Halici v. City of Gaithersburg

DEBORAH S. EYLER, J. The Mayor and Council of the City of Gaithersburg, sitting as the Historic District Commission (“HDC”), the appellee, denied Historic Area Work Permit Application No. 37-E, filed by Halici, Inc. (“Halici”), the appellant. The application sought to allow demolition of “the Talbott House,” owned by Halici and located at 309 North Frederick Avenue, in the City. The denial resulted from a tie vote of the HDC. In the Circuit Court for Montgomery County, Halici brought an action for judicial review, challenging the HDC’s decision.

The circuit court affirmed the agency action. Halici presents four questions for review in this Court, which we have consolidated and rephrased as follows: 1 ²⁴³ I. Was the HDC unlawfully constituted under Md.Code (1957, 2003 RepLYol.) section 8.03 of Article 66B when it denied the permit application, and, if so, does that render invalid the HDC’s decision to deny the permit application?

II

Was there substantial evidence in the agency record to support the HDC’s denial of the permit application? For the following reasons, we shall affirm the judgment of the circuit court. FACTS AND PROCEEDINGS The Talbott House was built in 1921, in what was then the subdivision of Realty Park, in the heart of Gaithersburg. It is a two-story modified bungalow style house.

Originally, it was zoned R-90, which is a residential classification. It was used as a residence until 1962. At that time, the block on which it is located — North Frederick Avenue between Maryland and Montgomery Avenues — was rezoned C-l (Local Commercial). Halici purchased the Talbott House in 1978, as an investment and for commercial use.

Since then, it has been used as a hair salon. At the times relevant to this case, “The Hair Bar Salon” operated its business there. Hamza Halici (“Mr. Halici”) is the sole shareholder of Halici, which owns and operates The Hair Bar Salon. 2 In 1986, Halici purchased the adjacent property at 307 North Frederick Avenue. Pursuant to a subsequent subdivision rezoning, the two addresses were combined into one tract of land, designated as plot 85 in the Montgomery County land records.

Halici has since treated 307 North Frederick Avenue and the Talbott House as one tract for purposes of valuation ²⁴⁴ and sale (307 North Frederick Avenue and the Talbott House, together, the “Property”). In March of 1989, Halici filed a petition before the HDC seeking to have the Talbott House designated as a local historic site. 3 Although the petition asked that the historic designation for the Talbott House be granted conditionally, it was granted fully, with no conditions. The parties do not dispute that the HDC had the right, on its own motion, to designate the Talbott House a local historic site unconditionally. As a result of the designation, Halici received certain municipal tax credits for renovations it undertook on the Talbott House.

Halici demolished the structure that occupied 307 North Frederick Avenue; that part of the Property has remained unimproved to this date. About ten years later, the City enacted the Frederick Avenue Corridor Master Plan, which rezoned the area in which the Property is located to the Corridor Development (“CD”) zone. In 1999, Halici submitted Historic Area Work Permit Application 37C (“HAWP-37C”), seeking permission to demolish the Talbott House on the ground of substantial financial hardship. The Historic Preservation Advisory Committee (“HPAC”) considered the application and recommended unanimously that it be denied.

Notwithstanding that negative review, the application was granted by resolution of the HDC on June 5, 2003. The resolution was conditional, in that it provided that the demolition permit would not be issued “until an approved site development plan for new construction, which adheres to the Frederick Avenue Corridor Design Code and follows the development review process for the CD (Corridor Development) Zone, has been awarded for” the Property. The approval for HAWP-37C did not specify a time frame for the completion of work. Pursuant to section 24-228.1(f) of the City of Gaithersburg Code (“Code”), the absence of a time frame created a presumption of a one-year time period.

On ²⁴⁵ October 20, 2003, the HDC voted to amend the approval to allow for a two-year time frame for completion, i.e., until June 2, 2005. By that date, Halici had not commenced work. It sought a one-year extension of HAWP-37C, until June 2, 2006, which was granted. When it did not complete work by that date, HAWP-37C expired.

(In fact, work was never begun.) Within days after HAWP-37C expired, Halici filed a new application: Historic Area Work Permit application 37E (“HAWP-37E”). The ultimate decision to deny that application is the subject of this appeal. On July 6 and August 3, 2006, the HPAC held a public hearing on HAWP-37E. Testimony was given by witnesses for Halici, in favor of the application, and by witnesses opposed to the application.

At the conclusion of the August 3 hearing, the HPAC members made oral findings on the record and voted unanimously to recommend that the HDC deny the application. On October 9, 2006, the HDC held a public hearing on the application. Testimony was taken at that hearing as well. On January 2, 2007, the HDC held a “policy discussion” and vote on the application.

Three of the six members of the HDC voted to deny the application and three voted to approve it. Because the vote was tied, the application failed. On January 16, 2007, the HDC issued a written opinion stating the reasons for the votes against and the votes in favor of HAW P-37E. As noted above, Halici pursued an action for judicial review in the circuit court.

In a reply memorandum, Halici asserted for the first time that one member of the HDC did not meet the eligibility requirements to sit on that commission. The circuit court rejected that argument on its merits and further ruled that the HDC’s decision was supported by substantial evidence. This appeal followed. We shall include additional facts as necessary to our discussion of the issues. ²⁴⁶ DISCUSSION I. The City of Gaithersburg’s zoning authority is derived from Md.Code Art. 66B.

See Trail v. Terrapin Run, LLC, 403 Md. 523 , 943 A.2d 1192 (2008) (Art. 66B empowers local governments to impose zoning regulations). Sections 8.01 et seq. of that article govern “Historic Area Zoning.” The City’s HDC was created pursuant to section 8.03(a), which, with respect to the qualifications of members, provides in pertinent part: (2)(ii) Each member of a historic district commission ... shall possess a demonstrated special interest, specific knowledge, or professional or academic training in such fields as history, architecture, architectural history, planning, archeology, anthropology, curation, conservation, landscape architecture, historic preservation, urban design, or related disciplines. * Hí # % # (iv) Each local jurisdiction that creates a historic district commission ... under this subtitle shall establish and publicly adopt criteria for qualifying as a member of the commission. Article 66B, section 8.03(a)(2)(ii) and (iv). The City’s Historic Preservation Ordinance provides: Historic district commission.

The mayor and city council shall appoint a commission of six (6) members, all of whom are qualified consistent with the provisions of Article 66B, § 8.03, MD. CODE ANN., as established by the following criteria: (a) Persons who have previously served on a local legislative body exercising planning and zoning powers; or (b) Persons who have previously served on a planning commission, board of appeals or historic preservation commission or advisory body; or (c) Persons who have demonstrated special interest, participation, specific knowledge or professional training in such fields as history, architecture, architectural history, ²⁴⁷ planning, archaeology, anthropology, curation, conservation, landscape architecture, historic preservation, urban design or related disciplines; and agree to serve on this commission and a majority of whom are residents of the city.... The mayor and members of the city council shall be eligible for appointment to the commission, provided they possess the qualifications described hereinabove.... Code § 24-224.

At all times relevant to this case, the City’s HDC was comprised of the Mayor and the five members of the City Council. (a) Halici contends that the HDC was not constituted lawfully because one of its members, Michael A. Sesma, did not meet the qualification criteria established in section 8.03(a)(2)(ii) of Article 66B when he was appointed, in 2005. 4 The City maintains that this issue is not properly before this Court on appellate review because Halici did not raise it before the HDC. On the merits, the City asserts that Sesma was qualified when the vote on HAWP-37E was taken, which was sufficient, and, even if he was not qualified, the HDC’s decision still stands under the defacto officer doctrine. On the preservation issue, Halici responds that the question of Sesma’s qualifications and thus the HDC’s authority, as comprised, to render a decision is an issue of “subject matter jurisdiction” that can be raised at any time.

In support, he cites Nguyen v. U.S., 539 U.S. 69 , 123 S.Ct. 2130 , 156 L.Ed.2d 64 (2003), for the proposition that this Court should consider “at least on direct review, violations of a statutory provision that ‘embodies a strong policy concerning the proper administration of judicial business’ even though the defect was not raised in a timely manner.” Id. at 78 , 123 S.Ct. 2130 (quoting ²⁴⁸ Glidden Co. v. Zdanok, 370 U.S. 530, 536 , 82 S.Ct. 1459 , 8 L.Ed.2d 671 (1962) (plurality opinion of Harlan, J.)). For the following reasons, we conclude that the question whether Mr. Sesma was not qualified to sit on the HDC when he was appointed to that body and/or when it rendered its decision in this matter, and the consequences, if any, of a determination that he was not so qualified are not properly before this Court for review. Accordingly, we shall not address the merits of the argument. On appellate review of the decision of an administrative agency, this Court reviews the agency’s decision, not the circuit court’s decision.

Anderson v. General Cas. Ins. Co., 402 Md. 236, 244 , 935 A.2d 746 (2007). Our scope of review is narrow.

Id.; Finucan v. Maryland State Bd. of Physician Quality Assurance, 151 Md.App. 399, 411 , 827 A.2d 176 (2003), aff'd, 380 Md. 577 , 846 A.2d 377 , cert. denied, 543 U.S. 862 , 125 S.Ct. 227 , 160 L.Ed.2d 103 (2004). It is “ ‘limited to determining if there is substantial evidence in the record as a whole to support the agency’s findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law.’ ” Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 67-68 , 729 A.2d 376 (1999) (quoting United Parcel Serv., Inc. v. People’s Counsel for Baltimore County, 336 Md. 569, 577 , 650 A.2d 226 (1994)). The reviewing court “ ‘must not itself make independent findings of fact or substitute its judgment for that of the agency.’ ” Maryland-National Capital Park and Planning Comm’n v. Anderson, 395 Md. 172, 180-81 , 909 A.2d 694 (2006) (quoting Balt. Lutheran High Sch.

Ass’n v. Employment Sec. Admin., 302 Md. 649, 662 , 490 A.2d 701 (1985)). Rule 7-208(c) reinforces this point by barring the admission of “[additional evidence in support of or against the agency’s decision ... unless permitted by law.” Ordinarily, a court reviewing the decision of an administrative agency “ ‘may not pass upon issues presented to it for the first time on judicial review____’” Schwartz v. Maryland Dept. of Natural Resources, 385 Md. 534, 556 , 870 ²⁴⁹ A.2d 168 (2005) (quoting Brodie v. MVA, 367 Md. 1, 4 , 785 A.2d 747 (2001)). Accordingly, “ ‘[a] party who knows or should have known that an administrative agency has committed an error and who, despite an opportunity to do so, fails to object in any way or at any time during the course of the administrative proceedings,’ may not thereafter complain about the error at a judicial proceeding.” Cremins v. County Comm’rs of Washington County, 164 Md.App. 426, 443 , 883 A.2d 966 (2005) (quoting Cicala v. Disability Review Bd. for Prince George’s County, 288 Md. 254, 261-62 , 418 A.2d 205 (1980)); see also Rule 8-131(a). The failure to raise an issue before the administrative agency is a failure to exhaust administrative remedies and an improper request for “ ‘the courts to resolve matters ab initio that have been committed to the jurisdiction and expertise of the agency.’ ” Chesley v. City of Annapolis, 176 Md.App. 413 , 427 n. 7, 933 A.2d 475 (2007) (quoting Delmarva Power & Light Co. v. Public Serv.

Comm’n of Md., 370 Md. 1, 32 , 803 A.2d 460 , motion for reconsideration granted on other grounds, 371 Md. 356 , 809 A.2d 640 (2002)), cert. denied, 403 Md. 305 , 941 A.2d 1105 (2008). The exceptions to the requirement for issue preservation are rare. One such exception is a challenge to the statutory authority of the administrative body to take the action at issue. In Harbor Island Marina, Inc. v. Bd. of County Comm’rs of Calvert County, 286 Md. 303 , 407 A.2d 738 (1979), Calvert County had denied a marina’s application for a zoning revision.

At the same time that the marina sought judicial review of that decision in the circuit court, it brought an action for declaratory judgment alleging, for the first time, that Calvert County lacked statutory authority to regulate the use of navigable waters within its borders. The Court of Appeals characterized the challenge as “a direct attack upon the power or authority ... of the legislative body to adopt the legislation from which relief is sought,” which is a purely legal issue, and held on that basis that a reviewing court could consider it at any time, even if it were not raised before the agency. Id. at 308-09 , 407 A.2d 738 . ²⁵⁰ In County Council of Prince George’s County v. Dutcher, 365 Md. 399 , 780 A.2d 1137 (2001), the Court of Appeals characterized a similar challenge as an issue of “subject matter jurisdiction,” which “may be raised at any time, including initially on appeal.” Id. at 405-06 and 405 n. 4, 780 A.2d 1137 (citing Derry v. State, 358 Md. 325, 334 , 748 A.2d 478 (2000)). The Court proceeded sua sponte to decide whether, under Md.Code (1957, 1997 Repl Vol.) Article 28, section 7-117, the Prince George’s County District Council had the authority to review the County planning board’s grant of approval for a preliminary subdivision plan.

After examining the language of section 7-117 and the overall scheme of Article 28, the Court concluded that the District Council was without power to review the planning board’s approval of a subdivision plan, and so its actions were a nullity. See also County Council for Montgomery County v. Supervisor of Assessments of Montgomery County, 274 Md. 116, 119 , 332 A.2d 897 (1975) (whether the Montgomery County Council had a right to appeal to the Maryland Tax Court under Md.Code (1957, 1969 Repl.Vol.) Article 81, section 256(a), was “a question of the jurisdiction of [the Tax Court that,] even though not tried and decided below and neither briefed nor argued, may be raised by this Court, sua sponte, as an exception to the general rule.... ”). In Harbor Island Marina and Dutcher , the jurisdictional issue decided by the Court of Appeals was a question of law: that is, whether the administrative agency’s exercise of jurisdiction over a matter was, at the very least, allowed by statute. When, by contrast, the issue concerns the validity of the agency action in “how the statute has been applied,” the Court has held that the issue must have been raised before the administrative agency to avoid waiver.

Ins. Comm’r of the State of Md. v. Equitable Life Assurance Society of the U.S., 339 Md. 596, 619 , 664 A.2d 862 (1995). See Harbor Island Marina, supra, 286 Md. at 308 , 407 A.2d 738 . Moreover, when the challenge to the law or action “ ‘as a whole involves the need for some factual exploration,’ ” the issue must be raised before the administrative agency to preserve it for ²⁵¹ judicial review by the circuit court.

Prince George’s County v. Ray’s Used Cars, 398 Md. 632, 653 , 922 A.2d 495 (2007) (quoting Montgomery County v. Broadcast Equities, Inc., 360 Md. 438, 457 , 758 A.2d 995 (2000) (further internal citation omitted)). In Ins. Comm’r of the State of Md. v. Equitable Life Assurance Society of the U.S., supra, the Court of Appeals held that the circuit court erred by deciding whether certain portions of Maryland’s Insurance Article were in conflict with Article 46 of the Maryland Declaration of Rights instead of allowing the Insurance Commissioner to consider the issue first. The Court of Appeals explained: [WJhere a constitutional challenge to a statute, regardless of its nature, is intertwined with the need to consider evidence and render findings of fact, and where the legislature has created an administrative proceeding for such purposes, this Court has regularly taken the position that the matter should be initially resolved in the administrative proceedings. 339 Md. at 623-24 , 664 A.2d 862 .

See also Gingell v. County Comm’rs, 249 Md. 374, 376-77 , 239 A.2d 903 (1968); Poe v. Baltimore City, 241 Md. 303, 307-11 , 216 A.2d 707 (1966). Also instructive is the Court of Appeals decision in Carey v. Chessie Computer Services, Inc., 369 Md. 741 , 802 A.2d 1060 (2002). In that case, the Court distinguished a lack of “fundamental jurisdiction,” i.e., the “ ‘power to act with regard to a subject matter which is conferred by the sovereign authority which organizes the court, and is to be sought for in the general nature of its powers,’ ” which renders the action of a court or agency “intrinsically void,” from a lack of jurisdiction that merely renders the action “erroneous and therefore voidable.” Id. at 756 , 802 A.2d 1060 (quoting Pulley v. State, 287 Md. 406, 416 , 412 A.2d 1244 (1980) (further citations omitted)). The Court observed that, “ ‘where a statute directs the court or agency, under certain circumstances, to exercise its jurisdiction in a particular way, or to rule in favor of a respondent, or to dismiss the case, and the tribunal erroneously refuses to do so because of an error of statutory interpretation or an error of fact’ ” an appeal of that action does not concern the ²⁵² “ ‘subject matter jurisdiction of the trial court or the agency.’ ” Carey, supra, 369 Md. at 757 , 802 A.2d 1060 (quoting Board of License Comm’n. v. Corridor Wine Inc., 361 Md. 403, 418 , 761 A.2d 916 (2000)).

On the facts presented in Carey , the Court held that the circuit court’s grant of summary judgment was voidable on appeal, but not void ab initio: that is, the court’s' failure to remand a case to the Workers’ Compensation Commission after the Subsequent Injury Fund had been impleaded — as the court was required to do under Md.Code (1957, 1999 RephVol.) section 9-807(b) of the Labor and Employment Article — did not render the court’s subsequent grant of summary judgment a nullity or deprive the court of subject matter jurisdiction. See also Downes v. Downes, 388 Md. 561, 575 , 880 A.2d 343 (2005) (“The proper balance, we have concluded, is to view jurisdiction in terms of whether the court is given the power to render a judgment over that class of cases within which a particular one falls.” (internal quotation omitted)). In the case at bar, Halici’s appellate challenge to the qualifications of one of the members of the HDC is not an issue of “subject matter jurisdiction.” This challenge is not an attack upon the HDC’s “power to act with regard to a subject matter which is conferred by the sovereign authority.” Carey, supra, 369 Md. at 756 , 802 A.2d 1060 (internal quotation omitted). Rather, like the respondent in Carey , Halici is challenging the City’s application of a statute, section 8.03(a) of Article 66B, that qualifies Sesma to sit on the HDC if he has shown a “demonstrated special interest” in an academic field related to historic preservation.

A challenge to the authority of the agency to act, based on a member’s alleged failure to meet the statutory qualifications required to serve as an agency member, is not a challenge to the agency’s fundamental “subject matter jurisdiction” as that term is used in Maryland jurisprudence. Furthermore, Halici’s challenge clearly is distinguishable from the jurisdictional issues raised in Harbor Island Marina and Dutcher . In this argument, Halici is challenging Sesma’s qualifications under Article 66B as applied. Halici asked the ²⁵³ circuit court, and now asks this Court, to conduct a detailed factual inquiry into Sesma’s qualifications: namely, did Sesma possess the requisite “demonstrated special interest, specific knowledge, or professional or academic training in such fields as history, architecture, architectural history ... [etc.]” under section 8.03(a) of Article 66B, either at the time he was appointed or the time he rendered his decision on HAWP37E.

This question of fact would require the taking of additional evidence beyond the record before the agency at the time of its decision and contrary to the dictates of Rule 7-208(c) (barring the admission of “[additional evidence in support of or against the agency’s decision ... unless permitted by law”). In short, the inquiry would be beyond the very narrow scope of review, discussed swpra, afforded to the circuit court and this Court to determine whether an agency’s findings were supported by substantial evidence and whether its conclusions of law were erroneous. We note also that, when an administrative agency has primary jurisdiction over a controversy, as is the case here, the parties ordinarily must await a final administrative decision before resorting to the courts. State v. Bd. of Contract Appeals, 364 Md. 446, 457 , 773 A.2d 504 (2001).

This is so because, in general, “statutes should be interpreted in the first instance in contested cases by the administrative agency, especially in those instances in which the agency possesses specialized knowledge or expertise regarding the underlying subject matter.” Heery International, Inc. v. Montgomery County, 384 Md. 129, 145 , 862 A.2d 976 (2004) (citing State Comm’n on Human Relations v. Freedom Express/Domegold, Inc., 375 Md. 2, 19-20 , 825 A.2d 354 (2003)). Such a process “not only provides the court with a complete record and hopefully a rationalized interpretation, but also aids in judicial economy....” Id. The only exception is when the agency is “palpably without jurisdiction,” such as “a probate court ... attempting to try someone for a criminal offense.” Freedom Express/Domegold, supra, 375 Md. at 19-20 , 825 A.2d 354 (internal quotation omitted). “Therefore a party wishing to circumvent the administrative process must demonstrate that ²⁵⁴ an agency is operating indisputably beyond its authority and distinctly outside its fundamental jurisdiction.” Heery International, 384 Md. at 145 , 862 A.2d 976 . To be sure, in this case, there is no contention that Halici failed to obtain a final administrative decision on its application before pursuing judicial review.

Nevertheless, the reasoning behind these decisions reinforces the conclusion that Halici may not circumvent the administrative process by keeping mum before the agency about an issue requiring factual development, and then invoking “subject matter jurisdiction,” on judicial and appellate review, as a talisman to avoid the principles of error preservation and exhaustion of administrative remedies. Halici’s reliance on Nguyen v. U.S., supra, is misplaced. In Nguyen , the petitioner contended that a panel of the Ninth Circuit Court of Appeals that had affirmed his federal narcotics conviction was unlawfully composed because, contrary to the dictates of Title 28 U.S.C. § 292 (a), one of the panel judges was not qualified as a judge under Article III of the United States Constitution. The petitioner raised the issue for the first time in his certiorari petition to the Supreme Court.

The Supreme Court granted certiorari, vacated the panel’s decision, and remanded for a new proceeding. In a 5-4 decision, the Court considered the issue raised by the petitioner “even though the defect was not raised in a timely manner” because the appointment of a non-Article III judge was a direct violation of section 292(a), which “ ‘embodies a strong policy concerning the proper administration of judicial business.’” 539 U.S. at 78 , 123 S.Ct. 2130 (quoting Glidden, supra, 370 U.S. at 536 , 82 S.Ct. 1459 ). The Court recognized that, ordinarily, the petitioner’s assignment of error would not be preserved due to his failure to raise the issue before the Ninth Circuit panel. It held, however, that “to ignore the violation of [section 292(a) ] would incorrectly suggest that some action (or inaction) on petitioners’ part could create authority Congress has quite carefully withheld.” Id. at 80, 123 S.Ct. 2130 . 5 ²⁵⁵ In Nguyen , the Court set aside the ordinary rules of error preservation to address a purely legal question: the consequence, if any, of a non-Article III judge sitting on a court of appeals panel.

Here, Halici asks that the ordinary rules of error