Can a state legally impose a one-time tax on every licensed attorney to fund a mandatory legal malpractice insurance program?

Plain-English summary

The Governor asked the Attorney General to review Senate Bill 753 for constitutionality before signing it. The bill created the Legal Mutual Liability Insurance Society of Maryland, an insurer meant to make malpractice coverage available to Maryland lawyers, and funded its initial reserves with a one-time $150 tax on every attorney admitted to practice in the state, backed by a lien on the attorney's property if unpaid.

The Attorney General concluded the bill was constitutional on all three fronts examined. Because the tax served the public purpose of assuring the continued availability of insured, and therefore financially stable, legal services to the public, similar to a 1975 law that had created an analogous malpractice fund for physicians, it did not violate the constitutional ban on taxing for a purely private purpose. Because federal law recognizes tax collection as an exception to the usual requirement of a hearing before property can be encumbered, the lien provision did not violate due process even without a pre-collection hearing. And because the tax applied to every attorney admitted to the bar rather than singling out a disfavored group, and because using bar admission as the trigger for the tax was an administratively convenient and rational choice, taxing government lawyers along with everyone else did not violate equal protection.

Currency note

This opinion was issued in 1986. 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 a Maryland lawyer challenge the $150 malpractice insurance tax as spending public tax money for a purely private purpose?
The Attorney General concluded no. The opinion reasoned that assuring Maryland lawyers of adequate insurance coverage served the public purpose of ensuring that essential and affordable legal services remained available to the public, drawing a direct comparison to a similar 1975 law that funded a malpractice insurance program for physicians on the same public purpose theory.

Did the state need to hold a hearing before placing a lien on a lawyer's property for an unpaid malpractice insurance tax?
No, according to this opinion. The Attorney General concluded that because the tax was a form of tax collection, an area where courts have recognized an exception to the general due process requirement of a hearing before property is encumbered, the lien could attach without a pre-collection hearing.

Was it unfair that government lawyers who might never face a malpractice claim still had to pay the tax?
The opinion concluded this did not violate equal protection. It reasoned that the tax was tied to the "privilege" of bar admission rather than actual practice, that government lawyers could move into private practice and use the insurance, that admission to the bar was an easy, verifiable event to base the tax on, and that even non-practicing lawyers benefited from a stable, insured legal profession, all of which gave the classification a rational basis.

Background and statutory framework

Senate Bill 753 amended Article 48A, §570 of the Maryland Code to create the Legal Mutual Liability Insurance Society of Maryland and fund its startup reserves through a one-time $150 tax levied on every attorney on the rolls of the Clients' Security Trust Fund, collectible with penalties and interest and secured by a lien on the attorney's property under the general tax lien provisions of Article 81, §322. The Attorney General's review examined three separate constitutional constraints: the public purpose requirement of Article 15 of the Maryland Declaration of Rights, which bars taxing and spending for a purely private purpose; the Due Process Clause, as applied to the lien mechanism; and the Equal Protection Clause of the Fourteenth Amendment, as applied to imposing the tax on lawyers who work for government rather than exempting them.

On public purpose, the opinion relied on a 1975 precedent, a $300 tax on physicians used to fund the Medical Mutual Liability Insurance Society, reasoning that assuring a stable, insured legal profession served the public by keeping legal services available and affordable, just as the earlier law had reasoned that insured physicians kept medical services available. On due process, the opinion applied the recognized tax-collection exception to the usual notice-and-hearing requirement before a lien attaches, since the Maryland Tax Court and other post-collection forums remained available to challenge the tax later. On equal protection, applying rational basis review because no suspect class or fundamental right was implicated, the opinion found several rational reasons for taxing all admitted attorneys rather than carving out government lawyers, including administrative simplicity in using bar admission as the taxable event and the broader public benefit of a financially stable legal profession that all lawyers, practicing or not, would share.

Citations

Statutes:

• Article 48A, §570 of the Maryland Code, as amended by Senate Bill 753 (Legal Mutual Liability Insurance Society tax and lien provisions)
• Article 10, §43 of the Maryland Code (Clients' Security Trust Fund attorney roster)
• Article 81, §204 of the Maryland Code (interest rate on unpaid tax)
• Article 81, §322 and §322(4) of the Maryland Code (general state tax lien provisions)
• Article 15 of the Maryland Declaration of Rights (public purpose requirement for taxation)
• Article 25 of the Maryland Declaration of Rights (public purpose requirement for taxing and spending)
• Article 48A, §552 of the Maryland Code (Medical Mutual Liability Insurance Society, the 1975 physician-tax precedent)
• Article 41, §318(1) of the Maryland Code (Maryland Tax Court jurisdiction)
• Chapter 281, Laws of Maryland 1986 (enactment of Senate Bill 753)
• Chapters 563 and 568, Laws of 1976 (later exceptions added to the physician malpractice tax)

Cases:

• Snowden v. Anne Arundel County, 295 Md. 429, 435 (1983)
• Wilson v. Board of County Commissioners, 273 Md. 30 (1974)
• Frostburg v. Jenkins, 215 Md. 9, 16 (1957)
• Barry Properties v. Fick Brothers, 277 Md. 15 (1976)
• Fuentes v. Shevin, 407 U.S. 67, 90-91 (1972)
• City of New Orleans v. Dukes, 427 U.S. 297, 304-05 (1976)
• Washabaugh v. Washabaugh, 285 Md. 393, 408 (1979)
• Ogrinz v. James, 309 Md. 381 (1987)

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/1986/Volume71_1986.pdf

Original opinion text

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

Constitutional Law - Public Purpose - Due Process - Equal Protection - Tax and lien requirements imposed on all Maryland lawyers are constitutional.

April 22, 1986

The Honorable Harry Hughes
Governor

We have reviewed and hereby approve for constitutionality and legal sufficiency Senate Bill 753, which amends various provisions of law with respect to the Legal Mutual Liability Insurance Society of Maryland. Specifically, we have examined the tax and lien provisions of the legislation and have concluded that the bill does not impose a tax for a purely private purpose in violation of Article 15 of the Maryland Declaration of Rights and is not violative of due process or equal protection.

I
Senate Bill 753

Article 48A, §570 of the Maryland Code, as amended by Senate Bill 753, provides that:

"(a) Within 30 days after the date the society is incorporated, the clerk of the Court of Appeals of Maryland shall certify to State Treasurer a list of all attorneys admitted to practice law in the State as shown in the records of the Clients' Security Trust Fund, as provided for in Article 10, §43 of the Code on the date of the Society's incorporation.

(b) A special one-time tax for the privilege of practicing law in the State is levied on attorneys listed by the treasurer in accordance with subsection (a) of this section in the amount of $150 per attorney, to be levied and assessed within 30 days of receipt of the certified list of attorneys. The tax shall be collected by the treasurer within 60 days after receipt of the certified list of attorneys.

(c) If the tax imposed by this section is not paid within 60 days from the date the tax is levied and assessed, the attorney who is liable for its payment shall pay an additional tax as a penalty. The penalty may not exceed 10 percent of the tax due, plus interest at the rate determined under Article 81, §204 of the Code for each month the tax remains unpaid. Interest may not be assessed on the tax which is due as a penalty. If any attorney fails to pay the tax due under this section, on or before the date fixed for its payment, the full amount of all the tax due the State together with any interest, penalty, or addition to the tax, shall be a lien in favor of the State upon all property and all rights to property, real or personal, belonging to the person in accordance with Article 81, §322 of the Code.

(d) (1) The General Assembly of Maryland dedicates the proceeds of the tax provided by this section as the initial policyholders' surplus of the society.
(2) After retaining an amount to pay the cost of collection, the treasurer and comptroller shall pay over the proceeds of the tax to the society within 30 days.

(e) The board of directors of the Society shall establish a membership fee which shall be payable by an attorney at the time of application to the Society for a policy of insurance. The amount of the fee shall be determined by the Board of Directors. The membership fee is not refundable, nor shall it be credited against any premium payable to the Society for a policy of insurance. Any attorney who has paid the tax specified in subsection (b) of this section shall be credited with the amount of the tax paid against his liability for any membership fee.

(f) Upon payment of the membership fee, an attorney may be insured by the Society for any and all hazards customarily insured by the Society, subject to any coverage limitations specified by the Society in accordance with policy limitations, exclusions, conditions, deductibles, and loss sharing requirements."

II
Public Purpose

Under Article 25 of the Declaration of Rights, the State may tax and spend only for a public purpose, not a purely private one. In Snowden v. Anne Arundel County, 295 Md. 429, 435 (1983), the Court of Appeals stated that:

"Our cases have consistently upheld the propriety of payment of public funds to private institutions or individuals, as long as a public purpose is served thereby .... The legislative body is primarily entrusted with ensuring that the public purpose requirement is fulfilled, and the courts have no duty unless and until a perversion of public funds to private purposes is obvious."

See also Wilson v. Board of County Commissioners, 273 Md. 30 (1974). And, in Frostburg v. Jenkins, 215 Md. 9, 16 (1957), the Court said that:

"What is a public purpose for which public funds may be expended is not a matter of exact definition; it is almost entirely a matter of general acceptance .... We may add that the line of demarcation is not immutable or incapable of adjustment to changing social and economic conditions that are properly of public and governmental concern." (Emphasis added).

In this regard, we note that this office, in a bill review letter on Senate Bill 816 (1975), concluded that legislation upon which Senate Bill 753 is largely patterned served a public purpose. The 1975 legislation established a Medical Mutual Liability Insurance Society funded by a $300 tax on licensed physicians. See Article 48A, §552. There, we said that a public purpose existed because "[t]he continued provision of essential medical services to the Maryland public is in serious jeopardy unless physicians are assured of adequate professional liability insurance coverage." A similar public purpose can be articulated for Senate Bill 753: assuring Maryland lawyers of adequate insurance coverage so that essential and affordable legal services may be provided to the public. For this reason, we conclude that the bill does not violate Article 15 of the Declaration of Rights.

III
Due Process - Lien

In Barry Properties v. Fick Brothers, 277 Md. 15 (1976), the Court of Appeals struck down the State mechanic's lien law as violative of due process, because it did not afford a property owner notice and an opportunity for a hearing before the lien was established. Senate Bill 753, like Article 81, §322, which it seeks to emulate, does not expressly provide a pre-determination hearing. However, there is no need to decide whether those subject to the tax, as a practical matter, may be impliedly afforded hearing rights in the Maryland Tax Court before the lien encumbers their property. See Article 41, §318(1). This is so because the collection of "internal revenue" is recognized as an extraordinary circumstance permitting the taking of property without affording a pre-determination hearing. See Fuentes v. Shevin, 407 U.S. 67, 90-91 (1972). Thus, even if there were no hearing before the establishment of a lien on the lawyer's property pursuant to Senate Bill 753, the legislation would not offend due process.1

IV
Equal Protection - Public Lawyers

Lastly, we have considered whether the bill, by imposing a tax on lawyers employed by State and local governments, denies equal protection of the laws and have concluded that it does not.

Because Senate Bill 753 does not disadvantage a "suspect" class or affect a fundamental constitutional right, it passes constitutional muster under the Equal Protection Clause of the 14th Amendment unless wholly arbitrary or irrational. City of New Orleans v. Dukes, 427 U.S. 297, 304-05 (1976). Moreover, a rational basis, and thus constitutionality for equal protection purposes, will be presumed unless a clear and convincing showing by the party assailing the legislative classification proves that it does not rest upon any reasonable basis. Washabaugh v. Washabaugh, 285 Md. 393, 408 (1979).

Applying this standard, it is our view that the decision to tax all attorneys admitted to practice in Maryland and not to exempt government lawyers cannot be said to lack a rational basis. First, Senate Bill 753 imposes a tax on the "privilege" of practicing law, whether one is actually practicing or not. Thus, under the bill a number of lawyers who do not practice (e.g., law professors) arguably do not derive a direct benefit from the tax proceeds. Therefore, the bill does not create a discrete class of government lawyers disadvantaged by the bill. Secondly, many government lawyers do engage in some private practice or might be in private practice in the future and could, if they chose, take advantage of the availability of insurance. Third, the bill selects a certain administratively verifiable event, admission to the bar, to trigger the tax. This enables the tax to be assessed and administered in a convenient manner. Fourth, even lawyers who do not practice will, like the citizenry at large, benefit from fulfillment of the bill's purpose in ensuring the availability of legal services. Finally, in this area, the Legislature is entitled to proceed one step at a time in determining whether exceptions to the tax are necessary.2

V
Conclusion

For all of these reasons, we conclude that Senate Bill 753 is constitutional.

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

Jack Schwartz
Chief Counsel
Opinions and Advice

Editor's note: The preceding opinion, originally written as a bill review letter, is published here in a slightly revised format. Senate Bill 753 was enacted as Chapter 281, Laws of Maryland 1986. In Ogrinz v. James, 309 Md. 381 (1987), the Court of Appeals sustained the constitutionality of Senate Bill 753.

1 Once again there is no need to decide the appropriate forum for a lawyer to challenge the imposition of the lien in a post-determination setting, viz. in the Tax Court or in the Circuit Court in response to an attachment proceeding to enforce the lien. See Article 81, §322(4).

2 The 1975 legislation creating a Medical Mutual Liability Insurance Society did not contain exceptions for physicians employed by the federal government, volunteers or teachers in medical school. These exceptions were added by subsequent legislation. See Chapters 563 and 568, Laws of 1976.