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

• Court: Superior Court of Delaware
• Decided: October 24, 2023
• Docket: S23M-06-018 CAK
• Status: Published

Opinion

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

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.

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.

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