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Heery In ternatio nal, Inc. v . Mon tgome ry Coun ty, No. 15 , Sept. T erm, 20 04. ADMINISTRATIVE LAW - EXHAUSTION OF ADMINISTRATIVE REMEDIES AGENCY PALPABLY WITHOUT JURISDICTIO N OR A UTHO RITY TO HEAR CLAIM Montgom ery County (the " County") file d a claim in th e Coun ty's administrative dispute resolution process against two contractors, Heery International, Inc. and Hellmuth, Obata & Kassabaum, P.C. (collectively "Heery"), alleging damages arising from their mismanagement of other trade contractors during the construction of a detention center. Heery responded by filing an action in the Circuit Court for Montgomery County claiming that the Cou nty's administrative dispute resolution process did not have jurisdiction over claims brought by the Cou nty, and instead only contemplated claims initiated by a contractor against the C oun ty. In order to circumvent an administrative remedy, a party must demonstrate that an administrative agency is "palpably without jurisdiction" to hear the claim. An administrative agency is "palpably without jurisdiction" only if it clearly lacks fundamental subject matter jurisdiction or is clearly and unequivocally in violation of statutory or judicial authority. If the "jurisdictiona l" dispute is in essence an issue o f statutory interpretation, or if questions linger abou t the applicatio n of a statute or ordinance, those questions must first be decided in the ad ministra tive pro cess.

Circuit Co urt for Mo ntgomery C ounty Case # 245047

IN THE COURT OF APPEALS OF MARYLAND No. 15 September Term, 2004

HEER Y INT ERN ATIO NAL , INC., et al.

v.

MO NTG OM ERY COU NTY , MAR YLA ND, et al.

Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ.

Opinion by Harrell, J.

Filed:

December 6, 2004

This case repres ents an initiative by Heery International, Inc. ("Heery International") and Hellmuth, Oba ta & Kassaba um, P.C. ("HO K") (sometimes collectively referred to as "Heery") to circumvent Montgomery County's (the "County") administra tive dispute resolution process for claims relating to local public works contracts. They seek to truncate that process on the ground that the process and the County's designated administrative adjudicato r are "palpa bly without jurisdiction" to decide the particular dispute in this case. Heery sh all not su cceed . I. On 1 December 1989, Heery Program Management, Inc. entered into a contract with the County to provide construction management services relating to a proposed detention center in Clark sburg, M aryland. N ine years later, on 9 October 1998, that contract was assigned to the related e ntity of Heery International. Approximately one year earlier, HOK entered into a separate contract with the County to provide architectural and engineering services relating to the design of the detention center. Believing that it furthered the goal of facilitating construction of the detention center, the County aw arded sep arate contrac ts to various construction trade contractors rather than contracting with one prime contractor who th ereafter w ould arrang e for subc ontracts w ith more specialized tra de contrac tors. Unde r this "multi-prime" arrangem ent, Heery

International and HOK were responsible to the County to manage the various trade contractors, including preparing detailed schedules, determining the cause of delays, and managing payment and claim matters. Before it became aware of any alleged deficiencies

in Heery International's or HO K's perform ance, the C ounty paid Heery International mo re than $5,680,000 and HOK more than $5,370,00 0, representin g full payme nt for their services. In a letter dated 17 July 2003, the Co unty made a form al demand on Heery International and HOK for payment in the amounts of $2,450,959 and $3,804,163, resp ectiv ely. These amounts represented damage s the Cou nty allegedly suffered as a result of lost productivity and delay caused by Heery International and HOK's mismanagement of the trade contractors. The letter also demanded that Heery International and HOK, pursuant to provisions in their respective contracts with the County, provide a legal defense and indemnify the County with regard to claims totaling over $13 million lodged by some of the trade contractors.1 Moreover, the letter demanded an additional $915,168 for the actual legal costs incurred by the County, up to that point, in defense of the trade contractors' claims. The letter conclud ed by stating tha t, if the claims were not resolved within thirty days, the County would file its claims with the Coun ty's Director of the Depa rtment of P ublic Works and Transportation ("DPW&T"), as provided for by both Heery International's and

Included in both Heery International and HOK's contracts with the Cou nty were provisions requiring that each indemnify and provide legal defen se for the C ounty in regard to "any loss, cost, damage and other expenses, including attorney's fees and litigation expenses, suffered or incurred d ue to the contractor's negligence or failure to perform any of its contractual obligations." The contracts also stated that, at the County's request, "the contractor must defend the Coun ty in any action or suit brought against the County arising out of the contractor's negligence, errors, acts or omissions under this contract." 2

1

HK's contracts an d the M ontgom ery County Pro curemen t Regulations ("Procurement Regulations"). 2 The relevant provision of the Heery International contract3 stated: "8. DISPUTES. A ny dispute arising under this contract which is not disposed of by agreement must be decided under The M ontgomery Coun ty Code and The M ontgomery Coun ty Procur emen t Regu lations." Heery Internationa l and HO K, in letters dated 13 August 2003 and 12 August 2003, resp ectiv ely, denied resp onsibility for the County's substantive claims. They also denied that the County's claims were subject to the dispute resolution process outlined in the Montgom ery County C ode ("County Code") and Procurement Regulations. Although acknowledging that their respective contracts with the County authorized the use of the County administrativ e contract d ispute resolu tion proces s, Heery Intern ational and HOK claimed that the County Co de and the Procurem ent Regu lations applie d "solely to contractor claims agains t the Co unty and are inap plicable to claim s by the C ounty ag ainst a co ntractor ." Although the Coun ty Procurem ent Regu lations expre ssly allow the County to implead other responsible contract ors in to the adm inistrativ e pro cess initia ted a gain st the Cou nty by a contractor, Heery International an d HOK claimed tha t this mecha nism wa s not relevan t in their situation because the Co unty initiated the proceeding. In support of their assertion, the

At oral argument, coun sel for the County conce ded that, although the con tracts provided that any dispute would be decided under the County ordinance's administrative dispute resolution process, the provisions in the contracts did not enlarge the jurisdiction of the County administrative agency beyond that supported by the language of the ordinance and regulations.
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The HOK contract includes near-identical language. 3

contractors relied on Maryland case law that they claimed "construed identical language in the State's procurement regulations to exclude claims that are asserted by the gov ernme nt." On 14 August 2003, the County submitted its claims to its Dir ector of DPW &T. Four days later, Heery filed a complaint in the Circuit Court for Montgomery County seeking declaratory and equitable relief preventing the County or the Director from pursuing any remedy through the administrative dispute resolution process outlined in the County Code and Procurement Regulations. The County responded with a motion to dismiss, asserting that any question of an administrative agency's jurisdiction should be decided in the first instance during the pertinent administrative process. On 3 November 2003, the C ircuit Court denied Heery's reques t for equ itable reli ef, and entered a declaratory judgment that "the administrative agency is not `palpably without jurisdiction' to adjudicate the underlying dispute ." The court also den ied Heery's request for a stay of the administrative proceedings, concluding instead that they were required to exhaust their administrative remedies bef ore seeking judicial review or intervention. Heery noted an appeal to the Court of Special Appeals. Before the intermediate appellate court could decide the c ase, this Cou rt, on its initiative, issued a writ of certio rari, 381 Md. 324, 849 A.2d 473 (2004), in order to consider the following question, rephrased for the sa ke of cla rity: Did the trial court err in holding that the M ontgomery County Department of Public Works and Transportation was not "palpably without jurisdiction" to adjudica te a dispute b rought by the C ounty against a contractor? 4

II. Chapter 11B of the County Code, in conjunction with the County's Procurement Regulations, outlines the administrative dispute resolution process for disputes arising between contract ors a nd th e Co unty. 4 Mont. Co. Code

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