Two mutual fund shareholders are challenging the constitutionality of a two-month-old Maryland law designed to define what makes a mutual fund director independent.

The shareholders, David Migdal and Linda Rohrbaugh, contend that Maryland Gov. Parris N. Glendening (D) violated the Maryland constitution when he signed legislation providing that mutual fund directors do not lose their independence by serving on the board of more than one mutual fund in the same mutual fund complex. The governor signed the measure March 24. Migdal and Rohrbaugh, investors in two of the mutual funds of T. Rowe Price Associates of Baltimore, alleged the new law violates a provision in the Maryland constitution that permits legislation to address only one subject.

Migdal and Rohrbaugh asked the Maryland circuit court to declare the new law unconstitutional in a lawsuit filed May 3.

A lawyer for the shareholders, Ronald B. Rubin, a partner in Rubin & Monahan of Rockville, Md., declined to comment. Robert Zarnoch, the Maryland assistant attorney general handling the case for Glendening, denied Glendening violated the Maryland legislation in signing the measure in March.

The lawsuit is the latest round in a dispute that dates back more than two years. The Maryland legislature in April 1998 adopted legislation essentially identical to that which it passed in March. The 1998 law was designed to limit the effect of a 1997 court ruling which held that fund directors can lose their independence by receiving pay for serving on more than one mutual fund in the same fund complex.

The 1998 measure was tacked on to legislation that had nothing to do with mutual funds. On March 14, Maryland's highest court, the Maryland Appeals Court, ruled that the two-year-old law violated the state constitution's requirement that laws address only one subject. (MFMN 3/20/00) The Maryland legislature passed a bill this year in an attempt to fix the constitutional flaw in the 1998 law.

The state believes it resolved the single-subject problem when it passed the law this year as part of a so-called curative bill, an annual bill that the Maryland legislature passes to remedy technical defects in existing laws, Zarnoch said. The state has long used curative bills to remedy defects such as that in the 1998 bill, Zarnoch said.

"We think the (new law) is constitutional," Zarnoch said. "We wouldn't have done it that way if we didn't think it was constitutional."

This year's curative bill concerns more than one subject. Migdal and Rohrbaugh contend in their lawsuit that including the directors' law in the curative bill was tantamount to a trick designed to circumvent the Maryland constitution and the Appeals Court's March ruling.

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