Opinion ID: 2325741
Heading Depth: 2
Heading Rank: 2

Heading: Propriety of the Cease-and-Desist Order.

Text: We review the MIA's decision to proceed by adjudication, rather than rulemaking, according to the very deferential abuse of discretion standard, where only actions that are arbitrary and capricious are overturned. Consumer Publ'g, 304 Md. at 754-55, 501 A.2d at 60; Spencer, 380 Md. at 529, 846 A.2d at 349. In Consumer Publishing, an advertising company argued that the Consumer Protection Division was required to proceed by rulemaking, rather than adjudication, because resolution of the dispute over alleged deceptive advertising practices would be industry-wide in impact. 304 Md. at 753, 501 A.2d at 60. We disagreed, concluding that even if the practices were shown to be industry-wide, the agency would not be limited to a rulemaking remedy because courts have held generally that agencies [are] not precluded from announcing new principles in . . . adjudicative proceeding[s] and that the choice between rulemaking and adjudication lies . . . within the [agency's] discretion. Id. (quoting NLRB v. Bell Aerospace Co., 416 U.S. 267, 293, 94 S.Ct. 1757, 1771, 40 L.Ed.2d 134, 153 (1974)) (summarizing the holdings in SEC v. Chenery Corp., 332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 1995 (1947) and NLRB v. Wyman-Gordon Co., 394 U.S. 759, 89 S.Ct. 1426, 22 L.Ed.2d 709 (1969)). The U.S. Supreme Court, in Chenery, emphasized the importance of allowing agencies to retain the flexibility to determine when to proceed by rulemaking in order to maintain an effective administrative process. 332 U.S. at 202-03, 67 S.Ct. at 1580-81, 91 L.Ed. at 2003 (There is thus a very definite place for the case-by-case evolution of statutory standards. And the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.) We mentioned in Consumer Publishing the more restrictive rule explicated in Ford Motor Co. v. FTC, 673 F.2d 1008, 1009 (9th Cir.1981), cert. denied, 459 U.S. 999, 103 S.Ct. 358, 74 L.Ed.2d 394 (1982), that rulemaking should be required when an agency adopts a new, retrospectively applied, ruling with widespread application. Even under the narrower view in Ford Motor, however, we opined that the Consumer Protection Division there did not change existing law . . . of widespread application, but simply applied the statute to the facts in the case. 304 Md. at 756, 501 A.2d at 61. In Baltimore Gas & Electric Company v. Public Service Commission, 305 Md. 145, 153, 501 A.2d 1307, 1310-11 (1986), Baltimore Gas & Electric (BGE) sought three separate fuel rate adjustments from the Public Service Commission (PSC). At issue in the eventual administrative appeals were the portions of each fuel rate adjustment attributed to the cost of purchasing alternative electricity during forced power outages. Balt. Gas & Electric, 305 Md. at 153, 501 A.2d at 1311. Section 54(F) of the Public Service Commission Law directed the PSC to base any decision on fuel rate adjustments on four enumerated factors. [13] Maryland Code (1957, 1980 Repl.Vol.) Article 78 § 54F. After evidentiary hearings, the PSC denied, under § 54F(f)(4) requiring BGE to maintain the productive capacity of all its generating plants at a reasonable level, portions of the requested rate increases because BGE had not proved the outages were not due to improper management. Id. BGE appealed the PSC's decision, arguing that the PSC interpreted improperly the reasonable level provision of § 54(F)(f)(4), id., based on the fact that a year prior to the first forced outage, the PSC approved BGE's initial application for fuel rates under § 54(F), noting that BGE's availability of generating units was well above the industry average. Balt. Gas & Electric, 305 Md. at 163, 501 A.2d at 1316. BGE argued that the PSC's application of reasonable level to the later rate adjustment request was improper because the PSC investigated the cause of specific outages, rather than relying solely on the well-above-average generator availability found in the earlier application. Balt. Gas & Electric, 305 Md. at 169, 501 A.2d at 1319. We rejected BGE's argument, concluding that reasonable level was a vague term, that the PSC, when it issued the order after the first rate adjustment hearing, outlined the internal procedures used to evaluate reasonableness, and that those procedures allowed specifically the PSC to investigate specific outages. Balt. Gas & Electric, 305 Md. at 159-61, 501 A.2d at 1314-15. We found persuasive that the PSC maintained this interpretation during the subsequent hearings. Id. We concluded that the PSC's interpretation of reasonable level was proper, that it articulated clearly internal procedures for determining reasonable level through an adjudicative proceeding, and that its application of the internal procedures was consistent. Balt. Gas & Electric, 305 Md. at 165, 501 A.2d at 1319. This was not a case in which materially modified or new standards were applied [retrospectively] to the detriment of a company that had relied upon the [PSC's] past pronouncements; rather, this was a situation where the orderly growth and development of legal principles was achieved through contested case proceedings. Id. We held, however, that rulemaking was required, rather than adjudication, in the particular circumstances presented in CBS Inc. v. Comptroller of the Treasury, 319 Md. 687, 688, 575 A.2d 324, 324 (1990) (CBS). In the years up to, and including 1980 and 1981, CBS, a New York corporation, calculated its Maryland taxes according to the three-factor formula in Code of Maryland Regulations (COMAR) § 03.04.01.03E (which governs apportionment of taxes for a unitary corporation) that apportioned a part of CBS's taxable income to Maryland. CBS, 319 Md. at 690, 575 A.2d at 325. The calculation of the formula was influenced by the fact that CBS had nationwide advertising receipts, but no property or payroll in Maryland. Id. In the years prior to 1980, the calculation was reviewed by the Comptroller during tax audits and no adjustments were made to the formula. Id. In 1980 and 1981, the Comptroller audited CBS's tax returns and insisted, for the first time, that the formula be modified to compare the total network audience to the specific audience in Maryland, which resulted in a significant increase in taxes. Id. After a hearing officer in the State Income Tax Division upheld the Comptroller's audit, CBS appealed to the Maryland Tax Court, which sided with CBS, agreeing that a change in tax calculation needed to be accomplished through rulemaking and not by ad hoc adjudication. Id. The Circuit Court for Baltimore City, at the Comptroller's behest, reversed the Tax Court and affirmed the Comptroller's decision. CBS, 319 Md. at 691, 575 A.2d at 325. When the case reached our Court, however, we agreed with the finding of the Tax Court that, when a policy of general application, embodied in or represented by a rule, is changed to a different policy of general application, the change must be accomplished by rulemaking. CBS, 319 Md. at 696, 575 A.2d at 328. The Tax Court found that, until the audits of 1980 and 1981, the Comptroller consistently interpreted the COMAR § 03.04.01.03E as allowing CBS, and other corporations, to include national advertising revenues in its tax calculations. CBS, 319 Md. at 697, 575 A.2d at 329. The Comptroller's change to the audience share method of apportioning advertising revenue was a substantial deviation from the prior interpretation, that in no way can . . . be termed refinement. Id. We distinguished Consumer Publishing on the basis that there was an existing regulation in the COMAR and the adjudication in CBS resulted in a change to existing regulations with widespread application. CBS, 319 Md. at 699, 575 A.2d at 330. A recent treatise on Maryland Administrative Law comments that rulemaking is preferable to, or viewed as fairer than, adjudication because the resultant rules are binding on an entire industry, rather than only on the parties to the contested case. Arnold Rochvarg, Principles and Practice of Maryland Administrative Law 266-67 (2011). Also, rulemaking, it is claimed, provides greater notice and public participation and applies only to future conduct, rather than operating retrospectively. Id. Professor Rochvarg opines further, however, that an agency's decision to proceed by adjudication, rather than rulemaking, should not be the grounds for overturning a discrete adjudication, despite this Court's reasoning in CBS. Rochvarg, supra, at 268. He bases this notion on the fact that parties to a contested case hearing receive more procedural rights than they would have during the rulemaking process, including the right to cross-examine witnesses and the requirement that the agency's decision must be based entirely on the hearing record. Rochvarg, supra, at 268-69. The present case, it seems to us, falls within the holding of Consumer Publishing, rather than the exception to the rule articulated in CBS. As in Consumer Publishing, there was no change in existing law or regulation in the present case, but rather an application of the existing law to the facts in the case. Even if the MIA's enforcement posture was arguably at odds with an inference drawn from its past disinclination to adopt rules prohibiting application of the Rule of 78s, Chenery teaches that agencies are not precluded from announcing new principles in adjudicative proceedings. This is similar to the orderly growth and development of legal principles upon which we based our decision on BGE. The parties to the contested case here are the nine largest PFCs in the industry. [14] Importantly, the reach of the Final Order was not retrospective, instead deciding the facts before it and imposing requirements for prospective activities, including prohibitions on using past approved forms that violate Ins. Art., § 23-304 and imposing finance charges that exceed 1.15% for each 30 days on any and all premium finance agreements (including those found later to be void ab initio ). In the special circumstances of Insurance Billing Services and U.S. Capital Associates, the Final Order required a refund of finance charges where the underlying insurance policies were declared void ab initio, plus pre-judgment interest, but from the date of the Cease-and-Desist Order. The parties in this case were given all of the procedural rights of a contested case hearing under the State APA. Respondents had ample time and ability to produce a full record at the administrative hearing and to cross-examine witnesses for the MIA, including the Commissioner. The decision of the ADIC was based on the record. The hearing and Final Order, upon judicial review, were subject generally to non-deferential standards of judicial review as to claimed errors of law. Respondents argue that the past actions (and inactions) of the MIA, condoning implicitly the use of the Rule of 78s by the PFCs, were changed substantially by the Cease-and-Desist Order, and therefore, the holding of CBS should apply to the present case. [15] The holding of CBS is confined, however, to situations where the agency's adjudication changed substantially the application or effect of an existing law or regulation, not to an agency's interpretation of a stand-alone statute. No law or regulation was changed by the MIA and, based on our interpretation of Ins. Art. § 23-304, infra, we fail see any benefit in a public rulemaking process for the agency to receive comments on the interpretation of a statute that is, in our view, clear on its face.
Respondents argue that the Commissioner has no statutory authority to issue cease-and-desist orders against the PFCs. They point to express grants of authority to issue cease-and-desist orders in other sections of the Insurance Article [16] as an indication that the absence of a similar enumerated power in the Premium Financing Title means that the Legislature intended that the Commissioner have no authority to issue the present Cease-and-Desist Order to the PFCs. This argument implicates the maxim of statutory construction, expressio unius est exclusio alterius, meaning to express or include one thing implies the exclusion of the other, or of the alternative. Breslin v. Powell, 421 Md. 266, 286, 26 A.3d 878, 891 (2011) (citing Kirkwood v. Provident Sav. Bank of Balt., 205 Md. 48, 55, 106 A.2d 103, 107 (1957)); see also Black's Law Dictionary 661 (9th ed.2009). We have cautioned against the too easy use of this statutory construction tool to override the clear intent of the Legislature, and in this case we are not persuaded by Respondents to ignore our advice in that regard. See Kirkwood, 205 Md. at 55, 106 A.2d at 107. A broad grant of power is given to the Commissioner to enforce the Insurance Article. Section 2-108 of the Insurance Article sets forth the general powers and duties of the Commissioner: In addition to any powers and duties set forth elsewhere by the laws of the State, the Commissioner: (1) has the powers and authority expressly conferred on the Commissioner by or reasonably implied from this article; (2) shall enforce this article; (3) shall perform the duties imposed on the Commissioner by this article; and (4) in addition to examinations and investigations expressly authorized, may conduct examinations and investigations of insurance matters as necessary to fulfill the purposes of this article. (Emphasis added.) Respondents imagine that the Commissioner's powers to enforce the Insurance Article are limited to bringing an action in a court of competent jurisdiction to enforce this article or an order issued by the Commissioner under this article and, therefore, he/she may not issue a cease-and-desist order unless that power is enumerated specifically in a particular title. See Ins. Art., § 2-201(a). We rejected the same argument, and upheld the Commissioner's power to enforce the provisions of the Insurance Article, in Insurance Commissioner v. Property & Casualty Insurance Guaranty Corp., 313 Md. 518, 546 A.2d 458 (1988). There, we affirmed the Commissioner's authority to order Property Casualty Insurance Guarantee Corporation (PCIGC) to pay personal injury protection claims, on behalf of insolvent insurers, despite that [n]owhere in the Insurance Code is the power to order PCIGC to pay claims expressly conferred upon the Commissioner, and the particular section addressing the powers of the Commissioner with respect to PCIGC, contains no express authorization. Ins. Comm'r, 313 Md. at 526-28, 546 A.2d at 463. We agree with the MIA that enforcement orders, including the initial Cease-and-Desist Order and the Final Order issued as a result of the administrative hearing here, are basic elements in a regulator's toolkit. Section 2-108 of the Insurance Article requires that the Commissioner  shall enforce the Insurance Article. (Emphasis added.) In the Premium Financing Title, the Commissioner is given the authority to investigate and examine the books, records, and accounts of the PFCs. Ins. Art., § 23-103(a). After an investigation, the Commissioner is required to issue a report of his/her findings under Ins. Art., § 2-209. Ins. Art., § 23-103(c). These reports provide the explanation and required grounds on which an order must be based. [17] Ins. Art., § 2-204(b)(1)(iii). The Premium Financing Title authorizes the Commissioner to suspend, revoke, or refuse to renew the registration of a registered PFC if it fails to comply with a lawful requirement of the Commissioner, or if it violates a provision of the Title. Ins. Art., § 23-208(a)(1), (a)(2). Further, the Commissioner is authorized to impose civil monetary penalties or restitution. [18] Ins. Art., § 23-208(b)(1)(i), (b)(1)(ii). In the cases of Respondents Insurance Billing Services and U.S. Capital Associates, the Commissioner was authorized specifically by § 23-208 to order these PFCs to provide restitution (in the form of a refund, plus pre-judgment interest) to consumers whose underlying insurance policies were declared ultimately void ab initio, after the Cease-and-Desist Order was issued. In the case of the remaining PFCs, the authority to issue the Cease-and-Desist Order against them, compelling compliance with Ins. Art. § 23-304, may be implied reasonably from the overall regulatory scheme revealed in the Insurance Article. The Commissioner is charged with enforcing the provisions of the Insurance Article, including the Premium Financing Title. It does not stand to reason that the Commissioner would be authorized only to suspend altogether a PFC from the business of premium financing, or impose civil penalties, but not authorized to order registered PFCs to comply with the provisions of the Premium Financing Title. We decline to interpret the regulatory scheme to limit the Commissioner to instituting actions in circuit courts or banning a PFC from the business of premium financing in order to compel compliance with a discreet requirement of the Insurance Article. As in Insurance Commissioner, despite the absence of an express authorization or power, we conclude that the statute reasonably implies that the Commissioner is empowered to issue enforcement orders seeking to compel compliance with Ins. Art. § 23-304.
We review an alleged violation of regulatory procedures to see if there is a violation of a substantial right of the complaining party and, if so, whether prejudice occurred. Pollock, 374 Md. at 469 n. 3, 823 A.2d at 630 n. 3. Respondents claim that the Commissioner's Cease-and-Desist Order violated the procedural requirements of the Insurance Article by failing to comply with § 2-209 requiring the MIA to give a copy of the proposed report to the person that was examined at least 30 days before filing a report and making it public. The MIA, in response, makes a distinction between a formal examination and the less formal investigation (or analysis) here, each having different procedural requirements. There is no need for us to dissect the Insurance Article to determine whether an examination, investigation, or analysis was conducted, or what the associated procedural requirements may be with regard to each inquisitory exercise. The only question we need to ponder here is whether, assuming such a shortcoming as the PFCs point to, a substantial right of the PFCs was violated. We answer that question in the negative. The investigation by the Commissioner was based on undisputed facts that were stipulated to eventually by all parties at the administrative hearing. The rationale for the Commissioner's decision was detailed in the Cease-and-Desist Order, provided to Respondents. The results of the investigation were provided to the PFCs in advance of the administrative hearing. The automatic stay of the Cease-and-Desist Order, triggered by the PFCs' request for a hearing, and the subsequent hearing, provided substantially similar procedural protections for the PFCs than are given by Ins. Art., § 2-209. The notice provisions of Ins. Art., § 2-209(c) allow the person examined an opportunity for a hearing to comment on the report and to suggest changes to the proposed report. Section 2-209 only requires the Commissioner to accept changes to the report, sought by a responding party, that he/she considers proper. The ultimate dispute in this case is over the interpretation of Ins. Art., § 23-304. It is unlikely that the Commissioner would have accepted the PFCs' interpretation of the statute advanced here had he given them 30-days advance notice of the report and received the PFCs' views during that period. Thus, even assuming the alleged procedural misstep by the MIA, there was no substantial impairment of any rights of the PFCs and no prejudice to the conduct of the hearing or any subsequent judicial review proceeding.