Mayor and City Council of Ocean City v. Purnell-Jarvis, Ltd.

• Decision Date: 01 September 1990
• Docket Number: LTD,No. 802,PURNELL-JARVI,802
• Citation: 86 Md.App. 390,586 A.2d 816
• Parties: MAYOR AND CITY COUNCIL OF OCEAN CITY, Maryland, v.,
• Court: Court of Special Appeals of Maryland

Page 390

86 Md.App. 390

586 A.2d 816

MAYOR AND CITY COUNCIL OF OCEAN CITY, Maryland, v. PURNELL-JARVIS, LTD.

No. 802, Sept. Term, 1990.

Court of Special Appeals of Maryland.

March 6, 1991.

Guy R. Ayres, III (Jerome James LaCorte and Ayres, Jenkins, Gordy & Almand, P.A. on brief), Ocean City, for appellant.

Raymond S. Smethurst, Jr. (Barbara R. Trader, and Adkins, Potts & Smethurst, on brief), Salisbury, for appellee.

Argued before WILNER, C.J., ROSALYN B. BELL and J. FREDERICK SHARER (specially assigned), JJ.

ROSALYN B. BELL, Judge.

This case involves a request for a refund of fees paid by Purnell-Jarvis, Inc. (appellee, cross-appellant) to Ocean City (appellant, cross-appellee) in connection with the development of and construction on certain properties in Ocean City during 1983 and 1984. The Mayor and City Council did not respond to this request. Therefore, the request was deemed denied.

Purnell-Jarvis appealed to the Maryland Tax Court, claiming that the fees charged during this period were excessive, unreasonable and illegal. The Tax Court ruled Purnell-Jarvis was entitled to a refund for 1984, but not for 1983. The Tax Court remanded the case to the Mayor and City Council with instructions to enact reasonable fee schedules for 1984 and to refund the difference between what Purnell-Jarvis did pay and what it should have paid. The Tax Court also held that Purnell-Jarvis was entitled to six percent per annum interest from the date of payment of each fee subject to a refund.

Purnell-Jarvis appealed to the Circuit Court for Worcester County and Ocean City noted a cross-appeal. The circuit court reversed and remanded the case to the Tax Court. Ocean City appealed and Purnell-Jarvis cross-appealed. The issues on appeal are: ¹

-- Whether the circuit court erred in holding that Purnell-Jarvis had standing to claim a refund of fees for building permits and zoning approvals?

-- Whether the circuit court erred in holding that the validity of regulatory fee schedules is determined by the reasonableness of the revenues derived therefrom?

-- Whether the circuit court erred in remanding the case to the Tax Court for a determination of whether the revenues produced by the fee schedules for 1983 and 1984 were reasonable?

-- Whether the circuit court erred in holding that the applicable interest rate is the rate provided for in Md.Code Ann. Art. 24, § 9-713? ²

FACTS

In 1981, the Mayor and City Council of Ocean City (City) amended the City's charter to provide for a City Manager whose responsibilities would include supervision of all department heads. In 1982, the City hired Anthony Barrett as its first City Manager. One of his first tasks as City Manager was to prepare a budget in which each department of the City government would bring in enough revenue to support the cost of running its programs. For Barrett, increasing the revenues for the Department of Planning and Community Development ³ (Department) meant making budgetary changes. He suggested imposing a site plan review fee to increase the revenues for the Planning and Zoning Divisions. He also suggested increasing the fee schedule for building permits to increase revenues for the Building Inspection Division. Revenues from those fees were to be used to support the costs of the entire division, rather than solely the costs of maintaining site plan review and building inspection programs. The City Council adopted Barrett's proposal.

As a result of the City's revised budget, the revenues for each division of the Department increased dramatically. The City's records indicate that, in fiscal year 1983, the income generated by the fees collected by the Planning and Zoning Divisions totalled $219,163, while expenditures totaled $122,555. ⁴ Thus, Purnell-Jarvis claims that revenues exceeded the actual costs of the Planning and Zoning Divisions by $96,685. Documents presented to the Tax Court show that the income generated by the fees collected by the Building Inspection Division totaled $657,361, while expenditures totaled $86,412. Thus, revenues for the Building Inspection Division exceeded costs by $570,949. Purnell-Jarvis also contends that, in fiscal year 1984, the gap between revenues and expenses for the planning and zoning division widened to $198,182, with an income of $371,911 and expenditures of $173,729. According to Purnell-Jarvis, the Building Inspection Division had a revenue/expense gap of $933,513, with an income of $1,047,086 and expenditures of $113,573. Therefore, Purnell-Jarvis claims that, for fiscal year 1983 and fiscal year 1984, the City generated a surplus of more than $1,800,000 through site plan review fee and building permit fee collections.

Purnell-Jarvis is a general contractor located in Ocean City. The company has been doing business there for approximately 25 years. It builds multi-family residential structures and commercial properties. For the most part, it builds for developers pursuant to a lump-sum contract. Occasionally, it builds on a cost-plus basis. ⁵ ] On February 13, 1986, Purnell-Jarvis filed a written request with the City for a refund of all building permit and site plan review fees paid by it from July 1, 1982 to June 30, 1984, the two fiscal years in question. The Mayor and City Council did not respond to this request. Purnell-Jarvis deemed the lack of response a refusal to refund the fees.

Purnell-Jarvis then filed an appeal to the Maryland Tax Court. It contended that the charges and fees were excessive, illegal, and unreasonable because they were assessed and used by the City to raise revenue for general purposes. Purnell-Jarvis believed the revenues should have been used solely to defray the costs of administering the building and zoning codes. The City argued that the fees and charges were for regulatory purposes only. They also argued that Purnell-Jarvis is not the party entitled to a refund as it did not itself pay the fees. The Tax Court found that Purnell-Jarvis did have standing to claim a refund for the fees paid. It held, however, that Purnell-Jarvis was actually entitled to a refund only for the fees paid in 1984. The Tax Court remanded the case to the Mayor and City Council, ordering them to enact reasonable fee schedules for 1984 and to give Purnell-Jarvis a refund for fees paid in that year. The Tax Court also found that Purnell-Jarvis was entitled to payment of interest on the refund at the rate of six percent per annum from the date of payment.

Purnell-Jarvis noted an appeal to the Circuit Court for Worcester County. The City noted a cross-appeal. The circuit court held that the decision of the Tax Court was erroneously based on the subjective intent of the City Council in making the fee schedules rather than on the reasonableness of the revenues generated. The circuit court remanded the case to the Tax Court to make the determination of the validity of the fee schedules.

Purnell-Jarvis then filed a motion to alter judgment and the City filed a motion to reconsider. They both requested the circuit court to address issues not addressed in the previous opinion. At a hearing held on March 21, 1990, the City concurred in Purnell-Jarvis's suggestion that the question of the reasonableness of the fees was a question of law which should be decided by the circuit court rather than the Tax Court.

In its April 12, 1990 opinion and order, the circuit court again remanded the adjudication of the validity of the fee schedules to the Tax Court. It found that Purnell-Jarvis had standing to claim refunds for the 13 lump-sum contracts and that Purnell-Jarvis was entitled to interest at the rate noted in Md.Code Ann. Art. 24, § 9-713.

In response, the City noted an appeal and Purnell-Jarvis noted a cross-appeal.

SCOPE OF REVIEW

A final order of the Tax Court is subject to judicial review in accordance with §§ 10-215 and 10-216 of the Maryland Administrative Procedure Act. Md.Tax-Gen.Code Ann. § 13-532(a) (1988). Section 10-215 provides for judicial review of an agency decision in the circuit court. Md.State Gov't Code Ann. § 10-215 (1984). Section 10-216 provides for appellate review of a final judgment of the circuit court by this Court. Md.State Gov't Code Ann. § 10-216 (1984).

An agency decision may be reversed or modified if a

"substantial right of the petitioner may have been prejudiced because a finding, conclusion, or decision of the agency:

(i) is unconstitutional;

(ii) exceeds the statutory authority or jurisdiction of the agency;

(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

(vi) is arbitrary or capricious."

Md.State Gov't Code Ann. § 10-215(g)(3).

The court's role upon reviewing an agency decision goes very little beyond its inherent power of review to prevent illegal, unreasonable, arbitrary or capricious administrative action. Harford Memorial Hospital v. Health Services Cost Review Commission, 44 Md.App. 489, 506, 410 A.2d 22 (1980). Thus, judicial review of an agency decision is limited to determining whether a reasoning mind could have reached the factual conclusions reached by the agency. Supervisor of Assessments of Montgomery County v. Asbury Methodist Home, 313 Md. 614, 625, 547 A.2d 190 (1988). Moreover, this substantial evidence test applies when the only question is whether the agency, using the correct legal standard, properly applied the law to the facts. Asbury Methodist Home, 313 Md. at 627, 547 A.2d 190. Where, however, the agency's decision is based on an erroneous conclusion of law, this deferential test does not apply. Asbury Methodist Home, 313 Md. 626, 547 A.2d 190. The reviewing court, therefor, may substitute its judgment for that of the agency concerning questions of law. Asbury Methodist Home, 313 Md. at 626, 547 A.2d 190.

STANDING

The Tax Court held that Purnell-Jarvis had standing to seek a...