Mehrling v. Nationwide Insurance

⁴³ HARRELL, J. The Insurance Commissioner of the Maryland Insurance Administration (“the MIA”) entered a Final Order 1 on 19 July 1999, purporting to dispose of a complaint filed with the MIA by Barbara Mehrling, Petitioner, against Nationwide Insurance Company (“Nationwide”), Respondent, challenging the termination of her contract as a Nationwide agent. The Final Order adopted the recommended decision of the administrative law judge (“ALJ”) of the Office of Administrative Hearings (“OAH”) dismissing Petitioner’s complaint on the ground that Mehrling had been divested of individual standing to pursue the claim due to her pending bankruptcy case. 2 After receipt of the ALJ’s proposed decision, Petitioner filed exceptions with the MIA which included evidence that her bankruptcy case had been dismissed five days before the ALJ issued his proposed decision, a fact not made known to the ALJ. The Associate Deputy Commissioner, see supra note 1, nonetheless adopted the ALJ’s recommended decision to dismiss Petitioner’s complaint for lack of standing. Petitioner’s subsequent motion for reconsideration, treated by the Associate Deputy Commissioner as a Motion for Rehearing, was denied.

Petitioner sought judicial review in the Circuit Court for Carroll County. The Circuit Court affirmed the MIA’s final decision, ruling essentially that Petitioner’s failure to present ⁴⁴ evidence of her bankruptcy dismissal to the ALJ precluded her from later presenting it to the MIA in her exceptions. Petitioner timely filed an appeal with the Court of Special Appeals, which affirmed the judgment of the Circuit Court. Petitioner filed with this Court a petition for writ of certiorari, which was granted, Mehrling v. Nationwide, 368 Md. 239 , 792 A.2d 1177 (2002), so that we might consider the following question: 1.

Did the court and administrative bodies below err in affirming the decision to grant [Respondent’s] motion to dismiss on the ground that Petitioner lacked standing to bring her claim? 3 The instant case is governed by the contested case provisions of the Administrative Procedure Act (“APA”), Maryland Code (1995 Repl.Vol., 1998 Supp.), State Government Article, §§ 10-201-10-227 (“APA §§ 10-201-10-227”), 4 as supplemented by the Rules of Procedure of the OAH codified in the Code of Maryland Regulations (“COMAR”) 28.02.01 and regulations ⁴⁵ promulgated by the MIA in COMAR 31.02.02. 5 An overview of the relevant statutes and regulations is provided in Part II of this opinion. I. Factual and Procedural Background A. Petitioner’s underlying claim against Respondent. On 2 September 1997, Petitioner filed a complaint with the MIA 6 alleging that Respondent wrongfully terminated her contract as a Nationwide agent in violation of Insurance Art., § 27-503(d). 7 After an investigation, the MIA found no violation of Maryland insurance laws, and so notified Petitioner by letter dated 8 June 1998. On 6 July 1998, Petitioner requested a hearing regarding the MIA’s decision.

The MIA delegat ⁴⁶ ed its authority to conduct the hearing and to issue a proposed decision to the OAH, and the matter was assigned to an ALJ. In accordance with the schedule issued by the ALJ, discovery was to be completed by 6 November 1998. On 19 October 1998, Respondent submitted its first request for production of documents to Petitioner. Petitioner’s counsel requested, and received, extensions of the discovery deadline until the end of November.

Ultimately he failed to respond. On 12 February 1999, Respondent filed a Motion to Compel Petitioner to produce certain documents. The ALJ granted Respondent’s motion on 23 February 1999, ordering Petitioner to produce a written response within ten days from entry of the Order. Petitioner had not complied with that Order as of 26 April 1999, the date the ALJ filed his recommended decision.

B. Petitioner’s bankruptcy and Respondent’s Motion to Dismiss for lack of standing. On 11 December 1997, several months after Petitioner filed her complaint with the MIA, Petitioner and her husband filed for relief under Chapter 13 of the Bankruptcy Code, Title 11 of the United States Code, in the United States Bankruptcy Court for the District of Maryland. On 19 August 1998, Petitioner’s Chapter 13 bankruptcy case was dismissed subject to Bankruptcy Code, 11 U.S.C. § 109 (g), which restrained Petitioner from filing any further petitions in bankruptcy for 180 days from the date of dismissal. 8 On 10 November 1998, Petitioner and her husband filed for relief under Chapter 7 of the Bankruptcy Code, Title 11 of the ⁴⁷ United States Code, in the United States Bankruptcy Court for the District of Maryland. Petitioner failed to disclose in her bankruptcy filings and schedules her pending administrative action against Respondent. 9 On 1 February 1999, Respondent filed in the MIA administrative proceeding a motion to dismiss Petitioner’s complaint, arguing that by virtue of her Chapter 7 bankruptcy filing her alleged claim against Respondent properly belonged to the bankruptcy estate, and therefore a bankruptcy trustee alone had standing to pursue the claim against Nationwide on behalf of the bankrupt estate.

Petitioner requested an extension, until 15 March 1999, to respond to Respondent’s motion to dismiss. On 25 March 1999, after Petitioner failed to respond within the requested deadline, Respondent renewed its motion to dismiss for lack of standing, and also requested that the case be dismissed due to Petitioner’s failure to comply with the ALJ’s discovery Order discussed supra. On 21 April 1999, the Bankruptcy Judge issued an Order Dismissing Case of Ineligible Debtors (“Order”) that dismissed Petitioner’s Chapter 7 bankruptcy case, effective as of the date the petition was filed (10 November 1998). The Order indicated that Petitioner was ineligible for relief under her Chapter 7 filing because it had been filed erroneously within 180 days of the date (19 August 1998) her Chapter 13 bankruptcy case had been dismissed.

See Bankruptcy Code, 11 U.S.C. § 109 (g), supra note 8. As noted supra, Petitioner failed to inform the ALJ of this action. On 26 April 1999, the ALJ issued a Recommended Decision on Respondent’s motion to dismiss. That decision, together with the record compiled before the OAH, was submitted to the MIA.

Relying on Pacific Mortgage and Investment Group, ⁴⁸ Ltd. v. Horn, 100 Md.App. 311, 319 , 641 A.2d 913, 917 (1994) (citations omitted), the ALJ first determined that the “bankruptcy trustee is the proper party to bring an action for injury to a person’s property while a bankruptcy case is open.” Finding that Petitioner’s “claim against [Respondent] was in existence at the time she petitioned for bankruptcy,” the ALJ determined that the claim was a part of Petitioner’s bankruptcy estate and thus the “bankruptcy trustee [was] the only person with standing to pursue this claim.” Accordingly, the ALJ concluded that Petitioner “lacked standing to pursue her complaint,” and therefore had “failed to state a claim for which agency relief may be granted.” The ALJ recommended that Respondent’s motion to dismiss Petitioner’s complaint for lack of standing be granted. Because Petitioner had not advised the ALJ of the dismissal of the bankruptcy case, that fact was not considered by the ALJ at the time he issued his proposed decision. On 14 May 1999, Petitioner timely filed with the MIA written exceptions to the ALJ’s recommended decision, attaching to the exceptions a copy of the Order dismissing her Chapter 7 bankruptcy case. Arguing that the bankruptcy case was dismissed, effective as of the date it was filed, and therefore she had standing to maintain her claim against Nationwide, Petitioner asked that her complaint be “reinstated for a hearing on the merits before the OAH.” On 28 May 1999, Respondent moved to strike Petitioner’s exceptions, arguing, in essence, that the Associate Deputy Commissioner was confined to considering solely the evidentiary record made before the ALJ and that Petitioner failed to act with diligence throughout the administrative proceeding, including not informing the ALJ of the dismissal of the bankruptcy matter.

No apparent action was taken by the MIA on the motion to strike. On 19 July 1999, the Associate Deputy Commissioner issued a Final Order in the matter, which reads, in pertinent part: I have carefully evaluated the documentary record in this case, the Exceptions filed by the [Petitioner] and the [Respondent], and the Recommended Decision of [the ALJ]. ⁴⁹ Based thereupon, I am persuaded that the ALJ’s Conclusions of Law, based upon his detailed Findings of Fact pursuant to COMAR 31.02.02.12B and well thought out Discussion are correct. THEREFORE, it is hereby ORDERED, that the Recommended Decision of [the ALJ] to dismiss [Petitioner’s] appeal, be adopted as the Commissioner’s Final Order.... Petitioner promptly moved for reconsideration of the Final Order, and Respondent replied to it.

In his Order dated 11 August 1999, the Associate Deputy Commissioner denied Petitioner’s motion, stating “I have considered the Motion for Reconsideration, which I am treating as a Motion for Rehearing, and I have also considered the Response of Nationwide. I find there is no valid reason to grant a rehearing in this matter.” C. Judicial review of the Final Order. Petitioner sought judicial review in the Circuit Court for Carroll County of the MIA’s Final Order. Petitioner 10 argued that the Associate Deputy Commissioner, having “exercised his discretion” to consider evidence of Petitioner’s bankruptcy dismissal, nonetheless failed to “recognize the import” of this evidence, and therefore his final order dismissing Petitioner’s complaint for lack of standing was erroneous, not supported by substantial evidence, and arbitrary or capricious.

Respondent, on the other hand, claimed that Petitioner was not allowed to introduce new evidence of her bankruptcy dismissal through the vehicle of her exceptions. It asserted that exceptions are “limited to ... simply a review of the evidence” compiled before the ALJ. Observing that the administrative record before the ALJ was silent as to Petitioner’s bankruptcy dismissal, Respondent contended that the Associate Deputy Commissioner’s Final Order was “supported by substantial ⁵⁰ evidence in the administrative record.” 11 In rebuttal, Petitioner denied Respondent’s contention that the administrative record closed with the ALJ’s proposed decision, remarking that “even if the [c]ourt were to somehow accept Respondent’s argument, their case still fails, because the [Associate Deputy] Commissioner properly exercised his discretion to accept this evidence.” On 6 December 2000, the Circuit Court affirmed the MIA’s Final Order, opining that “[Petitioner cannot present evidence contesting [Respondent’s] Motion to Dismiss when she failed to provide [the ALJ] with any [such] evidence,” in spite of “ample opportunity” to do so. (Citing Osztreicher v. Juanteguy, 338 Md. 528, 535 , 659 A.2d 1278, 1281-82 (1995) (“A party who does not offer evidence on an issue as to which that party has the burden of proof acquiesces in the adverse judgment entered on that issue.”) (citation omitted)).

Moreover, while the court recognized the broad “discretion of an administrative agency to admit evidence after a hearing,” see Md. State Police v. Zeigler, 330 Md. 540, 557 , 625 A.2d 914, 922 (1993), it refused to “assign it more weight than what it was afforded by the [Associate Deputy] Commissioner.” Petitioner timely filed an appeal to the Court of Special Appeals which, in an unreported decision, affirmed the judgment of the Circuit Court affirming the Final Order. Citing Pacific Mortgage, 100 Md.App. at 319 , 641 A.2d at 917 , the intermediate appellate court first determined that a bankruptcy trustee alone has standing to pursue a claim on behalf of the bankruptcy estate. As did the Circuit Court, the Court of Special Appeals found that Petitioner “had the opportunity to present evidence to the ALJ from which a factual finding that ⁵¹ her bankruptcy petition had been dismissed could be made,” but made “no attempt” to do so. While noting that Petitioner eventually submitted evidence of her bankruptcy dismissal to the MIA, the intermediate appellate court explained that “[t]he circuit court, sitting as an appellate court, ... cannot go outside the record compiled by the ALJ and, based on some supplemental facts, reach a different ruling.” (Citing Motor Vehicle Admin, v. Karwacki, 340 Md. 271, 280 , 666 A.2d 511, 515 (1995) (stating that a reviewing court must defer to an agency’s factual findings and must not make an independent assessment of the evidence); COMAR 31.02.02.12, see infra page 16).

The court further explained that while the Associate Deputy Director had the discretion to consider the supplemental evidence, he was not required to do so. We shall supply additional facts infra as necessary to our discussion of the issues.

II

We believe it instructive to our analysis to provide an overview of the relevant statutes and regulations that govern the administrative process in the instant case. 12 Under Insurance Art., § 2-210(a)(2), 13 any person claiming to be aggrieved by a decision of the Commissioner is entitled to a hearing on ⁵² the matter. A hearing held pursuant to Insurance Art., § 2-210 is conducted in accordance with the contested case provisions of the APA §§ 10-201-10-227. 14 See Insurance Art., § 2-210(c). 15 Pursuant to APA § 10-205(a)(l), an administrative agency may “delegate the authority to conduct the contested case hearing to: ... the Office [of Administrative Hearings],” which in turn assigns the matter to an ALJ. 16 An agency may delegate to the OAH the authority to issue: (1) proposed or final findings of fact; (2) proposed or final conclusions of law; (3) proposed or final findings of fact and conclusions of law; (4) proposed or final orders or orders under Article 49B of the Code; 17 or (5) the final administrative decision of an agency in a contested case. APA § 10-205(b). The Rules of Procedure codified at COMAR 28.02.01 govern all hearings conducted by the OAH, and serve to supplement the procedures required by statute.

See APA § 10- ⁵³ 206(a)(1). 18 In addition, the APA authorizes an agency to adopt its own regulations to govern procedures in contested case hearings. See APA § 10-206(b). 19 ) The MIA has promulgated regulations in COMAR 31.02.02 governing how a contested case hearing is to be conducted by the OAH, and the Commissioner “retain[s] authority over delegated cases to the extent provided in th[atj chapter.” COMAR 31.02.02.01B. Section 10-213 of the APA specifies with particularity the evidence which may be offered and considered in a contested case, and provides generally that “[e]ach party in a contested case shall offer all of the evidence that the party wishes to have made part of the record.” APA § 10-213(a)(l). “Findings of fact must be based exclusively on the evidence of record in the contested case proceeding and on matters officially noticed in that proceeding.” APA § 10-214(a). If the MIA has not delegated to the OAH the authority to make the final decision in a contested case or category of contested cases, as in this case, the ALJ prepares a proposed decision 20 containing “proposed findings of fact, conclusions of law, or orders in accordance with the agency’s delegation under § 10-205 of this [ (Administrative Procedure Act— Contested Cases) ] subtitle.” APA § 10-220(a).

The proposed decision is submitted by the OAH to the Commissioner for his or her consideration and a final decision in the matter. See APA § 10-220(a). Upon motion of a party, the ALJ also ⁵⁴ may issue a proposed or final decision (depending upon the delegation of authority by the MIA) “dismissing a complaint or other agency action, or any request for hearing which fails to state a claim for which agency relief may be granted.” COMAR 28.02.01.16B. A proposed decision dismissing a complaint is reviewed by the Commissioner in the same manner as any proposed decision.

Upon receipt of an ALJ’s proposed decision, the affected parties may file exceptions with the agency. 21 See APA § 10-216(a). Pursuant to APA § 10-216(a)(l)(i) & (ii), in the case where the final administrative decision maker, who is an individual, 22 did not preside personally over the contested case hearing, as in the present case, the final decision may not be made until each party is given notice of the proposed decision in accordance with § 10-220 of this [ (Administrative Procedure Act — Contested Cases) ] subtitle and an opportunity to: (i) file exceptions with the agency to the proposed decision; and (ii) present argument to the final decision maker that the proposed decision should be affirmed, reversed, or remanded. Under COMAR 31.02.02.10C, “[ejxceptions to the proposed decision shall be in writing unless specified otherwise by the final decision maker.” In considering a party’s exceptions, the final administrative decision maker, in this case the Associate Deputy Commissioner, “shall personally consider each part of the record that a party cites in its exceptions or arguments before making a final decision.” APA § 10-216(a)(3). The record before the Commissioner consists of: ⁵⁵ (1) all motions and pleadings; (2) all documentary evidence that the agency or Office [of Administrative Hearings] receives; (3) a statement of each fact of which the agency or Office [of Administrative Hearings] has taken official notice; (4) any staff memorandum submitted to an individual who is involved in the decision making process of the contested case by an official or employee of the agency who is not authorized to participate in the decision making process; (5) each question; (6) each offer of proof; (7) each objection and the ruling on the objection; (8) each finding of fact or conclusion of law proposed by: (i) a party; or (ii) the presiding officer; (9) each exception to a finding or conclusion proposed by a presiding officer; and (10) each intermediate proposed and final ruling by or for the agency, including each report or opinion issued in connection with the ruling.

APA § 10-218. The Commissioner then issues a Final Order in the matter: A. Issuance. After consideration of the administrative law judge’s proposed decision, and any exceptions filed by the parties, the Commissioner shall issue a final order or a remand order. B. Effect of Findings of Fact, Proposed Conclusions of Law, and Proposed Order.

In reviewing the administrative law judge’s proposed decision, the Commissioner is: (1) Bound by the findings of fact that are supported by competent, material, and substantial evidence; and (2) Not bound by any legal analysis, proposed conclusions of law, or proposed order. C. Types of Action by the Commissioner. The Commissioner may affirm, reverse, or modify the proposed decision ⁵⁶ or remand the case to the Office [of Administrative Hearings] for further proceedings by setting forth, with particularity, the basis for the Commissioner’s reversal, modification, or remand of the proposed decision. COMAR 31.02.02.12.

See also APA § 10-221 infra (concerning the contents of final decisions and orders). If the final decision or order is adverse to a party, it must be “in writing or stated on the record.” APA § 10-221(a). The final decision must contain separate statements of: (i) the findings of fact; (ii) the conclusions of law; and (iii) the order. (2) A written statement of appeal rights shall be included with the decision.

(3) If the findings of fact are stated in statutory language, the final decision shall state concisely and explicitly the facts that support the findings. APA § 10-221(b).

III

When conducting judicial review of a contested case decision of a State administrative agency governed by the APA, an appellate court may: (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 ⁵⁷ (vi) is arbitrary or capricious. APA § 10-222(h). We review an administrative agency’s decision “under the same statutory standards as the Circuit Court.” Gigeous v. E. Corr. Inst., 363 Md. 481, 495 , 769 A.2d 912, 921 (2001) (footnote omitted).

Therefore, “we reevaluate the decision of the agency, not the decision of the lower court.” Gi-geous, 363 Md. at 495-96 , 769 A.2d at 921 (citing Public Serv. Comm’n v. Balt. Gas & Elec. Co., 273 Md. 357, 362 , 329 A.2d 691, 694-95 (1974)).

In reviewing an administrative agency decision, we are “ ‘limited to determining if there is substantial evidence in the record as a whole to support the agency’s finding and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law.’ ” Board of Physician Quality Assurance v. Banks, 354 Md. 59, 67-68 , 729 A.2d 376, 380 (1999) (quoting United Parcel Serv., Inc. v. People’s Counsel for Baltimore County, 336 Md. 569, 577 , 650 A.2d 226, 230 (1994)). In applying the substantial evidence test to questions of fact, a reviewing court decides ‘whether a reasoning mind reasonably could have reached the factual conclusion the agency reached.’ A reviewing court should defer to the agency’s fact-finding and drawing of inferences if they are supported by the record. A reviewing court ‘must review the agency’s decision in the light most favorable to it; ... the agency’s decision is prima facie correct and presumed valid, and ... it is the agency’s province to resolve conflicting evidence and to draw inferences from that evidence. Banks, 354 Md. at 68 , 729 A.2d at 380-81 (alterations in original) (citations omitted).

Md. Div. of Labor and Indus, v. Triangle Gen. Contractors, Inc., 366 Md. 407, 416 , 784 A.2d 534, 539 (2001).

IV

The validity vel non of the Court of Special Appeals’s holding in Pacific Mortgage & Investment Group, Ltd. v. ⁵⁸ Horn concerning a bankruptcy trustee’s standing to pursue claims on behalf of a bankrupt estate is not before us in the instant case. Accordingly, we shall accept, without critical comment, the holding in that case for purposes of our analysis here. The parties’ dispute in the present case begins with their respective assertions as to what constitutes the administrative record before the MIA when the Final Order was issued. Petitioner contends the supplemental evidence of Petitioner’s bankruptcy dismissal was properly before, and considered by, the Associate Deputy Commissioner.

Citing COMAR 31.02.02.10E, 23 Petitioner asserts that the administrative record before the MIA included her written exceptions and attachments. Petitioner argues that there is nothing in the APA or corresponding regulations that prohibit Petitioner from submitting new evidence in support of her exceptions. Even were there some regulatory limitation in that regard, Petitioner claims that the Associate Deputy Commissioner in fact exercised his discretion to consider this evidence, made apparent by his statement in the Final Order that he “carefully evaluated the documentary record in this case, [and] the Exceptions filed by [Petitioner].” See supra pages 7-8. Accordingly, Petitioner asserts that the Associate Deputy Commissioner’s Final Order is erroneous, unsupported by substantial evidence in the record, and arbitrary or capricious.

Respondent disputes Petitioner’s contention that new evidence introduced by way of her exceptions was a part of the administrative record before the MIA, arguing that exceptions are confined to a review of the record that was compiled by ⁵⁹ the ALJ. (Emphasis added). Citing COMAR 31.02.02.12(B), see supra pages 15-16, Respondent observes that “[i]n reviewing the administrative law judge’s proposed decision, the Commissioner is bound by the findings of fact that are supported by competent, material, and substantial evidence.” (Emphasis added by Respondent). Respondent extrapolates from this regulation the notion that “the Commissioner is confined to the factual record that was before the administrative law judge.” Noting that the administrative record was “void” of any evidence from which a factual conclusion could be reached that Petitioner had administrative standing, Respondent contends the MIA’s final decision should be affirmed.

We commented earlier, to some extent, on judicial review of a final decision or order of an administrative agency. See supra pages 16-18. We summarize the relevant principles here as they undergird our analysis in this matter. Aggrieved by the final decision of the MIA, Petitioner was entitled to seek judicial review of the decision as provided in APA § 10-222(a)(1).

As often stated, in reviewing an agency’s decision under the APA, a court ordinarily is “confined to the record” made before the administrative agency. APA § 10 — 222(f)(1). See Coleman v. Anne Arundel County Police Dep’t, 369 Md. 108, 121 , 797 A.2d 770, 778 (2002) (explaining that judicial review is “ ‘limited to determining if there is substantial evidence’ in the administrative record as a whole ‘to support the agency’s findings and conclusions.’ ”) (citation omitted); Dep’t of Health and Mental Hygiene v. Campbell, 364 Md. 108, 123 , 771 A.2d 1051, 1060 (2001) (noting that a reviewing court is restricted to the record made before the administrative agency). See also supra page 17.

A reviewing court may remand the case for further proceedings, affirm the final decision, or reverse or modify an administrative agency’s decision if “any substantial right of the petitioner may have been prejudiced because a finding, conclusion, or decision” is, inter alia, erroneous, “unsupported by competent, material, and substantial evidence in light of the entire record as submitted,” or “arbitrary or capricious.” APA § 10-222(h). (Emphasis added). ⁶⁰ The initial question we confront is when does the administrative