of Maryland 1980 (recodification of MSSIC provisions)
• Article III, §48 of the Maryland Constitution (special corporate charters, alteration/repeal of charters)
• Article I, §10 of the United States Constitution (Contract Clause)
• §1-102(e) of the Corporations and Associations Article (charters subject to repeal/modification)
• §2-103(7) of the Corporations and Associations Article (corporate authority to issue bonds/notes)
• Article III, §29 of the Maryland Constitution (single-subject/title rule for legislation)
• Article III, §34 of the Maryland Constitution (creation of state debt, ban on pledging state credit)
• §8-117(c) of the State Finance and Procurement Article (statutory bond bill format)
• Chapter 467, Laws of Maryland 1985 (comparable bond bill title example)
• Chapter 475, Laws of Maryland 1985 (comparable bond bill title example)
• Chapter 506, Laws of Maryland 1985 (comparable bond bill title example)
• former Article 41, §226L (prior express pledge-of-credit language, contrasted)
• Article 41, §15B-3(b)(6) (Governor's authority to exercise Fund Director powers)
• Article 41, §221(b) (Secretary's responsibility to the Governor)
• H.R. Con. Res. 290, 97th Cong., 2d Sess. (1982) (federal commitment to FSLIC-insured depositors)
• Executive Order 01.01.1985.13 (Governor's policy on net worth certificate terms)

Cases:

• Management Personnel Service v. Sandefur, 300 Md. 332, 341 (1984)
• Mayor and City Council of Baltimore v. German-American Fire Ins. Co., 132 Md. 380, 385 (1918)
• Graham v. Goodcell, 282 U.S. 409, 425 (1931)
• Moberly v. Herboldsheimer, 276 Md. 211 (1975)
• Maryland Savings-Share Ins. Corp. v. United States, 308 F.Supp. 761, 763 (D. Md. 1970), rev'd on other grounds 400 U.S. 4 (1970)
• State v. Good Samaritan Hospital, 299 Md. 310, 321-22 (1984), appeal dismissed for want of a substantial federal question 469 U.S. 802 (1984)
• Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 413 (1983)
• National Railroad Passenger Corp. v. Atchison, Topeka & Santa Fe Railway, 470 U.S. 451, 468-69 (1985)
• United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 22-23 (1977)
• Puentes v. Shevin, 407 U.S. 67, 95 (1972)
• D. H. Overmyer Co. v. Frick Co., 405 U.S. 174, 186-87 (1972)
• Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17 (1981)
• FSLIC v. Edison Savings & Loan Ass'n, 83 F.Supp. 1007, 1009 (S.D. N.Y. 1949), affd 177 F.2d 638 (2d Cir. 1949)
• Fahey v. Mallonee, 332 U.S. 245, 253 (1947)
• Governor v. Exxon Corp., 279 Md. 410, 428 (1977), affd 437 U.S. 117 (1978)
• Pressman v. Barnes, 209 Md. 544, 555 (1956)
• Shapleigh v. San Angelo, 167 U.S. 646, 654 (1897)
• Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819)
• Fidelity Union Trust Co. v. N. J. Highway Authority, 426 A.2d 488, 500 (N.J. 1981), appeal dismissed for want of a substantial federal question, 454 U.S. 804 (1981)
• University of Maryland v. Williams, 9 G. & J. 365, 391 (1838)
• Board of Regents, University of Maryland v. Trustees of Endowment Fund, 206 Md. 559, 567-68 (1955)
• A. S. Abell Pub. Co. v. Mezzanote, 297 Md. 26 (1983)
• Rogan v. Baltimore & Ohio Railroad, 188 Md. 44, 55 (1947)
• Montauk Corp. v. Seeds, 215 Md. 491, 499-500 (1958)
• Acme Markets, Inc. v. Dawson Enterprises, Inc. 253 Md. 76, 86-87 (1969)
• Pension Benefit Guaranty Corp. v. R. A. Gray Co., 467 U.S. 717, 733 (1984)
• Maryland State Teachers Ass'n v. Hughes, 594 F. Supp. 1353, 1372 (D. Md. 1984)
• FSLIC v. Grand Forks Building & Loan Ass'n, 85 F.Supp. 248 (D. N.D. 1949)
• Allied American Mutual Fire Ins. Co. v. Commissioner, 219 Md. 607, 616-17 (1959)
• Ridgeley v. Mayor of Baltimore, 119 Md. 567 (1913)
• Bickel v. Nice, 173 Md. 1 (1937)
• Johns Hopkins University v. Williams, 199 Md. 382, 401 (1952)
• Development Credit Corporation v. McKean, 248 Md. 572, 576-77 (1968)
• Maryland Industrial Development Financing Authority v. Helfrich, 250 Md. 602, 614-15 (1968)
• Lerch v. Maryland Port Authority, 240 Md. 438, 462 (1965)
• Maryland Industrial Development Financing Authority v. Meadow-Croft, 243 Md. 515, 523 (1966)
• Dodge v. Board of Education, 302 U.S. 74, 78 (1937)

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/1985/Volume70_1985.pdf

Original opinion text

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

SAVINGS AND LOAN ASSOCIATIONS

State Regulatory Authority—Constitutional Law—Contract Clause—Due Process—Delegation of Authority-Titling of Bond Bill—Pledge of State Credit—Emergency Legislation Affecting Savings and Loan Associations is Constitutional and Authorizes Administrative Actions Taken by State Officials.

October 15, 1985

The Honorable Thomas P. O'Reilly
Senate of Maryland

You have requested our opinion on a series of questions pertaining to the constitutionality and interpretation of three emergency acts affecting savings and loan associations that were enacted at the May, 1985 Special Session of the General Assembly. Those acts are Chapter 4, Laws of Maryland 1985 (First Special Session), which authorizes the creation of up to $100 million in State debt, the proceeds of which may be used in whole or in part for the purchase of the "net worth certificates" of savings and loan associations seeking to qualify for federal insurance; Chapter 5, Laws of Maryland 1985 (First Special Session), which specifies the terms and conditions for the issuance of net worth certificates; and Chapter 6, Laws of Maryland 1985 (First Special Session), which repeals the statute establishing the Maryland Savings-Share Insurance Corporation ("MSSIC") and provides for the creation of a successor State corporation, the State of Maryland Deposit Insurance Fund Corporation (the "Fund"), to insure certain accounts in savings and loan associations.

In connection with these acts, you have asked a number of specific questions. With regard to the provisions relating to savings and loan associations' net worth certificates, you ask:

1. Does the Board of Public Works have exclusive authority to set the terms and conditions for the issuance of net worth certificates?
2. Does the Board's authority with respect to net worth certificates conflict with that of the Fund Director?
3. Does Chapter 5, Laws of Maryland 1985 (First Special Session), which authorizes a savings and loan association to issue net worth certificates "[n]otwithstanding . . . any provision . . . of [its] charter or bylaws", thereby unconstitutionally impair the obligation of contracts existing between the savings and loan association and its stockholders or depositors?
4. Would procedural or substantive due process be denied or a contractual obligation unconstitutionally impaired if the Secretary of Licensing and Regulation exercised the managerial powers over savings and loan associations provided in new §9-224(a)(7) of the Financial Institutions Article ("FI" Article)?
5. Does FI §9-224(a)(7) unconstitutionally delegate legislative power, particularly with respect to the Secretary's authority to suspend the exercise of his powers under that provision?

Additionally, you ask the following questions regarding various other enactments:

6. Did the repeal of the statute creating MSSIC and the replacement of that body by the Fund unconstitutionally impair the obligation of a contract?
7. Is the Fund unlawfully denying immediate access by savings and loan associations to all or a portion of their capital contributions to MSSIC?
8. Does the title of Chapter 4, Laws of Maryland 1985 (First Special Session) violate Article III, §29 of the Maryland Constitution because it does not expressly state that a property tax is to be levied to pay for the bonds in question?
9. Does FI §10-116, which expresses State policy that monies will be appropriated to the extent necessary to protect depositors insured by the Fund, impermissibly pledge the credit of the State in violation of Article III, §34 of the Maryland Constitution? If the credit of the State has not been pledged, what is the nature of the funding commitment for the insurance of depositor accounts in savings and loan associations?

For the reasons given below, it is our opinion that (i) the various enactments in the May, 1985 Special Session fully conform to the requirements of the State and federal constitutions and (ii) the administrative actions taken pursuant to those enactments have been fully authorized. Therefore, we believe that the legislation has none of the potential legal defects about which you inquired.

Specifically, we conclude that:

1. The Board of Public Works does not have exclusive authority to set the terms and conditions for the issuance of net worth certificates.
2. The authority of the Board of Public Works does not conflict with that of the Fund Director.
3. The authority for the issuance of net worth certificates does not unconstitutionally impair the obligation of contracts.
4. The exercise of the authority granted the Secretary of Licensing and Regulation in FI §9-224(a)(7) would not be unconstitutional.
5. The grant of authority to the Secretary in FI §9-224(a)(7) does not unconstitutionally delegate legislative power.
6. The repeal of the statute creating MSSIC and the replacement of that body by the Fund do not unconstitutionally impair the obligation of any contract.
7. The Fund may lawfully decline to return, at this time, a portion of savings and loan associations' contributions to MSSIC.
8. The title of Chapter 4, Laws of Maryland 1985 (First Special Session) does not violate Article III, §29 of the Maryland Constitution.
9. The policy stated in FI §10-116 does not impermissibly pledge the credit of the State in violation of Article III, §34 of the Maryland Constitution. FI §10-116 is an affirmative expression of the General Assembly's intention to protect depositors insured by the Fund, similar to the commitment made by the United States Congress with regard to federally insured accounts.

I
Historical Background

In 1961, following a series of scandals involving Maryland savings and loan associations, the General Assembly enacted a comprehensive scheme of regulation of such associations. Chapter 205, Laws of Maryland 1961.1 In doing so, the General Assembly declared that the savings and loan business "is affected with a public interest and shall be supervised as a business affecting the economic security and general welfare of the people of this State". Former Article 23, §161A(a). See also FI §8-102.

The next year, the General Assembly established the Maryland Savings-Share Insurance Corporation as a nonprofit, nonstock corporation with "perpetual" existence. Chapter 131, Laws of Maryland 1962.2 "The primary purpose of the corporation [was] to insure the free-share accounts of member savings and loan associations, but it also serve[d] to promote the elasticity and flexibility of the resources of member associations and to aid the liquidity of member associations by providing a central reserve fund". Maryland Savings-Share Ins. Corp. v. United States, 308 F.Supp. 761, 763 (D. Md. 1970), rev'd on other grounds 400 U.S. 4 (1970). See also former FI §10-103 (enacted by Chapter 33, Laws of Maryland 1980).3

The membership of MSSIC consisted of savings and loan associations judged qualified by the Director of the Division of Savings and Loan Associations and admitted to membership by the Board of Directors of MSSIC. Former FI §§10-106 and 10-107. Each member was obliged "to make the investments and pay the assessments, premiums, and other charges that are required for participation in" MSSIC. Former FI §10-107(c). Although former FI §10-113(a) provided that "[t]he net earnings of [MSSIC] shall be accumulated and may not be returned to its members", the statute was silent on whether member savings and loan associations could recover other funds, such as their contribution of two percent of their free-share accounts.4 However, that subject was treated in a MSSIC bylaw.5

The MSSIC bylaws established two funds: a Capital Deposit Fund (the "insurance fund"), designed to insure the savings accounts of members pursuant to former FI §10-105, and a Central Reserve Fund (the "liquidity fund") intended to provide for the liquidity of member associations in accordance with former FI §10-103(2). The bylaws pertaining to the insurance fund required each member to contribute to the fund a sum equal to two percent of its free-share accounts; in return, each received a certificate of deposit from MSSIC. Bylaws §§3-301 and 3-306. Section 3-503 of MSSIC's bylaws provided in part that "[a]ny member withdrawing from the Corporation . . . shall be entitled to receive from the Corporation payment of the certificate of deposit issued by the Corporation and owned by such member less any debts or obligations owed by such member to the Corporation".

The bylaws pertaining to the liquidity fund required the members of MSSIC to purchase capital notes in accordance with a stated formula. Bylaws §3-901(B)(1). In the event that a savings and loan association terminated its membership in the liquidity fund (by withdrawal or expulsion from MSSIC), those bylaws also provided that "the capital notes shall be surrendered and cancelled and payment shall be made of the investment in said notes plus accrued interest, if any, less any advances, loans or other indebtedness of the member, and the collateral, if any, shall be returned". Bylaws §3-901(B)(6).

Earlier this year, public concern led to massive withdrawals of funds from certain MSSIC-insured savings and loan associations and the "erosion of public confidence in all such institutions". Chapter 11, Laws of Maryland 1985 (First Special Session), Preamble. In response, the General Assembly, meeting in special session, enacted 12 pieces of legislation to alleviate the crisis. The keystones of this legislative package are Chapter 6, which merges MSSIC into a new State corporation, the Fund, and limits the availability of its insurance to savings and loan associations that meet stated qualifications within certain deadlines; Chapter 5, which authorizes savings and loan associations to issue "net worth certificates"; and Chapter 4, which authorizes State purchase of those certificates to assist the associations in meeting the requirements for qualification for federal insurance.

Those three enactments contain the particular provisions that you have asked about. Part II below discusses your questions concerning the issuance and purchase of net worth certificates. Part III below addresses your other questions.

II
Validity of Provisions Relating to Net Worth Certificates

A. Authority of Board of Public Works and Fund Director

Chapter 4, Laws of Maryland 1985 (First Special Session), authorizes the Board of Public Works to issue $100 million in State bonds and creates the Savings and Loan Association Capital Stabilization Fund. In anticipation of that bond issue, the Board may further authorize the issuance to any savings and loan association of obligations payable from monies credited to the Fund, "upon such terms and conditions and for such consideration as the Board in its discretion determines may reasonably be expected to effect the purposes of this Act". Chapter 4, §1(5). This provision, as you have noted, might be read as giving the Board exclusive authority to set the "terms and conditions" for the issuance of savings and loan associations' net worth certificates. However, in our view, it does not have that effect.

Chapter 4, §1(5) also provides in part as follows:

"Monies in the Fund may be applied in the discretion of the Governor to purchase net worth certificates of any Maryland chartered savings and loan association if, in the opinion of the Secretary of Licensing and Regulation, by so doing the savings and loan association will qualify for insurance of its deposits and accounts by the Federal Savings and Loan Insurance Corporation."

In addition, FI §9-224(a)(1), as enacted by Chapter 5, requires the prior approval of the Secretary of Licensing and Regulation and the Fund Director before any savings and loan associations may issue a net worth certificate. Moreover, FI §9-224(a)(1) goes on to provide that net worth certificates may be issued only "in such amounts and upon such terms and conditions as approved solely by the Fund Director".6 Thus, we think it clear that neither the Board of Public Works nor the Fund Director has exclusive authority with regard to the issuance of net worth certificates.

The powers conferred on the Board and the Director by the enactment of Chapters 4 and 5 should be construed as consistent with each other, if at all possible, in order to give full effect to each. Management Personnel Service v. Sandefur, 300 Md. 332, 341 (1984). That harmonization is particularly important in light of the fact that both bills were enacted at the same session. See Mayor and City Council of Baltimore v. German-American Fire Ins. Co., 132 Md. 380, 385 (1918) (statutes enacted at same session must be construed together if at all possible, to avoid repeal by implication). See also Graham v. Goodcell, 282 U.S. 409, 425 (1931) (presumption against repeal by implication is strongest when acts are passed not only at same session but on same day). In our view, the provisions enacted by Chapters 4 and 5 may readily be construed as consistent with one another: The Board's authority under Chapter 4 relates to the formal requirements for issuance of the bonds or other obligations that may be used to purchase savings and loan associations' net worth certificates, while the Fund Director's authority under Chapter 5 relates to the requirements for savings and loan associations' issuance of their certificates.

Indeed, even if there were an overlap in regulatory authority, that overlap need not give rise to any conflict, inasmuch as such a theoretical problem could in practice be diminished, if not eliminated, by cooperation among the affected agencies. We note that, at present, there is certainly no actual conflict of authority, for none of the agencies or officials charged with responsibilities related to the issuance or purchase of net worth certificates have adopted contradictory requirements.

Accordingly, it is our opinion that the Board of Public Works does not have exclusive authority to set the terms and conditions for savings and loan associations' net worth certificates. Moreover, there is no conflict between the statutory provisions establishing the respective responsibilities of the Board and the Fund Director.

We also note that on June 13, 1985, Governor Hughes issued an executive order establishing a policy on the issuance of net worth certificates, including the terms and conditions of the certificates. Executive Order 01.01.1985.13. In our view, that action was fully authorized by the General Assembly. Under §15B-3(b)(6) of Article 41, as enacted by Chapter 1, Laws of Maryland 1985 (First Special Session), the Governor may exercise any of the powers of the Fund Director.7 For the reasons discussed in connection with the Fund Director, we do not regard either the existence of such authority or its exercise as being in conflict with the powers conferred on the Board of Public Works.8

B. Impairment of Contracts Between Associations and Stockholders

FI §9-224(a)(1), as enacted by Chapter 5, provides that "[n]otwithstanding . . . any provision of the charter or bylaws of any savings and loan association[,] a savings and loan association is authorized to issue . . . net worth certificates". You have asked whether that provision impairs the obligations of contracts in violation of the Contract Clause of Article I, §10 of the United States Constitution.9 In our view, it does not.

The charter of a private corporation is frequently described as a contract of a threefold nature: (1) a contract between the State and the incorporators; (2) a contract between the corporation and its stockholders; and (3) a contract of the stockholders with each other. 18 Am.Jur.2d Corporations, §76 (1985). A bylaw of a private corporation is a self-imposed rule sometimes said to result "from an agreement or contract between the corporation and its members to conduct the corporate business in a particular way." 18 Am.Jur.2d Corporations, §161. Nonetheless, a corporation's charter and bylaws are not immune from legislative change, indeed, Article III, §48 of the Maryland Constitution expressly provides that corporate charters "may be altered, from time to time, or be repealed" by the General Assembly. See also State v. Good Samaritan Hospital, 299 Md. 310, 321-22 (1984), appeal dismissed for want of a substantial federal question 469 U.S. 802 (1984). Cf. §1-102(e) of the Corporations and Associations Article (corporate charters are "subject to repeal or modification by public general law of the General Assembly").

Moreover, in our opinion, the authorization in FI §9-224(a)(1) for savings and loan associations to issue net worth certificates to the Fund does not, in reality, impair the obligation of any contract between such an institution and its shareholders. A savings and loan association is not required to issue such obligations, but merely authorized to do so. Cf. §2-103(7) of the Corporations and Associations Article (authorizing private corporations to "[i]ssue bonds, notes, and other obligations and secure them by mortgage or deed of trust of any or all of its assets").

Further, the historically heavy regulation of savings and loan associations militates strongly against the conclusion that any unconstitutional impairment of contracts arises from the provisions enacted by Chapter 5. See Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 413 (1983) (changes in state law are not easily held to constitute substantial impairment when parties to contract "are operating in a heavily regulated industry"). In view of that history, savings and loan associations and their shareholders could have no reasonable expectation that their charters and bylaws would not be affected by regulatory statutes like Chapter 5. See National Railroad Passenger Corp. v. Atchison, Topeka & Santa Fe Railway, 470 U.S. 451, 468-69 (1985) (pervasive prior regulation of railroads indicates Congress did not contractually bind itself to cease regulation).10

Even if FI §9-224(a) could be said to severely impair the obligation of contracts between a savings and loan association and its shareholders or members, that does not end the inquiry into the provision's constitutionality. Such an impairment is permissible if it serves "a significant and legitimate public purpose . . . such as the remedying of a broad and general social problem". Energy Reserves Group, 459 U.S. at 411-12. The purpose of the First Special Session's enactments is to "restore public confidence in, and the fiscal integrity and financial stability of, the thrift industry throughout Maryland". Chapter 4, Laws of Maryland 1985 (First Special Session), Preamble. Clearly, that significant and legitimate public purpose would be reasonably and necessarily served by authorizing savings and loan associations to issue net worth certificates to the State in return for financial assistance. See United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 22-23 (1977) (in determining appropriateness of measure impairing private contracts, courts defer to legislative judgment as to measure's necessity and reasonableness). Thus, we see no violation of the Contract Clause in the enactment of FI §9-224(a)(1).

C. Management Powers of Secretary of Licensing and Regulation

FI §9-224(a)(7), as enacted by Chapter 5, confers upon the Secretary of Licensing and Regulation a broad array of potential powers with respect to the management and operation of savings and loan associations that issue net worth certificates. In particular, that provision authorizes the Secretary to transfer all or substantially all the assets of such a savings and loan association and to consolidate or merge such an association with any other association or corporation.11 You have asked whether the exercise of those powers would violate State and federal constitutional guarantees of due process or would unconstitutionally impair the obligations of contracts. In our opinion, it would not.

FI §9-224(a)(7) neither requires the Secretary to exercise those powers nor obligates all savings and loan associations to accept the possibility of such control. Only those institutions that choose to issue net worth certificates in return for State financial assistance would face such a possibility.

Even constitutional rights such as due process are subject to contractual waiver. See Puentes v. Shevin, 407 U.S. 67, 95 (1972); D. H. Overmyer Co. v. Frick Co., 405 U.S. 174, 186-87 (1972). The knowing acceptance of State financial assistance, through an association's issuance of net worth certificates pursuant to the terms of FI §9-224, would be precisely such waiver of whatever property rights in the control of the institution would otherwise exist. Cf. Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17 (1981) ("[L]egislation enacted pursuant to the [federal] spending power is much in the nature of a contract: in return for federal funds, the states agree to comply with federally imposed conditions."); FSLIC v. Edison Savings & Loan Ass'n, 83 F.Supp. 1007, 1009 (S.D. N.Y. 1949), affd 177 F.2d 638 (2d Cir. 1949) (savings and loan association, having voluntarily joined federal insurance system, had agreed to statutory conditions of membership).12 Thus, it would not be constitutionally impermissible for the Secretary to merge or sell a savings and loan association that receives State assistance without affording the institution notice or a prior opportunity to be heard.

Nor, in our view, would any substantive due process right be violated by FI §9-224. The purpose of the provisions enacted by Chapter 5, like that of all the legislation enacted during the First Special Session, is to alleviate an already serious financial crisis that threatened to deteriorate further and thus to ensure the fiscal integrity and financial stability of the thrift industry as a whole. See Chapter 4, Preamble. The General Assembly's grant to the Secretary of substantial powers to manage and control institutions that avail themselves of State financial assistance clearly is rationally related to that end. See Governor v. Exxon Corp., 279 Md. 410, 428 (1977), affd 437 U.S. 117 (1978) ("Especially when reviewing legislation dealing with a serious problem in a new and untried fashion, the courts are under a special duty to respect the legislative judgment as to the proper means of solving the problem.").

In addition, assuming an institution's management rights amount to a contract, nonetheless, no unconstitutional impairment of that contract would result from the Secretary's exercise of management power under FI §9-224(a)(7). The State's prior financial assistance would be just compensation for those rights. See United States Trust Co. v. New Jersey, 431 U.S. 1, 19, n. 16 (1977) ("Contract rights are a form of property and as such may be taken for a public purpose provided that just compensation is paid.").

D. Delegation of Legislative Power

The Governor's June 13, 1985, executive order establishing State policy on the issuance of net worth certificates provides, in part, as follows:

"If an association can demonstrate that certain assurances by the State would remove an obstacle to raising private capital, the Secretary of Licensing and Regulation will consider making a written agreement concerning his authority under newly enacted Section 9-224(a) of the Financial Institutions Article. This could include a moratorium for a period of years on his exercise of his authority under that subsection unless the association, in his judgment:
(1) became impaired or insolvent
(2) violated any law or regulation
(3) concealed assets or records
(4) conducted an unsafe or unsound operation
(5) endangered the State's investment." Executive Order 01.01.1985.13, Attachment A at 3, ¶5.

In our view, implementation of such a moratorium would be consistent with the authority of State officials under the newly enacted legislation. Under FI §9-224(a)(7), the Secretary is authorized, but not required, to exercise extraordinary power of management control over a State-aided savings and loan association. The power to condition the exercise of that authority may also be found in FI §9-224(a)(1), which requires the prior approval of the Secretary for the issuance of net worth certificates and empowers the Fund Director to set "terms and conditions" for their issuance.

However, you have questioned whether this far-reaching discretion amounts to an invalid delegation of legislative power without sufficient guidelines for its exercise. In our opinion, it does not.

In various areas of governmental power, the courts have not required the legislature to set forth specific guidelines for executive action. For example, in Pressman v. Barnes, 209 Md. 544, 555 (1956), the Court of Appeals stated:

"[W]here the discretion to be exercised relates to police regulations for the protection of public morals, health, safety, or general welfare, and it is impracticable to fix standards without destroying the flexibility necessary to enable the administrative officials to carry out the legislative will, legislation delegating such discretion without such restrictions may be valid."

In Governor v. Exxon Corp., 279 Md. 410 (1977), affd 437 U.S. 117 (1978), the Court of Appeals extended that principle to complex economic legislation. Noting that "the complexity of modern economic conditions may make it impossible to tailor specific guidelines for every conceivable situation", the Court of Appeals concluded that "latitude in granting discretion is necessary". 279 Md. at 440. Accordingly, it upheld a broad grant of discretionary authority to the Comptroller to allow exemptions under the gasoline divestiture law.

Similarly, the Supreme Court long ago rejected the contention that Federal Home Loan Bank Board regulations governing savings and loan associations reflect an invalid delegation of power. In Fahey v. Mallonee, 332 U.S. 245, 250 (1947), the Court noted that the federal regulations dealt "with the problems of insecurity and mismanagement which are as old as banking enterprise" and added:

"The remedies which are authorized are not new ones unknown to existing law to be invented by the Board in exercise of a lawless range of power. Banking is one of the longest regulated and most closely supervised of public callings. It is one in which accumulated experience of supervisors, acting for many states under various statutes, has established well-defined practices for the appointment of conservators, receivers and liquidators. Corporate management is a field, too, in which courts have experience and many precedents have crystallized into well-known and generally acceptable standards." Id.

In light of these cases, it is our opinion that the provisions enacted by Chapter 5 do not amount to an invalid delegation of legislative power.

III
Validity of Other Enactments

A. Statutory Merger of MSSIC into the Fund

The Contract Clause of the United States Constitution has never been held to be an obstacle to the exercise of a state's authority to change the structure of the government itself or of a public entity. Shapleigh v. San Angelo, 167 U.S. 646, 654 (1897); Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819); Fidelity Union Trust Co. v. N. J. Highway Authority, 426 A.2d 488, 500 (N.J. 1981), appeal dismissed for want of a substantial federal question, 454 U.S. 804 (1981). In addition, when the General Assembly assigns a "public" task to a private corporation, the corporation "acquire[s] no vested inviolable right to that political power", immune from removal by subsequent legislation. University of Maryland v. Williams, 9 G. & J. 365, 391 (1838).

MSSIC was not a corporation chartered under the State's general corporation law. It had no "incorporators" who could challenge the termination of its corporate existence as being an impairment of their contract with the State. See Board of Regents, University of Maryland v. Trustees of Endowment Fund, 206 Md. 559, 567-68 (1955) (because corporation's charter is contract between State and incorporators, State may not exercise its reserved power to amend charter in way that would impair that contract by defeating purpose for which corporation was formed). Rather, it was specially chartered with an obvious public purpose, primarily, to insure accounts in savings and loan associations. Certainly, the replacement of MSSIC by the Fund does not in any way operate to defeat that purpose. Cf. 206 Md. at 574 (transfer of management and control of University of Maryland Endowment Fund to Board of Regents defeated purpose of limiting Regents' control, for which Trustees had been formed). Indeed, the accomplishment of that purpose is enhanced.

Moreover, the General Assembly repeatedly served notice on all involved with the thrift industry of the regulatory environment in which they must operate:

"It is the policy of the State that . . . [t]he savings and loan business . . . is so important as a method of promoting home ownership and thrift that it is in the public interest that:
(i) Savings and loan associations be supervised as a business affecting the economic security and general welfare of the people of this State; and
(ii) The business and financial stability of savings and loan associations be promoted and assured[.]" FI §8-102.

See also former Article 23, §161A(a).

Thus, in our opinion, the Contract Clause imposes no bar to the General Assembly's terminating MSSIC's existence and replacing it with a State corporation to the end of more effectively carrying out the public purpose for which MSSIC was originally created.13

B. Denial of Access to MSSIC Insurance Fund Contributions

Provisions enacted by Chapter 6 expressly give the Fund control over distribution of member savings and loan associations' contributions to MSSIC's insurance fund. FI §10-112(b) provides:

"Subject to terms and conditions adopted by the Fund Director and approved by the Board, a member association may withdraw at any time from the Fund and have returned all or part of any capital advanced to Maryland Savings-Share Insurance Corporation and all or part of any capital deposit required for membership in the Fund."

In addition, FI §10-113(b)(1) provides that, "[s]ubject to the approval of the Board, the Fund Director may adopt rules and regulations for the payment of nonrefundable premiums instead of or in addition to capital deposits required for membership in the Fund".

You have asked whether the Fund is authorized to deny a savings and loan association access to its contributions to MSSIC.14 In our view, the Fund Director's discretion to return "all or part of" those funds "[s]ubject to [the Fund Director's] terms and conditions" plainly authorizes a discretionary decision to decline to return a part of those funds.

At present, the Fund Director has not permitted former MSSIC members to gain any form of access to contributions made to the insurance fund.15 The obvious rationale for the refusal to grant immediate access to the insurance fund contributions is that those funds may be needed to reimburse depositors for losses at some Maryland savings and loan associations.16 You have asked whether that action, and the statute authorizing it, impermissibly impair the obligation of a contract.

The first inquiry is whether savings and loan associations have a contractual right to the return of their contributions upon MSSIC's dissolution. The former law neither directed the entry of a written contract on behalf of the State with respect to associations' contributions nor itself used the language of a contract. Therefore, it is doubtful that the statute itself could be considered a contract requiring return of an association's contributions. See National Railroad Passenger Corp. v. Atchison, Topeka & Santa Fe Railway, 470 U.S. at 466-67 (1985) (absent provision for execution of contract or creation of contract by statute's terms, court will not construe statute as creating contract).

In addition, the former law was silent as to the right of a member association to the return of its capital contribution to the MSSIC insurance fund. See former FI §10-105(a). Thus, even if the former law were a contract, there would be no contract right to the return of the capital contribution, because statutory contracts are construed "most favorably to the State", and, if such a contract "is silent about a power, the power does not exist". Rogan v. Baltimore & Ohio Railroad, 188 Md. 44, 55 (1947).

On the other hand, MSSIC bylaws would have given individual members a right to return of their capital deposits upon the member's withdrawal or expulsion from MSSIC. Those bylaws, however, assuredly never contemplated a mass exodus of institutions from MSSIC as a result of a financial crisis and emergency State legislation enacted to meet that crisis. In general, a contract is held to be discharged if its enforcement would completely frustrate its purpose, as a result of a change in circumstances wholly outside the contemplation of the contracting parties. Montauk Corp. v. Seeds, 215 Md. 491, 499-500 (1958). Accordingly, if MSSIC's members had a contract right to return of their capital deposits, that right would not now be enforceable.

In any event, we do not view the bylaws as having created a contractual right to return of capital deposits that is protected by Article I, §10 of the U.S. Constitution. MSSIC's bylaws were subject to amendment by its board of directors, with the approval of a State official, at any time. Hence, MSSIC could have rescinded its members' right to return of their capital deposits whenever that action became appropriate. See former FI §10-111(b) (Director of Division of Savings and Loan Associations authorized to disapprove proposed bylaw only if Director had reason to believe it was inconsistent with principles and purposes of MSSIC statute or did not serve public's best interests). Under those circumstances, MSSIC's member associations had no absolute contractual right to the return of their capital deposits. See Acme Markets, Inc. v. Dawson Enterprises, Inc. 253 Md. 76, 86-87 (1969) (contract may validly grant one party exclusive right of cancellation, and exercise of that right violates no contract rights of other party). And, under §4 of Chapter 6, the Fund acquired not only all of MSSIC's assets and liabilities, but also all of its "rights, powers, duties, obligations, and functions". Thus, the Fund has not only the same statutory authority as MSSIC had, but also the same right that MSSIC had to determine whether to continue to permit withdrawal of MSSIC member associations' capital deposits.

Nevertheless, even if the MSSIC bylaws regarding insurance fund contributions were a contract that has been impaired by State action, in our view, the impairment is constitutional. The constitutional prohibition against impairment of contractual obligations is not absolute: Even severe impairments are justified, if they are reasonable and necessary to serve an important public purpose. Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411 (1984). See Part II B above.

In our opinion, that is the case here. Member associations' deposits in MSSIC's insurance fund were intended by law to insure individual savings accounts. The action of the General Assembly and the Fund Director in preserving the use of those funds to pay for the possible losses of depositors not only serves an important public purpose, but, in our view, comports fully with the original intent of the statute creating MSSIC. See Maryland Savings-Share Ins. Corp. v. United States, 308 F.Supp. at 763 (primary purpose of MSSIC was to insure free-share accounts of member associations). For these reasons, we do not believe that the denial to savings and loan associations of immediate access to their MSSIC capital deposits unconstitutionally impairs a contractual obligation.17

C. Sufficiency of Title of Chapter 4

The title of Chapter 4 is as follows:

"AN ACT concerning
Creation of a State Debt—Savings and Loan Association Capital Stabilization and Insurance Loan
FOR the purpose of authorizing the creation of a State Debt in the amount of $100,000,000, the proceeds to be used for the purpose of providing monies for the Savings and Loan Association Capital Stabilization Fund created under this Act and the Maryland Deposit Insurance Fund; providing for the creation of the Savings and Loan Association Capital Stabilization Fund, the composition of the Fund, and the management, supervision, and application of the Fund; authorizing the issuance to savings and loan associations of obligations payable from the Fund; authorizing the State to issue and sell bond anticipation notes under certain terms and conditions; providing for the expenditure of the bond anticipation note proceeds; providing for certain reporting by the Secretary of Licensing and Regulation to the Joint Budget and Audit Committee of the General Assembly; providing that this Act is an emergency measure; and providing generally for the issue and sale of bonds evidencing the loan, the creation and use of a certain fund and the issuance of bond anticipation notes by the State."

No express reference is made to the levy of a tax to pay for the bonds in question. You have asked whether the title therefore violates Article III, §29 of the Maryland Constitution, which provides that "every Law enacted by the General Assembly shall embrace but one subject, and that shall be described in its title". In our view, the title need not contain an express reference to the tax to be constitutionally sufficient.

Article III, §29 does not require the title of a bill to be an abstract of its contents; and the title need not describe the instrumentalities, means, and procedures by which the subject is to be carried into effect. Ridgeley v. Mayor of Baltimore, 119 Md. 567 (1913).

The subject of Chapter 4 is the "creation of State debt". That objective may be carried out only by the imposition of a tax and the appropriation of funds. Article III, §34 of the Maryland Constitution. Indeed, State bond bills commonly do not contain an express title reference to the levy of a tax. See, e.g., Chapter 467, Laws of Maryland 1985 ("Creation of a State Debt—The Education Center of Sheppard Pratt, Inc."); Chapter 475, Laws of Maryland 1985 ("Creation of State Debt—Prince George's Equestrian Center"); and Chapter 506, Laws of Maryland 1985 ("Creation of State Debt—Capital Institute of Technology"). Moreover, the statutorily prescribed format for State bond bills, in §8-117(c) of the State Finance and Procurement Article, does not require a reference to the levy of a tax in the bill's title.

This well-established titling practice finds clear support in case law. In Bickel v. Nice, 173 Md. 1 (1937), the Court of Appeals rejected a constitutional attack on the title of a bond bill for the building of a new State office building, even though the title did not expressly mention the levy of a tax.

For these reasons, we conclude that the title of Chapter 4 does not violate Article III, §29 of the Maryland Constitution.

D. Pledge of State's Credit

FI §10-116, enacted by Chapter 6, states that "[i]t is the policy of this State that funds will be appropriated to the Fund to the extent necessary to protect holders of savings accounts in member associations". You have asked whether FI §10-116 pledges the credit of the State to savings and loan associations' depositors in violation of Article III, §34 of the Maryland Constitution. If it does not, you then inquire as to the nature of the commitment made by FI §10-116.

In our opinion, the State's credit has not been impermissibly pledged. At the same time, depositors may rely on FI §10-116's affirmative expression of the State's intention to protect them.

Article III, §34 of the Maryland Constitution provides in pertinent part that "the credit of the State shall not in any manner be given, or loaned to, or in aid of any individual[,] association or corporation".18 However, the Court of Appeals has carefully distinguished between pledges of the State's credit to individuals or businesses and grants of State funds to individuals or businesses, even if the funds are to be raised by State borrowing. Thus, in Johns Hopkins University v. Williams, 199 Md. 382, 401 (1952), the Court held that, in issuing bonds to raise funds for the University, the State was "not giving or loaning its credit to, or in aid of, the University, it [was] using its credit with banking institutions to borrow the money, and it [was] giving the University its cash". In a later case, the Court of Appeals explained:

"In reaching this result, Maryland adopted the rule that the prohibition against the loan or pledge of a state's credit is directed against the guaranty by a state of the debt of another and is not a limitation on the creation of an indebtedness for which a state is primarily liable." Development Credit Corporation v. McKean, 248 Md. 572, 576-77 (1968).

Hence, Article III, §34 of the Maryland Constitution does not prohibit the State from making grants or loans to private entities from the proceeds of the State's own borrowing, if the purpose of such a grant or loan is public or semipublic. Maryland Industrial Development Financing Authority v. Helfrich, 250 Md. 602, 614-15 (1968); McKean, 248 Md. at 576. In Helfrich, the Court of Appeals held unconstitutional a statute explicitly pledging the State's faith and credit to insure mortgages secured by industrial projects. 250 Md. at 616. At the same time, the Court noted that "[i]f the State had chosen to borrow the money required, had secured the borrowing by a pledge of its faith and credit, and had loaned or given the proceeds to the Authority, to be used for a public purpose, [Johns Hopkins University v. Williams] would have insulated the transaction from successful assault". 250 Md. at 615. FI §10-116 does no more than express the State's intention to follow just such a permissible course of action.19

Moreover, an enactment will not be held to amount to a pledge of the faith and credit of the State unless it provides for wholly unconditional governmental liability for the payment of a debt. Thus, in Maryland Industrial Development Financing Authority v. Meadow-Croft, 243 Md. 515, 523 (1966), the Court of Appeals held that a statute purporting to pledge the State's faith and credit was "of no legal force and effect" because limitations on the pledge prevented it from being binding in and of itself.

FI §10-116, by its terms, does not purport to pledge the State's faith and credit. Compare Meadow-Croft, 243 Md. at 518 (quoting provision of former Article 41, §226L, that "the faith and credit of the State are hereby pledged") with FI §10-116 ("It is the policy of this State that funds will be appropriated".). It does not expressly mandate the inclusion of funds in the budget. See 243 Md. at 520-21 (noting that, because statute at issue did not require Governor to request funds or General Assembly to appropriate them, provision purporting to pledge State's faith and credit did not actually amount to such pledge). And FI §10-116's expression of intent to make appropriations "to the extent necessary to protect holders of savings accounts" is not the equivalent of such a mandate. Cf. 65 Opinions of the Attorney General 108, 110 (1980) (where statute establishing program states that funding shall be "as provided" in annual budget, it leaves to discretion of Governor decision of whether, when, and at what level program should be funded). Accordingly, FI §10-116 does not evidence an intent to pledge the faith and credit of the State to insuring depositors' accounts in savings and loan associations.

Nor does FI §10-116 establish an immutable contractual obligation of the State to depositors. No statutory contract is created by legislation that merely "declares a State policy and directs a subordinate body to carry it into effect". Dodge v. Board of Education, 302 U.S. 74, 78 (1937).20 FI §10-116 explicitly constitutes only a legislative statement of public policy. Thus, it does not create an absolute statutory obligation of the State. In the absence of such an obligation, there is no pledge of the State's faith and credit. Meadow-Croft, 243 Md. at 522.

At the same time, FI §10-116 does set forth a responsibility that has been taken on by the State. It is part of the law of Maryland and is an affirmative expression of the General Assembly's intention to appropriate the funds necessary to protect savings and loan association depositors. The commitment is therefore similar to that made by the United States Congress with respect to federally insured depository institutions.21

IV
Conclusion

In summary, it is our opinion that the various statutes pertaining to savings and loan associations enacted during the May, 1985 Special Session of the General Assembly violate neither the Contract Clause of the United States Constitution nor any other constitutional provision. Moreover, the administrative actions that have subsequently been taken pursuant to those enactments are fully, and appropriately, authorized by the enactments.

Stephen H. Sachs, Attorney General
Robert A. Zarnoch, Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

1 The 1961 legislation forced savings and loan associations to alter their charters, bylaws, and existing contracts to comply with certain features of the new regulatory scheme. Chapter 205, Laws of Maryland 1961 (enacting former Article 23, §161D).

2 Under Article III, §48 of the Maryland Constitution, MSSIC could have been created by special law only if the corporation were created for a "municipal", that is, public, purpose or if no general law provided for the creation of such a corporation. See Moberly v. Herboldsheimer, 276 Md. 211 (1975).

3 Former FI §10-105(a) provided that "[t]he Corporation shall establish a central insurance fund and through the fund shall insure the savings accounts of members". However, former FI §10-116 stated that MSSIC "may not pledge the faith or credit of this State". See Chapter 33, Laws of Maryland 1980.

4 In Maryland Savings-Share Ins. Corp. v. United States, the court noted that "since no provision is made for distribution of accumulated income [of MSSIC], any such accumulated income would presumably escheat to the state upon the dissolution of MSSIC. [Citation omitted.] It is only in that sense that MSSIC can be said to be financially related to the state." 308 F.Supp. at 764.

5 Former FI §10-111 authorized the MSSIC Board to adopt bylaws. However, it also required that any bylaw be first submitted to and approved by the Director of the Savings and Loan Division, who could disapprove it if he had "reason to believe that: (i) It is contrary to the principles and purpose of this title; or (ii) It does not serve the best interests of the public."

6 See also FI §10-110(a)(2)(ii), as enacted by Chapter 6. We do not believe that the General Assembly, by its use of the word "solely" in FI §9-224(a)(1), intended to oust every other governmental entity from a role in the issuance and approval of net worth certificates. Rather, the word "solely" was intended to distinguish the respective roles of the Secretary of Licensing and Regulation and the Fund Director in that process.

7 Similarly, Article 41, §221(b) provides in relevant part that the Secretary of Licensing and Regulation "shall be directly responsible to the Governor" and "shall be responsible for carrying out the Governor's policies in the areas of licensing and regulation". Thus, at least by implication, the Governor may also exercise the powers of the Secretary.

8 On August 2, 1985, the Board approved the format of the net worth certificates. See Item 1, Secretary's Agenda (August 2, 1985). However, this action in no way contradicts either the purpose or terms of the Governor's June 13 Executive Order. Moreover, the Board is not obligated to set any additional "terms or conditions" and could defer in this regard to the Fund Director.

9 The Contract Clause provides that "[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts".

10 See also note 1 above.

11 FI §9-224(a)(7) provides in full as follows:

"During any period in which a savings and loan association has any net worth certificate outstanding, the Secretary of Licensing and Regulation may:
(i) Increase the number of directors of the savings and loan association by any number and appoint directors to fill any newly created directorship;
(ii) Fix the compensation of and remove, without cause, any and all directors, officers, or employees of the savings and loan association and appoint successors to fill any vacancy that exists; and
(iii) Subject to prior approval by the Governor and without obtaining the recommendation of the Board of Directors or the approval of the stockholders or members of the association, sell, transfer, or assign all or substantially all of the assets of the association or merge or consolidate the association with or into any other association or corporation on such terms as the Secretary directs[.]"

12 Nearly 40 years ago, the Supreme Court rejected a procedural due process attack on the consolidation, merger, and liquidation powers of the Federal Home Loan Bank Board, noting that in this area it is "an almost invariable custom to apply supervisory authority in [a] summary manner". Fahey v. Mallonee, 332 U.S. 245, 253 (1947).

13 This conclusion does not turn on whether MSSIC is best characterized as a public corporation, a quasi-public entity, or a private corporation serving a public purpose. See A. S. Abell Pub. Co. v. Mezzanote, 297 Md. 26 (1983); Moberly v. Herboldsheimer, 276 Md. 211 (1975). See also note 2 above. Hence, we need not and do not decide that issue.

14 See text accompanying notes 4 and 5 in Part I above.

15 Former MSSIC members have been permitted to credit their investments in the liquidity fund against net worth, albeit not to withdraw their investments at present. They have also received payment of interest on their liquidity fund investments.

16 It is our understanding that the Fund Director's position is that, upon payment of depositors' losses, any monies remaining in the insurance fund will be returned to the member associations.

17 The Fund Director's decision not to return MSSIC contributions at this time does not deprive a savings and loan association of property without due process. Legislative acts "adjusting the burden and benefits of economic life" are subject to an even more lenient constitutional analysis under the Due Process Clause than under the Contract Clause. Pension Benefit Guaranty Corp. v. R. A. Gray Co., 467 U.S. 717, 733 (1984); Maryland State Teachers Ass'n v. Hughes, 594 F. Supp. 1353, 1372 (D. Md. 1984). And the courts have accorded little protection under the Due Process Clause to savings and loan associations' payments for insurance coverage. See FSLIC v. Edison Savings & Loan Ass'n, 83 F.Supp. 1007 (S.D. N. Y. 1949), affd 177 F.2d 638 (2d Cir. 1949); FSLIC v. Grand Forks Building & Loan Ass'n, 85 F.Supp. 248 (D. N.D. 1949) (rejecting due process attacks on FSLIC requirement that a savings and loan association pay insurance premiums three years after the termination of insurance coverage, noting that the policy preserved the stability of the insurance reserve fund.). Cf. Allied American Mutual Fire Ins. Co. v. Commissioner, 219 Md. 607, 616-17 (1959) (rejecting due process challenge to Unsatisfied Claim and Judgment Fund Law's requirements that insurers contribute money and services).

18 Although earlier constitutions contained a comma after the word "individual", the framers of the 1867 Constitution, apparently without substantive intent, omitted the comma. See Johns Hopkins University v. Williams, 199 Md. 382, 386 (1932). Both the Court of Appeals and commentators have construed the language of Article III, §34 to bar gifts or loans of the State's credit to "individuals" as well as to "associations" and "corporations". See, e.g., Lerch v. Maryland Port Authority, 240 Md. 438, 462 (1965); Report of the Constitutional Convention Commission at 220 (1967). Cf. 65 Opinions of the Attorney General 285, 288-90 (1980) (comma inserted in constitutional provision by clerical error should not be given effect that would modify intended meaning of provision).

19 Similarly, Chapter 4 is not at all objectionable under Article III, §34. Chapter 4 authorizes the creation of a State debt to raise funds to aid savings and loan associations in obtaining FSLIC insurance. Thus, it authorizes only the State's use of its credit to raise money that the State may give or loan to associations, not the pledge of the State's credit to those associations. See Johns Hopkins University v. Williams, 199 Md. at 401.

Moreover, Chapter 4 not only authorizes the creation of a State debt, but also levies a tax to pay that debt. Hence, it fully conforms to the first sentence of Article III, §34, which prohibits the creation of a debt unless a tax is levied in an amount sufficient to pay the principal and interest of the debt.

20 FI §10-116 also lacks other contractual essentials, such as consideration and mutual assent.

21 H.R. Con. Res. 290, 97th Cong., 2d Sess. (1982).