NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
23-P-39
ELIZABETH GRADY FACE FIRST, INC.
vs.
DIVISION OF OCCUPATIONAL LICENSURE & another.1
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
As alleged in its complaint, the plaintiff held a license
to operate a private occupational school, issued by the division
of occupational licensure pursuant to G. L. c. 112, § 263
(§ 263), that required annual renewal. To be eligible to apply
for renewal, the licensing scheme first requires the licensee to
obtain from the Auditor of the Commonwealth a certificate of
financial eligibility to operate a private occupational school,
terms that are not defined in the statute or its regulations,
230 Code Mass. Regs. §§ 12-17 (2016). See G. L. c. 112,
§ 263 (d), second par.; 230 Code Mass. Regs. §§ 12.01, 13.03(3).
1 Auditor of the Commonwealth. The plaintiff alleges that for forty years it profitably
operated a school of aesthetics and therapeutic massage. By
2020, shareholder equity in the school totaled $10 million and
the plaintiff had net income of $700,000. Yet, in 2021, the
Auditor refused to issue the plaintiff a certificate of
financial eligibility for the 2020-2021 year following a dispute
over the Auditor's requests for information.2 Accordingly, the
division notified the plaintiff that it would not renew the
plaintiff's license, stated that a hearing was not required, and
informed the plaintiff that it could appeal the division's
decision pursuant to G. L. c. 30A, § 14.
It was the Auditor's decisions that the plaintiff wanted
reviewed, however. At the very least, the plaintiff desired a
hearing on its financial eligibility and the reasonableness of
the Auditor's requests before the license it held for forty
years was allowed to expire. The plaintiff therefore filed a
2 "If, after investigation, the state auditor finds [an] applicant is financially qualified to operate a private occupational school, the state auditor shall notify the division of the applicant's eligibility to apply for" license renewal. G. L. c. 112, § 263 (d), second par. "If the state auditor finds that an applicant or licensee is not financially responsible and qualified to operate a private occupational school, certification of financial eligibility shall be denied." Id. at third par. In making its investigation, "the [A]uditor is authorized to review the full records of the school" and to request a wide range of information. Id. at first par. See 230 Code Mass. Regs. § 13.03(1) (applicant must submit "such information as the State Auditor may require").
2 verified complaint against both agencies alleging due process
violations and breach of contract and seeking declaratory,
certiorari, or administrative relief.3 A judge of the Superior
Court allowed a motion by the defendants to dismiss the
complaint, and the plaintiff appealed. We affirm in part,
vacate in part, and remand.
Background.4 In 2020, the plaintiff was delayed in
providing financial statements for its application for renewal
due to the COVID-19 pandemic. In January 2021 (the same year
that all events discussed hereafter took place), the Auditor
notified the division and the plaintiff that it would not
certify the plaintiff's financial eligibility because the
plaintiff had not provided financial statements for 2018 and
2019. The plaintiff provided the statements, but the Auditor
refused to withdraw its "adverse determination" and instead
propounded a series of far-reaching and irrelevant requests for
information it had never sought before. The plaintiff believed
3 The Auditor is an "agency" within the meaning of G. L. c. 30A, § 1 (2), because it is a department of the Commonwealth, G. L. c. 11, § 1, and "may adopt rules and regulations, issue guidelines and prescribe forms to carry out" its duties under § 263. G. L. c. 112, § 263 (d), fifth par.
4 We draw these facts from the verified complaint, for present purposes accepting them as true and drawing all reasonable inferences therefrom in the plaintiff's favor. Lanier v. President & Fellows of Harvard College, 490 Mass. 37, 43 (2022).
3 that these additional materials were sought not to "determine
whether [the plaintiff] was 'financially qualified' to operate"
a school but because the analyst overseeing the audit, formerly
Medford's treasurer and collector, had been "frustrated" with
and angered when the plaintiff sold certain real property in
that city.
At the division's suggestion, the plaintiff and the Auditor
entered into a conditional licensure agreement (CLA) whereby the
plaintiff agreed to maintain a bond of $200,000 -- more than
twice the amount of tuition -- and provide a list of items to
the Auditor by February 26. The plaintiff maintained the bond
and provided all the items on time. The Auditor then requested
more information, which the plaintiff also provided. In doing
so, the plaintiff suggested that the Auditor was confusing the
calendar year with the tax year and that taxes paid by
shareholders had no bearing on the plaintiff's financial ability
to operate the school. The Auditor withdrew its request for
shareholders' tax returns.
In April, the Auditor requested information about the
plaintiff's receipt of Federal pandemic relief funds in 2020 and
2021. The plaintiff provided the information but could not say
whether the funds would be treated as income or a loan because
that depended on whether and when the small business
administration would forgive the funds, decisions over which the
4 plaintiff had no control. Reasoning that the funds could be
treated as a loan and the amount of debt the plaintiff carried
was relevant to its financial condition, the Auditor notified
the division that the plaintiff's 2020 and 2021 financial
statements were "incomplete" because they did not contain a
final description of how the Federal funds would be treated. On
May 26, following a conference call with the division and the
plaintiff, the Auditor agreed (1) to accept financial statements
for 2020 and 2021 that contained a "subsequent event note, a
forward-looking statement to the effect that were such funds
forgiven they would be treated as income and otherwise as a
loan," and (2) that "it [did] not anticipate requesting
additional information from" the plaintiff.
Consistent with the May 26 agreement, which the complaint
alleges was an enforceable contract, the plaintiff provided
financial statements projecting what portions of the 2020 relief
funds would be treated as income or a loan and containing a
subsequent event note for the 2021 relief funds. On July 7,
however, the Auditor asserted in an e-mail message that there
was no subsequent event note for the 2021 funds. The message
did not identify any deficiencies in accounting for the 2020
funds. On July 8, the plaintiff resubmitted the documents with
a subsequent event note for the 2021 funds that tracked verbatim
the Auditor's language in the July 7 message (July 8 filing).
5 The next month, without addressing the July 8 filing or
providing any rationale, and contrary to its agreement of May
26, the Auditor made more requests for information about the
relief funds and demanded other items the plaintiff had already
provided.
In September, still without mentioning the July 8 filing,
and even though it had not previously cited any deficiencies in
reporting for the 2020 funds, the Auditor made another demand
for information about those funds. That same month, the
plaintiff's national accreditor accepted the financial
statements submitted to the Auditor in the July 8 filing and the
plaintiff was re-accredited. In October, the plaintiff provided
the Auditor with the information it requested in September and
the small business administration forgave the 2020 and 2021
relief funds. This meant that the plaintiff had even higher
income in those years than had been reflected in the July 8
filing. Nevertheless, on November 15, the plaintiff received an
e-mail message from the Auditor stating that the plaintiff "did
not comply in fully submitting the information that was
requested of the school as indicated in the Conditional
Licensure Agreement. As a result, the Office of the State
Auditor will not be reversing [its] adverse determination." On
inquiry, the Auditor told the plaintiff that it did not comply
with the CLA because it did not provide additional information
6 about the 2020 relief funds (not requested in the CLA), did not
provide an estimate of spring 2022 enrollment (the plaintiff
had), and did not provide a statement from a certain bank
account (identified for the first time in that very message).
The Auditor did not assert, and had no good faith basis to
assert, that the plaintiff was financially unqualified to
operate the school.
On December 22, the division notified the plaintiff that it
would not renew the plaintiff's license. On December 28, the
plaintiff filed suit. Though the Auditor plainly engaged in
some type of internal process that culminated in decisions to
request further information from the plaintiff, and though such
requests and materials related to them created by the Auditor
should have been retained and are not excluded from the
definition of "public records," see G. L. c. 4, § 7; see also
G. L. c. 112, § 263 (d), fourth par. ("financial information
submitted to the state auditor shall be retained in the office
of the state auditor and shall not be classified as public
records" [emphasis added]), neither agency filed an
administrative record as required by Superior Court Standing
Order 1-96(1), (2) (2020). Instead, the parties "agree[d] that
there is no administrative record to review." Concluding that
the Auditor "has extraordinarily broad statutory authority to
request financial information about an applicant" and that he,
7 the judge, was "ill-equipped to determine that any such request
was necessary or unnecessary" because "I have no record before
me," the judge dismissed all counts of the complaint. The judge
went on to suggest that the plaintiff go through the application
process anew; and, if the plaintiff were to do so, directed the
Auditor to provide written requests for information and reasons
for its decisions.
Discussion. We review the grant of a motion to dismiss de
novo to determine whether the allegations of the complaint
plausibly suggest an entitlement to relief. Lanier v. President
& Fellows of Harvard College, 490 Mass. 37, 43 (2022). Applying
this standard, we conclude that counts one, five, and six were
properly dismissed, while counts two through four were not.
1. Counts properly dismissed. By count one the plaintiff
sought declarations of the legality of the Auditor's and
division's administrative practices and that the Auditor's
requests for additional information were arbitrary, capricious,
and exceeded its authority. A declaration of the legality of an
agency's practices is available where the "violation has been
consistently repeated." G. L. c. 231A, § 2. Here, however, the
agencies are alleged to have acted in ways they never had in
forty years before reaching an unfair result in the plaintiff's
case. It is well settled in such circumstances that the
declaratory judgment act is not the appropriate mechanism for
8 obtaining review. See Frawley v. Police Comm'r of Cambridge,
473 Mass. 716, 724 (2016); Konstantopoulos v. Whately, 384 Mass.
123, 129 (1981).
Count five sought relief for the defendants' failures to
hold the adjudicatory hearing or maintain the administrative
record required by G. L. c. 30A, §§ 13 and 14. But neither
statute applies here, as the judge discerned. General Laws
c. 30A, § 13, which entitles a licensee to a hearing before
nonrenewal of the license, does not apply "[w]here the . . .
refusal to renew is based solely upon failure of the licensee to
file timely reports, schedules, or applications." The plaintiff
here specifically alleges that the Auditor's "adverse
determination," as well the division's denial, were based solely
upon the plaintiff's claimed failure "to file timely reports,
schedules, or applications."
Equally inapplicable is G. L. c. 30A, § 14, which applies
to "a final decision of any agency in an adjudicatory
proceeding." Here, of course, no such proceeding is alleged to
have happened and, under the licensing scheme, neither agency's
decision could in any event be deemed "final." On the contrary,
the relevant provisions expressly provide that the Auditor's
finding of financial eligibility "shall not be construed as the
granting of a license by the division," G. L. c. 112, § 263 (d),
second par., because the division conducts its own investigation
9 before making a decision that is expressly subject to G. L.
c. 30A review. See G. L. c. 112, § 263 (e), second par.; 230
Code Mass. Regs. § 16.01(2). These provisions suggest that the
Auditor's preliminary finding is not subject to administrative
review, while the Auditor's finding of financial ineligibility
only must be accompanied by a written statement of reasons. See
G. L. c. 112, § 263 (d), third par. No provision provides for
judicial review of that finding. Finally, we observe that in
the event that the division does not grant a license "due to the
applicant failing to provide complete information," that
decision "shall not be considered a denial and shall not be
entitled to further review." 230 Code Mass. Regs. § 16.01(2).
Count six, alleging breach of the May 26 "contract," was
rightly dismissed because an enforceable contract requires valid
consideration, Knott v. Racicot, 442 Mass. 314, 322 (2004),
defined as doing something one was privileged not to do or
giving up something one was privileged to retain. Sheraton
Serv. Corp. v. Kanavos, 4 Mass. App. Ct. 851, 852 (1976). The
Auditor was privileged to investigate the plaintiff's finances,
and, as a condition of being eligible to apply for the
permission that is required by law to operate its school, the
plaintiff was required to comply. See G. L. c. 112, § 263 (c)
("All private occupational schools operating in the commonwealth
shall be licensed by the division"). See also G. L. c. 30A,
10 § 13 (defining "license"). The Auditor was also privileged to
not issue a certificate of financial eligibility. By the May 26
agreement, the Auditor agreed to accept financial statements
with subsequent event notes and that it probably would not need
anything after that, but it did not agree to end its
investigation or issue a certificate of financial eligibility if
the plaintiff did so. As a matter of law, the Auditor's
agreement to perform its existing legal duty in a particular way
was not sufficient consideration to form a contract. Boston
Professional Hockey Ass'n v. Commissioner of Revenue, 443 Mass.
276, 287 (2005).
2. Counts that survive. Count two sought certiorari
review of the Auditor's requests for information and decision
not to withdraw its "adverse determination." Certiorari
requires a judicial or quasi judicial proceeding that gives rise
to a substantial injury or injustice and from which there is no
other adequate remedy. Frawley, 473 Mass. at 726. Here the
Auditor's actions were quasi judicial because the plaintiff
applied for license renewal and "was required to attest to
certain facts, the [Auditor] conducted an investigation into the
veracity of those facts, and the [Auditor] made an
individualized determination concerning [the plaintiff's]
entitlement to" a certificate of financial eligibility. Id. at
726-727. See Hoffer v. Board of Registration in Med., 461 Mass.
11 451, 457 (2012). There is no other adequate remedy given that
review is not available under § 263, the applicable regulations,
or G. L. c. 30A. Likewise, G. L. c. 112, § 64, does not provide
for review as the license was not cancelled, revoked, or
suspended. And there is substantial injury because, due to the
decision, the plaintiff's ability to operate its established
private occupational school will expire even though it allegedly
is "financially qualified" within the meaning of the statute.
Filed within sixty days of the Auditor's November 15 e-mail
message, see G. L. c. 249, § 4, the complaint adequately stated
a claim for certiorari review. See Kasper v. Registrar of Motor
Vehicles, 82 Mass. App. Ct. 901, 901 (2012) (action in nature of
certiorari appropriate "[b]ecause there was no other avenue for
appeal"). Cf. Service Employees Int'l Union, Local 509 v.
Auditor of the Commonwealth, 476 Mass. 80, 84 (2016) (action in
nature of certiorari appropriate means by which to challenge
Auditor's determination whether privatization contract complied
with Pacheco Law).
We recognize that the judge was without guidance from
caselaw interpreting § 263 or its regulations. However, rather
than rely on the absence of an administrative record to require
the plaintiff to go through the application process again to
build one, the judge should have ordered whatever records the
Auditor had in connection with its information requests and
12 decision-making process to be "brought before [the court]."
G. L. c. 249, § 4. Although we express no opinion on the
question, the judge could then have reviewed those materials to
determine whether they established that the Auditor's decisions
to keep requesting information and then conclude that the
plaintiff had not complied with its requests, without (1)
acknowledging submissions like the July 8 filing, (2) explaining
its reasoning, or (3) giving the plaintiff a chance to comply in
the case of the bank account identified for the first time on
November 15, were "legally erroneous or so devoid of factual
support as to be arbitrary and capricious." Service Employees
Int'l Union, Local 509, 476 Mass. at 85. It may be that on such
review the judge becomes satisfied that the decisions were not
made for reasons "extraneous to the prescriptions of the
regulatory scheme" and "related, rather, to an ad hoc agenda,"
Fafard v. Conservation Comm'n of Reading, 41 Mass. App. Ct. 565,
568 (1996), which is what the complaint adequately alleges. See
Ballarin, Inc. v. Licensing Board of Boston, 49 Mass. App. Ct.
506, 513 (2000) (shifting rationale for board's decision
reinforced conclusion that decision was arbitrary and
capricious). And it may be that the plaintiff is not entitled
to the issuance of the requested certificate, see Roslindale
Motor Sales, Inc. v. Police Comm'r of Boston, 405 Mass. 79, 85
(1989). But it cannot be that the Auditor's decisions are not
13 subject to any review. "The integrity of a licensing scheme
depends upon standards that ensure fair and even-handed review
of applications by the [agency], and a framework for judicial
review of whether a particular decision is arbitrary and
capricious, or based upon error of law." Grenier v. Selectmen
of Shrewsbury, 80 Mass. App. Ct. 460, 464 (2011).
Counts three and four alleged a property interest in the
license of which the plaintiff was deprived without due process
of law. "As a matter of substantive due process principles
under both [State and Federal] Constitutions, an occupational
license constitutes a protected interest," Kewley v. Department
of Elementary & Secondary Educ., 86 Mass. App. Ct. 154, 161
(2014), because if the plaintiff is financially qualified as
alleged, the Auditor "shall notify the division of the
applicant's eligibility to apply for" license renewal (emphasis
added). G. L. c. 112, § 263 (d), second par. Compare
Roslindale Motor Sales, Inc., 405 Mass. at 82-85 (no protected
interest where "commissioner 'may' grant a license to a proper
person"). Accordingly, a hearing on the plaintiff's financial
eligibility to operate a private occupational school, along with
an adequate opportunity for judicial review, was
constitutionally required before the Auditor could refuse to
issue the requested certificate. Arno v. Alcoholic Beverages
Control Comm'n, 377 Mass. 83, 90-91 (1979). See Forsyth Sch.
14 for Dental Hygienists v. Board of Registration in Dentistry, 404
Mass. 211, 214 (1989).
Conclusion. For all these reasons, so much of the judgment
as dismissed counts one, five, and six of the verified complaint
is affirmed. So much of the judgment as dismissed counts two
through four is vacated, and the case is remanded for further
proceedings on those counts consistent with this memorandum and
order.
So ordered.
By the Court (Meade, Singh & Smyth, JJ.5),
Assistant Clerk
Entered: May 28, 2024.
5 The panelists are listed in order of seniority.