Mayor & City Cncl. of Balt. v. Prime Realty Assoc.

Mayor and City Council of Baltimore v. Prime Realty Associates, LLC, No. 53, September Term, 2019. Opinion by Getty, J. CORPORATIONS AND ASSOCIATIONS—DUE PROCESS OF LAW— SUBSTITUTED SERVICE—STATE DEPARTMENT OF ASSESSMENTS AND TAXATION The Court of Appeals held that Maryland Rule 3-124(o), which, in limited circumstances, allows for substituted service of process on the State Department of Assessments and Taxation (“SDAT”), satisfies a litigant’s due process rights. A limited liability company’s failure to update its resident agent’s address with SDAT did not invalidate the plaintiff’s attempts of service or use of substituted service upon SDAT, as prescribed in Rule 3- 124(o). Circuit Court for Baltimore City Case No. 24-C-19-002940 Argued: March 5, 2020 IN THE COURT OF APPEALS OF MARYLAND No. 53 September Term, 2019 MAYOR AND CITY COUNCIL OF BALTIMORE v. PRIME REALTY ASSOCIATES, LLC Barbera, C.J. McDonald, Watts, Hotten, Getty, Booth, Biran, JJ.

Opinion by Getty, J. Filed: May 12, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Suzanne Johnson 2020-05-12 15:51-04:00 Suzanne C. Johnson, Clerk By the law of this state, the state of its incorporation, the Department was thus conclusively presumed to have been designated as the true and lawful attorney of the corporation to accept service of process. It clearly appears that legitimate efforts were made to notify the defendant corporation of this action and that those efforts were by means reasonably calculated to bring the attention of the corporation to the pendency of the proceeding. Judge Marvin H. Smith, Barrie-Peter Pan Schools, Inc. v. Cudmore, 261 Md. 408, 421 (1971).

A plaintiff in Maryland is permitted under limited conditions to substitute service of process on the state taxation authority when suing a business entity. Initially passed as a statute in 1937, the current provision for substituted service in the District Court of Maryland is Maryland Rule 3-124(o). While proper service is typically made upon a business entity through personal service on its resident agent, the substituted service rule provides a backup provision when regular service has been unsuccessful. In this case, Petitioner Mayor and City Council of Baltimore (the “City”) initiated a receivership action against Respondent Prime Realty Associates, LLC (“Prime Realty”) when real property owned by Prime Realty fell into disrepair.

The City attempted on several occasions to serve Prime Realty’s resident agent at the address on file with the State Department of Assessments and Taxation (“SDAT”). After those attempts proved unsuccessful, the City made substitute service on the designated state agency, currently SDAT, pursuant to Maryland Rule 3-124(o). Prime Realty did not participate in the receivership action until after the court-appointed receiver sold the property and the sale was ratified by the District Court of Maryland sitting in Baltimore City. After ratification of sale, Prime Realty moved to vacate the sale, contending that the City did not adequately serve Prime Realty, therefore violating its due process rights.

The District Court denied the motion and Prime Realty appealed. Before the Circuit Court for Baltimore City, the City argued that Rule 3-124(o) provides an entity with due process because business entities are statutorily required to file the address of its principal office and the name of its resident agent with the State. The City contended that Prime Realty’s due process rights were not violated because the City followed the substituted service requirements set forth in Maryland Rule 3-124(o). The circuit court disagreed and vacated the sale of the property, holding that Prime Realty’s due process rights were violated because the City had knowledge of an alternative address for Prime Realty’s resident agent.

We granted the City’s petition for a writ of certiorari to determine whether the method of substituted service upon SDAT prescribed by Maryland Rule 3-124(o) satisfies a litigant’s due process rights. For the reasons that follow, we hold that Maryland Rule 3- 124(o) provides due process of law. Accordingly, the circuit court erred in invalidating, on due process grounds, the order ratifying the sale of Prime Realty’s vacant property. BACKGROUND A. Receivership, Generally.

Receivership is a code enforcement tool enacted by the City Council of Baltimore in 1991 that allows the City to abate the public nuisance created by vacant and problem properties. In a receivership action, the City petitions the District Court to appoint a third 2 party—a “receiver”—to take control of a vacant property and auction it to a buyer who can rehabilitate the property. To begin the receivership process, the Baltimore City Commissioner of Housing and Community Development (the “Commissioner”) must first determine that a building is “vacant” under the terms of the ordinance. A vacant structure is “an unoccupied structure that is: 1. unsafe or unfit for human habitation or other authorized use, or 2. a nuisance property.” Bldg., Fire, & Related Codes of Balt.

City § 116.4.1.2 (“BFR Codes”); see id. § 116.4.1.3 (defining “nuisance property” as an unoccupied structure that has (1) two overdue and final building or fire violations; or (2) six overdue and final exterior premises maintenance violations within a 12-month period). When the Commissioner finds that a building is vacant, it has the authority to order the property owner to rehabilitate or raze the property. Id. § 116.1. If a property owner fails to comply with this order, the Commissioner then has the authority to initiate a receivership action and appoint a receiver to rehabilitate or raze the property, or sell it to a buyer that will do the same.

Id. §§ 116.7, 116.7.1, 121.2. When the Commissioner is seeking the appointment of a receiver for vacant property, it must provide notice to the property owner in accordance with the Maryland Rules. See id. § 121.4. Once the property has been sold, the original property owner has thirty days to file exceptions to the sale.

Md. Rule 3-722(f)(3). Following the thirty-day time frame, if the District Court finds the sale was “fairly and properly made,” the sale may then be ratified. Md. Rule 3-722(g). After ratification, the receiver is to sign the deed conveying title to the buyer.

BFR Codes § 121.14. In addition, the receiver must file an accounting of the sale 3 and a motion to terminate the receivership action with the court. Id. § 121.15; Md. Rule 3- 722(i), (j). The receiver is able to distribute the proceeds from the sale upon the court ratifying the accounting.

Md. Rule 3-722(i), (j). B. Receivership Action Against Prime Realty. This dispute arises out of a receivership action regarding 744 Patterson Park Avenue, a residential property in Baltimore City (the “Property”) acquired by Prime Realty in March 2005 as an investment rental property. Prime Realty continued to rent the property for several years after acquisition until, according to Prime Realty, the tenants were robbed and mugged “repeatedly” and moved out.

Thereafter, the property remained vacant and its condition deteriorated. On June 26, 2015, the City issued to Prime Realty a Code Violation Notice and Order declaring the Property “unfit for human habitation or other authorized use pursuant to sections 116–121 of” the Building, Fire, and Related Codes of Baltimore City. The violation notice required Prime Realty to either raze or rehabilitate the Property within thirty days. The City posted the violation notice on the Property and mailed a copy of the notice to a Silver Spring post office box address that Prime Realty used for, among other things, tax and water bills from the City.

By June 28, 2018, three years after the City issued the violation notice, Prime Realty had failed to raze or rehabilitate the Property as required. Accordingly, the City petitioned the District Court of Maryland sitting in Baltimore City to appoint a vacant building receiver. On July 10, 2018, the District Court issued a show cause order requiring Prime Realty to appear before the court on August 15, 2018. 4 The City was ordered to serve the Petition for Appointment of a Vacant Building Receiver (the “Petition”) and the show cause order upon Prime Realty prior to August 13, 2018, which, in the case of a limited liability company (“LLC”), under Maryland Rule 3- 124(h), is accomplished by service on the resident agent of the LLC. Records at SDAT indicated that Prime Realty was established as a Maryland LLC on January 21, 2005.

At that time, Prime Realty’s resident agent, Miguel Belen, resided at 1313 South Dahlia Court in Bel Air, Maryland. That address continued to be the address of record on July 10, 2018 when the District Court issued the show cause order. However, the resident agent Mr. Belen had relocated in 2010 from the Dahlia Court address to Silver Spring, Maryland, where he began using a post office box for Prime Realty’s business. Mr. Belen filed a notice with SDAT of this address change in 2011.

Consistent with SDAT regulations that prohibit a business entity from registering a post office box address as the address for its resident agent, SDAT issued a rejection notice to Prime Realty’s former address on file—here to Mr. Belen at the Dahlia Court address. Prime Realty never responded to correct this filing. In serving the show cause order, the City mailed, by both regular and certified mail, copies of the Petition and order to the Dahlia Court address. The City also unsuccessfully attempted to serve Mr. Belen personally by private process server on July 20 and 27, 2018, at the Dahlia Court address.

On the proof of service form, the process server noted “no answer” as the reason for inability to make service. 5 In light of the failure to serve, the District Court postponed the show cause hearing and issued an updated show cause order which extended the service deadline to September 20, 2018 and required Prime Realty to appear on October 3, 2018. Proceeding under Maryland Rule 3-124(o), which provides, in the case of an LLC and certain other business entities, for substituted service upon SDAT, the City served SDAT a copy of the Petition and updated show cause order on September 5, 2018. Prime Realty did not appear for the October 3, 2018 show cause hearing. As a result, the District Court appointed One House At A Time, Inc. (“One House”) as the receiver for the Property.

The City sent Prime Realty a courtesy letter on October 29, 2018, both to the Dahlia Court address and the Silver Spring post office box address, advising that a receiver had been appointed and that the Property would be listed for sale at public auction in December. At the public auction on December 11, 2018, Mohammad Khan acquired the Property for $16,000. Two weeks after the sale of the Property, Mr. Belen filled out an application with the District Court to review the receivership action case file. The application reflects that Mr. Belen requested and received a copy of the receivership action case file.

At the time Mr. Belen reviewed the receivership action case file, SDAT records indicated that Prime Realty was operating under a forfeited charter.1 Prime Realty failed to take any action in this case for another two months until February 15, 2019, when it took the necessary steps to reinstate the charter with SDAT prior to defending the receivership action. 1 Counsel for Prime Realty noted at oral argument that the charter was forfeited for failure to file personal property tax returns with SDAT. 6 The District Court received the report of sale from One House on January 10, 2019. The report was also mailed, by both certified and regular mail, to Prime Realty at the Dahlia Court address. Shortly thereafter an additional notice of the sale was posted on the Property. Almost a month after receiving the report of sale, the District Court ratified the sale of the Property to Mr. Khan.

One House and Mr. Khan settled on March 4, 2019, with the final accounting of the settlement reflecting that One House proposed to distribute $3,182.67 to Prime Realty.2 The District Court received the final accounting on March 14, 2019. The next day, Prime Realty filed a Verified Motion to Vacate, Revise and Strike Judgment (“Motion to Vacate”) contending that the City did not adequately serve Prime Realty, therefore violating its due process rights. Four days later, the City responded with an Opposition to Prime Realty’s Motion to Vacate. On March 29, 2019, the District Court issued an order denying Prime Realty’s Motion to Vacate.

Accordingly, on April 22, 2019, the District Court ratified the final accounting, ordered One House to disburse the remaining funds, discharged One House from its appointment, and closed the case. Prime Realty filed a Notice of Appeal on April 30, 2019. Before the Circuit Court for Baltimore City, Prime Realty contended that the City’s use of substituted service on SDAT pursuant to Maryland Rule 3-124(o) was in violation of Prime Realty’s due process rights. The circuit court granted Prime Realty’s Motion to Vacate, citing the City’s 2 This number reflects the distribution to the record lien holder (Prime Realty) after auctioneer’s fees, receiver’s attorneys’ fees, the receiver’s lien, and the City’s attorneys’ fees. 7 knowledge of the “homeowner’s whereabouts above and beyond which SDAT had in their records,” i.e. the Silver Spring post office box address.

The City then petitioned for, and this Court granted, a writ of certiorari. Mayor & City Council of Balt. v. Prime Realty Assocs., LLC, 466 Md. 310 (2019). The City presents two questions for our consideration: (1) Does Md. Rule 3-124(o), allowing for substituted service upon SDAT, provide due process of law? (2) Did the [circuit] court err in invalidating, on due process grounds, the order ratifying the sale of Prime Realty’s property when Prime Realty claimed lack of notice but the City effectuated substituted service on SDAT and Prime Realty’s lack of notice was a result of its failure to provide SDAT a current, lawful address for its resident agent?

For the reasons that follow, we answer both questions in the affirmative. Maryland Rule 3-124(o) provides due process of law. Accordingly, the circuit court erred in invalidating, on due process grounds, the order ratifying the sale of Prime Realty’s vacant property. We therefore reverse the judgment of the Circuit Court for Baltimore City.

STANDARD OF REVIEW The circuit court’s determination to vacate the City’s receivership action, to the extent that this is a factual finding, will not be set aside unless clearly erroneous. See Bottini v. Dep’t of Fin., 450 Md. 177, 187 (2016) (“We give due regard to the trial court’s role as fact-finder and will not set aside factual findings unless they are clearly erroneous.” (quoting Breeding v. Koste, 443 Md. 15, 27 (2015))). However, the legal analysis of a circuit court and its interpretations of relevant statutes receives no deference. Friendly Fin.

Corp. v. Orbit Chrysler Plymouth Dodge Truck, Inc., 378 Md. 337 , 342–43 (2003). 8 Interpretation of a Maryland Rule is a question of law and is therefore reviewed de novo. State v. Schlick, 465 Md. 566, 573 (2019). DISCUSSION A. The Parties’ Contentions. The City contends that the method of substituted service provided in Maryland Rule 3-124(o) satisfies notice requirements and provides due process of law to resident agents on behalf of their principal entities.

The City asserts that the statutory requirements for an LLC place on an LLC the responsibility to register the name of its resident agent and the address of its principal office with the State. According to the City, the purpose of the resident agent is to accept legal service of process on behalf of the entity, therefore the LLC statutory framework affirms that substituted service upon SDAT would provide the proper notice to satisfy due process. In arguing that it strictly complied with Rule 3-124(o), the City recounts its attempts to personally serve Prime Realty’s resident agent on July 20 and 27, 2018 at the Dahlia Court address prior to serving SDAT on September 5, 2018. The City contends that its strict compliance with the service methods prescribed in Rule 3-124(o) ensured Prime Realty’s due process rights were satisfied.

Accordingly, the City concludes that the circuit court erred in vacating the order ratifying the sale of Prime Realty’s vacant property. Prime Realty argues that it has been deprived of proper notice because the City had knowledge of the Silver Spring post office box address evidenced by the fact that the City mailed the initial violation notice to that address. Additionally, Prime Realty cites this Court’s holding in St. George Antiochian Orthodox Christian Church v. Aggarwal, 326 9 Md. 90 (1992), in contending the City was required to go above and beyond the service requirements of Rule 3-124(o) to provide due process. See Aggarwal, 326 Md. at 104 (holding that a tax sale purchaser failed to comply with the notice requirements for a foreclosure action because the tax sale purchaser had knowledge that the address being used for service was a bad address).

In order to address Prime Realty’s contention that the City violated Prime Realty’s due process rights by only attempting service of process at the address on file with SDAT, we must first determine whether Rule 3-124(o)’s method of substituted service provides due process. B. Maryland Rule 3-124(o) Legislative History. An understanding of Maryland Rule 3-124(o)’s history is necessary to appreciate and recognize how the method of substituted service upon SDAT became a well-accepted vehicle for service of process. From its inception over eighty years ago as a statute and its later incorporation into the Court’s revision of the rules of procedure in the District Court beginning in 1971, substituted service upon SDAT has a deep-rooted foundation in Maryland’s legal history.3 As discussed below, the history of the current rule reflects both a policy decision of the General Assembly and a procedural decision of the judiciary to provide alternative methods of service of process on business entities.

The policy and 3 These deep roots extend to other contexts as well. Indeed, the use of substituted service upon a government entity that a defendant must register with is a time-honored device. For example, the attorney disciplinary rules provide for substituted service on the Client Protection Fund. Md. Rule 19-708; 19-723(b). 10 procedure still exist in the Maryland code and Maryland Rules today.

Our inquiry into the legislative history of Rule 3-124(o) begins with its statutory origins. The first version of the substituted service statute originated as a 1937 chapter law: If any corporation of this State, or any foreign corporation required by any statute of this State to have a resident agent, has not a resident agent, or has one or more resident agents and two unsuccessful attempts have been made on different business days to serve process upon each of its resident agents, such corporation shall be conclusively presumed to have designated the State Tax Commission as its true and lawful attorney authorized to accept on its behalf service of process in the action in which such process issued, and in such case such process may be served upon the State Tax Commission as the true and lawful attorney of such corporation. 1937 Md. Laws, ch. 504, § 105. This chapter law was codified as § 111(d) of Article 23 (at that time the Corporations