State v. Board of Education

ELDRIDGE, Judge. This case arose out of an intra-govemmental dispute between a principal department of the State government and a ⁶³⁵ State agency, the Board of Education of Montgomery County. 1 The dispute concerned a former program, established by the General Assembly, under which the State made monetary contributions for the employer costs of providing Social Security and retirement benefits for certain school board employees. Following an audit, the Department 2 determined that the State had made overpayments for employees of the Montgomery County Board of Education. The Board then took an appeal to a hearing examiner pursuant to Maryland Code (1957, 1988 Repl.Vol.), Art. 73B, § 39(e), which provided as follows: “(e) Delinquent payments.

(1) Delinquent payments due under paragraphs (1) and (3) of subsection (d) may, with interest at the rate of six per centum per annum be recovered by action in a court of competent jurisdiction against the political subdivision liable therefor, or may at the request of the State Agency, be deducted from any other moneys payable to such subdivision by any department or agency of the State. (2)(i) If an audit of the records of a school system, public library, or educational institution reveals that the system, library, or institution owes money to the Contribution Fund, any delinquent payment may not be collected until: ⁶³⁶ 1. The school system, public library, or educational institution has an opportunity to appeal the decision to a hearing examiner who shall be appointed by the Secretary of the Department of Budget and Fiscal Planning; and 2. The hearing examiner finds that the funds are owed to the Contribution Fund.

(ii) If the hearing examiner determines that moneys are owed to the Contribution Fund, the moneys shall be deducted from any State funds that would otherwise be paid to the school system, public library, or educational institution. (in) An appeal taken pursuant to this paragraph is not a contested case, for the purposes of the Administrative Procedure Act.” A hearing was held before a hearing examiner, although, in light of § 39(e)(2)(iii) quoted above, the proceedings before the hearing examiner were not transcribed. After the hearing, the hearing examiner determined that the State had made overpayments to the Board totaling over $1.2 million, and that such sum was owed to the State. This determination was based on the hearing examiner’s findings that the State had made payments for a particular category of Board employees, called “special education school bus aides,” who had not been eligible for such payments.

The Secretary of the Department endorsed the hearing examiner’s decision. Thereafter, the Board sought judicial review of the Department’s decision by filing in the Circuit Court for Montgomery County a complaint for a declaratory judgment. Named as defendants were the State of Maryland, the Secretary of the Department, and the Central Collection Unit which is part of the Department. 3 The Board asserted in the complaint that the special education school bus aides had been eligible employees for the State contributions, and that the Department erred in finding that they were not eligible. After several hearings, the circuit court granted the State’s motion to dismiss.

The court held that judicial review of the ⁶³⁷ Department’s decision was precluded by this Court’s decision in Board v. Secretary of Personnel, 317 Md. 34 , 562 A.2d 700 (1989). The Board appealed, and the Court of Special Appeals, in an unreported opinion, reversed. Although apparently of the view that there was no statutory right of judicial review, the Court of Special Appeals held that the Department’s decision was subject to judicial review under the principles set forth in Criminal Inj. Comp.

Bd. v. Gould, 273 Md. 486 , 331 A.2d 55 (1975). The intermediate appellate court quoted Gould, 273 Md. at 501 , 331 A.2d at 65 , “‘that the Legislature cannot divest the courts of the inherent power they possess to review and correct actions by an administrative agency which are arbitrary, illegal, capricious or unreasonable.’ ” While recognizing that portions of this Court’s more recent opinion in Board v. Secretary of Personnel, supra, 317 Md. 34 , 562 A.2d 700 , were contrary to its holding in the present case, the Court of Special Appeals characterized those portions of our opinion in Board v. Secretary of Personnel as “dicta.” In addition, the intermediate appellate court stated that this Court’s opinion in Board v. Secretary of Personnel was inconsistent with our earlier opinion in Criminal Inj. Comp. Bd. v. Gould.

The State has filed in this Court a petition for a writ of certiorari. The Board has filed an opposition, arguing that the pertinent portion of our opinion in Board v. Secretary of Personnel is dicta and should not be followed. According to the Board, the circuit court is “vested with the inherent residual authority to review” the Department’s decision under the principles set forth in Heaps v. Cobb, 185 Md. 372 , 45 A.2d 73 (1945), and Criminal Inj. Comp.

Bd. v. Gould. We have granted the State’s petition, and we shall summarily reverse the judgment of the Court of Special Appeals. The relevant portion of this Court’s opinion in Board v. Secretary of Personnel was not dicta, and the Court of Special Appeals was bound by that opinion. Moreover, there is no inconsistency between Board v. Secretary of Personnel and earlier cases such as Heaps v. Cobb and Criminal Inj.

Comp. Bd. v. Gould. ⁶³⁸ The dispute in Board v. Secretary of Personnel involved the same contribution program and the same statutory provisions as the dispute in the case at bar. In Board v. Secretary of Personnel, an audit revealed that the State had made overpayments on behalf of employees of the Board of Education of Prince George’s County. According to the State, it had made payments on behalf of ineligible employees and had made some duplicate payments.

The Board then took an appeal to a hearing examiner pursuant to former Art. 73B, § 39(e). Despite the language of former § 39(e)(2)(iii) stating that the administrative proceeding was not a contested case, the Prince George’s County Board of Education, at a pre-hearing conference, requested “that the hearing be a ‘contested case’ hearing under the Maryland Administrative Procedure Act.” Board v. Secretary of Personnel, 317 Md. at 37 , 562 A.2d at 701 . The hearing examiner denied the request, and the Board filed a petition with the Secretary of the Department for a “declaratory ruling” on the issue. At the subsequent administrative hearing, the Board’s counsel was present and requested a postponement until the Secretary ruled on the pending petition, but the hearing examiner refused.

The Board then refused to participate in the hearing, and the hearing examiner subsequently ordered that the appeal be dismissed for lack of prosecution. In addition, the Secretary declined to issue a declaratory ruling on the question of the Board’s entitlement to a contested case hearing. Next, the Board filed an action in the Circuit Court for Prince George’s County, seeking a writ of mandamus to compel the Department to provide a contested case hearing and to compel the Secretary to issue a declaratory ruling. The circuit court refused to issue an order compelling the Department to conduct a contested case hearing.

The court did, however, issue a writ of mandamus requiring the Secretary to render a declaratory ruling on the matter. Both the Board and the Secretary appealed, and this Court issued a writ of certiorari prior to any proceedings in the Court of Special Appeals. ⁶³⁹ On the Board’s appeal, the Board made alternative arguments as to why it was entitled to a contested case administrative hearing. First, the Board asserted that the dispute was not covered by former Art. 73B, § 39(e), or, if it were covered, the remedy provided by § 39(e) was not intended to be the exclusive remedy. The Board contended that it was entitled to a contested case hearing and judicial review under the Maryland Administrative Procedure Act, Code (1984, 1995 Repl.Vol.), § 10-201 et seq. of the State Government Article. 4 Second, the Board argued that it should have a contested case administrative hearing so that the administrative decision could be judicially reviewed, and that the Board was constitutionally entitled to such judicial review under the principles set forth in Criminal Inj.

Comp. Bd. v. Gould, supra, 273 Md. 486 , 331 A.2d 55 , and similar cases. In effect the Board maintained that, if § 39(e) were intended to provide the exclusive remedy and to preclude judicial review, the statute would be unconstitutional. The Board’s argument was as follows (Board v. Secretary of Personnel, 317 Md. at 43-44 , 562 A.2d at 704-705 ): “The Board seeks a contested case administrative proceeding, instead of proceeding under § 39(e), so that it will be entitled to judicial review.

It argues that it is constitutionally entitled to a hearing which will be subject to judicial review, relying on Criminal Inj. Comp. Bd. v. Gould, 273 Md. 486, 500-502 , 331 A.2d 55 (1975). Specifically, the Board quotes the following from the Gould case (Board’s Brief, p. 23, quoting 273 Md. at 500-502 , 331 A.2d at 64-65 ): “ ‘The Legislature cannot, of course, interfere with the judicial process by depriving litigants from raising questions involving their fundamental rights in any appropriate judicial manner, nor can it deprive the courts of the ⁶⁴⁰ right to decide such questions in an appropriate proceeding. * * * * * * “[T]his Court, in a long line of cases, has consistently held that the Legislature cannot divest the courts of the inherent power they possess to review and correct actions by an administrative agency which are arbitrary, illegal, capricious or unreasonable.” ’ ” This Court in Board v. Secretary of Personnel rejected all of the Board’s arguments.

We held that the remedy provided for in former Art. 73B, § 39(e), covered the dispute, that the statutory remedy was intended to be the exclusive remedy, and that “the General Assembly obviously intended that there be no judicial review of the § 39(e) administrative decision.” 317 Md. at 43 , 562 A.2d at 704 . The Court then turned to the Board’s alternative argument that it was entitled to a contested case type of hearing and judicial review under the principles of the Gould case, and that the statute was unconstitutional to the extent that it precluded a contested case hearing and judicial review. We first pointed out that the doctrine set forth in Gould related to the availability of judicial review when a “right” of a litigant was involved, and that the Board has no “right” against the State “which can be raised by the Board under the circumstances here. The reason is that the Board is a state government agency; it is a creature of the State, an arm of the State.” 317 Md. at 44 , 562 A.2d at 705 .

As to the Board’s position that, under the Gould doctrine, § 39(e) would be unconstitutional if it precluded a contested case hearing and judicial review, we held ( 317 Md. at 44-45 , 562 A.2d at 705 ) that “State agencies and political subdivisions, ‘as creatures of the State, have “no right to question the constitutionality of the acts of [their] superior and creator,” ’ ” quoting Baltimore County v. Churchill, Ltd., 271 Md. 1, 6 , 313 A.2d 829, 832 , appeal dismissed, 417 U.S. 902 , 94 S.Ct. 2594 , 41 L.Ed.2d 207 (1974). While recognizing that there are exceptions to this principle, we held that “none of the exceptions is applicable to the present case.” 317 Md. at 45 , 562 A.2d at 705 . ⁶⁴¹ In Board v. Secretary of Personnel, the relief sought by the Board was a writ of mandamus ordering the Department to provide a contested case administrative hearing. The Board claimed, inter alia, that it should have this relief because it was entitled to judicial review under the constitutionally based doctrine set forth in Gould and other cases. This Court rejected this argument on the ground that the Gould doctrine was inapplicable.

This was one of the holdings in Board v. Secretary of Personnel, and the Court of Special Appeals should have applied that holding in the present case. An appellate court’s rejection of a reason given by a litigant for the relief sought in the case is not “dicta.” Furthermore, there is no inconsistency between the above-described holding in Board v. Secretary of Personnel and the doctrine set forth in Gould and other cases. The principle relied upon by the Prince George’s County Board of Education in Board v. Secretary of Personnel, and relied upon by the Montgomery County Board of Education in the case at bar, was set forth in the seminal case of Heaps v. Cobb, supra, 185 Md. at 378-379 , 45 A.2d at 76 , as follows (emphasis both added and deleted): “Administrative boards in general may be said to act in a quasi judicial capacity insofar as they have the duty to hear and determine facts and, based on them, to make decisions. Moreover, such decisions carry with them the presumption of validity and, where the statute or ordinance provides for an appeal to the courts, will not be disturbed on review if the record shows substantial evidence to sustain the findings.

The boards, however, are not clothed with judicial authority, which the legislature has no power to confer upon them, Article 4, Md. Constitution; Dal Maso v. Board, etc., 182 Md. 200 , 34 A.2d 464 [(1943)], and their decisions, when they impair personal or property rights, are not irreviewable. The legislature is without authority to divest the judicial branch of the government of its inherent power to review actions of administrative boards shown to be arbitrary, illegal or capricious, and to impair personal or property rights; but the courts are likewise without authori ⁶⁴² ty to interfere with any exercise of the legislative prerogative within constitutional limits, or with the lawful exercise of administrative authority or discretion.” Thus, judicial review of adjudicatory administrative decisions may not constitutionally be precluded when those decisions “impair personal or property rights.” This Court’s decisions applying this principle all involve disputes between government agencies and individuals or private entities, where it is claimed that the administrative decision has impaired personal or property rights of individuals or private entities. See, e.g., Medical Waste v. Maryland Waste, 327 Md. 596, 610 , 612 A.2d 241, 248 (1992); Silverman v. Maryland Deposit, 317 Md. 306, 324-326 , 563 A.2d 402, 411-412 (1989); Balto. Import Car v.