Commonwealth of Virginia, Dept. of Professional and Occupational Regulation, etc. v. Karen Mathesius

COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Felton, Judges Humphreys and Chafin
UNPUBLISHED
Argued at Salem, Virginia
COMMONWEALTH OF VIRGINIA,
DEPARTMENT OF PROFESSIONAL AND
OCCUPATIONAL REGULATION,
BOARD FOR CONTRACTORS
MEMORANDUM OPINION * BY
v. Record No. 0285-12-3 CHIEF JUDGE WALTER S. FELTON, JR.
NOVEMBER 20, 2012
KAREN MATHESIUS
FROM THE CIRCUIT COURT OF WASHINGTON COUNTY
Isaac St. C. Freeman, Judge
Steven P. Jack, Assistant Attorney General (Kenneth T.
Cuccinelli, II, Attorney General, on briefs), for appellant.
Daniel R. Bieger (Copeland & Bieger, on brief), for appellee.
In this administrative appeal, the Commonwealth of Virginia’s Board for Contractors
(“Board”) challenges the final order of the Circuit Court of Washington County (“circuit court”)
reversing the Board’s decision to deny Karen Mathesius’s claim under the Contractor Transaction
Recovery Act, Code §§ 54.1-1118 through -1127. The Board contends the circuit court erred by
considering evidence outside the agency record and by finding that the Board’s decision to deny
payment to Mathesius was arbitrary and capricious.
I. BACKGROUND
In November 2006, Mathesius entered into a verbal agreement with contractor Eugenio
Pecina to renovate her home. In 2007, Mathesius filed a complaint against Pecina in the circuit
court, asserting breach of contract. On January 14, 2009, following a bench trial, the circuit court
*
Pursuant to Code § 17.1-413, this opinion is not designated for publication.
entered judgment in favor of Mathesius in the amount of $20,719.79. The circuit court found that
“the deficiency in the work performed by [Pecina] in this case arises [sic] above the level of a
breach of contract and meets the definition of improper or dishonest conduct as provided” in the
Contractor Transaction Recovery Act (the “Act”).1
Nearly one year later, on January 7, 2010, Mathesius conducted debtor interrogatories to
determine whether Pecina owned any assets that could be sold or applied to satisfy her judgment
against him.2 Pecina testified that he did not own any property except for a 1984 Ford van that was
titled in his name. When asked by Mathesius whether the van “run[s],” Pecina testified that it
“starts.” Mathesius did not take any action to seize and sell Pecina’s van in satisfaction of her
judgment against him.
By letter dated February 1, 2010, Mathesius submitted a claim to the Board for recovery
from the Contractor Transaction Recovery Fund (the “Fund”). On November 11, 2010, the Board
1
The Act provides a limited means for payment to a claimant on an unsatisfied judgment
against a licensed contractor who has engaged in “[i]mproper or dishonest conduct” in relation to
a contract for residential construction. Code § 54.1-1118. Such payment is made from a fund
administered by the Board, and is limited to “actual monetary loss,” along with attorney’s fees
and court costs, not to exceed a total of $20,000, regardless of the amount of the claimant’s
unsatisfied judgment. Code § 54.1-1123(A), (C).
2
The Act provides that:
No directive ordering payment from the [Contractor Transaction
Recovery] Fund shall be entered unless and until the claimant has
filed with the Director a verified claim containing the following
statements:
That the claimant has conducted debtor’s interrogatories to
determine whether the judgment debtor has any assets which may be
sold or applied in satisfaction of the judgment.
Code § 54.1-1120(A)(6)(a).
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sent a notice of Informal Fact-Finding Conference3 to Mathesius and Pecina that provided, in
pertinent part:
Following the conclusion of the [Informal Fact-Finding]
Conference, the presiding officer will prepare a Summary of
Informal Fact-Finding Conference (“the Summary”) that will include
a recommendation that the claim be either approved or denied. The
Summary will be submitted to the Board for consideration at the next
available Board meeting.
* * * * * * *
You and any participants of the [Informal Fact-Finding]
Conference will be invited to attend the Board meeting at which the
Board will consider this case. Prior to the Board’s final decision, you
and the participants will be given the opportunity to make a limited
presentation to the Board. At that time, you may not introduce new
evidence but may state the reasons why you agree or disagree with
the Summary. The Board will make a final decision based upon the
Agency Record.
(Emphases added).
On December 10, 2010, Pecina and Mathesius appeared and testified at the Informal
Fact-Finding Conference before Board designee Michael D. Redifer (“Redifer”). Pecina testified
that the 1984 Ford van to which he referred during debtor interrogatories on January 7, 2010 was
located at his residence. Mathesius indicated that she had not made any effort during the past eleven
months to seize and sell the van toward satisfying her judgment against Pecina.
At the close of the Informal Fact-Finding Conference, Redifer informed the parties that he
would keep the record open until December 17, 2010 to allow them additional time to submit
evidence “[i]f there’s something that you can’t put your hands on right at this moment.” Redifer
specifically advised the parties that “[a]t Board meetings you cannot produce any new evidence. So
3
The VAPA provides, in pertinent part, that “[a]gencies shall ascertain the fact basis for
their decisions of cases through informal conference or consultation proceedings unless the
named party and the agency consent to waive such a conference or proceeding to go directly to a
formal hearing.” Code § 2.2-4019(A).
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that would mean during those seven days, that window that is open, . . . that is the only time that you
can give us anything extra.” (Emphases added).
By letter dated March 29, 2011, Redifer sent the Informal Fact-Finding Conference
Summary (the “Summary”) to the Board, Mathesius, and Pecina. In the Summary, Redifer found,
inter alia, that Mathesius had failed to comply with Code § 54.1-1120(A)(6)(c), which provides, in
pertinent part, that: “No directive ordering payment from the Fund shall be entered unless and until
the claimant has filed . . . a verified claim” stating “[t]hat all legally available actions have been
taken for the sale, or application of the disclosed assets and the amount realized therefrom.”
Because Mathesius “failed to comply with this section of the statute,” Redifer “recommend[ed]
[Mathesius’s] recovery fund claim be denied.” The Summary informed the parties that the Board
would consider the matter on April 19, 2011, and that “[a]t the Board meeting, participants may
respond to the Summary only. Participants may not present any new information or bring any new
witnesses.” (Second emphasis added).
By letter dated April 8, 2011, Mathesius advised the Board that she objected to the
Summary. She presented a letter to the Board from John Powers, owner of Blue Ridge Nissan in
Wytheville, Virginia, also dated April 8, 2011, that provided in pertinent part: “The 1984 Ford van
in question has no monetary value except as salvage or scrap metal.”
On April 19, 2011, Mathesius appeared before the Board to respond to the Summary. She
asked the Board to permit her to introduce the April 8, 2011 letter from Blue Ridge Nissan
regarding the value of Pecina’s 1984 Ford van. The Board denied her request, but specifically gave
her “the option of requesting that the case be remanded back to an Informal Fact-Finding
Conference in order that the documentation be properly introduced.” The Board advised Mathesius
that if she did not exercise her option to participate in a second Informal Fact-Finding Conference, it
would “consider her case without the new documentation.” Mathesius chose not to request that her
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case be remanded to a second Informal Fact-Finding Conference to permit her to present the April 8
letter regarding the value of Pecina’s 1984 Ford van. The Board thereafter unanimously voted to
adopt Redifer’s recommendations contained in the Informal Fact-Finding Conference Summary and
deny payment of Mathesius’s claim based on the record before it. On April 20, 2011, the Board
issued its final written opinion and order denying Mathesius’s claim for recovery from the Fund.
Two months later, on June 22, 2011, Mathesius seized Pecina’s 1984 Ford van pursuant to a
writ of possession issued by the circuit court. She incurred a total expense of $405.78 to levy the
van. The next day, on June 23, 2011, Mathesius sold the van at auction for $325.
On June 30, 2011, Mathesius appealed the decision of the Board to the circuit court. She
asserted that the Board erred by denying her claim against the Fund because she failed to present
evidence at the Informal Fact-Finding Conference as to the value of the 1984 Ford van. She
contended that the Board’s denial of her claim was arbitrary and capricious because the van had no
appreciable value. Finally, she contended the Board erred by “fail[ing] to consider the [letter] from
Blue Ridge Nissan dated April 8, 2011 opining that the 1984 Ford van ha[d] no monetary value
except as salvage or scrap metal.”
In its letter ruling issued January 12, 2012, the circuit court found in favor of Mathesius and
remanded the matter to the Board. The circuit court stated:
The record speaks for itself and it is clear to the [c]ourt that the
Board placed all of its eggs in one basket, that being that the 1984
Ford van was a valuable asset and [Mathesius] failed to pursue the
asset and apply the proceeds of a sale of the asset to the judgment of
Twenty Thousand Seven Hundred Nineteen Dollars and Seventy
Cents ($20,719.70). There is a clear demonstration the van had a
negative value and it is wrong-headed to think otherwise.
It appears to the [c]ourt that after a judgment was rendered
against [Pecina], [Mathesius] complied as closely as possible with all
the bureaucratic requirements of the Act to Recover From the Fund.
The Board, on the other hand, has arbitrarily relied on her failure to
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pursue a valueless asset to prevent a recovery from the Fund, which
is established to protect victims of contractors such as [Pecina].
(Emphases added).
By final order dated February 3, 2012, the circuit court found that “the decision of the
Board denying recovery from the Fund was arbitrary and capricious.” The court remanded the
matter to the Board and ordered “that consideration shall be given to the letter submitted by John
Powers of Blue Ridge Nissan and the documentation submitted regarding levy and disposal of
the [1984 Ford] van.”
II. ANALYSIS
The Board contends that the circuit court erred by finding that its denial of Mathesius’s
claim was arbitrary and capricious because it failed to consider evidence that was not in the agency
record. The Board asserts that it properly considered the evidence in the agency record in denying
Mathesius’s recovery from the Fund.
The Virginia Administrative Process Act (“VAPA”) authorizes judicial review of agency
decisions. See Code § 2.2-4027. “[U]nder the VAPA, the circuit court’s role in an appeal from an
agency decision is equivalent to an appellate court’s role in an appeal from a trial court.” School
Bd. of County of York v. Nicely, 12 Va. App. 1051, 1062, 408 S.E.2d 545, 551 (1991). “On appeal
of an administrative agency’s decision, ‘the party complaining of an agency action has the burden of
demonstrating an error of law subject to review.’” Volkswagen of Am., Inc. v. Quillian, 39
Va. App. 35, 49, 569 S.E.2d 744, 751 (2002) (quoting Hilliards v. Jackson, 28 Va. App. 475, 479,
506 S.E.2d 547, 549 (1998)), rev’d on other grounds sub nom. Volkswagen of Am., Inc. v. Smit,
266 Va. 444, 587 S.E.2d 526 (2003).
“Errors of law fall into two categories: first, whether the agency . . . acted within the scope
of [its] authority, and second, whether the decision itself was supported by the evidence.”
Johnston-Willis, Ltd. v. Kenley, 6 Va. App. 231, 242, 369 S.E.2d 1, 7 (1988). “The reviewing court
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may set the agency action aside, even if it is supported by substantial evidence, if the court’s review
discloses that the agency failed to comply with a substantive statutory directive.” Browning-Ferris
Indus. v. Residents Involved in Saving the Env’t, 254 Va. 278, 284, 492 S.E.2d 431, 434 (1997).
However, “[w]here the agency has the statutory authorization to make the kind of decision it did and
it did so within the statutory limits of its discretion and with the intent of the statute in mind, it has
not committed an error of law” by acting outside the scope of its authority. Johnston-Willis, Ltd., 6
Va. App. at 242, 369 S.E.2d at 7. Moreover, “‘[w]here . . . the issue concerns an agency decision
based on the proper application of its expert discretion, the reviewing court will not substitute its
own independent judgment for that of the agency but rather will reverse the agency decision only if
that decision was arbitrary and capricious.’” Loudoun Hosp. Ctr. v. Stroube, 50 Va. App. 478, 491,
650 S.E.2d 879, 886 (2007) (quoting Holtzman Oil Corp. v. Commonwealth, 32 Va. App. 532, 539,
529 S.E.2d 333, 337 (2000)).
Judicial review of issues of fact is “limited to ascertaining whether there was substantial
evidence in the agency record upon which the agency as the trier of the facts could reasonably find
them to be as it did.” Code § 2.2-4027. “Cases subject to the standard of review outlined in
[VAPA] cannot be considered a trial de novo since the factual issues on appeal are controlled solely
by the agency record. The reviewing court is not free to take additional evidence, even at the
request of one of the parties.” Nicely, 12 Va. App. at 1062, 408 S.E.2d at 551 (emphasis added).
Rather, “[t]he scope of court review of a litigated issue under the [V]APA is limited to
determination whether there was substantial evidence in the agency record to support the
decision. The agency . . . should not be subjected to court review of matters it had no
opportunity to consider.” State Bd. of Health of Commonwealth v. Godfrey, 223 Va. 423, 433,
290 S.E.2d 875, 880 (1982) (citation omitted).
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Although, under VAPA, a circuit court in limited circumstances may consider additional
evidence to determine whether the agency decided a case arbitrarily or in bad faith, “such
evidence should be limited to that purporting to show that the agency denied the applicant a fair
and impartial review of [her] application in accordance with proper procedures.” Id. at 434, 290
S.E.2d at 880 (footnote omitted).
Here, the additional evidence considered by the circuit court, that is, the letter from Blue
Ridge Nissan and Mathesius’s documentation related to the levy and sale of the 1984 Ford van,
did not purport to show that the Board denied Mathesius a fair review of her claim against the
Fund, or that the Board acted arbitrarily or capriciously in denying her claim. Indeed, the record
on appeal reflects that the Board, in accordance with VAPA, offered Mathesius the option to
remand her claim for a second Informal Fact-Finding Conference so she could properly
introduce the letter from Blue Ridge Nissan into evidence. However, rather than exercise that
option, Mathesius elected to proceed with the hearing before the Board with the knowledge that
the only evidence before it on which it could base its decision was (i) that Pecina owned a 1984
Ford van of unknown value, and (ii) that Mathesius had failed to take “all legally available
actions” to sell or apply Pecina’s “disclosed assets” to her judgment against him, as required by
Code § 54.1-1120(A)(6)(c). The record on appeal demonstrated that Mathesius declined the
invitation of the Board for another Informal Fact-Finding Conference to present evidence that the
1984 Ford van was valueless, even though she was aware that the Board could only consider the
evidence contained in the Summary to determine the amount of any recovery from the Fund.
There was no indication in the record on appeal that the Board denied Mathesius a fair
and impartial review of her claim based on the evidence in the agency record, namely, the
testimony and evidence presented at the Informal Fact-Finding Conference. Accordingly, the
circuit court abused its discretion by considering the letter from Blue Ridge Nissan and
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Mathesius’s documentation related to the levy and sale of Pecina’s van, matters not presented at
the Informal Fact-Finding Conference nor contained in the agency record, in determining that the
Board’s decision to deny Mathesius’s recovery from the Fund was arbitrary and capricious.
Under these circumstances, the circuit court abused its discretion by considering
additional evidence on appeal that was not contained in the agency record, by finding that the
Board’s decision to deny recovery from the Fund was arbitrary and capricious, and by reversing
the Board’s decision to deny Mathesius’s claim against the Fund. Accordingly, we reverse the
judgment of the circuit court and affirm the Board’s denial of her claim.
Reversed.
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