Maryland Port Administration v. C. J. Langenfelder & Son, Inc.

Wilner, J., delivered the opinion of the Court. On June 21, 1978, the Maryland Port Administration (MPA), an administrative unit within the State Department ⁵²⁷ of Transportation (DOT), entered into a contract with C. J. Langenfelder & Son, Inc. (Langenfelder) for dredging work in the Baltimore harbor. The agreement permitted MPA to make certain types of changes in the work, but provided that if any such change made by MPA caused an increase or decrease in Langenfelder’s cost, "an equitable adjustment shall be made.” A similar "equitable adjustment” was provided for in the event subsurface or latent physical conditions at the site differed materially from those indicated in the contract and caused an increase or decrease in the contractor’s cost. During the course of the work, Langenfelder filed three claims for additional compensation under these "equitable adjustment” clauses, one (MDOT 1003) being by reason of an MPA change order and two (MDOT 1000 and 1006) arising from different site conditions.

In accordance with the "Disputes” clause of the contract, after MPA rejected the claims the disputes were submitted to the Department’s Board of Contract Appeals for resolution. On August 15, 1980, the Board rendered a decision in the three matters. It made an "equitable adjustment” of $39,415 in No. 1000, $42,893 in No. 1003, and $48,476 in No. 1006, all in Langenfelder’s favor. With respect to each of these adjustments, the Board added "predecision” interest at what it deemed to be the "legal rate” — 6% per annum to June 30, 1980, and 10% per annum from July 1 to August 15, 1980; 1 and it provided that "post decision” interest would accrue at the rate of 10% per annum.

The "predecision” interest thus established amounted, in the aggregate for all three claims, to $6,296. MPA promptly paid the principal amounts awarded on Nos. 1000 and 1006 ($87,891), but it declined to pay the adjustment on No. 1003 or any interest — pre- or post-decision — on any of the claims. Instead, apparently acting under the State Administrative Procedure Act (Md. ⁵²⁸ Code art. 41, § 244, et seq.) it took an appeal to the Baltimore City Court, asking that the contested parts of the Board’s awards be reversed. Langenfelder moved to dismiss the appeal, contending that MPA had no right of judicial review of the Board’s decisions.

Ultimately, the court decided that (1) MPA did have the right of judicial review under the Administrative Procedure Act, but (2) the Board’s decisions, both as to the adjustment in No. 1003 and as to the allowance of interest, were correct. MPA acquiesced in the decision as to No. 1003 by paying the principal amount of $42,893, but it still objects to the allowance of interest, and has appealed that determination. In a defensive move, Langenfelder has taken a cross-appeal, pressing the issue of whether MPA had a right to judicial review in the first place. Since the issue raised by Langenfelder is jurisdictional in nature, we shall address it first.

(1) Right of MPA to Judicial Review Maryland Rule B3 provides that an administrative appeal may be taken "by a person now or hereafter authorized by statute to appeal.” Langenfelder contends that there is no statute authorizing MPA to take an appeal from a decision of the Board of Contract Appeals, and therefore the right of appeal does not exist. MPA, on the other hand, sees such authority in the statute creating the Board. To resolve this question, some preliminary comments are in order. MPA, as we have noted, is part of DOT, being one of the five administrations within that Department. 2 The Department is headed by the Secretary of Transportation who, as the chief executive officer of the Department, is "responsible for the operation of the Department.” Md. Code, Transportation article (hereafter "Trans, art.”) § 2-102(b) ⁵²⁹ (2).

In addition to a number of specific duties, he is authorized to "establish guidelines and procedures to promote the orderly and efficient administration of the Department,” (id.) to transfer or assign any power or duty "from any unit in the Department to his office,” (Trans, art. § 2-103 (f)) and to "establish, reorganize, or abolish areas of responsibility in the Department. . . .” (Trans, art. § 2-102 (b) (2).) With exceptions not relevant here, he may "exercise or perform any power or duty that any unit in the Department may exercise or perform.” (Trans, art. § 2-103 (g).) When the original contract was signed, there was no Board of Contract Appeals (BCA) in existence; that Board was created by Acts of 1978, ch. 418, which took effect July 1,1978 — ten days after the contract was executed. 3 Section 3 of the Act made clear that the Act was to be prospective only, and was to have no "effect upon or application to any contract entered into prior to [its] effective date. ...” The contract, drawn in accordance with the law then current, made no mention of BCA. It provided that any dispute "concerning a question of fact” that could not be resolved by agreement between the contractor and the MPA engineer would be submitted to the MPA Administrator. His decision would be final and conclusive unless, within thirty days, the contractor filed an appeal to the Secretary. "The decision of the Secretary,” said the contract, "shall be final and conclusive” as to issues of fact, although "[n]othing in this Contract . . . shall be construed as making final the decision of any administrative official or representative on a question of law.” Keeping in mind that MPA is a unit of DOT subject to the overall authority of the Secretary, it would appear from that provision that, as to MPA, the ultimate decision of the Secretary would have been final and binding, both on issues of fact and on issues of law.

Although the contract left open the possibility of an appeal on issues of law, there was no provi ⁵³⁰ sion in the law for a subordinate unit of the Department to challenge the Secretary’s final decision in court. As to Langenfelder, however, it was bound only by the Secretary’s determinations of fact; it was free to challenge his conclusions of law, both under the contract and under Md. Code art. 41, § 255. (a), part of the Administrative Procedure Act. By ch. 418, however, the General Assembly sought to provide a different way of resolving contract disputes between DOT agencies and their contractors.

It did this by enacting a new subtitle 6 to title 2 of the Trans, art., which: (1) created BCA as a unit within DOT, its three members to be appointed by the Governor upon recommendation by the Secretary and with the advice and consent of the Senate (§§ 2-601, 2-602); (2) empowered BCA to "hear and determine all disputes within its jurisdiction” (§ 2-603 (a)); (3) vested BCA with "jurisdiction over all disputes other than labor disputes arising under a contract with the Department, or as a result of a breach of a contract with the Department” (§ 2-603 (b)); (4) directed BCA to "issue a final decision in writing on each dispute submitted,” with a copy to be mailed to the Secretary "and to each party to the dispute” (§ 2-603 (c)); (5) required BCA to adopt rules and regulations providing for the "informal, expeditious, and inexpensive resolution of claims and controversies” (§ 2-603 (d)); and (6) provided that "[t]he Administrative Procedure Act shall apply to proceedings under this subtitle” (§ 2-604). Shortly after the new law took effect, the parties amended their contract to take advantage of it. 4 On September 11, ⁵³¹ 1978, they agreed upon a new "Disputes” clause which, in effect, substituted BCA for the Secretary. The relevant change, in that regard, was in the sentence providing that the decision of the MPA Administrator would be final and conclusive unless, within thirty days, "the Contractor mails or otherwise furnishes a written appeal to the Department of Transportation Board of Contract Appeals.” The new clause, though generally substituting BCA for the Secretary, did not track the repealed language providing that the Secretary’s determination was to be "final and conclusive” with respect to issues of fact, or the express reservation of the contractor’s right to challenge administrative determinations on issues of law. Nothing was said in the new clause about the finality or conclusiveness of BCA decisions, as to fact or law.

In challenging MPA’s asserted right of judicial review of BCA’s decisions, Langenfelder argues that (1) there is nothing in the BCA law specifically affording that right, and (2) the general application of the Administrative Procedure Act under § 2-604 does not suffice because MPA is not an "aggrieved party” entitled to appeal under art. 41, § 255. It bases the latter contention on a line of cases beginning with Maryland Board of Pharmacy v. Peco, Inc., 234 Md. 200 (1964), which, it suggests, establish that quasi-judicial administrative agencies are not "aggrieved” parties under § 255 and therefore have no right to appeal from decisions not to their liking. We think that Langenfelder has misconstrued what the Court of Appeals said and held in Peco and its progeny. To put the issue in a proper perspective, we start with Board of Zoning Appeals v. McKinney, 174 Md. 551 (1938), where the Court concluded that a zoning board had no authority to appeal from a court order reversing its decision to grant a building permit.

The Court’s rationale was essentially as follows: (1) The board was one of those types of administrative agencies exercising a quasi-judicial function: ⁵³² "It grants or withholds highly valuable privileges accordingly as it from evidence finds the existence of facts which justify one course or the other. It has no executive duties, it formulates no policies, its function is merely to find facts, to apply to those facts rules of law prescribed by the Legislature, and to announce the result. It has no interest, personal or official, in the matters which come before it other than to decide them according to the law and the proved fact, and it is in no sense a party to such proceedings.” (Id. at 560-61; emphasis supplied.) (2) As a creature of statute, .the board had only those powers explicitly or implicitly conferred on it by the Legislature; and, unlike certain other agencies, "its nature and character preclude the hypothesis that the Legislature intended that it should have the power to engage in litigation involving the legality or propriety of its decisions.” (Id. at 562.) (3) Apart from legislative authority, the Board had "no more right to appeal from its own decisions to the Baltimore City Court, or, from the decisions of that court to the Court of Appeals, than a justice of the peace, or such an agency as the State Industrial Accident Commission [i.e., the Workmen’s Compensation Commission], would have to appeal from judgments of a court reversing their decisions.” (Id. at 562.) The essence of this is that an administrative agency is not ordinarily a party in interest with respect to the quasi-judicial proceedings it conducts or the quasi-judicial decisions it renders, and it therefore cannot be considered as legally "aggrieved” if a court reverses or modifies one of those decisions. Absent that status of "aggrievement,” it has no right to appeal the court’s judgment unless the Legislature has otherwise conferred that right upon it.

In Peco, the Court merely applied that same rationale to preclude the State Pharmacy Board from appealing a court order reversing its denial of Peco’s application for a permit ⁵³³ to open a pharmacy. The concepts enunciated in McKinney and applied in Peco have been reaffirmed and reapplied many times by the Court of Appeals, and are well entrenched in the law. See, for example, Board of Liquor License Commissioners v. Leone, 249 Md. 263 (1968); Real Estate Commission v. Tyler, 268 Md. 641 (1973), and, more recently, Employment Security Administration, Board of Appeals v. Smith, 282 Md. 267 (1978). Most of the cases in this area follow the Peco pattern, of an administrative agency attempting to appeal to an appellate court from the order of a trial court reversing or modifying a quasi-judicial decision made by the agency.

There have been at least two "wrinkles” in that pattern, however, which are urged upon us as significant. In Board of Examiners of Landscape Architects v. McWilliams, 270 Md. 383 (1973), the Court faced the question of whether the Board of Examiners, a unit within the Department of Natural Resources, had standing to appeal a decision of the departmental Board of Review. The Board of Examiners, a licensing agency, had denied two applications for licenses to practice landscape architecture. The disappointed applicants appealed to the Board of Review, which reversed those denials and, in effect, directed the Board of Examiners to issue the licenses. 5 The Board then sought judicial review in the circuit court.

Applying Peco, the Court of Appeals held that the agency had no right to judicial review. Implicit in that holding was that the agency’s role in the appeal to the Board of Review and its interest in the outcome of that proceeding were no different than if the applicants’ appeal had been to the circuit court. It got back to the basic proposition that when an agency exercises a quasi-judicial function, as explicated in McKinney , it is not a party to the proceeding before it or before an appellate body authorized to review its decision, ⁵³⁴ and it has no judicially cognizable interest in what happens to that decision. Absent some special statutory authorization, therefore, it does not have the right to appeal the judgment or determination of the appellate body, to protect its own decision. 6 The second offshoot was Subsequent Injury Fund v. Pack, 250 Md. 306 (1968), where the question was whether the Subsequent Injury Fund could appeal from an award made against it by the Workmen’s Compensation Commission.

The Court recognized that this was not the normal Peco-type situation, where the agency sought to protect its own administrative decision — that, unlike zoning and liquor boards, "the Subsequent Injury Fund does have a direct interest in the outcome of the hearing, viz. the Commission is authorized to award the claimant compensation from the Fund, which award might possibly be the result of an erroneous application of the Workmen’s Compensation Law.” Id. at 310 . The Court also noted, however, that "there is a very real distinction between being aggrieved by a decision, and having a status cognizable in law as able to present a grievance.” Id. The problem was that the Fund was not a legally constituted " 'person’ "[i]t is actually nothing more,” said the Court, "than a glomerate of money, to be disbursed by the State Treasurer on written orders of the Commission. It is not supervised, maintained or protected by a governing board, which is given the authority to appeal. . . .

Nor is it an agency of the State, created and designated as such by the Legislature. . . . It is not a commission, corporation, trustee or other artificially created 'person.’ ” Id. at 311 . Because the Fund was not a "person” and had been given no special right of appeal, it did not have that right. 7 ⁵³⁵ The situation before us here is quite different than any of those presented in the aforecited cases. We are not dealing with an agency (MPA) that is (1) quasi-judicial in nature, or (2) seeking to protect or vindicate its own quasi-judicial decision.

As with the case of the Subsequent Injury Fund, it has a direct pecuniary interest in awards made by BCA; but, unlike the Fund (as it existed in 1968), MPA is a "person.” It is created as a State agency; it has a governing structure; and it is given very substantial duties to perform. Among those duties (and powers) conferred upon it by Trans, art., title 6, are to rehabilitate, improve, and maintain port facilities (§ 6-204 (i)); to "do anything necessary to promote and increase commerce within its territorial jurisdiction” (§ 6-204 (f)); to make "any contract necessary for or incidental to the performance of its duties” (§ 6-208); to appear in its own behalf before any agency of the Federal Government or any State in any matter that relates to a project maintained by it (§ 6-204 (m)); to "do anything else necessary or convenient to carry out [its] powers” (§ 6-204 (o)); and, most significantly, to "sue and be sued in its own name” (emphasis supplied; § 6-204 (b)). By reason of these differences, we find the McKinney-Peco-McWilliams rationale to be inapposite and the critical element missing in the Subsequent Injury Fund decision to be present here. MPA was not only interested in and "aggrieved” by the decision of BCA, but, in contrast to the Subsequent Injury Fund, it had a status in the law which enabled it to "present a grievance.” The inapplicability of the McKinney-Peco-McWilliams rationale does not necessarily settle the matter however.

The question still remains of whether the Legislature has authorized MPA to appeal BCA decisions to court. We think that it has conferred that authority. We begin not with the BCA law, as urged by MPA, but the law governing MPA. Clearly, the authority noted above to enter into contracts, to sue and be sued, and to do anything necessary or convenient to carry out its powers would imply the power to litigate contract disputes.

What occurred here, ⁵³⁶ initially, is that MPA voluntarily gave up that right by agreeing in its contract to submit all disputes to its superior administrative official — the Secretary. As we pointed out, MPA’s inability to challenge the Secretary’s decision did not arise from any inherent lack of authority to litigate but rather from the fact that, by virtue of his overriding authority as head of the Department, the Secretary’s position with respect to any dispute superseded that of MPA. The agency position vis a vis the contractor was established by the Secretary, and MPA, as a subordinate body, was no more competent to challenge it than a lieutenant is competent to challenge the decision of the general. That is not a matter of "right to sue,” but only of executive organization and management.

The amendment to the contract, coupled with the enactment of ch. 418, brought about a significant change in that situation. No longer was the dispute to be resolved (administratively) by an official superior in authority to MPA. The BCA was a quasi-judicial, fact-finding, unit, exercising no executive authority over MPA. It was designed to remove these disputes from the jurisdiction of the Secretary and to present them, for administrative resolution, to a more neutral arbiter having no executive authority over either party.

That change, it seems to us, freed MPA from the constraints that it had voluntarily accepted in the initial contract, and brought back into play and permitted it to exercise the full panoply of powers granted to it in its own law including its right, as an aggrieved party, to take an administrative appeal from a BCA decision adverse to it. We see nothing in the BCA law (ch. 418) that would serve to restrict those powers. 8 ⁵³⁷ For these reasons, we believe that MPA did have the right, under the Administrative Procedure Act (art. 41, § 255), as a "party aggrieved by a final decision in a contested case,” to seek judicial review. 9 (2) Allowance of Interest We turn now to the substantive issue of whether BCA was correct in awarding predecision and postdecision interest at the rates indicated. Four subsidiary questions are subsumed in this issue: (a) is MPA’s liability for such interest barred by the doctrine of sovereign immunity; (b) is predecision interest permissible under the contract as part of an "equitable adjustment”; (c) is BCA authorized to make an ⁵³⁸ award of postdecision interest; and (d) was it permissible for BCA to use the 10% rate from and after July 1,1980? Because the 10% rate was applied to both predecision and postdecision interest, we shall deal with the fourth sub-question as part of our examination of (b) and (c).

(a) Sovereign Immunity In 1976, the General Assembly enacted a statute designed to waive the State’s defense of sovereign immunity in actions based on written contracts. Acts of 1976, ch. 450 (now codified as Md. Code, art. 21, § 7-101; formerly, art. 41, § 10A). It provided, in relevant part, that: "Unless otherwise specifically provided by the laws of Maryland, the State of Maryland, and every officer, department, agency, board, commission, or other unit of State government may not raise the defense of sovereign immunity in the courts of this State in an action in contract based upon a written contract executed on behalf of the State, or its department, agency, board, commission, or unit by an official or employee acting within the scope of his authority.” The Act went on to provide that in any such action the State and its agencies would not be liable for punitive damages, that claims would be barred unless suit was filed within one year, and that, "[i]n order to provide for the implementation of this section, the Governor annually shall provide in the State budget adequate funds for the satisfaction of any final judgment, after the exhaustion of any right of appeal, which has been rendered against the State [or its agencies] in an action in contract as provided in this section.” Md. Code, art. 21, § 7-104. MPA does not ignore the existence of ch. 450; nor does it suggest that Langenfelder’s claim is not within its general purview.

It is an action ex contractu based on a written contract, and