KDM Development Corp v. The Consumer Protection Unit of the Department of Justice of the State of Delaware ( 2023 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
KDM DEVELOPMENT CORP., :
a New York corporation, :
:
Petitioner, :
: C.A. No. S23M-06-018-CAK
v. :
:
THE CONSUMER PROTECTION :
UNIT OF THE DEPARTMENT OF :
JUSTICE OF THE STATE OF :
DELAWARE, :
: :
Respondent. :
Submitted: September 26, 2023
Decided: October 24, 2023
Upon Petition to Quash Subpoenas and Issuance of Protective Order
DENIED
John W. Paradee, Esquire and Brian V. DeMott, Esquire, 6 South State Street, Dover,
DE 19901, Attorneys for Petitioner.
Owen P. Lefkon, Esquire and Ryan T. Costa, Esquire, Deputy Attorneys General, State
of Delaware Department of Justice, 820 N. French Street, Wilmington, DE 19801,
Attorneys for Respondent.
MEMORANDUM OPINION AND ORDER
KARSNITZ, R.J.
I. INTRODUCTION
At its core, this case asks the question: what tools are available to the Consumer
Protection Unit (“CPU”) of the Delaware Department of Justice (“DOJ”) to investigate
suspected violations of two enabling statutes, the Consumer Fraud Act1 and the
Manufactured Homes Act.2 More peripherally, the case asks whether the tools which
the CPU in fact used – general subpoenas under the Department of Justice Act3 -- are
directed to the wrong party, or otherwise violate the requirements of the Delaware
Superior Court Rule on Subpoenas.4 For the reasons discussed, below, I find that the
CPU used the appropriate subpoenas and directed the subpoenas to a proper party.
Concerns about their overbreadth, specificity, reasonableness, relevance, and
burdensomeness can be addressed at any time during the pendency of the investigation,
including the need for a protective order to safeguard proprietary, confidential, or
otherwise privileged information and documents.
II. FACTS AND PROCEDURAL HISTORY
A. Briarwood and Donovan Smith Communities
KDM’s website lists Briarwood Manufactured Home Community (“Briarwood”)
1
6 Del. C. § 2511, et seq.
2
25 Del. C. § 7001, et seq.
3
29 Del. C. § 2508(a).
4
Super. Ct. Civ. R. 45.
2
and Donovan Smith Manufactured Home Community (“Donovan Smith”) as two of its
six Delaware properties. Briarwood is a manufactured home community in Laurel,
Delaware. Donovan Smith is a manufactured home community in Lewes, Delaware.
Briarwood is owned by Mobile Gardens MHP, LLC and the Donovan Smith is
owned by Donovan-Smith MHP, LLC. KDM manages certain accounting and other
administrative functions for the owners.
On or around March 31, 2023, the CPU learned that Briarwood's residents had
lost water access due to problems with Briarwood's well and pump. Briarwood's owners
later started to pump water from a different well. On April 5, 2023, the CPU learned that
the Briarwood residents temporarily lost the ability to access water from that well also.
The CPU is also aware of recurring issues previously experienced at Donovan
Smith involving untreated wastewater surfacing from the park's septic system. The CPU
is investigating whether these issues arose from years of inadequate maintenance and
whether the property owners have potentially violated Delaware law.
B. The Three Subpoenas
On April 6, 2023, the CPU issued three nearly identical subpoenas (the
"Subpoenas").5 The Subpoenas were delivered on April 14, 2023 and were directed to KDM,
5
Pursuant to 29 Del. C. §§ 2504(4) and 2508(a).
3
KDM Development Corporation, LLC, and KDM Development LLC. They include
eight discrete requests for documents relating to the maintenance and function of the
water, septic, and other utility systems in KDM's Delaware communities and the
ownership structure of the KDM Delaware communities. The Subpoenas seek, inter
alia, documents and information related to KDM, Briarwood, and Donovan Smith,
including internal administrative documents, communications to residents, and
documents provided to other Delaware governmental entities.
C. The Petition
On April 19, 2023, KDM filed a petition in the Court of Chancery to quash the
Subpoenas. On June 22, 2023, that petition was dismissed for lack of statutory
jurisdiction. On June 23, 2023, KDM filed this Petition to Quash Subpoenas and
Issuance of Protective Order (“the “Petition”). On July 19, 2023, the CPU filed its
Opposition. On August 14, 2023, KDM filed its Response. On August 28, 2023, the
CPU filed its Reply in Further Opposition. On September 26, 2023, I held oral argument
on the issues presented by the Petition and took the Petition under advisement. This is
my ruling on the Petition.
In the Petition, KDM first claims that, because it is neither the owner,
operator, nor manager of any manufactured housing community in the State of
4
Delaware, the Attorney General issued the Subpoenas to the wrong party. KDM
next argues that the Subpoenas were improperly issued under the applicable
Delaware statutes. Finally, KDM argues that the Subpoenas are (a) overly broad,
(b) ' lacking in requisite specificity, (c) unreasonable in scope, reach, and time,
(d) unconstrained by relevance, (e) unduly burdensome, and (f) otherwise contrary
to established Delaware law.
III. STANDARDS OF REVIEW
A. Statutory Construction
The question of whether the CPU had the authority to issue the Subpoenas under
the DOJ’s enabling legislation, rather than an investigative demand under the Consumer
Fraud Act, or under the Manufactured Housing Act, as discussed below, is one of
statutory construction. When faced with a question of statutory construction, I “must
seek to ascertain and give effect to the intention of the legislature as expressed in the
statute itself,” and should “give the statutory words their commonly understood
meanings.”6 “The ‘most important consideration for a court in interpreting a statute is
[the language] the General Assembly used in writing [the statute].’”7 When analyzing
6
Kofron v. Amoco Chems. Corp., 441 A.2d 226, 230 (Del. 1982).
7
Salzberg v. Sciabacucchi, 227 A.3d 102, 113 (Del. 2020) (quoting Boilermakers Loc. 154 Ret. Fund v. Chevron
Corp., 73 A.3d 934, 950 (Del. Ch. 2013)); Taylor v. Diamond State Port Corp., 14 A.3d 536, 542 (Del. 2011)
(“[T]his Court's role is to interpret the statutory language that the General Assembly actually adopt[ed], even if
5
a statute, it is presumed that “the General Assembly purposefully chose particular
language, and the court will therefore construe statutes to avoid surplusage if reasonably
possible.”8
When a statute is found to be clear and unambiguous, the plain meaning of the
statutory language controls.9 “The fact that the parties disagree about the meaning of
the statute does not create ambiguity.”10 Rather, a statute is ambiguous “only if it is
reasonably susceptible to different interpretations, or ‘if a literal reading of the statute
would lead to an unreasonable or absurd result not contemplated by the legislature.’”11
B. Weight Given to Agency Interpretation of Statute
In reviewing the propriety of the Subpoenas, I am mindful of the Delaware
Administrative Procedure Act’s deference to the DOJ’s interpretation of its own
enabling statute, which authorizes the issuance of Subpoenas:
The Court, when factual determinations are at issue, shall take due account of
the experience and specialized competence of the agency and of the purposes
of the basic law under which the agency has acted.12
unclear and explain what [the Court] ascertain[s] to be the legislative intent without rewriting the statute to fit
a particular policy position.”).
8
Id. at 117 (citing Sussex Cty. Dep't of Elections v. Sussex Cty. Republican Comm., 58 A.3d 418, 422
(Del. 2013).
9
Chase Alexa, LLC v. Kent Cty. Levy Ct., 991 A.2d 1148, 1151 (Del. 2010) (citing Dir. of Rev. v. CAN
Hldgs., Inc., 818 A.2d 953, 957 (Del. 2003).
10
Id. (quoting Centaur Partners, IV v. National Intergroup, Inc., 582 A.2d 923, 927 (Del.1990).
11
Id. (quoting Dir. of Rev. v. CAN Hldgs., Inc., 818 A.2d 953, 957 (Del. 2003)).
12
29 Del. C. §10142(a).
6
As this Court recently stated:
The Court engages in a de novo review of a board or agency's statutory
interpretation but “may give appropriate deference to an agency's
application of its own rules or regulations.”13
Thus, although I will not completely defer to DOJ’s interpretation of its enabling statute,
but rather consider it de novo, I will accord due weight to DOJ’s interpretation of the
statute.
C. Quashal
Assuming that the Subpoenas were validly issued and directed to the appropriate
party, KDM asks me to quash them for the reasons set forth in Superior Court Civil
Rule 45. The three grounds for me to quash the Subpoenas under that Rule are if they:
(i) fail to allow reasonable time for compliance,
(ii) require disclosure of privileged or other protected matter and no
exception or waiver applies, or
(iii) subject a person to undue burden.14
13
Ripple v. Delaware Board of Nursing, 2022 WL 2967227 (Del. Super. July 27, 2022); see
Matter of Scottish Re (U.S.), Inc., 273 A.3d 277, 296 (Del. Ch. 2022) (noting further that “[w]hat a
court applying Delaware law cannot do is defer to the agency's interpretation ‘merely because it is
rational or not clearly erroneous’ ”) (quoting Public Water Supply Co. v. DiPasquale, 735 A.2d at 383
(Del. 1999) (a court “may accord due weight, but not defer, to an agency interpretation of a statute
administered by it”)); see also State Farm Auto. Ins. Co. v. Mundorf, 659 A.2d 215, 220 (Del.
1995) (“Although the interpretation of a regulation is ultimately a question of law for a court to decide,
substantial weight and deference is accorded to the construction of a regulation enacted by an agency
which is also charged with its enforcement.”).
14
Super. Ct. Civ. R. 45(c)(3)(A).
7
KDM has not established that it was not given a reasonable time to comply with the
Subpoenas, that the Subpoenas require the disclosure of privileged or other protected
matter, or that it has been subjected to an undue burden, other than to acknowledge the
fact that delivery of the Subpoena items would require time and effort and that the
requests were duplicative of those of other Delaware government agencies. At oral
argument, I advised KDM that, if it had traditional Rule 45 issues, it could present them
to me at any time. That offer remains open.
Nor am I troubled by the fact that the Subpoenas were not issued to the owners
of record title of Briarwood and Donovan Smith, Mobile Gardens MHP, LLC and
Donovan-Smith MHP, LLC, respectively. The corporate structure of the KDM
entities which own and manage Briarwood and Donovan Smith is somewhat
convoluted, and one of the purposes of an investigation and subpoenas is to
ascertain that structure. Of course, any ultimate CPU action against KDM must be
addressed to the proper KDM legal entities.
Rather, the crux of KDM’s argument is that the Subpoenas should be quashed
because the CPU does not have authority on these facts to issue general DOJ Subpoenas,
but rather was required to utilize the remedies specified under the Consumer Fraud Act,
8
such as investigative demands, or the Manufactured Housing Act. That is the focus of
my decision today.
IV. STATUTORY LANDSCAPE
A. Department of Justice Act
In its enabling statute, the DOJ has been afforded multiple tools for conducting
investigations. 29 Del. C. § 2504(4) empowers the DOJ "[t]o investigate matters
involving the public peace, safety and justice and to subpoena witnesses and evidence
in connection therewith ..." 29 Del. C. § 2508(a) provides that "the Attorney General
or any assistant" has the power and authority to administer oaths and affirmations to any
person, including witnesses, at any time or in any place and may issue process to compel
the attendance of persons, witnesses and evidence at the office of the Attorney General or
at such other place as designated. Our Supreme Court has held that [t]he purpose of this
statutory grant of power [is] to “confer upon the Attorney General, in the investigation
of ... matters of public concern, powers similar to those inherent in grand juries,
including the grand jury's power to compel ... the production of documents.”15
Unlike civil investigative demands, discussed below, Attorney General
15
Johnson v. State, 983 A.2d 904, 920 (Del. 2009) (quoting In re McGowen, 303 A.2d 645, 647
(Del.1973)).
9
Subpoenas are not issued pursuant to judicial order. Moreover, the standard that governs
Attorney General subpoenas differs from the standard applicable to civil investigative
demands. The Delaware Supreme Court has outlined the following standard for
Attorney General subpoenas: "(1) the subpoena must specify the materials to be
produced with reasonable particularity, (2) the subpoena must require the production
only of materials relevant to the investigation, and (3) the materials must not cover an
unreasonable amount of time."16
B. Consumer Fraud Act
The stated purpose of the Consumer Fraud Act17 is to “protect consumers and
legitimate business enterprises from unfair or deceptive merchandising practices in the
conduct of any trade or commerce in part or wholly within this State.”18 Each of the
three Subpoenas explicitly states that the Subpoena relates to an investigation by
the CPU of the DOJ regarding possible violations of 6 Del. C. § 2513.
The potential violation arises from the recent failure of a water well which had
been providing the potable water supply to Briarwood. The CPU has not yet
indicated what specific conduct on the part of KDM gives rise to the CPU’s belief
16
Johnson, 983 A.2d at 921 (citing In re Blue Hen Country Network, 314 A.2d 197,201 (Del. Super.
1973)).
17
6 Del. C. § 2511, et seq.
18
6 Del. C. § 2512.
10
that a violation of 6 Del. C. § 2513 has occurred, but its focus is on the failure of
the water well and the efforts required to resume provision of a potable water supply
to Briarwood. The potable water supply has now been restored thanks to a new
water well.
The CPU has also focused on the water, pump, and septic systems in
Donovan Smith. Donovan Smith is subject to a Memorandum of Understanding
dated April 28, 2022 (the “MOU”) which was negotiated by and among the DOJ,
the Delaware Department of Natural Resources, the Department of Health and
Social Services, and the Lewes Board of Public Works, which provides for the
construction of new public water and sewer utilities for Donovan Smith.
Two enforcement mechanisms were available to CPU if it had chosen to use the
remedies provided under the Consumer Fraud Act: issuing a civil investigative demand
to KDM pursuant to an order of this Court,19 or bringing a civil proceeding against
KDM for injunctive relief and a civil penalty of $10,000 per violation.20 If the CPU had
chosen to use an investigative demand, that demand must meet certain specific
statutory prerequisites, and must also comply with the reasonableness standard
19
6 Del. C. § 2514.
20
6 Del. C. § 2522.
11
applicable to subpoenas in general, pursuant to the Fourth Amendment's
proscription against unreasonable searches and seizures.21
More specifically, an Attorney General's investigative demand must be issued
pursuant to an Order of a Judge of this Court or a Vice Chancellor of the Court of
Chancery, and must also (a) state the nature of the conduct constituting the alleged
violation which is under investigation and the provision of law applicable thereto;
(b) describe the class or classes of material to be produced thereunder with such
definiteness and certainty as to permit such material to be fairly identified; (c)
prescribe a return date which will provide a reasonable time within which the
material so demanded may be assembled and made available for inspection and
copying or reproduction; and (d) identify the custodian to whom such material shall
be made available or the office before whom such oral examination shall take place
or with whom such written reports shall be filed.22
Similarly, to avoid violating the Fourth Amendment, an investigative demand,
like an Attorney General subpoena, must (a) specify the materials to be produced
21
In the Matter of Attorney General's Investigative Demand to Michael Malemed, 493 A.2d
972, 976 (Del. Super. 1985).
22
6 Del. C. §§ 2514, 2515.
12
with reasonable particularity, (b) require the production of only relevant materials,
and (c) cover only a reasonable period of time.23
C. Manufactured Housing Act
The stated purpose of the Manufactured Housing Act24 is to “encourage
manufactured home community owners and manufactured homeowners and residents
to maintain and improve the quality of life in manufactured home communities.25 The
Manufactured Housing Act specifies the required provisions of a manufactured home
rental agreement; specifically, the Act requires a provision in the lease for the
maintenance of water, plumbing, sewer, septic and other utilities provided by the
landlord in good working order, repairing those utilities and services within the earlier
of 48 hours after written notification of a utility or service problem, or as soon thereafter
as is practicable if a repair within 48 hours is not practicable.26
As currently written, the only remedy for the CPU or DOJ specified under the
Manufactured Housing Act is to bring a civil action in a court of competent jurisdiction
for a “pattern or practice of violating or failing to comply with the terms of any provision
23
Malemed, 493 A.2d at 976.
24
25 Del. C. § 7001, et seq.
25
25 Del. C. § 7001(a)(2).
26
25 Del. C. § 7008(13)(f).
13
of a rental agreement” required by the Act.27 There is no functional equivalent of a
subpoena or the investigative demand process under the Consumer Fraud Act.
Senate Bill No. 172, which has passed in the Senate but not the House of
Representatives, would add a new subsection (c) to 25 Del. C. § 7005, and would deem
a pattern or practice of violations by a landlord an unlawful practice under the Consumer
Fraud Act (see discussion above), which would make the remedy of an investigative
demand available to the CPU and DOJ if certain requirements are met. However, these
remedies are not available to the CPU and DOJ under the Manufactured Housing Act
as currently written.
V. ANALYSIS
A. Department of Justice Act
In my view, both the Briarwood and the Donovan Smith investigations are well
within the statutory authority of DOJ "[t]o investigate matters involving the public
peace, safety and justice and to subpoena witnesses and evidence in connection
therewith” [emphasis supplied], and thus enable the CPU to “issue process to compel
the attendance of persons, witnesses and evidence.” Furthermore, the three Subpoenas
specify the materials to be produced with reasonable particularity, require the
27
25 Del. C. § 7005(b).
14
production only of materials relevant to the investigation, and do not cover an
unreasonable amount of time. Thus, the Subpoenas are authorized under the Department
of Justice Act, unless countermanded by the Consumer Fraud Act or the Manufactured
Housing Act.
B. Consumer Fraud Act
Similarly, in my view, both the Briarwood and the Donovan Smith investigations
are well within the statutory authority of DOJ to protect consumers from unfair or
deceptive merchandising practices in the conduct of any trade or commerce in part or
wholly within Delaware.
However, KDM argues that DOJ must use one of the remedies specified under
the Consumer Fraud Act, and cannot use general DOJ subpoenas, especially since those
remedies contain procedural requirements and safeguards that are not provided by
general DOJ subpoenas. KDM further argues that the legislature would not have
provided specific remedies under the statute unless it intended them to be
exclusively used.
The CPU argues that the operative language of these two statutory remedies is
precatory -- that the DOJ “may” use them – and there is no mandatory language such as
“shall” or any other statutory language requiring the use of these remedies. Using the
15
statutory construction standards of review discussed above, the CPU argues that the
clear and unambiguous language of the statute allows DOJ to use general subpoenas.
I am persuaded by the DOJ’s argument. The legislature could have used
mandatory language in the Consumer Fraud Act, or expressly stated that the use of the
civil investigative demand under the Act is required to the exclusion of other statutory
remedies. It did not do so. Applying the standards of statutory construction and of
deference to the DOJ discussed above, I find that the CPU was free to choose between
the use of general DOJ subpoenas and a civil investigative demand, and its choice of
the former is not improper.
C. Manufactured Housing Act
I further find that both the Briarwood and the Donovan Smith investigations are
well within the statutory authority of DOJ to encourage manufactured home community
owners and manufactured homeowners and residents to maintain and improve the
quality of life in manufactured home communities under the Manufactured Housing
Act. Indeed, the leases for the properties in question provide, as the Act requires, for
the maintenance of water, plumbing, sewer, septic and other utilities provided by the
landlord in good working order, repairing those utilities and services within the earlier
16
of 48 hours after written notification of a utility or service problem, or as soon thereafter
as is practicable if a repair within 48 hours is not practicable.
As discussed above, the only remedy for the CPU specified under the
Manufactured Housing Act as currently written is a civil action in a court of competent
jurisdiction for a “pattern or practice of violating or failing to comply with the terms of
any provision of a rental agreement” required by the Act. KDM argues the use of
general DOJ subpoenas under the Manufactured Housing Act is improper. Therefore,
this would leave the CPU with no investigative remedy for a violation of the Act other
than a full-blown civil action in this Court, since the Manufactured Housing Act, unlike
the Consumer Fraud Act, does not presently contain a specified remedy equivalent to
an investigative demand.
I disagree with this interpretation and its result. The ellipsis of remedy in the
Manufactured Housing Act, as underscored by the legislative attempt to remedy it,
indicates that the only viable and practical option open to the CPU was the issuance of
the three Subpoenas.
VI. CONCLUSION
For the foregoing reasons, KDM’s Petition to Quash Subpoenas and the Issuance
of a Protective Order is DENIED. If KDM has residual issues or concerns with the
17
Subpoenas under Rule 45, it is free to bring them to my attention at any time, including
the need for appropriate protective orders.
IT IS SO ORDERED.
/s/ Craig A. Karsnitz
cc: Prothonotary
18