Waverly Press, Inc. v. State Department of Assessments & Taxation

RODOWSKY, Judge. The petitioner, Waverly Press, Inc., a Maryland corporation, on August 6, 1986, submitted to the respondent, State Department of Assessments and Taxation (the Department), proposed articles of amendment under which the ¹⁸⁶ petitioner sought to change its name to Waverly, Inc. By letter dated the next day the Department refused to allow the change of name for the following reason: The name WAVERLY, INC. is not available as it would be misleadingly similar to an existing Maryland limited partnership by the name of WAVERLY LIMITED PARTNERSHIP. Petitioner sued. The Circuit Court for Baltimore City entered a judgment declaring that the petitioner had a right to amend its charter to adopt the new name but the Court of Special Appeals reversed in an unreported opinion.

We granted certiorari and, as explained below, we reverse and reinstate the circuit court’s declaratory judgment. The Department’s rejection of the name change was based upon Md.Code (1975, 1985 Repl.Vol.), § 2-106(b)(2)(i) of the Corporations and Associations Article which provides that “[t]he name of a corporation may not ... [b]e the same as or misleadingly similar to ... [t]he name of any Maryland corporation or limited partnership____” 1 The Depart ¹⁸⁷ ment’s conclusion that “Waverly, Inc.” and “Waverly Limited Partnership” were confusingly similar within the prohibition of § 2-106(b)(2) results from an evolutionary process. The General Assembly enacted a modern, general corporation law by Ch. 135 of the Acts of 1951. That legislation had been proposed by a commission chaired by Honorable William C. Walsh, a former judge of this Court.

Under the revision a corporation’s name could not “be the same as the name of any corporation of this State ... or so similar to any such name as to be misleading.” Md.Code (1951), Art. 23, § 5(3). This provision, newly codified in the 1951 revision, embodied a restriction then “handled by administrative practice.” C.K. Bowie, Jr., Explanatory Notes to the Commission ’s Report by the Reporter to the Revision Commission (1951), reprinted in H. Bruñe, Jr., Maryland Corporation Law and Practice, 677, 679 (rev. ed. 1953). “The purpose of the practice, and [of the 1951] statute, was doubtless to avoid confusion by the general public and also by the [Department’s predecessor agency] in carrying out its administrative duties.” National Shoe Stores Co. v. ¹⁸⁸ National Shoes of New York, Inc., 213 Md. 328, 335 , 131 A.2d 909, 911-12 (1957). In the currently ongoing Maryland Code Revision Project the provision was brought forward as Md.Code (1975), CA § 2-106(b)(2). According to the Re-visor’s Note to that Code section, “[t]he only changes are in style.” This prohibition was also found in § 8(c) of the Model Business Corporation Act (“The corporate name ... [sjhall not be the same as, or deceptively similar to, the name of any domestic corporation____”).

The comment to § 8 of the Model Act observes: Primarily the purpose of the name statutes is to protect the public against confusion between corporations; secondarily, their purpose is to protect the corporation against unfair competition. [1 Model Business Corp.Act Ann. 294 (2d ed. 1971).] On December 11, 1981, the Department for the first time adopted regulations concerning name availability for corporations. Previously there could have been differences in the application of § 2-106(b)(2) between individual administrators and the possibility existed of “shopping” for a favorable interpretation. The regulations became effective January 7, 1982. See 8:26 Md.Reg. 2106 et seq.

(December 28, 1981). They are now codified as Md.Regs.Code tit. 18, § .04.02.01 entitled, “Criteria Used in Determining Acceptability of Corporate Name.” Subsection C provides that “[corporate names are the ‘same’ if a comparison of the names ... reveals no difference.” Subsection D defines “misleadingly similar” to mean that “there is an apparent difference, but the difference or differences are of such character that the names are likely to be confused by persons giving written communications concerning its name.” The subsection of Reg. § 18.04.02.01 which bears most directly on the Department’s position in the instant case is subsection E(l) which reads: ¹⁸⁹ A proposed corporate name is considered to be “misleadingly similar” to a corporate name already on file if: (1) The difference in the names consists in the use of different “words of incorporation” (example: “Jones, Inc.” is considered to be “misleadingly similar” to “Jones Corporation”).[ 2 ] Following promulgation of Reg. § 18.04.02.01, the Department applied the statutory prohibition against identical or misleadingly similar corporate names by referring to a computer file of the names of corporations which were organized, qualified or registered in Maryland. Apparently relying on subsection E(l) of the regulation, the Department deleted the “words of incorporation,” a/k/a the “tails,” from the true corporate names in the computer file. As illustrated in subsection E(l), if individuals sought to incorporate “Jones Corporation” but there was a “Jones, Inc.” currently on file, the Department compared the name requested, “Jones Corporation,” without the tail to the existing “Jones, Inc.” without the tail.

Thus the comparison would be “Jones” to “Jones,” and the requested name would be rejected. 3 ¹⁹⁰ By statutes effective July 1, 1982, the General Assembly substantially revised the laws relating to limited partnerships. Ch. 801 of the Acts of 1981. This legislation, codified as CA Title 10, for the first time required that, in order to form a limited partnership, the certificate of limited partnership had to be filed with the Department. CA § 10-201(a).

Under CA § 10-102(a)(4)(i) “[t]he name of each limited partnership as set forth in its certificate ... [m]ay not be the same as or misleadingly similar to ... [t]he name of any corporation or limited partnership organized under the laws of the State of Maryland____” 4 The July 1, 1982, legislation also amended portions of the general corporation law, including CA § 2-106(b)(2) which thereafter additionally prohibited the name of any corporation from being the same as or misleadingly similar to the name of any limited partnership, as therein specified. ¹⁹¹ Faced with additional responsibilities under Ch. 801 of the Acts of 1981, including comparing corporate names to names of limited partnerships, and vice versa, the Department promulgated at 9:14 Md.Reg. 1449 (July 9, 1982) and adopted at 9:19 Md.Reg. 1896 (September 17, 1982) a new regulation, codified as Md.Regs.Code tit. 18, § .04.02.02, and entitled, “Criteria Used in Determining Acceptability of Limited Partnership Name.” It reads: A. The criteria set forth in COMAR 18.04.02.01 regarding corporate name availability shall also apply to limited partnerships filed with the Department. B. The words “Limited Partnership” shall be treated as “words of incorporation” as described in Regulation .01E(1), above. Thus it came to pass that when the petitioner submitted the change of its name to “Waverly, Inc.” the Department deleted the word “Inc.” It then entered its computer file where it found “Waverly Limited Partnership” with the words “Limited Partnership” deleted. When it compared “Waverly” to “Waverly,” the Department found the names to be “misleadingly similar” and this lawsuit resulted. 5 It is clear that Md.Regs. § 18.04.02.01 and .02 are interpretative, as opposed to legislative, rules.

Whereas legislative rules “receive statutory force upon going into effect,” interpretative rules “only interpret the statute to guide the administrative agency in the performance of its duties until directed otherwise by decisions of the courts.” Comptroller v. Rockhill, Inc., 205 Md. 226, 234 , 107 A.2d 93, 98 . (1954). See generally 2 K. Davis, Administrative Law Treatise §§ 7:8 through 7:16 (2d ed. 1979). No statute expressly confers on the Department rule-making power with respect to the Department’s functions under the Corporations and Associations Article.

The source line in CO- ¹⁹² MAR for the “Name Availability” regulations attributes authority to “Article 81, § 232, Annotated Code of Maryland” (1957, 1980 Repl.Vol.). That section contained provisions respecting the jurisdiction, supervision, powers and duties of the Department as to taxation. As part of the Maryland Code Revision Project former § 232 of Art. 81 was repealed by Ch. 8 of the Acts of 1985 and the substance of the provisions transferred to Md.Code (1986), Tax-Property Article. See Tax-Property Article, Tables of Comparable Sections, at 450-51.

Rockhill, supra, involved an aspect of the Retail Sales Tax Act which classified as a retail sale a transaction involving charges for lodgings or accommodations regularly furnished to the public for consideration. The Comptroller by regulation interpreted that provision to mean that all rentals in resort areas for terms of four months or less were taxable. The assessment in Rockhill concerned rentals for less than four months of lodgings which were not regularly furnished to the public for consideration. The statute’s requirement that the lodgings be “regularly furnished” was omitted in the regulation.

This Court affirmed a judgment setting aside the assessment because the interpretation reflected in the regulation was inconsistent with the statute. And see Baltimore v. William E. Koons, Inc., 270 Md. 231 , 310 A.2d 813 (1973) (regulation prohibiting use of any unvented gas-fired space heater as a primary heating device conflicted with statute permitting the use of those heaters as primary heating devices, if “approved”). In the instant matter Reg. 18.04.02.02B suffers from a similar defect. CA § 2-106(a) requires that the name of a corporation “indicate its corporate status.” That requirement is satisfied by inclusion in the name of (1) “Company,” if not preceded by “and” or by a symbol for “and,” (2) “Corporation,” (3) “Incorporated,” (4) “Limited,” or (5) an abbreviation of any one of the four terms. , Maryland corporation law has contained an analogous provision since at least Ch. 240 of the Acts of 1908, Sec. 3(b).

It provided that “[t]he name of the proposed corporation ... shall ¹⁹³ always be such as to indicate that it is a corporation as distinguished from a natural person or a