State v. Goldberg

• Decision Date: 26 February 2014
• Docket Number: Sept. Term, 2013.,No. 8,8
• Citation: 437 Md. 191,85 A.3d 231
• Parties: STATE of Maryland v. Stanley GOLDBERG, et al.
• Court: Maryland Court of Appeals

437 Md. 191

85 A.3d 231

STATE of Maryland

v.Stanley GOLDBERG, et al.

No. 8, Sept. Term, 2013.

Court of Appeals of Maryland.

Feb. 26, 2014.

Held Unconstitutional

West's Ann.Md.Code, Real Property, §§ 8–402.2(a)(2), 8–402.3Matthew J. Fader, Asst. Atty. Gen. (Douglas F. Gansler, Atty. Gen. of Maryland, Baltimore, MD), on brief, for appellant.

Edward J. Meehan (Groom Law Group of Washington, DC; Richard L. Brusca, Skadden Arps, Slate, Meagher & Flom LLP, Washington, DC; Sara H. Arthur, Arthur Law Group, LLC, Annapolis, MD), on brief, for appellees.

Charles Muskin as Amicus Curiae, on brief, for appellees.

Charles Muskin, Annapolis, MD, for Amicus Curiae brief of Charles Muskin, Trustee.

Argued before BARBERA, C.J., HARRELL, BATTAGLIA, GREENE, ADKINS, WATTS, DALE R. CATHELL (Retired, Specially assigned), JJ.

HARRELL, J.

In this case, a re-match of sorts ¹ between the General Assembly and certain Baltimore landlords, we revisit the nature of Maryland's “ground lease” system. A group of plaintiffs-lessors holding ground leases brought this action against the State challenging, on Maryland Constitutional grounds, Chapter 286 of the Laws of Maryland, which 2007 legislation replaced ejectment with a lien-and-foreclosure process for defaulting lessees of ground leases when more than six months of rent is overdue. The Circuit Court for Anne Arundel County determined that the Legislature exceeded its powers and held Ch. 286 of the 2007 Laws of Maryland invalid as an abrogation of vested rights. The State appealed this decision, arguing that the Legislature is allowed to alter remedies by statute and that no vested property rights are implicated. Before the Court of Special Appeals could decide the appeal,² we granted certiorari to determine if the General Assembly indeed has authority to invalidate the ejectment clauses ³ present in extant ground leases.

I. Facts and Legal Background

The ground lease is a centuries—old home financing tool found almost exclusively in Maryland. See Banks v. Haskie, 45 Md. 207, 218 (1876). With roots in feudal England, the ground lease, although little known elsewhere in the United States, is common in Maryland. See Lewis Mayer, Ground Rents in Maryland 43 (Cushings & Bailey ed., 1883). Although ground leases have changed little over the centuries, recent legislation attempted “reforms” of the ground lease system. In late 2006, The Baltimore Sun published a three-part investigation into the ground rent system. Fred Schulte & June Arney, Part 1 of 3: On Shaky Ground, The Baltimore Sun, Dec. 10, 2006, http:// www. baltimore sun. com/ business/ bal- te. bz. ground rent 10 dec 10, 0, 5955952. story (last retrieved Nov. 13, 2013). Focusing on some anecdotal reports of tenants being ousted from their homes due to missed payments totaling far less than the value of the home, these articles led to a legislative attempt during the 2007 session of the General Assembly to address perceived abuses of the ground lease system. Appellees, a class representing ground lease holders,⁴ claim that the Legislature abrogatedimpermissibly their vested rights. Appellant, the State, counters that the legislation at issue is simply a substitution of remedies aimed at curtailing reported abuses of tenants by ground lease holders.

As noted earlier, the legislation at issue here is Chapter 286 of the 2007 Session Laws of Maryland, which revised Section 8–402.2 of the Real Property Article (“RP” ⁵). Md.Code (1974, 2010 Repl. Vol.), § 8–402.2 of the Real Property Article. Appellees challenged three aspects of Chapter 286. The first challenge is to Chapter 286's revision of RP § 8–402.2(a)(2) to prohibit ejectment proceedings for residential ground leases with four or fewer units.⁶ Second, Appellees challenged Chapter 286's enactment of RP § 8–402.3, establishing a lien-and-foreclosure process available for ground lease holders whose tenants owe at least six months' rent. ⁷ Finally, Appellees challenged Chapter 286's institution of RP §§ 8–402.3(j)(3)(ii)– (k)(1) (ii), limiting the amount of attorney's fees that would be available as part of a judgment.

Appellees, 49 individual plaintiffs (“the Class”), filed suit against the State on 1 November 2007 in the Circuit Court for Anne Arundel County. ⁸ In their suit, the Class claimed that by replacing ejectment with the lien-and-foreclosure procedure, the State abrogated unconstitutionally a vested property right. In addition to seeking declaratory relief, the Class sought $114 million in damages they claim were caused by the State's enactment of Chapter 286. Both sides moved for summary judgment. After we issued our opinion in Muskin v. State Dep't of Assessments & Taxation, 422 Md. 544, 30 A.3d 962 (2011), the Circuit Court heard the cross-motions for summary judgment, granted the Class' motion for partial summary judgment on their constitutional and damages claims, and dismissed the remaining claims as moot. On 11 April 2012, the court entered the judgment as final.

The Circuit Court began its analysis with the Maryland Constitution's prohibition against the Legislature enacting any law “authorizing private property, to be taken for public use, without just compensation, as agreed upon between the parties, or awarded by a Jury, being first paid or tendered to the party entitled to such compensation.” Md. Const. art. III, § 40. In considering the constitutional implications, the Circuit Court addressed two questions in its ruling: the first is the threshold question of whether a ground lease holder's action for ejectment constitutes a vested right or a remedy; the second is the ultimate question of whether Chapter 286 constitutes an unconstitutional taking through abrogation of vested property rights. In answering the threshold question, the Circuit Court interpreted our decision in Muskin to hold that the bundle of vested rights that make up ground leases includes the vested right of re-entry upon default. Because it interpreted Muskin as holding that the right to re-enter in the event of default is a vested property right, the Circuit Court held that Chapter 286 operates as an unconstitutional taking of the ground lease holder's property.

We granted certiorari to consider the following question:

Is legislation substituting one remedy for failure of a ground lease tenant to pay rent (lien and foreclosure) for another (ejectment) a permissible alteration of remedies that does not impermissibly abrogate vested rights of ground lease owners?

We shall affirm the Circuit Court's judgment.

II. Discussion

Because the Circuit Court's grant of partial summary judgment rested purely on questions of law in this case, we review the judgment without deference to the trial court. Conaway v. Deane, 401 Md. 219, 243, 932 A.2d 571, 584 (2007) (citing Livesay v. Baltimore, 384 Md. 1, 9, 862 A.2d 33, 38 (2004)).

The State argues that Chapter 286 replaced merely one remedy (“re-entry through ejectment”) with another (lien-and-foreclosure). It relies therefore on our longstanding rule that legislation altering remedies does not offend the Maryland Constitution and concludes that this law is constitutional. The State avers that, because Chapter 286 does not inhibit a ground lease holder's ability to collect rents or abridge the lease owner's reversionary interest in the property, it neither impairs the underlying contract nor abrogates a vested right. In the State's view, the Circuit Court misinterpreted Muskin as foreclosing the possibility of legislative alteration of remedies concerning ground leases at all. Rather, it says Muskin was decided as it was because Chapter 290 represented a complete extinguishment of existing ground leases and cut off all remedies available to a ground lease holder. Under the State's theory, because Chapter 286 does not cut off all remedies and does not extinguish ground leases, it should be held valid.

The Class counters that because Muskin holds explicitly that the right to re-enter in the event of default is a vested right, Muskin renders the present one a simple case. It points out that, in Muskin, we explained that the Maryland Declaration of Rights and Constitution prohibit the retrospective abrogation of vested rights. Muskin, 422 Md. at 555, 30 A.3d at 968 (“Maryland's Declaration of Rights and Constitution prohibit the retrospective reach of statutes that would have the effect of abrogating vested rights”) (citing Dua v. Comcast Cable of Md., Inc., 370 Md. 604, 630 n. 9, 805 A.2d 1061, 1076 n. 9 (2002)). Because the right to re-enter and take possession of their properties in the event of default is a vested right, the Class urges, the Legislature cannot abrogate those rights under the guise of altering a remedy. The Class draws thus a meaningful distinction between the remedy of foreclosure and the right of re-entry by summary ejectment in the event of default.

The Class does not contest the ability of the Legislature to alter remedies. Rather, the Class contends, by cutting off the right of re-entry, the Legislature impaired a critical and vested right of the ground lease holder. In its view, because the statute's system of lien-and-foreclosure can never provide ground lease holders with possession of the property for which they hold legal title, it abrogates their vested property rights.

A. History of Ground Rents in Maryland

Leases for ground rents have been present in Maryland since Colonial times. Banks, 45 Md. at 218. Like any lease, they are intended to benefit mutually the lessor and lessee. Id. at 217. The lessee enters into the agreement to “acquire a perpetual interest in the leased premises, which would justify his making permanent improvements thereon, and enable him to avail himself of the value of the property thus enhanced....” Id. The lessor enters into the agreement, among other reasons, “to secure the prompt payment in perpetuity of the interest on a sum of money, equivalent to the value of the property....” Id. Ground...