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State v. Merritt Pavilion, LLC

Court of Special Appeals of Maryland

November 29, 2016

STATE OF MARYLAND
v.
MERRITT PAVILION, LLC, et al.

          Eyler, Deborah S., Arthur, Sharer, J. Frederick (Senior Judge, Specially Assigned), JJ.

          OPINION

          Arthur, J.

         This case principally concerns the powers of the Maryland Board of Public Works, "the highest administrative body in the Maryland state government." Alan M. Wilner, The Maryland Board of Public Works: A History (1984), at ix. Consisting of the Governor, the Comptroller of the Treasury, and the Treasurer, the Board of Public Works has the constitutional authority to "hear and determine such matters as affect the Public Works of the State, and as the General Assembly may confer upon them the power to decide." Md. Const. Art. XII, § 1.

         A regulation promulgated by the Board of Public Works requires counties to obtain the Board's approval before disposing of former public school property. Separately, Baltimore County had agreed, in a covenant in a 1981 deed, that it would not convey a specific school property without the Board's consent.

         In 2014 Baltimore County reached an agreement with a private developer to sell portions of that former school property. Before the Board of Public Works made a final decision to approve or disapprove the sale, the developer sought a declaratory judgment that the 1981 covenant was invalid. The State intervened, arguing that the Board of Public Works' regulations governed the proposed disposition of the property. On cross-motions for summary judgment, the Circuit Court for Baltimore County declared that (1) the covenant was "invalid and of no legal force or effect" and (2) that the regulation was "inapplicable to and unenforceable against the contract of sale" between the County and the developer.

         We reverse that judgment. The regulation governs the transaction, and it requires the County to obtain the Board of Public Works' approval before disposing of the property. As a result of that determination, it is unnecessary to declare the parties' rights under the covenant.

         Factual and Procedural Background

         A. Transfer of Surplus School Property to Baltimore County

         In the early 1950s, the Baltimore County Board of Education[1] purchased approximately 28 acres of land at the corner of Merritt Boulevard and Wise Avenue in Dundalk. The property served as the site of North Point Junior High School until the school closed in 1981. The County Board of Education determined at that time that the property was no longer needed for school purposes.

         As of 1981, Maryland law placed a number of restrictions on the disposition of a "surplus" school by a county board of education. Md. Code (1978), § 4-114(c) of the Education Article provided: "If, with approval of the State Superintendent [of Schools], a county board finds that any land, school site, or building no longer is needed for school purposes, it shall be transferred by the county board to the county commissioners or county council and may be used, sold, leased or otherwise disposed of, except by gift, by the county commissioners or county council." The Board of Public Works, under its powers to regulate matters related to school construction, had delegated authority to the Interagency Committee on School Construction (IAC)[2] to "review and approve . . . all proposals for the . . . disposition of school sites and buildings." Rule 8(b) of the Rules, Regulations and Procedures for the Administration of the School Construction Program (approved Sept. 7, 1977). More broadly, the Board of Public Works retained statutory power to impose conditions on transfers of State property to a county government, regardless of whether the property had been used as a school. Md. Code (1957, 1980 Repl. Vol.), Art. 78A, § 15 ("[a]ny real or personal property of the State of Maryland or of any board, commission, department or agency thereof . . . may be sold, leased, transferred, exchanged, granted or otherwise disposed of . . . to any county or municipality in the State subject to such conditions as the Board of Public Works may impose").

         According to an opinion of the Attorney General, this legal framework permitted a local board of education to transfer surplus school property to a local government only if: (1) the State Superintendent approved of the local board's finding that the school was surplus, and (2) both the IAC and the Board of Public Works approved of the disposition. See 64 Md. Op. Att'y Gen. 118, 122-23 (1979); 65 Md. Op. Att'y Gen. 209, 212-13 (1980). In the exercise of its approval power, the Board of Public Works could direct the terms and conditions of any subsequent use or disposition of the property. 64 Md. Op. Att'y Gen. at 123. "To safeguard the State's interests, the Board of Public Works may impose appropriate conditions on the local jurisdictions, require that the conditions of its approval and appropriate termination provisions or covenants be included in the instruments of transfer and lease, and require that those instruments be recorded." 65 Md. Op. Att'y Gen. at 227.

         Through a deed executed on October 22, 1981, the Baltimore County Board of Education disposed of the property that had been used as the site of North Point Junior High School. According to the deed, the County Board of Education had determined that the property was "no longer needed for school purposes[.]" "[I]n consideration of the sum of Five ($5.00) Dollars[] and other good and valuable considerations, " the County Board of Education agreed to convey the property to Baltimore County "in fee simple." At the time of the conveyance, the State was still obligated in the amount of $89, 808 on bond debt relating to the property.

         The deed included the following covenant:

AND, [Baltimore County], acknowledging the financial interest of the State of Maryland in the property herein described, does hereby covenant that it will not convey, by deed, lease or other means, any portion of or interest in said property without first having received written consent thereto from the Board of Public Works of the State of Maryland. Such consent will not be unreasonably withheld.

         The IAC reviewed the proposed transfer in accordance with the Board of Public Works' regulations. The IAC recommended that the Board approve the transfer subject to the understanding that Baltimore County would assume responsibility for $89, 808 of the State's outstanding bond debt. The IAC also recommended that the following provision be incorporated into the transfer documents: "[A]pproval of the Board of Public Works shall be obtained by Baltimore County prior to the transfer by it of any right, title, or interest in the school or site or any portion thereof, and the Board may attach such conditions to its approval, including the requirement that a pro-rata portion of the proceeds from the sale or lease of the school property be paid to the State, as it deems appropriate." In June 1982, the Board approved the transfer subject to those conditions.[3]

         B. Baltimore County's Use and Proposed Disposition of the Property

         By the end of 1988, Baltimore County had paid off the outstanding bond debt on the property. Meanwhile, Baltimore County converted the former school building into the North Point Government Center, which was used primarily by county agencies such as the police department, recreation and parks department, and health department.

         On the remaining portions of the property, the County maintained several athletic fields, including four baseball diamonds and three soccer fields. Those fields extend to the southern property line, which borders on additional athletic fields for an elementary school. This neighboring school, Grange Elementary School, has operated continuously since the 1960s.

         By 2012, county officials no longer desired to continue to use the North Point property as a local government center. Consequently, the County solicited proposals from private developers for redevelopment of the property. The County accepted a proposal from Vanguard Commercial Development, Inc. ("Vanguard").

         By a contract executed in December 2013, the County agreed to sell approximately 15 acres of the 28-acre property to Vanguard for $2, 105, 355. The development plans called for the construction of a commercial complex that included offices, restaurants, and retail shops.[4] Vanguard agreed to build a new recreation center and to upgrade athletic fields on the other portion of the property, which would continue to be owned by the County.

         After further negotiations, the County entered into an "Amended and Restated Contract of Sale" in November 2014. The new contract substituted Merritt Pavilion, LLC ("Merritt Pavilion"), an affiliate of Vanguard, as the purchaser. Merritt Pavilion agreed to purchase the approximately 15-acre portion of the property for a revised price of $7, 600, 000. The County agreed to assume responsibility for constructing the recreation center and for upgrading the athletic fields.

         The contracts listed several conditions precedent to closing, including final approval of a planned unit development (PUD) that would permit commercial use of the property.[5] The transaction was not conditioned on obtaining approval from the Board of Public Works.

         In 2015 Merritt Pavilion secured approval of the PUD from local administrative bodies. Nonetheless, some nearby residents, including Ms. Karen Cruz, were dissatisfied by the decision to permit commercial development on the property. Ms. Cruz and others petitioned for judicial review of the decisions authorizing the PUD. The Circuit Court for Baltimore County eventually heard the petition, but (as of the date of this opinion) the court has not yet issued a decision.

         C. Baltimore County's Request for Approval by the Board

         In July 2015, the County Executive for Baltimore County wrote to the IAC, requesting approval to dispose of the property. The letter quoted the final sentence of the 1981 covenant, which stated that the Board of Public Works' consent would "not be unreasonably withheld."

         The IAC reviewed the request in accordance with Board of Public Works' regulations. Code of Maryland Regulations ("COMAR") 23.03.02.24(C) provides that "[a] county government proposing to dispose of former school property shall submit to the IAC a request for approval to dispose. The IAC shall review the request and make a recommendation to the Board of Public Works." COMAR 23.03.02.24(D) states that, upon receiving the recommendation, the Board of Public Works "may approve, disapprove, or conditionally approve the request to dispose of the former school property" and "may require that the disposition documents specifically incorporate the conditions."

         One week after the County requested approval, Ms. Cruz and four other residents filed a complaint for declaratory and injunctive relief in the Circuit Court for Baltimore County. Their complaint named Baltimore County, Vanguard, and Merritt Pavilion as defendants. Based on a variety of legal theories, the Cruz plaintiffs contended that selling the property was an "illegal" and "ultra vires act of the County Executive and the County Council." In Count One of their complaint, the Cruz plaintiffs asserted that both the 1981 deed covenant and COMAR 23.03.02.24 required the County to obtain the Board of Public Works' approval before disposing of the property. Other counts of the Cruz complaint alleged various abuses in the contract bidding process and the PUD approval. The Cruz plaintiffs sought a declaration that the contracts were illegal and an injunction preventing the County from conveying or redeveloping the property.

         Vanguard, Merritt Pavilion, and Baltimore County each moved to dismiss the Cruz complaint, primarily based on the issue of standing.

         The IAC completed its review of the County's request in September 2015. The IAC concluded that the proposed transfer did not involve outstanding State bond debt and that the State was not entitled to receive proceeds from the sale. The IAC expressed concern, however, about the "considerable" amount of community opposition to the proposal. The IAC recommended that the Board of Public Works approve the disposition along with a recommendation that the County "engage in further discussions with the stakeholders in an attempt to accommodate stakeholder preferences and concerns."

         The Board of Public Works placed the request on its agenda for a meeting on October 7, 2015. During that meeting, the Lieutenant Governor announced that the Governor's office had asked to pull the item from its agenda. He explained:

The reason that we asked that the North Point sale be pulled from the Agenda, [was] because there are a number of concerns raised by the community with regard to the deal that was put in place. And we're asking the county to work with the community to see if they can come up with a better plan. There are a lot of concerns in terms of the local usage of the facility. And so with that said we asked that they, the two parties come back together, work with the developer to come up with a better plan that meets the needs of the community.

         The Comptroller enthusiastically "applaud[ed] the Governor for not voting" and joined the Governor "in sending this off the Agenda." Expressing his desire to deliver "a strong message for the citizens of Dundalk, " the Comptroller announced that the project would not be approved unless it had "the support of every local official" and "every citizen group." The Treasurer commented that she supported the efforts to "work through a solution, " but "really d[id]n't think zoning decisions should be made at the Board of Public Works."

         Over the next several months, the Board of Public Works did not take further action to approve, disapprove, or conditionally approve the request.

         D. The Declaratory Judgment Action to Invalidate the Deed Covenant

         On January 7, 2016, Merritt Pavilion commenced this case by filing a one-count complaint for a declaratory judgment in the Circuit Court for Baltimore County. The complaint named Baltimore County as the sole defendant. Merritt Pavilion alleged that the County was unwilling to proceed under the contract without the Board of Public Works' approval.

         The complaint made no mention of the Board of Public Works' regulations. Instead, Merritt Pavilion suggested that the obstacle to the sale was the covenant from the 1981 deed. Merritt Pavilion alleged that, because of "political considerations unrelated to any direct financial interest in the property[, ]" the Board had "failed to act on a pending request for consent to the transfer, even though the request ha[d] been pending for many months and even though the consent covenant expressly provides that consent may not be unreasonably withheld." Merritt Pavilion asked the court to declare that the 1981 deed covenant was "invalid and void as a matter of law because the State's financial interest in the property ha[d] been extinguished" and that "any further consent requirement would act as an unlawful restraint on the alienation of property."

         Within one week, the County filed an answer in which it admitted every allegation in the complaint. Omitting any reference to the Board of Public Works' regulations, the County averred that the deed covenant was "the sole reason" why the County was "unable to proceed in accordance with the terms of the contract." The County asked the court to grant all relief requested by Merritt Pavilion.

         A week after the County answered, Merritt Pavilion moved for summary judgment. On the same day, the County filed a response asking the court to grant summary judgment in Merritt Pavilion's favor.

         When the Attorney General's Office learned of this unusual declaratory judgment action, the State moved to intervene, asserting that it was a necessary party to the proceedings. Merritt Pavilion and the County consented to the intervention.

         The State opposed Merritt Pavilion's summary judgment motion and made a cross-motion for summary judgment in its own favor. The State asked the court to declare that the covenant was valid, but that "[e]ven in the absence of the challenged covenant, COMAR § 23.03.02.24 requires Baltimore County to seek and obtain the approval of the Board of Public Works before disposing of the former school[.]" Merritt Pavilion responded by asking the court to declare that COMAR 23.03.02.24 was "inapplicable to and unenforceable against the pending contract of sale" of the property. The County adopted Merritt Pavilion's arguments.

         The circuit court held a hearing on the cross-motions for summary judgment on March 17, 2016. During the hearing, an Assistant Attorney General informed the court that, just days earlier, he had learned of the separate declaratory judgment action in which Ms. Cruz and others had challenged the conveyance to Merritt Pavilion on the basis of the 1981 covenant and COMAR 23.03.02.24. He suggested that the two cases should be consolidated because both involved the same covenant. The court instructed the State to set forth its position in writing, and it proceeded to hear arguments on the summary judgment motions.

         After the hearing, the State moved to consolidate the Cruz case with this case. Merritt Pavilion opposed the motion. The County adopted Merritt Pavilion's arguments.

         On March 25, 2016, the court issued an order denying the State's motion to consolidate, granting Merritt Pavilion's motion for summary judgment, and denying the State's cross-motion for summary judgment. The court saw the issue as whether the covenant in the 1981 deed gave the State "veto power" over the proposed sale of a former school property from the County to Merritt Pavilion. The court also saw a "related issue" of whether the Board of Public Works' regulations "bestow an equivalent power upon the State."

         In resolving those issues, the court wrote that "the singular intent and purpose" of the 1981 covenant and the Board of Public Works' regulations "was to allow the State of Maryland to protect any financial interests it might have or might have had in the sale of the real property which had been used for public schooling, and in which the State had a financial stake." Because the State had not had any financial interest in the property in question since the County assumed and paid off the bond debt in the 1980s, the court declared the covenant to be "invalid and of no legal force and effect." Asserting that the regulations "mirror" the language in the covenant, the court declared them to be "inapplicable to and unenforceable against the contract of sale between Merritt Pavilion LLC and Baltimore County."

         Judgment was entered on March 31, 2016.[6] The State filed a timely notice of appeal. Commenting that the State had been "engaging in a pattern of delay[, ]" the court denied the State's request to stay the judgment pending the outcome of the appeal.

         E. Other Post-Judgment Developments

         While this appeal was pending, another judge dismissed the separate case in which Ms. Cruz and other citizens set out to enjoin the sale of the property on the ground the County needed to obtain the Board of Public Works' approval. The Cruz parties noted an appeal, which is pending as Karen Cruz, et al. v. Baltimore County, et al., No. 585, Sept. Term 2016.

         For reasons that are not adequately explained by the record, the attorney for the Cruz parties received notification that his clients were parties to this appeal. As a precaution, their attorney filed a one-page brief, which simply adopted the contents of the State's brief.

         Baltimore County has moved to strike the Cruz parties and to strike their appellate brief. None of the other litigants have opposed that motion. Although the Cruz brief would have no effect on the outcome, we agree that Ms. Cruz and her fellow citizens are not parties to this appeal. The motion to strike the Cruz parties as appellees and to strike their appellate brief is granted. See Surland v. State, 392 Md. 17, 23-24 n.1 (2006) (holding that the Court of Special Appeals should strike an "appellee's brief" from a non-party).

         Baltimore County has also moved to strike an appendix to the State's reply brief that reproduces the transcript of a motions hearing in the Cruz case and to strike all references to that appendix. The hearing took place about one month after the court issued its judgment in this case. The County argues that the Cruz transcript does not belong in an appendix because it was not part of the record before the circuit court when it rendered its judgment. The State responds that this Court can take judicial notice of the transcript for the limited purpose of demonstrating that Merritt Pavilion has taken inconsistent positions on the question of whether the Cruz case involves the same issues as this case.[7]

         We agree with the State that an official transcript of a court proceeding is the type of document "whose accuracy cannot reasonably be questioned." Md. Rule 5-201(b); see Chesek v. Jones, 406 Md. 446, 456 n.8 (2008) (taking judicial notice of facts from "official public documents" included in the appendix to an appellate brief). We decline to strike portions of the State's reply brief and the appendix to that reply brief.

         Questions Presented

         The State's brief presents three questions. Two questions relate to the correctness of the court's declaratory judgment, and the other question concerns the propriety of issuing any declaration without first consolidating this case with the Cruz case. We have reordered and reformulated these questions as follows:

1. Did the court abuse its discretion in denying the State's motion to consolidate the action with a related declaratory judgment action?
2. Did the circuit court err in concluding that the [Board of Public Works'] regulations for the disposition of former school property were inapplicable to and unenforceable ...

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