Office of the County Attorney to Montgomery County Council: The Divestment Bill is Unlawful

Known for being a leader in green projects, the Montgomery County Council (the Council) has unfortunately taken their leadership powers a step too far. As discussed recently, the Council has announced its intentions to review proposed legislation on divesting its employee pension fund from fossil fuels. Despite being an inappropriate project in which the Council should not be spending time and resources on, this action is a blatant politicization of a fund that serves as the livelihood for retirees in Montgomery County.

Luckily, this action has not gone unnoticed. The public meeting to discuss the matter is being held today, December 6, and residents are already voicing their strong objections to the legislation. In a letter to the Council, the Office of the Montgomery County Attorney argued against proposed Bill 44-16, calling the bill unlawful, in violation of responsibilities, and inconsistent.

In fact, the letter presents three solid cases to the Council on not divesting from fossil fuels, which are highlighted below:

“The Bill is inconsistent with the Board’s present statutorily-imposed fiduciary duties.”

The Office of the County Attorney outlines the dilemmas facing the Council and Bill 44-16 in relation to fiduciary issues such as standard of care, discretion, and technical issues. According to the County Attorney, the Maryland Court of Appeals has recognized that a trustee is not obligated to maximize its return on investments, however, the letter notes the following:

“We understand that Bill 44-16 may have a greater than de minimis impact upon return on investment and is therefore inconsistent with the duty of prudence and loyalty currently impressed upon the Boards in the County Code.”

Therefore the Council is only to act in the best interest of the participants and beneficiaries due to the County Code, which, since Bill 44-16 is likely to cause more than a “trivial” impact on the fund then the legislation is in violation.

Additionally, the line in the proposed divestment bill that states the Council must divest unless the Council determines “that a delay in divesting from a fossil fuel company is necessary due to its fiduciary duty,” is unclear not only because it contradicts the Council’s present fiduciary responsibility, which would state that divestment is incompatible with its duties.

“The Bill unlawfully delegates legislative authority to a private third party to determine whether an entity is a fossil fuel company.”

The Office of Montgomery County Attorney points out in its letter to the Council that having a third party determine the definition of a Fossil Fuel Company is actually illegal since it is an impermissible delegation of legal authority. In Maryland, the concept of delegating government authority is typically given to the executive branch since depending on a private party to make decisions does not mean they will hold firm to the same constitutional foundation that holds government branches accountable. As currently drafted, the proposed legislation to the Council on fossil fuel divestment is unconstitutional since it requires them to divest from companies identified by a third party – Fossil Free Indexes LLC.

“The Bill violates the unconstitutional conditions doctrine by permitting the Boards to invest in a fossil fuel company if it gives up certain First Amendment rights.”

Finally the Office of the Montgomery County Attorney notes that Bill 44-16 is actually in violation of the “unconstitutional conditions” doctrine. Current language of Bill 44-16 states that a fossil fuel company may avoid divestment if it can demonstrate that is has accomplished a set of standards outlined in the bill. One of the points is to have “stopped lobbying or attempting to influence government officials to preserve its special treatment, including subsidies, tax breaks, or competitive advantage with respect to clean, renewable energy.” However, by stating this, the Council is actually in violation of First Amendment rights since the unconstitutional conditions doctrine “provides that the government may not deny a benefit to a person on a basis that infringes his constitutional conditions.” As a result, if any fossil fuel company were to adhere to the standard outlines by the Council, they will actually be forfeiting over their constitutional rights – a precedent that should not be set for fear of the repercussions.

During today’s meeting we hope that the Montgomery County Council will remember the many letters, phone calls, studies, and reports that have shown the negative consequences of fossil fuel divestment. Whether it’s fiduciary disregard or the unlawful language in Bill 44-16, the Council should seriously reconsider the proposed divestment measure before it threatens the stability of their retirees’ future.

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