Montgomery County v. REVERE NATIONAL CORP., INC.

ELDRIDGE, Judge. The issue in this case is whether Montgomery County is bound by the provisions of a settlement agreement incorporated in a circuit court judgment. The agreement, ending sixteen years of litigation between the County and the owner of a billboard company, granted to the owner the right to maintain its billboards within the County for a period of ten years, despite a County zoning regulation prohibiting all billboards. Montgomery County contends that the agreement was void from its inception because it impermissibly undermined legislative and executive discretion in the enactment and enforcement of the County’s zoning regulations.

I. In 1968, the Montgomery County Council, sitting as a district council, amended its zoning regulations concerning outdoor signs and billboards. The new regulatory language ³⁷⁰ governed the placement, height and width of billboards within the County. The 1968 regulations provided that any existing billboards not conforming with the new standards were required to be removed.at the end of a period of two years from the effective date of the regulations or four years from the date the billboards were erected] whichever occurred later. After the expirations of the time periods provided for in the regulations, controversies arose between Montgomery County and Rollins Outdoor Advertising, Sine., over billboards owned by Rollins.

Montgomery County contended that the billboards did not comply with the standards set forth in the 1968 regulations and that they should be removed. In 1974, Rollins filed an action against Montgomery County, the County Executive and the Council, 1 in the Circuit Court for Montgomery County, challenging the validity of the 1968 billboard regulations and seeking injunctive and declaratory relief. 2 The bill of complaint alleged that Rollins, which operated and maintained billboards in Montgomery County, had been denied permission to erect a new billboard and that the denial was “based upon the discriminatory setback provisions” of the 1968 regulations. 3 The bill of complaint also alleged that Rollins had been ordered, without an offer of just compensation, to remove numerous existing billboards which did not conform to the location specifications set forth in the 1968 regulations. ³⁷¹ Rollins asserted that Montgomery County’s enactment and enforcement of the 1968 regulations violated Articles 17 and 24 of the Maryland Declaration of Rights, 4 as well as the Fourteenth Amendment to the United States Constitution. Specifically, Rollins maintained that the billboard regulations constituted prohibited retrospective legislation, that they violated “substantive” due process and equal protection principles, and that they deprived Rollins of property without just compensation. In 1986, while the above-described litigation was still pending, the district council amended the zoning regulations to prohibit all billboards within the County. 5 Neither the 1986 amendment, nor the 1968 regulations, provided for compensation to the owners of billboards.

Rollins amended its bill of complaint, adding contentions that the County’s ban on billboards violated state statutes mandating just compensation when a governmental subdivision requires the removal of billboards, as well as Article III, § 40, of the Maryland Constitution. 6 Rollins also maintained that Montgomery ³⁷² County’s regulations violated the Fifth and Fourteenth Amendments to the United States Constitution by denying just compensation to Rollins and violated the First Amendment to the United States Constitution by restricting Rollins’s ability to disseminate speech. In April 1990, sixteen years after the filing of the original bill of complaint, Rollins’s successor-in-interest, Reagan Outdoor Advertising, Inc., entered into a written settlement agreement with Montgomery County. In addition to being signed by the county attorney and county and Reagan officials, the agreement was signed by the trial judge below the words, “SO ORDERED.” The circuit court’s docket entry for April 11, 1990, reads as follows: “Stipulated Consent Agreement (McKenna, J.) Granted____” The settlement agreement permitted Reagan to continue “maintaining] within the County ... forty-seven [billboards]” for a period of ten years. Reagan could replace and relocate ³⁷³ billboards to a new location if either “(i) a lease for the premises on which a sign is located is not to be continued, or (ii) an outdoor advertising structure has been destroyed or has deteriorated to the point that it is no longer in a safe condition.” Relocation of billboards was limited to not “more than five signs within any calendar year,” with Reagan having the sole discretion as to which signs were to be relocated.

The agreement placed certain restrictions on where billboards could be relocated but stated that “in no event shall the County utilize procedures or fees to impair Reagan from exercising its rights under this Agreement.” In the contract, the parties expressly agreed upon the “dismissal of any and all pending litigation between the County and Reagan.... ” Finally, the agreement stated that “[i]n the event either party fails to perform its obligations under this Agreement the other party shall be entitled to seek an order of the Court to enforce the Agreement.. .. ” In March 1992, Revere National Corporation, the successor-in-interest to Reagan, sought the County’s permission to construct a replacement billboard pursuant to the provisions of the settlement agreement. The request was denied in May 1992 because, according to the County, the settlement agreement entered into by the parties was “void ab initio,” and Revere was requesting “to build a prohibited sign,” whereas the county regulations banned all billboards. Upon the County’s denial of its request, Revere filed in the Circuit Court for Montgomery County a “Motion to Adjudicate Defendants In Contempt of Court and For An Order to Enforce Stipulated Consent Agreement.” After setting forth the pertinent facts, Revere’s Motion asserted that the defendants “have violated the April 11, 1990 Order of this Court.” Revere sought to have the defendants adjudicated in contempt, sought an order requiring the defendants to comply with the settlement agreement “which was entered as an order of the [circuit] Court,” and requested compensatory damages. ³⁷⁴ In response, the County filed a “Motion To Vacate The Stipulated Consent Agreement of April 11, 1990,” as embodied in the court’s order. The County asserted that the settlement agreement “is void ab initio because it purports to permit what the Montgomery County Zoning Ordinance prohibits, namely the existence of 47 billboards in Montgomery County.” The County went on to state that it “has no authority to make such an agreement or to consent to a court order which violates the Zoning Ordinance’s prohibition on billboards.... ” The County requested the court to find that the settlement agreement “is void ab initio and order that it be vacated.” The County filed a separate answer to Revere’s motion, also asserting, inter alia, that the settlement agreement was void.

The circuit court, after a hearing, denied the County’s motion to vacate the settlement agreement and, without ruling on Revere’s motion, stated that the denial of the County’s motion to vacate the settlement agreement, as embodied in the 1990 court order, was final and appealable. Montgomery County then noted an appeal to the Court of Special Appeals. In April 1993, the Court of Special Appeals, in an unreported opinion, dismissed the appeal on the ground that the appeal was premature because the trial court had not yet ruled on the pending motions from Revere and thus a final judgment did not exist. See Maryland Rule 2-602(a).

After receiving additional memoranda and holding another hearing, the circuit court on November 18, 1993, entered an order granting the County’s motion to vacate the settlement agreement and denying Revere’s motion to enforce the agreement and to hold the defendants in contempt. The circuit court expressed the view that the April 11,1990, order approving the settlement agreement was not a final judgment terminating the action brought by Revere’s predecessor in 1974, and that, therefore, the April 1990 order remained subject to revision at anytime under Maryland Rule 2-602(a). 7 The ³⁷⁵ circuit court further held that the settlement agreement and April 1990 order should be vacated because Montgomery County had no power to enter into an agreement contrary to its zoning regulations. Revere appealed, and the Court of Special Appeals reversed the circuit court’s order in another unreported opinion. The Court of Special Appeals held that the settlement agreement, as embodied in the April 1990 circuit court order, constituted a final judgment terminating the action instituted by Revere’s predecessor in 1974.

The intermediate appellate court further held that Montgomery County had not shown any valid basis to set aside the 1990 judgment. The Court of Special Appeals explained: “[Montgomery County] maintains that it had no ability to agree to the terms contained in the agreement because the County Executive and executive branch officials who are obligated to enforce the Zoning Ordinance cannot implement an agreement that violates the Zoning Ordinance. We shall not address that contention, however; it is of no consequence in this case. “When an agreement is incorporated into an enrolled decree, an attack may not be made upon the agreement without simultaneously challenging the validity of the decree .... Inasmuch as the Stipulated Consent Agreement was incorporated into the court’s judgment, appellee’s attack in the lower court was upon an enrolled decree.

To set aside an enrolled decree, it is necessary to demonstrate fraud, mistake or irregularity. Maryland Rule 2-535. * ***** ³⁷⁶ “In summary, since the order vacated was a final, enrolled judgment, the court erred in vacating it, absent fraud, mistake, or irregularity, on the grounds that the agreement incorporated therein was void ab initio because one of the parties had no authority to enter into it.” Montgomery County filed in this Court a petition for a writ of certiorari which we granted. Montgomery County v. Revere National Corp., 336 Md. 705 , 650 A.2d 295 (1994). Montgomery County argues that the Court of Special Appeals erred in holding that the April 11, 1990, order constituted a final judgment.

The County asserts that the April 1990 order did not dispose of all the underlying issues in the case, was therefore not final, and is subject to revision at any time pursuant to Rule 2-602(a)(3). Alternatively, Montgomery County contends that if the April 1990 order was a final judgment, the judgment can still be set aside because ultra vires acts of a county or municipality, even if embodied in a final court judgment, are “void.” Finally, the County argues that the settlement agreement, as incorporated in the April 1990 order, exceeds the authority of Montgomery County because it violates the County’s zoning regulation that prohibits all billboards. Thus, according to the County, the circuit court did not err in vacating the 1990 order. Revere, on the other hand, asserts that the Court of Special Appeals correctly held that the April 1990 order was a final judgment.

Moreover, because the April 1990 order was a final judgment, Revere contends that the circuit court was prohibited from revising the judgment absent fraud, mistake, or irregularity, and that there was no fraud, mistake or irregularity in the present case. See Rule 2-535. Finally, Revere argues that the County did not exceed its authority in entering into the settlement agreement.

II

We shall first address the issue of whether the April 1990 order constituted a final judgment. If the April 1990 order was not a final judgment, it “is subject to revision at any time ³⁷⁷ before the entry of a [final] judgment.... ” Rule 2—602(a)(3). If the April 1990 order was a final judgment, however, it would ordinarily be subject to revision only during a thirty-day period after the entry of the order on April 11, 1990. Rule 2-535(a).

After the thirty-day period, Rule 2-535(b) authorizes revision of a judgment only “in case of fraud, mistake or irregularity.” 8 The County maintains that the settlement agreement, as incorporated in the April 1990 court order, “did not resolve any of the constitutional or statutory issues raised in the Amended complaint” and “granted none of the relief prayed for.” (County’s brief in this Court at 33-34). For this reason, according to the County, the April 1990 order was not final. A similar argument was recently rejected by this Court in Horsey v. Horsey, 329 Md. 392, 401-402 , 620 A.2d 305, 310 (1993), where we stated: “Contrary to the view expressed by the defendant ... in this case, a trial court’s order sometimes may constitute a final appealable judgment even though the order fails to settle the underlying dispute between the parties. Where a trial court’s order has ‘the effect of putting the parties out of court, [it] is a final appealable order.’ Houghton v. ³⁷⁸ County Comm’rs. of Kent Co., 305 Md. 407, 412 , 504 A.2d 1145, 1148 (1986), and eases there cited.

See, e.g., Wilde v. Swanson, 314 Md. 80, 85 , 548 A.2d 837, 839 (1988) (‘An order of a circuit court ... [may be] a final judgment without any adjudication by the circuit court on the merits’); Doehring v. Wagner, 311 Md. 272, 275 , 533 A.2d 1300, 1301-1302 (1987) (trial court’s order ‘terminating the litigation in that court’ was a final judgment); Walbert v. Walbert, 310 Md. 657, 661 , 531 A.2d 291, 293 (1987) (circuit court’s unqualified order was a final judgment because it ‘put Denise Walbert out of court, denying her the means of further prosecuting the case at the trial level’); Houghton v. County Com’rs of Kent Co., 307 Md. 216, 221 , 513 A.2d 291, 293 (1986); Concannon v. State Roads Comm., 230 Md. 118, 125 , 186 A.2d 220, 224-225 (1962), and cases there cited.” See also Moore v. Pomory, 329 Md. 428, 432 , 620 A.2d 323, 325 (1993) (dismissal without prejudice, although not an “adjudication on the merits,” was a final and appealable judgment). Thus, an order entered on the docket pursuant to Rule 2-601, and having the effect of terminating the case in the circuit court, is a final judgment. Montgomery County’s position, that all of the issues and claims in a case must be resolved on the merits in order that there be a final judgment, would undermine the effectiveness of settlement agreements as a mechanism for ending litigation. It is clear that, upon the entry of the settlement agreement as an order of the court on April 11, 1990, the case begun by Revere’s predecessor in 1974 was over.

The settlement agreement, which comprises the substance of the April 1990 order, discloses that the parties intended to terminate over sixteen years of litigation. There was nothing further for the court to resolve after the agreement was executed and entered as an order. Section 4(a) of the agreement specifies that, “[i]n consideration of the Agreement reached herein, Reagan and the County hereby release each other from any claims or obligations which arise from the complaint in the above-captioned matter.” Section 5(a) of the agreement states that ³⁷⁹ agreement becomes effective “upon execution ... and incorporation of th[e] Agreement into a final judgment....” The parties agreed to the “dismissal of any and all pending litigation between the County and Reagan.” Moreover, in a real sense the agreement did dispose of the claims and issues raised by the parties. In lieu of the relief which it sought in the litigation, namely having the challenged zoning regulations invalidated under state statutes and/or on constitutional grounds and receiving compensation or damages, the billboard company received the right to maintain its 47 existing billboards for a ten-year period.

Although the County did not receive a judicial ruling on the validity of the regulations, nevertheless the County did not have to pay compensation, was able to limit the billboard company to 47 billboards, and could fully implement the ban on the company’s billboards after the ten-year period. The settlement agreement was a typical compromise with respect to the claims, issues, and positions of the parties. The billboard company gave up its claims for relief against Montgomery County in return for what it received under the agreement. Therefore, we agree with the Court of Special Appeals that the April 11, 1990, order was a final judgment.

Moreover, we agree with the Court of Special Appeals that there was no fraud, mistake or irregularity, within the meaning of Rule 2-535(b), so as to authorize revision of the judgment under that rule. See, e.g., Tandra S. v. Tyrone W., 336 Md. 303, 315-318 , 648 A.2d 439, 445-446 (1994); Autobahn Motors v. Mayor & City Council of Baltimore, 321 Md. 558 , 583 A.2d 731 (1991); Hamilos v. Hamilos, 297 Md. 99 , 465 A.2d 445 (1983); Weitz v. MacKenzie, 273 Md. 628 , 331 A.2d 291 (1975); Schwartz v. Merchants Mort. Co., 272 Md. 305 , 322 A.2d 544 (1974); Household Finance Corp. v. Taylor, 254 Md. 349, 254 A.2d 687 (1969), and cases there cited.

III

Montgomery County contends that, even if the April 11, 1990, order was a final judgment, the County exceeded its ³⁸⁰ legal authority in entering into the settlement agreement and that this is a valid basis for vacating the judgment. The County argues that a final judgment is not binding or preclusive, and is subject to collateral challenge, when a county or municipality exceeds its legal authority in entering into a settlement agreement that is incorporated in a final judgment. The cases have recognized certain unusual and narrowly limited situations when final judgments based on consent of the parties, although not subject to revision under rules like Maryland Rule 2-535, have been deemed non-preclusive or subject to collateral attack. See, e.g., Green v. Sollenberger, 338 Md. 118, 131 , 656 A.2d 773, 779 (1995) (final adoption decree, not authorized by adoption statutes, is subject to collateral attack and voidable); Varsity Amusement Company v. Butters, 155 Colo. 330, 339 , 394 P.2d 603, 607 (1964) (“a judgment entered by agreement or consent does not have a [res judicata] effect where to give that effect would render impotent another important public policy”); Blazek v. City of Omaha, 232 Neb. 562, 565 , 441 N.W.2d 205, 207 (1989) (“Except where an important public policy would be violated, judgments entered by agreement or consent are generally given a conclusive effect and are res judicata.”) The leading case in this area appears to be Kelley v. Town of Milan, 127 U.S. 139 , 8 S.Ct. 1101 , 32 L.Ed. 77 (1888).

There, earlier litigation between the Town and holders of the Town's bonds had been terminated when the Town’s officials consented to a decree adjudging the bonds to be valid obligations of the Town. In a subsequent lawsuit between the Town and the bondholders, the Supreme Court concluded that the Town was not bound by the earlier judgment. The Court held that, because the Town lacked authority under the laws of Tennessee to issue the bonds, the Town officials had no right to bind the Town by a settlement agreement incorporated in a final judgment. The Supreme Court explained ( 127 U.S. at 159 , 8 S.Ct. at 1111 , 32 L.Ed. at 85 ): “The declaration of the validity of the bonds, contained in the decree, was made solely in pursuance of the consent to that effect contained in the agreement signed by the [par ³⁸¹ ties].

The act of the Mayor in signing that agreement could give no validity to the bonds, if they had none at the time the agreement was made. The want of authority to issue them extended to a want of authority to declare them valid. The Mayor had no such authority. The decree of the court was based solely upon the declaration of the Mayor, in the agreement, that the bonds were valid.... “The adjudication in the decree cannot, under the circumstances, be set up as a judicial determination of the validity of the bonds....

This was not the case of a submission to the court of a question for its decision on the merits, but it was a consent in advance to a particular decision ... [which] gave life to invalid bonds.... ” Consequently, under the Kelley principle, the act of placing a settlement agreement made by a local government in the form of a court judgment, in an effort to give it the force and effect of a final judgment, will not cure the lack of fundamental power in the governmental entity to make the agreement. The cases, in considering whether local governments are bound by final consent judgments reflecting agreements which the governments had no authority to make, have generally reached the same conclusion as Kelley v. Town of Milan, supra, although the courts have used various approaches and reasons. Several cases rely on public policy. See, e.g., Blazek v. City of Omaha, supra, 232 Neb. at 565 , 441 N.W.2d at 207 .

One court has viewed a final judgment embodying a governmental settlement agreement as “constructive fraud” when the officials entering into the agreement lack the authority to bind the municipality as to matters contained therein. See, Connor v. Morse, 303 Mass. 42, 47-48 , 20 N.E.2d 424, 426-427 (1939). Another court has theorized that, since governmental officials are trustees of the municipal entity, and thus represent the citizens of that entity, their lack of authority as to matters agreed upon in a settlement agreement cannot be binding on their trustors, even if incorporated in a final judgment. See, Union Bank v. Commissioners of Oxford, 119 N.C. 214, 226 , 25 S.E. 966, 969 (1896) (“when parties act in a representative ³⁸² capacity, such judgments do not bind the cestuis que trustent unless the trustees had authority to act ...”).

A number of cases have simply stated that a municipality’s lack of authority regarding the matters stipulated in a settlement agreement incorporated in a final judgment is a sufficient basis for either vacating a judgment or not applying the doctrine of res judicata. See, e.g., State v. Great Northern Ry. Co., 134 Minn. 249, 256 , 158 N.W. 972, 975 (1916) (“The parties could not accomplish [pursuant to a consent judgment] what they had absolutely no power to accomplish in any manner ... ”); Martin v. Territory, 5 Okla. 188 , 48 P. 106 (1897); Mellette County v. Arnold, 76 S.D. 210, 214 , 75 N.W.2d 641, 643 (1956) (“a consent judgment in which officials representing a county or other governmental agency assume obligations against it unauthorized by law is void”); Coolsaet v. City of Veblen, 55 S.D. 485, 490 , 226 N.W. 726, 729 (1929) (“consent decree was not beyond the power of the city’s officials and attorneys”). As explained by the Supreme Court of Minnesota in City of St. Paul v. Chicago, St. P., M. & O. Ry.

Co., 139 Minn. 322, 326 , 166 N.W. 335, 336-337 (1918), “[a] judgment against a municipality, not rendered as the judicial act of a court, but entered pursuant to a stipulation of the officers of the municipality, is of force and effect only so far as such officers had authority to bind the municipality. The fact that by consent of the municipal officers an agreement or stipulation made by them has been put in the form of a judgment, in an attempt to give it the force and effect of a judgment does not cure a lack of power in the officers to make it, and if such power be lacking the judgment as well as the stipulation is void.” Regardless of the various theories employed, underlying these decisions is the recognition that the fundamental public policy of a state may sometimes require that a final consent judgment be vacated or not given preclusive effect. We need not in the present case, however, explore or decide the scope and limits, under Maryland law, of the principles discussed in Kelley v. Town of Milan, supra, and the other ³⁸³ above-cited cases. We shall assume, arguendo, that it would have been proper to vacate the settlement agreement and judgment of April 11, 1990, if the agreement were clearly ultra vires as contended by Montgomery County.

Nevertheless, for the reasons set forth in Part IV below, we do not agree that the substance of the agreement was clearly ultra vires.

IV

A. Before addressing Montgomery County’s argument that the April 1990 settlement agreement exceeded the County’s authority, it would be useful to review certain general principles of Maryland law concerning zoning in Montgomery County and contracts of local governments. Unlike most other home rule chartered counties in Maryland which receive their basic zoning authority from Article XI-A of the Maryland Constitution, the Express Powers Act, Code (1957, 1994 Repl.Vol.), Art. 25A, § 5(x), and their county charters, the exclusive source of Montgomery County’s zoning authority is the Regional District Act, Code (1957, 1993 Repl. Vol., 1995 Supp.), Art. 28, § 8-101 et seq. See, e.g., Mossburg v. Montgomery County, Md., 329 Md. 494, 502-503 , 620 A.2d 886, 890 (1993); Chevy Chase View v. Rothman, 323 Md. 674, 685 , 594 A.2d 1131, 1136 (1991).

See also Northampton v. Pr. George’s Co., 273 Md. 93 , 327 A.2d 774 (1974); Pr. George’s Co. v. Md.-Nat'l Cap., 269 Md. 202 , 306 A.2d 223 , cert. denied, 414 U.S. 1068 , 94 S.Ct. 577 , 38 L.Ed.2d 473 (1973). 9 The Regional District Act specifies that the Montgomery County Council, sitting as a district council, “may by ordinance adopt and amend the text of the zoning ordinance .... ” Art. 28, § 8-101 (b)(2). The Regional District Act sometimes refers to the zoning enactments of a district council ³⁸⁴ as “ordinances,” sometimes refers to them as “regulations,” and sometimes uses the phrase “ordinance regulations” (e.g., § 8—101(c)).

The zoning enactments of the district council in Montgomery County are no longer subject to the approval or veto of the County Executive, Ch. 643, § 1, of the Acts of 1992. 10 Thus, the district council’s zoning enactments do not constitute legislation within the meaning of Article XI-A of the Maryland Constitution and the Montgomery County Charter. See Biggs v. Md.-Nat’l Cap. P. & P. Comm’n, 269 Md. 352, 354-355 , 306 A.2d 220, 222 (1973) (zoning enactment of a district council “was not subject to the Charter provisions respecting referendum and emergency legislation”). Instead, “when it sits as the District Council in a zoning matter the County Council is an ‘administrative agency’.... ” Co. Council v. Carl M. Freeman Assoc., 281 Md. 70, 74 , 376 A.2d 860, 862 (1977).

See also Mont. Co. v. Woodward & Lothrop, 280 Md. 686, 711, 376 A.2d 483, 497 (1977), cert. denied, 434 U.S. 1067 , 98 S.Ct 1245 , 55 L.Ed.2d 769 (1978); Mont. Co. v. Nat’l Capital Realty, 267 Md. 364, 376 , 297 A.2d 675, 681 (1972); Hyson v. Montgomery County, 242 Md. 55, 67, 71-72 , 217 A.2d 578, 585-586, 588 (1966). Turning to government contracts generally, under Maryland law counties and municipalities are normally bound by their contracts to the same extent as private entities.

See, e.g., Fraternal Order of Police v. Baltimore County, 340 Md. 157 , 665 A.2d 1029 (1995); American Structures v. City of Balto., 278 Md. 356 , 364 A.2d 55 (1976). Thus, Maryland law has never recognized the defense of governmental immunity in contract actions against counties and