Bayly Crossing, LLC v. Consumer Protection Division

HARRELL, J. On 19 November 2002, Julia B. Passyn, Theodore B. Pas-syn, and their son, Theodore B. Passyn, III (“the Passyns”), acquired Bayly Crossing, LLC (“Bayly”), with each taking a one-third interest. Bayly’s main assets were thirty undeveloped, single-family residential lots in the eponymously-named Bayly Crossing subdivision in Dorchester County, Maryland. Bayly entered into contracts with various buyers to produce new homes on certain of these lots. As Bayly was not a registered home builder in Maryland, the contracts specified that Bayly would subcontract with T.B. Passyn & Sons, Inc., a registered home builder in Maryland, to build the homes.

This understanding was expressed in the written, essentially form contracts as follows: Bayly, as “SELLER,” agreed to “sell and construct ... a house substantially similar to the seller’s model....” 1 Bayly agreed, in a later provision, to “complete ... a dwelling substantially similar to SELLER’S Model House....” Near the end of the contracts, buyers acknowledged, by signature, that “On _ (date), my home builder, T.B. Passyn & Sons, Inc., MHBR ¹³² [Maryland Home Builder Registration] # 455 Provided me with a copy of [a] consumer information pamphlet.... ” In an addendum entitled “Builder’s Notice of Standards and Buyer’s General Release to Landowner 2 and Buyer’s Acknowledgment of Receipt of Consumer Pamphlet Information,” buyers were advised that “T.B. Passyn & Sons, Inc. MHBR 455 is the Builder for [their] house ... and hereby agrees to grant to the Buyers of said house a One-Year Limited Warranty in accord with the Standards set by the Residential Warranty Corporation----” “In exchange for [the] Limited Warranty,” the addendum continues: [T]he Buyer’s [sic] hereby grant a general release to Bayly Crossing, LLC ([the Passyns]) Landowners and their heirs, successors and assigns and forever discharge the said Bayly Crossing, LLC ([the Passyns]) from any and all actions or causes of action relating to the construction of the house on Lot _ Phase _ located at Bayly Crossing which Buyers have or may have against the said Bayly Crossing, LLC ([the Passyns]) now or in the future and also release the Builder from any and all items not covered either by said Limited Warranty or the Punch List---- The contracts were executed by Julia B. Passyn, on behalf of Bayly, while the addendum was signed by a representative of T.B. Passyn & Sons, Inc. 3 Between 19 November 2002 and 22 October 2004, seven homes were constructed on Bayly’s lots. The purchase-price amounts in the contracts were paid to Bayly. On 22 October 2004, Bayly sold the remaining undeveloped twenty-three lots to an unrelated real estate development company. On 12 July 2005, the Consumer Protection Division of the Attorney General’s Office (“the Division”) filed a Statement of ¹³³ Charges against the Passyns and Bayly, alleging violations of Maryland’s Home Builder Registration (“HBRA”) 4 and Consumer Protection Acts (“CPA”). 5 These alleged violations were based on the contention that Bayly was operating as a home builder, without properly registering with the State Home Builders Registration Unit (“HBRU”).

Under the HBRA and CPA, the Division is authorized to bring charges and conduct civil administrative proceedings on those charges, acting as both prosecutor and administrative adjudicator. Pursuant to this power, the Division delegated to the Maryland Office of Administrative Hearings (“OAH”), an independent state agency, the obligation to conduct evidentiary hearings regarding the charges against Bayly and the Passyns and make recommended written findings of fact and conclusions of law. On 28 September 2005, an Administrative Law Judge (“ALJ”) of the OAH, after holding hearings, issued a written Proposed Ruling, concluding that Bayly was exempt from the registration requirements of the HBRA. The ALJ reasoned that Bayly “f[ell] squarely within the [statutory] exception [for real estate developers who do not construct homes], and hence, outside of the registration requirement .... ” The Division filed exceptions to the ALJ’s Proposed Ruling, effectively appealing administratively the ALJ’s Proposed Ruling to the Division’s adjudicative arm, which, for purposes of this opinion, we shall call “the Agency.” The Agency granted those exceptions, concluding that Bayly, in fact, “was required to have registered as a home builder at the time that it ¹³⁴ entered into the contracts in which it undertook to construct new homes for consumers.” The Agency then remanded the case to the OAH for “any further proceedings required to resolve factual or legal issues that have not been resolved by [this] ruling____” Before the remand hearing was held, the Division filed an Amended Statement of Charges against Bayly and the Passyns, alleging a violation of CPA § 13-301(13).

Specifically, it claimed that Bayly and the Passyns engaged in an unfair or deceptive trade practice by asking in the contracts for the buyers to grant a general release, in exchange for a one-year home warranty. After a remand hearing, the ALJ issued a second Proposed Ruling, concluding that, as obliged by the Agency’s earlier ruling, Bayly and the Passyns violated the “[HBRA] ... by failing to register as a home builder under the [HBRA]” and “[CPA] § 13-301(13) by using a contract related to the sale of single family residential realty that contained a clause limiting or precluding the buyer’s right to obtain consequential damages as a result of the seller’s breach or cancellation of the contract.” Bayly and the Passyns filed exceptions to the second Proposed Ruling. On 3 August 2007, the Agency issued a Final Order, upholding the ALJ’s Second Proposed Ruling and imposing penalties and costs, on the Passyns and Bayly, for the violations. 6 In pertinent part, the Agency concluded that Bayly was a “home builder,” within the meaning of the HBRA, because it undertook to build new homes—that is, it “placed upon itself the obligation to ‘sell and construct’ ” new homes. On 29 August 2007, Bayly and the Passyns filed, in the Circuit Court for Baltimore City, a petition for judicial review of the Final Order.

The Circuit Court affirmed the Agency action, prompting an appeal to the Court of Special Appeals by Bayly and the Passyns. The intermediate appellate court ¹³⁵ affirmed the Agency action, in a reported opinion, while dismissing Bayly “as a party to this appeal for lack of standing.” 7 Bayly Crossing, LLC v. Consumer Prot. Div., Office of the Attorney Gen., 188 Md.App. 299 , 981 A.2d 777 (2009). A petition for certiorari to this Court ensued, which we granted, Bayly Crossing v. Consumer Protection Division, Office of the Attorney General, 412 Md. 255 , 987 A.2d 16 (2010), to consider the following questions: (1) Whether the lower court erred in affirming the decision of the Respondent finding that Petitioners were required to be registered as “home builders” in order to sell houses constructed by a registered home builder where the Home Building Registration Act excludes “developers who do not construct homes” from the requirement of registration?

(2) Whether the lower court erred in affirming the decision of the Respondent finding that Petitioners violated Section 13 -301(13) of the Consumer Protection Act by using a provision in their contract where buyers were given a one-year warranty in exchange for a release of construction-related causes of action? Before oral argument the Passyns filed a motion, on 12 July 2010, to add Bayly as a petitioner and to supplement their brief. The inspiration for this appears to be Price v. Upper Chesapeake Health Ventures, 192 Md.App. 695 , 995 A.2d 1054 (2010), decided by the intermediate appellate court after its opinion in Bayly, where the Court of Special Appeals revisited, clarified, and “affirmed” its earlier determination to dismiss Bayly as a petitioner. The Passyns sought the opportunity to respond to the discussion in Price .

On 20 July 2010, that motion was granted. ¹³⁶ I. Relevant Standards of Judicial Review We “employ the same standards [of review] as would the circuit court, [for] the inquiry is not whether the circuit [or intermediate appellate] court erred, but rather whether the administrative agency erred.” Consumer Prot. Div. v. Morgan, 387 Md. 125, 160 , 874 A.2d 919, 939 (2005) (citation omitted). The standards for judicial review of the action of state administrative agencies are derived from the Maryland Administrative Procedure Act (APA), codified at Title 10 of the State Government Article (“SGA”). In reviewing an agency decision, a court may, under Section 10-222(h): (1) remand the case for further proceedings; (2) affirm the final decision; or (3) reverse or modify the decision if any substantial right of the petitioner may have been prejudiced because a finding, conclusion, or decision: (i) is unconstitutional; (ii) exceeds the statutory authority or jurisdiction of the final decision maker; (iii) results from an unlawful procedure; (iv) is affected by any other error of law; (v) is unsupported by competent, material, and substantial evidence in light of the entire record as submitted; or (vi) is arbitrary or capricious.

These provisions are instructive in understanding the applicable standards of review, as they lay out a basic analytical framework. See Spencer v. Md. State Bd. of Pharm., 380 Md. 515, 528 , 846 A.2d 341, 348 (2004) (“Section 10-222(h)(3)(i)-(vi) provides a statutory framework for understanding the scope of judicial review of agency decisions.”). They do not provide, however, complete guidance, in and of themselves, how to approach each category of questions cognizable in a challenge to an agency decision. Appellate courts have devoted many pages to the consideration of the meaning (and implications) of ¹³⁷ this subject.

See id. (“Our jurisprudence has expanded on the meaning of these statutory provisions and provided guidance for their application by the courts.”). We review challenges to an “agency’s conclusions of law ... [according to a generally non-deferential standard] for correctness.” Schwartz v. Md. Dep’t of Natural Res., 385 Md. 534, 554 , 870 A.2d 168, 180 (2005); Spencer, 380 Md. at 528 , 846 A.2d at 348-49 . Interpreting the pure meaning of a statute is deemed a question of law.

See Miller v. Comptroller of Md., 398 Md. 272, 280-81 , 920 A.2d 467, 472 (2007) (“[T]he question is one of statutory interpretation and [is], therefore, a purely legal inquiry.”) (internal quotation marks and citations omitted); State Dep’t of Assessments & Taxation v. North Baltimore Ctr., Inc., 129 Md.App. 588, 595 , 743 A.2d 759, 763 (2000) (“The interpretation of a statute normally presents a question of law.”) (citations omitted). In considering such an agency decision, however, “[w]e frequently give weight to an agency’s experience in interpretation of a statute that it administers.” Schwartz, 385 Md. at 554 , 870 A.2d at 180 ; see also Board of Physician Quality Assur. v. Banks, 354 Md. 59, 69 , 729 A.2d 376, 381 (1999) (“Even with regard to some legal issues, a degree of deference should often be accorded the position of the administrative agency.”). That is especially true (and justified) where the implicated statutory provisions are ambiguous or unclear. Cf.

Div. of Labor & Indus, v. Triangle Gen. Contrs., Inc., 366 Md. 407, 417 , 784 A.2d 534, 539-40 (2001) (“[W]hen a statutory provision is entirely clear, with no ambiguity whatsoever, administrative constructions, no matter how well entrenched, are not given weight.”) (internal quotation marks and citations omitted). Defining the extent of that deference, however, remains an elusive snipe hunt. In Baltimore Gas & Electric Co. v. Public Serv.

Comm’n, 305 Md. 145, 161-62 , 501 A.2d 1307, 1315 (1986), we explained that the proper quantum of deference turns on various “considerations,” including whether the agency (1) administers the statute it is interpreting, (2) developed its interpretation through a well-reasoned process, (3) in an ¹³⁸ adversarial proceeding or formal rule promulgation, and (4) consistently applied that interpretation for a “long” period of time. Thus, the amount of deference may be seen to fluctuate with the number of “considerations” present in a given record. 8 Maryland courts also recognize, and have for some time in Administrative Law matters particularly, the characterization of a “mixed question of law and fact.” See e.g., Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 837 , 490 A.2d 1296, 1302 (1985). When a party challenges how an agency applied, as opposed to interpreted, a statute, he, she, or it raises a so-called mixed question. See id.

(“The difference between the [parties’] positions] ... [are] based essentially on differing views—not as to the law governing the case—but rather its proper application to the established evidence of record.... ”); Charles County v. Vann, 382 Md. 286, 296 , 855 A.2d 313, 319 (2004) (defining mixed questions, as those where “[t]he agency has correctly stated the law and its fact-finding is supported by the record, but the question is whether it has applied the law to the facts correctly”). The central dispute, therefore, involves not an interpretation, but “that last touch of selection” (or discretion), which the agency had to exercise to make the statute meaningful and determinative in a particular case. FTC v. Ruberoid Co., 343 U.S. 470, 484-87 , 72 S.Ct. 800, 808-10 , 96 L.Ed. 1081, 1092-94 (1952) (Jackson, J., dissenting); see also Consumer Prot. Div. v. Morgan, 387 Md. 125 , 874 A.2d 919 (2005) (construing the question presented as mixed because to calculate an appropriate fine amount the agency had to apply uncontested statutory factors to known facts).

We review such mixed questions under the deferential “substantial evidence” standard. See Baltimore Lutheran High School Assoc, v. Employment Sec. Admin., 302 Md. 649, 662 , 490 A.2d 701, 708 (1985) (elucidat ¹³⁹ ing the “substantial evidence” standard as “such relevant evidence [that] a reasonable mind might accept as adequate to support a conclusion”); see also Vann, 382 Md. at 298 , 855 A.2d at 320 (“Deferential review over mixed questions of law and fact is appropriate in order for the agency to fulfill its mandate and exercise its expertise.”). 9 There is no dispute in the present case as to the material facts. Where there is such a dispute, we apply the very deferential “substantial evidence” test. Christopher v. Montgomery County Dep’t of Health and Human Servs., 381 Md. 188, 199 , 849 A.2d 46, 52 (2004) (internal quotation marks and citation omitted).

II

A. Bayly’s Standing to File an Appeal Before reaching the questions for which we issued the writ of certiorari, we consider briefly the “issue” of the standing of Bayly, as a defunct limited liability company (LLC), to participate as a petitioner in the Court of Special Appeals and here. The Court of Special Appeals noted that Bayly forfeited its charter before the appeal to that court was filed. Bayly Crossing, 188 Md.App. at