Legal Opinions – Md. Court of Appeals – Floyd v. Mayor & City Council of Baltimore, CA No. 56, September Term, 2008

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Taxation
Special tax districts

BOTTOM LINE: Supplemental Tax imposed by Community Benefits District Authority was valid since the Authority was a public corporation not subject to the quorum requirements of the Corporations and Associations Article.

CASE: Floyd v. Mayor & City Council of Baltimore, CA No. 56, September Term, 2008 (filed Feb. 19, 2009) (Judges Bell, Harrell, BATTAGLIA, Greene, Murphy, Eldridge (retired, specially assigned) & Wilner (retired, specially assigned)). RecordFax No. 9-0219-22, 34 pages.

FACTS: In 1994, the General Assembly enacted legislation enabling the Mayor and City Council of Baltimore to “establish, by ordinance, not more than six community benefits district management authorities, including the Charles Village Community Benefits District.” Chapter 732 of the Maryland Laws of 1994.
 The Legislature granted the Charles Village Community Benefits District Authority (the Authority) the power, as provided by ordinance, to “be a special tax district,” to submit to the Board of Estimates annually the proposed taxes to be imposed on properties in the district, to adopt bylaws, “to establish and elect officers and provide for their terms and duties” and “to do all things necessary or convenient to carry out its powers.” Id.
 It also empowered the Mayor and City Council to provide, in the establishing ordinance, for the imposition of taxes, subject to the Board of Estimates’ approval, and for the “organization and method of initial appointment of officers and board members of the Authority,” with the limitation that voting board members “be eligible to vote in the election under subsection [(k)] of this section.” Id.
 Pursuant to the enabling legislation, the City Council enacted, and then Mayor Kurt L. Schmoke signed, Ordinance No. 94-414, entitled “Charles Village Community Benefits District,” which was codified at Subtitle 6 of Article XIV of the Baltimore City Code.
 Section 6-8 of the Baltimore City Code dictates that a “Supplemental Tax shall be assessed and collected in conjunction with the property taxes assessed and collected by the City (‘Regular Tax’)” and that “[a]ny increase in the rate of the Supplemental Tax must be approved by a majority of the voting Board members.”
 Even if the Supplemental Tax rate is not increased, however, the Board “shall adopt an annual financial plan…consisting of at least a proposed schedule of taxes or charges to be imposed throughout the District,” §6-7, which “shall be subject to the approval of the Board of Estimates.” §6-14.
 In turn, §6-6(d) of the Baltimore City Code states that, “[t]he number of members of the full Board must be at least 14, excluding vacancies, and no more than 27,” and that, “[t]he Board may increase or decrease its membership, within these limits.” Voting members of the Board “must be eligible to vote in the election,” §6-6(e)(7); eligibility is limited to “owners of property within the District which is subject to tax” and “voters registered to vote within the District.” §6-15(b).
 In addition to submitting proposed changes to the Supplemental Tax rate to the Board of Estimates, the Board also can adopt bylaws, rules, and regulations. §6-6(g). All bylaws adopted by the Board must be approved by the Board of Estimates. Id.
 The seminal interim Board members of the Authority adopted bylaws on January 11, 1995. Bylaw 2.12, entitled “Quorum and Voting,” requires “[t]he actual presence of at least 9 voting members” for a quorum at all meetings of the Board and provides that, “[t]he act of a majority of voting members in attendance at a Board of Directors meeting at which a quorum is present shall be the act of the entire Board of Directors.” The language in bylaw 5.03 goes further, however, stating that the Supplemental Tax rate “must be approved by a majority of all of the voting Board members.”
 Bylaw 2.09, on the other hand, states that, “[i]n the event of resignation, expiration or other departure from the Board of a member not appointed by an elected official or an association, a majority of the remaining directors, whether or not sufficient to constitute a quorum, may fill a vacancy on the Board of Directors.”
 Joan Floyd and other individuals subject to the Supplemental Tax (collectively, Floyd) filed a complaint in the circuit court against the Authority as well as the Mayor and City Council of Baltimore (the City). They alleged that the adoption of the 2007 Supplemental Tax rate could not properly be imposed, because the Charles Village Community Benefits District Management Authority Board (the Board) did not have the requisite quorum, on April 11, 2006, when the 2007 Supplemental Tax rate was approved, for submission to the Board of Estimates.
 Specifically, the complaint alleged that three voting Board members, Richard Burnham, Eric Friedman and Michael Gervais, were ineligible to vote at the April 11, 2006 meeting at which the Supplemental Tax was approved and that, therefore, there were an inadequate number of voting members present on April 11, 2006.
 The circuit court entered judgment in favor of the City and the Authority. Floyd appealed to the Court of Special Appeals, which affirmed.
 The Court of Appeals granted Floyd’s petition for a writ of certiorari, and also affirmed.

LAW: The dispositive question was whether the Authority was a public corporation subject to the constitutional provisions governing charter home rule counties and, in turn, the common law, or whether the Authority is a corporation subject to the provisions of Section 48 of Article III of the Maryland Constitution and the Corporations and Associations Article. See CJ §2-408(b).
 The Court of Appeals, heretofore, has had occasion to distinguish between public and private corporations. “[P]ublic corporations [are] created by the Legislature for political purposes, with political powers, to be exercised for purposes connected with the public good, in the administration of civil government. They are instruments of government subject at all times to the control of the Legislature with respect to their duration, powers, rights and property.” State v. Board of Education of Montgomery County, 346 Md. 633, 645, 697 A.2d 1334, 1340 (1997). See also Brune, Jr., Maryland Corporation Law and Practice §2.
 The Court has also have had occasion to address whether a special tax district in Anne Arundel County was public in nature, in Williams v. Anne Arundel County, 334 Md. 109, 113, 638 A.2d 74, 75 (1994), in which real property owners in the Cape St. Claire Community Benefits District sought to invalidate the Anne Arundel County ordinance creating the District, alleging that the tax was “not for a public purpose.”
 In validating the ordinance, the Court of Appeals took the opportunity to describe a special assessment, as a “‘tax levied…upon a limited class of persons interested in local improvements, and who are presumed to be benefited by the improvement,’” which must have a “‘public purpose’” and confer “‘a special benefit to the properties to be assessed over and above that accruing to the public’.”
 The Court concluded that the tax was properly levied, because the use of tax monies for general property maintenance, pier construction, outdoor lighting, security, sanitary facilities, and the construction of a storage facility, among others, benefited people in the District and had a public purpose, enhancing the quality of life as well as pro
perty values in the assessment area. Id. at 119, 122.
 The Court also noted that the Association, the corporation that submitted a requested budget and tax for the District to the County, was simply “the vehicle or instrumentality that the County Council has recognized to administer and expend the special benefit assessments imposed and collected by the County.” Id. at 125.
 Similar to property owners in the Cape St. Claire area of Anne Arundel County discussed in Williams, residents and business owners in Charles Village enjoy the specific benefits provided by the Authority, including additional security and maintenance, public amenities and park and recreational services. The powers of the Authority, consistent with those of public corporations, are “exercised for purposes connected with the public good,” see State v. Bd. of Education of Montgomery County, 346 Md. at 645, and this public purpose confers a special benefit on the residents of Charles Village. See Williams, 334 Md. at 12.
As a result, the Authority was properly classified as a public corporation.

COMMENTARY: Having concluded that the Authority is a public corporation, not subject to the quorum provisions of the Corporations and Associations Article, the question was whether a sufficient number of voting members was present at the Authority’s April 11, 2006 meeting at which the Supplemental Tax was approved.
 With respect to Richard Burnham, the circuit court found that although he neither individually owned property within the District nor was registered to vote therein, he was the sole shareholder of a Subchapter S corporation that owned property and paid the Supplemental Tax individually.
 Under the enabling legislation, now codified at Section 63(c)(4) of Article II of the Baltimore City Charter, “[a] voting member of the board must be eligible to vote in the election under subsection [(k)] of this section,” which, in turn, states that “[t]he ordinance shall provide criteria for the eligibility of voters for purposes of the election required by this subsection.”
 Under §6-15(b) of the Baltimore City Code, “(1) owners of property within the District which is subject to the tax under §6-8; and (2) voters registered to vote within the District” are eligible to vote. Burnham satisfied these requirements and was, therefore, eligible to vote.
 The plain meaning of the word “owner” is “[o]ne who has the right to possess, use, and convey something.” Black’s Law Dictionary 1136. As the sole shareholder of an S corporation, Burnham, although not personally the owner of the property, effectively had “the right to possess, use, and convey” the property.
 Additionally, the Interim Administrator of the Authority testified that in compiling the list of eligible voters under §6-15(a) of the Baltimore City Code, corporations that owned property in the District were included. Clearly, the corporation, as an eligible voter, could vote only through a representative, such as Burnham.
 Section 6-6(e) of the Baltimore City Code, moreover, states that “[a]t least a majority of the Board shall be composed of owners or representatives of property owners subject to the tax imposed by this subtitle” and that “[t]he Board shall endeavor to maintain representatives on the Board from the professionals practicing in the District, the retail merchants within the District, and the tenants of properties in the District.”
 Eric Friedman’s eligibility to vote when the Supplemental Tax was adopted was also challenged by Floyd. The circuit court judge correctly found that Floyd failed to meet the burden of proof to establish that Eric Friedman was neither an owner of property subject to the supplemental tax in the Benefits District nor a registered voter there.
 With respect to whether Michael Gervais was properly appointed to fill a vacancy on the Board, the trial judge found that under bylaw 2.09 Michael Gervais was duly elected to the Board of the Authority on December 13, 2005 to fill a vacancy occasioned by the departure of the recently elected Quad 4 Board representative. Floyd, however, argued that when Gervais was appointed at the December 13, 2005 meeting, again, there was not a sufficient quorum to enable Gervais to be a voting member on April 11, 2006.
 There were 11 voting members on the Board on December 13, 2005, nine of whom were present and unanimously approved Gervais’s appointment. The nine were sufficient to constitute “a majority of the remaining directors” under bylaw 2.09, rendering Gervais’s appointment proper.
 Accordingly, at the April 11, 2006 Board meeting at which the Supplemental Tax was approved for submission to the Board of Estimates, there were ten voting members, a sufficient number to approve the Tax.

PRACTICE TIPS: The Authority disputed that it is a “public” corporation, asserting that the provisions of §48 of Article III of the Maryland Constitution authorizes its corporate status, and as a “Maryland corporation” it is subject to the Corporations and Associations Article.
 The first sentence of Section 48 of Article III of the Maryland Constitution states: “Section 48. Corporations. Corporations may be formed under general laws, but shall not be created by special Act, except for municipal purposes and except in cases where no general laws exist, providing for the creation of corporations of the same general character, as the corporation proposed to be created.”
 The recognition that the Authority, as a special tax district, has a public purpose undermines the Authority’s premises regarding the applicability of this language, because the first sentence of §48 of Article III is inapplicable to corporations that are public in nature. Atlantic Golf, Ltd. Partnership v. Maryland Economic Dev. Corp., 377 Md. 115, 125, 832 A.2d 207, 212-13 (2003).
 In Atlantic Golf, the Court expressly stated that “[t]he first and second sentences of §48, adopted in 1851, suggest that §48 is limited in its application to private corporations.” Id. The Court also, in Atlantic Golf, 377 Md. at 115, had occasion to address the applicability of Acts of the General Assembly to State entities. Although a definitional provision of the Corporations and Associations Article was utilized to define a corporate “charter,” Judge John C. Eldridge emphasized that unless an enactment expressly provides that it applies to a governmental entity, it is generally deemed to not apply, because “‘it is a basic and long-standing principle of statutory construction that the State is not deemed to be bound by an enactment of the General Assembly unless the enactment specifically names the State or manifests a clear and indisputable intention that the State is to be bound’.” Id. at 126 (citing Baltimore v. State, 281 Md. 217, 223-24, 378 A.2d 1326, 1329-30 (1977)).
 The Corporations and Associations Article does not expressly provide for its provisions to apply to special tax districts, which are considered local government entities, and, accordingly, the Authority, as a local government entity, cannot be bound by the provisions therein. See Atlantic Golf, 377 Md. at 126-27.