Could Maryland or its counties hire private lawyers on a contingency-fee basis to collect debts owed to the government?

Plain-English summary

A Maryland state senator asked whether the state or a county could hire private lawyers to collect government debts, with fees paid from recoveries. The Attorney General concluded that counties could hire private debt collection lawyers under existing law. A county probably could pay a contingent fee, but the opinion called that point uncertain and recommended that legislation address it. State authority was narrower: the Secretary of Budget and Fiscal Planning could hire a lawyer case by case when an assistant attorney general could not feasibly handle a collection, while the Attorney General's separate hiring power was limited to "extraordinary or unforeseen" cases and required Board of Public Works approval for a contingent fee. Broader, routine use of private lawyers for state debt collection would need new legislation.

Currency note

This opinion was issued in May 1989, shortly after Congress authorized the U.S. Attorney General to contract with private lawyers for federal debt collection in the Debt Collection Amendments of 1986, and it analyzed Maryland's own statutes on state and county debt-collection authority as they existed at that time. Maryland's debt collection statutes, the Central Collection Unit's authority, and county home rule powers have had decades to change since 1989. This page is a historical record of how the Attorney General analyzed this authority at the time. It describes what the opinion concluded then and is not a statement of current Maryland debt collection law. Verify current statutes directly before relying on anything here.

Common questions

Could a Maryland county hire a private lawyer on a contingent-fee basis to collect a debt owed to the county in 1989? Probably yes, according to the opinion, though it was "not altogether free from doubt." The opinion found counties already had authority under their general and home rule powers to hire private lawyers for debt collection, and thought Maryland courts would more likely than not uphold a reasonable contingent-fee arrangement, while noting at least one old out-of-state case had rejected the concept.

Could the Maryland Attorney General personally hire a private lawyer on contingency to collect a state debt? Only with the Board of Public Works' approval, the opinion concluded, because agreeing to pay a lawyer out of the state's recovery was effectively disposing of state property, something SF §10-305(a) reserved to the Board.

Did Maryland already have a broad program for using private lawyers to collect state debts in 1989, like the federal government had just created? No. The opinion concluded that existing Maryland law only allowed hiring private lawyers case-by-case, either by the Secretary of Budget and Fiscal Planning when an assistant attorney general could not feasibly handle a collection, or by the Attorney General in an "extraordinary or unforeseen case." Using private lawyers for a whole category of routine debt collection would require new legislation, as Congress had enacted for federal debts.

Did the opinion have any concerns about the State using private debt-collection lawyers, beyond just whether it was legal? Yes. The opinion flagged that any legislation authorizing broader private representation should include safeguards, similar to the federal law's requirement that the U.S. Attorney General retain control over private lawyers' conduct, out of concern that overreaching or sharp collection practices could damage the state's reputation even more than uncollected debts would.

Background and statutory framework

The opinion arose from Congress's 1986 Debt Collection Amendments, 31 U.S.C. §3718(b)(1)(A), which let the U.S. Attorney General contract with private lawyers to collect federal debts while retaining control through termination rights and reporting requirements, 31 U.S.C. §3718(b)(5). Turning to Maryland, the opinion found the Attorney General's own general hiring authority, Section 6-105(b) of the State Government Article, allowed employing "assistant counsel" only in "an extraordinary or unforeseen case," which ruled out routine debt collection work. A more specific statute, SF §3-206(e), let the Secretary of Budget and Fiscal Planning contract with a private lawyer for the Central Collection Unit on a "case-by-case basis" when it was "not feasible" for an assigned assistant attorney general to handle the matter, but did not authorize assigning an entire category of debts to private lawyers.

On contingent fees, the opinion reasoned that a debt owed to the State is a form of State property, so an official who agreed to pay a lawyer a share of the recovery was arguably "disposing of" state property, a power SF §10-305(a) reserved to the Board of Public Works, except for debts within the Central Collection Unit's own settlement authority under SF §3-304(a)(2). The opinion found SF §3-206(e) implicitly let the Secretary agree to a reasonable contingent fee as part of a debt-collection contract, but found the Attorney General's own hiring statute, SG §6-105(b), contemplated fees fixed in advance and did not clearly extend to contingent arrangements, so a contingent-fee contract by the Attorney General would need Board of Public Works approval.

For counties, the opinion found ample existing authority: general county powers under Article 25, §1, home rule police power under Article 25A, §5(S) for charter counties, and the general rule that municipalities may hire outside counsel absent a statute or charter provision to the contrary. On contingent fees for counties, the opinion canvassed conflicting out-of-state authority, several cases upholding local governments' power to agree to contingent fees against one 19th-century Pennsylvania decision voiding a county's 50-percent contingent-fee arrangement as against public policy, and concluded Maryland courts would more likely than not uphold a reasonable county contingent-fee arrangement, while recommending that any future legislation on the subject address contingent fees explicitly, as the federal law had done.

Citations and references

Statutes:

• 31 U.S.C. §3718(b)(1)(A), §3718(b)(5), §3718(b)(5)(A) and (C), §3718(f), and §3718(d), the federal Debt Collection Amendments of 1986 authorizing the U.S. Attorney General to retain private debt-collection counsel
• Section 6-105(b) of the State Government Article, SG §6-105(b)(2)(ii), and SG §6-105(b)(3), the Maryland Attorney General's general authority to employ outside "assistant counsel"
• §13-816(a) of the Tax-General Article and TG §14-865(a)(1), requiring the Attorney General (through a salaried employee) to bring tax-collection actions
• TG §13-101(c), defining "tax collector"
• §3-302(a)(1) of the State Finance and Procurement Article and SF §3-302(b), establishing the Central Collection Unit's debt-collection responsibility and its exceptions
• SF §3-206(b) and (c), and SF §3-206(e), the Secretary of Budget and Fiscal Planning's authority to assign assistant attorneys general or contract with a private lawyer for Central Collection Unit debts
• SF §3-304(a)(2), the Central Collection Unit's authority to settle a debt or claim
• SF §10-305(a) and SF §10-305(a)(1), the Board of Public Works' authority over disposing of State property
• Article 101, §91(b)(1)(iii) and §91(b)(3)(iii) of the Maryland Code, governing the Uninsured Employers' Fund's debt collection and contingent-fee authority under then-pending House Bill 124
• Article 25, §1, and Article 25, §3(e), general county government powers
• Article 25A, §5(S), charter home rule counties' police power
• §14-865(a)(2) of the Tax-Property Article, county authority to engage an attorney for delinquent tax collection

Cases:

• Old Equity Life Ins. Co. v. Barnard, 171 S.E.2d 636 (Ga. App. 1969), describing how a contingent fee arrangement works
• Gaver v. Frederick County, 175 Md. 639, 648, 3 A.2d 463 (1939), on a county's implied power to hire agents and servants needed to carry out its duties
• B.F. Smith Fireproof Construction Co. v. Munroe, 97 Md. 370, 55 A. 315 (1903), cited alongside Gaver
• Pima County v. Grossetta, 97 P.2d 538, 542 (Ariz. 1939), on a municipality's power to employ outside counsel absent a contrary statute or charter
• State ex rel. Bermudez v. Heath, 20 La. Ann. 172 (La. 1868), City of Louisville v. Chambers, So.2d 711 (Miss. 1941), Town of Mannford v. Watson, 394 P.2d 506, 509-10 (Okla. 1964), and Waterbary & Co. v. City of Laredo, 60 Tex. 519, 522 (1883), out-of-state cases upholding a local government's power to enter a contingent-fee arrangement
• County of Chester v. Barber, 97 Pa. 455 (1881), the Pennsylvania decision voiding a county's 50-percent contingent-fee arrangement as against public policy

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/1989/Volume74_1989.pdf (this opinion appears at printed pages 136-146 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

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

DEBT COLLECTION

Attorney General - Budget And Fiscal Planning - Local Government - Authority To Retain Private Lawyers And Pay Contingent Fees

May 4, 1989

The Honorable Laurence Levitan
Senate of Maryland

You have requested our opinion on the following question: "Is there sufficient authority under law in Maryland for the Attorney General or for some other authority at the State or county level to retain private counsel for debt collection purposes, including litigation, with payment to be made from dollars recovered or is legislation needed?"

For the reasons stated below, we conclude as follows:

1. Under certain limited circumstances, the Secretary of Budget and Fiscal Planning and the Attorney General may hire private lawyers on a case-by-case basis to represent the State in debt collection actions. However, no statute currently authorizes the retention of private lawyers to represent the State in any broad category of debt collection actions.

2. If the Secretary contracts with a private lawyer for debt collection work, the Secretary may agree to pay a contingent fee. The Attorney General may do so only with the approval of the Board of Public Works.

3. With respect to county debts, each county has the current legal authority to engage private lawyers to collect debts owed to the county. Although a county probably may agree to pay a contingent fee, the matter is not altogether free from doubt.

I

Background

Your inquiry stems from the enactment in 1986 of federal legislation authorizing the Attorney General of the United States "to make contracts retaining private counsel to furnish legal services, including representation in negotiation, compromise, settlement, and litigation, in the case of any claim of indebtedness owed the United States." 31 U.S.C. §3718(b)(1)(A). Debt Collection Amendments of 1986, Pub. L. No. 99-578, 100 Stat. 3305.

The purpose of the federal law is summarized as follows in the legislative history:

Experience has shown that many debtors will not pay their debts unless threatened with litigation, and that some will not pay unless they are actually sued.
However, because of the lack of resources in the Department of Justice to litigate these cases, debtors know that failure to pay on the debts will probably go unaddressed, and that ultimately the applicable statute of limitations will forever bar recovery of their debts.

[The bill] is designed to address this problem. In order to make the threat of litigation for non-payment of debts to the Government a real one, and thus to provide adequate incentives to pay these debts, the Attorney General would be authorized under [the bill] to enter into contracts with private attorneys for the performance of legal services for the United States for the collection of these debts. This grant of authority should not only lead to more debts being paid as a result of litigation, but should also lead to the earlier payment of debts because of the threat of litigation.

H.R. Rep. No. 99-909, 99th Cong. 2d Sess. 4, reprinted in 1986 U.S. Code Cong. & Adm. News 5606.

The federal statute contains various provisions intended to assure that the Attorney General retains control over these private lawyers. 31 U.S.C. §3718(b)(5). For example, the Attorney General may terminate the representation "for the convenience of the Government" and is to receive monthly reports from each private lawyer retained under this program. 31 U.S.C. §3718(b)(5)(A) and (C). The statute expressly excludes debts resulting from tax obligations. 31 U.S.C.
§3718(f).

II

Employment of Private Lawyers by the State

A. General Authority

The Attorney General of Maryland, with the approval of the Governor, has limited power to employ "assistant counsel." Section 6- 105(b) of the State Government Article ("SG" Article) provides as follows:

(1) In addition to any other staff appointed under this section, the Attorney General, with the written approval of the Governor, may employ any assistant counsel that the Attorney General considers necessary to carry out any duty of the office in an extraordinary or unforeseen case or in special county work.

(2) The Attorney General shall submit to the Governor a written request that:

(i) States the necessity of and each reason for the special employment; and

(ii) States the proposed compensation and its source or certifies that the Attorney General cannot ascertain in advance the proper compensation.

(3) Compensation that cannot be ascertained in advance may be agreed on or adjusted later.

This subsection is not limited as to the subject matter of a "case," so it could apply to debt collection work. However, the provision is limited to "an extraordinary or unforeseen case," which rules out the Attorney General's employing of private lawyers for routine debt collection activities.

B. Tax Collection

With respect to taxes, §13-816(a) of the Tax-General Article ("TG" Article) provides that "the Governor, tax collector, or Treasurer shall ask a qualified attorney who is a regular salaried employee of the Comptroller or the Attorney General to bring an action against the person responsible to pay the tax ...."1 Similarly, TG §14-865(a)(1) provides that "if a tax under this article is not paid when due to the State, the Governor, the Comptroller, or the Treasurer shall request the Attorney General to institute an action against the person responsible for the taxes." While these provisions do not vitiate the Attorney General's separate authority to retain a private lawyer in an "extraordinary or unforeseen case," they do imply that employment of private lawyers to collect delinquent taxes is not generally authorized.

C. Debt Collection

The Central Collection Unit in the Department of Budget and Fiscal Planning ("CCU") is "responsible for the collection of each delinquent account or other debt that is owed to the State or any of its officials or units." §3-302(a)(1) of the State Finance and Procurement Article ("SF" Article). See generally 71 Opinions of the Attorney General 128 (1986). The Attorney General has assigned several

1
A "tax collector" is the official or agency responsible for collecting a tax, including the Comptroller and the Department of Assessments and Taxation. TG §13- 101(c).
2
CCU is not responsible for the collection of delinquent taxes or other specific debts listed in SF §3-302(b).
The General Assembly recently enacted House Bill 124, "Worker's Compensation

• Uninsured Employers' Fund - Collection of Debts." If signed into law, this
  provision generally would require the Fund to use CCU to collect its debts. However, under certain conditions, the Fund "may employ any person who shall be
  (continued...)

assistant attorneys general to represent CCU in its debt collection activities. See SF §3-206(b) and (c).

SF §3-206(e) provides specific authority to the Secretary of Budget and Fiscal Planning to engage private lawyers for debt collection: "The Secretary may contract with another attorney [i.e., not an assistant attorney general] to handle on an agreed case-by-case basis a collection for the Central Collection Unit if it is not feasible for any of the assistant attorneys general assigned to the unit to handle the collection."

This provision contains two significant limitations. First, representation by this office must be found to be "not feasible." Second, the outside representation is to be on a "case-by-case basis"; assigning debt collection responsibility for an entire category of cases to private lawyers is not permitted.3

D. Contingent Fees

A contingent fee arrangement usually empowers the plaintiff's attorney to retain a specified percentage of the amount recovered, if any. E.g., Old Equity Life Ins. Co. v. Barnard, 171 S.E.2d 636 (Ga. App. 1969). The plaintiff, in effect, contracts away a share of the claimed sum in exchange for the attorney's services.

A debt to the State is a species of State property, a chose in action.
62 Opinions of the Attorney General 743, 745 (1977); 45 Opinions of the Attorney General 107 (1960). If a State official were to contract to pay a portion of that debt to a private lawyer, arguably the official would be "dispos[ing] of" property within the meaning of SF §10-

2
(...continued) responsible for the collection of" debts to the Fund. Article 101, §91(b)(1)(iii) of the Maryland Code. If House Bill 124 is signed into law, the Uninsured Employer's Fund also will be empowered to pay contingent fees. Article 101, §91(b)(3)(iii).
3
As we understand it, the Secretary occasionally has contracted directly with private lawyers to enforce judgments out-of-state. In addition, a debt collection agency, under contract to CCU, has hired out-of-state lawyers to seek enforcement of judgments. The agency itself charges a contingent fee, which is higher if it needs to use a lawyer.

305(a), which gives that power to the Board of Public Works.4 "This provision extends to all interests in real and personal property of the State, including choses in action and other intangible property ...." 64 Opinions of the Attorney General 118, 122 (1979).

However, in 72 Opinions of the Attorney General 103 (1987), we concluded that SF §10-305(a) does not apply to the settlement or abatement of those debts that are within the collection authority of CCU. CCU has express power to "settle [a] debt or claim." SF §3- 304(a)(2). If a State agency claims that it is owed $10,000, for example, CCU has the authority to settle the claim for, say, $7,000, if the settlement is in the State's best interest. In light of its statutory authority, CCU need not obtain the approval of the Board of Public Works when it reaches such a settlement.

As we pointed out above, the Secretary has power, within certain limitations, to contract with a private lawyer to collect debts for CCU. SF §3-206(c). In our view, this provision implicitly authorizes the Secretary to agree to reasonable contractual terms related to debt collection. See 71 Opinions of the Attorney General 274, 277 (1986). The Secretary's agreeing to compensate the lawyer by a percentage of the recovery on the debt reflects a commercially reasonable - indeed, commonplace - practice when one engages legal services for debt collection. That a contingent fee results in the State's obtaining less than 100 cents on the dollar is no different in principle than CCU's settling a claim for a partial recovery. Presumably, the Secretary would engage an attorney for a contingent fee only in cases in which the State otherwise would not pursue the claim and therefore would recover nothing.

Whether the Attorney General has comparable authority under SG §6-105(b) is more doubtful. The portions of this subsection that deal with compensation contemplate that the amount of an outside lawyer's fee ordinarily is to be fixed in advance. SG §6-105(b)(2)(ii). A typical contract would agree to pay the lawyer a specified sum per hour. "Compensation that cannot be ascertained in advance," however, "may be agreed on or adjusted later." SG §6-105(b)(3). No specific mention is made of contingent fees, which leave the dollar amount uncertain

4
SF §10-305(a)(1) provides that "[a]ny ... personal property of the State or a unit of the State government may be ... granted ... to any person ... for a consideration the Board decides is adequate."

although they entail a specific contractual agreement that the State will accept some percentage less than the full amount of its recovery.

This provision falls short of providing sufficient authority for the Attorney General to contract away a portion of property asserted to belong to the State. Under current law, we conclude, a contract between the Attorney General and a private lawyer for a contingent fee will have to be approved by the Board of Public Works under SF §10- 305(a).

III

Employment of Private Lawyers By Counties

A. General Authority

In our view, all counties have current authority to engage private lawyers to collect debts. Under Article 25, §1, "The county commissioners of each county ... shall have full power to appoint ... all other officers, agents and servants required for county purpose[s] not otherwise provided for by law ...." Moreover, the commissioners "shall have charge of and control over the property owned by the county ...." Id.

A court would construe this grant of authority, we believe, as sufficient to authorize the county commissioners to take reasonable steps to obtain the form of property represented by the debt to the county. In Gaver v. Frederick County, 175 Md. 639, 648, 3 A.2d 463 (1939), the Court of Appeals examined the implied power of a county to effectuate a specific grant of power:

When therefore the Board [of County
Commissioners] was charged with the duty of issuing building permits, it was necessarily given at the same time power to employ such servants and agents as might be needed to perform that duty, and to pay to such persons reasonable compensation for services rendered by them. As a corporation the Board can only act through agents and servants. Since it is a governmental agency created to administer the county government, it is given the power to employ such agents and servants as it may need to perform that duty, and by necessary implication it is given the power to levy taxes to pay the persons so employed, and, where their compensation is not fixed by statute, it is authorized to allow and pay to them reasonable compensation for their services.

See generally B.F. Smith Fireproof Construction Co. v. Munroe, 97 Md. 370, 55 A. 315 (1903).

Charter home rule counties, in addition, have been vested with broad police power. They may enact "such ordinances as may be deemed expedient in maintaining the peace, good government, health and welfare of the county." Article 25A, §5(S). Acting under this grant of authority, a charter home rule county may by ordinance authorize the hiring of private lawyers to collect the county's debts and arrange appropriate compensation for those lawyers. Our construction in this regard is consistent with the general rule for municipalities: "[U]nless prohibited by statute or charter, a municipal corporation may, with the consent of the corporation counsel, employ other attorneys and counsel to conduct or assist in court proceedings to which it is a party or in which it is interested." 17 McQuillan, Municipal Corporations §49.33, at 218 (3d ed. 1982). See, e.g., Pima County v. Grossetta, 97 P.2d 538, 542 (Ariz. 1939). See also 10 McQuillan §29.11, at 241-42.5

County authority to engage private lawyers for the collection of delinquent taxes is separately found in the Maryland Code. Under §14- 865(a)(2) of the Tax-Property Article, "if a tax under this article is not paid when due to a county or municipal corporation, the collector shall request the attorney for the county or municipal corporation to institute an action against the person responsible for the tax." As discussed above, "the attorney for the county" could be one specially engaged for this purpose.

We do not address the respective roles of a county attorney and specially hired counsel, where the former is generally empowered under local law to handle the legal affairs of the county. See generally 10 McQuillan §29.12, at 244-45.

B. Contingent Fees

The potential use of contingent fee arrangements poses a special problem, however. On the one hand, counties have broad power to fix the compensation of persons whom they hire. Article 25, §3(e); Article 25A, §5(S); Gaver v. Frederick County, 175 Md. at 648. Several out-of-state cases sustain the power of a local jurisdiction to enter a contingent fee arrangement with a lawyer. State ex rel. Bermudez v. Heath, 20 La. Ann. 172 (La. 1868); City of Louisville v. Chambers, So.2d 711 (Miss. 1941); Town of Mannford v. Watson, 394 P.2d 506, 509-10 (Okla. 1964); Waterbary & Co. v. City of Laredo, 60 Tex. 519, 522 (1883).

On the other hand, at least one old case has rejected the concept of contracting away a portion of a future recovery. In County of Chester v. Barber, 97 Pa. 455 (1881), the Pennsylvania Supreme Court found "against public policy, and therefore null and void," a contingent fee arrangement under which the county's lawyers would receive 50 percent of any recovery of tax funds allegedly overpaid to the state:

These Commissioners were acting in a fiduciary capacity. They were but trustees of the money, when received, for the use of the county. When therefore they contracted to give one-half of it to the [lawyers] for their services, they exceed their power. They were giving what did not belong to them.

97 Pa. at 464.6

Although we suppose that Maryland courts would more likely than not approve a county's authority to enter a reasonable contingent fee arrangement, we recommend that any legislation on this subject specifically address contingent fees, as the federal legislation does. See 31 U.S.C. §3718(d).

The court rejected outright the size of the contingent fee; it is not clear whether it also rejected the concept of any contingent fee for funds claimed by a government entity.

IV

Policy Considerations

As the discussion in Part II above suggests, legislation is necessary if the State is to be represented by private lawyers in broad categories of debt collection cases. In the consideration of any such legislation, we urge that careful attention be given to the serious policy questions that private representation entails.

Persons who owe money to the State of course ought to pay it; they are entitled to no special consideration simply because the State is their creditor. Nevertheless, in our view, the State has an obligation to conform its own conduct to the highest standards of fairness and probity. Worse even than the State's inability to collect some of its debts would be the loss to its reputation if its representatives engaged in overreaching or sharp practices.

When Congress authorized the Attorney General of the United States to contract with private counsel for debt collection activities, it enabled the Attorney General to retain control over the representation, presumably to assure proper standards. 31 U.S.C. §3718(b)(5). Any State legislation should contain similar safeguards.

V

Conclusion

In summary, it is our opinion that:

1. Under certain limited circumstances, the Secretary of Budget and Fiscal Planning and the Attorney General may hire private lawyers on a case-by-case basis to represent the State in debt collection actions. However, no statute currently authorizes the retention of private lawyers to represent the State in any broad category of debt collection actions.

2. If the Secretary contracts with a private lawyer for debt collection work, the Secretary may agree to pay a contingent fee. The Attorney General may do so only with the approval of the Board of Public Works.

3. With respect to county debts, each county has the current legal authority to engage private lawyers to collect debts owed to the county. Although a county probably may agree to pay a contingent fee, the matter is not altogether free from doubt.

J. Joseph Curran, Jr.
Attorney General

Jack Schwartz
Chief Counsel
Opinions & Advice